1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 1-11071
UGI CORPORATION
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2668356
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
UGI CORPORATION
460 North Gulph Road, King of Prussia, PA
(Address of principal executive offices)
19406
(Zip Code)
(610) 337-1000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
At April 30, 1997, there were 33,074,251 shares of UGI Corporation
Common Stock, without par value, outstanding.
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UGI CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
PAGES
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 1997,
September 30, 1996 and March 31, 1996 1
Condensed Consolidated Statements of Income for the three,
six and twelve months ended March 31, 1997 and 1996 2
Condensed Consolidated Statements of Cash Flows for the
six and twelve months ended March 31, 1997 and 1996 3
Notes to Condensed Consolidated Financial Statements 4 - 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11 - 26
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 26
Item 6. Exhibits and Reports on Form 8-K 27
Signatures 28
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UGI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(Millions of dollars)
March 31, September 30, March 31,
1997 1996 1996
-------- -------- --------
ASSETS
Current assets:
Cash and cash equivalents $ 85.9 $ 74.0 $ 72.1
Short-term investments, at cost which approximates market value 67.8 23.1 23.0
Accounts receivable (less allowances for doubtful accounts of
$13.6, $10.6 and $11.9, respectively) 205.0 113.3 214.2
Accrued utility revenues 18.2 8.6 17.9
Inventories 56.7 113.2 70.0
Deferred income taxes 22.9 17.4 24.3
Prepaid expenses and other current assets 23.7 32.0 13.3
-------- -------- --------
Total current assets 480.2 381.6 434.8
Property, plant and equipment, at cost (less accumulated depreciation
and amortization of $395.1, $368.2 and $343.0, respectively) 977.4 974.6 963.3
Intangible assets (less accumulated amortization of $104.5, $94.9 and
$86.7, respectively) 682.6 692.5 694.5
Regulatory income tax asset 43.3 42.9 39.3
Other assets 48.5 53.3 65.5
-------- -------- --------
Total assets $2,232.0 $2,144.9 $2,197.4
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt - Propane $ 9.8 $ 5.2 $ 5.5
Current maturities of long-term debt - Utilities 17.1 25.5 25.5
Current maturities of long-term debt - other 0.4 0.4 0.3
Bank loans - Propane -- 15.0 --
Bank loans - Utilities 95.0 50.5 25.5
Accounts payable 81.3 94.7 89.0
Other current liabilities 197.3 177.9 191.8
-------- -------- --------
Total current liabilities 400.9 369.2 337.6
Long-term debt - Propane 687.8 687.3 665.7
Long-term debt - Utilities 139.3 149.3 156.4
Long-term debt - other 8.4 8.6 8.8
Deferred income taxes 152.4 148.6 139.4
Other noncurrent liabilities 86.8 84.7 110.3
Minority interest in AmeriGas Partners 304.7 284.4 328.2
UGI Utilities redeemable preferred stock 35.2 35.2 35.2
Common stockholders' equity:
Common Stock, without par value (authorized - 100,000,000 shares;
issued - 33,198,731, 33,198,731, and 33,058,839 shares, respectively) 392.3 391.9 391.6
Retained earnings (accumulated deficit) 26.7 (12.8) 27.1
-------- -------- --------
419.0 379.1 418.7
Less treasury stock, at cost 2.5 1.5 2.9
-------- -------- --------
Total common stockholders' equity 416.5 377.6 415.8
-------- -------- --------
Total liabilities and stockholders' equity $2,232.0 $2,144.9 $2,197.4
======== ======== ========
The accompanying notes are an integral part of these financial statements.
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UGI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(Millions, except per share amounts)
Three Months Ended Six Months Ended Twelve Months Ended
March 31, March 31, March 31,
------------------------ ------------------------ ------------------------
1997 1996(a) 1997 1996(a) 1997 1996(a)
---------- ---------- ---------- ---------- ---------- ----------
Revenues:
Propane $ 371.2 $ 374.8 $ 731.3 $ 660.6 $ 1,083.9 $ 955.9
Utilities 173.2 181.3 307.4 303.6 464.3 423.7
Energy marketing 32.0 26.5 67.3 45.3 105.9 53.8
---------- ---------- ---------- ---------- ---------- ----------
576.4 582.6 1,106.0 1,009.5 1,654.1 1,433.4
---------- ---------- ---------- ---------- ---------- ----------
Costs and expenses:
Propane cost of sales 215.8 209.3 420.5 372.0 618.2 525.9
Utilities - gas, fuel and purchased power 94.3 100.5 163.6 160.4 242.9 210.8
Other cost of sales 31.3 22.9 65.4 40.6 102.5 48.6
Operating and administrative expenses 113.9 119.1 227.1 225.3 439.3 417.4
Depreciation and amortization 22.0 21.6 43.7 43.0 86.7 82.0
Petrolane fee income -- -- -- -- -- (2.8)
Miscellaneous income, net (8.6) (2.5) (11.6) (6.2) (18.1) (12.7)
---------- ---------- ---------- ---------- ---------- ----------
468.7 470.9 908.7 835.1 1,471.5 1,269.2
---------- ---------- ---------- ---------- ---------- ----------
Operating income 107.7 111.7 197.3 174.4 182.6 164.2
Interest charges (21.4) (19.9) (42.5) (39.8) (82.2) (77.4)
Minority interest in AmeriGas Partners (20.2) (21.4) (36.9) (28.7) (12.5) (9.0)
---------- ---------- ---------- ---------- ---------- ----------
Income before income taxes, subsidiary
preferred stock dividends and
Equity in Petrolane 66.1 70.4 117.9 105.9 87.9 77.8
Income taxes (29.6) (32.1) (52.8) (48.7) (37.7) (42.7)
Dividends on UGI Utilities Series
Preferred Stock (0.7) (0.7) (1.4) (1.4) (2.8) (2.8)
Equity in Petrolane -- -- -- -- -- (6.6)
---------- ---------- ---------- ---------- ---------- ----------
Income before extraordinary loss 35.8 37.6 63.7 55.8 47.4 25.7
Extraordinary loss - propane debt
restructuring -- -- -- -- -- (13.2)
---------- ---------- ---------- ---------- ---------- ----------
Net income $ 35.8 $ 37.6 $ 63.7 $ 55.8 $ 47.4 $ 12.5
========== ========== ========== ========== ========== ==========
Earnings per common and common equivalent share:
Earnings before extraordinary loss $ 1.08 $ 1.13 $ 1.92 $ 1.69 $ 1.43 $ 0.78
Extraordinary loss - propane debt
restructuring -- -- -- -- -- (0.40)
---------- ---------- ---------- ---------- ---------- ----------
Net earnings $ 1.08 $ 1.13 $ 1.92 $ 1.69 $ 1.43 $ 0.38
========== ========== ========== ========== ========== ==========
Dividends declared per share $ 0.355 $ 0.35 $ 0.71 $ 0.70 $ 1.415 $ 1.40
========== ========== ========== ========== ========== ==========
Average common and common
equivalent shares outstanding 33.3 33.1 33.2 33.1 33.2 33.0
========== ========== ========== ========== ========== ==========
(a) Revenues (and related cost of sales) have been reclassified to reflect
revenues from certain Gas Utility sales on a total, rather than net,
basis.
The accompanying notes are an integral part of these financial statements.
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UGI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(Millions of dollars)
Six Months Ended Twelve Months Ended
March 31, March 31,
---------------------- ----------------------
1997 1996 1997 1996
------- ------- ------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 63.7 $ 55.8 $ 47.4 $ 12.5
Reconcile to net cash provided by
operating activities:
Depreciation and amortization 43.7 43.0 86.7 82.0
Minority interest in AmeriGas Partners 36.9 28.7 12.5 9.0
Deferred income taxes, net (2.9) 0.7 8.4 10.1
Equity in loss of Petrolane -- -- -- 6.6
Extraordinary loss -- -- -- 13.2
Other, net (0.4) 1.3 (5.2) 3.6
------- ------- ------- -------
141.0 129.5 149.8 137.0
Net change in:
Accounts receivable and accrued utility revenues (107.0) (143.4) (0.7) (96.6)
Inventories 56.8 32.7 13.9 (6.2)
Deferred fuel adjustments 13.9 6.2 (3.0) (9.7)
Pipeline transition costs and producer settlements, net (1.4) (0.7) 0.4 (4.8)
Accounts payable (13.4) 19.5 (7.8) 29.0
Other current assets and liabilities 20.1 30.0 (5.2) 40.3
------- ------- ------- -------
Net cash provided by operating activities 110.0 73.8 147.4 89.0
------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant and equipment (31.8) (31.6) (62.9) (73.7)
Net proceeds from disposals of assets 8.1 2.0 10.3 2.6
Acquisitions of businesses, net of cash acquired (2.7) (8.6) (22.1) (11.9)
Short-term investments increase (44.6) (12.0) (44.7) (23.0)
Other, net 0.5 (0.3) 0.5 3.3
------- ------- ------- -------
Net cash used by investing activities (70.5) (50.5) (118.9) (102.7)
------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends on Common Stock (23.5) (23.1) (46.8) (45.9)
Distributions on Partnership public Common Units (19.4) (19.4) (38.7) (27.3)
Issuance of long-term debt 7.7 34.1 30.7 82.1
Repayment of long-term debt (20.3) (50.8) (29.2) (60.6)
Propane bank loans decrease (15.0) -- -- --
UGI Utilities bank loans increase (decrease) 44.5 (16.5) 69.5 (12.0)
Issuance of Common Stock 6.2 6.6 10.9 11.9
Repurchases of Common Stock (7.8) (3.8) (11.1) (3.8)
------- ------- ------- -------
Net cash used by financing activities (27.6) (72.9) (14.7) (55.6)
------- ------- ------- -------
AMERIGAS PARTNERS FORMATION TRANSACTIONS:
Acquisition of Petrolane Class B shares -- -- -- (90.9)
Issuance of AmeriGas Partners Common Units -- -- -- 349.7
Issuance of long-term debt -- -- -- 208.5
Repayment of long-term debt and related interest -- -- -- (408.9)
Other fees and expenses -- -- -- (19.6)
------- ------- ------- -------
Net cash provided by AmeriGas Partners
formation transactions -- -- -- 38.8
------- ------- ------- -------
Cash and cash equivalents increase (decrease) $ 11.9 $ (49.6) $ 13.8 $ (30.5)
======= ======= ======= =======
CASH AND CASH EQUIVALENTS:
End of period $ 85.9 $ 72.1 $ 85.9 $ 72.1
Beginning of period 74.0 121.7 72.1 102.6
------- ------- ------- -------
Increase (decrease) $ 11.9 $ (49.6) $ 13.8 $ (30.5)
======= ======= ======= =======
During the twelve months ended March 31, 1997 and 1996, UGI Utilities, Inc. paid
cash dividends to UGI of $45.4 and $11.6, respectively. During the twelve months
ended March 31, 1997 and 1996, AmeriGas, Inc. paid cash dividends to UGI of
$49.0 and $43.3, respectively. During those same periods, UGI paid cash
dividends to holders of Common Stock of $46.8 and $45.9, respectively. The
ability of UGI Corporation to declare and pay cash dividends on its Common Stock
is dependent upon the receipt of cash dividends and distributions from its
wholly owned subsidiaries, principally UGI Utilities, Inc. and AmeriGas, Inc.
The accompanying notes are an integral part of these financial statements.
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UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Million of dollars, except per share amounts)
1. BASIS OF PRESENTATION
UGI Corporation (UGI) is a holding company with two principal lines of
business. UGI's utility business is conducted through a wholly owned
subsidiary, UGI Utilities, Inc. (UGI Utilities), which owns and
operates a natural gas distribution utility (Gas Utility) and an
electric utility (Electric Utility) in Pennsylvania (together referred
to herein as "Utilities"). UGI conducts a national propane distribution
business through AmeriGas Partners, L.P. (AmeriGas Partners) and its
operating subsidiary, AmeriGas Propane, L.P. (the "Operating
Partnership"), both of which are Delaware limited partnerships. UGI
also conducts an energy marketing business through its wholly owned
subsidiary, UGI Enterprises, Inc. (UGI Enterprises).
At March 31, 1997, UGI, through wholly owned subsidiaries, holds an
effective 2% general partner interest and a 56.5% limited partnership
interest in the Operating Partnership. This limited partner interest is
evidenced by common units (Common Units) and subordinated units
(Subordinated Units) representing limited partner interests in AmeriGas
Partners. The remaining 41.5% effective interest in the Operating
Partnership is publicly held. AmeriGas Partners and the Operating
Partnership are collectively referred to herein as the Partnership. A
second-tier subsidiary of UGI serves as the general partner of AmeriGas
Partners and the Operating Partnership.
The condensed consolidated financial statements include the accounts of
UGI and its majority-owned subsidiaries (collectively, "the Company").
All significant intercompany accounts and transactions have been
eliminated in consolidation. The public unitholders' interest in
AmeriGas Partners' results of operations and net assets is reflected as
minority interest in the condensed consolidated statements of income
and balance sheets. The Company's 35% investment in Petrolane
Incorporated (Petrolane) through April 19, 1995 was accounted for by
the equity method. On April 19, 1995, the Company acquired the 65% of
Petrolane common shares outstanding not already owned and combined the
propane distribution businesses of Petrolane and its wholly owned
subsidiaries AmeriGas Propane, Inc. (AmeriGas Propane) and AmeriGas
Propane-2, Inc. (AGP-2) into the Operating Partnership (the
"Partnership Formation").
The accompanying condensed consolidated financial statements are
unaudited and have been prepared in accordance with the rules and
regulations of the U.S. Securities and Exchange Commission. They
include all adjustments which the Company considers necessary for a
fair statement of the results for the interim periods presented. Such
adjustments consisted only of normal recurring items unless otherwise
disclosed. These
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UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Million of dollars, except per share amounts)
financial statements should be read in conjunction with the financial
statements and the notes thereto included in the Company's Annual
Report on Form 10-K for the year ended September 30, 1996. Due to the
seasonal nature of the Company's businesses, the results of operations
for interim periods are not necessarily indicative of the results to be
expected for a full year.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the
date of the financial statements, and revenues and expenses during the
reporting period. Actual results could differ from these estimates.
2. EQUITY IN PETROLANE
Prior to the Partnership Formation, UGI's AmeriGas, Inc. subsidiary
conducted its national propane distribution business principally
through its wholly owned subsidiaries AmeriGas Propane and AGP-2, and
its equity investee Petrolane. The following table includes summarized
condensed consolidated results of operations of Petrolane for the
period March 24, 1995 to April 19, 1995:
March 24,
1995 to
April 19,
1995
---------
Revenues $ 37.5
Cost of sales (20.4)
Depreciation and amortization (4.0)
Other costs and expenses (11.9)
---------
Operating income 1.2
Interest expense (3.9)
Income tax benefit (.3)
---------
Net loss $ (2.4)
=========
As a result of the Partnership Formation, in April 1995 the Company
wrote-off $5.8 million of net deferred tax benefits of Petrolane which
amount is reflected in "Equity in Petrolane" and represents the
Company's share of such tax benefits no longer realizable as a result
of the public's interest in the Partnership.
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UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Millions of dollars, except per share amounts)
3. SEGMENT INFORMATION
Information on revenues, operating income (loss), depreciation and
amortization, identifiable assets and certain operating statistics by
business segment for the periods presented follows:
Three Months Ended Six Months Ended Twelve Months Ended
March 31, March 31, March 31,
-------------------- -------------------- --------------------
1997 1996 1997 1996 1997 1996
-------- -------- -------- -------- -------- --------
REVENUES
Propane $ 371.2 $ 374.8 $ 731.3 $ 660.6 $1,083.9 $ 955.9
Gas utility 153.3 162.1 269.1 267.3 392.8 355.7
Electric utility 19.9 19.2 38.3 36.3 71.5 68.0
Energy marketing (a) 32.0 26.5 67.3 45.3 105.9 53.8
-------- -------- -------- -------- -------- --------
Total consolidated operations $ 576.4 $ 582.6 $1,106.0 $1,009.5 $1,654.1 $1,433.4
======== ======== ======== ======== ======== ========
Petrolane (b) $ -- $ -- $ -- $ -- $ -- $ 37.5
======== ======== ======== ======== ======== ========
OPERATING INCOME (LOSS)
Propane $ 67.7 $ 69.7 $ 126.9 $ 105.3 $ 102.4 $ 91.2
Gas utility 38.9 39.2 67.5 66.2 74.2 71.1
Electric utility 3.3 2.7 6.3 4.9 10.0 8.6
Energy marketing 0.3 3.0 1.1 3.9 1.6 4.8
Petrolane management fee -- -- -- -- -- 0.9
Corporate general and other (2.5) (2.9) (4.5) (5.9) (5.6) (12.4)
-------- -------- -------- -------- -------- --------
Total consolidated operations $ 107.7 $ 111.7 $ 197.3 $ 174.4 $ 182.6 $ 164.2
======== ======== ======== ======== ======== ========
Petrolane (b) $ -- $ -- $ -- $ -- $ -- $ 1.3
======== ======== ======== ======== ======== ========
DEPRECIATION AND AMORTIZATION
Propane - depreciation $ 9.7 $ 9.7 $ 19.3 $ 19.1 $ 38.5 $ 36.3
Propane - amortization 6.5 6.4 12.9 13.0 25.7 24.8
Gas utility 4.6 4.4 9.2 8.7 18.1 16.8
Electric utility 1.1 1.0 2.1 2.0 4.1 3.8
Corporate general and other 0.1 0.1 0.2 0.2 0.3 0.3
-------- -------- -------- -------- -------- --------
Total consolidated operations $ 22.0 $ 21.6 $ 43.7 $ 43.0 $ 86.7 $ 82.0
======== ======== ======== ======== ======== ========
Petrolane - depreciation (b) $ -- $ -- $ -- $ -- $ -- $ 1.9
======== ======== ======== ======== ======== ========
Petrolane - amortization (b) $ -- $ -- $ -- $ -- $ -- $ 2.1
======== ======== ======== ======== ======== ========
IDENTIFIABLE ASSETS
(at period end)
Propane $1,405.3 $1,444.8 $1,405.3 $1,444.8 $1,405.3 $1,444.8
Gas utility 605.7 583.3 605.7 583.3 605.7 583.3
Electric utility 88.2 85.4 88.2 85.4 88.2 85.4
Energy marketing 9.5 15.5 9.5 15.5 9.5 15.5
Corporate general and other 123.3 68.4 123.3 68.4 123.3 68.4
-------- -------- -------- -------- -------- --------
Total consolidated operations $2,232.0 $2,197.4 $2,232.0 $2,197.4 $2,232.0 $2,197.4
======== ======== ======== ======== ======== ========
OPERATING STATISTICS
Propane sales - millions of gallons:
AmeriGas Partners (subsequent to April 19, 1995) -
Retail 267.6 315.3 519.3 559.6 815.1 803.2
Wholesale 73.5 96.0 142.1 215.2 236.6 280.8
AmeriGas (through April 19, 1995) -
Retail -- -- -- -- -- 24.7
Wholesale -- -- -- -- -- 3.0
Petrolane (through April 19, 1995) -
Retail (b) -- -- -- -- -- 33.5
Wholesale (b) -- -- -- -- -- 10.0
Natural gas system throughput -
billions of cubic feet 27.9 30.3 52.5 55.4 82.5 85.4
Electric sales - millions of kilowatt hours 248.6 260.9 472.3 485.6 871.4 884.9
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UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Millions of dollars, except per share amounts)
NOTES TO SEGMENT INFORMATION:
(a) Subsequent to July 31, 1995, the Company's energy marketing
business records separately the revenues and related cost of
sales associated with its billed volumes. Prior to August 1,
1995, net margin from the Company's energy marketing business
was reflected as a component of miscellaneous income.
(b) Includes 100% of amounts for Petrolane through April 19, 1995.
4. COMMITMENTS AND CONTINGENCIES
The Partnership has succeeded to the lease guarantee obligations of
Petrolane relating to Petrolane's divestiture of nonpropane operations
prior to its 1989 acquisition by QFB Partners. These leases are
currently estimated to aggregate approximately $85 million (subject to
reduction in certain circumstances). The leases expire through 2010 and
some of them are currently in default. Under certain circumstances such
lease obligations may be reduced by the earnings of such divested
operations. The Partnership has succeeded to the indemnity agreement of
Petrolane by which Texas Eastern Corporation (Texas Eastern), a prior
owner of Petrolane, agreed to indemnify Petrolane against any
liabilities arising out of the conduct of businesses that do not relate
to, and are not a part of, the propane business, including lease
guarantees. To date, Texas Eastern has directly satisfied its
obligations without the Partnership's having to honor its guarantee.
In addition, the Partnership has succeeded to Petrolane's agreement to
indemnify Shell Petroleum N.V. (Shell) for various scheduled claims
that were pending against Tropigas de Puerto Rico (Tropigas). This
indemnification agreement had been entered into by Petrolane in
conjunction with Petrolane's sale of the international operations of
Tropigas to Shell in 1989. The Partnership also succeeded to
Petrolane's right to seek indemnity on these claims first from
International Controls Corp., which sold Tropigas to Petrolane, and
then from Texas Eastern. To date, neither the Partnership nor Petrolane
has paid any sums under this indemnity, but several claims by Shell,
including claims related to certain antitrust actions aggregating at
least $68 million, remain pending.
The Company, along with other companies, has been named as a
potentially responsible party in several administrative proceedings for
the cleanup of various waste sites, including some Superfund sites.
Also, certain private parties have filed, or threatened to file, suit
against the Company to recover costs of investigation and, as
appropriate, remediation of several waste sites. In addition, the
Company has identified environmental contamination at several of its
properties and has voluntarily undertaken investigation and, as
appropriate, remediation of these sites in cooperation with appropriate
environmental agencies or private parties.
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10
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Millions of dollars, except per share amounts)
At a manufactured gas plant site in Burlington, Vermont, the United
States Environmental Protection Agency (EPA) has named nineteen
parties, including UGI Utilities, as potentially responsible parties
for gas plant contamination that resulted from the operations of a
former subsidiary of UGI Utilities. In May 1993, after receiving and
reviewing extensive public comment, EPA withdrew a proposed plan of
remediation that would have cost an estimated $50 million. EPA is now
working with community groups and potentially responsible parties to
develop a revised remediation plan. These groups continue to study the
site and evaluate the effect of the contamination on the environment.
UGI Utilities cannot estimate the cost associated with any revised
plan, but it does not believe such cost will exceed the estimated cost
of the originally proposed plan.
With respect to a manufactured gas plant site in Concord, New
Hampshire, EnergyNorth Natural Gas, Inc. (EnergyNorth) has filed suit
against UGI Utilities alone seeking UGI Utilities' purportedly
allocable share of response costs associated with remediating gas plant
related contaminants at that site. EnergyNorth alleges that to date it
has spent $3.5 million to remediate part of the site and that it will
be required to spend an unknown amount in the future to complete
remediation.
At Burlington, Concord and other sites, management believes that UGI
Utilities should not have significant liability in those instances in
which a former subsidiary operated a manufactured gas plant because UGI
Utilities generally is not legally liable for the obligations of its
subsidiaries. Under certain circumstances, however, courts have found
parent companies liable for environmental damage caused by subsidiary
companies when the parent company exercised such substantial control
over the subsidiary that the court concluded that the parent company
either (i) itself operated the facility causing the environmental
damage or (ii) otherwise so controlled the subsidiary that the
subsidiary's separate corporate form should be disregarded. There could
be, therefore, significant future costs of an uncertain amount
associated with environmental damage caused by manufactured gas plants
that UGI Utilities owned or directly operated, or that were owned or
operated by former subsidiaries of UGI Utilities, if a court were to
conclude that the level of control exercised by UGI Utilities over the
subsidiary satisfies the standard described above. In many
circumstances where UGI Utilities may be liable, expenditures may not
be reasonably quantifiable because of a number of factors, including
various costs associated with potential remedial alternatives, the
unknown number of other potentially responsible parties involved and
their ability to contribute to the costs of investigation and
remediation, and changing environmental laws and regulations.
The Company's policy is to accrue environmental investigation and
cleanup costs when it is probable that a liability exists and the
amount or range of amounts is reasonably estimable. The Company intends
to pursue recovery of any incurred costs through all appropriate means,
including regulatory relief, although such recovery cannot be assured.
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UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Millions of dollars, except per share amounts)
Under the terms of the August 31, 1995 Gas Utility base rate
settlement, Gas Utility is permitted to amortize as removal costs
site-specific environmental investigation and remediation costs, net of
related third-party payments, associated with Pennsylvania sites. Gas
Utility will be permitted to include in rates, through future base rate
proceedings, a five-year average of such prudently incurred removal
costs.
In addition to these environmental matters, there are various other
pending claims and legal actions arising out of the normal conduct of
the Company's businesses. The final results of environmental and other
matters cannot be predicted with certainty. However, it is reasonably
possible that some of them could be resolved unfavorably to the
Company. Management believes, after consultation with counsel, that
damages or settlements, if any, recovered by the plaintiffs in such
claims or actions will not have a material adverse effect on the
Company's financial position but could be material to 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.
5. RECENTLY ISSUED ACCOUNTING PRINCIPLES NOT YET ADOPTED
In February 1997, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 128 "Earnings
Per Share" (SFAS 128). SFAS 128 establishes standards for computing and
presenting earnings per share and simplifies the standards for
computing earnings per share previously found in Accounting Principles
Board Opinion No. 15 (APB 15). It requires a dual presentation of basic
and diluted earnings per share on the face of the income statement for
all entities with complex capital structures and a reconciliation of
the numerator and denominator of the basic earnings per share
computation to the numerator and denominator of the fully diluted
earnings per share computation.
The computation of basic earnings per share excludes the dilutive
effect of common stock equivalents currently required under the
calculation of primary earnings per share and is computed by dividing
income available to common stockholders by the weighted-average number
of common shares outstanding for the period. Diluted earnings per share
under SFAS 128 is computed similarly to fully diluted earnings per
share under APB No. 15.
SFAS 128 is effective for financial statements issued for periods
ending after December 15, 1997; earlier application is not permitted.
When adopted, restatement of all prior-period earnings per share data
is required.
The adoption of SFAS 128 is currently not expected to have a material
effect on the Company's computation of earnings per share because the
Company has a relatively small number of dilutive potential common
shares outstanding. The effect of the adoption of
-9-
12
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Millions of dollars, except per share amounts)
SFAS 128 on the calculation of earnings per share in future periods
will depend principally on the amount and terms of dilutive potential
common shares then outstanding.
-10-
13
UGI CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ANALYSIS OF RESULTS OF OPERATIONS
The following analyses of the Company's results of operations should be read in
conjunction with the segment information included in Note 3 to Condensed
Consolidated Financial Statements. Due to the seasonality of the Company's
businesses, the results of operations for interim periods are not necessarily
indicative of results to be expected for a full year.
THREE MONTHS ENDED MARCH 31, 1997 (1997 THREE-MONTH PERIOD) COMPARED WITH THREE
MONTHS ENDED MARCH 31, 1996 (1996 THREE-MONTH PERIOD)
CONSOLIDATED RESULTS
- ---------------------------------------------------------------------------------------
Three Months Ended March 31, 1997 1996 Decrease
- ---------------------------------------------------------------------------------------
(Millions of dollars, except per share)
Revenues $576.4 $582.6 $ (6.2) (1.1)%
Total margin $227.7 $242.4 $(14.7) (6.1)%
Operating income $107.7 $111.7 $ (4.0) (3.6)%
Net income $ 35.8 $ 37.6 $ (1.8) (4.8)%
Net income per share $ 1.08 $ 1.13 $ (.05) (4.4)%
- ---------------------------------------------------------------------------------------
The Company's net income in the 1997 three-month period decreased due
principally to warmer weather across AmeriGas Partners' and Gas Utility's
service territories which resulted in lower volumes of propane and natural gas
sold.
PROPANE
- -------------------------------------------------------------------------
Three Months Ended March 31, 1997 1996 Decrease
- -------------------------------------------------------------------------
(Millions of dollars)
Retail gallons sold - millions 267.6 315.3 (47.7) (15.1)%
Degree days - % colder (warmer)
than normal (13.1) 0.8 -- --
Revenues $371.2 $374.8 $ (3.6) (1.0)%
Total margin $155.4 $165.5 $(10.1) (6.1)%
Operating income $ 67.7 $ 69.7 $ (2.0) (2.9)%
EBITDA(a) $ 83.9 $ 85.8 $ (1.9) (2.2)%
- -------------------------------------------------------------------------
-11-
14
UGI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(a) EBITDA (earnings before interest expense, income taxes, depreciation
and amortization) should not be considered as an alternative to net
income (as an indicator of operating performance) or as an alternative
to cash flow (as a measure of liquidity or ability to service debt
obligations) and is not a measure of performance or financial condition
under generally accepted accounting principles.
PROPANE. Retail volumes of propane sold decreased in the three months ended
March 31, 1997 due in large part to the effects of weather that was 14.4% warmer
than in the prior-year period. In addition, higher propane market prices
resulted in customer conservation efforts which further reduced retail volumes.
Wholesale volumes of propane sold decreased 22.4 million gallons to 73.5 million
gallons in the three months ended March 31, 1997 principally reflecting reduced
low-margin sales of storage inventories.
Total revenues from retail propane sales increased $3.3 million to $308.5
million reflecting a $49.5 million increase as a result of higher average retail
propane selling prices substantially offset by a $46.2 million decrease in
retail propane revenues resulting from the lower volumes sold. The higher
average selling prices reflect higher propane product costs which resulted
principally from higher supply costs experienced early in the quarter as well as
the seasonal liquidation of higher cost propane inventories purchased earlier in
the fiscal year. The spot price of propane at Mont Belvieu, Texas, a major U.S.
storage and distribution hub, increased dramatically during much of the first
fiscal quarter of 1997 rising to a high of 70.5 cents per gallon on December 16,
1996. Propane spot market prices began to decline in late December 1996. The
general trend of declining spot market prices continued into the second quarter
of fiscal 1997 to a price of 36.75 cents per gallon on March 31, 1997. Wholesale
propane revenues decreased $3.1 million to $44.1 million reflecting the lower
wholesale volumes at higher average selling prices. Other revenues decreased
$3.8 million to $18.6 million as a result of lower hauling and appliance
revenues.
Total propane margin decreased in the 1997 three-month period principally
reflecting the impact of lower volumes of propane sold partially offset by the
effects of higher average unit margins.
The decrease in operating income and EBITDA during the three months ended March
31, 1997 reflects the impact of the lower total margin partially offset by lower
operating expenses and an increase in miscellaneous income. Total operating
expenses of the Partnership were $81.1 million in the 1997 three-month period
compared with $84.5 million in the prior-year period. Operating expenses in the
prior-year period are net of $4.4 million from a refund of insurance premium
deposits made in prior years and $3.3 million from a reduction in accrued
environmental costs. Miscellaneous income of the Partnership in the three months
ended March 31, 1997 was $5.4 million greater than in the prior-year period
principally due to $4.7 million of income from the sale of the Partnership's 50%
interest in Atlantic Energy, Inc. (Atlantic Energy), a refrigerated
-12-
15
UGI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
liquefied petroleum gas storage terminal in Chesapeake, Virginia. The
Partnership sold its interest in Atlantic Energy after determining that it was
not a strategic asset.
UTILITIES
- ------------------------------------------------------------------------------------------------
Increase
Three Months Ended March 31, 1997 1996 (Decrease)
- ------------------------------------------------------------------------------------------------
(Millions of dollars)
GAS UTILITY:
Natural gas system throughput - bcf 27.9 30.3 (2.4) (7.9)%
Degree days - % colder (warmer)
than normal (10.0) 4.7 -- --
Revenues $153.3 $162.1 $ (8.8) (5.4)%
Total margin (a) $ 62.2 $ 64.5 $ (2.3) (3.6)%
Operating income $ 38.9 $ 39.2 $ (.3) (.8)%
ELECTRIC UTILITY:
Electric sales - gwh 248.6 260.9 (12.3) (4.7)%
Degree days - % colder (warmer)
than normal (4.2) 6.8 -- --
Revenues $ 19.9 $ 19.2 $ .7 3.6%
Total margin (a) $ 9.4 $ 8.8 $ .6 6.8%
Operating income $ 3.3 $ 2.7 $ .6 22.2%
- ------------------------------------------------------------------------------------------------
bcf - billions of cubic feet. gwh - millions of kilowatt hours.
(a) Gas and Electric utilities' total margin represents total revenues less
cost of sales and revenue-related taxes.
GAS UTILITY. Weather in the Gas Utility service area during the three months
ended March 31, 1997 was 10.0% warmer than normal compared with weather that was
4.7% colder than normal in the prior-year period. As a result, total system
throughput decreased 7.9% during the 1997 three-month period principally
reflecting the warmer weather's effect on firm-residential, firm-commercial and
firm-industrial (collectively, "core market") sales.
The decrease in Gas Utility's total revenues during the 1997 three-month period
principally reflects a $14.8 million decrease from lower throughput to core
market customers and a $4.7 million decrease in revenues from sales to customers
outside Gas Utility's distribution system (off-system sales). These decreases
were partially offset by an $11.1 million increase from the effects
-13-
16
UGI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
of higher purchased gas cost (PGC) rates. Cost of gas sold by the Gas Utility
was $84.6 million during the 1997 three-month period, a decrease of $6.4 million
over the prior-year period, reflecting lower costs associated with the lower
volumes sold to core market customers and the decrease in off-system sales
partially offset by the effects of higher PGC rates.
The decrease in Gas Utility total margin is principally a result of a $4.8
million decrease in total margin from core market customers reflecting the
effects of warmer weather on volumes sold. The decrease in total margin from
core market customers was partially offset by higher total margin from
interruptible customers.
Gas Utility operating income during the 1997 three-month period decreased $.3
million principally reflecting the decrease in total margin. Operating and
administrative expenses during the 1997 three-month period decreased $2.1
million principally due to a $.9 million decrease in distribution system expense
due in part to the milder 1997 three-month period weather and lower general and
administrative expenses.
ELECTRIC UTILITY. Electric Utility sales decreased during the 1997 three-month
period reflecting weather which was 10.3% warmer than last year. Electric
Utility revenues increased $.7 million, notwithstanding the lower sales,
reflecting a $.5 million increase in energy cost (EC) rate revenues and the
effects of an increase in base rates effective July 19, 1996. Cost of sales
increased $.2 million in the 1997 three-month period reflecting the higher EC
rate partially offset by the lower sales.
Electric Utility total margin and operating income increased during the 1997
three-month period principally as a result of the higher base rates effective
July 19, 1996. Electric Utility operating and administrative expenses in the
1997 three-month period were virtually unchanged from the prior-year period.
Pursuant to the provisions of the Electricity Generation Customer Choice and
Competition Act (Customer Choice Act), Electric Utility's rates have been capped
at levels existing as of January 1, 1997 (see "Electricity Generation Customer
Choice and Competition Act").
ENERGY MARKETING
- --------------------------------------------------------------------------------
Increase
Three Months Ended March 31, 1997 1996 (Decrease)
- --------------------------------------------------------------------------------
(Millions of dollars)
Revenues $32.0 $26.5 $ 5.5 20.8%
Total margin $ .7 $ 3.6 $(2.9) (80.6)%
Operating income $ .3 $ 3.0 $(2.7) (90.0)%
- --------------------------------------------------------------------------------
-14-
17
UGI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
ENERGY MARKETING. Total revenues from energy marketing in the 1997 three-month
period increased from the prior-year period as a result of higher billed volumes
and higher natural gas prices. The increase in billed volumes is principally a
result of significant growth in customers outside the Gas Utility's service
territory. Notwithstanding the increase in billed volumes, total margin for the
1997 three-month period decreased $2.9 million due to the warmer weather's
effects on gas prices and the value of pipeline capacity. Operating income from
energy marketing was $.3 million in the 1997 three-month period compared with
$3.0 million in the prior-year period principally reflecting the lower total
margin.
CORPORATE GENERAL AND OTHER
Operating loss from corporate general and other, net, consisting of expenses
incurred by UGI corporate headquarters net of other miscellaneous income, was
$(2.5) million in the 1997 three-month period compared with $(2.9) million in
the prior-year period reflecting lower UGI corporate administrative expenses and
higher interest income on temporary cash investments.
INTEREST EXPENSE AND INCOME TAXES
Interest expense increased to $21.4 million in the 1997 three-month period from
$19.9 million in the prior-year period principally as a result of higher levels
of debt outstanding under the Partnership's Revolving Credit and Acquisition
facilities. The effective income tax rate on pre-tax income for the three months
ended March 31, 1997 was 44.8% compared with 45.6% for the three months ended
March 31, 1996 principally as a result of a lower effective income tax rate on
propane operations.
SIX MONTHS ENDED MARCH 31, 1997 (1997 SIX-MONTH PERIOD) COMPARED WITH SIX MONTHS
ENDED MARCH 31, 1996 (1996 SIX-MONTH PERIOD)
CONSOLIDATED RESULTS
- ---------------------------------------------------------------------
Six Months Ended March 31, 1997 1996 Increase
- ---------------------------------------------------------------------
(Millions of dollars,
except per share)
Revenues $1,106.0 $1,009.5 $96.5 9.6%
Total margin $ 443.7 $ 423.9 $19.8 4.7%
Operating income $ 197.3 $ 174.4 $22.9 13.1%
Net income $ 63.7 $ 55.8 $ 7.9 14.2%
Net income per share $ 1.92 $ 1.69 $ .23 13.6%
- ---------------------------------------------------------------------
-15-
18
UGI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The increase in the Company's results in the 1997 six-month period reflects a
significant improvement in the operating results of AmeriGas Partners. The
improvement in the Partnership's results is principally due to higher average
retail unit margins.
PROPANE
- ----------------------------------------------------------------------------
Increase
Six Months Ended March 31, 1997 1996 (Decrease)
- ----------------------------------------------------------------------------
(Millions of dollars)
Retail gallons sold - millions 519.3 559.6 (40.3) (7.2)%
Revenues $731.3 $660.6 $ 70.7 10.7%
Total margin $310.8 $288.6 $ 22.2 7.7%
Operating income $126.9 $105.3 $ 21.6 20.5%
EBITDA (a) $159.1 $137.4 $ 21.7 15.8%
- ----------------------------------------------------------------------------
(a) EBITDA (earnings before interest expense, income taxes, depreciation
and amortization) should not be considered as an alternative to net
income (as an indicator of operating performance) or as an alternative
to cash flow (as a measure of liquidity or ability to service debt
obligations) and is not a measure of performance or financial condition
under generally accepted accounting principles.
PROPANE. Retail volumes of propane sold decreased in the six months ended March
31, 1997 reflecting the effects of warmer heating-season weather and
price-induced customer conservation efforts. Wholesale volumes of propane sold
decreased 73.1 million gallons to 142.1 million gallons in the six months ended
March 31, 1997 principally due to reduced low-margin sales of storage
inventories.
Total revenues from retail propane sales increased $79.3 million to $594.4
million reflecting a $116.4 million increase as a result of higher average
retail propane selling prices partially offset by a $37.1 million decrease in
retail propane revenues resulting from the lower volumes sold. The higher prices
resulted principally from higher propane product costs experienced by the
Partnership particularly during the first quarter of fiscal 1997. Wholesale
propane revenues decreased $3.9 million to $90.1 million reflecting the lower
wholesale volumes. Other revenues decreased $4.7 million to $46.8 million as a
result of lower hauling and appliance revenues.
Total propane margin was significantly greater in the 1997 six-month period
reflecting the impact of higher average retail unit margins partially offset by
reduced volumes of propane sold. Although the Partnership's propane product
costs increased significantly, they were partially
-16-
19
UGI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
mitigated by favorable fixed-price supply commitments and financial contracts
entered into by the Partnership as part of its overall propane supply strategy.
In addition, the higher 1997 six-month period average retail unit margin
reflects the fact that retail unit margins in the prior-year period were
adversely impacted by the effects of certain sales and marketing programs.
The increase in operating income and EBITDA during the six months ended March
31, 1997 reflects the impact of the higher total margin and an increase in
miscellaneous income. Total operating expenses of the Partnership were $164.7
million in the six months ended March 31, 1997 compared with $161.4 million in
the six months ended March 31,1996. The 1996 operating expenses are net of $4.4
million from a refund of insurance premium deposits made in prior years and $3.3
million from a reduction in accrued environmental costs. Miscellaneous income of
the Partnership increased $4.0 million in the six months ended March 31, 1997
primarily from $4.7 million of income from the sale of the Partnership's 50%
interest in Atlantic Energy.
UTILITIES
- ------------------------------------------------------------------------------------------------
Increase
Six Months Ended March 31, 1997 1996 (Decrease)
- ------------------------------------------------------------------------------------------------
(Millions of dollars)
GAS UTILITY:
Natural gas system throughput - bcf 52.5 55.4 (2.9) (5.2)%
Degree days - % colder (warmer)
than normal (7.2) 5.0 -- --
Revenues $269.1 $267.3 $ 1.8 .7%
Total margin $112.8 $113.7 $ (.9) (.8)%
Operating income $ 67.5 $ 66.2 $ 1.3 2.0%
ELECTRIC UTILITY:
Electric sales - gwh 472.3 485.6 (13.3) (2.7)%
Degree days - % colder (warmer)
than normal (1.3) 7.8 -- --
Revenues $ 38.3 $ 36.3 $ 2.0 5.5%
Total margin $ 18.2 $ 16.9 $ 1.3 7.7%
Operating income $ 6.3 $ 4.9 $ 1.4 28.6%
- ------------------------------------------------------------------------------------------------
GAS UTILITY. Weather in Gas Utility's service territory in the 1997 six-month
period was 7.2% warmer than normal and 11.6% warmer than the 1996 six-month
period. Total system throughput decreased 5.2% during the 1997 six-month period
principally reflecting the effect of the warmer weather on core market sales.
-17-
20
UGI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The increase in Gas Utility's total revenues reflects a $20.0 million increase
from higher average PGC rates in effect during the 1997 six-month period
partially offset by a $16.9 million decrease from lower sales to core market
customers and slightly lower off-system sales. Notwithstanding the lower core
market and off-system sales, cost of gas sold by Gas Utility increased $2.5
million to $145.1 million during the 1997 six-month period reflecting the higher
average PGC rates.
The decrease in Gas Utility total margin principally reflects a $5.4 million
decrease from core market customers resulting from the warmer weather partially
offset by an increase in total margin from interruptible customers.
Although total margin was lower in the 1997 six-month period, Gas Utility
operating income increased $1.3 million principally as a result of lower
operating expenses. Operating and administrative expenses during the 1997
six-month period decreased $2.3 million principally as a result of a $1.1
million decrease in distribution system expenses and lower general and
administrative expenses.
ELECTRIC UTILITY. Electric Utility sales decreased during the 1997 six-month
period reflecting weather which was 8.5% warmer than in the 1996 six-month
period. Electric Utility revenues increased $2.1 million, notwithstanding the
lower sales, reflecting a $1.1 million increase in EC rate revenues and a $.9
million increase in base rate revenues resulting from the July 19, 1996 base
rate increase. Cost of sales increased to $18.5 million in the 1997 six-month
period from $17.8 million in the prior-year period as a result of a higher EC
rate partially offset by the lower sales.
Electric Utility total margin and operating income increased during the six
months ended March 31, 1997 principally as a result of the higher base rates.
Electric Utility operating and administrative expenses in the 1997 six-month
period were essentially unchanged from the prior-year period.
ENERGY MARKETING
- --------------------------------------------------------------------------------
Increase
Six Months Ended March 31, 1997 1996 (Decrease)
- --------------------------------------------------------------------------------
(Millions of dollars)
Revenues $67.3 $45.3 $22.0 48.6%
Total margin $ 1.9 $ 4.7 $(2.8) (59.6)%
Operating income $ 1.1 $ 3.9 $(2.8) (71.8)%
- --------------------------------------------------------------------------------
-18-
21
UGI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
ENERGY MARKETING. Total revenues from energy marketing in the 1997 six-month
period increased significantly compared with revenues during the prior-year
period as a result of higher billed volumes principally from increased sales
outside the Gas Utility's service territory and higher natural gas prices.
Notwithstanding the increase in billed volumes, total margin for the 1997
six-month period was lower than in the prior-year period due to the warmer
weather's effects on gas prices and the value of pipeline capacity. Operating
income from energy marketing was $1.1 million in the 1997 six-month period
compared with $3.9 million in the prior-year period principally as a result of
the lower total margin.
CORPORATE GENERAL AND OTHER
Operating loss from corporate general and other, net, was $(4.5) million in the
1997 six-month period compared with $(5.9) million in the 1996 six-month period.
The decrease in corporate general and other expenses principally reflects lower
levels of UGI corporate expenses and higher interest income on temporary cash
investments.
INTEREST EXPENSE AND INCOME TAXES
Interest expense increased to $42.5 million in the 1997 six-month period from
$39.8 million in the 1996 six-month period principally as a result of higher
levels of debt outstanding under the Partnership's Revolving Credit and
Acquisition facilities. The effective income tax rate on pre-tax income for the
six months ended March 31, 1997 was 44.8% compared with 46.0% for the six months
ended March 31, 1996 principally as a result of a lower effective income tax
rate on propane operations.
TWELVE MONTHS ENDED MARCH 31, 1997 (1997 TWELVE-MONTH PERIOD) COMPARED WITH
TWELVE MONTHS ENDED MARCH 31, 1996 (1996 TWELVE-MONTH PERIOD)
CONSOLIDATED RESULTS
- ----------------------------------------------------------------------------------
Twelve Months Ended March 31, 1997 1996 Increase
- ----------------------------------------------------------------------------------
(Millions of dollars, except per share)
Revenues $1,654.1 $1,433.4 $220.7 15.4%
Total margin $ 672.2 $ 630.9 $ 41.3 6.5%
Operating income $ 182.6 $ 164.2 $ 18.4 11.2%
Income before extraordinary loss $ 47.4 $ 25.7 $ 21.7 84.4%
Net income $ 47.4 $ 12.5 $ 34.9 279.2%
Net income per share $ 1.43 $ .38 $ 1.05 276.3%
- ----------------------------------------------------------------------------------
-19-
22
UGI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The increase in the Company's results in the 1997 twelve-month period is
principally a result of a number of factors including improved propane results,
the full-year impact of Gas Utility's 1995 base rate increase, the effect of
Electric Utility's July 1996 base rate increase, and lower net corporate
expenses. Results in the 1996 twelve-month period include after-tax charges of
$24.9 million, or $.76 a share, associated with the formation of AmeriGas
Partners.
PROPANE
- ----------------------------------------------------------------------------
Increase
Twelve Months Ended March 31, 1997 1996 (Decrease)
- ----------------------------------------------------------------------------
(Millions of dollars)
Retail gallons sold - millions 815.1 827.9 (12.8) (1.5)%
Revenues $1,083.9 $955.9 $128.0 13.4%
Total margin $ 465.7 $430.0 $ 35.7 8.3%
Operating income $ 102.4 $ 91.2 $ 11.2 12.3%
EBITDA (a) $ 166.6 $152.3 $ 14.3 9.4%
- ----------------------------------------------------------------------------
(a) EBITDA (earnings before interest expense, income taxes, depreciation
and amortization) should not be considered as an alternative to net
income (as an indicator of operating performance) or as an alternative
to cash flow (as a measure of liquidity or ability to service debt
obligations) and is not a measure of performance or financial condition
under generally accepted accounting principles.
PROPANE. Retail volumes of propane sold by consolidated propane operations
during the 1997 twelve-month period decreased principally as a result of warmer
winter weather and, to a much lesser extent, price-induced customer conservation
efforts during the heating season. The increase in consolidated propane revenues
reflects higher average retail selling prices principally during the six-month
period ended March 31, 1997 as a result of higher propane product costs. Total
consolidated propane margin in the 1997 twelve-month period reflects higher
average retail unit margins primarily during the six-month period ended March
31, 1997. Consolidated propane operating income and EBITDA increased in the 1997
twelve-month period reflecting the greater consolidated propane total margin
partially offset by higher consolidated propane operating expenses due in large
part to higher customer equipment repairs and maintenance expenses and
incremental expenses associated with acquisitions and new district locations.
-20-
23
UGI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
UTILITIES
- --------------------------------------------------------------------------------------------------------
Increase
Twelve Months Ended March 31, 1997 1996 (Decrease)
- --------------------------------------------------------------------------------------------------------
(Millions of dollars)
GAS UTILITY:
Natural gas system throughput - bcf 82.5 85.4 (2.9) (3.4)%
Degree days - % colder (warmer) than
normal (6.0) 5.2 -- --
Revenues $392.8 $355.7 $ 37.1 10.4%
Total margin $168.8 $163.1 $ 5.7 3.5%
Operating income $ 74.2 $ 71.1 $ 3.1 4.5%
ELECTRIC UTILITY:
Electric sales - gwh 871.4 884.9 (13.5) (1.5)%
Degree days - % colder than normal .4 5.0 -- --
Revenues $ 71.5 $ 68.0 $ 3.5 5.1%
Total margin $ 34.3 $ 32.6 $ 1.7 5.2%
Operating income $ 10.0 $ 8.6 $ 1.4 16.3%
- --------------------------------------------------------------------------------------------------------
GAS UTILITY. Weather in Gas Utility's service territory in the 1997 twelve-month
period was 11.1% warmer than in the 1996 twelve-month period. Total system
throughput declined principally as a result of the warmer weather.
The increase in Gas Utility total revenues reflects a $25.6 million increase
from higher average PGC rates, a $13.8 million increase in off-system sales and
the full-year effect of Gas Utility's $19.5 million annual base rate increase
effective August 31, 1995. These increases were partially offset by the effects
of the lower system throughput. Cost of gas sold was $208.7 million during the
1997 twelve-month period, an increase of $30.4 million from the same period in
1996, reflecting the effects of higher average PGC rates and greater off-system
sales partially offset by the lower system throughput.
The increase in Gas Utility total margin in the twelve months ended March 31,
1997 reflects a $2.9 million increase in total margin from core market
customers, principally from the full-year effect of the increase in base rates,
and higher total margin from interruptible customers.
Gas Utility operating income during the 1997 twelve-month period benefited from
the increase in total margin. However, the benefit was partially offset by
slightly higher operating expenses and higher charges for depreciation.
-21-
24
UGI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
ELECTRIC UTILITY. Electric Utility sales were lower during the twelve months
ended March 31, 1997 than in the prior-year period principally as a result of
warmer 1997 winter weather. The increase in Electric Utility revenues reflects a
$2.1 million increase in EC rate revenues and the impact of higher base rates
subsequent to July 19, 1996. Electric Utility cost of sales was $34.1 million,
an increase of $1.6 million from the prior-year period. The increase in cost of
sales principally reflects a higher average EC rate.
Electric Utility total margin during the twelve months ended March 31, 1997
increased principally as a result of the higher base rates effective in July
1996. Electric Utility operating income benefited from the increase in total
margin, however the benefit was partially offset principally by higher charges
for depreciation.
ENERGY MARKETING
- --------------------------------------------------------------------------
Twelve Months Ended March 31, 1997 1996 Decrease
- --------------------------------------------------------------------------
(Millions of dollars)
Total margin $3.4 $5.2 $(1.8) (34.6)%
Operating income $1.6 $4.8 $(3.2) (66.7)%
- --------------------------------------------------------------------------
ENERGY MARKETING. Total margin and operating income were lower in the 1997
twelve-month period compared with the 1996 twelve-month period, notwithstanding
an increase in billed volumes, principally due to lower average unit margins.
The lower unit margins reflect in large part the warmer weather's effects on
natural gas prices and the value of pipeline capacity.
CORPORATE GENERAL AND OTHER
Operating loss of corporate general and other, net, was significantly lower in
the 1997 twelve-month period reflecting lower UGI corporate expenses, due in
large part to adjustments of incentive compensation accruals in September 1996,
and higher interest income.
INTEREST EXPENSE AND INCOME TAXES
Interest expense increased to $82.2 million in the 1997 twelve-month period from
$77.4 million in the 1996 twelve-month period principally as a result of higher
levels of debt outstanding under the Partnership's Bank Credit facilities. The
Company's effective income tax rate in the 1997 twelve-month period was 42.9%
compared with 54.9% in the same period last year. As a result of a significant
increase in consolidated propane pre-tax income, the impact of nondeductible
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UGI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
amortization expense on the consolidated propane effective tax rate was less in
the 1997 twelve-month period than in the prior-year period.
FINANCIAL CONDITION AND LIQUIDITY
FINANCIAL CONDITION
The Company's consolidated debt-to-total-capitalization ratio was 55.9% at March
31, 1997 compared to a ratio of 57.5% at September 30, 1996. The decrease in the
ratio is principally a result of an increase in retained earnings.
Effective October 28, 1996, the Operating Partnership has a revolving credit
agreement with the General Partner under which it may borrow up to $20 million
to fund working capital, capital expenditures, and interest and distribution
payments. This agreement is coterminous with, and generally comparable to, the
Operating Partnership's Revolving Credit Facility. Borrowings under the General
Partner Facility are unsecured and subordinated to all senior debt of the
Partnership. Interest rates on borrowings are based upon one-month offshore
interbank borrowing rates. Facility fees are determined in the same manner as
fees under the Revolving Credit Facility. UGI has agreed to contribute on an as
needed basis through its subsidiaries up to $20 million to the General Partner
to fund such borrowings. Also effective October 28, 1996, the Operating
Partnership's Bank Credit Agreement was amended to include a revolving $15
million sublimit under its Special Purpose Facility which can be used to fund
working capital, capital expenditures, and interest and distribution payments.
This sublimit is scheduled to expire April 12, 1998. At March 31, 1997, there
were no borrowings under the General Partner Facility or the sublimit under the
Special Purpose Facility.
During the six months ended March 31, 1997, the Partnership declared and paid
the MQD on all units and the general partner interests for the quarters ended
September 30, 1996 and December 31, 1996 totaling $46.9 million, $19.4 million
of which was paid to public unitholders and $27.5 million to the Company. The
Partnership's MQD for the quarter ended March 31, 1997 will be made on May 18,
1997 to holders of record on May 9, 1997.
On April 29, 1997, the Company's Board of Directors increased the quarterly
dividend on the Common Stock to 36 cents a share from 35.5 cents a share,
effective for the dividend payable July 1, 1997.
CASH FLOWS
Cash and cash equivalents totaled $85.9 million at March 31, 1997 compared with
$74.0 million at September 30, 1996. Included in these amounts are cash and cash
equivalents at UGI of $27.0 million and $51.4 million, respectively. In
addition, at March 31, 1997 and September 30, 1996, UGI also had
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26
UGI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
short-term investments of $67.8 million and $23.1 million, respectively. The
Company's cash flows are seasonal and are generally greatest during the second
and third fiscal quarters when customers pay bills incurred during the heating
season and are typically at their lowest levels during the first and fourth
fiscal quarters. Accordingly, cash flows from operations during the six months
ended March 31, 1997 are not necessarily indicative of the cash flows to be
expected for a full year.
OPERATING ACTIVITIES. Cash flows from operating activities during the six months
ended March 31, 1997 totaled $110.0 million compared with $73.8 million in the
comparable prior-year period. Cash flows from operations before changes in
operating working capital increased to $141.0 million in the six months ended
March 31, 1997 from $129.5 million in the prior-year period. The increase
principally reflects a significant improvement in the Partnership's operating
performance. Changes in operating working capital during the six months ended
March 31, 1997 required $31.0 million of operating cash flow principally from a
$107.0 million seasonal increase in customer accounts receivable and accrued
utility revenues and a $13.4 million decrease in accounts payable partially
offset by a $56.8 million decrease in inventories; $13.9 million in purchased
gas and power cost overcollections; and $18.7 million in cash from changes in
other working capital accounts. Changes in operating working capital during the
six months ended March 31, 1996 required $55.7 million of operating cash flow.
INVESTING ACTIVITIES. Cash expenditures for property, plant and equipment
totaled $31.8 million in the six months ended March 31, 1997 compared with $31.6
million in the same period in 1996. The increase reflects higher Gas Utility
expenditures offset by slightly lower Partnership capital expenditures. During
the six months ended March 31, 1997, the Company increased its balance of
short-term investments by $44.6 million compared with $12.0 million in the
prior-year period. Net proceeds from disposals of assets increased $6.1 million
in the six months ended March 31, 1997 due in large part to the sale of the
Partnership's interest in Atlantic Energy.
FINANCING ACTIVITIES. During the six months ended March 31, 1997, the Company
paid cash dividends on Common Stock of $23.5 million compared with $23.1 million
of cash dividends in the prior-year period. Also during each of the six-month
periods ended March 31, 1997 and 1996, the Partnership paid distributions of
$19.4 million to public unitholders (and $27.5 million to the General Partner)
representing the MQD on all limited partner units and the general partner
interests.
During the six months ended March 31, 1997, the Partnership made $15 million of
net repayments under its Revolving Credit Facility. The maximum amount of
seasonal borrowings under the Partnership's working capital facilities during
the six months ended March 31, 1997 was $73 million compared with $25 million of
such borrowings during the six months ended March 31, 1996. The Partnership's
seasonal borrowing requirements in the prior-year period were lower due to
significant cash balances at the beginning of such period. During the six months
ended March 31, 1997, UGI Utilities borrowed $44.5 million under its revolving
credit agreements compared with net repayments
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27
UGI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
of $16.5 million in the prior-year period. UGI Utilities currently expects to
reduce its bank loans outstanding through the issuance of debt under its
Medium-Term Note program.
During the six months ended March 31, 1997, the Company issued $7.7 million of
long-term debt including $7 million under the Partnership's Acquisition Facility
relating to acquisitions made prior to fiscal 1997. During the comparable
prior-year period, the Company issued $34.1 million of long-term debt including
UGI Utilities' issuance of $20 million of notes under its Medium-Term Note
program and borrowings of $5 million under the Partnership's Acquisition
Facility and $9 million under its Special Purpose Facility. During the six
months ended March 31, 1997, the Company repaid $20.3 million of long-term debt
which includes UGI Utilities' repayment of $8.4 million of its 7.85% Series
First Mortgage Bonds and $10.0 million of its 8.70% Notes. In the prior-year
six-month period, the Company made long-term debt repayments of $50.8 million
which includes UGI Utilities' redemption of $45.9 million of its 9% Series and
9% Series B First Mortgage Bonds at a redemption price of 104% of the principal
amount outstanding.
ELECTRICITY GENERATION CUSTOMER CHOICE AND COMPETITION ACT
On January 1, 1997, the Customer Choice Act became effective. The Customer
Choice Act permits all Pennsylvania retail electric customers to choose their
electric generation supplier. One-third of the peak load of each customer class
of an electric utility will have the opportunity for direct access to generation
suppliers by January 1, 1999, two-thirds of the peak load of each customer class
by January 1, 2000, and all customers will have direct access by January 1,
2001, subject to certain exceptions.
The Customer Choice Act establishes rate caps that are designed to prevent a
customer's total electric service costs from increasing above levels existing as
of January 1, 1997 during the transition to full competition. The Pennsylvania
Public Utility Commission (PUC) may grant exceptions to the rate caps in limited
situations where a utility's costs have increased above current levels due to
circumstances beyond its control. Under the Customer Choice Act, Electric
Utility will continue to be the only regulated electric utility having the
right, granted by the PUC or by law, to transmit and distribute electric energy
in its service territory. The Customer Choice Act requires all electric
utilities to file restructuring plans with the PUC which, among other things,
include unbundled prices for electric generation, transmission and distribution
and a proposed competitive transition charge (CTC) for the recovery of stranded
costs. Stranded costs are defined as electric generation-related costs that
traditionally would be recoverable in a regulated environment but may not be
recoverable in a competitive electric generation market. The PUC has directed
Electric Utility to file its restructuring plan by August 1, 1997. The Customer
Choice Act also requires all electric utilities to submit proposed Retail Access
Pilot Programs (Pilot Programs) with the PUC. The PUC may order electric
utilities to begin such programs as early as April 1, 1997. Such pilot programs
shall be available to approximately 5
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28
UGI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
percent of the utility's peak load for each customer class. Electric Utility
filed its proposed Pilot Program with the PUC on April 1, 1997 to be effective
for a one-year period beginning January 1, 1998.
As permitted by the Customer Choice Act, on February 28, 1997, Electric Utility
filed with the PUC Supplement No. 50 to its Electric Service Tariff to roll the
current ECR rate of 1.058 cents per kilowatt-hour into its base rates. On April
24, 1997, the PUC conditionally approved Electric Utility's Supplement No. 50
but reserved final consideration of its reasonableness and appropriateness for
Electric Utility's Customer Choice Act restructuring proceeding.
Based upon a current evaluation of the various factors and conditions affecting
future cost recovery, the Company does not expect the Customer Choice Act to
have a material adverse effect on its financial condition or results of
operations. The Company will continue to monitor regulatory proceedings in this
area.
On March 27, 1997, proposed customer choice legislation was introduced in the
Pennsylvania General Assembly that would, among other things, extend the
availability of gas transportation service to residential and small commercial
customers of local gas distribution companies. It would permit all customers of
natural gas distribution utilities to transport their natural gas supplies
through the distribution systems of Pennsylvania gas utilities by April 1, 1999
and would also require Pennsylvania gas utilities to exit the merchant function
of selling natural gas. Public hearings on the proposed legislation are
scheduled to commence in May 1997. The Company will continue to monitor
developments with regard to the proposed legislation.
PART II OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On February 25, 1997, the Annual Meeting of Shareholders of UGI was
held. The shareholders reelected the nine nominees from the existing Board of
Directors to another term, approved two new compensation plans, the UGI
Corporation Directors' Equity Compensation Plan and the UGI Corporation 1997
Stock Option and Dividend Equivalent Plan, and ratified the appointment of
Coopers & Lybrand L.L.P. as independent public accountants. No other matters
were considered at the meeting.
The number of votes cast for and withheld from election of each nominee
is set forth below. There were no votes against, abstentions or broker non-votes
in the election of directors.
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UGI CORPORATION AND SUBSIDIARIES
Election of Directors:
For Withheld
--- --------
James W. Stratton 28,341,206 689,127
Robert C. Forney 28,323,173 707,160
David I. J. Wang 28,342,602 687,731
Richard C. Gozon 28,351,667 678,666
Cyrus H. Holley 28,355,147 675,186
Quentin I. Smith, Jr. 28,314,737 715,596
Stephen D. Ban 28,358,478 671,855
Anne Pol 28,353,977 676,356
Lon R. Greenberg 28,331,559 698,774
The number of votes cast for and against, and the number of abstentions
in the approval of the UGI Corporation Directors' Equity Compensation Plan is as
follows: For, 26,820,038; Against, 1,407,154; Abstain, 803,141. There were no
broker non-votes.
The number of votes cast for and against, and the number of abstentions
in the approval of the UGI Corporation 1997 Stock Option and Dividend Equivalent
Plan is as follows: For, 25,334,831; Against, 1,326,263; Abstain, 2,369,239.
There were no broker non-votes. The number of votes cast for and against, and
the number of abstentions in the ratification of the appointment of Coopers &
Lybrand L.L.P. is as follows: For, 28,758,319; Against, 134,964; Abstain,
137,050. There were no broker non-votes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits:
10.1 UGI Corporation Directors' Equity Compensation Plan
10.2 UGI Corporation 1997 Stock Option and Dividend
Equivalent Plan
11 Statement re: computation of per share earnings
27 Financial Data Schedule
(b) The Company did not file any Current Reports on Form 8-K
during the fiscal quarter ended March 31, 1997.
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30
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UGI Corporation
------------------------------------------------
(Registrant)
Date: May 14, 1997 By: C.L. Ladner
- ------------------- ------------------------------------------------
C. L. Ladner, Senior Vice President - Finance
Date: May 14, 1997 By: M. J. Cuzzolina
- ------------------- ------------------------------------------------
M. J. Cuzzolina, Vice President - Accounting and
Financial Control (Principal Accounting Officer)
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31
UGI CORPORATION AND SUBSIDIARIES
EXHIBIT INDEX
10.1 UGI Corporation Directors' Equity Compensation Plan
10.2 UGI Corporation 1997 Stock Option and Dividend Equivalent Plan
11 Statement re: computation of per share earnings
27 Financial Data Schedule