(MORGAN LEWIS LOGO)
COUNSELORS AT LAW
Morgan, Lewis & Bockius LLP
1111 Pennsylvania Avenue NW
Washington, D.C. 20004
TEL: 202.739.3000
FAX: 202.739.3001
EFAX: 877.432.9652
www.morganlewis.com
LINDA L. GRIGGS
202-739-5245
lgriggs@morganlewis.com
April 17, 2006
Mr. George F. Ohsiek, Jr.
Branch Chief, Division of Corporation Finance
U.S. Securities & Exchange Commission
100 F Street, N.W.
Washington, D.C. 20549
RE: UGI Corporation.
Form 10-K for Fiscal Year Ended September 30, 2005
Form 10-Q for the Fiscal Quarter Ended December 31, 2005
Filed December 13, 2005 and February 9, 2006
File No. 1-11071
Dear Mr. Ohsiek:
This letter is submitted on behalf of UGI Corporation ("UGI" or the "Company")
in response to your letter dated April 6, 2006 relating to the above-mentioned
filings by the Company. For convenience, the Staff's comments are set forth
below prior to each of the Company's responses.
Form 10-K for Fiscal Year Ended September 30, 2005
Consolidated Statement of Income, page 31
COMMENT 1:
Please tell us what consideration you gave to recording the resolution of the
various business tax matters for Antargaz as a reduction of goodwill as opposed
to recording amounts within your results of operations for fiscal 2005. In this
connection, it appears that the portion of the assumed business tax liabilities
related to certain of your owned tanks at customer locations was in dispute at
the acquisition date. Please clarify the specific nature of the dispute that
existed at the acquisition date and tell us whether the February 4, 2005 letter
from the French government resolved the dispute. If the February 4, 2005 letter
resolved the dispute existing at the acquisition date, tell us why you do not
consider the receipt of the letter to represent the resolution of a
pre-acquisition contingency within the purchase price allocation period. Please
also clarify whether the resolution reached with respect to business tax
assessments relating to prior years
(MORGAN LEWIS LOGO)
COUNSELORS AT LAW
Mr. George F. Ohsiek, Jr.
U.S. Securities & Exchange Commission
April 17, 2006
Page 2
represents a post acquisition event or the resolution of a pre-acquisition
contingency. Please tell us if you recorded the liabilities for these business
tax assessments as part of your March 31, 2004 step acquisition of Antargaz and
how you estimated the amounts. If no amounts were recorded as a result of the
purchase price allocation, tell us in detail why not. Refer to SAB Topic 2:A:7.
Ensure your response quantifies the pre-tax gain attributable to the resolution
of the tax issue relating to the owned tanks at customer locations and the
business tax assessments relating to prior years.
RESPONSE:
The French business tax to which UGI refers is a tax on tangible fixed assets
utilized by liquefied petroleum gas (LPG) distribution companies, such as its
subsidiary Antargaz. Historically, there have been changes in the position of
the tax authorities, and in the statutes they enforce, as to which assets are
subject to tax and who should pay the tax, the LPG distributors or their
customers. Antargaz and the tax authorities were involved in a lawsuit over the
assessment of business tax between 1997 and 2000 at the time of UGI's
acquisition of the remaining 80.5% of AGZ Holding, Antargaz' parent. As of March
31, 2004, Antargaz had recorded estimated liabilities related to the business
tax that it believed it would owe upon resolution of the dispute. UGI reviewed
Antargaz' assessment under the criteria of SFAS 5 and FIN 14 and agreed with its
conclusions. Accordingly, UGI did not record a purchase price adjustment to
Antargaz' business tax liability as of March 31, 2004.
As disclosed in Note 3 to UGI's 2004 consolidated financial statements and Note
2 to UGI's 2005 consolidated financial statements (copies of these Notes are
attached as Exhibit A), UGI completed its review and determination of the March
31, 2004 fair value of the portion of AGZ Holding's assets acquired and
liabilities assumed as of September 30, 2004. In accordance with SFAS 141 and
SAB Topic 2:A:7, as of December 14, 2004, the filing date of its 2004 Annual
Report on Form 10-K, the Company was no longer awaiting additional information
to measure the fair value of assets acquired and liabilities assumed, including
the estimated liability for business tax. SAB Topic 2:A:7 specifically precludes
the extension of the purchase price allocation period simply because of the
existence of a contingent liability. The existence and nature of this
contingency was disclosed in Note 12 to UGI's 2004 consolidated financial
statements (Exhibit B).
On February 4, 2005, the French Ministry of Finance issued a letter to the
French Committee of Butane and Propane (CFBP), a butane/propane industry group.
The letter clarified that (1) all LPG cylinders and tanks provided for free
(i.e., without a rental charge) for use by customers who are not subject to
business tax (i.e., private individuals) are not subject to business tax to be
paid by LPG distributors and (2) tanks provided for free to companies and
professionals subject to the business tax (i.e., businesses) are subject to
business tax to be paid by LPG distributors. The letter, however, did not
resolve the outstanding litigation between Antargaz and the tax authorities
covering calendar years 1997 through 2000.
In fiscal year 2005, UGI made adjustments to the business tax liability related
to two separate issues. The first, in the pre-tax amount of $12.0 million,
related to the issues addressed in the February 4, 2005 letter from the Ministry
of Finance for which tax years were still open (calendar 2002 through 2004). The
second,
(MORGAN LEWIS LOGO)
COUNSELORS AT LAW
Mr. George F. Ohsiek, Jr.
U.S. Securities & Exchange Commission
April 17, 2006
Page 3
in the pre-tax amount of $7.9 million, related to a tax year (calendar 2001) for
which no additional business tax had been assessed by the tax authorities and no
tax audit had been commenced. Antargaz never paid the business tax in question
nor filed a return declaring it because it was in dispute. Under French law,
after three years, if there is neither audit nor assessment, the matter is
closed and no tax may be reassessed. Antargaz had previously (prior to March 31,
2004) accrued the tax for calendar year 2001 because the tax authorities had
assessed the tax through a tax audit for calendar years 1997 through 2000, which
years are the subject of the continuing litigation.
Pursuant to the relevant guidance in SFAS 141 and SAB Topic 2:A:7, the Company
recognized these adjustments to the contingent liability after the expiration of
the allocation period as an element of net income during fiscal year 2005.
Notes to Consolidated Financial Statements, page 36
Note 5 - Employee Retirement Plans, Page 46
COMMENT 2:
Please explain to us how you calculate the market related value of plan assets
as that term is defined in SFAS 87. Since there is an alternative to how you can
calculate this item, and it has a direct effect on pension expense, we believe
you should disclose in future filings how you determine this amount in
accordance with paragraph 12 of APB 22.
RESPONSE:
UGI uses a market related value of plan assets and the expected long-term rate
of return on plan assets to determine the expected return on plan assets. The
market related value of plan assets other than equities in the UGI Utilities
Pension Plan is based upon the market price of the assets or similar assets. The
market related value of the equities in the UGI Utilities Pension Plan is
calculated by rolling forward the prior-year's market related value, adding or
subtracting contributions and disbursements and applying the expected return on
plan assets to obtain an expected value. The expected value is compared to the
actual value using market prices for those assets. One third of the difference
between the expected and the actual value is then added to or subtracted from
the expected value resulting in the new market related value of equities.
UGI will disclose the following in its Organization and Significant Accounting
Policies footnote beginning with its 2006 Annual Report on Form 10-K.
"UGI uses a market related value of plan assets and the expected long-term rate
of return on plan assets to determine the expected return on plan assets. The
market related value of plan assets other than equities in UGI Utilities Pension
Plan is based upon the market price of the plan assets or similar assets. The
market related value of the equities in the UGI Utilities Pension Plan is
calculated by rolling forward the prior-year's market related value with
contributions, disbursements and the expected return on plan assets. One third
of the difference between the expected and the actual value is then added to or
subtracted from the expected value to determine the new market related value.
(MORGAN LEWIS LOGO)
COUNSELORS AT LAW
Mr. George F. Ohsiek, Jr.
U.S. Securities & Exchange Commission
April 17, 2006
Page 4
* * * * * * *
UGI Corporation has advised us that it acknowledges that:
- - the Company is responsible for the adequacy and accuracy of the disclosure
in the filings;
- - staff comments or changes to disclosure in response to staff comments do
not foreclose the Commission from taking any action with respect to any
filing; and
- - the Company may not assert staff comments as a defense in any proceeding
initiated by the Commission or any person under the federal securities laws
of the United States.
Please contact me at 202-739-5245 if you should require any additional
information.
Sincerely,
/s/ Linda L. Griggs
---------------------------------------
Linda L. Griggs
Enclosures:
Exhibit A: Note 3 to UGI's 2004 consolidated financial statements and
Note 2 to UGI's 2005 consolidated financial statements
Exhibit B: Selected Portion of Note 12 to UGI's 2004 consolidated financial
statements
cc: Anthony W. Watson, U.S. Securities and Exchange Commission
UGI Corporation
Lon R. Greenberg
Robert H. Knauss
Margaret M. Calabrese
Anthony J. Mendicino
Michael J. Cuzzolina
PricewaterhouseCoopers
Michael T. Mullen
EXHIBIT A
NOTE 3 - ACQUISITIONS AND INVESTMENTS
ON MARCH 31, 2004 (the "Closing Date"), UGI, through its subsidiary, UGI
Bordeaux Holding (as assignee of UGI France), completed its acquisition of the
remaining outstanding 80.5% ownership interests of AGZ, a French corporation and
the parent company of Antargaz, a French corporation and a leading distributor
of LPG in France, pursuant to the terms of (i) a Share Purchase Agreement dated
as of February 17, 2004, by and among UGI France, UGI, PAI partners, a French
corporation, and certain officers, directors and managers of AGZ and Antargaz
and their affiliates, and (ii) that certain Medit Joinder Agreement dated
February 20, 2004, by and among UGI France, UGI, Medit Mediterranea GPL,
S.r.L, a company incorporated under the laws of Italy ("Medit"), and PAI
partners (herein referred to as the "Antargaz Acquisition"). The acquisition of
the remaining interests in AGZ is consistent with our growth strategies and core
competencies.
The purchase price on the Closing Date of E261.8 or $319.2 (excluding
transaction fees and expenses) was subject to post-closing working capital and
net debt adjustments. UGI used the cash proceeds from its March 2004 public
offering of 7.5 million shares of its common stock and $89.0 of available cash
to fund the purchase price. In accordance with the Share Purchase Agreement, UGI
paid an additional E5.8 ($7.1) as a result of post-closing adjustments. In
addition, we incurred transaction fees and expenses of $5.4. See Note 9 for
additional information regarding the issuance of UGI Common Stock.
The Antargaz Acquisition has been accounted for as a step acquisition.
UGl's initial 19.5% equity investment in AGZ has been allocated to 19.5% of
AGZ's assets and liabilities at March 31, 2004. The amount by which the carrying
value of UGl's equity investment exceeded the aforementioned allocation has been
recorded as goodwill. The purchase price of the remaining 80.5% of AGZ,
including transaction fees and expenses, has been allocated to the assets
acquired and liabilities assumed, as follows:
Working capital $ 28.7
Property, plant and equipment 337.0
Goodwill 469.3
Customer relationships (estimated useful life of 97.1
twelve years)
Trademark and other intangible assets 38.6
Long-term debt (including current maturities) (392.6)
Deferred income taxes (108.8)
Minority interests (11.1)
Other assets and liabilities (126.5)
-------
Total $ 331.7
=======
None of the goodwill is expected to be deductible for income tax purposes.
The Company has completed its review and determination of the fair value of
the portion of AGZ's assets acquired and liabilities assumed, principally the
fair values of property, plant and equipment and identifiable intangible assets.
The assets and liabilities of AGZ are included in our Consolidated Balance Sheet
as of September 30, 2004. The operating results of AGZ are included in our
consolidated results beginning April 1, 2004. Prior to April 1, 2004, our 19.5%
equity interest in AGZ is reflected in our Consolidated Financial Statements
under the equity method of accounting.
The following table presents unaudited pro forma income statement and basic
and diluted per share data for the years ended September 30, 2004 and 2003 as if
the Antargaz Acquisition had occurred as of the beginning of those periods:
2004 2003
----------- -----------
(pro forma) (pro forma)
Revenues $4,293.0 $3,725.0
Net income 168.2 122.9
Earnings per share:
Basic $ 3.31 $ 2.46
Diluted $ 3.24 $ 2.41
The pro forma results of operations reflect AGZ's historical operating
results after giving effect to adjustments directly attributable to the
transaction that are expected to have a continuing effect. The pro forma amounts
are not necessarily indicative of the operating results that would have occurred
had the acquisition been completed as of the date indicated, nor are they
necessarily indicative of future operating results.
On October 1, 2003, AmeriGas OLP acquired substantially all of the retail
propane distribution assets and business of Horizon Propane LLC ("Horizon
Propane") for total cash consideration of $31.0. In December 2003, AmeriGas OLP
paid Horizon Propane a working capital adjustment of $0.1 in accordance with the
Asset Purchase Agreement. During its fiscal year ended June 30, 2003, Horizon
Propane sold over 30 million gallons of propane from ninety locations in twelve
states. In addition, AmeriGas OLP completed several smaller acquisitions of
retail propane businesses, HVAC/R acquired a commercial refrigeration business
and FLAGA acquired a retail propane distribution business in the Czech Republic
during the year ended September 30, 2004. The pro forma effect of these
transactions is not material.
In June 2003, pursuant to an asset purchase agreement between and among
Allegheny Energy Supply Company, LLC, Allegheny Energy Supply Conemaugh, LLC
("Allegheny Conemaugh"), UGID, and UGI, UGID acquired an additional 83 megawatt
ownership interest in the Conemaugh electricity generation station ("Conemaugh")
from Allegheny Conemaugh, a unit of Allegheny Energy, Inc. ("Allegheny"), for
$51.3 in cash, subject to a $3.0 credit. Conemaugh is a 1,711-megawatt,
coal-fired electricity generation station located near Johnstown, Pennsylvania
and is owned by a consortium of energy companies and operated by a unit of
Reliant Resources, Inc. under contract. The purchase increased UGID's ownership
interest in Conemaugh to 102 megawatts (6.0%) from 19 megawatts (1.1%)
previously. Substantially all of the purchase price for the additional interest
in Conemaugh is included in property, plant and equipment in the Consolidated
Balance Sheet.
In March 2003, Energy Services acquired the northeastern U.S. gas marketing
business of TXU Energy Retail Company, L.P., a subsidiary of TXU Corp. (the "TXU
Energy Acquisition"), for approximately $10.0 in cash. As a result of the TXU
Energy Acquisition, Energy Services assumed the existing sales and supply
agreements for approximately one thousand commercial and industrial customers
located primarily in New York, Pennsylvania, Ohio and New Jersey.
During 2003, AmeriGas OLP acquired several retail propane distribution
businesses and HVAC/R acquired a commercial refrigeration business for total
cash consideration of $28.6. In conjunction with these acquisitions, liabilities
of $1.5 were incurred. The operating results of these businesses have been
included in our results of operations from their respective dates of
acquisition.
In November 2004, UGI Asset Management, Inc., a wholly owned subsidiary of
Energy Services, acquired from ConocoPhillips Company and AmerE Holdings, Inc.
(a wholly owned, indirect subsidiary of AmeriGas Propane, L.P.) in separate
transactions 100% of the issued and outstanding common stock of Atlantic Energy,
Inc. for an aggregate purchase price of approximately $24 in cash, subject to
post-closing adjustments. In connection with this acquisition, Atlantic Energy,
Inc. and AmeriGas Propane, L.P. entered into a long-term propane supply
agreement.
NOTE 2 - ACQUISITIONS AND INVESTMENTS
During 2005, AmeriGas OLP acquired several retail propane distribution
businesses for total cash consideration of approximately $22.7. HVAC/R acquired
a commercial and residential electrical contracting business in September 2005.
The operating results of these businesses have been included in our operating
results from their respective dates of acquisition. The pro forma effects of
these transactions were not material.
In November 2004, UGI Asset Management, Inc. acquired from ConocoPhillips
Company and AmerE Holdings, Inc. (a wholly owned, indirect subsidiary of
AmeriGas OLP) in separate transactions 100% of the issued and outstanding common
stock of Atlantic Energy for an aggregate purchase price of approximately $24 in
cash, including post-closing adjustments (the "AEI Acquisition"). The AEI
Acquisition has been accounted for as a step acquisition in the Consolidated
Financial Statements. In connection with this acquisition, Atlantic Energy and
AmeriGas OLP entered into a long-term propane supply agreement.
On March 31, 2004 (the "Closing Date"), UGI, through its subsidiary, UGI
Bordeaux Holding (as assignee of UGI France), completed its acquisition of the
remaining outstanding 80.5% ownership interests of AGZ, a French corporation and
the parent company of Antargaz, a French corporation and a leading distributor
of LPG in France, pursuant to the terms of (i) a Share Purchase Agreement dated
as of February 17, 2004, by and among UGI France, UGI, PAI partners, a French
corporation, and certain officers, directors and managers of AGZ and Antargaz
and their affiliates, and (ii) that certain Medit Joinder Agreement dated
February 20, 2004, by and among UGI France, UGI, Medit Mediterranea GPL, S.r.L.,
a company incorporated under the laws of Italy ("Medit"), and PAI partners
(herein referred to as the "Antargaz Acquisition"). The acquisition of the
remaining interests in AGZ was consistent with our growth strategies and core
competencies.
The purchase price on the Closing Date of E261.8 or $319.2 (excluding
transaction fees and expenses) was subject to post-closing working capital and
net debt adjustments. UGI used the cash proceeds from its March 2004 public
offering of 15 million shares of its common stock and $89.0 of available cash to
fund the purchase price. In accordance with the Share Purchase Agreement, UGI
paid an additional E5.8 ($7.1) as a result of post-closing adjustments. In
addition, we incurred transaction fees and expenses of $5.4. See Note 8 for
additional information regarding the issuance of UGI Common Stock.
The Antargaz Acquisition has been accounted for as a step acquisition.
UGl's initial 19.5% equity investment in AGZ has been allocated to 19.5% of
AGZ's assets and liabilities at March 31, 2004. The amount by which the carrying
value of UGl's equity investment exceeded the aforementioned allocation has been
recorded as goodwill. The purchase price of the remaining 80.5% of AGZ,
including transaction fees and expenses, has been allocated to the assets
acquired and liabilities assumed, as follows:
Working capital $ 28.7
Property, plant and equipment 337.0
Goodwill 469.3
Customer relationships (estimated useful life of 97.1
twelve years)
Trademark and other intangible assets 38.6
Long-term debt (including current maturities) (392.6)
Deferred income taxes (108.8)
Minority interests (11.1)
Other assets and liabilities (126.5)
-------
Total $ 331.7
=======
None of the goodwill is expected to be deductible for income tax purposes.
The Company completed its review and determination in 2004 of the fair
value of the portion of AGZ's assets acquired and liabilities assumed,
principally the fair values of property, plant and equipment and identifiable
intangible assets. The assets and liabilities of AGZ are included in our
Consolidated Balance Sheets as of September 30, 2005 and 2004. The operating
results of AGZ are included in our consolidated results beginning April 1, 2004.
For periods prior to April 1, 2004, our 19.5% equity interest in AGZ is
reflected in our Consolidated Financial Statements under the equity method of
accounting.
The following table presents unaudited pro forma income statement and basic
and diluted per share data for the years ended September 30, 2004 and 2003 as if
the Antargaz Acquisition had occurred as of the beginning of those periods:
2004 2003
----------- -----------
(pro forma) (pro forma)
Revenues $4,293.0 $3,725.0
Net income 168.2 122.9
Earnings per share:
Basic $ 1.66 $ 1.23
Diluted $ 1.62 $ 1.21
The pro forma results of operations reflect AGZ's historical operating
results after giving effect to adjustments directly attributable to the
transaction that are expected to have a continuing effect. The pro forma amounts
are not necessarily indicative of the operating results that would have occurred
had the acquisition been completed as of the date indicated, nor are they
necessarily indicative of future operating results.
On October 1, 2003, AmeriGas OLP acquired substantially all of the retail
propane distribution assets and business of Horizon Propane LLC ("Horizon
Propane") for total cash consideration of $31.0. In December 2003, AmeriGas OLP
paid Horizon Propane a working capital adjustment of $0.1 in accordance with the
Asset Purchase Agreement. During its fiscal year ended June 30, 2003, Horizon
Propane sold over 30 million gallons of propane from ninety locations in twelve
states. In addition, during the year ended September 30, 2004, AmeriGas OLP
completed several smaller acquisitions of retail propane businesses, HVAC/R
acquired a commercial refrigeration business and FLAGA acquired a retail propane
distribution business in the Czech Republic. The pro forma effect of these
transactions is not material.
In June 2003, pursuant to an asset purchase agreement between and among
Allegheny Energy Supply Company, LLC, Allegheny Energy Supply Conemaugh, LLC
("Allegheny Conemaugh"), UGID, and UGI, UGID acquired an additional 83 megawatt
ownership interest in the Conemaugh electricity generation station ("Conemaugh")
from Allegheny Conemaugh, a unit of Allegheny Energy, Inc. ("Allegheny"), for
$51.3 in cash, subject to a $3.0 credit. Conemaugh is a 1,711-megawatt,
coal-fired electricity generation station located near Johnstown, Pennsylvania
and is owned by a consortium of energy companies and operated by a unit of
Reliant Resources, Inc. under contract. The purchase increased UGID's ownership
interest in Conemaugh to 102 megawatts (6.0%) from 19 megawatts (1.1%)
previously. Substantially all of the purchase price for the additional interest
in Conemaugh is included in property, plant and equipment in the Consolidated
Balance Sheet.
In March 2003, Energy Services acquired the northeastern U.S. gas marketing
business of TXU Energy Retail Company, L.R, a subsidiary of TXU Corp. (the "TXU
Energy Acquisition"), for approximately $10.0 in cash. As a result of the TXU
Energy Acquisition, Energy Services assumed the existing sales and supply
agreements for approximately one thousand commercial and industrial customers
located primarily in New York, Pennsylvania, Ohio and New Jersey.
During 2003, AmeriGas OLP acquired several retail propane distribution
businesses and HVAC/R acquired a commercial refrigeration business for total
cash consideration of $28.6. In conjunction with these acquisitions, liabilities
of $1.5 were incurred. The operating results of these businesses have been
included in our results of operations from their respective dates of
acquisition.
EXHIBIT B
future costs of an uncertain amount associated with environmental damage caused
by MGPs outside Pennsylvania that UGI Utilities directly operated, or that were
owned or operated by former subsidiaries of UGI Utilities, if a court were to
conclude that (1) the subsidiary's separate corporate form should be disregarded
or (2) UGI Utilities should be considered to have been an operator because of
its conduct with respect to its subsidiary's MGP.
In April 2003, Citizens Communications Company ("Citizens") served a
complaint naming UGI 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 UGI 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. The City believes that it could cost as much as
$50 to clean up the river. UGI Utilities believes that it has good defenses to
the claim and is defending the suit.
By letter dated July 29, 2003, Atlanta Gas Light Company ("AGL") served UGI
Utilities with a complaint filed in the United States District Court for the
Middle District of Florida in which AGL alleges that UGI Utilities is
responsible for 20% of approximately $8 incurred by AGL in the investigation and
remediation of a former MGP site in St. Augustine, Florida. UGI Utilities
formerly owned stock of the St. Augustine Gas Company, the owner and operator of
the MGP. UGI Utilities believes that it has good defenses to the claim and is
defending the suit.
AGL previously informed UGI 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 UGI Utilities operated the MGP
in the early 1900s. AGL has recently informed UGI 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. AGL has not filed suit against UGI
Utilities for a share of these costs. UGI Utilities believes that it will have
good defenses to any action that may arise out of this site.
On September 20, 2001, Consolidated Edison Company of New York ("ConEd")
filed suit against UGI Utilities in the United States District Court for the
Southern District of New York, seeking contribution from UGI 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 UGI Utilities "owned and operated" the MGPs
prior to 1904. The complaint also seeks a declaration that UGI 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. By orders issued in November 2003 and March 2004, the
court granted UGI Utilities' motion for summary judgment and dismissed ConEd's
complaint. ConEd has appealed.
By letter dated June 24, 2004, KeySpan Energy ("KeySpan") informed UGI
Utilities that KeySpan has spent $2.3 and expects to spend another $11 to clean
up an MGP site it owns in Sag Harbor, New York. KeySpan believes that UGI
Utilities is responsible for approximately 50% of these costs as a result of.
UGI Utilities' alleged direct ownership and operation of the plant from 1885 to
1902. UGI Utilities is in the process of reviewing the information provided by
KeySpan and is investigating this claim.
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 UGI 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 UGI 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 and complete remediation
costs for all sites could total $182. The Northeast Companies seek an
unspecified fair and equitable allocation of these costs to UGI Utilities. UGI
Utilities is in the process of reviewing the information provided by Northeast
Companies and is investigating this claim.
Antargaz has filed suit against the French tax authorities in connection
with the assessment of business tax related to the tax treatment of Antargaz
owned tanks at customer locations used to store LPG. Antargaz has recorded a
liability for the business tax relating to tanks for the period from January 1,
1997 through September 30, 2004 of approximately E28.4 ($35.3). Elf Antar
France, now Total France, and Elf Aquitaine, former owners of Antargaz, agreed
to indemnify Antargaz for all payments which would have been due from Antargaz
in respect of the business tax related to its tanks for the period from January
1, 1997 through December 31, 2000. In March 2004, the local court rendered a
decision against Antargaz which resulted in a E1.7 ($2.1) assessment by the
tax assessor relating to the business tax at certain sites in the pending suit.
Antargaz paid this assessment and was fully reimbursed in April 2004 for this
assessment pursuant to the indemnity agreement. Antargaz is appealing the
assessment. As of September 30, 2004, the indemnity from the former owners
represents approximately E9.4 ($11.7) of the business tax liability.
In addition to these matters, there are other pending claims and legal
actions arising in the normal course of our businesses. We cannot predict with
certainty the final results of environmental and other matters. However, it is
reasonably possible that some of them could be resolved unfavorably to us.
Although we currently believe, after consultation with counsel, that damages or
settlements, if any, recovered by the plaintiffs in such claims or actions will
not have a material adverse effect on our financial position, damages or
settlements could be material to our operating results or cash flows in future
periods depending on the nature and timing of future developments with respect
to these matters and the amounts of future operating results and cash flows.