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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, 2005
Commission file number 1-11071
UGI CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Pennsylvania 23-2668356
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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:
NAME OF EACH EXCHANGE
TITLE OF CLASS ON WHICH REGISTERED
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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 if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes [X] No [ ].
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X].
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. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes [X] No [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Securities Exchange Act of 1934). Yes [ ] No [X].
The aggregate market value of UGI Corporation Common Stock held by nonaffiliates
of the registrant on March 31, 2005 was $2,312,028,386.
At November 1, 2005 there were 104,886,693 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, 2005 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 22, 2006 are incorporated
by reference into Part III of this Form 10-K.
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TABLE OF CONTENTS
Page
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PART I:.................................................................. 1
Items 1. and 2. Business and Properties................................ 1
Item 1A. Risk Factors........................................... 24
Item 1B. Unresolved Staff Comments.............................. 28
Item 3. Legal Proceedings...................................... 28
Item 4. Submission of Matters to a Vote of Security Holders.... 32
PART II:................................................................. 32
Item 5. Market for Registrant's Common Equity, Related
Stockholder Matters and Issuer Purchases of
Equity Securities...................................... 32
Item 6. Selected Financial Data................................ 34
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 35
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk................................................... 35
Item 8. Financial Statements and Supplementary Data............ 35
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.................... 35
Item 9A. Controls and Procedures................................ 35
Item 9B. Other Information...................................... 36
PART III:................................................................ 37
Item 10. Directors and Executive Officers of Registrant......... 37
Item 11. Executive Compensation................................. 37
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters............. 37
PAGE
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Item 13. Certain Relationships and Related Transactions......... 37
Item 14. Principal Accountant Fees and Services................. 37
PART IV:................................................................. 42
Item 15. Exhibits and Financial Statement Schedules............. 42
Signatures............................................. 55
Index to Financial Statements and Financial Statement Schedules.......... F-2
(ii)
PART I:
ITEMS 1. AND 2. BUSINESS AND PROPERTIES
CORPORATE OVERVIEW
UGI Corporation is a holding company that distributes and markets energy
products and related services through subsidiaries and joint venture affiliates.
We are a domestic and international retail distributor of propane and butane
("LPG"); a provider of natural gas and electric service through regulated local
distribution utilities; a generator of electricity through our ownership
interests in electric generation facilities; a regional marketer of energy
commodities; and a provider of heating and cooling services. Our subsidiaries
operate principally in the following five business segments:
- AmeriGas Propane
- International Propane
- Gas Utility
- Electric Utility
- Energy Services
The AmeriGas Propane segment consists of the propane distribution business
of AmeriGas Partners, L.P. ("AmeriGas Partners" or the "Partnership"), which is
the nation's largest retail propane distributor. 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 44% ownership
interest in the Partnership; the remaining interest is publicly held. See Note 1
to the Company's Consolidated Financial Statements.
The International Propane segment consists of the LPG distribution
businesses of our subsidiaries Antargaz, a French societe anonyme ("Antargaz"),
and Flaga GmbH, an Austrian limited liability company ("Flaga"), and our joint
venture in China. Antargaz is one of the largest retail distributors of LPG in
France. Flaga is the largest retail LPG distributor in Austria and one of the
largest retail distributors in the Czech Republic and Slovakia. In China, we
participate in an LPG joint venture business in the Nantong region.
The Gas Utility segment consists of the regulated natural gas distribution
business ("Gas Utility") of our subsidiary UGI Utilities, Inc. ("Utilities"),
serving approximately 307,000 customers in eastern Pennsylvania. The Electric
Utility segment consists of the regulated electric distribution business
("Electric Utility") of Utilities, serving approximately 62,000 customers in
northeastern Pennsylvania. Gas Utility and Electric Utility are regulated by the
Pennsylvania Public Utility Commission ("PUC").
The Energy Services segment consists of energy-related businesses conducted
by a number of subsidiaries. These businesses include (i) energy marketing in
the eastern region of the United States under the trade names GASMARK(R) and
POWERMARK(R), (ii) operating electric generation assets in
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Pennsylvania, and (iii) operating liquefied natural gas and propane storage and
peak-shaving facilities in eastern Pennsylvania. Energy Services also operates a
propane import and storage facility in Chesapeake, Virginia.
UGI also owns and operates a heating, ventilation, air conditioning and
refrigeration service business serving customers in the Mid-Atlantic region.
BUSINESS STRATEGY
Since 1999, our strategic goals have been to grow earnings per share and
dividends by focusing on the Company's core competencies as a marketer and
distributor of energy products and services. 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 our existing businesses, as well as related and
complementary businesses.
CORPORATE INFORMATION
UGI was incorporated in Pennsylvania in 1991. UGI Corporation is not
subject to regulation by the PUC. It is also exempt from registration as a
holding company and not otherwise subject to the Public Utility Holding Company
Act of 1935 ("PUHCA 1935"), except for Section 9(a)(2), which regulates the
acquisition of voting securities of an electric or gas utility company. The
Energy Policy Act of 2005 ("EPAct 2005") repealed PUHCA 1935 effective February
8, 2006, and enacted the Public Utility Holding Company Act of 2005 ("PUHCA
2005") effective February 8, 2006. UGI Corporation will be a "holding company"
under PUHCA 2005 subject to certain obligations to maintain books and records
relevant to the rates charged by Utilities and its other subsidiaries engaged in
wholesale electric marketing, and to disclose those books and records at the
request of the Federal Energy Regulatory Commission ("FERC") and the PUC. UGI
expects that its obligations under PUHCA 2005 will not be materially different
from its current books and records obligations under federal and state law.
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.
The Company's corporate website can be found at www.ugicorp.com. The
Company makes available free of charge at this website (under the "Investor
Relations and Corporate Governance-SEC filings" caption) copies of its reports
filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange
Act of 1934, including its Annual Report on Form 10-K, its Quarterly Reports on
Form 10-Q and its Current Reports on Form 8-K. The Company's Principles of
Corporate Governance, Code of Ethics for the Chief Executive Officer and Senior
Financial Officers, Code of Business Conduct and Ethics for Directors, Officers
and Employees, and charters of the Corporate Governance, Audit and Compensation
and Management Development Committees of the Board of Directors are also
available on the Company's website, under the caption "Investor Relations and
Corporate Governance-Corporate Governance." All of these documents are also
available free of
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charge by writing to Robert W. Krick, Vice President and Treasurer, UGI
Corporation, P.O. Box 858, Valley Forge, PA 19482.
FORWARD-LOOKING STATEMENTS
Information contained in this Annual Report on Form 10-K may contain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such
statements use forward-looking words such as "believe," "plan," "anticipate,"
"continue," "estimate," "expect," "may," "will," or other similar words. These
statements discuss plans, strategies, events or developments that we expect or
anticipate will or may occur in the future.
A forward-looking statement may include a statement of the assumptions or
bases underlying the forward-looking statement. We believe that we have chosen
these assumptions or bases in good faith and that they are reasonable. However,
we caution you that actual results almost always vary from assumed facts or
bases, and the differences between actual results and assumed facts or bases can
be material, depending on the circumstances. When considering forward-looking
statements, you should keep in mind the following important factors which could
affect our future results and could cause those results to differ materially
from those expressed in our forward-looking statements: (1) adverse weather
conditions resulting in reduced demand; (2) cost volatility and availability of
propane and other LPG, oil, electricity and natural gas and the capacity to
transport product to our market areas; (3) changes in domestic and foreign laws
and regulations, including safety, tax and accounting matters; (4) competitive
pressures from the same and alternative energy sources; (5) failure to acquire
new customers thereby reducing or limiting any increase in revenues; (6)
liability for environmental claims; (7) increased customer conservation measures
due to high energy prices and improvements in energy efficiency and technology
resulting in reduced demand; (8) adverse labor relations; (9) large customer,
counterparty or supplier defaults; (10) liability in excess of insurance
coverage for personal injury and property damage arising from explosions and
other catastrophic events, including acts of terrorism, resulting from operating
hazards and risks incidental to generating and distributing electricity and
transporting, storing and distributing natural gas, propane and other LPG; (11)
political, regulatory and economic conditions in the United States and in
foreign countries, including foreign currency rate fluctuations, particularly in
the euro; (12) reduced access to capital markets and interest rate fluctuations;
(13) reduced distributions from subsidiaries; and (14) the timing and success of
the Company's efforts to develop new business opportunities.
These factors are not necessarily all of the important factors that could
cause actual results to differ materially from those expressed in any of our
forward-looking statements. Other unknown or unpredictable factors could also
have material adverse effects on future results. We undertake no obligation to
update publicly any forward-looking statement whether as a result of new
information or future events except as required by the federal securities laws.
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AMERIGAS PROPANE
Our domestic propane distribution business is conducted through AmeriGas
Partners. As of September 30, 2005, 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 44% effective
interest in the income or loss of the Partnership, due to the outstanding
publicly-owned limited partnership interests. See Note 1 to the Company's
Consolidated Financial Statements.
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, 2005, the Partnership served approximately 1.3 million
customers from district locations in 46 states. In addition to distributing
propane, 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 47 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 87%
of the Partnership's fiscal year 2005 sales (based on gallons sold) were to
retail accounts and approximately 13% were to wholesale customers. Sales to
residential customers in fiscal 2005 represented approximately 41% of retail
gallons sold; commercial/industrial customers 34%; motor fuel customers 14%; and
agricultural customers 6%. Transport gallons, which are large-scale deliveries
to retail customers other than residential, accounted for 5% of 2005 retail
gallons. No single customer represents, or is anticipated to represent, more
than 5% of the Partnership's consolidated revenues.
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The Partnership continues to expand its PPX Prefilled Propane Xchange
program ("PPX(R)"). At September 30, 2005, PPX was available at approximately
21,800 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 or to purchase filled cylinders at various retail
locations such as home centers, mass merchandisers and grocery and convenience
stores.
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. 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,
2005, over 90% of the Partnership's propane supply was purchased under supply
agreements with terms of 1 to 3 years. The availability of propane supply is
dependent upon, among other things, the severity of winter weather, the price
and availability of competing fuels such as natural gas and crude oil, and the
availability of imported supply. 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
2006. 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 Products North America Inc. and BP
Canada Energy Marketing Corp. (collectively), Enterprise Products Operating LP
and Targa Midstream Services LP (formerly, Dynegy Liquids Marketing and Trade),
no single supplier provided more than 10% of the Partnership's total propane
supply in fiscal year 2005. In certain market areas, however, some suppliers
provide more than 50% of the Partnership's requirements. Disruptions in supply
in these areas could also have an adverse impact on the Partnership's margins.
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The Partnership's supply contracts typically provide for pricing based upon
(i) index formulas using the current prices established at major storage points
such as Mont Belvieu, Texas, or Conway, Kansas, or (ii) posted prices at the
time of delivery. In addition, some agreements provide maximum and minimum
seasonal purchase volume 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 large storage facilities in Arizona and
Pennsylvania, as well as at smaller facilities in 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, increases in
the prices of base commodities such as crude oil and natural gas, or other
unforeseen events. The General Partner has adopted supply acquisition and
product cost risk management practices to reduce the effect of volatility on
selling prices. 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."
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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
Mont Belvieu Conway
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
Oct-03 55.44 65.21
Nov-03 54.66 58.12
Dec-03 62.87 64.15
Jan-04 74.35 67.56
Feb-04 69.98 61.99
Mar-04 58.64 56.35
Apr-04 60.62 58.55
May-04 67.65 64.37
Jun-04 67.12 64.27
Jul-04 74.21 71.65
Aug-04 83.84 86.44
Sep-04 80.18 81.98
Oct-04 90.48 93.75
Nov-04 86.27 92.24
Dec-04 77.88 81.95
Jan-05 73.56 73.86
Feb-05 75.77 73.30
Mar-05 87.61 85.07
Apr-05 85.44 84.14
May-05 79.55 81.47
Jun-05 81.87 85.77
Jul-05 84.55 89.00
Aug-05 94.16 96.07
Sep-05 112.57 111.96
[PROPANE SPOT PRICES GRAPH]
COMPETITION
Propane competes with other sources of energy, some of which are less
costly for equivalent energy value. Propane distributors compete for customers
with 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
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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
program and the Strategic Accounts program (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. 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,
2003 domestic retail propane sales (annual sales for other than chemical uses)
totaled approximately 11.8 billion gallons and, based on LP-GAS magazine
rankings, 2004 sales volume of the ten largest propane companies (including
AmeriGas Partners) represented approximately 36% of domestic retail sales. Based
upon 2003 sales data, management believes the Partnership's 2005 retail volume
represents approximately 9% of domestic retail sales.
PROPERTIES
As of September 30, 2005, the Partnership owned approximately 79% of its
district locations. The Partnership subleases three one-million barrel
underground storage caverns in Arizona to store propane and butane for itself
and third parties, and it leases a 1.3 million gallon storage terminal in
Pennsylvania. In addition, the Partnership also owns a 600,000 barrel
refrigerated, above-ground storage facility located on leased property in
California. The California facility, which the Partnership operates, is
currently leased to several refiners for the storage of butane.
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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, 2005, the
Partnership operated a transportation fleet with the following assets:
APPROXIMATE QUANTITY & EQUIPMENT TYPE % OWNED % LEASED
- ------------------------------------- ------- --------
520 Trailers 94 6
260 Tractors 35 65
180 Railroad tank cars 0 100
2,600 Bobtail trucks 13 87
300 Rack trucks 10 90
2,150 Service and delivery trucks 16 84
Other assets owned at September 30, 2005 included approximately 840,000
stationary storage tanks with typical capacities of 121 to 2,000 gallons and
approximately 2.3 million portable propane cylinders with typical capacities of
1 to 120 gallons. The Partnership also owned approximately 5,300 large volume
tanks which are used for its own storage requirements. The Partnership's
subsidiary, AmeriGas Propane, L.P. ("AmeriGas OLP") has debt secured by liens
and mortgages on its real and personal property. AmeriGas OLP owns approximately
68% 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" name 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 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 58% of the Partnership's
fiscal year 2005 retail sales volume occurring during the five-month peak
heating season from November through March. As a result of this seasonality,
sales are higher in the Partnership's first and second fiscal quarters (October
1
9
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 and the operation of bulk
storage LPG terminals. 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 11 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, National Fire Protection Association ("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 by all states in which the Partnership operates. The latest version of
NFPA Pamphlet No. 58, adopted by a number of states, requires certain stationary
cylinders that are filled in place to be re-certified periodically, depending on
the age of the cylinders. Management believes that the policies and 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 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. Operators are subject to the Pipeline Safety
Improvement Act of 2002, which, among other things, protects from adverse
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employment actions employees who provide information to their employers or to
the federal government as to pipeline safety.
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, 2005, the General
Partner had approximately 6,000 employees, including approximately 465
part-time, seasonal and temporary 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.
INTERNATIONAL PROPANE
We conduct our international LPG distribution business principally in
Europe through our wholly owned subsidiaries, Antargaz and Flaga. Antargaz
operates in France; Flaga operates in Austria, the Czech Republic and Slovakia.
During fiscal year 2005, Antargaz and Flaga sold approximately 338 million and
37 million gallons of LPG, respectively. Our joint venture in China sold
approximately 18 million gallons of LPG during fiscal year 2005.
ANTARGAZ
PRODUCTS, SERVICES AND MARKETING
Antargaz' customer base consists of residential, commercial, agricultural
and motor fuel customer accounts that use LPG for space heating, cooking, water
heating, process heat and transportation. Antargaz sells LPG in cylinders, and
in small, medium and large bulk volumes stored in tanks. Sales of LPG are also
made to service stations to accommodate vehicles that run on LPG. Antargaz sells
LPG in cylinders to approximately 24,000 retail outlets, such as supermarkets,
individually owned stores and gas stations. At September 30, 2005, Antargaz had
approximately 215,000 bulk customers and approximately 5 million cylinders in
circulation. Approximately 64% of Antargaz' fiscal year 2005 sales (based on
volumes) were cylinder and small bulk, 13% medium bulk, 21% large bulk, and 2%
to service stations for automobiles. Antargaz also engages in wholesale sales of
LPG and provides logistic, storage and other services to third-party LPG
distributors. No single customer represents, or is anticipated to represent,
more than 5% of total revenues for Antargaz.
Sales to small bulk customers represent the largest segment of Antargaz'
business in terms of volume, revenue and margin. Small bulk customers are
primarily residential and small business users, such as restaurants that use LPG
mainly for heating and cooking. Small bulk customers also include
municipalities, which use LPG for heating sports arenas and swimming pools, and
the poultry industry, for use in chicken brooding.
The principal end-users of cylinders are residential customers who use LPG
supplied in this form for domestic applications such as cooking and heating.
Butane-filled cylinders accounted for approximately 61% of LPG cylinders for
fiscal year 2005, with propane-filled cylinders accounting for the remainder.
Propane-filled cylinders are also used to supply fuel for forklift trucks. The
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demand for filled cylinders has been declining, due to customers gradually
changing to other household energy sources for heating and cooking, such as
natural gas. Antargaz is seeking to increase demand for butane and
propane-filled cylinders through marketing and product innovations.
Medium bulk customers use propane only, and consist mainly of large
residential developments such as housing projects, hospitals, municipalities and
medium-sized industrial and agricultural enterprises. Large bulk customers are
primarily companies that use LPG in their industrial processes and large
agricultural companies.
LPG SUPPLY AND STORAGE
Antargaz has an agreement with Totalgaz for the supply of butane and
propane, with pricing based on internationally quoted market prices. Under this
agreement, 80% of Antargaz' requirements for butane are guaranteed until June
2006 and 50% of its requirements for propane are guaranteed until June 2007.
Requirements are fixed annually, and Antargaz is free to develop other sources
of supply. For the 2005 fiscal year, Antargaz purchased approximately 97% of its
butane needs and 19% of its propane needs from Totalgaz. Antargaz also purchases
propane on the international market and, to a lesser degree, purchases butane on
the domestic market, under term agreements with international oil and gas
trading companies such as SHV Gas Supply and Trading, Shell International
Trading and Shipping Company Ltd. ("Stasco") and Vitol S.A. In addition,
purchases are made on the spot market from international oil and gas companies
such as Den Norske Stats Oldeselshap ("Statoil") and Sonatrach BV, and to a
lesser extent from domestic refineries, including those operated by BP France
and Esso SAF.
Antargaz has five primary storage facilities, including three which are
located close to deep sea harbor points, and 26 secondary storage facilities. It
also manages an extensive logistics and transportation network. Access to harbor
points allows Antargaz to diversify its LPG supplies through imports. LPG stored
in primary storage facilities is transported to smaller storage facilities by
rail, sea and road. At the secondary storage facilities, LPG is filled into
cylinders or trucks equipped with tanks and then delivered to customers.
COMPETITION
The LPG market in France is mature, with limited future growth expected.
Sales volumes are affected principally by the severity of the weather and
customer migration to alternative energy forms, including natural gas and
electricity. Antargaz competes in all product markets on a national level
principally with three LPG distribution companies, Totalgaz (owned by Total
France), Butagaz (owned by Societe des Petroles Shell, "Shell") and Compagnie
des Gaz de Petrole Primagaz (an independent supplier owned by SHV Holding NV),
as well as with a smaller competitor, Vitogaz. Competitive conditions in the
French LPG market are undergoing change. Shell has announced that it is selling
its worldwide LPG business, including Butagaz. In addition, some supermarket
chain stores have begun competing in the cylinder market. As a result of these
changes, we expect a greater level of competition in the French LPG market. On a
regional level, Antargaz competes with Repsol France S.A. in markets other than
auto gas. Antargaz' competitors are generally affiliates of its LPG suppliers.
As a result, its competitors may obtain product at more competitive prices.
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SEASONALITY
Because a significant amount of LPG is used for heating, demand is
typically higher during the colder months of the year. Approximately 68% of
retail sales volume for fiscal year 2005 occurred during the six months of
October through March.
GOVERNMENT REGULATION
Antargaz' business is subject to various laws and regulations at the
national and European levels with respect to protection of the environment, the
storage and handling of hazardous materials, the discharge of contaminants into
the environment and the safety of persons and property. Following an accident in
2001 at an unrelated chemical factory in Toulouse, France, new regulations were
adopted relating to the safety risks of operations, such as Antargaz', which
involve the storage of large amounts of flammable substances.
PROPERTIES
Antargaz has five primary storage facilities consisting of underground
caverns in geological formations, with the exception of Norgal, which is a
refrigerated facility, and Cobogal, which is an aerial pressure facility. The
table below sets forth details of each of these facilities.
Antargaz Storage Antargaz Storage
Capacity - Propane Capacity - Butane
Ownership % (m3)(1) (m3)(1)
----------- ------------------ -----------------
Norgal 52.7% 22,600 8,900
Geogaz Lavera 16.7 17,400 32,500
Donges 50.0(2) 30,000 0
Geovexin 44.9 54,000 0
Cobogal 15.0 1,300 900
- ----------
(1) Cubic meters.
(2) Pursuant to a contractual arrangement with the owner.
Antargaz has 26 secondary storage facilities, 14 of which are wholly-owned.
The others are partially-owned, through joint ventures.
EMPLOYEES
At September 30, 2005, Antargaz had approximately 1,200 employees.
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FLAGA GMBH
Flaga distributes LPG principally in Austria, and through its subsidiaries,
in the Czech Republic and Slovakia, for residential, commercial, industrial and
auto gas applications. During fiscal year 2005, Flaga distributed approximately
37 million gallons of LPG. Flaga operates from 4 distribution locations in
Austria, 2 in the Czech Republic and 2 in Slovakia. In addition, Flaga has 3
sales offices in the Czech Republic. As of September 30, 2005, Flaga had
approximately 350 employees.
Flaga is the largest distributor of LPG in Austria with an estimated 22%
overall market share, serving residential, commercial and industrial customers.
The retail propane industry in Austria is mature, with slight declines in
overall demand in recent years, due primarily to the expansion of natural gas.
Competition for renewals and for new customer installations is based on contract
terms as well as on product prices. Much of Flaga's Austrian cylinder business
is conducted through approximately 530 neighborhood resellers with whom Flaga
has a long business relationship. Flaga competes with other propane marketers,
including competitors located in other eastern European countries. Flaga also
competes with providers of other sources of energy, principally natural gas,
electricity and wood.
Flaga is also the largest distributor of LPG in the Czech Republic with an
estimated 14% market share. The Czech market represents approximately 40% of
Flaga's total volume. 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 that it is the second
largest distributor of LPG in Slovakia with an estimated 21% market share.
GAS UTILITY
SERVICE AREA; REVENUE ANALYSIS
Gas Utility distributes natural gas to approximately 307,000 customers in
portions of 15 eastern and southeastern Pennsylvania counties through its
distribution system of approximately 5,000 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 2005 fiscal year was
approximately 84.7 billion cubic feet ("bcf"). System sales of gas accounted for
approximately 41% of system throughput, while gas transported for residential,
commercial and industrial customers (who bought their gas from others) accounted
for approximately 59% of system throughput.
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SOURCES OF SUPPLY AND PIPELINE CAPACITY
Gas Utility meets its service requirements by utilizing a diverse mix of
natural gas purchase contracts with marketers and producers, along with 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, Gas Utility 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 2005, Gas Utility purchased approximately 40 bcf of
natural gas for sale to retail core market and off-system sales customers.
Approximately 80% of the volumes purchased were supplied under agreements with
ten suppliers. The remaining 20% of gas purchased was supplied by approximately
20 producers and marketers. Gas supply contracts are generally no longer than
one year.
SEASONAL VARIATION
Because many of its customers use gas for heating purposes, Gas Utility
sales are seasonal. Approximately 57% of fiscal year 2005 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, Utilities is the only
regulated gas distribution utility having the right, granted by the PUC or by
law, to provide gas distribution services. Since the 1980s, larger commercial
and industrial customers have been able to purchase gas supplies from entities
other than Gas Utility. As a result of Pennsylvania's Natural Gas Choice and
Competition Act ("Gas Competition Act"), effective July 1, 1999 all of Gas
Utility's customers, including residential and smaller commercial and industrial
customers ("Core Market Customers"), have been afforded this opportunity. Under
the Gas Competition Act, retail customers may purchase their natural gas from a
supplier other than Gas Utility. As of October 2005, one marketer provides gas
supplies to approximately 3,800 Core Market Customers. Gas Utility provides
transportation services for its 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 the alternate fuel. Margin from these customers, therefore, is
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affected by the difference or "spread" between the customers' delivered cost of
gas and the customers' delivered cost of the alternate fuel, as well as the
frequency and duration of interruptions. See "Gas Utility and Electric Utility
Regulation and Rates - Gas Utility Rates." In accordance with the PUC's June 29,
2000 Gas Restructuring Order, margin from certain of these customers (who use
pipeline capacity contracted by Gas Utility to serve retail customers) is used
to reduce purchased gas cost rates for retail customers. Approximately 27% of
Gas Utility's commercial and industrial customers, including certain customers
served under interruptible rates, have locations which afford them the
opportunity, although none have 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-year to twenty-year terms. Included in these two customer groups are Gas
Utility's ten largest customers in terms of annual volumes. All of these
customers have contracts, seven of which extend beyond Fiscal 2006. No single
customer represents, or is anticipated to represent, more than 5% of Gas
Utility's total revenues.
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 2006. Supply mix is diversified, market priced,
and delivered pursuant to a number of long-term and short-term firm
transportation and storage arrangements, including transportation contracts held
by some of Gas Utility's larger customers. Hurricane activity during late fiscal
year 2005 caused temporary losses of gas supply and temporary pipeline force
majeure declarations. We do not expect these disruptions to adversely affect Gas
Utility's ability to obtain adequate supply.
During fiscal year 2005, Gas Utility supplied transportation service to two
major co-generation installations and one electric generation facility. 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 9,900 residential heating customers during fiscal year 2005. 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
approximately 1,400.
Gas Utility continues to monitor and participate, where appropriate, in
rulemaking and individual rate and tariff proceedings before 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.
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
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transportation capacity on all pipelines serving it, 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 UTILITY
SERVICE AREA; SALES ANALYSIS
Electric Utility supplies electric service to approximately 62,000
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 2005, about 53% of sales volume came from residential customers, 35% from
commercial customers and 12% from industrial customers. Electricity transported
for customers who purchased their power from other suppliers represented less
than 1% of fiscal year 2005 sales volume.
SOURCES OF SUPPLY
Electric Utility has third-party generation supply contracts in place for
substantially all of its expected energy requirements for fiscal year 2006.
Electric Utility distributes both electricity that it purchases from others and
electricity that customers purchase from other suppliers. At September 30, 2005,
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. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Market Risk Disclosures" for a discussion of risks related to Electric Utility's
supply contracts.
COMPETITION
As a result of the Electricity Generation Customer Choice and Competition
Act ("ECC Act") that became effective in 1997, all Pennsylvania retail electric
customers have the ability to choose their electric generation supplier. Under
the ECC Act, Electric Utility remains the provider of last resort ("POLR") for
its customers who do not choose an alternate electric generation supplier. The
terms and conditions under which Electric Utility provides POLR service, and
rules governing the rates that may be charged for such service, have been
established in a series of PUC-approved settlements, the most recent of which
became effective in June 2004 (collectively, the "POLR Settlement"). Consistent
with the terms of the POLR Settlement, Electric Utility's POLR rates were
increased beginning January 2005 and Electric Utility is permitted, but not
required, to further increase its POLR rates in January 2006. Electric Utility
is the only regulated electric utility having the right, granted by the PUC or
by law, to distribute electricity in its service territory. Sales of electricity
for residential heating purposes accounted for approximately 19% of total sales
of electricity during the 2005 fiscal year. Electricity competes with natural
gas, oil, propane and other heating fuels for this use.
17
GAS UTILITY AND ELECTRIC UTILITY REGULATION AND RATES
PENNSYLVANIA PUBLIC UTILITY COMMISSION JURISDICTION
Utilities' gas and electric utility operations 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.
ELECTRIC TRANSMISSION AND WHOLESALE POWER SALE RATES
FERC has jurisdiction over the rates and terms and conditions of service of
electric transmission facilities used for wholesale or retail choice
transactions. Electric Utility owns electric transmission facilities that are
within the control area of the PJM Interconnection, LLC ("PJM") and are
dispatched in accordance with a FERC-approved open access tariff and associated
agreements administered by PJM. Electric Utility receives certain revenues
collected by PJM when its transmission facilities are used by third parties.
In addition, FERC has jurisdiction over the rates and terms and conditions
of service of wholesale sales of electric capacity and energy. Electric Utility
has a tariff on file with FERC pursuant to which it may make power sales to
wholesale customers at market-based rates.
GAS UTILITY RATES
The most recent general base rate increase for Gas Utility became effective
in 1995. A rate increase for firm-residential, commercial and industrial
customers ("retail core-market") became effective October 1, 2000. Effective
December 1, 2001, Gas Utility was required to reduce its Purchased Gas Cost
("PGC") rates to retail core-market customers by an amount equal to the margin
it receives from customers served under interruptible rates to the extent
interruptible customers use capacity contracted for by Gas Utility for retail
core-market customers.
Gas Utility's gas service tariff contains PGC rates that provide for annual
increases or decreases in the rate per thousand cubic feet ("mcf") that Gas
Utility charges for natural gas sold by it, to reflect Gas Utility's projected
cost of purchased gas. PGC rates may also be adjusted quarterly, or, under
certain conditions monthly, to reflect the actual cost of gas. Quarterly
adjustments become effective on one day's notice to the PUC and are subject to
review during the next annual PGC filing. 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. Gas Utility has two PGC rates. PGC (1) is applicable to small,
firm, retail 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 qualify for the PGC (2)
rate. As described above, Gas Utility's PGC rates are adjusted to reflect
margins, if any, from interruptible rate customers who do not obtain their own
pipeline capacity.
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ELECTRIC UTILITY RATES
The most recent general base rate increase for Electric Utility became
effective in 1996. Electric Utility's POLR rates were increased beginning
January 2005, and Electric Utility is permitted, but not required, to further
increase its POLR rates in January 2006. Pursuant to the requirements of the ECC
Act, the PUC is currently developing POLR regulations that are expected to
further define POLR service obligations and pricing. As of September 30, 2005,
fewer than 1% of Electric Utility's customers have an alternative electricity
generation supplier.
FERC MARKET MANIPULATION RULES AND OTHER FERC ENFORCEMENT AND REGULATORY POWERS
Both Gas Utility and Electric Utility are subject to FERC regulations
governing the manner in which certain jurisdictional sales or transportation are
conducted. Section 315 of EPAct 2005 became effective on August 8, 2005 and
prohibits any manipulative or deceptive devices or contrivances in connection
with the purchase or sale of natural gas, electric energy or transportation or
transmission services subject to the jurisdiction of FERC. FERC is in the
process of adopting regulations to implement this statute, which would apply to
interstate transportation and sales by the Electric Utility, and to a much more
limited extent, to certain sales and transportation by the Gas Utility that are
subject to FERC. Gas Utility and Electric Utility are subject to certain other
regulations and obligations for FERC-regulated activities and EPAct 2005 also
conferred upon FERC substantially expanded authority to impose civil penalties
for the violation of any regulations, orders or provisions under the Federal
Power Act and Natural Gas Act.
In addition, EPAct 2005 amended Section 203 of the Federal Power Act to
expressly require utility holding companies like UGI to obtain prior FERC
approval for utility or holding company mergers or acquisitions of utilities or
utility property valued at $10 million or more.
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 effects
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 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 and FERC, 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. Utilities is subject to the requirements of the federal
Resource Conservation and Recovery Act, CERCLA and comparable
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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."
EMPLOYEES
At September 30, 2005, Utilities had approximately 1,000 employees.
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ENERGY SERVICES
We operate the energy-related businesses described below through various
subsidiaries.
NATURAL GAS AND ELECTRICITY MARKETING
UGI Energy Services, Inc. ("ESI") conducts our energy marketing business
under the trade names GASMARK(R) and POWERMARK(R). GASMARK(R) sells natural gas
directly to approximately 7,100 commercial and industrial customers in
Pennsylvania, New Jersey, Delaware, Maryland, Virginia, New York, Ohio, North
Carolina and the District of Columbia through the use of the transportation
systems of 30 utility systems. ESI also sells fuel oil, electricity and LPG to
commercial and industrial customers in Pennsylvania, New Jersey and Maryland.
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 and have nominal credit risk. ESI
also bears the risk for balancing and delivering natural gas to its customers
under various pipelines and utility company tariffs.
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 uses credit insurance to mitigate a portion of the risk of
customer defaults. ESI also requires credit support from certain customers in
higher-risk transactions. This credit support can take the form of prepayments,
bonds and letters of credit. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations-Market Risk Disclosures."
PEAKING AND ASSET MANAGEMENT SERVICES
ESI 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. It also operates a propane
storage and rail trans-shipment terminal in Steelton, Pennsylvania. These assets
are used in ESI's energy peaking business that provides supplemental energy,
primarily LNG and propane-air mixtures, to gas utilities at times of peak
demand. ESI also manages natural gas pipeline and storage assets for Gas
Utility.
In November 2004, ESI acquired a propane import and trans-shipment facility
located in Chesapeake, Virginia. ESI sells propane from this facility to large
multi-state retailers including AmeriGas Partners, and to smaller local dealers
throughout Virginia and northeast North Carolina.
ELECTRIC GENERATION
In June 2003, we increased our ownership interest in the Conemaugh
generating station ("Conemaugh") from 1.11% to approximately 6% (102 megawatts).
Conemaugh is a 1,711
21
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, we are a 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.
We operate these generation assets. A subsidiary of Allegheny Energy, Inc. is
the other general partner in Energy Ventures. Under the joint venture agreement,
we have the right to purchase one-half the output of Energy Ventures' generation
at cost. The output from these generation assets is sold by our subsidiary UGI
Development Company ("UGID") on the spot market and under fixed-term contracts.
UGID has FERC authority to sell power at market-based rates. We also have the
right to require an affiliate of Allegheny Energy, Inc. ("Allegheny") to
purchase our ownership interest in Energy Ventures. Allegheny has a
corresponding call right on our interest in Energy Ventures. These put/call
rights are effective for a 90-day period commencing January 23, 2006. The
exercise of these rights, if any, is not expected to have a material effect on
our financial position or results of operations.
GOVERNMENT REGULATION
FERC has jurisdiction over the rates and terms and conditions of service of
wholesale sales of electric capacity and energy. As stated above, UGID has a
tariff on file with FERC pursuant to which it may make power sales to wholesale
customers at market-based rates. UGID is also subject to FERC market
manipulation rules and enforcement and regulatory powers. See "GAS UTILITY AND
ELECTRIC UTILITY REGULATION AND RATES- FERC Market Manipulation Rules and Other
FERC Enforcement and Regulatory Powers."
The 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. A renewal application for this permit was filed in 2005. 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.
ESI is subject to various federal, state and local environmental, safety
and transportation laws and regulations governing the storage, distribution and
transportation of propane and the operation of bulk storage LPG terminals. 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, ESI owns and operates real property where
such hazardous substances may exist.
22
HVAC/R
We conduct a heating, ventilation, air-conditioning, refrigeration and
electrical contracting service business ("HVAC/R") serving portions of
Utilities' gas service area and adjacent Mid-Atlantic region market areas,
including the Philadelphia suburbs and portions of New Jersey and northern
Delaware. This business serves more than 150,000 customers in residential,
commercial, industrial and new construction markets. During fiscal year 2005,
HVAC/R generated approximately $65 million in revenues and employed
approximately 450 people.
BUSINESS SEGMENT INFORMATION
The table stating the amounts of revenues, operating income (loss) and
identifiable assets attributable to each of UGI's reportable business segments,
and to the geographic areas in which we operate, for the 2005, 2004 and 2003
fiscal years appears in Note 18 to the Consolidated Financial Statements
contained in our 2005 Annual Report to Shareholders and is incorporated in this
Report by reference.
EMPLOYEES
At September 30, 2005, UGI and its subsidiaries had approximately 9,300
employees.
23
ITEM 1A. RISK FACTORS
DECREASES IN THE DEMAND FOR OUR ENERGY PRODUCTS AND SERVICES BECAUSE OF
WARMER-THAN-NORMAL HEATING SEASON WEATHER ADVERSELY AFFECT OUR RESULTS OF
OPERATIONS.
Because many of our customers rely on our energy products and services to
heat their homes and businesses, our results of operations are adversely
affected by warmer-than-normal heating season weather. Weather conditions have a
significant impact on the demand for our energy products and services for both
heating and agricultural purposes. Accordingly, the volume of our energy
products sold is at its highest during the five-month peak heating season of
November through March and is directly affected by the severity of the winter
weather. For example, historically, approximately 55% to 60% of AmeriGas
Partners' annual retail propane volume has been sold during these months and
approximately 60% of our natural gas throughput (the total volume of gas sold to
or transported for customers within our distribution system) occurs during these
months. Antargaz' sales volume is similarly seasonal. There can be no assurance
that normal winter weather in our market areas will occur in the future.
OUR HOLDING COMPANY STRUCTURE COULD LIMIT OUR ABILITY TO PAY DIVIDENDS OR
DEBT SERVICE.
We are a holding company whose material assets are the stock of our
subsidiaries and interests in joint ventures. Accordingly, we conduct all of our
operations through our subsidiaries and joint venture affiliates. Our ability to
pay dividends on our common stock and to pay principal and accrued interest on
our debt, if any, depends on the payment of dividends to us by our principal
subsidiaries, AmeriGas, Inc., UGI Utilities, Inc. and UGI Enterprises, Inc.
(including Antargaz). Payments to us by those subsidiaries, in turn, depend upon
their consolidated results of operations and cash flows and, in the case of
AmeriGas Partners, the provisions of its partnership agreement. The operations
of our subsidiaries are affected by conditions beyond our control, including
weather, competition in national and international markets we serve, the costs
and availability of propane, butane, natural gas, electricity and other energy
sources and changes in capital market conditions. The ability of our
subsidiaries to make payments to us is also affected by the level of
indebtedness of our subsidiaries, which is substantial, and the restrictions on
payments to us imposed under the terms of such indebtedness.
OUR PROFITABILITY IS SUBJECT TO PROPANE PRICING AND INVENTORY RISK.
The retail propane business is a "margin-based" business in which gross
profits are dependent upon the excess of the sales price over the propane supply
costs. Propane is a commodity, and, as such, its unit price is subject to
volatile fluctuations in response to changes in supply or other market
conditions. We have no control over these market conditions. Consequently, the
unit price of the propane that our subsidiaries and other marketers purchase can
change rapidly over a short period of time. Most of our domestic propane product
supply contracts permit suppliers to charge posted prices at the time of
delivery or the current prices established at major U.S. storage points such as
Mont Belvieu, Texas or Conway, Kansas. Most of our international propane supply
contracts are based on internationally quoted market prices. Because our
subsidiaries' profitability is sensitive to changes in wholesale propane supply
costs, it will be adversely affected if we cannot pass on increases in the cost
of propane to our customers. Due to competitive pricing in the propane industry,
our subsidiaries, may not be able to pass on product cost increases to our
customers when product costs
24
rise rapidly, or when our competitors do not raise their product prices.
Finally, market volatility may cause our subsidiaries to sell propane at less
than the price at which they purchased it, which could adversely affect our
operating results.
HIGH COMMODITY COSTS CAN LEAD TO CUSTOMER CONSERVATION, RESULTING IN
REDUCED DEMAND FOR OUR ENERGY PRODUCTS AND SERVICES.
Prices for propane and natural gas are subject to volatile fluctuations in
response to changes in supply and other market conditions. During periods of
high energy commodity costs such as those experienced in fiscal years 2005 and
2004, our prices generally increase. High prices can lead to customer
conservation, resulting in reduced demand for our energy products and services.
THE EXPANSION OF OUR INTERNATIONAL BUSINESS MEANS THAT WE WILL FACE
INCREASED RISKS, WHICH MAY NEGATIVELY AFFECT OUR BUSINESS RESULTS.
Our acquisition of Antargaz in March of 2004 significantly increased our
international presence. As we continue to grow as a multi-national corporation,
with subsidiaries around the world, we face risks in doing business abroad that
we do not face domestically. Certain aspects inherent in transacting business
internationally could negatively impact our operating results, including:
- costs and difficulties in staffing and managing international
operations;
- regulatory requirements and changes in regulatory requirements,
including French and EU competition laws that may adversely affect the
terms of contracts with customers, and new environmental requirements
that have led to stricter regulations of LPG storage sites in France;
- tariffs and other trade barriers;
- difficulties in enforcing contractual rights;
- longer payment cycles;
- local political and economic conditions;
- potentially adverse tax consequences, including restrictions on
repatriating earnings and the threat of "double taxation"; and
- fluctuations in currency exchange rates, which can affect demand and
increase our costs.
OUR OPERATIONS MAY BE ADVERSELY AFFECTED BY COMPETITION FROM OTHER ENERGY
SOURCES.
Our energy products and services face competition from other energy
sources, some of which are less costly for equivalent energy value. In addition,
we cannot predict the effect that the development of alternative energy sources
might have on our operations.
25
Our propane businesses compete for customers against suppliers of
electricity, fuel oil and natural gas. 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.
Furnaces and appliances that burn propane will not operate on fuel oil and vice
versa, however, so a conversion from one fuel to the other requires the
installation of new equipment. Our customers generally have an incentive to
switch to fuel oil only if fuel oil becomes significantly less expensive than
propane. Except for certain industrial and commercial applications, propane is
generally not competitive with natural gas in areas where natural gas pipelines
already exist because natural gas is generally a less expensive source of energy
than propane. The gradual expansion of natural gas distribution systems in our
service areas has resulted in the availability of natural gas in some areas that
previously depended upon propane. As long as natural gas remains a less
expensive energy source than propane, our propane business will lose customers
in each region into which natural gas distribution systems are expanded. In
France, the state-owned natural gas monopoly, Gaz de France, has in the past
extended France's natural gas grid.
Our natural gas businesses compete primarily with electricity and fuel 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. There can be no assurance that our
natural gas revenues will not be adversely affected by this competition.
OUR ABILITY TO INCREASE REVENUES IS ADVERSELY AFFECTED BY THE MATURITY OF
THE RETAIL PROPANE INDUSTRY.
The retail propane industry in the United States and France is mature, with
only modest growth in total demand for the product foreseen. Given this limited
growth, we expect that year-to-year industry volumes will be principally
affected by weather patterns. Therefore, our ability to grow within the propane
industry is dependent on our ability to acquire other retail distributors and to
achieve internal growth, which includes expansion of the AmeriGas PPX(R) and
Strategic Accounts programs, as well as the success of our sales and marketing
programs designed to attract and retain customers. Any failure to retain and
grow our customer base would have an adverse effect on our results.
OUR ABILITY TO GROW OUR BUSINESSES WILL BE ADVERSELY AFFECTED IF WE ARE NOT
SUCCESSFUL IN MAKING ACQUISITIONS OR IN INTEGRATING THE ACQUISITIONS WE
HAVE MADE.
One of our strategies is to grow through acquisitions in the United States
and in international markets. We may choose to finance future acquisitions with
debt, equity, cash or a combination of the three. We can give no assurances that
we will find attractive acquisition candidates in the future, that we will be
able to acquire such candidates on economically acceptable terms, that any
acquisitions will not be dilutive to earnings or that any additional debt
incurred to finance an acquisition will not affect our ability to pay dividends.
In addition, the restructuring of the energy markets in the United States
and internationally, including the privatization of government-owned utilities
and the sale of utility-owned assets, is creating opportunities for, and
competition from, well-capitalized competitors, which may affect our ability to
achieve our business strategy.
26
To the extent we are successful in making acquisitions, such acquisitions
involve a number of risks, including, but not limited to, the assumption of
material liabilities, the diversion of management's attention from the
management of daily operations to the integration of operations, difficulties in
the assimilation and retention of employees and difficulties in the assimilation
of different cultures and practices, as well as in the assimilation of broad and
geographically dispersed personnel and operations. The failure to successfully
integrate acquisitions could have an adverse affect on our business, financial
condition and results of operations.
WE ARE SUBJECT TO OPERATING AND LITIGATION RISKS THAT MAY NOT BE COVERED BY
INSURANCE.
Our business' operations in the U.S. and internationally are subject to all
of the operating hazards and risks normally incidental to the handling, storage
and distribution of combustible products, such as LPG, propane and natural gas,
and the generation of electricity. These risks could result in substantial
losses due to personal injury and/or loss of life, severe damage to and
destruction of property and equipment and pollution or other environmental
damage. As a result, we are sometimes a defendant in legal proceedings and
litigation arising in the ordinary course of business. We maintain insurance
policies with insurers in such amounts and with such coverages and deductibles
as we believe are reasonable and prudent. There can be no assurance, however,
that such insurance will be adequate to protect us from all material expenses
related to potential future claims for personal and property damage or that such
levels of insurance will be available in the future at economical prices.
WE MAY BE UNABLE TO RESPOND EFFECTIVELY TO COMPETITION, WHICH MAY ADVERSELY
AFFECT OUR OPERATING RESULTS.
We may be unable to timely respond to changes within the energy and utility
sectors that may result from regulatory initiatives to further increase
competition within our industry. Such regulatory initiatives may create
opportunities for additional competitors to enter our markets, and, as a result,
we may be unable to maintain our revenues or continue to pursue our current
business strategy.
OUR NET INCOME WILL DECREASE IF WE ARE REQUIRED TO INCUR ADDITIONAL COSTS
TO COMPLY WITH NEW GOVERNMENTAL SAFETY, HEALTH, TRANSPORTATION AND
ENVIRONMENTAL REGULATION.
We are subject to extensive and changing international, federal, state and
local safety, health, transportation and environmental laws and regulations
governing the storage, distribution and transportation of our energy products.
New regulations, or a change in the interpretation of existing regulations,
could result in increased expenditures. In addition, for many of our operations,
we are required to obtain permits from regulatory authorities. Failure to comply
with these permits or applicable laws could result in civil and criminal fines
or the cessation of the operations in violation.
We are investigating and remediating contamination at a number of present
and former operating sites in the United States, including former sites where we
or our former subsidiaries operated manufactured gas plants. We have also
received claims from third parties that allege that we are responsible for costs
to clean up properties where we or our former subsidiaries operated a
manufactured gas plant or conducted other operations. Costs we incur to
remediate sites outside of
27
Pennsylvania cannot be recovered in future Utilities' rate proceedings, and
insurance may not cover all or even part of these costs. Our actual costs to
clean up these sites may exceed our current estimates due to factors beyond our
control, such as:
- the discovery of presently unknown conditions;
- changes in environmental laws and regulations;
- judicial rejection of our legal defenses to the third-party claims; or
- the insolvency of other responsible parties at the sites at which we
are involved.
In addition, if we discover additional contaminated sites, we could be
required to incur material costs, which would reduce our net income.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
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
From the late 1800s through the mid-1900s, 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, 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, Utilities divested all of its utility
operations other than those which now constitute Gas Utility and Electric
Utility by the early 1950s.
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 Utilities is currently permitted to include in rates, through
future base rate proceedings, prudently incurred remediation costs associated
with such sites. Utilities has been notified of several sites outside
Pennsylvania on which private parties allege MGPs were formerly owned or
operated by Utilities or owned or operated by its former subsidiaries. Such
parties are investigating the extent of environmental contamination or
performing environmental remediation. Utilities is currently litigating three
claims against it relating to out-of-state sites.
28
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,
Maine ("City"), 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 costs Citizens may be
required to pay to the City for cleaning up tar deposits in the Penobscot River.
Citizens alleges that Utilities and its predecessors owned and operated the
plant from 1901 to 1928. Studies conducted by the City and Citizens suggest that
it could cost up to $18 million to clean up the river. Citizens' third-party
claims have been stayed pending a resolution of the City's suit against
Citizens, which was tried in September 2005 and has not yet been decided.
Utilities believes that it has good defenses to the claim and is defending the
suit.
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.
The trial court granted Utilities' motion for summary judgment and
dismissed ConEd's complaint. The grant of summary judgment was entered April 1,
2004. ConEd appealed and on September 9, 2005 a panel of the Second Circuit
Court of Appeals affirmed in part and reversed in part the decision of the trial
court. The appellate panel affirmed the trial court's decision dismissing claims
that Utilities was liable under CERCLA as an operator of MGPs owned and operated
by its former subsidiaries. The appellate panel reversed the trial court's
decision that Utilities was released from liability at three sites where
Utilities operated MGPs under lease. On October 7, 2005 Utilities filed for
reconsideration of the panel's order. Utilities believes that any liability it
may have for a share of the response costs at the three leased MGP sites will
not have a material effect on its financial condition or results of operations.
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. On March 22, 2005, the court granted
Utilities' motion for summary judgment. AGL has appealed.
Savannah, Georgia Matter. AGL previously informed Utilities that it was
investigating contamination that appeared to be related to MGP operations at a
site owned by AGL in Savannah, Georgia. A former subsidiary of Utilities
operated the MGP in the early 1900s. AGL has recently informed Utilities that it
has begun remediation of MGP wastes at the site and believes that the total cost
of remediation could be as high as $55 million. AGL has not filed suit against
Utilities for a
29
share of these costs. Utilities believes that it will have good defenses to any
action that may arise out of this site.
Sag Harbor, New York Matter. By letter dated June 24, 2004, KeySpan Energy
("KeySpan") informed Utilities that KeySpan has spent $2.3 million and expects
to spend another $11 million to clean up a MGP site it owns in Sag Harbor, New
York. KeySpan believes that Utilities is responsible for approximately 50% of
these costs as a result of Utilities' alleged direct ownership and operation of
the plant from 1885 to 1902. Utilities is in the process of reviewing the
information provided by KeySpan and is investigating this claim.
Connecticut Gas Plants Matter. By letter dated August 5, 2004, Yankee Gas
Services Company and Connecticut Light and Power Company, subsidiaries of
Northeast Utilities, (together the "Northeast Companies"), demanded contribution
from Utilities for past and future remediation costs related to MGP operations
on thirteen sites owned by the Northeast Companies in nine cities in the State
of Connecticut. The Northeast Companies allege that Utilities controlled
operations of the plants from 1883 to 1941. According to the letter,
investigation and remedial costs at the sites to date total approximately $10
million and complete remediation costs for all sites could total $182 million.
The Northeast Companies seek an unspecified fair and equitable allocation of
these costs to Utilities. Utilities is in the process of reviewing the
information provided by Northeast Companies and is investigating this claim.
OTHER ENVIRONMENTAL MATTERS
South Coast Air Quality Management District Matter. On February 21, 2005,
AmeriGas OLP received notice from the South Coast (of California) Air Quality
Management District ("SCAQMD") that it intended to seek civil penalties totaling
$0.1 million for five violations of air emissions regulations at AmeriGas OLP's
LPG terminal in San Pedro, California. On April 15, 2005, SCAQMD issued two
additional notices of violation of regulations related to the installation of
emission reduction equipment at the facility. AmeriGas OLP has resolved all of
the notices of violations with SCAQMD. The terms of the settlement did not have
a material effect on our results of operations or financial condition.
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 OLP (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. In 2003, AmeriGas settled the
individual personal injury and property damage claims of the Swigers. In 2004,
the court granted the plaintiffs' motion to include customers acquired from
Columbia Propane in August 2001 as additional potential class members, and the
plaintiffs amended their complaint to name additional parties pursuant to such
ruling. Subsequently, in March 2005, AmeriGas filed a cross-claim against
Columbia Energy Group,
30
former owner of Columbia Propane, seeking indemnification for conduct undertaken
by Columbia Propane prior to AmeriGas's acquisition. Class counsel has indicated
that the class is seeking compensatory damages in excess of $12 million plus
punitive damages, civil penalties and attorneys' fees. The defendants believe
they have good defenses to the claims of the class members and intend to
vigorously defend against the remaining claims in this lawsuit.
31
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 2005.
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:
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
MARKET INFORMATION
Our Common Stock is traded on the New York and Philadelphia Stock Exchanges
under the symbol "UGI." On April 26, 2005, our Board of Directors approved a
2-for-1 split of our Common Stock, effective May 24, 2005. 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:
2005 FISCAL YEAR HIGH LOW
- ---------------- ------- -------
4th Quarter $ 29.98 $ 24.25
3rd Quarter 27.95 21.925
2nd Quarter 23.605 19.205
1st Quarter 20.70 18.45
2004 FISCAL YEAR HIGH LOW
- ---------------- ------- -------
4th Quarter $18.675 $ 15.23
3rd Quarter 16.70 14.925
2nd Quarter 17.175 15.70
1st Quarter 17.10 14.425
32
DIVIDENDS
Quarterly dividends on our Common Stock were paid in the 2005 and 2004
fiscal years as follows:
2005 FISCAL YEAR AMOUNT
- ---------------- --------
4th Quarter $0.16875
3rd Quarter 0.15625
2nd Quarter 0.15625
1st Quarter 0.15625
2004 FISCAL YEAR AMOUNT
- ---------------- --------
4th Quarter $0.15625
3rd Quarter 0.14250
2nd Quarter 0.14250
1st Quarter 0.14250
HOLDERS
On November 1, 2005, UGI had 9,121 holders of record of Common Stock.
33
ITEM 6. SELECTED FINANCIAL DATA
Year Ended
September 30,
----------------------------------------------------
2005 2004 2003 2002 2001 (a)
-------- -------- -------- -------- --------
(Millions of dollars, except per share amounts)
FOR THE PERIOD:
INCOME STATEMENT DATA:
Revenues $4,888.7 $3,784.7 $3,026.1 $2,213.7 $2,468.1
======== ======== ======== ======== ========
Income before accounting changes $ 187.5 $ 111.6 $ 98.9 $ 75.5 $ 52.0
Cumulative effect of accounting changes, net (b) -- -- -- -- 4.5
-------- -------- -------- -------- --------
Net income $ 187.5 $ 111.6 $ 98.9 $ 75.5 $ 56.5
======== ======== ======== ======== ========
Earnings per common share - basic
Income before accounting changes $ 1.81 $ 1.18 $ 1.17 $ 0.92 $ 0.64
Cumulative effect of accouting changes, net (b) -- -- -- -- 0.06
-------- -------- -------- -------- --------
Net income - basic $ 1.81 $ 1.18 $ 1.17 $ 0.92 $ 0.70
======== ======== ======== ======== ========
Earnings per common share - diluted
Income before accounting changes $ 1.77 $ 1.16 $ 1.15 $ 0.90 $ 0.64
Cumulative effect of accouting changes, net (b) -- -- -- -- 0.06
-------- -------- -------- -------- --------
Net income - diluted $ 1.77 $ 1.16 $ 1.15 $ 0.90 $ 0.69
======== ======== ======== ======== ========
Cash dividends declared per common share $ 0.650 $ 0.584 $ 0.565 $ 0.542 $ 0.525
======== ======== ======== ======== ========
AT PERIOD END:
BALANCE SHEET DATA:
Total assets $4,571.5 $4,242.6 $2,795.2 $2,628.0 $2,561.9
======== ======== ======== ======== ========
Capitalization:
Debt:
Bank loans - AmeriGas Propane $ -- $ -- $ -- $ 10.0 $ --
Bank loans - UGI Utilities 81.2 60.9 40.7 37.2 57.8
Bank loans - other 16.2 17.2 15.9 8.6 10.0
Long-term debt(including current maturities):
AmeriGas Propane 913.5 901.4 927.3 945.8 1,005.9
Antargaz 431.1 474.5 -- -- --
UGI Utilities 237.0 217.2 217.3 248.4 208.4
Other 62.9 76.9 78.9 81.5 80.9
-------- -------- -------- -------- --------
Total debt 1,741.9 1,748.1 1,280.1 1,331.5 1,363.0
-------- -------- -------- -------- --------
Minority interests, principally in AmeriGas Partners 206.3 178.4 134.6 276.0 246.2
UGI Utilities preferred shares subject
to mandatory redemption -- 20.0 20.0 20.0 20.0
Common stockholders' equity 997.6 834.1 498.7 313.8 251.0
-------- -------- -------- -------- --------
Total capitalization $2,945.8 $2,780.6 $1,933.4 $1,941.3 $1,880.2
======== ======== ======== ======== ========
RATIO OF CAPITALIZATION:
Total debt 59.1% 62.9% 66.2% 68.6% 72.5%
Minority interests, principally in AmeriGas Partners 7.0% 6.4% 7.0% 14.2% 13.1%
UGI Utilities preferred shares subject to mandatory
redemption -- 0.7% 1.0% 1.0% 1.1%
Common stockholders' equity 33.9% 30.0% 25.8% 16.2% 13.3%
-------- -------- -------- -------- --------
100.0% 100.0% 100.0% 100.0% 100.0%
======== ======== ======== ======== ========
(a) Arthur Andersen LLP audited our consolidated financial statements for 2001.
(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."
34
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 28 of
UGI's 2005 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 25 and 26 of the
UGI 2005 Annual Report to Shareholders and are incorporated in this Report by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Management's Annual Report on Internal Control Over Financial Reporting and
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
None.
ITEM 9A. CONTROLS AND PROCEDURES
(a) 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 (i)
recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms and (ii) accumulated and
communicated to our management, including the Chief Executive Officer
and Chief Financial Officer, as appropriate to allow timely decisions
regarding disclosure.
35
(b) For "Management's Annual Report on Internal Control Over Financial
Reporting" and the related report of PricewaterhouseCoopers LLP, our
Independent Registered Public Accounting Firm, see Item 8 of this
Report (which information is incorporated herein by reference).
(c) 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.
ITEM 9B. OTHER INFORMATION
None.
36
PART III:
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 27, 2006.
CAPTIONS OF PROXY STATEMENT
INFORMATION INCORPORATED BY REFERENCE
----------- ---------------------------
Item 10. Directors and Executive Officers of Registrant Election of Directors - Nominees; Corporate
Governance; Communications with the Board;
Board Committees and Meeting Attendance;
Securities Ownership of Management -
Section 16(a) - Beneficial Ownership
Reporting Compliance
The Code of Ethics for the Chief Executive
Officer and Senior Financial Officers of UGI
Corporation is 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
and Management Owners; Securities Ownership of Management
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 Registered Public Accountants
37
EQUITY COMPENSATION TABLE
The following table sets forth information as of the end of our 2005 fiscal
year with respect to compensation plans under which our equity securities are
authorized for issuance.
NUMBER OF SECURITIES
REMAINING AVAILABLE
FOR FUTURE ISSUANCE
NUMBER OF SECURITIES TO BE WEIGHTED AVERAGE UNDER EQUITY
ISSUED UPON EXERCISE OF EXERCISE PRICE OF COMPENSATION PLANS
OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, (EXCLUDING SECURITIES
WARRANTS AND RIGHTS WARRANTS AND RIGHTS REFLECTED IN COLUMN
PLAN CATEGORY (a) (b) (a)) (c)
------------- -------------------------- -------------------- ---------------------
Equity compensation plans approved
by security holders (1) 4,441,118 $ 16.45 3,192,226
936,014 $ 0
Equity compensation plans not
approved by security holders (2) 511,900 $ 11.59 0
6,000 $ 0
--------- ------- ---------
Total 5,895,032 $15.945 3,192,226
========= ======= =========
(1) Column (a) represents 4,441,118 stock options under the 1997 Stock Option
and Dividend Equivalent Plan, the 1992 Directors' Stock Plan, the 2000
Directors' Stock Option Plan, the 2000 Stock Incentive Plan and the 2004
Omnibus Equity Compensation Plan, and 936,014 phantom share units under the
2004 Omnibus Equity Compensation Plan and the 2000 Stock Incentive Plan.
(2) Column (a) represents 511,900 stock options under the 1992 and 2002
Non-Qualified Stock Option Plans, and 6,000 one-time bonus awards of
phantom restricted stock. Under the 1992 and 2002 Non-Qualified Stock
Option Plans, the option exercise price is not less than 100% of the fair
market value of the Company's common stock on the date of grant. Generally,
options become exercisable in three equal annual installments beginning on
the first anniversary of the grant date. All options are non-transferable
and generally exercisable only while the holder is employed by the Company
or an affiliate, with exceptions for exercise following retirement,
disability and death. Options are subject to adjustment in the event of
recapitalization, stock splits, mergers, and other similar corporate
transactions affecting the Company's common stock. The phantom restricted
awards represent the right to receive a share of stock or an amount based
on the value of a share of stock if specified length of service
requirements are met.
38
The information concerning the Company's executive officers required by
Item 10 is set forth below.
EXECUTIVE OFFICERS
NAME AGE POSITION
---- --- --------
Lon R. Greenberg 55 Chairman, Director and Chief Executive Officer
John L. Walsh 50 President and Chief Operating Officer
Eugene V.N. Bissell 52 President and Chief Executive Officer, AmeriGas
Propane, Inc.
Michael J. Cuzzolina 60 Vice President - Accounting and Financial Control;
Chief Accounting Officer and Chief Risk Officer
Bradley C. Hall 52 Vice President - New Business Development
Robert H. Knauss 52 Vice President and General Counsel
Anthony J. Mendicino 57 Senior Vice President - Finance and Chief Financial
Officer
David W. Trego 47 President and Chief Executive Officer, UGI
Utilities, Inc.
Francois Varagne 50 Chairman of the Board and Chief Executive Officer
of Antargaz
All officers, except Mr. Varagne, are elected for a one-year term at the
organizational meetings of the respective Boards of Directors held each year.
Mr. Varagne was appointed as Chairman of the Board of Antargaz on January 26,
2005. His term of office is five years.
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 held the
office of President of UGI from 1994 to 2005. He was elected Director 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
39
2000). Mr. Greenberg was Senior Vice President - Legal and Corporate Development
(1989 to 1994). He joined the Company in 1980 as Corporate Development Counsel.
Mr. Greenberg is also a director of Aqua America, Inc.
John L. Walsh
Mr. Walsh is President and Chief Operating Officer and a Director (since
April 2005). He is also Vice Chairman and Director of both AmeriGas Propane,
Inc. and UGI Utilities, Inc. (since April 2005). He previously served as Chief
Executive of the Industrial and Special Products division and executive director
of BOC Group PLC (industrial gases) (since 2001). From 1986 to 2001, he held
various senior management positions with the BOC Group. Prior to joining BOC,
Mr. Walsh was a Vice President of UGI's industrial gas division prior to its
sale to BOC in 1989. From 1981 until 1986, Mr. Walsh held several management
positions with affiliates of UGI.
Eugene V.N. Bissell
Mr. Bissell is President, Chief Executive Officer and a Director 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 a member of the Board
of Directors of the National Propane Gas Association and a member of the
Kalamazoo College Board of Trustees.
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 2004. He served as President and Chief Operating Officer of Flaga GmbH from
1999 to 2004. 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.
40
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 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.
David W. Trego
Mr. Trego is President and Chief Executive Officer of UGI Utilities, Inc.
(since October 2004). He previously served as Vice President-Electric
Distribution (2002 to 2004). Prior to that assignment, Mr. Trego served in a
number of capacities in the Gas Utility Division, including marketing,
operations, customer relations and engineering. He joined Utilities in 1987.
Francois Varagne
Mr. Varagne is Chairman of the Board and Chief Executive Officer of
Antargaz (since 2001), one of the leading LPG distributors in France. Before
joining Antargaz, Mr. Varagne was Chairman of the Board and Chief Executive
Officer of VIA GTI, a common carrier in France (1998-2001). Prior to that, Mr.
Varagne was Chairman of the Board and Chief Executive Officer of Brink's France,
a funds carrier (1997 to 1998).
41
PART IV:
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(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.
42
(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 Form 10-Q 3.1
Incorporation of the Company as amended (6/30/05)
through June 6, 2005
3.2 Bylaws of UGI as amended through September UGI Form 8-K 3.2
28, 2004 (9/28/04)
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 UGI Registration 4.3
18, 2000, between the Company and Mellon Statement No.
Bank, N.A., successor to Mellon Bank (East) 333-49080
N.A., as Rights Agent, and Assumption (11/1/00)
Agreement dated April 7, 1992
4.2 The description of the Company's Common UGI Form 8-B/A 3.(4)
Stock contained in the Company's (4/17/96)
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
43
INCORPORATION BY REFERENCE
EXHIBIT NO. EXHIBIT REGISTRANT FILING EXHIBIT
- ------------ ------- ---------- ------ -------
4.4 Note Agreement dated as of April 12, 1995 AmeriGas Form 10-Q 10.8
among The Prudential Insurance Company of Partners, L.P. (3/31/95)
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, AmeriGas Form 10-K 4.5
1997 to Note Agreement dated as of April Partners, L.P. (9/30/97)
12, 1995 ("1995 Note Agreement")
4.6 Second Amendment dated as of September 15, AmeriGas Form 10-K 4.6
1998 to 1995 Note Agreement Partners, L.P. (9/30/98)
4.7 Third Amendment dated as of March 23, 1999 AmeriGas Form 10-Q 10.2
to 1995 Note Agreement Partners, L.P. (3/31/99)
4.8 Fourth Amendment dated as of March 16, 2000 AmeriGas Form 10-Q 10.2
to 1995 Note Agreement Partners, L.P. (6/30/00)
4.9 Fifth Amendment dated as of August 1, 2001 AmeriGas Form 10-K 4.8
to 1995 Note Agreement Partners, L.P. (9/30/01)
4.10 Third Amended and Restated Agreement of AmeriGas Form 8-K 3.1
Limited Partnership of AmeriGas Partners, Partners, L.P. (12/1/04)
L.P. dated as of December 1, 2004
4.11 Second Amended and Restated Agreement of AmeriGas Form 10-K 3.1(a)
Limited Partnership of AmeriGas Propane, Partners, L.P. (9/30/04)
L.P. dated as of December 1, 2004
4.12 Amended and Restated Agreement of Limited AmeriGas Form 10-K 3.8
Partnership of AmeriGas Eagle Propane, L.P. Partners, L.P. (9/30/01)
dated as of July 19, 1999
4.13 Indenture, dated May 3, 2005, by and among AmeriGas Form 8-K 4.1
AmeriGas Partners, L.P., a Delaware limited Partners, L.P. (5/3/05)
partnership, AmeriGas Finance Corp., a
Delaware corporation, and Wachovia Bank,
National Association, as trustee.
44
INCORPORATION BY REFERENCE
EXHIBIT NO. EXHIBIT REGISTRANT FILING EXHIBIT
- ------------ ------- ---------- ------ -------
10.1 Service Agreement (Rate FSS) dated as of UGI Form 10-K 10.5
November 1, 1989 between Utilities and (9/30/95)
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 (pilcrow sign) 61,060
(1993), order on rehearing, 64 FERC
(pilcrow sign) 61,365 (1993)
10.2** UGI Corporation 2004 Omnibus Equity UGI Form 8-K 10.2
Compensation Plan Directors Stock Unit (12/6/05)
Grant Letter
10.3** UGI Corporation 2004 Omnibus Equity UGI Form 8-K 10.3
Compensation Plan Directors Nonqualified (12/6/05)
Stock Option Grant Letter
10.4** UGI Corporation 2004 Omnibus Equity UGI Form 8-K 10.8
Compensation Plan Utilities Employees (12/6/05)
Performance Unit Grant Letter
10.5** UGI Corporation 2004 Omnibus Equity UGI Form 8-K 10.9
Compensation Plan UGI Employees Stock Unit (12/6/05)
Grant Letter
10.6** UGI Corporation Directors Deferred UGI Form 10-K 10.6
Compensation Plan Amended and Restated as (9/30/00)
of January 1, 2000
10.7** UGI Corporation 2004 Omnibus Equity UGI Form 8-K 10.7
Compensation Plan UGI Employees Performance (12/6/05)
Unit Grant Letter
10.8** UGI Corporation Annual Bonus Plan dated UGI Form 10-Q 10.4
March 8, 1996 (6/30/96)
10.9** UGI Corporation 2004 Omnibus Equity UGI Form 8-K 10.6
Compensation Plan AmeriGas Employees (12/6/05)
Nonqualified Stock Option Grant Letter
10.10** UGI Corporation 1997 Stock Option and UGI Form 10-Q 10.4
Dividend Equivalent Plan Amended and (3/31/03)
Restated as of April 29, 2003
10.11** UGI Corporation 1992 Directors' Stock Plan UGI Form 10-Q 10.2
Amended and Restated as of April 29, 2003 (3/31/03)
45
INCORPORATION BY REFERENCE
EXHIBIT NO. EXHIBIT REGISTRANT FILING EXHIBIT
- ------------ ------- ---------- ------ -------
10.12** UGI Corporation Senior Executive Employee UGI Form 10-K 10.12
Severance Pay Plan as amended December 7, (9/30/04)
2004
10.12(a)** AmeriGas Propane, Inc. Executive Employee AmeriGas Form 10-K 10.4
Severance Pay Plan, as amended December 6, Partners, L.P. (9/30/04)
2004.
10.13** UGI Corporation 2000 Directors' Stock UGI Form 10-Q 10.1
Option Plan Amended and Restated as of (3/31/03)
April 29, 2003
10.14** UGI Corporation 2000 Stock Incentive Plan UGI Form 10-Q 10.2
Amended and Restated as of December 16, (6/30/04)
2003
*10.15** Letter Agreement dated May 15, 2002
regarding severance arrangement for Mr.
Varagne
10.16** UGI Corporation Supplemental Executive UGI Form 10-Q 10
Retirement Plan Amended and Restated (6/30/98)
effective October 1, 1996
10.17** UGI Corporation 2004 Omnibus Equity UGI Form 10-K 10.17
Compensation Plan, as amended December 7, (9/30/04)
2004
10.17(a)** UGI Corporation 2004 Omnibus Equity UGI Form 8-K 10.10
Compensation Plan, as amended December 7, (12/6/05)
2004 - Terms and Conditions as amended
December 6, 2005
10.18 Credit Agreement dated as of August 28, AmeriGas Form 10-K 10.1
2003 among AmeriGas Propane, L.P., AmeriGas Partners, L.P. (9/30/03)
Propane, Inc., Petrolane Incorporated,
Citicorp USA, Inc., Credit Suisse First
Boston, Wachovia Bank, National
Association, as Agent, Issuing Bank and
Swing Line Bank, and certain financial
institutions named party thereto ("2003
Credit Agreement")
10.19 Amendment No. 1 dated as of August 30, AmeriGas Form 8-K 10.1
2004, to the 2003 Credit Agreement Partners, L.P. (8/30/04)
46
INCORPORATION BY REFERENCE
EXHIBIT NO. EXHIBIT REGISTRANT FILING EXHIBIT
- ------------ ------- ---------- ------ -------
10.19(a) Credit Agreement, dated as of April 18, AmeriGas Form 8-K 10.1
2005, by and among AmeriGas Propane, L.P., Partners, L.P. (4/18/05)
as Borrower, AmeriGas Propane, Inc., as a
Guarantor, Petrolane Incorporated, as a
Guarantor, Wachovia Bank, National
Association, as Agent, and the other
financial institutions party thereto
10.20** Form of Confidentiality and Post-Employment AmeriGas Form 10-Q 10.3
Activities Agreement with AmeriGas Propane, Partners, L.P. (3/31/05)
Inc., in its own right and as general
partner of AmeriGas Partners, L.P., for
Messrs. Bissell, Katz and Knauss
10.21** Confidentiality and Post-Employment AmeriGas Form 8-K 10.1
Activities Agreement with AmeriGas Propane, Partners, L.P. (8/15/05)
Inc., in its own right and as general
partner of AmeriGas Partners, L.P., for Mr.
Sheridan
10.22 Notice of appointment of Wachovia Bank, AmeriGas Form 10-K 10.6
National Association as collateral Agent Partners, L.P. (9/30/03)
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 AmeriGas Form 10-Q 10.2
of April 19, 1995 among AmeriGas Propane, Partners, L.P. (3/31/95)
Inc., 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 AmeriGas Form 10-K 10.8
to Intercreditor and Agency Agreement dated Partners, L.P. (9/30/01)
as of April 19, 1995
10.24 General Security Agreement dated as of AmeriGas Form 10-Q 10.3
April 19, 1995 among AmeriGas Propane, Partners, L.P. (3/31/95)
L.P., Bank of America National Trust and
Savings Association and Mellon Bank, N.A.
10.24(a) First Amendment dated as of July 31, 2001 AmeriGas Form 10-K 10.10
to General Security Agreement dated as of Partners, L.P. (9/30/01)
April 19, 1995
47
INCORPORATION BY REFERENCE
EXHIBIT NO. EXHIBIT REGISTRANT FILING EXHIBIT
- ------------ ------- ---------- ------ -------
10.24(b) Second Amendment dated as of October 14, AmeriGas Form 10-K 10.10(a)
2004 to General Security Agreement dated as Partners, L.P. (9/30/04)
of April 19, 1995
10.25 Subsidiary Security Agreement dated as of AmeriGas Form 10-Q 10.4
April 19, 1995 among AmeriGas Propane, Partners, L.P. (3/31/95)
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 AmeriGas Form 10-K 10.12
to Subsidiary Security Agreement dated as Partners, L.P. (9/30/01)
of April 19, 1995
10.25(b) Second Amendment dated as of October 14, AmeriGas Form 10-K 10.12(a)
2004 to Subsidiary Security Agreement dated Partners, L.P. (9/30/04)
as of April 19, 1995
10.26 Restricted Subsidiary Guarantee dated as of AmeriGas Form 10-Q 10.5
April 19, 1995 by AmeriGas Propane, L.P. Partners, L.P. (3/31/95)
for the benefit of Bank of America National
Trust and Savings Association, as
Collateral Agent
10.27 Trademark License Agreement dated April 19, AmeriGas Form 10-Q 10.6
1995 among UGI Corporation, AmeriGas, Inc., Partners, L.P. (3/31/95)
AmeriGas Propane, Inc., AmeriGas Partners,
L.P. and AmeriGas Propane, L.P.
10.28 Trademark License Agreement, dated April AmeriGas Form 10-Q 10.7
19, 1995 among AmeriGas Propane, Inc., Partners, L.P. (3/31/95)
AmeriGas Partners, L.P. and AmeriGas
Propane, L.P.
10.29 Stock Purchase Agreement dated May 27, Petrolane Registration 10.16(a)
1989, as amended and restated July 31, Incorporated/ Statement No.
1989, between Texas Eastern Corporation and AmeriGas 33-69450
QFB Partners Partners, L.P.
*10.30** Description of oral employment at-will
agreements for Messrs. Greenberg,
Mendicino, Varagne and Walsh
10.31** Description of oral employment at-will AmeriGas Form 10-K 10.29
agreement for Mr. Bissell Partners, L.P. (9/30/05)
48
INCORPORATION BY REFERENCE
EXHIBIT NO. EXHIBIT REGISTRANT FILING EXHIBIT
- ------------ ------- ---------- ------ -------
10.32** AmeriGas Propane, Inc. Supplemental AmeriGas Form 10-Q 10.1
Executive Retirement Plan, Amended and Partners, L.P. (3/31/05)
Restated as of March 1, 2005
10.33** AmeriGas Propane, Inc. Annual Bonus Plan AmeriGas Form 10-K 10.17
effective October 1, 1998 Partners, L.P. (9/30/99)
10.34** UGI Utilities, Inc. Annual Bonus Plan dated Utilities Form 10-Q 10.4
March 8, 1996 (6/30/96)
10.35** Form of Change in Control Agreement for UGI Form 8-K 10.1
Messrs. Greenberg, Mendicino and Walsh (12/6/05)
10.36** UGI Corporation 2004 Omnibus Equity UGI Form 8-K 10.4
Compensation Plan UGI Employees (12/6/05)
Nonqualified Stock Option Grant Letter
10.36(a)** UGI Corporation 2004 Omnibus Equity UGI Form 8-K 10.5
Compensation Plan UGI Utilities Employees (12/6/05)
Nonqualified Stock Option Grant Letter
10.37** Form of Change in Control Agreement for Mr. AmeriGas Form 8-K 10.1
Bissell Partners, L.P. (12/5/05)
10.38** 2002 Non-Qualified Stock Option Plan UGI Form 10-Q 10.7
Amended and Restated as of April 29, 2003 (3/31/03)
10.39** 1992 Non-Qualified Stock Option Plan UGI Form 10-Q 10.6
Amended and Restated as of April 29, 2003 (3/31/03)
10.40 Financing Agreement dated as of August 28, AmeriGas Form 10-K 10.19
2003 between AmeriGas Propane, Inc. and Partners, L.P. (9/30/03)
AmeriGas Propane, L.P.
10.41 Service Agreement for comprehensive UGI Form 10-K 10.41
delivery service (Rate CDS) dated February (9/30/00)
23, 1999 between UGI Utilities, Inc. and
Texas Eastern Transmission Corporation
10.42 Purchase Agreement dated January 30, 2001 AmeriGas Form 8-K 10.1
and Amended and Restated on August 7, 2001 Partners, L.P. (8/8/01)
by and among Columbia Energy Group,
Columbia Propane Corporation, Columbia
Propane, L.P., CP Holdings, Inc., AmeriGas
Propane, L.P., AmeriGas Partners, L.P., and
AmeriGas Propane, Inc.
49
INCORPORATION BY REFERENCE
EXHIBIT NO. EXHIBIT REGISTRANT FILING EXHIBIT
- ------------ ------- ---------- ------ -------
10.43** UGI Corporation 2004 Omnibus Equity UGI Form 10-K 10.43
Compensation Plan, Sub-Plan for French (9/30/04)
Employees Stock Option Grant Letter dated
as of 2004
10.44 Agreement by Petrolane Incorporated and Petrolane Form 10-K 10.13
certain of its subsidiaries party thereto Incorporated (9/23/94)
("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 Form 8-K 10.5
Propane, L.P., CP Holdings, Inc., Columbia Propane (4/19/99)
Propane Corporation, National Propane Partners, L.P.
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 10.2
August 21, 2001 by and between Columbia Partners, L.P. (8/21/01)
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 10.39
Delaware limited partnership in favor of Partners, L.P. (9/30/01)
Columbia Propane Corporation dated July 19,
1999
10.48 Loan Agreement dated July 19, 1999, between AmeriGas Form 10-K 10.40
National Propane, L.P. and Columbia Propane Partners, L.P. (9/30/01)
Corporation
10.49 First Amendment dated August 21, 2001 to AmeriGas Form 10-K 10.41
Loan Agreement dated July 19, 1999 between Partners, L.P. (9/30/01)
National Propane, L.P. and Columbia Propane
Corporation
10.50 Columbia Energy Group Payment Guaranty AmeriGas Form 10-K 10.42
dated April 5, 1999 Partners, L.P. (9/30/01)
10.51 Keep Well Agreement by and between AmeriGas AmeriGas Form 10-K 10.46
Propane, L.P. and Columbia Propane Partners, L.P. (9/30/01)
Corporation dated August 21, 2001
50
INCORPORATION BY REFERENCE
EXHIBIT NO. EXHIBIT REGISTRANT FILING EXHIBIT
- ------------ ------- ---------- ------ -------
10.52** AmeriGas Propane, Inc. 2000 Long-Term AmeriGas Form 10-Q 10.2
Incentive Plan on Behalf of AmeriGas Partners, L.P. (6/30/04)
Partners, L.P., as amended December 15,
2003 ("AmeriGas 2000 Plan").
10.52(a)** AmeriGas 2000 Plan Restricted Unit Grant AmeriGas Form 8-K 10.2
Letter Partners, L.P. (12/5/05)
10.53 Storage Transportation Service Agreement Utilities Form 10-K 10.25
(Rate Schedule SST) between Utilities and (9/30/02)
Columbia dated November 1, 1993, as
modified pursuant to orders of the Federal
Energy Regulatory Commission
10.54 Gas Service Delivery and Supply Agreement Utilities Form 10-K 10.32
between Utilities and UGI Energy Services, (9/30/04)
Inc. dated August 1, 2004
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 Amendment No. 1 dated November 1, 2004, to Utilities Form 10-K 10.26
the Service Agreement (Rate FSS) dated as (9/30/04)
of 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 (pilcrow sign)
61,060 (1993), order on rehearing, 64 FERC
(pilcrow sign) 61,365 (1993)
51
INCORPORATION BY REFERENCE
EXHIBIT NO. EXHIBIT REGISTRANT FILING EXHIBIT
- ------------ ------- ---------- ------ -------
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
10.60 Amendment No. 1 dated November 1, 2004, to Utilities Form 10-K 10.30
the No-Notice Transportation Service (9/30/04)
Agreement (Rate Schedule CDS) between
Utilities and Texas Eastern Transmission
dated February 23, 1999, as modified
pursuant to various orders of the Federal
Energy Regulatory Commission
10.61 Amendment No. 1 dated November 1, 2004, to Utilities Form 10-K 10.33
the Firm Transportation Service Agreement (9/30/04)
(Rate Schedule FT-1) between Utilities and
Texas Eastern Transmission dated June 15,
1999, as modified pursuant to various
orders of the Federal Energy Regulatory
Commission
10.62 Firm Transportation Service Agreement (Rate Utilities Form 10-K 10.34
Schedule FTS) between Utilities and (9/30/04)
Columbia Gas Transmission dated November 1,
2004
10.63 Amendment Agreement dated June 18, 2004, UGI Form 10-Q 10.5
relating to the Senior Facilities Agreement (6/30/04)
dated June 26, 2003, as Amended and
Restated, between AGZ Holding, as Parent,
Antargaz, the Senior Lenders, (as defined
therein) and Calyon, as Mandated Lead
Arranger, Facility Agent and Security Agent
10.64 Creditor Accession Agreement dated June 18, UGI Form 10-Q 10.6
2004, between UGI Bordeaux Holding, as the (6/30/04)
New Investor, and Calyon, as Security Agent
10.65 Letter of Undertakings dated June 18, 2004, UGI Form 10-Q 10.7
by UGI Bordeaux Holding to AGZ Holding, the (6/30/04)
Parent of Antargaz, and Calyon, the
Facility Agent, acting on behalf of the
Lenders, (as defined within the Senior
Facilities Agreement)
52
INCORPORATION BY REFERENCE
EXHIBIT NO. EXHIBIT REGISTRANT FILING EXHIBIT
- ------------ ------- ---------- ------ -------
10.66 Tax Consolidation Agreement, dated June 18, UGI Form 10-Q 10.8
2004, entered into by UGI Bordeaux Holding (6/30/04)
and its Subsidiaries named therein
*10.67** UGI Corporation 2004 Omnibus Equity
Compensation Plan Sub-Plan for French
Employees
*10.67(a) UGI Corporation 2004 Omnibus Equity
Compensation Plan Sub-Plan for French
Employees Performance Unit Grant Letter
10.68 Senior Facilities Agreement dated June 26, UGI Form 10-Q 10.1
2003 as Amended and Restated July 2, 2003, (3/31/04)
between AGZ Holding and Antargaz, Credit
Lyonnais, as Mandated Lead Arranger,
Facility Agent and Security Agent, and the
Financial Institutions named therein
10.69 Form of Amendment Agreement dated January UGI Form 10-Q 10.1(a)
15, 2004 to Senior Facilities Agreement, as (3/31/04)
Amended and Restated July 2, 2003
10.70 Pledge of Financial Instruments Account UGI Form 10-Q 10.2
relating to Financial Instruments held by (3/31/04)
AGZ Holding in Antargaz, dated July 7,
2003, between AGZ Holding, as Pledgor, and
Credit Lyonnais, as Security Agent, and the
Senior Lenders
10.71 Pledge of Financial Instruments Accounts UGI Form 10-Q 10.3
relating to Financial Instruments held by (3/31/04)
Antargaz in certain subsidiary companies,
dated July 7, 2003, between Antargaz, as
Pledgor, and Credit Lyonnais, as Security
Agent, and the Revolving Lenders
10.72 Intercreditor Agreement, dated July 7, UGI Form 10-Q 10.4
2003, between AGZ Holding, Antargaz, AGZ (3/31/04)
Finance, the Senior Lenders (as defined
therein), the Investors (as defined
therein), and Credit Lyonnais, as Facility
Agent for the Senior Lenders and as
Security Agent
10.73 Seller's Guarantee dated February 16, 2001 UGI Form 10-Q 10.5
among Elf Antar France, Elf Aquitaine and (3/31/04)
AGZ Holding
53
INCORPORATION BY REFERENCE
EXHIBIT NO. EXHIBIT REGISTRANT FILING EXHIBIT
- ------------ ------- ---------- ------ -------
10.74** AmeriGas Propane, Inc. Discretionary AmeriGas Form 10-K 10.2
Long-Term Incentive Plan for Non-Executive Partners, L.P. (9/30/02)
Key Employees
10.75** Summary of Director Compensation UGI Form 10-Q 10.1
(12/31/04)
*13 Pages 13 through 59 of the 2005 Annual
Report to Shareholders
14 Code of Ethics for principal executive, UGI Form 10-K 14
financial and accounting officers (9/30/03)
*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 fiscal year ended
September 30, 2005 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 fiscal year ended
September 30, 2005 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, 2005, 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.
54
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 6, 2005 By: Anthony J. Mendicino
------------------------------------
Anthony J. Mendicino
Senior Vice President - Finance
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below on December 6, 2005, by the following persons on
behalf of the Registrant in the capacities indicated.
SIGNATURE TITLE
- --------- -----
Lon R. Greenberg Chairman
- ------------------------------------- and Chief Executive Officer
Lon R. Greenberg (Principal Executive Officer)
and Director
John L. Walsh President and Chief
- ------------------------------------- Operating Officer
John L. Walsh (Principal Operating 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
55
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below on December 6, 2005, 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
56
UGI CORPORATION AND SUBSIDIARIES
FINANCIAL INFORMATION
FOR INCLUSION IN ANNUAL REPORT ON FORM 10-K
YEAR ENDED SEPTEMBER 30, 2005
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 December 13, 2005, and Management's Report on Internal Control over
Financial Reporting listed in the following index, are included in UGI's 2005
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 7, 7A, 8 and 9A(b), the 2005 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)
---------- ------------
Management's Report on Internal Control over Financial
Reporting Exhibit 13 29
Report of Independent Registered Public Accounting Firm:
On Consolidated Financial Statements and Internal
Control over Financial Reporting Exhibit 13 30
On Financial Statement Schedules F-4
Financial Statements:
Consolidated Balance Sheets, September 30,
2005 and 2004 Exhibit 13 32 to 33
For the years ended September 30, 2005,
2004 and 2003:
Consolidated Statements of Income Exhibit 13 31
Consolidated Statements of Cash Flows Exhibit 13 34
Consolidated Statements of Stockholders'
Equity Exhibit 13 35
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 36 to 59
Supplementary Data (unaudited):
Quarterly Data for the years ended
September 30, 2005 and 2004 Exhibit 13 58
Financial Statement Schedules:
For the years ended September 30, 2005,
2004 and 2003:
I - Condensed Financial
Information of Registrant
(Parent Company) S-1 to S-3
II - Valuation and Qualifying
Accounts S-4 to S-5
Annual Report on Form 10-K/A
An annual Report on Form 10-K/A for the UGI Utilities, Inc., AmeriGas
Propane, Inc. and UGI HVAC Enterprises, 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 REGISTERED PUBLIC ACCOUNTING FIRM ON
FINANCIAL STATEMENT SCHEDULES
To the Board of Directors and Stockholders
of UGI Corporation:
Our audits of the consolidated financial statements, of management's assessment
of the effectiveness of internal control over financial reporting and of the
effectiveness of internal control over financial reporting referred to in our
report dated December 13, 2005 appearing in the 2005 Annual Report to
Shareholders of UGI Corporation (which report, consolidated financial statements
and assessment are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the financial statement schedules listed in Item
15(a)(2) of this Form 10-K. In our opinion, these financial statement schedules
present fairly, in all material respects, the information set forth therein when
read in conjunction with the related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
December 13, 2005
F-4
UGI CORPORATION AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY)
BALANCE SHEETS
(Millions of dollars)
September 30,
-----------------
2005 2004
-------- ------
ASSETS
Current assets:
Cash and cash equivalents $ 0.3 $ 0.7
Accounts and notes receivable 14.0 4.2
Deferred income taxes 0.2 0.2
Prepaid expenses and other current assets 0.5 0.4
-------- ------
Total current assets 15.0 5.5
Investments in subsidiaries 1,111.8 956.1
Other assets 8.4 11.4
-------- ------
Total assets $1,135.2 $973.0
======== ======
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Current liabilities:
Accounts and notes payable $ 10.3 $ 10.2
Accrued liabilities 7.7 5.9
-------- ------
Total current liabilities 18.0 16.1
Noncurrent liabilities 119.6 122.8
Commitments and contingencies
Common stockholders' equity:
Common Stock, without par value (authorized - 300,000,000 shares;
issued - 115,152,994 shares) 793.6 762.6
Retained earnings 266.3 146.2
Accumulated other comprehensive income 16.5 22.6
Accumulated other comprehensive income -- --
Unearned compensation - restricted stock -- --
-------- ------
1,076.4 931.4
Less treasury stock, at cost (78.8) (97.3)
-------- ------
Total common stockholders' equity 997.6 834.1
-------- ------
Total liabilities and common stockholders' equity $1,135.2 $973.0
======== ======
Commitments and Contingencies:
In addition to the guarantees of FLAGA debt described in Note 3 to
Consolidated Financial Statements, at September 30, 2005, UGI Corporation had
agreed to indemnify the issuers of $30.1 of surety bonds issued on behalf of
certain UGI subsidiaries. UGI Corporation is authorized to guarantee up to $10.0
in supplier obligations on behalf of UGI Development Company, of which $5.3 of
such obligations were outstanding as of September 30, 2005. UGI Corporation is
also authorized to guarantee up to $265.0 of supplier obligations of UGI Energy
Services, Inc., of which $257.2 of such obligations were outstanding as of
September 30, 2005.
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,
----------------------------
2005 2004 2003
-------- ------- -------
Revenues $ -- $ -- $ --
Costs and expenses:
Operating and administrative expenses 30.0 24.5 18.6
Other income, net (29.5) (24.0) (17.6)
-------- ------- -------
0.5 0.5 1.0
-------- ------- -------
Operating loss (0.5) (0.5) (1.0)
Interest expense on intercompany debt (3.7) (2.2) (1.5)
-------- ------- -------
Loss before income taxes (4.2) (2.7) (2.5)
Income tax expense (benefit) 1.0 (1.3) (2.4)
-------- ------- -------
Loss before equity in income of unconsolidated
subsidiaries (5.2) (1.4) (0.1)
Equity in income of unconsolidated
subsidiaries 192.7 113.0 99.0
-------- ------- -------
Net income $ 187.5 $ 111.6 $ 98.9
======== ======= =======
Earnings per common share:
Basic $ 1.81 $ 1.18 $ 1.17
======== ======= =======
Diluted $ 1.77 $ 1.15 $ 1.14
======== ======= =======
Average common shares outstanding (millions):
Basic 103.877 94.616 84.440
======== ======= =======
Diluted 105.723 96.682 86.472
======== ======= =======
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,
------------------------
2005 2004 2003
------ ------ ------
NET CASH PROVIDED BY OPERATING ACTIVITIES (a) $ 93.3 $103.1 $102.0
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in unconsolidated subsidiaries (53.4) (300.2) (117.1)
Repayments to unconsolidated subsidiary -- -- --
------ ------ ------
Net cash used by investing activities (53.4) (300.2) (117.1)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of dividends on Common Stock (67.4) (56.3) (47.7)
Issuance of intercompany long-term debt -- -- 44.5
Issuance of Common Stock 27.1 254.1 18.8
Repurchases of Common Stock -- (0.6) (0.1)
------ ------ ------
Net cash provided (used) by financing activities (40.3) 197.2 15.5
------ ------ ------
Cash and cash equivalents increase (decrease) $ (0.4) $ 0.1 $ 0.4
====== ====== ======
Cash and cash equivalents:
End of period $ 0.3 $ 0.7 $ 0.6
Beginning of period 0.7 0.6 0.2
------ ------ ------
Increase (decrease) $ (0.4) $ 0.1 $ 0.4
====== ====== ======
(a) Includes dividends received from unconsolidated subsidiaries of $98.5,
$99.0 and $94.0, respectively, for the years ended September 30, 2005, 2004
and 2003.
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, 2005
- -----------------------------
Reserves deducted from assets in
the consolidated balance sheet:
Allowance for doubtful accounts $ 22.3 $ 25.1 $ (19.0) (1) $ 29.2
======= =======
0.8 (2)
Other reserves:
Self-insured property and casualty
liability $ 57.8 $ 25.9 $ (17.7) (3) $ 66.0
=======
Insured property and casualty liability $ 0.6 $ 0.6
======= =======
Environmental, litigation and other $ 34.7 $ (11.1) $ (4.7) (3) $ 19.7
======= =======
0.8 (2)
Year Ended September 30, 2004
- -----------------------------
Reserves deducted from assets in
the consolidated balance sheet:
Allowance for doubtful accounts $ 14.8 $ 17.3 $ (16.8) (1) $ 22.3
======= =======
1.4 (2)
5.6 (4)
Other reserves:
Self-insured property and casualty
liability $ 48.4 $ 26.1 $ (17.3) (3) $ 57.8
======= =======
0.6 (4)
Insured property and casualty liability $ 0.6 $ 0.6
======= =======
Environmental, litigation and other $ 15.7 $ 6.3 $ (3.8) (3) $ 34.7
======= =======
16.0 (4)
0.5 (2)
S-4
UGI CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (continued)
(Millions of dollars)
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) (3) $ 0.6
======= =======
Environmental, litigation and other $ 13.9 $ 6.0 $ (4.6) (3) $ 15.7
======= =======
0.4 (2)
(1) Uncollectible accounts written off, net of recoveries.
(2) Other adjustments.
(3) Payments, net.
(4) Acquisition.
S-5
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.15 Letter Agreement dated May 15, 2002 regarding severance
arrangement for Mr. Varagne
10.30 Description of oral employment at-will agreements for Messrs.
Greenberg, Mendicino, Varagne and Walsh
10.67 UGI Corporation 2004 Omnibus Equity Compensation Plan Sub-Plan for
French Employees
10.67(a) UGI Corporation 2004 Omnibus Equity Compensation Plan Sub-Plan for
French Employees Performance Unit Grant Letter
13 Pages 13 through 59 of the 2005 Annual Report to Shareholders
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
57