<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 1-1398
UGI UTILITIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Pennsylvania 23-1174060
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
UGI UTILITIES, INC.
100 Kachel Boulevard, Suite 400
Green Hills Corporate Center, Reading, PA
(Address of principal executive offices)
19607
(Zip Code)
(610) 796-3400
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
At July 31, 1996, there were 26,781,785 shares of UGI Utilities, Inc.
Common Stock, par value $2.25 per share, outstanding all of which were held,
beneficially and of record, by UGI Corporation.
<PAGE> 2
UGI UTILITIES, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGES
-----
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 1996
September 30, 1995 and June 30, 1995 1
Condensed Consolidated Statements of Income for the
three, nine and twelve months ended June 30, 1996 and 1995 2
Condensed Consolidated Statements of Cash Flows for the
nine and twelve months ended June 30, 1996 and 1995 3
Notes to Condensed Consolidated Financial Statements 4 - 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9 - 16
PART II OTHER INFORMATION
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
</TABLE>
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<PAGE> 3
PART I FINANCIAL INFORMATION
UGI UTILITIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(Thousands of dollars)
<TABLE>
<CAPTION>
June 30, September 30, June 30,
1996 1995 1995
--------- ------------- ---------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,870 $ 48,171 $ 19,845
Accounts receivable (less allowances for doubtful
accounts of $5,131, $2,660 and $3,700,
respectively) 48,060 22,494 29,311
Accrued utility revenues 7,349 7,895 5,064
Inventories 17,945 23,427 17,298
Deferred income taxes 11,454 9,998 15,250
Prepayments and other current assets 4,069 5,182 6,723
--------- --------- ---------
Total current assets 90,747 117,167 93,491
Investments 4,044 5,040 4,867
Property, plant and equipment, at cost (less
accumulated depreciation and amortization
of $218,890, $209,864 and $206,994, respectively) 497,269 487,794 475,355
Deferred recoverable utility costs 43,112 41,356 31,233
Other assets 13,014 10,123 9,653
--------- --------- ---------
Total assets $ 648,186 $ 661,480 $ 614,599
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 25,543 $ 53,179 $ 7,323
Bank loans 10,000 42,000 35,500
Accounts payable 32,254 33,623 23,282
Other current liabilities 58,781 46,914 63,086
--------- --------- ---------
Total current liabilities 126,578 175,716 129,191
Long-term debt 158,248 154,983 159,964
Deferred income taxes 90,205 84,225 83,169
Other noncurrent liabilities 24,073 24,551 20,247
Redeemable preferred stock 35,187 35,202 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 60,259
Additional paid-in capital 68,052 68,052 68,052
Retained earnings 85,584 58,492 58,515
--------- --------- ---------
Total common stockholder's equity 213,895 186,803 186,826
--------- --------- ---------
Total liabilities and stockholders' equity $ 648,186 $ 661,480 $ 614,599
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-1-
<PAGE> 4
UGI UTILITIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(Thousands of dollars)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
June 30, June 30, June 30,
------------------- -------------------- -------------------
1996 1995 1996 1995 1996 1995
-------- -------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 81,425 $ 66,327 $ 372,701 $ 303,574 $ 426,491 $ 357,058
-------- -------- --------- --------- --------- ---------
Costs and expenses:
Gas, fuel and purchased power 38,134 29,206 186,205 148,521 207,378 172,059
Operating and administrative expenses 27,575 25,004 89,748 81,573 116,689 107,627
Operating and administrative expenses
- related parties 1,273 1,639 4,191 5,116 5,660 6,969
Depreciation and amortization 5,511 4,949 16,184 14,846 21,092 19,282
Miscellaneous (income), net (457) (899) (1,223) (3,027) (1,976) (3,548)
-------- -------- --------- --------- --------- ---------
72,036 59,899 295,105 247,029 348,843 302,389
-------- -------- --------- --------- --------- ---------
Operating income 9,389 6,428 77,596 56,545 77,648 54,669
Interest charges 3,855 3,849 12,170 12,449 16,559 15,897
-------- -------- --------- --------- --------- ---------
Income before income taxes 5,534 2,579 65,426 44,096 61,089 38,772
Income taxes 1,832 1,037 24,639 17,718 18,662 15,932
-------- -------- --------- --------- --------- ---------
Income before accounting change 3,702 1,542 40,787 26,378 42,427 22,840
Change in accounting for
postemployment benefits -- -- -- (1,028) -- (1,028)
-------- -------- --------- --------- --------- ---------
Net income 3,702 1,542 40,787 25,350 42,427 21,812
Dividends on preferred stock 692 696 2,074 2,087 2,765 2,391
-------- -------- --------- --------- --------- ---------
Net income after dividends
on preferred stock $ 3,010 $ 846 $ 38,713 $ 23,263 $ 39,662 $ 19,421
======== ======== ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE> 5
UGI UTILITIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(Thousands of dollars)
<TABLE>
<CAPTION>
Nine Months Ended Twelve Months Ended
June 30, June 30,
-------------------- --------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 40,787 $ 25,350 $ 42,427 $ 21,812
Adjustments to reconcile net income to net cash
provided by continuing operating activities:
Depreciation and amortization 16,184 14,846 21,092 19,282
Deferred income taxes, net 2,249 945 3,673 5,294
Change in accounting for postemployment benefits -- 1,028 -- 1,028
Other, net 4,665 2,432 5,122 7,747
-------- -------- -------- --------
63,885 44,601 72,314 55,163
Net change in:
Accounts receivable and accrued utility
revenues (29,285) (9,827) (29,263) 3,496
Inventories 5,482 9,151 (846) (1,180)
Deferred fuel adjustments 464 10,136 (9,810) 710
Pipeline transition recoveries, net 1,040 2,359 597 (1,238)
Producer settlement (payments) recoveries, net 91 (8,105) (1,311) (10,072)
Accounts payable (1,369) (5,294) 11,728 (2,143)
Other current assets and liabilities 11,767 568 7,745 (7,068)
-------- -------- -------- --------
Net cash provided by continuing operations 52,075 43,589 51,154 37,668
Net cash used by discontinued operations -- -- -- (65)
-------- -------- -------- --------
Net cash provided by operating activities 52,075 43,589 51,154 37,603
-------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant and equipment (24,983) (34,280) (41,924) (49,220)
Net costs of property, plant and equipment disposals (784) (500) (1,257) (947)
Other, net 725 1,225 725 1,225
-------- -------- -------- --------
Net cash used by investing activities (25,042) (33,555) (42,456) (48,942)
-------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of dividends (13,634) (16,206) (14,325) (20,467)
Issuance of long-term debt 20,000 -- 68,000 --
Repayment of long-term debt (47,685) (10,088) (54,833) (17,285)
Bank loans increase (decrease) (32,000) 18,500 (25,500) 28,500
Contribution of capital by UGI Corporation -- -- -- 4,000
Issuance of Series Preferred Stock -- -- -- 19,827
Redemption of Series Preferred Stock (15) -- (15) --
-------- -------- -------- --------
Net cash provided (used) by financing activities (73,334) (7,794) (26,673) 14,575
-------- -------- -------- --------
Cash and cash equivalents increase (decrease) $(46,301) $ 2,240 $(17,975) $ 3,236
======== ======== ======== ========
CASH AND CASH EQUIVALENTS:
End of period $ 1,870 $ 19,845 $ 1,870 $ 19,845
Beginning of period 48,171 17,605 19,845 16,609
-------- -------- -------- --------
Increase (decrease) $(46,301) $ 2,240 $(17,975) $ 3,236
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE> 6
UGI UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Thousands of dollars)
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements include
the accounts of UGI Utilities, Inc. (UGI Utilities) and its
subsidiaries (collectively, "the Company"). All significant
intercompany accounts and transactions have been eliminated in
consolidation. UGI Utilities is a wholly owned subsidiary of UGI
Corporation (UGI) and operates a natural gas distribution utility (Gas
Utility) and an electric utility (Electric Utility) in Pennsylvania.
The accompanying condensed consolidated financial statements are
unaudited and have been prepared in accordance with the rules and
regulations of the U.S. Securities and Exchange Commission (SEC).
They include all adjustments which the Company considers necessary for
a fair statement of the results for the interim periods presented.
Such adjustments consisted only of normal recurring items unless
otherwise disclosed. These financial statements should be read in
conjunction with the financial statements and the notes thereto
included in the Company's Annual Report on Form 10-K for the year
ended September 30, 1995. Due to the seasonal nature of the Company's
businesses, the results of operations for interim periods are not
necessarily indicative of the results to be expected for a full year.
- 4 -
<PAGE> 7
UGI UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. Segment Information
Information on revenues, operating income (loss), depreciation and
amortization, identifiable assets and certain operating statistics by
business segment for the periods presented follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
June 30, June 30, June 30,
------------------ ------------------- --------------------
1996 1995 1996 1995 1996 1995
-------- -------- -------- --------- -------- ---------
<S> <C> <C> <C> <C>
REVENUES
Gas utility $ 65,289 $ 51,234 $320,234 $254,110 $357,382 $291,971
Electric utility 16,136 15,093 52,467 49,464 69,109 65,087
-------- -------- -------- -------- -------- --------
Total $ 81,425 $ 66,327 $372,701 $303,574 $426,491 $357,058
======== ======== ======== ======== ======== ========
OPERATING INCOME (LOSS)
Gas utility $ 9,098 $ 5,730 $ 75,259 $ 52,654 $ 74,552 $ 50,628
Electric utility 1,544 1,795 6,455 7,214 8,350 8,786
Other 20 542 73 1,793 406 2,224
Corporate general (1,273) (1,639) (4,191) (5,116) (5,660) (6,969)
-------- -------- -------- -------- -------- --------
Total $ 9,389 $ 6,428 $ 77,596 $ 56,545 $ 77,648 $ 54,669
======== ======== ======== ======== ======== ========
DEPRECIATION AND AMORTIZATION
Gas utility $ 4,505 $ 4,017 $ 13,161 $ 12,051 $ 17,178 $ 15,627
Electric utility 1,006 930 3,021 2,792 3,911 3,652
Corporate general and other -- 2 2 3 3 3
-------- -------- -------- -------- -------- --------
Total $ 5,511 $ 4,949 $ 16,184 $ 14,846 $ 21,092 $ 19,282
======== ======== ======== ======== ======== ========
IDENTIFIABLE ASSETS
(at period end)
Gas utility $560,223 $508,885 $560,223 $508,885 $560,223 $508,885
Electric utility 83,932 82,832 83,932 82,832 83,932 82,832
Corporate general and other 4,031 22,882 4,031 22,882 4,031 22,882
-------- -------- -------- -------- -------- --------
Total $648,186 $614,599 $648,186 $614,599 $648,186 $614,599
======== ======== ======== ======== ======== ========
OPERATING STATISTICS
Natural gas throughput -
billions of cubic feet 16.9 15.9 72.3 68.2 86.5 82.2
Electric sales - millions of
kilowatt hours 198.2 190.2 683.8 651.7 892.9 851.2
</TABLE>
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<PAGE> 8
UGI UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. REGULATORY MATTERS
On June 22, 1993, the Pennsylvania Public Utility Commission (PUC)
entered an order permitting Gas Utility to record a regulatory asset
for the difference between the costs incurred under Statement of
Financial Accounting Standards (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 Gas Utility's August 31, 1995 base rate
settlement (Gas Utility Base Rate Settlement) with the PUC, 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 of
Pennsylvania (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 the Company 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
Pennsylvania Office of Consumer Advocate (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.
4. COMMITMENTS AND CONTINGENCIES
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 UGI Utilities to recover costs of investigation
and, as appropriate, remediation of several waste sites.
- 6 -
<PAGE> 9
UGI UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 nineteen
parties, including UGI Utilities, as potentially responsible parties
for gas plant contamination that resulted from the operations of a
former subsidiary of UGI Utilities. In May 1993, after receiving and
reviewing extensive public comment, EPA withdrew a proposed plan of
remediation that would have cost an estimated $50,000. 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' purportedly
allocable share of response costs associated with remediating gas
plant related contaminants at that site. EnergyNorth alleges that to
date it has spent $3,500 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.
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 is permitted to amortize as removal costs
site-specific environmental investigation and remediation costs, net
of related third-party payments,
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<PAGE> 10
UGI UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
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<PAGE> 11
UGI UTILITIES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ANALYSIS OF RESULTS OF OPERATIONS
The following analyses of the Company's results of operations should be read in
conjunction with the segment information included in Note 2 to the Condensed
Consolidated Financial Statements. Due to the seasonal nature of the Company's
businesses, the results of operations for interim periods are not necessarily
indicative of the results to be expected for a full year.
RESULTS OF OPERATIONS:
THREE MONTHS ENDED JUNE 30, 1996 (1996 THREE-MONTH PERIOD) COMPARED WITH THREE
MONTHS ENDED JUNE 30, 1995 (1995 THREE-MONTH PERIOD)
<TABLE>
<CAPTION>
Increase
Three Months Ended June 30, 1996 1995 (Decrease)
- --------------------------------------------------------------------------------------------------------
(Millions of dollars)
<S> <C> <C> <C> <C>
REVENUES
Gas utility $ 65.3 $ 51.2 $14.1 27.5%
Electric utility 16.1 15.1 1.0 6.6
TOTAL MARGIN (a)
Gas utility $ 32.3 $ 27.0 $ 5.3 19.6%
Electric utility 7.7 7.5 .2 2.7
OPERATING INCOME (LOSS)
Gas utility $ 9.1 $ 5.7 $ 3.4 59.6%
Electric utility 1.5 1.8 (.3) (16.7)
Other - .5 (.5) (100.0)
Corporate general (1.3) (1.6) (.3) (18.8)
OPERATING DATA
Natural gas throughput-bcf 16.9 15.9 1.0 6.3%
Electric sales-gwh 198.2 190.2 8.0 4.2
Degree days-% colder (warmer) than
normal - Gas Utility 2.4% 9.8% N.M. N.M.
</TABLE>
bcf - billions of cubic feet. gwh - millions of kilowatt hours.
N.M. - Not meaningful.
(a) Gas and Electric utilities' total margin represents total revenues
less cost of sales and revenue-related taxes.
GAS UTILITY. Weather in the Gas Utility service area during the three months
ended June 30, 1996 was 2.4% colder than normal compared to weather that was
9.8% colder than normal in the prior-year period. Notwithstanding the warmer
weather, total system throughput increased 6.3% reflecting growth in firm-
- 9 -
<PAGE> 12
UGI UTILITIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
residential, firm-commercial and firm-industrial (collectively, "core
market") sales and higher volumes transported for interruptible customers.
Total Gas Utility revenues increased principally as a result of higher base
rates, higher sales to core market customers and higher purchased gas cost
(PGC) rates in effect during the 1996 three-month period. Cost of gas sold by
the Gas Utility was $30.4 million during the 1996 three-month period, an
increase of $8.2 million over the prior-year period, reflecting higher average
PGC rates and the increase in core market sales.
The increase in Gas Utility total margin reflects an increase in margin from
core market customers partially offset by lower total margin from interruptible
and firm delivery service customers. The increase in core market total margin
reflects the effect of higher base rates and volumes sold. The decrease in
total margin from interruptible and firm delivery service customers reflects
lower average interruptible margins as a result of higher gas costs. In
addition, firm delivery service throughput was lower due in large part to
customer switching to interruptible delivery service. Gas Utility operating
income increased $3.4 million reflecting the increase in total margin partially
offset by higher system maintenance, customer accounts and depreciation
expenses in the 1996 three-month period.
ELECTRIC UTILITY. Electric Utility sales increased 4.2% during the 1996
three-month period reflecting colder late heating-season weather. Electric
Utility revenues increased $1.0 million reflecting the higher sales as well as
a greater 1996 three-month period Energy Cost Rate (ECR). Cost of sales
increased to $7.7 million in the 1996 three-month period from $7.0 million in
the prior-year period as a result of higher sales and a higher ECR.
The increase in Electric Utility total margin principally reflects the benefit
of the higher sales. Despite the increase in total margin, increases in
operating, administrative and depreciation expenses resulted in a $.3 million
decrease in Electric Utility operating income.
CORPORATE GENERAL AND OTHER. Corporate general expenses, which represent an
allocated share of corporate headquarters' expenses incurred by UGI, were $1.3
million in the 1996 three-month period compared with $1.6 million in the 1995
three-month period. Other operating income in the prior-year period
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 were
dividended to UGI.
INTEREST EXPENSE AND INCOME TAXES. Interest expense during the 1996
three-month period was $3.9 million, virtually unchanged from interest expense
in the prior-year period. The effective income tax rate for the 1996
three-month period was 33.1% compared with a rate of 40.2% in the three months
ended June 30, 1995. The lower rate in the 1996 three-month period resulted
from the use of a slightly lower year-to-date effective tax rate in June 1996
than was used in March 1996 and a reduction in the Pennsylvania corporate
income tax rate from 11.99% to 9.99% effective for the Company on October 1,
1995.
- 10 -
<PAGE> 13
UGI UTILITIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS:
NINE MONTHS ENDED JUNE 30, 1996 (1996 NINE-MONTH PERIOD) COMPARED WITH NINE
MONTHS ENDED JUNE 30, 1995 (1995 NINE-MONTH PERIOD)
<TABLE>
<CAPTION>
Increase
Nine Months Ended June 30, 1996 1995 (Decrease)
-------------------------------------------------------------------------------------------------------
(Millions of dollars)
<S> <C> <C> <C> <C>
REVENUES
Gas utility $320.2 $254.1 $66.1 26.0%
Electric utility 52.5 49.5 3.0 6.1
TOTAL MARGIN (a)
Gas utility $146.0 $118.5 $27.5 23.2%
Electric utility 24.6 23.8 .8 3.4
OPERATING INCOME (LOSS)
Gas utility $ 75.3 $ 52.7 $22.6 42.9%
Electric utility 6.5 7.2 (.7) (9.7)
Other .1 1.8 (1.7) (94.4)
Corporate general (4.2) (5.1) (.9) (17.6)
OPERATING DATA
Natural gas throughput-bcf 72.3 68.2 4.1 6.0%
Electric sales-gwh 683.8 651.7 32.1 4.9
Degree days-% colder (warmer) than
normal - Gas Utility 4.7% (5.3)% N.M. N.M.
</TABLE>
bcf - billions of cubic feet. gwh - millions of kilowatt hours.
N.M. - Not meaningful.
(a) Gas and Electric utilities' total margin represents total revenues
less cost of sales and revenue-related taxes.
GAS UTILITY. Weather in Gas Utility's service territory in the 1996 nine-month
period was 4.7% colder than normal compared with weather that was 5.3% warmer
than normal in the 1995 nine-month period. Total system throughput increased
6.0% due in large part to the colder weather's effect on core market sales
which increased 5.4 bcf in the 1996 nine-month period. Partially offsetting
the increase in total throughput from core market sales was a decrease in firm
delivery service volumes as a result of customer switching from firm delivery
service to interruptible delivery service. In addition, volumes of gas sold to
interruptible retail customers declined reflecting the impact of more frequent
interruptions of gas sold to these customers caused by the colder weather. The
increase in Gas Utility's total revenues reflects higher sales to core market
customers, higher base rates and lower refunds of prior-period gas cost
overcollections. Cost of gas sold was $160.7 million during the 1996
nine-month period, an increase
- 11 -
<PAGE> 14
UGI UTILITIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
of $35.6 million from the 1995 nine-month period, reflecting principally the
greater sales to the core market and lower refunds of prior-period gas cost
overcollections.
The increase in Gas Utility total margin for the 1996 nine-month period
reflects a $32.2 million increase in total margin from the core market
partially offset by lower total margin from interruptible customers and firm
delivery service customers. The higher total margin from the core market
reflects the effects of the higher volumes sold and higher base rates. Total
margin from interruptible customers declined principally as a result of higher
1996 nine-month period gas costs associated with sales to interruptible-retail
customers. Firm delivery service total margin also declined due in large part
to customers switching to interruptible delivery service. Although Gas Utility
operating income benefitted from the higher total margin, the benefit was
partially offset by higher operating and administrative expenses and higher
charges for depreciation.
ELECTRIC UTILITY. Electric Utility sales increased 4.9% during the 1996
nine-month period principally from colder heating-season weather. The increase
in Electric Utility revenues reflects the impact of the higher sales as well as
higher ECR revenues. Electric Utility cost of sales was $25.5 million, an
increase of $2.1 million from the prior-year period. The increase in the cost
of sales resulted from higher sales and a higher ECR.
Electric Utility total margin increased as a result of the increase in sales.
However, operating income decreased as the increase in Electric Utility total
margin was more than offset by higher distribution system maintenance expenses,
higher general and administrative expenses, and higher depreciation expense.
CORPORATE GENERAL AND OTHER. Corporate general expenses were lower in the 1996
nine-month period reflecting a smaller allocable share of UGI corporate
expenses charged to the Company. Other operating income was $.1 million in the
1996 nine-month period compared with $1.8 million in the prior-year period.
The prior-year amount reflects principally income from the Company's former gas
brokerage activities which were dividended to UGI on August 1, 1995.
INTEREST EXPENSE AND INCOME TAXES. Interest expense was $12.2 million during
the 1996 nine-month period compared with interest expense of $12.4 million in
the 1995 nine-month period. The decrease in interest expense principally
reflects a decrease in interest on bank loans and purchased gas cost
overcollections. The effective income tax rate for the 1996 nine-month period
was 37.7% compared with an effective tax rate of 40.2% in the 1995 nine-month
period. The lower income tax rate principally reflects a reduction in the
Pennsylvania corporate income tax rate.
- 12 -
<PAGE> 15
UGI UTILITIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS:
TWELVE MONTHS ENDED JUNE 30, 1996 (1996 TWELVE-MONTH PERIOD) COMPARED WITH
TWELVE MONTHS ENDED JUNE 30, 1995 (1995 TWELVE-MONTH PERIOD)
<TABLE>
<CAPTION>
Increase
Twelve Months Ended June 30, 1996 1995 (Decrease)
--------------------------------------------------------------------------------------------------------
(Millions of dollars)
<S> <C> <C> <C> <C>
REVENUES
Gas utility $357.4 $292.0 $65.4 22.4%
Electric utility 69.1 65.1 4.0 6.1
TOTAL MARGIN (a)
Gas utility $168.4 $138.7 $29.7 21.4%
Electric utility 32.9 31.6 1.3 4.1
OPERATING INCOME (LOSS)
Gas utility $ 74.6 $ 50.6 $24.0 47.4%
Electric utility 8.4 8.8 (.4) (4.5)
Other .4 2.2 (1.8) (81.8)
Corporate general (5.7) (7.0) (1.3) (18.6)
OPERATING DATA
Natural gas throughput-bcf 86.5 82.2 4.3 5.2%
Electric sales-gwh 892.9 851.2 41.7 4.9
Degree days-% colder (warmer) than
normal - Gas Utility 4.4% (4.9)% N.M. N.M.
</TABLE>
bcf - billions of cubic feet. gwh - millions of kilowatt hours.
N.M. - Not meaningful.
(a) Gas and Electric utilities' total margin represents total revenues
less cost of sales and revenue-related taxes.
GAS UTILITY. Weather in Gas Utility's service territory, as measured by degree
days for heating, was 4.4% colder than normal in the 1996 twelve-month period
compared with weather which was 4.9% warmer than normal in the 1995
twelve-month period. The increase in total system throughput reflects the
impact of the colder weather on core market sales.
The increase in Gas Utility revenues in the 1996 twelve-month period reflects
higher sales to core market customers and higher base rates in effect since
August 31, 1995 and lower refunds of prior-period PGC and other gas cost
overcollections. These increases in revenues were partially offset by the
recovery of lower average purchased gas costs through PGC rates. Cost of gas
sold was $174.2 million in the 1996 twelve-month period compared with $141.5
million in the 1995 twelve-month period. The higher cost
- 13 -
<PAGE> 16
UGI UTILITIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
of gas reflects the higher core market sales and lower 1996-period refunds of
prior-year PGC overcollections partially offset by the recovery of lower
average purchased gas costs through PGC rates.
The increase in Gas Utility total margin reflects a significant increase in
core market total margin as a result of greater sales and higher base rates
commencing August 31, 1995. Partially offsetting the increase in core market
total margin was a decrease in total margin from interruptible-retail customers
as a result of lower volumes sold and the impact of higher 1996-period gas
costs. Firm delivery service volumes and margins decreased as a result of
lower volumes transported for these customers, due largely to customer
switching to interruptible delivery service, and slightly lower average
margins. Gas Utility operating income increased reflecting the higher total
margin partially offset by higher operating and administrative expenses and
higher charges for depreciation from fixed asset additions.
ELECTRIC UTILITY. Electric Utility sales increased 4.9% in the 1996
twelve-month period as heating-related sales benefitted from colder
heating-season weather and air conditioning related sales benefitted from
record setting temperatures in July and August 1995. Electric Utility revenues
increased as a result of these greater sales and higher ECR revenues. Cost of
sales increased $2.6 million as a result of the higher sales and a higher ECR
rate.
The increase in Electric Utility total margin reflects the benefit of the
higher sales. The higher total margin was more than offset by higher operating
and administrative expenses and higher charges for depreciation.
CORPORATE GENERAL AND OTHER. Corporate general expenses decreased $1.3 million
representing a smaller 1996 twelve-month period share of UGI corporate
expenses. Other operating income, principally representing income from the
Company's former gas brokerage activities, decreased as a result of the
dividend of this business to UGI effective August 1, 1995.
INTEREST EXPENSE AND INCOME TAXES. Interest expense was $16.6 million during
the 1996 twelve-month period, slightly higher than the $15.9 million recorded
in the prior-year period. The effective income tax rate for the 1996
twelve-month period was 30.5% compared with an effective tax rate of 41.1% in
the 1995 twelve-month period. The lower income tax rate in the 1996
twelve-month period reflects the benefit of a $4.3 million adjustment to
deferred state income taxes recorded in September 1995 and a lower Pennsylvania
corporate income tax rate effective October 1, 1995.
- 14 -
<PAGE> 17
UGI UTILITIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FINANCIAL CONDITION AND LIQUIDITY
CAPITAL STRUCTURE
The Company's consolidated debt-to-total-capitalization ratio was 43.8% at June
30, 1996 compared with a ratio of 53.0% at September 30, 1995. The lower ratio
reflects a net reduction in total debt outstanding and an increase in common
stockholder's equity. In October 1995, UGI Utilities redeemed $45.9 million
face value of 9% Series and 9% Series B First Mortgage Bonds at a redemption
price of 104% of the principal amount outstanding. The redemption was paid
principally from the proceeds of UGI Utilities' issuance of $48 million of
notes on September 29, 1995. On November 6, 1995, UGI Utilities issued $20
million of notes due May 15, 2005 bearing interest at a rate of 6.62% the
proceeds of which were used to reduce UGI Utilities' bank loans. In May 1996,
the Company filed, and the SEC declared effective, a registration statement for
the issuance from time to time of up to $75 million of debt securities, none of
which has been issued.
REGULATORY MATTERS
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. In accordance with
its normal practice, the effective date was suspended by the PUC for up to an
additional seven months from the proposed effective date for investigation and
public hearings. On July 18, 1996, the PUC approved a settlement of this
proceeding authorizing a $3.1 million increase in annual revenues. The
increase in base rates became effective on 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 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 106,
"Employers Accounting for Postretirement Benefits Other Than Pensions" 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 with the PUC, Gas Utility was
permitted the recovery over 17.25 years of the approximately $4.0 million 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, 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 the
Company could prospectively be denied recovery of some or all of its deferred
excess SFAS 106 costs.
- 15 -
<PAGE> 18
UGI UTILITIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
CASH FLOWS
Cash and cash equivalents totaled $1.9 million at June 30, 1996 compared with
$48.2 million at September 30, 1995. The balance at September 30, 1995
reflects cash received from the issuance of a combined $48 million face value
of long-term debt on September 29, 1995 the proceeds of which were used in
October to redeem $45.9 million face value of UGI Utilities' 9% Series and 9%
Series B First Mortgage Bonds. The Company's cash flows from operating
activities are seasonal and are generally greatest during the second and third
fiscal quarters when customers pay bills incurred during the heating season.
Conversely, cash flows from operating activities during the first and fourth
fiscal quarters are typically at their lowest levels as the Company injects
natural gas into storage and finances increases in other working capital in
advance of the heating season. Accordingly, cash flows from operations during
the nine months ended June 30, 1996 are not necessarily indicative of cash
flows to be expected for a full year.
OPERATING ACTIVITIES. Cash flow from operating activities was $52.1 million
during the nine months ended June 30, 1996 compared with $43.6 million in the
nine months ended June 30, 1995. Cash flow from operations before changes in
operating working capital totaled $63.9 million in the 1996 nine-month period
compared with $44.6 million in the prior-year period. The increase in cash
flow before changes in operating working capital reflects the increase in Gas
Utility's 1996-period results of operations. However, the cash flow benefits of
the improved results were partially offset by a higher use of funds to finance
working capital including a significant increase in customer accounts
receivable.
INVESTING ACTIVITIES. Cash expenditures for property, plant and equipment
totaled $25.0 million in the nine months ended June 30, 1996 compared with
$34.3 million in the 1995 nine-month period. The decrease is principally a
result of a lower level of Gas Utility capital expenditures.
FINANCING ACTIVITIES. Cash flows from financing activities for the nine months
ended June 30, 1996 include $11.6 million in dividend payments to UGI compared
with $14.5 million of dividend payments in the prior-year period. UGI
Utilities repaid $32.0 million of borrowings under its revolving credit
agreements in the 1996 nine-month period compared with net borrowings of $18.5
million in the 1995 nine-month period. During the nine months ended June 30,
1996, UGI Utilities redeemed $45.9 million face value of its 9% Series and 9%
Series B First Mortgage Bonds at 104% of the principal amount and issued $20
million of long-term notes.
- 16 -
<PAGE> 19
UGI UTILITIES, INC. AND SUBSIDIARIES
PART II OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On July 30, 1996, Lon R. Greenberg was elected Chairman of the Board
of UGI Utilities, Inc., effective August 1, 1996, succeeding James A. Sutton.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits:
10.1 Change of Control Agreement between UGI
Corporation and Lon R. Greenberg, incorporated by
reference to Exhibit 10.1 to the June 30, 1996
quarterly report on Form 10-Q of UGI Corporation.
10.2 Form of Change of Control Agreement between UGI
Corporation and Richard L. Bunn, incorporated by
reference to Exhibit 10.2 to the June 30, 1996
quarterly report on Form 10-Q of UGI Corporation.
10.3 Form of Change of Control Agreement between
UGI Corporation and each of Messrs. Bovaird, Chaney
and Dingman, incorporated by reference to Exhibit
10.3 to the June 30, 1996 quarterly report on
Form 10-Q of UGI Corporation.
10.4 UGI Utilities Annual Bonus Plan dated March 8, 1996.
12 (a) Computation of ratio of earnings to fixed charges
12 (b) Computation of ratio of earnings to combined fixed
charges and preferred stock dividends
27. Financial Data Schedule
(b) The Company did not file any Reports on Form 8-K during the
fiscal quarter ended June 30, 1996.
- 17 -
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UGI Utilities, Inc.
-------------------
(Registrant)
Date: August 13, 1996 By: J. C. Barney
- ---------------------- -------------------------------
J. C. Barney, Vice President -
Finance and Accounting
(Principal Financial Officer)
- 18 -
<PAGE> 21
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
10.1 Change of Control Agreement between UGI Corporation
and Lon R. Greenberg, incorporated by reference to
Exhibit 10.1 to the June 30, 1996 quarterly report
on Form 10-Q of UGI Corporation.
10.2 Form of Change of Control Agreement between UGI
Corporation and Richard L. Bunn, incorporated by
reference to Exhibit 10.2 to the June 30, 1996
quarterly report on Form 10-Q of UGI Corporation.
10.3 Form of Change of Control Agreement between UGI
Corporation and each of Messrs. Bovaird, Chaney and
Dingman, incorporated by reference to Exhibit
10.3 to the June 30, 1996 quarterly report on
Form 10-Q of UGI Corporation.
10.4 UGI Utilities Annual Bonus Plan dated March 8, 1996.
12(a) Computation of Ratio of Earnings to Fixed Charges
12(b) Computation of Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividends
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.4
March 8, 1996
FINAL
UGI Utilities, Inc.
ANNUAL BONUS PLAN
Revised 10/1/95
The UGI Utilities, Inc. Annual Bonus Plan is designed to effectively
motivate key executives with broad decision-making responsibility to achieve
high-level predetermined business/financial performance objectives and to
accomplish significant predetermined individual performance objectives which
support business plans and goals. It will provide annual cash bonuses
contingent upon the achievement of these objectives.
Goal Administration
Overall goal administration responsibility (including the
establishment of the individual performance goals) for all participants other
than the President and CEO - UGI Utilities, Inc. and designated senior-most
Officers rests with the President and CEO - UGI Utilities, Inc. Approvals of
the UGI Utilities, Inc. Compensation and Management Development Committee and
Board of Directors are required for (i) the establishment of the annual
business/financial goal, and (ii) matters pertaining to the President and CEO -
UGI Utilities, Inc. and designated senior-most Officers.
Plan Administration
The President and CEO - UGI Utilities, Inc. will appoint the necessary
administrative, financial accounting and audit advisors to ensure accuracy and
consistency in the administrative and financial management of the Plan. All
decisions made are final and binding on all parties.
Participation
Participation in the Annual Bonus Plan is limited to key executives
having an on-going opportunity to significantly influence profitability or
strategic direction and who are approved for participation in the Plan.
Required approvals for participation in the Plan include the President and CEO
- - UGI Utilities, Inc. (and the UGI Utilities, Inc. Compensation and Management
Development Committee and Board in cases involving designated senior-most
Officers).
Base Salary and Annual Bonus Targets
Base salary levels (or base salary grade ranges) for all positions
included in the UGI Utilities, Inc. Annual Bonus Plan
1
<PAGE> 2
are set at fiftieth percentile competitive measures to reflect competitive base
salary pay practices in the utility industry.
Base salary levels (salary grade ranges) will be reviewed and updated
annually in accordance with changes in competitive pay levels. Actual base
salaries for executives covered by the Plan will be administered within the
base salary grade range established for the position in a manner consistent
with UGI Utilities, Inc. salary administration policies taking into account
individual performance, position within the range, and length of time in job.
Annual Bonus targets (expressed as a percent of base salary) are set at
the seventy-fifth percentile of competitive practice. Target percents are
separately established for each position and will vary according to business
unit/division and level of management. These Annual Bonus targets recognize
competitive utility industry annual bonus pay practices and the varying
risk/return aspects of UGI Utilities' business units/divisions and the
potential contributions to bottom-line results among Plan participants.
Annual Bonus targets as established for each position will be reviewed
and approved annually by the President and CEO - UGI Utilities, Inc. (and the
UGI Utilities, Inc. Compensation and Management Development Committee and Board
for designated senior-most Officers). Bonus targets as established for each
position will generally range between 10% and 30% of base salary.
An individual participant's Annual Bonus target percentage will be
established annually as approved by the President and CEO - UGI Utilities, Inc.
(and the UGI Utilities, Inc. Compensation and Management Development Committee
and Board for designated senior-most Officers) and may be less than but not
greater than the Annual Bonus target percentage established for the position.
Generally, it is expected that a participant in the position for two years or
more will have an Annual Bonus target percentage equal to that established for
the position.
Actual bonuses paid, however, will vary up and down from a
participant's Annual Bonus target percentage depending on the achievement of
business/financial goals and individual MBO goals. The portion of the bonus
attributable to individual MBO goal achievement may only be paid if the
business/financial goal is achieved at the threshold level of performance. If
the business/financial goal is not achieved at the threshold level, no bonus
for the individual MBO goal will be paid to any participant regardless of
actual individual MBO achievement.
2
<PAGE> 3
Performance Measures
The determination of Annual Bonus amounts will be based on achievement
of predetermined business/financial goals and, except for the President and CEO
- - UGI Utilities, Inc., individual MBO goals.
- Business/Financial Performance
Business/financial performance will be measured in terms of the
achievement of the business/financial goal of the participant's
business unit/division for the Plan fiscal year. Goals based on
earnings applicable to common stock will be established at "stretch"
levels and will represent significant results. As determined by the
President and CEO - UGI Utilities, Inc. (and the UGI Utilities, Inc.
Compensation and Management Development Committee and Board in cases
involving designated senior-most Officers), adjustments may be made in
order to minimize the potential distortion in performance measurement
to the business/financial goals to reflect major
unplanned/uncontrollable events, the pro-forma impact of major
unbudgeted or cancelled acquisitions and capital projects, or other
events or conditions during the fiscal year affecting
business/financial performance beyond management's control.
- Individual Performance
Individual performance will be measured in terms of each participant's
achievement of, generally, two or more key individual objectives
(MBO's) mutually determined in advance with the participant's
immediate superior, subject to final review and approval by higher
levels of management including the President and CEO - UGI Utilities,
Inc. (and the UGI Utilities, Inc. Compensation and Management
Development Committee and Board for designated senior-most Officers).
Individual MBO goals will be established to reflect truly significant
accomplishments which support business plans and goals. As determined
by the participant's immediate superior, subject to final review and
approval of the President and CEO - UGI Utilities, Inc. (and the UGI
Utilities, Inc. Compensation and Management Development Committee and
Board for designated senior-most Officers), adjustments may be made to
individual MBO goals to reflect major unplanned
contributions/achievements in order to more fully recognize
significant individual results during the Plan fiscal year.
Final determination of both business/financial and individual goal achievement
for all Plan participants will be made by the President and CEO - UGI
Utilities, Inc. (and the UGI Utilities,
3
<PAGE> 4
Inc. Compensation and Management Development Committee and Board for designated
senior-most Officers). As such, the President and CEO - UGI Utilities, Inc.
(and the UGI Utilities, Inc. Compensation and Management Development Committee
and Board for designated senior-most Officers) shall have sole discretion under
this Plan to give consideration to the overall financial performance of the
Company and/or its business units in making final determinations of the
achievement of business/financial and individual goals for bonus payments for
any Plan fiscal year.
Performance Weighting
The weighting applied to the business/financial performance goal and
the individual MBO goal for payment determination will be 75%/25% respectively
for all participants, except the President and CEO - UGI Utilities, Inc. To
reflect the direct identification of the President and CEO - UGI Utilities,
Inc. with the Company's financial performance, 100% weighting is given to the
achievement of the business/financial goal (no weighting to individual goal
achievement).
Performance Leverage
The percentage of a participant's annual bonus target is payable on
the basis of a business/financial goal and, except for the President and CEO -
UGI Utilities, Inc., individual goal performance as stated above according to
the degree of achievement as follows:
ANNUAL BONUS PLAN - PERFORMANCE/LEVERAGE TABLES
UGI UTILITIES, INC.
<TABLE>
<CAPTION>
============================== ==============================
Business/Financial Individual
Performance Goal* Performance Goals (MBOs)**
- ------------------------------ ------------------------------
% of Target % of Target
Bonus Payable Bonus Payable
--------------- ----------------
% of Goal % of Goal
Achieved 100% 75% Achieved 0% 25%
----------------------------- ------------------------------
<S> <C> <C> <C> <C> <C>
less than 80 0 0 less than 50 -- 0
----------------------------- ------------------------------
80 50 37.5 50 -- 12.5
----------------------------- ------------------------------
90 75 56.25 75 -- 18.75
----------------------------- ------------------------------
100 100 75 100 -- 25
----------------------------- ------------------------------
110 125 93.75 125 -- 31.25
----------------------------- ------------------------------
120 150 112.5 150 -- 37.5
----------------------------- ------------------------------
greater than greater than
120 150 112.5 150 -- 37.5
----------------------------- ------------------------------
</TABLE>
*Payouts to be prorated for intermediate levels of
performance in 1% increments.
**Requires 80% achievement of Business/Financial Goal; payouts
to be prorated for intermediate levels of performance in 5%
increments.
4
<PAGE> 5
The UGI Utilities, Inc. Compensation and Management Development
Committee has the discretion to make an adjustment of +/- 15% to the
calculated bonus payout of the President and CEO - UGI Utilities, Inc.
Annual Bonus Payments
Except for the amounts deferred as provided for in the following
paragraph, annual bonus payments will be paid in cash to each participant as
close as possible to within 90 days following the end of the Plan fiscal year.
Optional Deferral
To provide participants with the flexibility to tailor annual bonus
payouts to individual needs, participants may elect to defer all or part
(subject to a minimum of 50%) of their payout until retirement or termination
of employment. Deferred amounts will earn interest annually during the
deferral period at a market rate determined in accordance with a procedure
determined by the UGI Utilities, Inc. Compensation and Management Development
Committee. The procedure governing optional deferral is contained in
Attachment 1 hereto.
Plan Amendment
The Annual Bonus Plan may at any time or from time to time be amended,
modified, suspended or terminated by the UGI Utilities, Inc. Compensation and
Management Development Committee and Board of Directors, except that no
amendment, modification or termination may (i) adversely affect the balance in
a participant's Deferred Compensation Account without the participant's consent
or (ii) permit payment of such balance prior to the earliest permitted date as
described in the optional deferral provisions of the Annual Bonus Plan.
Other Provisions:
- Treatment of New Hires and Promotions
New hires and individuals promoted or transferred into a
position eligible for the Plan (or into a position with a
different annual bonus target %) during the fiscal year will
receive a prorated award based on the relative time spent in
the new position during the fiscal year.
- Treatment of Retirement, Death and Permanent Disability
Participants who retire or are permanently disabled during the
fiscal year may receive all or part of their payout, based on
the discretion of the President and
5
<PAGE> 6
CEO - UGI Utilities, Inc. (and the UGI Utilities, Inc.
Compensation and Management Development Committee in cases
involving designated senior-most Officers). The same
consideration will be granted to the heirs or assigns of a
deceased participant.
- Treatment of Other Terminations
A participant who terminates employment for any reason other
than retirement, death or permanent disability during the
fiscal year will forfeit the entire annual bonus payment for
that year, unless determined otherwise by the President and
CEO - UGI Utilities, Inc. (and the UGI Utilities, Inc.
Compensation and Management Development Committee in cases
involving designated senior-most Officers).
6
<PAGE> 7
ATTACHMENT 1
Procedure Optional Deferral of Annual Bonus Payments
An election to defer an annual bonus payout for a particular fiscal
year must be made in writing on a Form of Notice (Exhibit "A") available from
the UGI Utilities, Inc. Human Resources Department. In order for an election
to defer to be effective for any particular year, the signed Notice must be
received by the UGI Utilities, Inc. Human Resources Department prior to October
1 of the year for which it is to be effective. The Notice must include the
exact percentage of the annual bonus payout which is to be deferred. Once a
Notice is submitted to the UGI Utilities, Inc. Human Resources Department, the
election to defer is irreversible for that year, except in certain cases, as
determined at the sole discretion of the President and CEO - UGI Utilities,
Inc., of severe financial hardship occasioned by an unforeseeable emergency as
referred to below.
The election to defer will be effective starting on October 1 of the
year indicated on the Notice and will remain in effect only for that fiscal
year.
A participant may elect to defer the receipt of all or a specified
portion (but not less than 50%) of the annual bonus payment otherwise payable
pursuant to the Plan. All deferred amounts will be paid out in cash.
An unfunded Deferred Compensation Account will be established for each
participant who elects deferment, and the portion of the annual bonus payment
that a participant elects to defer will be credited to that Account. Each such
credit will be made to the Account as of the date payment of the annual bonus
payment would otherwise have been made to the participant, had the participant
not elected to defer payment of all or part of the payout.
Deferred payouts are assumed to earn interest at a market rate
determined by the UGI Utilities, Inc. Compensation and Management Development
Committee for each year during the period in which compensation is deferred.
Each participant will be notified of this rate annually. The Company may at
any time or from time to time change or otherwise modify the basis or the
method for calculating and crediting such interest, but any such change or
modification will not adversely affect the balance in any participant's Account
at the time of the change or modification.
Each deferring participant will receive a statement of the balance in
the participant's Account at the end of each fiscal year as promptly as
practicable after the end of that year.
7
<PAGE> 8
Unless a Notice (Exhibit "B") prescribing the method of payment
selected by a participant within the guidelines set forth below is given to the
UGI Utilities, Inc. Human Resources Department during the fiscal year
immediately preceding a participant's retirement under the Company's or a
subsidiary's retirement plan and no less than 30 days prior to the
participant's retirement date, upon the termination of a participant's services
as an employee of UGI or any of its subsidiaries or affiliates, the balance in
a participant's Account will be paid out to the participant in a lump sum
distribution, or, at the option of the Company, in any of the methods of
payment which might have been selected by the participant had a Notice
prescribing a method of payment been given.
During the fiscal year immediately preceding a participant's
retirement under the Company's or a subsidiary's retirement plan and no less
than 30 days prior to the participant's retirement date, a participant may
elect any method of payment of the balance in the participant's Account,
including periodic payments over a specified period of years or a lump sum
distribution, except that (i) no payment may be made prior to October of the
fiscal year following the fiscal year during which the participant's services
as an employee of UGI or any of its subsidiaries or affiliates terminate,
unless the payment is made as set forth in the next two paragraphs; (ii) a lump
sum payment must be made or installment payments must commence no later than
October of the fiscal year following the participant's attainment of age 70, or
October of the fiscal year following the termination of the participant's
services as an employee of UGI or any of its subsidiaries or affiliates,
whichever is later; and (iii) installment payments must be made at least
annually and not more frequently than monthly for a period of 5, 10, 15 or 20
years.
If the President and CEO - UGI Utilities, Inc. determines, after
consideration of a participant's application, that, due to an unforeseeable
emergency occasioned by extraordinary and unforeseeable circumstances arising
as a result of events beyond the control of the participant which results in a
severe financial hardship to the participant which cannot be relieved (i)
through reimbursement or compensation by insurance or otherwise, (ii) by
liquidation of the participant's assets, to the extent the liquidation of such
assets would not itself cause severe financial hardship, or (iii) by cessation
of deferrals of earned awards, the participant has a financial need of such a
substantial nature that a contemporaneous payment of earned awards previously
deferred is warranted, the President and CEO - UGI Utilities, Inc. may, at his
sole and absolute discretion, direct that all or a portion of the balance in
the participant's Account be paid to the participant, but only to the extent of
the amount of the particular financial need which cannot be relieved
8
<PAGE> 9
as set forth above. Any such payment will be made in the manner and at the
time specified by the President and CEO - UGI Utilities, Inc. In any case
involving a request for payment by the President and CEO - UGI Utilities, Inc.,
any decisions will instead be made by the UGI Utilities, Inc. Compensation and
Management Development Committee without the participation of the President and
CEO - UGI Utilities, Inc.
In the event of a participant's death before the balance in the
participant's Account is fully paid out:
(a) Payment of such balance will be made to the beneficiary or
beneficiaries designated by the participant in the Notice
(Exhibit "A") given to the UGI Utilities, Inc. Human Resources
Department, or, if the participant has not designated a
beneficiary, to the beneficiary indicated on the participant's
group life insurance policy through the Company or a
Subsidiary, or if no beneficiary survives, to the
participant's estate. In any case, the payment will be made
in a lump sum distribution no later than October of the fiscal
year following the participant's death, unless the participant
has given a Notice to the UGI Utilities, Inc. Human Resources
Department during the fiscal year immediately preceding the
participant's retirement at normal retirement age under the
Company's or a subsidiary's retirement plan and no less than
30 days prior to the participant's retirement date electing
that payment of the balance in the participant's Account in
the event of the participant's death be made to the
participant's beneficiary or beneficiaries in periodic
payments as indicated in the Notice , provided that any such
installment payments to a beneficiary or beneficiaries must
commence no later than October of the fiscal year following
the participant's death.
(b) If the balance in the Account is to be paid to the estate of
the participant in installments, the President and CEO - UGI
Utilities, Inc. may, at his sole and absolute discretion and
upon receipt of an application from the duly appointed
Administrator or Executor of such estate, direct that the
balance in the deceased participant's Deferred Compensation
Account be paid to the estate in a single payment at such time
as is specified by the President and CEO - UGI Utilities,
Inc.
The right of any participant, beneficiary or estate to receive payment
of any unpaid balance in a participant's Account will be an unsecured claim
against the general assets of the Company.
9
<PAGE> 10
During a participant's lifetime, any deferred payment will be made
only to the participant. No sum in a participant's Account or other interest
in a deferred award shall be subject in any manner to anticipation, alienation,
sale, transfer, assignment, pledge, encumbrance or charge, and any attempt by a
participant or any beneficiary to do so shall be void. No balance in a
participant's Account or interest in a deferred award shall in any manner be
liable for or subject to the debts, contracts, liabilities, engagements or
torts of a participant or beneficiary who is entitled to it.
Except as otherwise described above or within the Annual Bonus Plan,
all provisions of the Annual Bonus Plan relating to optional deferral of annual
bonus payments will be administered by the President and CEO - UGI Utilities,
Inc. who will have the authority, except as may be otherwise provided above, to
adopt, amend and rescind rules and regulations relating to the optional
deferral provisions, and to interpret, construe and implement those provisions.
All decisions made are final and binding on all parties.
10
<PAGE> 1
UGI UTILITIES INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES - EXHIBIT 12(a)
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Nine
Nine Months Months
Ended Year Ended September 30, Ended Year Ended December 31,
June 30, ----------------------- September 30, -----------------------
1996 1995 1994 1993 1992 1991
----------- --------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
EARNINGS:
Earnings before income taxes $ 77,596 $ 39,759 $ 41,244 $ 28,009 $ 43,054 $ 24,470
Interest expense 12,050 16,632 16,482 12,664 21,913 22,600
Amortization of debt discount and expense 120 206 187 147 250 265
Interest component of rental expense 1,350 1,604 1,344 953 1,256 940
-------- -------- -------- -------- -------- --------
$ 91,116 $ 58,201 $ 59,257 $ 41,773 $ 66,473 $ 48,275
======== ======== ======== ======== ======== ========
FIXED CHARGES:
Interest expense $ 12,050 $ 16,632 $ 16,482 $ 12,664 $ 21,913 $ 22,600
Amortization of debt discount and expense 120 206 187 147 250 265
Allowance for funds used during
construction (capitalized interest) 124 65 136 87 57 126
Interest component of rental expense 1,350 1,604 1,344 953 1,256 940
-------- -------- -------- -------- -------- --------
$ 13,644 $ 18,507 $ 18,149 $ 13,851 $ 23,476 $ 23,931
======== ======== ======== ======== ======== ========
Ratio of earnings to fixed charges 6.68 3.14 3.27 3.02 2.83 2.02
======== ======== ======== ======== ======== ========
</TABLE>
<PAGE> 1
UGI UTILITIES INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS - EXHIBIT 12(b)
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Nine
Nine Months Months
Ended Year Ended September 30, Ended Year Ended December 31,
June 30, ----------------------- September 30, -----------------------
1996 1995 1994 1993 1992 1991
----------- -------- -------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C>
EARNINGS:
Earnings before income taxes $ 77,596 $ 39,759 $ 41,244 $ 28,009 $ 43,054 $ 24,470
Interest expense 12,050 16,632 16,482 12,664 21,913 22,600
Amortization of debt discount and expense 120 206 187 147 250 265
Interest component of rental expense 1,350 1,604 1,344 953 1,256 940
-------- -------- -------- -------- -------- --------
$ 91,116 $ 58,201 $ 59,257 $ 41,773 $ 66,473 $ 48,275
======== ======== ======== ======== ======== ========
COMBINED FIXED CHARGES AND PREFERRED
STOCK DIVIDENDS:
Interest expense $ 12,050 $ 16,632 $ 16,482 $ 12,664 $ 21,913 $ 22,600
Amortization of debt discount and expense 120 206 187 147 250 265
Allowance for funds used during
construction (capitalized interest) 124 65 136 87 57 126
Interest component of rental expense 1,350 1,604 1,344 953 1,256 940
Preferred stock dividend requirements 2,074 2,778 1,356 2,124 2,613 2,034
Adjustment required to state preferred stock
dividend requirements on a pretax basis 1,253 1,164 1,018 1,589 1,846 1,306
-------- -------- -------- -------- -------- --------
$ 16,971 $ 22,449 $ 20,523 $ 17,564 $ 27,935 $ 27,271
======== ======== ======== ======== ======== ========
Ratio of earnings to combined fixed charges
and preferred stock dividends 5.37 2.59 2.89 2.38 2.38 1.77
======== ======== ======== ======== ======== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AND INCOME STATEMENT OF UGI UTILITIES, INC.
AND SUBSIDIARIES AS OF AND FOR THE NINE MONTHS ENDED JUNE 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS INCLUDED IN
UGI UTILITIES' QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30,
1996.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> JUN-30-1996
<CASH> 1,870
<SECURITIES> 0
<RECEIVABLES> 60,540
<ALLOWANCES> 5,131
<INVENTORY> 17,945
<CURRENT-ASSETS> 90,747
<PP&E> 716,159
<DEPRECIATION> 218,890
<TOTAL-ASSETS> 648,186
<CURRENT-LIABILITIES> 126,578
<BONDS> 158,248
35,187
0
<COMMON> 60,259
<OTHER-SE> 153,636
<TOTAL-LIABILITY-AND-EQUITY> 648,186
<SALES> 372,701
<TOTAL-REVENUES> 372,701
<CGS> 186,205
<TOTAL-COSTS> 186,205
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,170
<INCOME-PRETAX> 65,426
<INCOME-TAX> 24,639
<INCOME-CONTINUING> 40,787
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40,787
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0<F1>
<FN>
<F1>There are no publicly held shares outstanding.
</FN>
</TABLE>
