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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996
Commission file number 1-1398
UGI UTILITIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Pennsylvania 23-1174060
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER IDENTIFICATION NO.)
OF INCORPORATION OR ORGANIZATION)
100 Kachel Boulevard, Suite 400, Green Hills Corporate Center
Reading, PA 19607
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(610) 796-3400
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS) AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES X . NO .
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
At December 1, 1996 there were 26,781,785 shares of UGI Utilities Common Stock,
par value $2.25 per share, outstanding, all of which were held, beneficially and
of record, by UGI Corporation.
DOCUMENTS INCORPORATED BY REFERENCE: None.
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TABLE OF CONTENTS
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PART I BUSINESS PAGE
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Items 1 and 2 Business and Properties .......................... 1
General ........................................ 1
Gas Utility Operations ......................... 1
Electric Utility Operations .................... 4
Item 3 Legal Proceedings ................................ 9
Item 4 Submission of Matters to a Vote of
Security Holders ............................... 13
PART II SECURITIES AND FINANCIAL INFORMATION
Item 5 Market for Registrant's Common Equity
and Related Stockholder Matters ................ 13
Item 6 Selected Financial Data .......................... 15
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations ............ 16
Item 8 Financial Statements and Supplementary Data ...... 24
Item 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure ......... 24
PART III UGI UTILITIES, INC. MANAGEMENT AND SECURITY HOLDERS
Item 10 Directors and Executive Officers of the Registrant 24
Item 11 Executive Compensation ........................... 29
Item 12 Security Ownership of Certain Beneficial
Owners and Management .......................... 36
Item 13 Certain Relationships and Related
Transactions ................................... 37
PART IV ADDITIONAL EXHIBITS, SCHEDULES AND REPORTS
Item 14 Exhibits, Financial Statement Schedules
and Reports on Form 8-K ........................ 37
Signatures ....................................... 43
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PART I: BUSINESS
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
GENERAL
UGI Utilities, Inc. ("Utilities" or the "Company") is a public utility
company that owns and operates (i) a natural gas distribution utility serving 14
counties in eastern and southeastern Pennsylvania ("Gas Utility"), and (ii) an
electric utility serving parts of Luzerne and Wyoming Counties in northeastern
Pennsylvania ("Electric Utility"). Utilities is a wholly owned subsidiary of
UGI Corporation ("UGI").
Utilities (formerly, UGI Corporation) was incorporated in Pennsylvania
in 1925 as the successor to a business founded in 1882. The Company is subject
to regulation by the Pennsylvania Public Utility Commission ("PUC"). Its
executive offices are located at 100 Kachel Boulevard, Suite 400, Green Hills
Corporate Center, Reading, Pennsylvania 19607, and its telephone number is (610)
796-3400. References to the "Company" include Utilities and its consolidated
subsidiaries unless the context indicates otherwise.
GAS UTILITY OPERATIONS
Service Area; Revenue Analysis. Gas Utility distributes natural gas to
approximately 247,000 customers in portions of 14 eastern and southeastern
Pennsylvania counties through its distribution system of approximately 4,100
miles of gas mains. The service area consists of approximately 3,000 square
miles and includes the cities of Allentown, Bethlehem, Easton, Harrisburg,
Hazleton, Lancaster, Lebanon and Reading, Pennsylvania. Located in Gas Utility's
service area are major production centers for basic industries such as steel
fabrication. For the fiscal years ended September 30, 1996, 1995 and 1994,
revenues of Gas Utility accounted for approximately 85%, 82%, and 84%,
respectively, of Utilities' total consolidated revenues.
System throughput (the volume of gas sold to customers within Gas
Utility's distribution system plus the volume of gas transported for such
customers) for the 1996 fiscal year was approximately 85.4 billion cubic feet
("bcf"). Sales of gas accounted for approximately 47% of system throughput,
while gas transported for commercial and industrial customers (who buy their gas
from others) accounted for approximately 53% of system throughput. Based on
industry data for 1995, residential customers account for approximately 36% of
total system throughput by local gas distribution companies in the United
States. By contrast, for the 1996 fiscal year, Gas Utility's residential
customers represented 23% of its total system throughput.
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Sources of Supply and Pipeline Capacity. Gas Utility meets its service
requirements by utilizing a diverse mix of natural gas purchase contracts with
producers and marketers, storage and transportation services from pipeline
companies, and its own propane-air and liquefied natural gas peak-shaving
facilities. Purchases of natural gas in the spot market are also made to reduce
costs and manage storage inventory levels. These arrangements enable Gas Utility
to purchase gas from Gulf Coast, mid-continent, Appalachian and Canadian
sources. For the transportation and storage function, Utilities has agreements
with a number of pipeline companies, including Texas Eastern Transmission
Corporation, Columbia Gas Transmission Corporation ("Columbia"), ANR Pipeline
Company, Columbia Gulf Transmission Company, CNG Transmission Corporation,
National Fuel Gas Supply Corporation, Transcontinental Gas Pipe Line
Corporation, Trunkline Gas Company, Texas Gas Transmission Corporation and
Panhandle Eastern Pipe Line Company.
Gas Supply Contracts. During the 1996 fiscal year, Gas Utility
purchased approximately 41.8 bcf of natural gas and sold approximately 40.4 bcf
to customers. Gas not sold to customers was used by Gas Utility principally for
storage for later sale to customers. Approximately 23.8 bcf or 57% of the
volumes purchased were supplied under agreements with Mobil Natural Gas Inc.,
Exxon Company USA, PanEnergy Trading L.L.C., Amerada Hess Corp., Natural Gas
Clearinghouse and Midcon Gas Services Corp. The remaining 18.0 bcf or 43% of gas
purchased was supplied by producers and marketers under other arrangements,
including multi-month agreements at spot prices. Certain gas supply contracts
require minimum gas purchases. Each of these agreements, however, either
terminates in fiscal year 1997, or includes provisions which entitle Utilities
to terminate in the event the agreement is not market responsive.
Storage and Peak Shaving. Gas Utility contracts for 10.8 bcf of
seasonal storage with several interstate pipelines. Gas is injected in storage
during the summer and delivered during the winter at combined peak day
capacities of approximately .14 bcf. In Harrisburg, Reading and Bethlehem,
Pennsylvania, Gas Utility operates peak shaving facilities capable of producing
.06 bcf of gas per day from propane air and liquefied natural gas facilities.
These facilities are used to meet winter peak service requirements.
Seasonal Variation. Approximately 58% of Gas Utility's system
throughput for the 1996 fiscal year occurred during the winter season from
November 1, 1995 through March 31, 1996, because many of its customers use gas
for heating purposes.
Competition. Natural gas is a fuel that competes with electricity and
oil and to a lesser extent with propane and coal. Competition among these fuels
is primarily a function of their comparative price and the relative cost and
efficiency of fuel utilization equipment. Electric utilities in Gas Utility's
service area offer extensive rebate programs, primarily in the new construction
market. Competition with fuel oil dealers is focused on industrial customers.
Gas Utility responds to this competition with marketing efforts designed to
retain and grow its customer base.
In substantially all of its service territory, Gas Utility is the only
regulated gas distribution utility having the right, granted by the PUC or by
law, to provide transportation services. While
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unregulated gas marketers have been selling gas to commercial and industrial
customers in Gas Utility's service territory for over 11 years, Gas Utility
provides transportation services for those sales. It is possible, however, for
certain large customers to seek transportation services directly from interstate
pipelines, "bypassing" Utilities, although none have done so. Gas Utility is
closely monitoring certain third-party "bypass" proceedings throughout the
United States before FERC, state agencies and the courts.
Customers representing approximately 22% of the Company's
non-residential system throughput (10% of non-residential revenues) have the
ability to switch to an alternate fuel at any time, and therefore, are served
under flexible, interruptible rates which are competitively priced with respect
to their alternate fuel. Gas Utility's margins from these customers, therefore,
are affected by the spread between the customers' delivered cost of gas and the
customers' delivered alternate fuel cost. In addition, other customers
representing 27% of non-residential system throughput (7% of non-residential
revenues) have locations which afford them the option of seeking transportation
service directly from interstate pipelines, thereby bypassing Gas Utility. The
majority of these customers are served under transportation contracts having
three- to five-year terms. Included in these two groups are the ten Utilities'
customers with the highest volume of system throughput. Although no single
customer represents, or is anticipated to represent, more than 10% of the total
revenues of Gas Utility, the loss of several of such customers could have a
material adverse effect on Gas Utility.
Outlook for Gas Service and Supply. Gas Utility expects to meet the
full requirements of all firm customers through fiscal year 1997 and into the
foreseeable future. Supply mix is diversified and it is delivered pursuant to
various firm transportation and storage arrangements.
During the 1996 fiscal year, Gas Utility supplied transportation
service to three major cogeneration installations. Gas Utility continues to
pursue opportunities to supply natural gas to electric generation projects
located in its service territory. Gas Utility also continues to seek new
residential, commercial and industrial customers for both firm and interruptible
service. In the residential market sector, Gas Utility connected 6,372
additional heating customers during the 1996 fiscal year, a decrease of 4% from
the previous year. The decrease in Gas Utility's residential activity was
primarily due to the severe winter weather which delayed construction schedules.
Approximately 61% of the additions represent gas customers from the new
construction market. The remaining 39% represent customers converting from other
energy sources, primarily oil, and existing non-heating gas customers who have
added gas heating systems to replace other energy sources. The number of new
commercial heating customers was 739, down from 981 in fiscal year 1995.
Utilities continues to monitor and participate extensively in
third-party proceedings before the Federal Energy Regulatory Commission ("FERC")
affecting the rates and the terms and conditions under which Gas Utility
purchases, transports and stores natural gas. Among these proceedings are those
arising out of certain FERC orders and/or pipeline filings which relate to (i)
pipelines' requests to increase their base rates, or change the terms and
conditions of their storage
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and transportation services; (ii) the flexibility of the terms and conditions of
pipeline service contracts; and (iii) the relative pricing of pipeline services
in a competitive energy marketplace.
Gas Utility continues to take the measures it believes necessary, in
negotiations with interstate pipeline and natural gas suppliers and in cases
before regulatory agencies, to assure availability of supply, transportation and
storage alternatives to serve market requirements at the lowest cost consistent
with security of supply considerations. Those measures include negotiating for
additional firm transportation capacity from production areas on all pipelines
serving Gas Utility, arranging for appropriate storage and peak shaving
resources, negotiating with producers for competitively priced secure gas
purchases and aggressively participating in regulatory proceedings related to
transportation rights, costs of service and gas costs.
ELECTRIC UTILITY OPERATIONS
Service Area; Revenue Analysis. Electric Utility supplies electric
service to approximately 60,000 customers in portions of Luzerne and Wyoming
Counties in northeastern Pennsylvania through a system consisting of
approximately 2,100 miles of transmission and distribution lines and 14
transmission substations. For the 1996 fiscal year, about 54% of sales volume
came from residential customers, 34% from commercial customers and 12% from
industrial customers and others. For the 1996, 1995 and 1994 fiscal years,
revenues of Electric Utility accounted for approximately 15%, 18% and 16%,
respectively, of Utilities' total consolidated revenues.
Sources of Supply. Electric Utility distributes electricity which it
generates or purchases from others. Utilities owns and operates Hunlock
generating station located near Kingston, Pennsylvania ("Hunlock Station"), and
has a 1.11% ownership interest in the Conemaugh generating station located near
Johnstown, Pennsylvania ("Conemaugh Station"), which is operated by another
utility. These two coal-fired stations can generate up to 69 megawatts of
electric power for Electric Utility and provided approximately 48% of its energy
requirements during the 1996 fiscal year.
Coal supplies from various sources will be adequate to meet the
operating needs of Hunlock Station for the foreseeable future. As a result of
improvements made to Hunlock Station, its useful life has been extended to 2004.
Utilities has a long-term power supply agreement with Pennsylvania
Power & Light Company ("PP&L"). Under this agreement, PP&L supplies all the
electric power required by Electric Utility above that provided from other
sources, through February 28, 2008. The cost of electricity supplied by PP&L is
based on PP&L's actual system costs. In December 1993, Utilities entered into an
agreement with Foster Wheeler Power Resources ("Foster Wheeler") to purchase
power from a wood-fired generator which Foster Wheeler plans to construct.
Electric Utility reviews least-cost power supply options on an annual basis in
order to plan for its long-term power supply.
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Environmental Factors. The operation of Hunlock Station complies with
the air quality standards of the Pennsylvania Department of Environmental
Resources ("DER") with respect to stack emissions. Under the Federal Water
Pollution Control Act, Utilities has a permit from the DER to discharge water
from Hunlock Station into the North Branch of the Susquehanna River.
The Federal Clean Air Act Amendments of 1990 (the "Clean Air Act
Amendments") impose emissions limitations for certain compounds, including
sulfur dioxide and nitrous oxides. The Conemaugh Station is in compliance with
these standards, and the Hunlock Station is required to meet these emission
standards by 1999.
In compliance with the Clean Air Act Amendments, the DER issued final
Reasonably Available Control Technology ("RACT") regulations for nitrous oxides
in January 1994. These regulations are applicable to Hunlock and Conemaugh
Stations. Utilities' compliance plan for Hunlock Station and the Conemaugh
Station compliance plan have both been approved by the DER. Capital expenditures
associated with the RACT regulations are not expected to be material.
More stringent regulation of nitrous oxide omissions at both Hunlock
and Conemaugh Stations may be required due to the actions of the Northeast Ozone
Transport Commission. The Commission was created by the Clean Air Act Amendments
to provide a plan to reduce ground level ozone in the Northeast to a level
acceptable to the U.S. Environmental Protection Agency (the "EPA"). Future
actions of the Commission may cause the DER to modify its nitrous oxide RACT
plans and thereby affect the compliance plans of Hunlock and Conemaugh Stations.
Competition. Electric Utility is the only regulated electric utility
having the right, granted by the PUC or by law, to provide public utility
electric service in its service territory. On December 3, 1996, the Governor of
Pennsylvania signed into law the Electric Generation Customer Choice and
Competition Act ("Customer Choice Act"). The Customer Choice Act permits all
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, although the PUC can
delay these implementation dates by a period of up to one year under certain
circumstances. The PUC also has authority under the Customer Choice Act to order
electric utilities to submit proposals for retail access pilot programs to begin
as of April 1, 1997.
Additional provisions of the Customer Choice Act establish a mechanism
for claiming the recovery of transition or stranded costs, and establish a rate
cap at the level of rates in effect as of the effective date of the Customer
Choice Act until such time as 100 percent of an electric utility's customers
have the right to choose their electric generation supplier and any charges for
the recovery of transition or stranded costs have been removed from the electric
utility's rates. 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 Company does not expect any material adverse effects on its operations as
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a result of the Customer Choice Act or open access wholesale wheeling (See
"Utility Regulation and Rates - FERC Orders 888 and 889") because it owns
relatively low-cost coal generation and purchases the remaining electric power
needs of its system.
Seasonality. Sales of electricity for residential heating purposes
accounted for approximately 24% of the total sales of Electric Utility during
the 1996 fiscal year. Electricity competes with natural gas, oil, propane and
other heating fuels in this use. Approximately 56% of sales occurred in the six
coldest months of the 1996 fiscal year, demonstrating modest seasonality
favoring winter due to the use of electricity for residential heating purposes.
PROPERTIES
Utilities' Mortgage and Deed of Trust constitutes a first lien on
substantially all real and personal property of Utilities.
UTILITY REGULATION AND RATES
FERC Orders 888 and 889. In April 1996, FERC issued Orders No. 888 and
889 which established rules for the use of electric transmission facilities for
wholesale transactions. In compliance with these orders, Electric Utility filed
an open access wholesale electric transmission tariff with FERC on July 9, 1996.
In addition, Electric Utility is in the process of renegotiating certain
transmission owner agreements to which it is a party to bring these agreements
into compliance with the requirements of FERC Order 888.
Pennsylvania Public Utility Commission Jurisdiction. Utilities' gas and
electric utility operations are subject to regulation by the PUC as to rates,
terms and conditions of service, accounts, issuance of securities, contracts and
other arrangements with affiliated entities, and various other matters.
Purchased Gas Cost Rates. Gas Utility's gas service tariff contains
Purchased Gas Cost ("PGC") rates which provide for annual increases or decreases
in the rate per thousand cubic feet ("mcf") which Gas Utility charges for
natural gas sold by it, to reflect Utilities' projected cost of purchased gas.
In accordance with regulations adopted by the PUC on June 14, 1995, PGC rates
may also be adjusted quarterly to reflect actual purchased gas costs. Each
proposed PGC rate is required to be filed with the PUC six months prior to its
effective date. During this period the PUC holds hearings to determine whether
the proposed rate reflects a least-cost fuel procurement policy consistent with
the obligation to provide safe, adequate and reliable service. After completion
of these hearings, the PUC issues an order permitting the collection of gas
costs at levels which meet that standard. The PGC mechanism also provides for an
annual reconciliation. Utilities has two PGC rates. PGC (1) is applicable to
small, firm, core market customers consisting of the residential and small
commercial and industrial classes; PGC (2) is applicable to
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firm, contractual, high-load factor customers served on three specific rates
(Rates BD, BD-L and N/CIAC). In addition, residential customers maintaining a
high load may qualify for the PGC(2) rate. In accordance with the schedule
established by law and PUC regulations, Gas Utility will file a new PGC tariff
on June 3, 1997, to be effective December 1, 1997. When filed, the proposed
tariff will reflect estimated PGC over-collections and under-collections through
November 30, 1997.
Energy Cost Rates. Electric Utility's electric service tariff contains
an Energy Cost Rate ("ECR") which permits an adjustment to customers' monthly
charges to reflect annual changes in the cost of purchased power, fuel,
interchange power and the cost of transmitting power purchased from external
sources. Electric Utility's ECR collections are reconciled annually as of
January 31.
Gas Rate Case. On January 27, 1995, Gas Utility filed with the PUC for
an increase in base rates. The PUC approved a settlement of this proceeding,
effective August 31, 1995, resulting in base rates which are expected to
increase annual revenues by $19.5 million. As part of its settlement with the
PUC, Utilities agreed not to file for another gas base rate increase before
January 25, 1997.
Electric Rate Case. On January 26, 1996 Electric Utility filed with the
PUC for a $6.2 million increase in its base rates, to be effective March 26,
1996. On July 18, 1996, the PUC approved a settlement of this proceeding
authorizing a $3.1 million increase in annual revenues. This increase in base
rates became effective on July 19, 1996.
Deferred Fuel Adjustments. Utilities defers the difference between the
amount of revenue recognized, and the applicable purchased gas costs and
purchased power costs incurred, until subsequently billed or refunded to
customers under the PGC and ECR.
State Tax Surcharge Clauses. Utilities' gas and electric service
tariffs contain state tax surcharge clauses. The surcharges are recomputed
whenever any of the tax rates included in their calculation are changed. These
clauses protect Utilities from the effect of increases in most of the
Pennsylvania taxes to which it is subject.
Recent Regulatory Environment. Since December 1982, Utilities has
provided transportation service for commercial and industrial customers who
purchase their gas from others. As previously reported, this unbundled service
accounted for approximately 53% of Utilities' system throughput in fiscal year
1996. Certain states, including Pennsylvania, are considering whether
transportation service options should be extended to residential and small
commercial customers, and have begun to approve pilot programs extending such
services on a limited basis. Among the issues to be addressed are the standards
necessary to ensure reliability of future gas supplies, the recovery of costs of
existing gas supplies, relationships with affiliated gas marketers and consumer
education requirements. Utilities is considering a number of options for
addressing the opening of unbundled transportation services to residential and
small commercial customers, including the termination of bundled retail sales
services. Because the PUC currently permits gas costs to be passed through to
customers on a dollar-for-dollar
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basis, Utilities does not expect any reduction in revenues from the sale of gas
caused by an expansion in the availability of gas transportation services to
have a material negative impact on its financial condition. See also "ELECTRIC
UTILITY OPERATIONS - Competition."
UTILITY FRANCHISES
Utilities holds certificates of public convenience issued by the PUC
and certain "grandfather rights" predating the adoption of the Pennsylvania
Public Utility Code and its predecessor statutes which it believes are adequate
to authorize it to carry on its business in substantially all the territory to
which it now renders gas and electric service. Under applicable Pennsylvania
law, Utilities also has certain rights of eminent domain as well as the right to
maintain its facilities in streets and highways in its territories.
OTHER GOVERNMENT REGULATION
In addition to regulation by the PUC, the gas and electric utility
operations of Utilities are subject to various federal, state and local laws
governing environmental matters, occupational health and safety, pipeline safety
and other matters. Certain of Utilities' activities involving the interstate
movement of natural gas, the wheeling of electricity, transactions with
non-utility generators of electricity and other matters, are also subject to the
jurisdiction of FERC.
Utilities is subject to the requirements of the federal Resource
Conservation and Recovery Act, the Comprehensive Environmental Response,
Compensation and Liability Act (the "Superfund Law") and comparable state
statutes with respect to the release of hazardous substances on property owned
or operated by Utilities. See ITEM 3. "LEGAL PROCEEDINGS-Environmental Matters."
The electric generation activities of Utilities are also subject to the Clean
Air Act Amendments, the Federal Water Pollution Control Act and comparable state
statutes and regulations. See "ELECTRIC UTILITY OPERATIONS - Environmental
Factors."
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BUSINESS SEGMENT INFORMATION
The table stating the amounts of revenues, operating income (loss) and
identifiable assets attributable to Utilities' industry segments for the 1996,
1995 and 1994 fiscal years appears in Note 12 "Segment Information" of Notes to
Consolidated Financial Statements included in this Report and is incorporated
herein by reference.
EMPLOYEES
At September 30, 1996, Utilities and its subsidiaries had 1,218
employees.
ITEM 3. LEGAL PROCEEDINGS
With the exception of the matters set forth below, no material legal
proceedings are pending involving Utilities, any of its subsidiaries or any of
their properties, and no such proceedings are known to be contemplated by
governmental authorities.
ENVIRONMENTAL MATTERS - MANUFACTURED GAS PLANTS
Prior to the general availability of natural gas, in the 1800s through
the mid-1900s, manufactured gas was a chief source of gas for lighting and
heating nationwide. The process involved heating certain combustibles such as
coal, oil and coke in a low-oxygen atmosphere. Methods of production included
coal carbonization, carbureted water gas and catalytic cracking. These methods
were employed at many different sites throughout the country. The residue from
gas manufacturing, including coal tar, was typically stored on site, burned in
the gas plant, or sold for commercial use. Some constituents of coal tars
produced from the manufactured gas process are today considered hazardous
substances under the Superfund Law.
The gas distribution business has been one of Utilities' principal
lines of business since its inception in 1882. One of the ways Utilities
initially expanded its business in its early years was by entering into
agreements with other gas companies to operate their businesses. After 1888, the
principal means by which Utilities expanded its gas business was to acquire all
or a portion of the stock of companies engaged in this business. Utilities also
provided management and administrative services to some of these companies.
Utilities grew rapidly by means of stock acquisitions and became one of the
largest public utility holding companies in the country. Pursuant to the
requirements of the Public Utility Holding Company Act of 1935, Utilities
divested all of its utility operations other than those which now constitute the
Gas Utility and the Electric Utility.
The manufactured gas process was once used by Utilities in connection
with providing gas service to its customers. In addition, virtually all of the
gas companies that Utilities operated or to
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which it provided services, or in which Utilities held stock, utilized a
manufactured gas process. Utilities has been notified of several sites outside
Pennsylvania on which (i) gas plants were formerly operated by it or owned or
operated by its former subsidiaries and (ii) either environmental agencies or
private parties are investigating the extent of environmental contamination and
the necessity of environmental remediation. Utilities is currently litigating
two claims against it relating to out-of-state sites. If Utilities were found
liable as a "responsible party" as defined in the Superfund Law (or comparable
state statutes) with respect to any of these sites, it would have joint and
several liability with other responsible parties for the full amount of the
cleanup costs. A "responsible party" under that statute includes (i) the current
owner of the affected property and (ii) each owner or operator of a facility
during the time when hazardous substances were released on the property.
Management believes that Utilities should not have significant
liability in those instances in which a former subsidiary operated a
manufactured gas plant because 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 Utilities owned or directly operated, or that were owned or operated
by former subsidiaries of Utilities, if a court were to conclude that the level
of control exercised by Utilities over the subsidiary satisfies the standard
described above.
Utilities believes that there are approximately 40 manufactured gas
plant sites in Pennsylvania where either (i) Utilities formerly operated the
plant or (ii) Utilities owns or at one time owned the site. Most of the sites
are no longer owned by Utilities and the gas plants formerly operated at these
40 sites have all been out of operation since at least the early 1950s. Two of
the sites, located in Palmyra and Lebanon, Pennsylvania, respectively, are
discussed below. Based on the 1995 settlement agreement with the PUC relating to
Gas Utilities' 1995 base rate increase filing, rate relief will be permitted for
certain remediation expenditures on environmentally contaminated sites located
in Pennsylvania.
The following is a short description of the status of certain matters
involving Utilities related to manufactured gas plants located in Pennsylvania
and in other states. See also Note 8 to the Company's Consolidated Financial
Statements included in this Report and incorporated herein by reference.
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A. PENNSYLVANIA GAS PLANT SITES
1. Palmyra. On May 5, 1993, Petroleum Heat and Power Company
("Petroleum") informed Utilities that Utilities may be responsible for
contamination at property owned by Petroleum in Palmyra, Pennsylvania. Utilities
is the corporate successor to a company that operated a manufactured gas plant
on this site from approximately 1910 to 1928. Petroleum operates a fuel oil
dealership at the site and removed a number of underground gasoline storage
tanks, some of which were found to be leaking. In the course of remediating the
gasoline contamination, Petroleum's consultant discovered creosote or coal tar
contamination in one of the groundwater monitoring wells to a depth of
approximately twenty feet. Utilities and Petroleum have jointly conducted and
shared the cost of additional investigation which suggests that the coal
tar-like contaminants are contained in a small area of the site and that they
have not entered the groundwater. Utilities and Petroleum have completed
investigation of the site, have removed contaminated soils and expect the DER to
approve a recommendation that the parties take no further action.
2. Lebanon. In October 1990, Utilities notified the DER of the
discovery of coal tar at a site formerly operated by a predecessor company of
Utilities as a gas plant in Lebanon, Pennsylvania. This material was discovered
during the excavation of the foundation of a new service building that Utilities
was constructing on the site. Utilities subsequently removed and disposed of
coal tar contaminated soil to the extent practicable. Utilities has continued to
monitor groundwater wells on and adjacent to the site. Some of these wells have
produced petroleum hydrocarbon contaminated water consistent with leaking
underground gasoline tanks. Properties to the east and south of Utilities'
property have histories of such leaking tanks. The latest communication from the
DER concludes that the predominant contamination at the site is related to the
leaking gasoline storage tanks.
B. OUT OF STATE GAS PLANT SITES
1. Halladay Street, Jersey City, New Jersey. By letter dated April 12,
1993, Public Service Electric and Gas Company ("PSE&G") informed Utilities that
PSE&G had been named as a defendant in a civil action pending in the United
States District Court of the District of New Jersey, seeking damages as a result
of contamination relating to the former manufactured gas plant operations at
Halladay Street in Jersey City, New Jersey. The Halladay Street gas plant
operated from approximately 1884 until 1950. PSE&G asserted that Utilities is
liable for that portion of the costs associated with operations of the plant
between 1886 and 1899. PPG Industries, Inc. has also been named as a defendant
in the action for costs associated with chemical contamination at the site
unrelated to gas plant operations. In July 1993, PSE&G served Utilities with a
complaint naming Utilities as a third-party defendant in this civil action.
PSE&G subsequently amended the complaint to allege additional theories of
liability for the period from 1899 to 1940. That action is continuing.
Management is currently investigating Utilities' involvement in operations of
the site and evaluating its defenses. Investigations of the site conducted to
date are insufficient to establish the extent of environmental remediation
necessary,
11
<PAGE> 14
if any. Hence, Utilities is unable to estimate the total cost of
cleanup associated with manufactured gas plant wastes at this site.
2. Burlington, Vermont. By letter dated November 24, 1992, the EPA
notified Utilities of potential liability with respect to contamination at the
Pine Street Canal Superfund Site, Burlington, Vermont. The EPA has also
identified eighteen other "potentially responsible parties." The site is the
location of a former manufactured gas plant owned and operated by Burlington Gas
Light Company ("BGLC") and Burlington Light and Power Company ("BLPC"). The EPA
contends that Utilities is potentially liable because it assumed the liabilities
of American Gas Company of New Jersey, a one-time parent of BGLC and BLPC. In
1985, the EPA removed approximately 15,000 tons of coal tar contaminated
material from a portion of the site. From 1986 through 1992, the EPA conducted
investigations and developed potential remedial actions at the site. The results
of EPA's investigations show that coal gasification wastes, particularly
polynuclear aromatic hydrocarbons and coal tar, are present in surface and
subsurface soils as well as groundwater. The contamination also extends to
wetlands adjacent to the site.
In November 1992, the EPA proposed a cleanup of the site that, among
other actions, would consist of on-site containment, dredging and excavation,
dewatering and consolidation of contaminated soils, treatment of groundwater and
restoration of wetlands. The estimated cost of the proposed plan would have been
approximately $50 million. In May 1993, after reviewing extensive public comment
concerning the proposed plan of remediation, the EPA withdrew the proposed plan
and announced that it would work with community groups, potentially responsible
parties and others to develop an alternative plan. Management is unable to
estimate the cost of any alternative plan of remediation, but it does not expect
such cost to exceed the estimated cost of the original proposed plan. Utilities
has responded to the EPA letter and denied liability for any contamination
caused by the former operator of the gas plant. Management believes that
Utilities has substantial defenses to any claim that may be made for
investigative or remedial costs because, among other things, the plant was
operated by a subsidiary of a predecessor company.
3. Savannah, Georgia. On March 2, 1992, Atlanta Gas Light Company
("AGL") informed Utilities that it was investigating contamination that appears
to be related to manufactured gas plant operations at a site owned by AGL in
Savannah, Georgia. AGL believes that Utilities may be liable for investigative
and remedial costs as a result of having operated the gas plant through a
subsidiary company in the early 1900s. AGL has stated its intention to bring
suit against Utilities. AGL estimates that total costs to remediate the site may
exceed $5 million. Management believes that Utilities has substantial defenses
to any action that may arise out of the activities of its former subsidiary at
this site.
4. Concord, New Hampshire. By letter dated October 18, 1993,
EnergyNorth Natural Gas, Inc. ("EnergyNorth") informed Utilities that the New
Hampshire Department of Environmental Services ("NHDES") has alleged that there
is environmental contamination on property in Concord, N.H., where a
manufactured gas plant was once located. EnergyNorth requested that Utilities,
as a former operator of the plant, participate in investigation of the site.
Because this gas plant appears to have been operated almost exclusively by
former subsidiary
12
<PAGE> 15
companies of Utilities, Utilities declined to participate. On September 17, 1995
EnergyNorth filed suit against Utilities alone in federal District Court in New
Hampshire, seeking Utilities' allocable share of response costs associated with
remediating gas plant related contamination at that site. The complaint alleges
that EnergyNorth has spent $3.5 million to remove contaminants from a gas holder
at the site and will be required to spend an unknown amount in the future. As a
result of investigations of gas plant related contamination in a nearby pond
completed in 1996, EnergyNorth has recommended to NHDES a remediation plan that
would cost approximately $4 million. Utilities is currently defending this suit.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the last
fiscal quarter of the 1996 fiscal year.
PART II: SECURITIES AND FINANCIAL INFORMATION
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
All of the outstanding shares of the Company's Common Stock are owned
by UGI and are not publicly traded.
13
<PAGE> 16
DIVIDENDS
Dividends declared on the Company's Common Stock during the 1996 fiscal
year totaled $32.9 million. Dividends declared on the Company's Common Stock
during the 1995 and 1994 fiscal years totaled $15.5 million (including $1.0
million in net assets of its former GASMARK operation) and $23.2 million,
respectively.
The information concerning restrictions on dividends required by Item 5
is included in Note 3 to the Company's Consolidated Financial Statements
included in this Report and is incorporated herein by reference.
14
<PAGE> 17
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Nine
Months Year
Year Ended Ended Ended
September 30, September 30, December 31,
---------------------------------- ---------------------- ------------
1996 1995 1994 1993 1992 1992
--------- ------------ --------- ---------- ---------- ------------
(unaudited)
(Thousands of dollars)
<S> <C> <C> <C> <C> <C> <C>
FOR THE PERIOD ENDED:
Income statement data:
Revenues $ 460,496 $ 357,364 $ 395,061 $ 251,210 $ 246,677 $ 349,817
======== ======== ======== ======== ======== ========
Income from:
Continuing operations $ 38,348 $ 28,018 $ 23,555 $ 16,031 $ 15,782 $ 25,245
Discontinued operations (a) - - 6,918 - 13,471 13,971
-------- -------- -------- -------- -------- --------
Income before accounting change 38,348 28,018 30,473 16,031 29,253 39,216
Change in accounting for
postemployment benefits - (1,028) - - - -
-------- -------- -------- -------- -------- --------
Net income 38,348 26,990 30,473 16,031 29,253 39,216
Dividends on preferred stock 2,765 2,778 1,356 2,124 1,905 2,613
-------- -------- -------- -------- -------- --------
Net income after dividends
on preferred stock $ 35,583 $ 24,212 $ 29,117 $ 13,907 $ 27,348 $ 36,603
======== ======== ======== ======== ======== ========
AT PERIOD END:
Balance sheet data:
Total assets $ 649,899 $ 661,480 $ 581,426 $ 561,306 $ 560,672 $ 568,911
======== ======== ======== ======== ======== ========
Capitalization:
Debt:
Bank loans $ 50,500 $ 42,000 $ 17,000 $ - $ - $ 36,300
Long-term debt
(including current maturities): 176,654 208,162 177,444 200,421 198,273 155,775
-------- -------- -------- -------- -------- --------
Total debt 227,154 250,162 194,444 200,421 198,273 192,075
-------- -------- -------- -------- -------- --------
Preferred stock subject to
mandatory redemption 35,187 35,202 35,202 33,222 35,223 34,223
Common equity 189,441 186,803 178,071 169,077 161,971 167,631
-------- -------- -------- -------- -------- --------
Total capitalization $ 451,782 $ 472,167 $ 407,717 $ 402,720 $ 395,467 $ 393,929
======== ======== ======== ======== ======== ========
Ratio of capitalization:
Total debt 50.3 % 53.0 % 47.7 % 49.8 % 50.1 % 48.8 %
UGI Utilities preferred stock 7.8 7.4 8.6 8.2 8.9 8.7
Common equity 41.9 39.6 43.7 42.0 41.0 42.5
-------- -------- -------- -------- -------- --------
100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
======== ======== ======== ======== ======== ========
</TABLE>
(a) Includes results of AmeriGas and Ashtola prior to April 10, 1992.
Also includes the Company's oil field activities discontinued in 1986.
15
<PAGE> 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
1996 COMPARED WITH 1995
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Increase
Year Ended September 30, 1996 1995 (Decrease)
- -----------------------------------------------------------------------------------------------------------------
(Millions of dollars)
<S> <C> <C> <C> <C>
GAS UTILITY:
Natural gas system throughput - bcf 85.4 82.4 3.0 3.6%
Degree days - % colder (warmer)
than normal 4.2 (5.4) - -
Revenues $ 391.0 $ 291.3 $ 99.7 34.2%
Total margin $ 169.7 $ 140.9 $ 28.8 20.4%
Operating income $ 72.9 $ 51.9 $ 21.0 40.5%
ELECTRIC UTILITY:
Electric sales - gwh 884.7 860.9 23.8 2.8%
Degree days - % colder (warmer)
than normal 1.2 (16.3) - -
Revenues $ 69.5 $ 66.1 $ 3.4 5.1%
Total margin $ 33.0 $ 32.1 $ .9 2.8%
Operating income $ 8.6 $ 9.1 $ (.5) (5.5)%
CORPORATE GENERAL AND OTHER:
Corporate general expenses $ (3.9) $ (6.6) $ (2.7) (40.9)%
Other operating income $ .1 $ 2.1 $ (2.0) (95.2)%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
bcf - billions of cubic feet. gwh - millions of kilowatt hours. Total margin
represents revenues less cost of sales and revenue-related taxes.
GAS UTILITY. Weather in Gas Utility's service territory in 1996 was colder than
normal and also colder than in 1995. The increase in total system throughput
includes a 5.4 bcf increase in sales to core market customers and a .7 bcf
increase in throughput to interruptible customers. Partially offsetting these
increases was a decrease in firm delivery service volumes as a result of
customer switching to interruptible delivery service.
The increase in Gas Utility total revenues reflects higher sales to
core market customers, greater off-system sales, higher base rate revenues
resulting from Gas Utility's $19.5 million annual base rate increase effective
August 31, 1995, and lower refunds of producer settlement charges. Cost of gas
sold was $206.3 million during 1996, an increase of $67.7 million from 1995,
reflecting principally the greater sales to core market customers, higher
off-system sales, and lower refunds of producer settlement charges.
16
<PAGE> 19
The increase in Gas Utility total margin in 1996 reflects a $34.5
million increase in total margin from core market customers as a result of the
colder weather and higher base rates. However, partially offsetting the increase
in core market margin was a decrease in total margin from interruptible
customers, principally as a result of higher 1996 gas costs, and a decrease in
total margin from firm delivery service customers due in large part to the lower
volumes.
Gas Utility operating income in 1996 benefitted from the increase in
total margin. However, the benefit was partially offset by higher operating and
administrative expenses and higher charges for depreciation.
ELECTRIC UTILITY. Electric Utility sales increased during 1996 principally from
colder heating-season weather. The increase in Electric Utility revenues
reflects the impact of the higher sales, a higher energy cost rate (ECR) through
which Electric Utility recovers the cost of electricity purchased or generated,
and an increase in base rates effective July 19, 1996. Electric Utility cost of
sales was $33.4 million, an increase of $2.3 million from the prior year. The
increase in the cost of sales resulted from higher sales and a higher average
ECR.
Electric Utility total margin increased as a result of the increased
sales and higher base rates effective in July. However, operating income
declined as the increase in Electric Utility total margin was more than offset
by higher distribution system maintenance expenses, general and administrative
expenses, and depreciation.
CORPORATE GENERAL AND OTHER. Corporate general expenses, which represent an
allocated share of corporate headquarters' expenses incurred by UGI, were $3.9
million in 1996 compared with $6.6 million in 1995. The decrease reflects a
smaller allocable share of UGI corporate expenses charged to the Company. Other
operating income in 1995 principally reflects income from the gas marketing
activities of GASMARK, a former division of UGI Utilities' wholly owned
subsidiary, UGI Development Company (UGIDC). Effective August 1, 1995, the
business assets of GASMARK, which totaled $1.0 million, were dividended to UGI.
INTEREST EXPENSE AND INCOME TAXES. Interest expense was $16.1 million in 1996
compared with interest expense of $16.8 million in 1995. The decrease in
interest expense principally reflects a decrease in interest on bank loans and
purchased gas cost overcollections. The effective income tax rate was 37.9% in
1996 compared with an effective tax rate of 29.5% in 1995. The lower income tax
rate in 1995 reflects the benefit of a $4.3 million adjustment to deferred state
income taxes recorded in September 1995 (see Note 4 to Consolidated Financial
Statements). Income taxes in 1996 reflect a reduction in the Pennsylvania
corporate income tax rate to 9.99% from 11.99%.
17
<PAGE> 20
1995 COMPARED WITH 1994
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Increase
Year Ended September 30, 1995 1994 (Decrease)
- -----------------------------------------------------------------------------------------------------------------
(Millions of dollars)
<S> <C> <C> <C> <C>
GAS UTILITY:
Natural gas system throughput - bcf 82.4 83.5 (1.1) (1.3)%
Degree days - % colder (warmer)
than normal (5.4) 11.4 - -
Revenues $ 291.3 $ 331.4 $ (40.1) (12.1)%
Total margin $ 140.9 $ 141.7 $ (.8) (.6)%
Operating income $ 51.9 $ 54.7 $ (2.8) (5.1)%
ELECTRIC UTILITY:
Electric sales - gwh 860.9 873.7 (12.8) (1.5)%
Degree days - % colder (warmer)
than normal (16.3) 1.9 - -
Revenues $ 66.1 $ 63.7 $ 2.4 3.8%
Total margin $ 32.1 $ 31.0 $ 1.1 3.5%
Operating income $ 9.1 $ 8.5 $ .6 7.1%
CORPORATE GENERAL AND OTHER:
Corporate general expenses $ (6.6) $ (6.7) $ (.1) 1.5%
Other operating income $ 2.1 $ 1.3 $ .8 61.5%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
GAS UTILITY. Results in 1995 were impacted by warmer heating-season weather
which reduced sales to core market customers. Although the warmer weather
reduced core market sales, it resulted in fewer interruptions of service to
interruptible customers. During 1994, severely cold January and February weather
resulted in significant interruptions of service to these customers. Such
interruptions were necessary to meet the higher demand for gas from firm
customers.
The decrease in 1995 Gas Utility revenues includes a $42.1 million
decrease in revenues from core market customers reflecting lower volumes sold,
lower PGC rates and the full-year pass-through of producer settlement refunds
partially offset by the one-month effect of Gas Utility's $19.5 million annual
base rate settlement. Cost of gas sold was $138.6 million in 1995 compared with
$175.8 million in 1994 reflecting the recovery of lower purchased gas costs
through PGC rates and lower volumes of gas sold to core market customers.
The decrease in 1995 total margin reflects a $5.3 million decrease in
total margin from core market customers, a $2.1 million decrease in total margin
from firm delivery service customers, and the fact that 1994 margin includes
$1.4 million of income resulting from the PUC's June 2, 1994 decision on the
sharing of producer settlement refunds (see Note 2 to Consolidated Financial
Statements). Offsetting these decreases was an $8.1 million increase in
interruptible
18
<PAGE> 21
margin reflecting higher interruptible volumes and higher average margins
resulting from a greater difference between gas and oil prices despite
relatively stable oil prices.
Gas Utility operating income declined as a result of the lower total
margin, higher charges for depreciation, higher customer service and information
expenses, and costs associated with Gas Utility's base rate filing.
ELECTRIC UTILITY. Sales in 1995 decreased principally as a result of the warmer
winter's effect on heating-related sales. The decrease was partially offset by
greater sales during the cooling season resulting from record-setting
temperatures in July and August 1995. Notwithstanding the lower 1995 sales,
Electric Utility revenues increased as a result of a higher average 1995 ECR and
slightly higher base rate revenues from the full-year effect of the July 1994
$1.3 million annual base rate increase. Cost of sales increased $1.3 million,
despite the lower sales, as a result of the greater average ECR. Electric
Utility total margin increased $1.1 million in 1995 due to the full-year effect
of the July 1994 base rate increase. However, the increase in total margin was
partially offset by higher charges for depreciation and greater system
distribution expenses.
CORPORATE GENERAL AND OTHER. Corporate general expenses, representing an
allocable share of UGI corporate expenses, were virtually unchanged in 1995.
Other operating income, including income from gas brokerage activities of
GASMARK prior to August 1, 1995, increased $.8 million.
INTEREST EXPENSE AND INCOME TAXES. Interest expense was $16.8 million in 1995
compared with $16.7 million in 1994. The effective income tax rate on continuing
operations was 29.5% in 1995 compared with an effective rate of 42.9% in 1994.
The lower 1995 rate principally reflects the effects of an adjustment to
deferred state income taxes of $4.3 million.
(see Note 4 to Consolidated Financial Statements).
DISCONTINUED OPERATIONS. Income from discontinued operations of $6.9 million in
1994 reflects income from the sale of the Company's investment in UTI Energy
Corp. (see Note 11 to Consolidated Financial Statements).
CHANGE IN ACCOUNTING FOR POSTEMPLOYMENT BENEFITS. In 1995, Utilities recorded
the cumulative effect of a change in accounting for postemployment benefits in
accordance with the provisions of Statement of Financial Accounting Standards
(SFAS) No. 112 "Accounting for Postemployment Benefits" (SFAS 112). SFAS 112
requires, among other things, the accrual of benefits provided to former or
inactive employees (who are not retirees) and to their beneficiaries and covered
dependents. Prior to the adoption of SFAS 112, the Company accounted for these
benefits on a pay-as-you-go basis. The cumulative effect of SFAS 112 on
Utilities' results of operations for periods prior to October 1, 1994 of $1.8
million pre-tax ($1.0 million after-tax) has been reflected in the 1995
Consolidated Statement of Income as "Change in accounting for postemployment
benefits."
19
<PAGE> 22
FINANCIAL CONDITION AND LIQUIDITY
CAPITALIZATION AND LIQUIDITY
Utilities' debt outstanding at September 30, 1996 totaled $227.2
million compared to $250.2 million at September 30, 1995. The decrease
principally reflects the redemption of $45.9 million face value of 9% First
Mortgage Bonds from the proceeds of Utilities' September 1995 issuance of $22
million of twenty-year notes and $26 million of seven-year notes. During 1996,
Utilities issued $20 million of 6.62% notes due May 15, 2005 the proceeds of
which were used to reduce Utilities' bank loans. Utilities has a shelf
registration for the issuance from time to time of up to $75 million of debt
securities, none of which has been issued. Utilities has revolving credit
agreements providing for borrowings of up to $67 million under committed lines
through June 30, 1999. At September 30, 1996, borrowings under its revolving
credit agreements totaled $50.5 million.
Dividend payments to UGI totaled $32.9 million in 1996 compared to
$15.5 million in 1995. The Company intends to declare and pay dividends to UGI
subject to the availability of earnings and the cash needs of its businesses. In
addition, certain of Utilities' debt agreements contain limitations with respect
to incurring additional debt, require the maintenance of consolidated tangible
net worth, as defined, of at least $125 million, and restrict the amounts of
payments for investments, redemptions of capital stock, prepayment of
subordinated debt and dividends. Under the most restrictive of these provisions,
permitted future payments aggregate $138.6 million at September 30, 1996.
CAPITAL EXPENDITURES
The following table presents capital expenditures of Gas Utility and
Electric Utility for the years ended September 30, 1996, 1995 and 1994, as well
as expected amounts for fiscal 1997. Utilities expects to finance 1997 capital
expenditures through internally generated cash and borrowings under its credit
facilities.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Year Ended September 30, 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------
(Millions of dollars) (estimate)
<S> <C> <C> <C> <C>
Gas Utility $ 36.0 $ 34.6 $ 45.3 $ 33.1
Electric Utility 5.1 5.0 5.9 6.0
- -----------------------------------------------------------------------------------------
$ 41.1 $ 39.6 $ 51.2 $ 39.1
- -----------------------------------------------------------------------------------------
</TABLE>
CASH FLOWS
OPERATING ACTIVITIES. Utilities' operating cash flows are seasonal and are
generally greatest during the winter and spring when customers pay heating bills
incurred during the heating season. Accordingly, the actual amount of cash
generated during such period is dependent in large part
20
<PAGE> 23
upon the severity of heating-season weather. Cash flow from operating activities
was $57.0 million in 1996 compared to $42.7 million in 1995. The increase
principally reflects the significant improvement in Gas Utility results. Cash
flows before changes in operating working capital were $71.7 million in 1996
compared with $53.0 million in 1995. Changes in operating working capital in
1996 required $14.6 million of operating cash flow principally from increases in
inventories, accounts receivable and undercollections of Gas Utility fuel costs
partially offset by increases in accounts payable. In 1995, changes in operating
working capital required $10.4 million of operating cash flow principally from
an increase in accounts receivable and refunds of producer settlement payments
partially offset by an increase in accounts payable.
INVESTING ACTIVITIES. Expenditures for property, plant and equipment declined to
$39.6 million in 1996 from $51.2 million in 1995. The decrease is a result of a
lower level of Gas Utility capital expenditures.
FINANCING ACTIVITIES. During 1996, Utilities paid $32.9 million in dividends to
UGI and $2.8 million to holders of preferred stock. Utilities made debt
repayments of $54.8 million including the early redemption of $45.9 million of
9% First Mortgage Bonds at 104% of the principal amount. In addition, Utilities
issued $20 million of long-term notes under its Medium-Term Note Program and had
net borrowings of $8.5 million under its revolving credit facilities.
UTILITY BASE RATES
During the three-year period ended September 30, 1996, the following
increases in Gas and Electric utilities' base rates became effective:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Increase in Annual Revenues
---------------------------
Division Effective Date Requested Granted
- -------------------------------------------------------------------------------------------------
(Millions of dollars)
<S> <C> <C> <C>
Electric Utility 7/19/96 $ 6.2 $ 3.1
Gas Utility 8/31/95 41.3 19.5
Electric Utility 7/27/94 4.2 1.3
- -------------------------------------------------------------------------------------------------
</TABLE>
MANUFACTURED GAS PLANTS
The gas distribution business has been one of Utilities' principal
lines of business since its inception in 1882. Prior to the construction of
major natural gas pipelines in the 1950s, gas for lighting and heating was
produced at manufactured gas plants (MGPs) from processes involving coal, coke
or oil. Some constituents of coal tars produced from the manufactured gas
process are today considered hazardous substances under the Comprehensive
Environmental Response, Compensation and Liability Act (Superfund Law) and may
be located at those sites.
One of the ways Utilities initially expanded its business in its early
years was by entering into agreements with other gas companies to operate their
businesses. After 1888, the principal means by which Utilities expanded its gas
business was to acquire all or a portion of the stock of
21
<PAGE> 24
companies engaged in this business. Utilities also provided management and
administrative services to some of these companies. Utilities grew rapidly to
become one of the largest public utility holding companies in the U.S. Pursuant
to the Public Utility Holding Company Act of 1935, Utilities divested all of its
utility operations other than those which now constitute Gas Utility and
Electric Utility.
The Company has been notified of several sites outside Pennsylvania
where MGPs were operated by Utilities or owned or operated by its former
subsidiaries and environmental agencies or private parties are investigating the
extent of environmental contamination and the necessity of environmental
remediation. If Utilities were found liable as a "responsible party" as defined
in the Superfund Law (or comparable state statutes) with respect to any of these
sites, it would have joint and several liability with other responsible parties
for the full amount of the cleanup costs. A "responsible party" under that
statute includes the current owner of the affected property and each owner or
operator of a facility during the time when hazardous substances were released
on the property.
Management believes that Utilities should not have significant
liability in those instances in which a former subsidiary operated a MGP because
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 substantial control over the subsidiary. There
could be, therefore, significant future costs of an uncertain amount associated
with environmental damage caused by MGPs that Utilities owned or directly
operated, or that were owned or operated by former subsidiaries of Utilities if
a court were to conclude that Utilities exercised substantial control over such
subsidiaries.
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. Management believes, after
consultation with counsel, that future costs of investigation and remediation,
if any, will not have a material adverse effect on the Company's financial
position but could be material to operating results and cash flows depending on
the nature and timing of future developments and the amounts of future operating
results and cash flows. The Company intends to pursue recovery of these costs
through all appropriate means, including regulatory relief, although such
recovery cannot be assured. For a more detailed discussion of environmental
matters related to MGP sites, see Note 8 to Consolidated Financial Statements.
IMPACT OF INFLATION
Inflation impacts the Company's gas and electric utility operations
primarily in the prices they pay for labor, materials and services. Because Gas
Utility's and Electric Utility's base rates can be adjusted only through general
rate filings with the PUC, increased costs, absent timely rate relief, can have
a significant impact on the Company's results. Under current tariffs, Gas
Utility and Electric Utility are each permitted, after annual PUC review, to
recover certain costs of
22
<PAGE> 25
purchased gas, fuel and power which comprise a substantial portion of the
Company's costs and expenses.
The Company attempts to limit the effects of inflation on its
results of operations through cost control efforts, productivity improvements
and timely rate relief.
RECENT REGULATORY ENVIRONMENT
Federal and state regulators of the electric utility industry have
recently undertaken several actions to increase competition within the industry.
Certain states, including Pennsylvania, are also considering whether natural gas
transportation service options should be extended to residential and small
commercial accounts. Utilities does not expect that these actions will have a
material adverse effect on its financial condition and will continue to monitor
proceedings in these areas.
FORWARD-LOOKING STATEMENTS
Except for the historical information contained herein, certain of the
matters discussed in this Annual Report on Form 10-K are forward-looking
statements that are subject to risks and uncertainties. The factors that could
cause actual results to differ materially include those discussed herein as well
as those listed in Exhibit 99 to this Report. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of the
date of this Annual Report on Form 10-K. The Company undertakes no obligation to
publicly release any revision to these forward-looking statements to reflect
events or circumstances after the date of this Annual Report on Form 10-K.
23
<PAGE> 26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and the financial statement schedule set forth
on pages F-1 to F-28 and page S-1 of this Report are incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III: UGI UTILITIES MANAGEMENT AND SECURITY HOLDERS
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
<TABLE>
<CAPTION>
Utilities
Director Principal Occupation
Name Age Since and Other Directorships (1)
- ---- --- ----- ---------------------------
<S> <C> <C> <C>
Lon R. Greenberg 46 1994 Chairman of the Company (since August 1996); Director,
Chief Executive Officer, Vice Chairman (since
August 1995) and President (since 1994) of UGI;
formerly, Senior Vice President-Legal and
Corporate Development of UGI (1989 to July
1994). Mr. Greenberg is also a director on the
Mellon PSFS Advisory Board.
James W. Stratton 60 1979 President of Stratton Management Company (investment
advisory and financial consulting firm); Chairman and Chief
Executive Officer of FinDaTex (financial services firm).
Director: AmeriGas Propane, Inc.; Stratton Growth Fund;
Stratton Monthly Dividend Shares, Inc.; Stratton Small-Cap
Yield Fund; Gilbert Associates, Inc.; Alco Standard
Corporation; Teleflex, Inc.
</TABLE>
24
<PAGE> 27
<TABLE>
<CAPTION>
Utilities
Director Principal Occupation
Name Age Since and Other Directorships (1)
- ---- --- ------- -------------------------------------
<S> <C> <C> <C>
Robert C. Forney 69 1988 Retired; formerly Executive Vice President (1981 to 1989)
and Director (1979 to 1989) of E. I. duPont de Nemours &
Co., Inc. (chemicals and petroleum products). Director:
AmeriGas Propane, Inc.; Wilmington Trust Corporation;
Wilmington Trust Company; Wilmington Trust of Pennsylvania.
David I. J. Wang 64 1988 Retired; formerly Executive Vice President-Timber and
Specialty Products and a Director of International Paper
Company (1987 to 1991). Director: AmeriGas Propane, Inc.;
Weirton Steel Corp.
Richard C. Gozon 58 1989 Executive Vice President of Weyerhaeuser Company (pulp,
paper and packaging) (since 1994). Formerly Director (1984
to 1993), President and Chief Operating Officer of Alco
Standard Corporation (provider of paper and office
products) (1988 to 1993); Executive Vice President and
Chief Operating Officer (1987); Vice President (1982 to
1988); President (1979 to 1987) of Paper Corporation of
America. Director: AmeriSource Health Corporation and
Triumph Group, Inc.
Cyrus H. Holley 60 1990 President and sole owner of Management Consulting Services
(business and educational resource and management
consulting firm) (1992 to present). Formerly Executive Vice
President and Director (1985 to 1990) and Chief Operating
Officer (1985 to 1992) of Engelhard Corporation (maker of
mineral, chemical and metal performance products).
Director: Atlantic Energy, Inc. and Kerns Oil & Gas, Inc.
</TABLE>
25
<PAGE> 28
<TABLE>
<CAPTION>
Utilities
Director Principal Occupation
Name Age Since and Other Directorships (1)
- ---- --- ----- ---------------------------
<S> <C> <C> <C>
Quentin I. Smith, Jr. 69 1990 Retired; formerly Chairman and Chief Executive Officer of
Towers Perrin (management consulting services). Director:
Omnicom Group Inc.; The Guardian Life Insurance Company of
America.
Stephen D. Ban 56 1991 President and Chief Executive Officer of Gas Research
Institute (gas industry research and development) (since
1987); formerly Executive Vice President of Gas Research
Institute (1986); formerly Vice President Research and
Development, Bituminous Materials, Inc. (1981). Director:
Energen Corporation.
Richard L. Bunn 60 1992 President and Chief Executive Officer of the Company (since
May 1992); Senior Vice President, President-Utilities
Division of the Company (1987 to 1992). Director: Paoli
Travel Services, Inc.; BHC Financial, Inc.
Anne Pol 48 1993 Vice President of Thermo Electron Corporation
(environmental technology products and services) (since
1996); formerly President, Pitney Bowes Shipping and
Weighing Systems Division, a business unit of Pitney Bowes
Inc. (mailing and related business equipment) (1993 to
1996); Vice President, New Product Programs in the Mailing
Systems Division of Pitney Bowes Inc. (1991 to 1993); and
Vice President, Manufacturing Operations in the Mailing
Systems Division of Pitney Bowes Inc. (1990 to 1991).
</TABLE>
- --------------
(1) With the exception of Mr. Bunn, all of the directors serve as directors
of UGI. Messrs. Greenberg, Forney, Stratton and Wang also serve as
directors of AmeriGas Propane, Inc., the General Partner of AmeriGas
Partners, L.P.
26
<PAGE> 29
EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Lon R. Greenberg 46 Chairman of the Board of Directors
Richard L. Bunn 60 President and Chief Executive Officer
Robert J. Chaney 54 Vice President and General Manager-Gas Utility Division
Mark R. Dingman 47 Vice President and General Manager-Electric Utility
Division
John C. Barney 48 Vice President-Finance and Accounting
</TABLE>
All officers and directors are elected for a one-year term at the
organizational meeting of the Board of Directors held each year.
There are no family relationships between any of the directors or any
of the officers or between any of the officers and any of the directors.
27
<PAGE> 30
The following is a summary of the business experience of the executive
officers listed above during at least the last five years:
Lon R. Greenberg
Mr. Greenberg is Chairman of the Board of the Company (since August
1996), having served as a Director since 1994; he is also Chairman (since 1996),
Chief Executive Officer (since August 1995) and President (since 1994) of UGI.
In addition, he is Chairman (since August 1996), President and Chief Executive
Officer of AmeriGas Propane, Inc. (since July 1996). Mr. Greenberg previously
served as Senior Vice President-Legal and Corporate Development of UGI (1989 to
1994).
Richard L. Bunn
Mr. Bunn is President and Chief Executive Officer of the Company (since
May 1992). He previously served as Senior Vice President, President-Utilities
Division of UGI (1987 to 1992). Mr. Bunn began his career with the Company as an
engineer in the Electric Utility Division in 1958, and successively held various
operating and staff positions.
Robert J. Chaney
Mr. Chaney is Vice President and General Manager-Gas Utility Division
of the Company (since 1991). He previously served as Vice President-Rates and
Energy Utilization of the Company's Gas Utility Division (1981 to August 1991).
Mark R. Dingman
Mr. Dingman is Vice President and General Manager-Electric Utility
Division of the Company (since 1990). Previously, he was Manager-Power
Production of the Electric Division (1986 to April 1990).
John C. Barney
Mr. Barney is Vice President-Finance and Accounting of Utilities (since
April 1992). Previously, Mr. Barney served as Vice President-Finance of the
Company's Gas Utility Division (1987 to April 1992).
28
<PAGE> 31
ITEM 11. EXECUTIVE COMPENSATION
The following table shows information concerning the annual and
long-term compensation earned during the 1996, 1995 and 1994 fiscal years by the
Company's Chief Executive Officer and each of its other executive officers
(collectively, the "Named Executives").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
----------------------
Annual Compensation Awards Payouts
------------------- ------ -------
Securities
Other Underlying Long-Term All Other
Annual Options/SARs Incentive Compensation
Name and Year Salary ($) Bonus Compensation Granted Payouts ($) (4)
Principal Position ($) (1) ($) (2) (#) (3) ($)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Lon R. Greenberg (5)(6) 1996 $465,000 $122,760 $7,359 0 $0 $ 10,462
Chairman 1995 $381,923 $ 0 $7,365 14,167 $0 $ 11,439
1994 $255,402 $126,463 $1,281 42,292 $0 $ 2,891
- ---------------------------------------------------------------------------------------------------------------------
Richard L. Bunn (6) 1996 $305,900 $137,655 $5,855 0 $0 $ 10,579
President and Chief 1995 $305,900 $164,268 $6,684 0 $0 $ 9,732
Executive Officer 1994 $305,900 $126,643 $3,906 0 $0 $ 3,441
- ---------------------------------------------------------------------------------------------------------------------
Robert J. Chaney
Vice President & 1996 $156,601 $ 54,321 $4,019 0 $0 $ 5,074
General Manager, 1995 $156,429 $ 68,904 $2,757 0 $0 $ 4,579
Gas Utility 1994 $150,318 $ 47,079 $ 0 0 $0 $ 1,662
Division
- ---------------------------------------------------------------------------------------------------------------------
Mark R. Dingman
Vice President & 1996 $120,000 $ 33,600 $5,730 0 $0 $ 3,375
General Manager, 1995 $119,912 $ 23,640 $4,036 0 $0 $ 3,493
Electric Utility 1994 $117,501 $ 35,312 $ 0 0 $0 $ 1,298
Division
- ---------------------------------------------------------------------------------------------------------------------
John C. Barney 1996 $127,982 $ 27,141 $0 0 $0 $ 3,538
Vice 1995 $121,888 $ 29,280 $0 0 $0 $ 3,233
President-Finance 1994 $118,279 $ 21,788 $0 0 $0 $ 1,817
and Accounting
</TABLE>
(1) Bonuses earned under the Annual Bonus Plan are for the year reported,
regardless of the year paid. The Company's Annual Bonus Plan is based on
the achievement of pre-determined business and/or financial performance
objectives which support business plans and goals. Bonus opportunities vary
by position and for fiscal year 1996 ranged from 0% to 119% of base salary
for Mr. Greenberg, 0% to 52% for Mr. Bunn, and from 0% up to 38% for the
other Named Executives.
(2) Amounts represent tax payment reimbursements for certain benefits.
(3) Non-qualified stock options granted under the UGI 1992 Stock Option and
Dividend Equivalent Plan (the "1992 Plan"). The 1992 Plan consists of
non-qualified stock option grants and the opportunity for participants to
earn an amount equivalent to the dividends paid on shares covered by
options, subject to a comparison of the total return realizable on a share
of UGI's Common Stock ("UGI's Return") with the total return achieved by
each member of a group of comparable peer companies ( the "SODEP Peer
Group") over a five-year period beginning January 1, 1992 and ending
December 31, 1996. Total return encompasses both changes in the per share
market price and dividends paid on a share of common stock. No
29
<PAGE> 32
credited dividend equivalents will be paid when the performance period ends
on December 31, 1996.
(4) Amounts represent matching contributions by the Company or UGI in
accordance with the provisions of the UGI Utilities, Inc. Employee Savings
Plan and/or allocations under the Executive Retirement Plan. Effective
January 1, 1994, the Employee Savings Plan and the Executive Retirement
Plan adopted a plan year ending September 30 to correspond to the fiscal
year. As a result, Company matching contributions and allocations for 1994
are based on a nine-month plan year. During 1996, 1995, and 1994, the
following contributions were made to the Named Executives: (i) under the
Employee Savings Plans: Mr. Greenberg, $3,375, $3,375, and $1,688; Mr.
Bunn, $3,375, $3,375, and $1,688; Mr. Chaney, $3,375, $3,375 and $1,662;
Mr. Dingman, $3,374, $3,375 and $1,298; and Mr. Barney, $3,375, $3,233 and
$1,307, and (ii) under the Executive Retirement Plan: Mr. Greenberg,
$7,087, $8,064, and $1,203; Mr. Bunn, $7,204, $6,357, and $1,753; Mr.
Chaney, $1,699, $1,204 and $0; Mr. Dingman, $0, $118 and $0; and Mr.
Barney, $163, $0 and $0.
(5) Mr. Greenberg was elected Chairman, UGI Utilities, Inc. effective August 1,
1996 and Chief Executive Officer of UGI Corporation effective August 1,
1995. Compensation for Mr. Greenberg is attributable to his employment as
Chairman, President and Chief Executive Officer of UGI Corporation. Mr.
Greenberg receives no compensation from UGI Utilities, Inc.
(6) Compensation reported for Messrs. Greenberg and Bunn is also reported in
the Proxy Statement for UGI's 1997 Annual Meeting of Shareholders and is
not additive.
30
<PAGE> 33
OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES
The following table shows information for the 1996 fiscal year
concerning exercised and unexercised stock options for shares of UGI Common
Stock for each of the Named Executives.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUE
<TABLE>
<CAPTION>
Number Of Securities
Underlying Unexercised Value Of Unexercised
Options/SARs In-The-Money Options/
At Fiscal Year End (#) (1) SARs At Fiscal Year End ($)
-------------------------- ---------------------------
Shares Value
Acquired on Realized($)
Name Exercise(#) Exercisable Unexercisable Exercisable Unexercisable
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Lon R. Greenberg(1) 0 $0 105,278(2) 38,681(2) $355,313(4) $130,548(4)
- --------------------------------------------------------------------------------------------------------------------
Richard L. Bunn(1) 0 $0 70,000(2) 17,500(2) $236,250(4) $ 59,063(4)
- --------------------------------------------------------------------------------------------------------------------
Robert J. Chaney 0 $0 36,000(2) 9,000(2) $121,500(4) $ 30,375(4)
- --------------------------------------------------------------------------------------------------------------------
Mark R. Dingman 0 $0 36,000(2) 9,000(2) $121,500(4) $ 30,375(4)
- --------------------------------------------------------------------------------------------------------------------
John C. Barney 0 $0 4,000(3) 1,000(3) $ 13,500(5) $ 3,375(5)
</TABLE>
(1) Information reported for Messrs. Greenberg and Bunn is also reported in the
Proxy Statement for UGI's 1997 Annual Meeting of Shareholders and is not
additive.
(2) Options granted under the 1992 Plan.
(3) Options granted under the UGI 1992 Non-Qualified Stock Option Plan.
(4) Value based on comparison of price per share at September 30, 1996 (fair
market value $23.50) to the 1992 Plan option price ($20.125).
(5) Value based on comparison of price per share at September 29, 1996 (fair
market value $23.50) to the UGI 1992 Non-Qualified Stock Option Plan option
price ($20.125).
31
<PAGE> 34
RETIREMENT BENEFITS
The following table shows the annual benefits upon retirement at age 65
in 1996 applicable for various combinations of final average earnings and length
of service which may be payable under the UGI Qualified Retirement Plan (the
"Retirement Plan") and the UGI Non-Qualified Senior Executive Retirement Plan
for Named Executives.
<TABLE>
<CAPTION>
PENSION PLAN BENEFITS
---------------------
FINAL 5-YEAR
AVERAGE ANNUAL
EARNINGS(2) ANNUAL BENEFIT FOR YEARS OF CREDITED SERVICE SHOWN (1)
------------------------------------------------------
15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS 40 YEARS
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 100,000 $ 28,500 $ 38,000 $ 47,500 $ 57,000 $ 66,500 $ 68,400(3)
$ 200,000 $ 57,000 $ 76,000 $ 95,000 $ 114,000 $ 133,000 $ 136,800(3)
$ 300,000 $ 85,500 $ 114,000 $ 142,500 $ 171,000 $ 199,500 $ 205,200(3)
$ 400,000 $ 114,000 $ 152,000 $ 190,000 $ 228,000 $ 266,000 $ 273,600(3)
$ 500,000 $ 142,500 $ 190,000 $ 237,500 $ 285,000 $ 332,500 $ 342,000(3)
$ 600,000 $ 171,000 $ 228,000 $ 285,000 $ 342,000 $ 399,000 $ 410,400(3)
$ 700,000 $ 199,500 $ 266,000 $ 332,500 $ 399,000 $ 465,500 $ 478,800(3)
$ 800,000 $ 228,000 $ 304,000 $ 380,000 $ 456,000 $ 532,000 $ 547,200(3)
$ 900,000 $ 256,500 $ 342,000 $ 427,500 $ 513,000 $ 598,500 $ 615,600(3)
$1,000,000 $ 285,000 $ 380,000 $ 475,000 $ 570,000 $ 665,000 $ 684,000(3)
</TABLE>
(1) Annual benefits are computed on the basis of straight life annuity amounts.
These amounts include pension benefits, if any, to which a participant may
be entitled as a result of participation in a pension plan of a subsidiary
during previous periods of employment. The amounts shown do not take into
account exclusion of up to 35% of the estimated primary Social Security
benefit. The Retirement Plan provides a minimum benefit equal to 25% of a
participant's final 12 months' earnings, reduced proportionately for less
than 15 years of credited service at retirement. The minimum Retirement
Plan Benefit is not subject to Social Security offset. Messrs. Greenberg,
Bunn, Chaney, Dingman and Barney had, respectively, 16 years, 38 years, 32
years, 23 years and 25 years of estimated credited service at September 30,
1996.
(2) Consists of (i) base salary, commissions and cash payments under the UGI
and Utilities Annual Bonus Plans, and (ii) deferrals thereof permitted
under the Internal Revenue Code.
32
<PAGE> 35
(3) The Retirement Plan formula maximum benefit equal to 60% of a participant's
highest consecutive 12 months' earnings during the last 120 months.
SEVERANCE PAY PLAN FOR SENIOR EXECUTIVE EMPLOYEES
The UGI Corporation Severance Pay Plan for Senior Executive Employees
(the "Severance Plan") assists certain senior level employees of Utilities in
the event their employment is terminated without fault on their part. Specified
benefits are payable to a senior executive covered by the Severance Plan if the
senior executive's employment is involuntarily terminated for any reason other
than for cause or as a result of the senior executive's death or disability.
Benefits payable include a lump sum cash payment in an amount
approximately equal to the sum of (i) three months of compensation (18 months in
the case of Mr. Greenberg), (ii) a pro rata portion of the senior executive's
annual target bonus under the Annual Bonus Plan for the current year, and (iii)
separation pay determined in a manner consistent with that payable to employees
generally, not exceeding 15 months of compensation (30 months in the case of Mr.
Greenberg). Employee benefits, including a vacation allowance, are continued for
a specified period (the "Employee Benefit Period") not exceeding 15 months (30
months in the case of Mr. Greenberg) after termination, or the senior executive
may be paid a lump sum equal to the present value of such benefits. The
Severance Plan also provides for payment in cash to a senior executive of an
amount approximately equal to all dividend equivalents credited (including those
that would be credited during the Employee Benefit Period) to the senior
executive's account under the 1992 Stock Option and Dividend Equivalent Plan and
successor plans. Payment of dividend equivalents which would be credited during
the period in which employee benefits are to be continued for such senior
executive will also be made. Senior executives may designate a beneficiary for
these payments.
In order to receive benefits under the Severance Plan, a senior
executive is required to execute a release which discharges UGI and Utilities
from liability for any claims the senior executive may have against either of
them, other than claims for amounts or benefits due to the executive under any
plan, program or contract provided by or entered into with UGI or Utilities. The
senior executive is also required to cooperate in attending to matters pending
at the time of his or her termination of employment.
CHANGE OF CONTROL ARRANGEMENTS
On April 30, 1996, the Board of Directors of UGI ("Board") approved
Change of Control Agreements (individually, an "Agreement"), for senior
executive officers of UGI and certain of its subsidiaries, including Messrs.
Greenberg, Bunn, Chaney and Dingman. The Agreements operate independently of the
Severance Plan, continue through June 2001, and are automatically extended in
one-year increments thereafter unless, prior to a change of control, UGI
terminates an
33
<PAGE> 36
Agreement. In the absence of a change of control, each Agreement will terminate
when, for any reason, the executive terminates his employment with UGI or its
subsidiaries.
A change of control is generally deemed to occur if: (i) any person
(other than the executive, his affiliates and associates, UGI or any of its
subsidiaries, any employee benefit plan of UGI or any of its subsidiaries, or
any person or entity organized, appointed, or established by UGI or its
subsidiaries for or pursuant to the terms of any such employee benefit plan),
together with all affiliates and associates of such person, acquires securities
representing 20% or more of either (x) the then outstanding shares of common
stock of UGI or (y) the combined voting power of UGI's then outstanding voting
securities, in either case unless the members of the Executive Committee of the
Board of Directors in office immediately prior to such acquisition (the
"Executive Committee") determine that the circumstances do not warrant the
implementation of the provisions of the Agreement; (ii) individuals who at the
beginning of any 24-month period constitute the Board of Directors (the
"Incumbent Board") and any new director whose election by the Board, or
nomination for election by UGI's shareholders, was approved by a vote of at
least a majority of the Incumbent Board, cease for any reason to constitute a
majority thereof; (iii) UGI is reorganized, merged or consolidated with or into,
or sells all or substantially all of its assets to, another corporation in a
transaction in which former shareholders of UGI do not own more than 50% of the
outstanding common stock and the combined voting power, respectively, of the
then outstanding voting securities of the surviving or acquiring corporation
after the transaction, in any such case, unless the Executive Committee
determines at the time of such transaction that the circumstances do not warrant
the implementation of the provisions of the Agreement; or (iv) UGI is liquidated
or dissolved.
Severance benefits are payable under the Agreements if there is a
termination of the executive's employment without cause at any time within three
years after a change of control. In addition, following a change of control, the
executive may elect to terminate his or her employment without loss of severance
benefits in certain specified contingencies, including termination of officer
status; a significant adverse change in authority, duties, responsibilities or
compensation; the failure of UGI to comply with and satisfy any of the terms of
the Agreement; or a substantial relocation or excessive travel requirements.
An executive who is terminated with rights to severance compensation
under an Agreement will be entitled to receive an amount equal to 1.0 (2.5 in
the case of Mr. Greenberg and 1.5 in the case of Mr. Bunn) times his average
total cash remuneration for the preceding five calendar years. The net amount
payable under the Agreement, taking into account payments due under other plans,
as appropriate, may not exceed 2.99 times the executive's "base amount" (as
defined in Section 280G of the Internal Revenue Code of 1986, as amended (the
"Code")) which, generally, is the average of the executive's taxable annual
income received from UGI and its subsidiaries during the five-year period
preceding the change of control, to avoid the special federal tax rules
applicable to "excess parachute payments."
34
<PAGE> 37
To protect both parties to the Agreements, if the severance
compensation payable under the Agreement, either alone or together with other
payments to an executive, would constitute "excess parachute payments," as
defined in Section 280G of the Code, such severance compensation payment would
be reduced to the largest amount which would result in no portion of such
payments being disallowed as deductions to UGI and its subsidiaries under
Section 280G of the Code, and no portion of such payments being subject to the
excise tax imposed on the recipient by Section 4999 of the Code. The
determination of such reductions will be made, in good faith, by UGI's
independent accountants and will be conclusively binding.
BOARD OF DIRECTORS
Messrs. Bunn and Greenberg, who are officers of either the Company or
its parent, UGI, are not compensated for service on the Board of Directors or on
any Committee of the Board. The other members of the Company's Board of
Directors also serve on the UGI Board and receive no additional compensation for
service on the Company's Board. The Company reimburses UGI for 50% of the
attendance fees and expenses incurred by the non-employee directors of UGI.
COMPENSATION COMMITTEE
The members of the UGI Utilities, Inc. Compensation and Management
Development Committee are Robert C. Forney (Chairman), Richard C. Gozon, Quentin
I. Smith, Jr., and David I. J. Wang.
35
<PAGE> 38
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
At December 1, 1996, UGI Corporation held 100% of the Company's Common
Stock. UGI is located at 460 N. Gulph Road, King of Prussia, PA 19406.
The following table sets forth, as of December 1, 1996, the number of
shares of Common Stock of UGI beneficially owned by each director of the Company
and each of the Named Executives, as well as all directors and executive
officers as a group.
<TABLE>
<CAPTION>
Common Stock of UGI Beneficially
Name Owned as of December 1, 1996 (1)(2)
- ------------------ -----------------------------------
<S> <C>
Stephen D. Ban 8,311 (3)
John C. Barney 6,967 (4)
Richard L. Bunn 137,100 (5)
Robert J. Chaney 53,359 (6)
Mark R. Dingman 45,000
Robert C. Forney 8,675
Richard C. Gozon 11,275
Lon R. Greenberg 147,677 (7)
Cyrus H. Holley 6,275
Anne Pol 3,324
Quentin I. Smith, Jr. 7,275
James W. Stratton 6,275
David I. J. Wang 19,275
All directors and executive
officers as a group (13) 460,788
</TABLE>
- ----------------------
(1) The number of shares of UGI Common Stock subject to stock options
exercisable through January 2, 1996, which number is included in the number
of shares shown above as beneficially owned, is as follows: Mr. Stratton,
5,000 shares; Dr. Forney, 4,000 shares; Mr. Wang, 5,000 shares; Mr. Gozon,
5,000 shares; Mr. Holley, 5,000 shares; Mr. Smith, 5,000 shares; Dr. Ban,
3,800 shares; Mr. Bunn, 87,500; Mrs. Pol, 2,124 shares; Mr. Greenberg,
122,778 shares; Mr. Barney, 5,000 shares; Mr. Chaney, 45,000 shares; and
Mr. Dingman, 45,000 shares.
(2) The nature of beneficial ownership, other than the number of shares subject
to options exercisable through January 2, 1996, is sole voting and
dispositive power, except as otherwise indicated.
(3) Shares are held jointly with Dr. Ban's spouse.
36
<PAGE> 39
(4) Mr. Barney has disclaimed beneficial ownership of 400 shares.
(5) Includes 45,092 shares held jointly with Mr. Bunn's spouse and 2,000 shares
held directly by his spouse.
(6) Includes 1,200 shares held jointly with Mr. Chaney's spouse.
(7) Includes 22,759 shares held jointly with Mr. Greenberg's spouse.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
UGI allocates a portion of its general corporate expenses to Utilities.
A wholly owned subsidiary of UGI provides Utilities with general liability,
automobile and workers' compensation insurance for up to $500,000 over
Utilities' self-insured retention.
PART IV: ADDITIONAL EXHIBITS, SCHEDULES AND REPORTS
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE,
AND REPORTS ON FORM 8-K
(a) DOCUMENTS FILED AS PART OF THIS REPORT:
(1) FINANCIAL STATEMENTS
Included under Item 8 are the following financial statements and
supplementary data:
Report of Independent Accountants
Consolidated Balance Sheets, September 30, 1996 and 1995.
Consolidated Statements of Income for the fiscal years ended
September 30, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the fiscal years
ended September 30, 1996, 1995 and 1994
Consolidated Statements of Stockholders' Equity for the fiscal
years ended September 30, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
37
<PAGE> 40
(2) FINANCIAL STATEMENT SCHEDULES
II- Valuation and Qualifying Accounts
All other financial statement schedules are omitted because the required
information is not present or not present in amounts sufficient to require
submission of the schedule or because the information required is included
elsewhere in the respective financial statements or notes thereto contained
herein.
(3) LIST OF EXHIBITS:
The exhibits filed as part of this Report are as follows (exhibits
incorporated by reference are set forth with the name of the registrant,
the type of report and registration number or last date of the period for
which it was filed, and the exhibit number in such filing):
<TABLE>
<CAPTION>
INCORPORATION BY REFERENCE
EXHIBIT NO. EXHIBIT REGISTRANT FILING EXHIBIT
----------- ------- ---------- ------ -------
<S> <C> <C> <C> <C>
3.1 Utilities' Articles of Incorporation Utilities Form 8-K 4(a)
(9/22/94)
3.2 Bylaws of UGI Utilities as in effect since Utilities Form 10-K 3.2
September 26, 1995 (9/30/95)
4 Instruments defining the rights of security
holders, including indentures. (The Company
agrees to furnish to the Commission upon request
a copy of any instrument defining the rights of
holders of its long-term debt not required to be
filed pursuant to the description of Exhibit 4
contained in Item 601 of Regulation S-K)
</TABLE>
38
<PAGE> 41
<TABLE>
<CAPTION>
INCORPORATION BY REFERENCE
EXHIBIT NO. EXHIBIT REGISTRANT FILING EXHIBIT
----------- ------- ---------- ------ -------
<S> <C> <C> <C> <C>
4.1 Utilities' Articles of Incorporation and Bylaws
referred to in Exhibit Nos. 3.1 and 3.2
4.2 Indenture between Utilities and First Union UGI Form 10-K (9/30/93) (4)e
National Bank (formerly, First Fidelity Bank,
N.A. Pennsylvania,) Trustee, dated as of August Form 8-K (8/26/94)
1, 1993 and related 6.5% Note due 2003. Utilities (4)i
4.3 Form of Fixed Rate Medium-Term Note
4.4 Form of Fixed Rate Series B Utilities Form 8-K 4(i)
Medium-Term Note (8/1/96)
4.5 Form of Floating Rate Series B Medium-Term Note Utilities Form 8-K (8/1/96) 4(ii)
4.6 Calculation Agent Agreement dated August 26, Utilities Form 8-K (8/26/94) 4(iii)
1994 between UGI Utilities, Inc. and First Union
National Bank (formerly, First Fidelity Bank,
National Association)
4.7 Officer' Certificate establishing Medium-Term Utilities Form 8-K (8/26/94) 4(iv)
Notes series
4.8 Calculation Agent Agreement dated August 1, 1996 Utilities Form 8-K (8/1/96) 4(iii)
between UGI Utilities, Inc. and First Union
National Bank
4.9 Form of Officer's Certificate establishing Utilities Form 8-K (8/1/96 4(iv)
Series B Medium Term Notes under the Indenture
</TABLE>
39
<PAGE> 42
<TABLE>
<CAPTION>
INCORPORATION BY REFERENCE
EXHIBIT NO. EXHIBIT REGISTRANT FILING EXHIBIT
----------- ------- ---------- ------ -------
<S> <C> <C> <C> <C>
10.1 Service Agreement (Rate FSS) dated as of UGI Form 10-K
November 1, 1989 between Utilities and (9/30/95)
Columbia, as modified pursuant to the
orders of the Federal Energy Regulatory
Commission at Docket No. RS92-5-000
reported at Columbia Gas Transmission
Corp., 64 FERC P. 61,060 (1993), order on
rehearing, 64 FERC P. 61,365 (1993)
10.2 Service Agreement (Rate FTS) dated June 1, Utilities Form 10-K (10)o.
1987 between Utilities and Columbia, as (12/31/90)
modified by Supplement No. 1 dated October
1, 1988; Supplement No. 2 dated November 1,
1989; Supplement No. 3 dated November 1,
1990; Supplement No. 4 dated November 1,
1990; and Supplement No. 5 dated January 1,
1991, as further modified pursuant to the
orders of the Federal Energy Regulatory
Commission at Docket No. RS92-5-000
reported at Columbia Gas Transmission
Corp., 64 FERC P. 61,060 (1993), order on
rehearing, 64 FERC P. 61,365 (1993)
10.3 Transportation Service Agreement (Rate Utilities Form 10-K (12/31/90) (10)p.
FTS-1) dated November 1, 1989 between
Utilities and Columbia Gulf Transmission
Company, as modified pursuant to the orders of
the Federal Energy Regulatory Commission in
Docket No. RP93-6-000 reported at Columbia
Gulf Transmission Co., 64 FERC P. 61,060
(1993), order on rehearing, 64 FERC P. 61,365
(1993)
</TABLE>
40
<PAGE> 43
<TABLE>
<CAPTION>
INCORPORATION BY REFERENCE
EXHIBIT NO. EXHIBIT REGISTRANT FILING EXHIBIT
----------- ------- ---------- ------ -------
<S> <C> <C> <C> <C>
10.4** UGI Corporation 1992 Directors' Stock Plan UGI Form 10-Q (10)ff
(6/30/92)
10.5** UGI Corporation Directors Deferred UGI Form 10-K 10.39
Compensation Plan dated August 26, 1993 (9/30/94)
10.6** UGI Corporation Retirement Plan for Outside UGI Form 10-K 10.40
Directors dated October 1, 1993 (9/30/94)
10.7** UGI Corporation 1992 Stock Option and UGI Form 10-Q (10)ee
Dividend Equivalent Plan, as amended May (6/30/92)
19, 1992
10.8** UGI Corporation Annual Bonus Plan dated UGI Form 10-Q 10.4
March 8, 1996 (6/30/96)
10.9 UGI Utilities, Inc. Annual Bonus Plan dated Utilities Form 10-Q (6/30/96) 10.4
March 8, 1996
`
10.10** Amended and Restated Senior Executive UGI Form 10-K 10.43
Retirement Plan for Certain Employees of (9/30/94)
UGI Corporation and its Subsidiaries and
Affiliates, effective October 27, 1992
10.11** UGI Corporation Senior Executive Severance UGI Form 10/K 10.44
Pay Plan dated April 30, 1993 (9/30/94)
Change of Control Agreement between UGI
10.12** Corporation and Lon R. Greenberg UGI Form 10-Q (6/30/96) 10.1
Form of Change of Control between UGI
Corporation and Mr. Bunn Form 10-Q (6/30/96)
10.13** UGI 10.2
</TABLE>
41
<PAGE> 44
<TABLE>
<CAPTION>
INCORPORATION BY REFERENCE
EXHIBIT NO. EXHIBIT REGISTRANT FILING EXHIBIT
----------- ------- ---------- ------ -------
<S> <C> <C> <C> <C>
10.14** Form of Change of Control Agreement UGI Form 10-Q (6/30/96) 10.3
between UGIC orporation and each of
Messrs. Chaney and Dingman
10.15** UGI Corporation 1992 Non-Qualified AmeriGas Form 10-K (9/30/95) 10.19
Stock Option Plan Partners, L.P.
Plan
*12.1 Computation of Ratio of Earnings to Fixed
Charges
*12.2 Computation of Ratio of Earnings to Combined
Fixed Charges and Preferred Stock Dividends
21 Subsidiaries of the Registrant UGI Form 10-K (9/30/95) 21
*23 Consent of Coopers & Lybrand L.L.P.
*27 Financial Data Schedule
*99 Cautionary Statements Affecting Forward-looking
Information
</TABLE>
* Filed herewith.
** As required by Item 14(a)(3), this exhibit is identified as a compensatory
plan or arrangement.
b. REPORTS ON FORM 8-K.
During the last quarter of the 1996 fiscal year, the Company filed no
Current Reports on Form 8-K.
42
<PAGE> 45
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
UGI UTILITIES, INC.
Date: December 10, 1996 By: John C. Barney
--------------------------------
John C. Barney
Vice President -
Finance and Accounting
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below on December 10, 1996 by the following persons
on behalf of the Registrant in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
Richard L. Bunn President and Chief
- ------------------------ Executive Officer
Richard L. Bunn (Principal Executive
Officer) and Director
Lon R. Greenberg Chairman and Director
- ------------------------
Lon R. Greenberg
John C. Barney Vice President -
- ------------------------ Finance and Accounting
John C. Barney (Principal Financial
Officer and Principal
Accounting Officer)
Stephen D. Ban Director
- ------------------------
Stephen D. Ban
Robert C. Forney Director
- ------------------------
Robert C. Forney
</TABLE>
43
<PAGE> 46
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
Richard C. Gozon Director
- ------------------------
Richard C. Gozon
Cyrus H. Holley Director
- ------------------------
Cyrus H. Holley
Anne Pol Director
- ------------------------
Anne Pol
Quentin I. Smith, Jr. Director
- ------------------------
Quentin I. Smith, Jr.
James W. Stratton Director
- ------------------------
James W. Stratton
David I. J. Wang Director
- ------------------------
David I. J. Wang
</TABLE>
44
<PAGE> 47
UGI UTILITIES, INC. AND SUBSIDIARIES
FINANCIAL INFORMATION
FOR INCLUSION IN ANNUAL REPORT ON FORM 10-K
YEAR ENDED SEPTEMBER 30, 1996
F-1
<PAGE> 48
UGI UTILITIES, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT
SCHEDULE
<TABLE>
<CAPTION>
Pages
-----
<S> <C>
Financial Statements:
Report of Independent Accountants F-3
Consolidated Balance Sheets as of September 30,
1996 and 1995 F-4 and F-5
Consolidated Statements of Income for the years
ended September 30, 1996, 1995 and 1994 F-6
Consolidated Statements of Cash Flows for the years
ended September 30, 1996, 1995 and 1994 F-7
Consolidated Statements of Stockholders' Equity
for the years ended September 30, 1996, 1995 and 1994 F-8
Notes to Consolidated Financial Statements F-9 to F-28
Financial Statement Schedule:
For the years ended September 30, 1996, 1995 and 1994:
II - Valuation and Qualifying Accounts S-1
</TABLE>
All other financial statement schedules are omitted because the required
information is not present or not present in amounts sufficient to require
submission of the schedule or because the information required is included
elsewhere in the respective financial statements or notes thereto contained
herein.
F-2
<PAGE> 49
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder
UGI Utilities, Inc.
Valley Forge, Pennsylvania
We have audited the accompanying consolidated financial statements and the
financial statement schedule of UGI Utilities, Inc. and subsidiaries listed in
the index on page F-2 of this Form 10-K. These financial statements and
financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of UGI Utilities,
Inc. and subsidiaries as of September 30, 1996 and 1995, and the consolidated
results of their operations and cash flows for the years ended September 30,
1996, 1995 and 1994 in conformity with generally accepted accounting
principles. In addition, in our opinion, the financial statement schedule
referred to above, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information required to be included therein.
As discussed in Note 5 to the consolidated financial statements, the Company
changed its method of accounting for postemployment benefits in 1995.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
November 22, 1996
F-3
<PAGE> 50
UGI UTILITIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of dollars)
<TABLE>
<CAPTION>
September 30,
1996 1995
--------- --------
ASSETS
- ------
<S> <C> <C>
Current assets:
Cash and cash equivalents (note 1) $ 3,100 $ 48,171
Accounts receivable (less allowances for doubtful
accounts of $3,976 and $2,660, respectively) 26,032 20,035
Accounts receivable - related parties 256 2,459
Accrued utility revenues (note 1) 8,612 7,895
Inventories (notes 1 and 6) 30,035 23,427
Deferred income taxes (notes 1 and 4) 6,316 9,998
Prepaid expenses and other current assets 1,920 5,182
---------- ----------
Total current assets 76,271 117,167
Property, plant and equipment (notes 1 and 3):
Gas utility 605,150 577,207
Electric utility 114,915 110,921
General 9,794 9,530
---------- ----------
729,859 697,658
Less accumulated depreciation and amortization 222,559 209,864
---------- ----------
Net property, plant and equipment 507,300 487,794
Regulatory income tax asset (notes 1 and 4) 42,908 36,942
Other assets 23,420 19,577
---------- ----------
Total assets $ 649,899 $ 661,480
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 51
UGI UTILITIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Thousands of dollars, except per share)
<TABLE>
<CAPTION>
September 30,
1996 1995
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
<S> <C> <C>
Current liabilities:
Current maturities of long-term debt (note 3) $ 25,543 $ 53,179
Bank loans (note 3) 50,500 42,000
Accounts payable 39,517 33,623
Employee compensation and benefits accrued 8,210 6,204
Dividends and interest accrued 4,975 5,554
Income taxes accrued 5,302 5,111
Producer settlements (note 2) 4,316 3,844
Deferred fuel refunds (note 1) 1,714 9,657
Other accrued liabilities 16,852 16,544
---------- ----------
Total current liabilities 156,929 175,716
Long-term debt (note 3) 151,111 154,983
Deferred income taxes (notes 1 and 4) 95,452 84,225
Deferred investment tax credits (notes 1 and 4) 10,775 11,173
Other noncurrent liabilities 11,004 13,378
Commitments and contingencies (note 8)
Preferred stock subject to mandatory redemption, without par value (note 7) 35,187 35,202
Common stockholder's equity:
Common Stock, $2.25 par value (authorized - 40,000,000 shares;
issued and outstanding - 26,781,785 shares) 60,259 60,259
Additional paid-in capital 68,052 68,052
Retained earnings 61,130 58,492
---------- ----------
Total common stockholder's equity 189,441 186,803
---------- ----------
Total liabilities and stockholders' equity $ 649,899 $ 661,480
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 52
UGI UTILITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Thousands of dollars)
<TABLE>
<CAPTION>
Year Ended
September 30,
---------------------------------
1996 1995 1994
--------- ---------- ----------
<S> <C> <C> <C>
Revenues (note 1) $ 460,496 $ 357,364 $ 395,061
--------- ---------- ---------
Costs and expenses:
Gas, fuel and purchased power (notes 1 and 2) 239,643 169,694 205,609
Operating and administrative expenses 119,432 108,514 109,013
Operating and administrative expenses
- related parties (note 14) 3,850 6,585 6,658
Depreciation and amortization (note 1) 21,602 19,754 18,478
Miscellaneous income, net (note 10) (1,842) (3,780) (2,610)
--------- ---------- ---------
382,685 300,767 337,148
--------- ---------- ---------
Operating income 77,811 56,597 57,913
Interest charges 16,094 16,838 16,669
--------- ---------- ---------
Income before income taxes 61,717 39,759 41,244
Income taxes (notes 1 and 4) 23,369 11,741 17,689
--------- ---------- ---------
Income from continuing operations 38,348 28,018 23,555
Income from discontinued operations (note 11) - - 6,918
--------- ---------- ---------
Income before accounting change 38,348 28,018 30,473
Change in accounting for postemployment benefits (note 5) - (1,028) -
--------- ---------- ---------
Net income 38,348 26,990 30,473
Dividends on preferred stock 2,765 2,778 1,356
--------- ---------- ---------
Net income after dividends on preferred stock $ 35,583 $ 24,212 $ 29,117
========= ========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 53
UGI UTILITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of dollars)
<TABLE>
<CAPTION>
Year Ended
September 30,
---------------------------------------
1996 1995 1994
---------- ----------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 38,348 $ 26,990 $ 30,473
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 21,602 19,754 18,478
Deferred income taxes, net 7,481 2,369 (4,041)
Provision for uncollectible accounts 4,933 3,376 4,101
Income from discontinued operations - - (6,918)
Other (704) 541 15
----------- ------------ ------------
71,660 53,030 42,108
Net change in:
Accounts receivable and accrued utility revenues (9,444) (9,805) (4,579)
Inventories (6,608) 2,823 (1,930)
Deferred fuel adjustments (10,731) (138) 4,649
Pipeline transition recoveries (costs), net 983 1,916 (2,102)
Producer settlement (payments) recoveries, net 91 (9,507) 13,055
Accounts payable 5,894 7,803 7,244
Other current assets and liabilities 5,184 (3,454) 207
----------- ------------ ------------
Net cash provided by operating activities 57,029 42,668 58,652
----------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant and equipment (39,659) (51,221) (39,090)
Proceeds from disposals of discontinued business assets - - 20,264
Net costs of property, plant and equipment disposals (1,189) (973) (838)
Other, net 740 1,225 -
----------- ------------ ------------
Net cash used by investing activities (40,108) (50,969) (19,664)
----------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of dividends (35,649) (16,897) (24,927)
Issuance of long-term debt 20,000 48,000 -
Repayment of long-term debt (54,828) (17,236) (24,911)
Bank loans increase 8,500 25,000 17,000
Contribution of capital by UGI Corporation - - 4,000
Issuance of Series Preferred Stock - - 19,827
Redemption of Series Preferred Stock (15) - (18,785)
----------- ------------ ------------
Net cash provided (used) by financing activities (61,992) 38,867 (27,796)
----------- ------------ ------------
Cash and cash equivalents increase (decrease) $ (45,071) $ 30,566 $ 11,192
=========== ============ ============
CASH AND CASH EQUIVALENTS:
End of period $ 3,100 $ 48,171 $ 17,605
Beginning of period 48,171 17,605 6,413
----------- ------------ ------------
Increase (decrease) $ (45,071) $ 30,566 $ 11,192
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-7
<PAGE> 54
UGI UTILITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Thousands of dollars)
<TABLE>
<CAPTION>
Preferred
Stock
Subject to Additional
Mandatory Common Paid-in Retained
Redemption Stock Capital Earnings
---------- ------ ---------- --------
<S> <C> <C> <C> <C>
Balance September 30, 1993 $ 33,222 $ 60,259 $ 64,049 $ 44,769
Net income 30,473
Cash dividends - common stock (23,188)
Cash dividends - preferred stock (1,356)
Issuance of Series Preferred Stock 20,000 (173)
Redemption of Series Preferred Stock (18,020) (765)
Contribution of capital from
UGI Corporation 4,000
Other 3
----------- --------- ---------- ----------
Balance September 30, 1994 35,202 60,259 68,052 49,760
Net income 26,990
Cash dividends - common stock (14,507)
Cash dividends - preferred stock (2,778)
Dividend of subsidiary net assets (973)
----------- --------- ---------- ----------
Balance September 30, 1995 35,202 60,259 68,052 58,492
Net income 38,348
Cash dividends - common stock (32,884)
Cash dividends - preferred stock (2,765)
Redemption of Series Preferred Stock (15)
Other (61)
----------- --------- ---------- ----------
Balance September 30, 1996 $ 35,187 $ 60,259 $ 68,052 $ 61,130
=========== ========= ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE> 55
UGI UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION PRINCIPLES
UGI Utilities, Inc. (UGI Utilities) is a wholly owned subsidiary of
UGI Corporation (UGI) and owns and operates a natural gas distribution
utility (Gas Utility) in parts of eastern and southeastern
Pennsylvania and an electric utility (Electric Utility) in
northeastern Pennsylvania. The consolidated financial statements
include the accounts of UGI Utilities and its subsidiaries
(collectively, the Company). All significant intercompany accounts
and transactions have been eliminated in consolidation. Revenues of
Gas Utility comprise more than four-fifths of the Company's
consolidated revenues.
USE OF ESTIMATES
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.
REGULATED OPERATIONS
Gas Utility and Electric Utility are subject to regulation by the
Pennsylvania Public Utility Commission (PUC). Gas Utility and
Electric Utility account for their regulated operations in accordance
with Statement of Financial Accounting Standards (SFAS) No. 71,
"Accounting for the Effects of Certain Types of Regulation" (SFAS
71), as amended and supplemented by subsequently issued standards.
SFAS 71, as amended and supplemented, requires, among other things,
that financial statements of a regulated enterprise reflect the
actions of regulators, where appropriate. The economic effects of
regulation can result in regulated enterprises recording costs that
have been or are expected to be allowed in the ratesetting process in
a period different from the period in which the costs would be charged
to expense by an unregulated enterprise. When this occurs, costs are
deferred as assets in the balance sheet (regulatory assets) and
recorded as expenses as those amounts are reflected in rates.
Additionally, regulators can impose liabilities upon a regulated
enterprise for amounts previously collected from customers and for
recovery of costs that are expected to be incurred in the future
(regulatory liabilities). The Company continually monitors the
regulatory and competitive environments in which it operates to
determine that its regulatory assets are probable of recovery.
F-9
<PAGE> 56
UGI UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash equivalents include all highly liquid investments with maturities
of three months or less when purchased and are recorded at cost plus
accrued interest which approximates market value.
Interest paid during 1996, 1995 and 1994, was $16,100, $15,530 and
$18,510, respectively. Income taxes paid during 1996, 1995 and 1994
were $15,736, $11,535 and $19,399, respectively.
REVENUE RECOGNITION
Gas Utility and Electric Utility revenues are recorded for services
provided to the end of each month but not yet billed. Rate increases
or decreases are reflected in revenues from effective dates permitted
by the PUC.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined on an average or first-in, first-out (FIFO) method except
for appliances for which the specific identification method is used.
INCOME TAXES
Deferred income tax provisions of UGI Utilities resulting from the use
of accelerated depreciation methods are recorded in the Consolidated
Statements of Income based upon amounts recognized for ratemaking
purposes. UGI Utilities also recognizes a deferred tax liability for
tax benefits that are flowed through to ratepayers when temporary
differences originate and establishes a corresponding regulatory asset
(regulatory income tax asset) for the probable increase in future
revenues that will result when the temporary differences reverse.
Investment tax credits related to UGI Utilities' plant additions have
been deferred and are being amortized over the service lives of the
related property. UGI Utilities reduces its deferred tax liability
for the future tax benefits that will occur when the deferred
investment tax credits, which are not taxable, are amortized, and also
reduces the regulatory asset for the probable reduction in future
revenues that will result when such deferred investment tax credits
amortize.
The Company joins with UGI Corporation and its subsidiaries in filing
a consolidated federal income tax return. The Company is allocated
tax assets, liabilities, expense, benefits and credits resulting from
the effects of its transactions in the consolidated federal income tax
provision, including giving effect to all intercompany transactions.
The result of this allocation is not materially different from income
taxes calculated on a separate return basis.
F-10
<PAGE> 57
UGI UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT AND RELATED DEPRECIATION
Property, plant and equipment is stated at cost. The original cost of
UGI Utilities' retired plant, together with the net cost of removal,
is charged to accumulated depreciation for financial accounting
purposes. Removal costs of UGI Utilities' plant and equipment are
deducted currently for income tax purposes.
Depreciation of Gas Utility's and Electric Utility's plant and
equipment is computed using the straight-line method over the
estimated average remaining lives of the various classes of
depreciable property. Depreciation as a percentage of the related
average depreciable base for 1996, 1995 and 1994 was 2.9%, 2.8% and
2.8%; and 3.6%, 3.4% and 3.4%, for Gas Utility and Electric Utility,
respectively. Depreciation expense during 1996, 1995 and 1994 was
$20,848, $18,983 and $17,780, respectively.
DEFERRED FUEL ADJUSTMENTS
The tariffs of Gas Utility and Electric Utility contain clauses which
permit recovery of certain gas, fuel and purchased power costs in
excess of the level of such costs included in base rates. The clauses
provide for a periodic adjustment for any difference between the total
amount collected under each clause and the recoverable costs incurred.
Accordingly, Gas Utility and Electric Utility defer the difference
between amounts recognized in revenues and the applicable gas, fuel
and purchased power costs incurred until subsequently billed or
refunded to customers.
2. REGULATORY MATTERS
GAS UTILITY RATE CASE
On January 27, 1995, Gas Utility filed with the PUC for a $41,300
increase in base rates to be effective March 28, 1995. In accordance
with normal PUC practice, the effective date was suspended pending
further investigation. On August 31, 1995, the PUC approved a
settlement of this proceeding (Gas Utility Base Rate Settlement)
authorizing a $19,500 increase in annual revenues. The increase in
base rates became effective on August 31, 1995. Under the terms of
the Gas Utility Base Rate Settlement, Gas Utility agreed not to file
for another base rate increase before January 25, 1997.
ELECTRIC UTILITY RATE CASES
On January 26, 1996, Electric Utility filed with the PUC for a $6,200
increase in base rates. On July 18, 1996, the PUC approved a
settlement of this proceeding authorizing a $3,100 increase in annual
revenues, effective July 19, 1996. Under the terms of the settlement,
Electric Utility agreed not to file for another base rate increase
before July 1, 1997. On November 1, 1993, Electric Utility filed with
the PUC for a $4,200 increase in base rates. On July 27, 1994, the
PUC granted Electric Utility a $1,300 increase in annual revenues
effective on that date.
F-11
<PAGE> 58
UGI UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PRODUCER SETTLEMENT LIABILITIES
On April 21, 1994, Gas Utility received approximately $16,400 in
producer settlement refunds (including approximately $4,300 in
interest) from Columbia Gas Transmission Corporation (Columbia). On
April 15, 1994, in anticipation of this refund, Gas Utility filed a
tariff supplement with the PUC which proposed to refund $11,600 of the
Columbia refund to Gas Utility customers. This amount represented 90%
of the noninterest portion of the Columbia refund, and approximately
$1,800 of similar refunds previously received by Gas Utility. Gas
Utility proposed to retain, however, the entire interest component of
the Columbia refund to reflect the carrying costs incurred by Gas
Utility when it paid producer settlement liability charges prior to
receiving recovery of such charges from its customers, and to recover
legal costs associated with the recovery of the refunds. On June 2,
1994, the PUC directed Gas Utility to refund 90% of the principal and
interest associated with the producer settlement refunds less
approximately $500 for reimbursement of associated legal costs. In
June 1994, Gas Utility recorded income of $2,293 pre-tax ($1,308
after-tax) representing the retained portion of the producer
settlement refunds.
Gas Utility and the Pennsylvania Office of Consumer Advocate (OCA)
subsequently filed complaints with the PUC challenging the June 2,
1994 decision. On February 27, 1995, the PUC issued a final Order
reaffirming its June 2, 1994 decision, but permitted Gas Utility to
retain $776 of the producer settlement refund for reimbursement of
associated legal costs.
Gas Utility and the OCA appealed this decision to the Commonwealth
Court of Pennsylvania (Commonwealth Court), which affirmed the
February 27, 1995 PUC final Order in its entirety. Neither Gas
Utility nor the OCA appealed the Commonwealth Court's decision.
F-12
<PAGE> 59
UGI UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
REGULATORY ASSETS (LIABILITIES)
The following regulatory assets (liabilities) are included in the
accompanying balance sheets at September 30:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
1996 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Regulatory income tax asset $42,908 $36,942
Pipeline transition costs (recoveries) (493) 490
Other postretirement benefits 4,322 4,414
Refundable state taxes (4,166) (5,230)
Deferred fuel costs (recoveries), net 1,074 (9,657)
Refundable producer settlement costs (5,383) (5,291)
Deferred environmental costs 697 30
- ---------------------------------------------------------------------------------------------------
$38,959 $21,698
- ---------------------------------------------------------------------------------------------------
</TABLE>
F-13
<PAGE> 60
UGI UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. DEBT
Long-term debt comprises the following at September 30:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
1996 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
First Mortgage Bonds:
7.85% Series due November 1996 $ 8,400 $ 8,576
9% Series due June 2019 (less unamortized discount of
$817) - 22,017
9% Series B due June 2019 (less unamortized discount of
$826) - 22,191
- ---------------------------------------------------------------------------------------------------
8,400 52,784
Other long-term debt:
7.37% Medium-Term Notes, due October 2015 22,000 22,000
6.73% Medium-Term Notes, due October 2002 26,000 26,000
6.62% Medium-Term Notes, due May 2005 20,000 -
6.50% Senior Notes, due August 2003 (less unamortized
discount of $153 and $172, respectively) 49,847 49,828
8.70% Notes, due March 1997 and 1998 in annual
installments of $10,000 20,000 20,000
9.71% Notes, due through September 2000 in annual
installments of $7,143 28,571 35,714
Other 1,836 1,836
- ---------------------------------------------------------------------------------------------------
Total long-term debt 176,654 208,162
Current maturities included in current liabilities (25,543) (53,179)
- ---------------------------------------------------------------------------------------------------
Long-term debt due after one year $151,111 $154,983
- ---------------------------------------------------------------------------------------------------
</TABLE>
Long-term debt maturities and mandatory sinking fund requirements
during the fiscal years 1997 to 2001 follow:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
1997 1998 1999 2000 2001
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
First Mortgage Bonds $ 8,400 $ - $ - $ - $ -
Other long-term debt 17,143 17,143 7,143 7,142 -
- ---------------------------------------------------------------------------------------------------
Total $25,543 $17,143 $ 7,143 $ 7,142 $ -
- ---------------------------------------------------------------------------------------------------
</TABLE>
On October 16, 1995, UGI Utilities voluntarily redeemed all of its
outstanding 9% Series and 9% Series B First Mortgage Bonds at a
redemption price of 104% of the principal amount plus accrued
interest. The redemption was funded with the proceeds received from
the issuance on September 29, 1995 of $22,000 of UGI Utilities 7.37%
Medium-Term Notes and $26,000 of UGI Utilities 6.73% Medium-Term
Notes. The mortgage
F-14
<PAGE> 61
UGI UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
collateralizing UGI Utilities First Mortgage Bonds constitutes a first
lien on UGI Utilities' plant.
At September 30, 1996, UGI Utilities had revolving credit agreements
with five domestic banks providing for borrowings of up to $67,000
under committed lines and an additional $35,000 under uncommitted
lines. Generally, the commitments expire June 30, 1999, but are
renewable, upon timely notice, for additional one-year periods unless
the banks elect not to renew. The agreements provide UGI Utilities
with the option to borrow at various prevailing interest rates,
including the prime rate. A commitment fee at an annual rate of 3/16
of 1% is payable quarterly on the unused available committed credit
lines. At September 30, 1996 and 1995, borrowings under these
agreements totaled $50,500 and $42,000, respectively, and are
classified as bank loans. The weighted-average interest rates on UGI
Utilities' bank loans at September 30, 1996 and 1995 were 5.9% and
6.4%, respectively.
Certain of UGI Utilities' debt agreements contain limitations with
respect to incurring additional debt, require the maintenance of
consolidated tangible net worth of at least $125,000, and restrict the
amount of payments for investments, redemptions of capital stock,
prepayments of subordinated indebtedness and dividends. Under the
most restrictive of these provisions, permitted future restricted
payments aggregate $138,557 at September 30, 1996.
4. INCOME TAXES
The provisions for income taxes consist of the following:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $12,184 $ 6,742 $ 15,708
State 3,704 2,630 6,022
- ------------------------------------------------------------------------------------------------
15,888 9,372 21,730
Deferred 7,880 2,768 (3,642)
Investment credit amortization (399) (399) (399)
- ------------------------------------------------------------------------------------------------
$23,369 $11,741 $ 17,689
- ------------------------------------------------------------------------------------------------
</TABLE>
F-15
<PAGE> 62
UGI UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A reconciliation from the statutory federal tax rate to the effective
tax rate is as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal tax rate 35.0% 35.0% 35.0%
Difference in tax rate due to:
State income taxes, net of
federal benefit 6.2 7.5 8.2
Adjustment to deferred state
income taxes - (10.7) -
Deferred investment credit
amortization (.7) (1.0) (1.0)
Other, net (2.6) (1.3) .7
- ---------------------------------------------------------------------------------------------------------------
Effective tax rate 37.9% 29.5% 42.9%
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
Deferred tax liabilities (assets) comprise the following at September
30:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Excess book basis over tax basis of property, plant and
equipment $ 81,060 $ 74,404
Regulatory income tax asset 17,802 15,327
Other 8,977 5,331
- ---------------------------------------------------------------------------------------------------------------
Gross deferred tax liabilities 107,839 95,062
- ---------------------------------------------------------------------------------------------------------------
Deferred investment tax credits (4,471) (4,636)
Deferred fuel refunds - (4,007)
Producer settlement liabilities (2,233) (2,196)
Regulatory liability - state income taxes (1,729) (2,170)
Other (10,270) (7,826)
- ---------------------------------------------------------------------------------------------------------------
Gross deferred tax assets (18,703) (20,835)
- ---------------------------------------------------------------------------------------------------------------
Net deferred tax liabilities $ 89,136 $ 74,227
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
During 1995, UGI Utilities recorded a regulatory income tax asset of
$12,587 related to $11,329 of existing deferred state income taxes
expected to be recovered in the future through the ratemaking process.
Pursuant to the Gas Utility Base Rate Settlement, UGI Utilities
recorded a regulatory liability of $5,319 associated with a five-year
flowback to ratepayers of approximately $4,787 in previously recovered
deferred state income taxes. The net effect of these adjustments
increased 1995 income from continuing operations by $4,251.
F-16
<PAGE> 63
UGI UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
As of September 30, 1996 and 1995, UGI Utilities had recorded
approximately $29,575 and $26,249, respectively, of deferred tax
liabilities pertaining to utility temporary differences, principally a
result of accelerated tax depreciation, the tax benefits of which
previously were or will be flowed through to ratepayers. These
deferred tax liabilities have been reduced by deferred tax assets of
$4,471 and $4,636 at September 30, 1996 and 1995, respectively,
pertaining to utility deferred investment tax credits. As of
September 30, 1996 and 1995, UGI Utilities had recorded a regulatory
income tax asset related to these net deferred taxes of $42,908 and
$36,942, respectively, representing future revenues expected to be
recovered through the ratemaking process. This regulatory income tax
asset will be recognized in deferred tax expense as the corresponding
temporary differences reverse and additional income taxes are
incurred.
5. PENSION PLAN AND OTHER POSTEMPLOYMENT BENEFITS
The Retirement Income Plan for Employees of UGI Utilities, Inc. (UGI
Utilities Plan) is a noncontributory defined benefit pension plan
covering substantially all employees of UGI Utilities and UGI. UGI
Utilities Plan's benefits are generally based on years of service and
employee compensation during the last years of employment.
The components of net pension income associated with UGI Utilities'
employees participating in the UGI Utilities Plan include the
following:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned
during the period $ 2,657 $ 2,020 $ 2,570
Interest cost on projected benefit
obligation 9,621 9,500 8,923
Actual return on plan assets (15,393) (26,745) (913)
Net amortization and deferral 2,330 14,542 (11,000)
- ----------------------------------------------------------------------------------------------------------------------------
Net pension income $ (785) $ (683) $ (420)
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-17
<PAGE> 64
UGI UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table sets forth UGI Utilities Plan's actuarial present
value of benefit obligations and funded status at September 30:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
1996 1995
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Projected benefit obligation:
Vested benefits $(106,917) $(109,745)
Nonvested benefits (5,912) (5,866)
- ----------------------------------------------------------------------------------------------------
Accumulated benefit obligation (112,829) (115,611)
Effect of projected future salary levels (21,337) (22,311)
- ----------------------------------------------------------------------------------------------------
Projected benefit obligation (134,166) (137,922)
Plan assets at fair value 157,264 149,126
- ----------------------------------------------------------------------------------------------------
Excess of plan assets over projected benefit
obligation 23,098 11,204
Unrecognized net (gain) loss (9,609) 2,850
Unrecognized prior service cost 6,664 7,153
Unrecognized transition asset (12,785) (14,415)
- ----------------------------------------------------------------------------------------------------
Prepaid pension cost $ 7,368 $ 6,792
- ----------------------------------------------------------------------------------------------------
</TABLE>
Included in the September 30, 1996 and 1995 projected benefit
obligation amounts above are $7,569 and $7,309, respectively, relating
to employees of UGI.
The major actuarial assumptions used in determining UGI Utilities
Plan's funded status as of September 30, 1996, 1995 and 1994, and net
pension income for each of the years then ended, are as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Funded status at September 30:
Discount rate 8.0% 7.5% 8.7%
Rate of increase in salary
levels 4.75 4.5 5.0
Net pension income for the year:
Discount rate 7.5 8.7 7.0
Rate of increase in salary
levels 4.5 5.0 4.5
Expected return on plan assets 9.5 9.5 9.5
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
UGI Utilities Plan's assets at September 30, 1996 consist principally
of equity and fixed income mutual funds and investment-grade corporate
and U. S. Government obligations.
F-18
<PAGE> 65
UGI UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company also has unfunded nonqualified retirement benefit plans
for certain key employees and directors. At September 30, 1996 and
1995, the projected benefit obligations of these nonqualified plans
were not material. During 1996, 1995 and 1994, the Company recorded
expense for these plans of $257, $336 and $232, respectively.
The Company sponsors a 401(k) savings plan (Savings Plan) for eligible
employees. Generally, participants may contribute up to a combined
10% of their compensation on a before-tax and after-tax basis. The
Company may, at its discretion, match a portion of participants'
contributions to the Savings Plan. The cost of such Company matching
contributions for 1996, 1995 and 1994 were $865, $770 and $470,
respectively.
The Company provides postretirement health care benefits to certain
retirees and a limited number of active employees meeting certain age
and service requirements as of January 1, 1989 and also provides
limited postretirement life insurance benefits to substantially all
active and retired employees.
The components of net periodic postretirement benefit cost are as
follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned during
the period $ 67 $ 51 $ 68
Interest cost on accumulated
postretirement benefit
obligation 1,908 1,763 2,105
Net amortization and deferral 1,369 1,055 1,434
- ------------------------------------------------------------------------------------------------
Net periodic postretirement benefit
cost 3,344 2,869 3,607
Decrease (increase) in regulatory
asset 251 (983) (2,206)
- ------------------------------------------------------------------------------------------------
Net expense $ 3,595 $ 1,886 $ 1,401
- ------------------------------------------------------------------------------------------------
</TABLE>
The following table sets forth the actuarial present value and funded
status of the Company's postretirement health care and life insurance
benefit plans at September 30:
F-19
<PAGE> 66
UGI UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $(20,355) $(19,305)
Fully eligible active participants (4,000) (3,329)
Other active participants (1,306) (1,206)
- --------------------------------------------------------------------------------------------------
(25,661) (23,840)
Plan assets at fair value 1,853 -
Unrecognized net gain (2,835) (2,235)
Unrecognized prior service cost 2,149 -
Unrecognized transition obligation 19,921 21,142
- --------------------------------------------------------------------------------------------------
Accrued postretirement benefit cost $ (4,573) $ (4,933)
- --------------------------------------------------------------------------------------------------
</TABLE>
Included in the September 30, 1996 and 1995 accumulated postretirement
benefit obligation amounts above are $365 and $420, respectively,
relating to employees of UGI.
The major actuarial assumptions used in determining the funded status
of the Company's postretirement health care and life insurance benefit
plans at September 30, 1996, 1995 and 1994, and net periodic
postretirement benefit cost for the years then ended, are as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Funded status at September 30:
Discount rate 8.0% 7.5% 8.7%
Health care cost trend rate 6.5-5.5 7.0-5.5 10.0-5.5
Net periodic postretirement benefit cost for the
year:
Discount rate 7.5 8.7 7.0
Health care cost trend rate 7.0-5.5 10.0-5.5 12.0-5.5
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The ultimate health care cost trend rate of 5.5% in the table above is
assumed for all years after 2007. Increasing the health care cost
trend rate one percent increases the September 30, 1996 and 1995
accumulated postretirement benefit obligations by $2,150 and $1,800,
respectively, and increases the net periodic postretirement benefit
costs for 1996, 1995 and 1994, by $160, $130 and $180, respectively.
UGI Utilities has established an Employee Benefit Trust (VEBA) to pay
retiree health care and life insurance benefits and to fund the UGI
Utilities' postretirement benefit liability. At September 30, 1996,
the VEBA balance totaled $1,853 and was primarily invested in money
market funds.
F-20
<PAGE> 67
UGI UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
On June 22, 1993, the PUC entered an order permitting Gas Utility to
record a regulatory asset for the difference between the costs
incurred under SFAS No.106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions" (SFAS 106) and costs incurred on a
pay-as-you-go basis. Under the terms of the order, the regulatory
asset resulting from the deferral of SFAS 106 costs was allowable for
ratemaking purposes subject to prior review in a base rate proceeding.
As part of the Gas Utility Base Rate Settlement, Gas Utility was
permitted the recovery over 17.25 years of the approximately $4,000 in
deferred excess SFAS 106 costs, comprising principally deferred
transition obligation amortization, for the period January 1, 1993
(the date Gas Utility adopted SFAS 106) through August 31, 1995. The
Gas Utility Base Rate Settlement, however, reserved the right of any
party to challenge the prospective recovery of these deferred excess
SFAS 106 costs in future rate proceedings. Under the terms of
Electric Utility's July 18, 1996 base rate order, Electric Utility was
permitted the recovery of its deferred SFAS 106 transition obligation
amortization.
In a proceeding involving an unaffiliated Pennsylvania utility,
Pennsylvania Power & Light Company (PP&L), the Commonwealth Court
reversed a PUC declaratory order outside a full base rate proceeding
permitting PP&L to defer excess SFAS 106 costs pending its next base
rate order. PP&L and the PUC appealed the Commonwealth Court decision
to the Pennsylvania Supreme Court which, on March 12, 1996, declined
to review the matter. The Company will continue to monitor
administrative and judicial proceedings involving deferred excess SFAS
106 costs and recognizes that, based on applicable law, it is possible
that in future base rate proceedings Utilities could prospectively be
denied recovery of some or all of its deferred excess SFAS 106 costs.
Also as part of the Gas Utility Base Rate Settlement, Gas Utility was
permitted to recover in its rates approximately $2,400 in ongoing
annual costs incurred under the provisions of SFAS 106. Gas Utility
is required to defer the difference between the amount of SFAS 106
costs included in rates and the actuarially determined annual SFAS 106
costs for recovery or refund to ratepayers in future rate proceedings.
The ultimate recovery of SFAS 106 costs in excess of pay-as-you-go
costs was subject to the outcome of a legal challenge brought by the
OCA against an unaffiliated Pennsylvania utility,
Pennsylvania-American Water Company (PAWC). In Irwin Popowsky v. Pa.
P.U.C. (1994), the Commonwealth Court rejected the claim of the OCA
that principles of ratemaking prohibit the PUC from permitting PAWC to
recover excess SFAS 106 costs. The OCA filed a petition for allowance
of appeal with the Pennsylvania Supreme Court with respect to this
decision and the Pennsylvania Supreme Court, on March 12, 1996, denied
this petition.
Effective October 1, 1994, the Company adopted the provisions of SFAS
No. 112, "Employers' Accounting for Postemployment Benefits" (SFAS
112). SFAS 112 requires, among other things, the accrual of benefits
provided to former or inactive employees (who are not retirees) and to
their beneficiaries and covered dependents. Prior to the adoption of
SFAS 112, the Company accounted for these postemployment benefits on a
pay-as-you-go basis. The cumulative effect of SFAS 112 on the
Company's results of operations for periods prior to October 1, 1994
of $1,798 pre-tax ($1,028 after-tax) has been
F-21
<PAGE> 68
UGI UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
reflected in the 1995 Consolidated Statement of Income as "Change in
accounting for postemployment benefits." The effect of the change in
accounting for postemployment benefits on results of operations for
1995 was not material.
6. INVENTORIES
Inventories comprise the following at September 30:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
1996 1995
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Utility fuel and gases $ 26,012 $ 19,012
Appliances for sale 1,374 1,473
Materials, supplies and other 2,649 2,942
- -------------------------------------------------------------------------------------------------
$ 30,035 $23,427
- -------------------------------------------------------------------------------------------------
</TABLE>
7. SERIES PREFERRED STOCK
The Series Preferred Stock, including both series subject to and
series not subject to mandatory redemption, has 2,000,000 shares
authorized for issuance. The holders of shares of Series Preferred
Stock have the right to elect a majority of the Board of Directors
(without cumulative voting) if dividend payments on any series are in
arrears in an amount equal to four quarterly dividends. This election
right continues until the arrearage has been cured. Cash dividends
have been paid at the specified annual rates on all outstanding Series
Preferred Stock.
Series Preferred Stock subject to mandatory redemption comprises the
following at September 30:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
1996 1995
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
$1.80 Series, stated at involuntary liquidation value of
$23.50 per share, cumulative (issued and outstanding - 7,963
and 8,583 shares, respectively) $ 187 $ 202
$8.00 Series, stated at involuntary liquidation value of
$100 per share, cumulative (issued and outstanding - 150,000
shares) 15,000 15,000
$7.75 Series, stated at involuntary liquidation value of
$100 per share, cumulative (issued and outstanding - 200,000
shares) 20,000 20,000
- -------------------------------------------------------------------------------------------------
Total Series Preferred Stock subject to mandatory
redemption $ 35,187 $ 35,202
- -------------------------------------------------------------------------------------------------
</TABLE>
F-22
<PAGE> 69
UGI UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UGI Utilities is required to purchase shares of its $1.80 Series
Preferred Stock tendered at a purchase price of $23.50 per share.
After January 1, 1998, UGI Utilities may call any untendered $1.80
Series shares at a redemption price of $23.50 per share.
UGI Utilities is required to establish a sinking fund to redeem on
April 1 in each year, commencing April 1, 1998, 30,000 shares of its
$8.00 Series Preferred Stock at a price of $100 per share. The $8.00
Series is redeemable, in whole or in part, at the option of UGI
Utilities at a price of $103.56 per share commencing April 2, 1997
decreasing by equal amounts on April 2 of each subsequent year through
2001.
UGI Utilities is required to establish a sinking fund to redeem on
October 1 in each year, commencing October 1, 2004, 10,000 shares of
its $7.75 Series Preferred Stock at a price of $100 per share. The
$7.75 Series Preferred Stock is redeemable, in whole or in part, at
the option of UGI Utilities on or after October 1, 2004, at a price of
$100 per share. All outstanding shares of $7.75 Series Preferred
Stock are subject to mandatory redemption on October 1, 2009 at a
price of $100 per share.
8. COMMITMENTS AND CONTINGENCIES
The Company leases various buildings and transportation, data
processing and office equipment under operating leases. Certain of
the leases contain renewal and purchase options and also contain
escalation clauses. The aggregate rental expense for such leases for
1996, 1995 and 1994 was $4,891, $4,861 and $4,086, respectively.
Minimum future payments under operating leases having initial or
remaining noncancelable terms in excess of one year for the fiscal
years ending September 30 are as follows: 1997 - $4,594; 1998 -
$3,534; 1999 - $2,824; 2000 - $2,389; 2001 - $1,991; after 2001 -
$3,598.
Gas Utility has gas supply agreements with producers and marketers
that expire at various dates through 1999 and has agreements for
pipeline transportation and storage capacity that expire at various
dates through 2015 and 2012, respectively. In addition, Gas Utility
has short-term gas supply agreements which permit it to purchase
certain of its gas supply needs at spot prices.
Electric Utility has a purchased power agreement with PP&L pursuant to
which PP&L supplies all the electric power required by Electric
Utility, above that provided from other sources, through February 28,
2008. The cost of such electricity supplied by PP&L is based on
PP&L's actual system costs. During 1996, 1995 and 1994, approximately
52%, 50% and 54%, respectively, of Electric Utility's total electric
system output was supplied by PP&L. Electric Utility's service tariff
also contains a cost recovery mechanism which provides for periodic
increases or decreases in the rates, subject to PUC review, which
Electric Utility charges to reflect changes in the cost of
electricity sold.
F-23
<PAGE> 70
UGI UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UGI Utilities, 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, UGI
Utilities 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.
At a manufactured gas plant site in Burlington, Vermont, the United
States Environmental Protection Agency (EPA) has named 19 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 $50,000. 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' allocable share of
response costs associated with remediating gas plant related
contaminants at that site. EnergyNorth alleges that to date it has
spent $3,500 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.
F-24
<PAGE> 71
UGI UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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. Under the terms of the Gas Utility Base Rate
Settlement, Gas Utility will be 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.
9. FINANCIAL INSTRUMENTS
The carrying amounts reported in the consolidated balance sheets for
cash and cash equivalents, accounts receivable, accounts payable and
bank loans approximate fair value because of the immediate or
short-term maturity of these financial instruments. Based upon
current market prices and discounted present value methods calculated
using borrowing rates available for debt with similar credit ratings,
terms and maturities, the fair values of the Company's long-term debt
at September 30, 1996 and 1995 are estimated to be approximately
$176,000 and $215,000, respectively. The fair values of Series
Preferred Stock are based upon the fair values of redeemable preferred
stock with similar credit ratings and redemption features and are
estimated to be approximately $37,000 and $36,000 at September 30,
1996 and 1995, respectively.
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade accounts
receivable. This risk is limited due to the Company's large customer
base and its dispersion across many different markets. At September
30, 1996 and 1995, the Company had no significant concentrations of
credit risk.
F-25
<PAGE> 72
UGI UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. MISCELLANEOUS INCOME
Miscellaneous income comprises the following:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
1996 1995 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income $ 403 $ 1,286 $ 1,033
Gas brokerage income - 1,409 784
Installations and repair income 606 540 534
Other 833 545 259
- ----------------------------------------------------------------------------------------------
$ 1,842 $ 3,780 $ 2,610
- ----------------------------------------------------------------------------------------------
</TABLE>
Effective August 1, 1995, the Company dividended the net assets of
GASMARK, the Company's gas brokerage business, to UGI. Such net
assets totaled $973.
11. DISCONTINUED OPERATIONS
On December 14, 1993, as part of an initial public offering (IPO) of
UTI Energy Corp. (UTI) Common Stock, UTI redeemed its preferred stock
held by the Company for $13,144 in cash and a $3,500 promissory note
bearing interest at 5 3/4%. In addition, as part of the IPO, the
Company sold all of its UTI Common Stock, including shares underlying
warrants received in 1986, as well as 140,625 shares received from
other UTI shareholders, for $4,920 and received preferred stock
dividends through the date of redemption of $2,201. UTI is the entity
which owns and operates a significant portion of the Company's former
oil field service businesses which were sold to UTI on December 31,
1986. Although the December 31, 1986 transaction was treated as a
sale for legal and income tax purposes, it was not treated as a sale
for financial accounting purposes because the Company had not realized
substantial cash consideration and because the ultimate realization of
the sales price was dependent upon the future operating results of the
companies sold. As a result of the December 14, 1993 transaction
described above, the Company recorded the sale of UTI for financial
accounting purposes. The gain from the sale of $6,918, which is net
of income taxes of $231, has been classified as discontinued
operations in the 1994 Consolidated Statement of Income.
F-26
<PAGE> 73
UGI UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. SEGMENT INFORMATION
Information on revenues, operating income, identifiable assets,
depreciation and amortization and capital expenditures by business
segment for 1996, 1995 and 1994 follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
1996 1995 1994
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Gas utility $390,994 $291,258 $331,349
Electric utility 69,502 66,106 63,712
-----------------------------------------------------------------------------------------------
Total $460,496 $357,364 $395,061
-----------------------------------------------------------------------------------------------
OPERATING INCOME (LOSS)
Gas utility $ 72,937 $ 51,947 $ 54,690 (a)
Electric utility 8,622 9,109 8,538
Other 102 2,126 1,343
Corporate general (3,850) (6,585) (6,658)
-----------------------------------------------------------------------------------------------
Total $ 77,811 $ 56,597 $ 57,913
-----------------------------------------------------------------------------------------------
IDENTIFIABLE ASSETS
(at period end)
Gas utility $561,793 $554,277 $482,073
Electric utility 83,872 86,637 77,662
Corporate general and other 4,234 20,566 21,691
-----------------------------------------------------------------------------------------------
Total $649,899 $661,480 $581,426
-----------------------------------------------------------------------------------------------
DEPRECIATION AND AMORTIZATION
Gas utility $ 17,576 $ 16,068 $ 15,075
Electric utility 4,024 3,682 3,403
Corporate general 2 4 -
-----------------------------------------------------------------------------------------------
Total $ 21,602 $ 19,754 $ 18,478
-----------------------------------------------------------------------------------------------
CAPITAL EXPENDITURES
Gas utility $ 34,624 $ 45,273 $ 33,139
Electric utility 5,035 5,922 5,951
Corporate general and other - 26 -
-----------------------------------------------------------------------------------------------
Total $ 39,659 $ 51,221 $ 39,090
===============================================================================================
</TABLE>
(a) Includes income from producer settlement refunds of $2,293.
F-27
<PAGE> 74
UGI UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. QUARTERLY DATA (UNAUDITED)
The following quarterly information includes all adjustments
(consisting only of normal recurring adjustments with the exception of
those indicated below) which the Company considers necessary for a
fair presentation of such information. Quarterly results fluctuate
because of the seasonal nature of UGI Utilities' businesses.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
December 31, March 31, June 30, September 30,
1995(a) 1994(b) 1996(a) 1995 1996(a) 1995 1996 1995(c)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $122,241 $99,525 $181,412 $137,722 $88,860 $66,327 $67,983 $53,790
Operating income 27,712 18,547 40,495 31,570 9,389 6,428 215 52
Income (loss) from
continuing
operations 14,660 8,639 22,425 16,197 3,702 1,542 (2,439) 1,640
Net income (loss) 14,660 7,611 22,425 16,197 3,702 1,542 (2,439) 1,640
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(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.
(b) Reflects cumulative effect of a change in accounting for
postemployment benefits which decreased net income by $1,028.
(c) Reflects effect of adjustments to deferred income taxes which
increased income from continuing operations by $4,251.
14. RELATED PARTY TRANSACTIONS
UGI bills UGI Utilities for an allocated share of its general
corporate expenses. These billed expenses are classified as operating
and administrative expenses - related parties in the Consolidated
Statements of Income for 1996, 1995 and 1994.
F-28
<PAGE> 75
UGI UTILITIES, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(Thousands of dollars)
<TABLE>
<CAPTION>
Balance at Charged to Balance at
beginning costs and end of
of year expenses Other year
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
YEAR ENDED SEPTEMBER 30, 1996
- -----------------------------
Reserves deducted from assets in
the consolidated balance sheet:
Allowance for doubtful accounts $ 2,660 $ 4,933 $ (3,617)(1) $ 3,976
========== ========= ======== =========
Other reserves:
Self-insured property and casualty liability $ 2,155 $ 237 $ (332)(2) $ 2,060
========== ========= ======== =========
Insured property and casualty liability $ 600 $ - $ - $ 600
========== ========= ======== =========
YEAR ENDED SEPTEMBER 30, 1995
- -----------------------------
Reserves deducted from assets in
the consolidated balance sheet:
Allowance for doubtful accounts $ 2,796 $ 3,376 $ (3,512)(1) $ 2,660
========== ========= ======== =========
Other reserves:
Self-insured property and casualty liability $ 1,794 $ 811 $ (450)(2) $ 2,155
========== ========= ======== =========
Insured property and casualty liability $ - $ 600 $ - $ 600
========== ========= ======== =========
YEAR ENDED SEPTEMBER 30, 1994
- -----------------------------
Reserves deducted from assets in
the consolidated balance sheet:
Allowance for doubtful accounts $ 1,873 $ 4,101 $ (3,178)(1) $ 2,796
========== ========= ======== =========
Other reserves:
Self-insured property and casualty liability $ 766 $ 1,403 $ (375)(2) $ 1,794
========== ========= ======== =========
</TABLE>
(1) Uncollectible accounts written off, net of recoveries.
(2) Represents property and casualty liability payments.
S-1
<PAGE> 76
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
12.1 Computation of Ratio of Earnings to Fixed Charges
12.2 Computation of Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividends
23 Consent of Coopers & Lybrand L.L.P.
27 Financial Data Schedule
99 Cautionary Statements Affecting Forward-looking Information
</TABLE>
<PAGE> 1
Exhibit 12.1
UGI UTILITIES INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES - EXHIBIT 12.1
(Thousands of dollars)
<TABLE>
<CAPTION>
Nine
Months
Year Ended September 30, Ended Year Ended
----------------------------------- September 30, December 31,
1996 1995 1994 1993 1992
--------- -------- --------- ------------- ----------
<S> <C> <C> <C> <C> <C>
EARNINGS:
Earnings before income taxes $ 61,717 $ 39,759 $ 41,244 $ 28,009 $ 43,054
Interest expense 15,921 16,632 16,482 12,664 21,913
Amortization of debt discount and expense 173 206 187 147 250
Interest component of rental expense 1,838 1,604 1,344 953 1,256
-------- -------- -------- -------- --------
$ 79,649 $ 58,201 $ 59,257 $ 41,773 $ 66,473
======== ======== =======- ======== ========
FIXED CHARGES:
Interest expense $ 15,921 $ 16,632 $ 16,482 $ 12,664 $ 21,913
Amortization of debt discount and expense 173 206 187 147 250
Allowance for funds used during
construction (capitalized interest) 107 65 136 87 57
Interest component of rental expense 1,838 1,604 1,344 953 1,256
-------- -------- -------- -------- --------
$ 18,039 $ 18,507 $ 18,149 $ 13,851 $ 23,476
======== ======== =======- ======== ========
Ratio of earnings to fixed charges 4.42 3.14 3.27 3.02 2.83
======== ======== =======- ======== ========
</TABLE>
<PAGE> 1
Exhibit 12.2
UGI UTILITIES INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS - EXHIBIT 12.2
(Thousands of dollars)
<TABLE>
<CAPTION>
Nine
Months
Year Ended September 30, Ended Year Ended
---------------------------------------- September 30, December 31,
1996 1995 1994 1993 1992
------------ ----------- ---------- --------------- -----------
<S> <C> <C> <C> <C> <C>
EARNINGS:
Earnings before income taxes $ 61,717 $ 39,759 $ 41,244 $ 28,009 $ 43,054
Interest expense 15,921 16,632 16,482 12,664 21,913
Amortization of debt discount and expense 173 206 187 147 250
Interest component of rental expense 1,838 1,604 1,344 953 1,256
--------- --------- --------- --------- ---------
$ 79,649 $ 58,201 $ 59,257 $ 41,773 $ 66,473
========= ========= ========= ========= =========
COMBINED FIXED CHARGES AND PREFERRED
STOCK DIVIDENDS:
Interest expense $ 15,921 $ 16,632 $ 16,482 $ 12,664 $ 21,913
Amortization of debt discount and expense 173 206 187 147 250
Allowance for funds used during
construction (capitalized interest) 107 65 136 87 57
Interest component of rental expense 1,838 1,604 1,344 953 1,256
Preferred stock dividend requirements 2,765 2,778 1,356 2,124 2,613
Adjustment required to state preferred stock
dividend requirements on a pretax basis 1,685 1,164 1,018 1,589 1,846
--------- --------- --------- --------- ---------
$ 22,489 $ 22,449 $ 20,523 $ 17,564 $ 27,935
========= ========= ========= ========= =========
Ratio of earnings to combined fixed charges
and preferred stock dividends 3.54 2.59 2.89 2.38 2.38
========= ========= ========= ========= =========
</TABLE>
<PAGE> 1
Exhibit (23)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
UGI Utilities, Inc. on Form S-3 (File No. 333-4288) of our report dated
November 22, 1996, on our audits of the consolidated financial statements and
financial statement schedule of UGI Utilities, Inc. and subsidiaries for the
year ended September 30, 1996, which report is included in UGI Utilities,
Inc.'s Annual Report on Form 10-K for the year ended September 30, 1996.
COOPERS & LYBRAND L.L.P
2400 Eleven Penn Center
Philadelphia, Pennsylvania
December 26, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND INCOME STATEMENT OF UGI UTILITIES, INC. AND
SUBSIDIARIES AS OF AND FOR THE YEAR ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS INCLUDED IN UGI
UTILITIES' ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED SEPTEMBER 30, 1996.
</LEGEND>
<CIK> 0000100548
<NAME> UGI UTILITIES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<CASH> 3,100
<SECURITIES> 0
<RECEIVABLES> 38,876
<ALLOWANCES> 3,976
<INVENTORY> 30,035
<CURRENT-ASSETS> 76,271
<PP&E> 729,859
<DEPRECIATION> 222,559
<TOTAL-ASSETS> 649,899
<CURRENT-LIABILITIES> 156,929
<BONDS> 151,111
35,187
0
<COMMON> 60,259
<OTHER-SE> 129,182
<TOTAL-LIABILITY-AND-EQUITY> 649,899
<SALES> 460,496
<TOTAL-REVENUES> 460,496
<CGS> 239,643
<TOTAL-COSTS> 239,643
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,094
<INCOME-PRETAX> 61,717
<INCOME-TAX> 23,369
<INCOME-CONTINUING> 38,348
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 38,348
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0<F1>
<FN>
<F1>There are no publicly held shares outstanding.
</FN>
</TABLE>
<PAGE> 1
EXHIBIT 99
FORWARD-LOOKING STATEMENTS
In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, UGI Utilities, Inc. ("UGI Utilities"
or the "Company"), is hereby filing cautionary statements identifying important
factors that could cause the Company's actual results to differ materially from
those projected in forward-looking statements of the Company made by or on
behalf of the Company.
RISK FACTORS
The financial and operating performance of UGI Utilities is subject to
risks and uncertainties, all of which are difficult to predict, and many of
which are beyond the control of the Company's management. Forward-looking
statements concerning the Company's performance may differ materially from
actual results because of these risks and uncertainties. They include, but are
not limited to:
1. Weather conditions;
2. price and availability of all energy products, including
natural gas, oil and electricity;
3. governmental legislation and regulations;
4. local economic conditions;
5. labor relations;
6. environmental claims;
7. competition from the same and alternative energy sources;
8. operating hazards and other risks incidental to generating
and distributing electricity and transporting, storing, and
distributing natural gas;
9. energy efficiency and technology trends; and
10. interest rates.
