<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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------- ----------
Commission file number 1-1398
UGI UTILITIES, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 23-1174060
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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, 1997, 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
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<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 1997,
September 30, 1996 and June 30, 1996 1
Condensed Consolidated Statements of Income for the
three, nine and twelve months ended June 30, 1997 and 1996 2
Condensed Consolidated Statements of Cash Flows for the
nine and twelve months ended June 30, 1997 and 1996 3
Notes to Condensed Consolidated Financial Statements 4 - 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9 - 17
PART II OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
</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,
1997 1996 1996
-------- ------------- --------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,299 $ 3,100 $ 1,870
Accounts receivable (less allowances for doubtful accounts
of $4,152, $3,976 and $5,131, respectively) 40,463 26,288 48,060
Accrued utility revenues 6,690 8,612 7,349
Inventories 18,337 30,035 17,945
Deferred income taxes 11,053 6,316 11,454
Prepaid expenses and other current assets 5,778 1,920 4,069
-------- -------- --------
Total current assets 87,620 76,271 90,747
Property, plant and equipment, at cost (less accumulated depreciation
and amortization of $237,402, $222,559 and $218,890, respectively) 518,986 507,300 497,269
Regulatory income tax asset 43,953 42,908 38,918
Other assets 20,587 23,420 21,252
-------- -------- --------
Total assets $671,146 $649,899 $648,186
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 17,143 $ 25,543 $ 25,543
Bank loans 43,200 50,500 10,000
Accounts payable 31,032 39,517 32,254
Other current liabilities 60,038 41,369 58,781
-------- -------- --------
Total current liabilities 151,413 156,929 126,578
Long-term debt 161,126 151,111 158,248
Deferred income taxes 98,643 95,452 90,205
Other noncurrent liabilities 20,583 21,779 24,073
Commitments and contingencies
Redeemable preferred stock 35,187 35,187 35,187
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 75,883 61,130 85,584
-------- -------- --------
Total common stockholder's equity 204,194 189,441 213,895
-------- -------- --------
Total liabilities and stockholders' equity $671,146 $649,899 $648,186
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<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,
----------------------- ------------------------ ------------------------
1997 1996(a) 1997 1996(a) 1997 1996(a)
-------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 88,208 $ 88,860 $ 395,666 $ 392,513 $ 463,649 $ 446,303
-------- --------- --------- --------- --------- ---------
Costs and expenses:
Gas, fuel and purchased power 44,174 45,569 207,797 206,017 241,423 227,190
Operating and administrative expenses 28,995 27,575 88,960 89,748 118,644 116,689
Operating and administrative expenses
- related parties 1,184 1,273 3,830 4,191 3,489 5,660
Depreciation and amortization 5,606 5,511 16,878 16,184 22,296 21,092
Miscellaneous income, net (728) (457) (2,141) (1,223) (2,760) (1,976)
-------- --------- --------- --------- --------- ---------
79,231 79,471 315,324 314,917 383,092 368,655
-------- --------- --------- --------- --------- ---------
Operating income 8,977 9,389 80,342 77,596 80,557 77,648
Interest charges 4,187 3,855 12,743 12,170 16,667 16,559
-------- --------- --------- --------- --------- ---------
Income before income taxes 4,790 5,534 67,599 65,426 63,890 61,089
Income taxes 1,820 1,832 25,681 24,639 24,411 18,662
-------- --------- --------- --------- --------- ---------
Net income 2,970 3,702 41,918 40,787 39,479 42,427
Dividends on preferred stock 691 692 2,073 2,074 2,764 2,765
-------- --------- --------- --------- --------- ---------
Net income after dividends
on preferred stock $ 2,279 $ 3,010 $ 39,845 $ 38,713 $ 36,715 $ 39,662
======== ========= ========= ========= ========= =========
</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.
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,
---------------------- ----------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 41,918 $ 40,787 $ 39,479 $ 42,427
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 16,878 16,184 22,296 21,092
Deferred income taxes, net (3,688) 2,249 1,544 3,673
Other, net 1,776 4,665 1,340 5,122
-------- -------- -------- --------
56,884 63,885 64,659 72,314
Net change in:
Accounts receivable and accrued utility revenues (15,676) (29,285) 4,165 (29,263)
Inventories 11,698 5,482 (392) (846)
Deferred fuel adjustments 12,996 464 1,801 (9,810)
Pipeline transition and producer settlement
recoveries (costs), net (1,652) 1,131 (1,709) (714)
Accounts payable (8,485) (1,369) (1,222) 11,728
Other current assets and liabilities 6,511 11,767 (72) 7,745
-------- -------- -------- --------
Net cash provided by operating activities 62,276 52,075 67,230 51,154
-------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant and equipment (28,251) (24,983) (42,927) (41,924)
Net costs of property, plant and equipment disposals (493) (784) (898) (1,257)
Other, net 500 725 515 725
-------- -------- -------- --------
Net cash used by investing activities (28,244) (25,042) (43,310) (42,456)
-------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of dividends (26,133) (13,634) (48,148) (14,325)
Issuance of long-term debt 20,000 20,000 20,000 68,000
Repayment of long-term debt (18,400) (47,685) (25,543) (54,833)
Bank loans increase (decrease) (7,300) (32,000) 33,200 (25,500)
Redemption of Series Preferred Stock -- (15) -- (15)
-------- -------- -------- --------
Net cash used by financing activities (31,833) (73,334) (20,491) (26,673)
-------- -------- -------- --------
Cash and cash equivalents increase (decrease) $ 2,199 $(46,301) $ 3,429 $(17,975)
======== ======== ======== ========
CASH AND CASH EQUIVALENTS:
End of period $ 5,299 $ 1,870 $ 5,299 $ 1,870
Beginning of period 3,100 48,171 1,870 19,845
-------- -------- -------- --------
Increase (decrease) $ 2,199 $(46,301) $ 3,429 $(17,975)
======== ======== ======== ========
</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. 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,
1996. Due to the seasonal nature of the Company's businesses, the
results of operations for interim periods are not necessarily
indicative of the results to be expected for a full year.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the
date of the financial statements, and revenues and expenses during the
reporting period. Actual results could differ from these estimates.
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<PAGE> 7
UGI UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Thousands of dollars)
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
June 30, June 30,
------------------------ ------------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES
Gas utility $ 71,638 $ 72,724 $ 340,733 $ 340,046
Electric utility 16,570 16,136 54,933 52,467
--------- --------- --------- ---------
Total $ 88,208 $ 88,860 $ 395,666 $ 392,513
========= ========= ========= =========
OPERATING INCOME (LOSS)
Gas utility $ 7,951 $ 9,098 $ 75,466 $ 75,259
Electric utility 2,186 1,544 8,511 6,455
Other 24 20 195 73
Corporate general (1,184) (1,273) (3,830) (4,191)
--------- --------- --------- ---------
Total $ 8,977 $ 9,389 $ 80,342 $ 77,596
========= ========= ========= =========
DEPRECIATION AND AMORTIZATION
Gas utility $ 4,597 $ 4,505 $ 13,827 $ 13,161
Electric utility 1,009 1,006 3,051 3,021
Corporate general and other -- -- -- 2
--------- --------- --------- ---------
Total $ 5,606 $ 5,511 $ 16,878 $ 16,184
========= ========= ========= =========
IDENTIFIABLE ASSETS
(at period end)
Gas utility $ 582,387 $ 560,223 $ 582,387 $ 560,223
Electric utility 85,614 83,932 85,614 83,932
Corporate general and other 3,145 4,031 3,145 4,031
--------- --------- --------- ---------
Total $ 671,146 $ 648,186 $ 671,146 $ 648,186
========= ========= ========= =========
OPERATING STATISTICS
Natural gas system throughput -
billions of cubic feet 15.9 16.9 68.4 72.3
Electric sales - millions of kilowatt hours 195.0 198.2 667.3 683.8
</TABLE>
<TABLE>
<CAPTION>
Twelve Months Ended
June 30,
------------------------
1997 1996
--------- ---------
<S> <C> <C>
REVENUES
Gas utility $ 391,681 $ 377,194
Electric utility 71,968 69,109
--------- ---------
Total $ 463,649 $ 446,303
========= =========
OPERATING INCOME (LOSS)
Gas utility $ 73,144 $ 74,552
Electric utility 10,678 8,350
Other 224 406
Corporate general (3,489) (5,660)
--------- ---------
Total $ 80,557 $ 77,648
========= =========
DEPRECIATION AND AMORTIZATION
Gas utility $ 18,242 $ 17,178
Electric utility 4,054 3,911
Corporate general and other -- 3
--------- ---------
Total $ 22,296 $ 21,092
========= =========
IDENTIFIABLE ASSETS
(at period end)
Gas utility $ 582,387 $ 560,223
Electric utility 85,614 83,932
Corporate general and other 3,145 4,031
--------- ---------
Total $ 671,146 $ 648,186
========= =========
OPERATING STATISTICS
Natural gas system throughput -
billions of cubic feet 81.4 86.5
Electric sales - millions of kilowatt hours 868.2 892.9
</TABLE>
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<PAGE> 8
UGI UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Thousands of dollars)
3. ELECTRICITY GENERATION CUSTOMER CHOICE AND COMPETITION ACT
On January 1, 1997, the Electricity Generation Customer Choice and
Competition Act (Customer Choice Act) became effective. The Customer
Choice Act permits all Pennsylvania retail electric customers to choose
their electric generation supplier over a three-year phase-in period
commencing January 1, 1999. The Customer Choice Act requires all
electric utilities to file restructuring plans with the Pennsylvania
Public Utility Commission (PUC) which, among other things, include
unbundled prices for electric generation, transmission and distribution
and a competitive transition charge (CTC) for the recovery of "stranded
costs" which would be paid by all customers receiving transmission and
distribution service. "Stranded costs" generally are electric
generation-related costs that traditionally would be recoverable in a
regulated environment but may not be recoverable in a competitive
electric generation market. Under the Customer Choice Act, Electric
Utility's rates for transmission and distribution services provided
through June 30, 2001 are capped at levels in effect on January 1,
1997. In addition, Electric Utility generally may not increase the
generation component of prices as long as stranded costs are being
recovered through the CTC. 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.
On August 7, 1997, Electric Utility filed its restructuring plan with
the PUC. The restructuring plan includes a claim for the recovery of
$34.4 million for stranded costs during the period January 1, 1999
through December 31, 2002. The claim is primarily for the recovery of:
(1) plant investments in excess of market and electric generation
facility retirement costs; (2) potential costs associated with existing
power purchase agreements; and (3) regulatory assets (principally
income taxes) recoverable from ratepayers under current regulatory
practice. The PUC has nine months to take action on Electric Utility's
filing.
Given the changing regulatory environment in the electric utility
industry, the Company continues to evaluate its ability to apply the
provisions of SFAS No. 71 "Accounting for the Effects of Certain Types
of Regulation" (SFAS 71) as it relates to its electric generation
operations. SFAS 71 permits the recording of costs (regulatory assets)
that have been, or are expected to be, allowed in the ratesetting
process in a period different from the period in which such costs would
be charged to expense by an unregulated enterprise. The Company
believes its electric generation assets and related regulatory assets
continue to satisfy the criteria of SFAS 71. If and when such electric
generation assets no longer meet the criteria of SFAS 71, any related
regulatory assets would be written-off unless the PUC authorizes the
recovery of such costs through the CTC and any generation-related
long-lived fixed and intangible assets would be evaluated for
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<PAGE> 9
UGI UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Thousands of dollars)
impairment under the provisions of SFAS 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of."
Based upon an evaluation of the various factors and conditions
affecting future cost recovery , the Company does not expect the
Customer Choice Act to have a material adverse effect on its financial
condition or results of operations.
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. 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
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<PAGE> 10
UGI UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Thousands of dollars)
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 can be reasonably estimated. 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 August 31, 1995 Gas Utility base rate
settlement, Gas Utility is permitted to amortize as removal costs
site-specific environmental investigation and remediation costs, net of
related third-party payments, associated with Pennsylvania sites. Gas
Utility will be permitted to include in rates through future base rate
proceedings, a five-year average of such prudently incurred removal
costs.
In addition to these environmental matters, there are various other
pending claims and legal actions arising out of the normal conduct of
the Company's businesses. The final results of environmental and other
matters cannot be predicted with certainty. However, it is reasonably
possible that some of them could be resolved unfavorably to the
Company. Management believes, after consultation with counsel, that
damages or settlements, if any, recovered by the plaintiffs in such
claims or actions will not have a material adverse effect on the
Company's financial position but could be material to operating results
or cash flows in future periods depending on the nature and timing of
future developments with respect to these matters and the amounts of
future operating results and cash flows.
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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.
THREE MONTHS ENDED JUNE 30, 1997 (1997 THREE-MONTH PERIOD) COMPARED WITH THREE
MONTHS ENDED JUNE 30, 1996 (1996 THREE-MONTH PERIOD)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Increase
Three Months Ended June 30, 1997 1996 (Decrease)
- ---------------------------------------------------------------------------------------
(Millions of dollars)
<S> <C> <C> <C> <C>
GAS UTILITY:
Natural gas system throughput - bcf 15.9 16.9 (1.0) (5.9)%
Degree days - % colder than normal 15.9 2.4 - -
Revenues $ 71.6 $ 72.7 $ (1.1) (1.5)%
Total margin (a) $ 32.3 $ 32.3 $ - - %
Operating income $ 8.0 $ 9.1 $ (1.1) (12.1)%
ELECTRIC UTILITY:
Electric sales - gwh 195.0 198.2 (3.2) (1.6)%
Degree days - % colder than normal 27.8 11.8 - -
Revenues $ 16.6 $ 16.1 $ .5 3.1 %
Total margin (a) $ 8.4 $ 7.7 $ .7 9.1 %
Operating income $ 2.2 $ 1.5 $ .7 46.7 %
CORPORATE GENERAL:
Corporate general expenses $ (1.2) $ (1.3) $ (.1) (7.7)%
- ---------------------------------------------------------------------------------------
</TABLE>
bcf - billions of cubic feet. gwh - millions of kilowatt hours.
(a) Gas and Electric utilities' total margin represents total revenues less
cost of sales and revenue-related taxes.
GAS UTILITY. Weather in the Gas Utility service area during the three months
ended June 30, 1997 was 15.9% colder than normal compared with weather that was
2.4% colder than normal in the prior-year period. Although the weather was
colder in the 1997 three-month period, the
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<PAGE> 12
UGI UTILITIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
correlation of weather and volumes on sales to firm-residential, firm-commercial
and firm-industrial (collectively, "core market") customers is significantly
lower in the third fiscal quarter than in the first and second fiscal quarters.
Total system throughput decreased 5.9% during the 1997 three-month period
principally reflecting a decrease in certain low-margin interruptible delivery
service volumes resulting from the shut-down of a gas-fired cogeneration
facility earlier in the year.
The decrease in Gas Utility's total revenues during the 1997 three-month period
includes a $2.5 million decrease from slightly lower throughput to core market
customers and a $2.0 million decrease in revenues from sales to customers
outside Gas Utility's distribution system (off-system sales). These decreases
were partially offset by a $3.0 million increase from the effects of higher
purchased gas cost (PGC) rates. Cost of gas sold by the Gas Utility was $36.7
million during the 1997 three-month period, a decrease of $1.1 million from the
prior-year period, reflecting lower costs associated with the lower volumes sold
to core market customers and the decrease in off-system sales partially offset
by the effects of higher PGC rates.
Despite the decrease in total throughput, Gas Utility total margin was
essentially unchanged from the prior-year period. Total margin for the three
months ended June 30, 1997 reflects a $.5 million decrease in margin from core
market customers reflecting the effects of lower volumes sold. However, the
decrease in total margin from core market customers was offset by higher total
margin from firm and interruptible delivery service customers.
Gas Utility operating income during the 1997 three-month period decreased $1.1
million principally reflecting an increase in operating expenses. Operating and
administrative expenses during the 1997 three-month period increased $1.3
million primarily from costs associated with environmental matters, distribution
system maintenance, advertising and marketing programs partially offset by lower
accruals for uncollectible accounts.
ELECTRIC UTILITY. Electric Utility sales decreased slightly during the 1997
three-month period principally reflecting a decrease in air conditioning related
sales. Notwithstanding the decline in sales, Electric Utility revenues increased
$.5 million reflecting the effects of an increase in base rates effective July
19, 1996 partially offset by the decrease in sales. Cost of sales decreased $.3
million in the 1997 three-month period reflecting the effects of the lower
sales.
Electric Utility total margin and operating income increased during the 1997
three-month period as a result of the higher base rates. Electric Utility
operating and administrative expenses in the 1997 three-month period were
virtually unchanged from the prior-year period. Pursuant to the provisions of
the Customer Choice Act, Electric Utility's rates have been capped at levels
existing as of January 1, 1997 (see "Electricity Generation Customer Choice and
Competition Act").
CORPORATE GENERAL. Corporate general expenses, which represent an allocated
share of UGI corporate headquarters' expenses, were $1.2 million in the 1997
three-month period compared
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<PAGE> 13
UGI UTILITIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
with $1.3 million in the 1996 three-month period. The decrease reflects lower
levels of UGI corporate headquarters' expenses.
INTEREST EXPENSE AND INCOME TAXES. Interest expense during the 1997 three-month
period was $4.2 million compared with interest expense of $3.9 million in the
prior-year period. The increase in interest expense reflects higher average bank
loans outstanding partially offset by lower average long-term debt outstanding
at lower average interest rates. The effective income tax rate for the 1997
three-month period was 38.0% compared with a rate of 33.1% in the three months
ended June 30, 1996. 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.
NINE MONTHS ENDED JUNE 30, 1997 (1997 NINE-MONTH PERIOD) COMPARED WITH NINE
MONTHS ENDED JUNE 30, 1996 (1996 NINE-MONTH PERIOD)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Increase
Nine Months Ended June 30, 1997 1996 (Decrease)
- --------------------------------------------------------------------------------------------------------
(Millions of dollars)
<S> <C> <C> <C> <C>
GAS UTILITY:
Natural gas system throughput - bcf 68.4 72.3 (3.9) (5.4)%
Degree days - % colder (warmer)
than normal (4.7) 4.7 - -
Revenues $ 340.7 $ 340.0 $ .7 .2 %
Total margin (a) $ 145.2 $ 146.0 $ (.8) (.5)%
Operating income $ 75.5 $ 75.3 $ .2 .3 %
ELECTRIC UTILITY:
Electric sales - gwh 667.3 683.8 (16.5) (2.4)%
Degree days - % colder than normal 2.4 8.3 - -
Revenues $ 54.9 $ 52.5 $ 2.4 4.6 %
Total margin (a) $ 26.6 $ 24.6 $ 2.0 8.1 %
Operating income $ 8.5 $ 6.5 $ 2.0 30.8 %
CORPORATE GENERAL AND OTHER:
Corporate general expenses $ (3.8) $ (4.2) $ (.4) (9.5)%
Other operating income $ .2 $ .1 $ .1 100.0 %
- --------------------------------------------------------------------------------------------------------
</TABLE>
bcf - billions of cubic feet. gwh - millions of kilowatt hours.
(a) Gas and Electric utilities' total margin represents total revenues less
cost of sales and revenue-related taxes.
- 11 -
<PAGE> 14
UGI UTILITIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
GAS UTILITY. Weather in Gas Utility's service territory in the 1997 nine-month
period was 4.7% warmer than normal and 9.3% warmer than the 1996 nine-month
period. Total system throughput decreased 5.4% during the 1997 nine-month period
principally reflecting the warmer weather's effect on core market sales as well
as a decrease in low-margin interruptible delivery service volumes associated
with the shut-down of a gas-fired cogeneration facility.
Gas Utility revenues were virtually unchanged in the 1997 nine-month period as a
$23.1 million increase in revenues from higher average PGC rates was offset
principally by a $19.6 million decrease in revenues from lower sales to core
market customers and lower off-system sales. Notwithstanding the lower core
market and off-system sales, cost of gas sold by Gas Utility increased $1.4
million to $181.9 million reflecting higher average PGC rates.
The decrease in Gas Utility total margin principally reflects a $5.9 million
decrease in total margin from core market customers resulting from the warmer
weather partially offset by an increase in total margin from interruptible
customers.
Although total margin was slightly lower in the 1997 nine-month period, Gas
Utility operating income increased $.2 million principally as a result of lower
operating and administrative expenses. Operating and administrative expenses
during the 1997 nine-month period decreased $.9 million principally as a result
of a decrease in distribution system expenses, lower accruals for uncollectible
accounts, and lower general and administrative expenses partially offset by
higher costs associated with environmental matters.
ELECTRIC UTILITY. Electric Utility sales decreased during the 1997 nine-month
period reflecting weather which was 5.5% warmer than in the prior-year period.
Electric Utility revenues increased $2.4 million, notwithstanding the lower
sales, reflecting a $1.5 million increase in base rate revenues resulting from
the July 19, 1996 base rate increase and a $.9 million increase in energy cost
rate (ECR) revenues reflecting a higher average ECR. Cost of sales increased to
$25.9 million in the 1997 nine-month period from $25.5 million in the prior-year
period as a result of the higher average ECR partially offset by the lower
sales.
Electric Utility total margin and operating income increased during the nine
months ended June 30, 1997 principally as a result of the higher base rates.
Electric Utility operating and administrative expenses in the 1997 nine-month
period were essentially unchanged from the prior-year period.
CORPORATE GENERAL AND OTHER. Corporate general expenses were $3.8 million in the
1997 nine-month period compared with $4.2 million in the 1996 nine-month period.
The decrease is a result of lower levels of UGI corporate headquarters'
expenses.
INTEREST EXPENSE AND INCOME TAXES. Interest expense was $12.7 million during the
1997 nine-month period compared with $12.2 million in the 1996 nine-month
period. The increase in
- 12 -
<PAGE> 15
UGI UTILITIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
interest expense reflects higher average bank loans outstanding partially offset
by lower average long-term debt outstanding. The effective income tax rate for
the 1997 nine-month period was 38.0% compared with 37.7% for the nine months
ended June 30, 1996.
TWELVE MONTHS ENDED JUNE 30, 1997 (1997 TWELVE-MONTH PERIOD) COMPARED WITH
TWELVE MONTHS ENDED JUNE 30, 1996 (1996 TWELVE-MONTH PERIOD)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Increase
Twelve Months Ended June 30, 1997 1996 (Decrease)
- -------------------------------------------------------------------------------------------------------
(Millions of dollars)
<S> <C> <C> <C> <C>
GAS UTILITY:
Natural gas system throughput - bcf 81.4 86.5 (5.1) (5.9)%
Degree days - % colder (warmer)
than normal (4.9) 4.4 - -
Revenues $ 391.7 $ 377.2 $ 14.5 3.8 %
Total margin (a) $ 168.8 $ 168.4 $ .4 .2 %
Operating income $ 73.1 $ 74.6 $ (1.5) (2.0)%
ELECTRIC UTILITY:
Electric sales - gwh 868.2 892.9 (24.7) (2.8)%
Degree days - % colder than normal 2.4 7.8 - -
Revenues $ 72.0 $ 69.1 $ 2.9 4.2 %
Total margin (a) $ 35.0 $ 32.9 $ 2.1 6.4 %
Operating income $ 10.7 $ 8.4 $ 2.3 27.4 %
CORPORATE GENERAL AND OTHER:
Corporate general expenses $ (3.5) $ (5.7) $ (2.2) (38.6)%
Other operating income $ .2 $ .4 $ (.2) (50.0)%
- -------------------------------------------------------------------------------------------------------
</TABLE>
bcf - billions of cubic feet. gwh - millions of kilowatt hours.
(a) Gas and Electric utilities' total margin represents total revenues less
cost of sales and revenue-related taxes.
GAS UTILITY. Weather in Gas Utility's service territory in the 1997 twelve-month
period was warmer than in the 1996 twelve-month period. Total system throughput
declined principally as a result of the effects of the warmer weather as well as
a decrease in low-margin interruptible delivery service volumes associated with
the shut-down of a cogeneration facility.
The increase in Gas Utility total revenues includes a $25.5 million increase
from higher average PGC rates, a $3.7 million increase from off-system sales,
and the full-year effect of Gas Utility's
- 13 -
<PAGE> 16
UGI UTILITIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
$19.5 million annual base rate increase which became effective August 31, 1995.
These increases were partially offset by a $19.7 million decrease from lower
sales to core market customers. Cost of gas sold was $207.6 million during the
1997 twelve-month period, an increase of $13.7 million from the same period in
1996, reflecting principally the effects of higher average PGC rates and greater
off-system sales partially offset by the lower sales to core-market customers.
The slight increase in Gas Utility total margin in the twelve months ended June
30, 1997 principally reflects a $4.0 million increase in total margin from
interruptible customers. The increase in total margin from interruptible
customers was partially offset by a $3.6 million decrease in total margin from
core market customers resulting from the warmer 1996/1997 heating-season
weather.
Although Gas Utility operating income during the 1997 twelve-month period
benefitted from the slight increase in total margin, the benefit was more than
offset by an increase in operating expenses including an increase in costs
associated with environmental matters, higher distribution system expenses, and
higher depreciation expense.
ELECTRIC UTILITY. Electric Utility sales were lower during the twelve months
ended June 30, 1997 than in the prior-year period principally as a result of
warmer heating-season weather. The increase in Electric Utility revenues
includes a $1.5 million increase in base rate revenues as a result of higher
base rates subsequent to July 19, 1996 partially offset by the effects of the
lower sales. In addition, ECR revenues increased $1.3 million as a result of a
higher average ECR. Electric Utility cost of sales was $33.8 million, an
increase of $.6 million from the prior-year period. The increase in cost of
sales principally reflects a higher average ECR partially offset by the lower
sales.
Electric Utility total margin during the 1997 twelve-month period increased
principally as a result of the higher base rates effective July 19, 1996.
Operating income benefitted principally from the increase in total margin and
slightly lower general and administrative expenses.
CORPORATE GENERAL AND OTHER. Corporate general expenses were $3.5 million in the
1997 twelve-month period compared with $5.7 million in the 1996 twelve-month
period. The decrease represents lower levels of UGI corporate headquarters'
expenses resulting in part from adjustments to incentive compensation accruals
in September 1996.
INTEREST EXPENSE AND INCOME TAXES. Interest expense was $16.7 million in the
1997 twelve-month period compared with $16.6 million in the 1996 twelve-month
period. The increase in interest expense during the 1997 twelve-month period is
principally due to higher levels of bank loans outstanding at slightly lower
average interest rates partially offset by lower levels of long-term debt
outstanding. The effective income tax rate for the 1997 twelve-month period was
38.2% compared with a rate of 30.5% in the prior-year period. The lower income
tax rate in the
- 14 -
<PAGE> 17
UGI UTILITIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
1996 twelve-month period reflects the benefit of a $4.3 million adjustment to
deferred state income taxes recorded in September 1995.
FINANCIAL CONDITION AND LIQUIDITY
CAPITAL STRUCTURE
The Company's consolidated debt-to-total-capitalization ratio was 48.1% at June
30, 1997 compared with a ratio of 50.3% at September 30, 1996. The lower ratio
principally reflects a $7.3 million decrease in bank loans and an increase in
common stockholder's equity.
CASH FLOWS
Cash and cash equivalents totaled $5.3 million at June 30, 1997 compared with
$3.1 million at September 30, 1996. 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 and
are typically at their lowest levels during the first and fourth fiscal
quarters. Accordingly, cash flows from operations during the nine months ended
June 30, 1997 are not necessarily indicative of cash flows to be expected for a
full year.
OPERATING ACTIVITIES. Cash provided by operating activities was $62.3 million
during the nine months ended June 30, 1997 compared with $52.1 million in the
comparable prior-year period. Cash flow from operations before changes in
operating working capital totaled $56.9 million during the nine months ended
June 30, 1997 compared with $63.9 million in the prior-year period reflecting in
large part the effects of higher noncash deferred tax benefits in the 1997
nine-month period. Changes in operating working capital during the nine months
ended June 30, 1997 generated $5.4 million of operating cash flow principally
from $13.0 million in purchased gas and power cost overcollections, $11.7
million from a decrease in inventories and $6.5 million from changes in other
current assets and liabilities. These decreases were partially offset by a $15.7
million increase in accounts receivable and an $8.5 million decrease in accounts
payable. In the nine months ended June 30, 1996, changes in operating working
capital required $11.8 million of operating cash flow.
INVESTING ACTIVITIES. Cash expenditures for property, plant and equipment
totaled $28.3 million in the nine months ended June 30, 1997 compared with $25.0
million in the same period in 1996. The increase reflects greater Gas Utility
capital expenditures.
FINANCING ACTIVITIES. Cash flows from financing activities for the nine months
ended June 30, 1997 and 1996 include dividends to preferred stockholders of $2.1
million. Dividends during the nine months ended June 30, 1997 and 1996 also
include $24.1 million and $11.6 million, respectively, of dividend payments to
UGI.
- 15 -
<PAGE> 18
UGI UTILITIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Net repayments under UGI Utilities' revolving credit agreements totaled $7.3
million in the 1997 nine-month period compared with $32.0 million in repayments
in the prior-year period. During both the 1997 and 1996 nine-month periods, the
Company issued $20 million of notes under its Medium-Term Note program. During
the nine months ended June 30, 1997, UGI Utilities repaid $8.4 million of its
7.85% Series First Mortgage Bonds and $10.0 million of its 8.70% Notes. During
the prior-year period, UGI Utilities redeemed $45.9 million face value of its 9%
First Mortgage Bonds principally from existing cash balances.
ELECTRICITY GENERATION CUSTOMER CHOICE AND COMPETITION ACT
On January 1, 1997, the Electricity Generation Customer Choice and Competition
Act (Customer Choice Act) became effective. The Customer Choice Act permits all
Pennsylvania retail electric customers to choose their electric generation
supplier over a three-year phase-in period commencing January 1, 1999. The
Customer Choice Act requires all electric utilities to file restructuring plans
with the PUC which, among other things, include unbundled prices for electric
generation, transmission and distribution and a competitive transition charge
(CTC) for the recovery of "stranded costs" which would be paid by all customers
receiving transmission and distribution service. "Stranded costs" generally are
electric generation-related costs that traditionally would be recoverable in a
regulated environment but may not be recoverable in a competitive electric
generation market. Under the Customer Choice Act, Electric Utility's rates for
transmission and distribution services provided through June 30, 2001 are capped
at levels in effect on January 1, 1997. In addition, Electric Utility generally
may not increase the generation component of prices as long as stranded costs
are being recovered through the CTC. 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.
On August 7, 1997, Electric Utility filed its restructuring plan with the PUC.
The restructuring plan includes a claim for the recovery of $34.4 million for
stranded costs during the period January 1, 1999 through December 31, 2002. The
claim is primarily for the recovery of: (1) plant investments in excess of
market and electric generation facility retirement costs; (2) potential costs
associated with existing power purchase agreements; and (3) regulatory assets
(principally income taxes) recoverable from ratepayers under current regulatory
practice. The PUC has nine months to take action on Electric Utility's filing.
Given the changing regulatory environment in the electric utility industry, the
Company continues to evaluate its ability to apply the provisions of SFAS No. 71
"Accounting for the Effects of Certain Types of Regulation" (SFAS 71) as it
relates to its electric generation operations. SFAS 71 permits the recording of
costs (regulatory assets) that have been, or are expected to be, allowed in the
ratesetting process in a period different from the period in which such costs
would be charged to expense by an unregulated enterprise. The Company believes
its electric generation assets and related regulatory assets continue to satisfy
the criteria of SFAS 71. If and when such electric generation assets no longer
meet the criteria of SFAS 71, any related
- 16 -
<PAGE> 19
UGI UTILITIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
regulatory assets would be written-off unless the PUC authorizes the recovery of
such costs through the CTC and any generation-related long-lived fixed and
intangible assets would be evaluated for impairment under the provisions of SFAS
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of."
Based upon an evaluation of the various factors and conditions affecting future
cost recovery , the Company does not expect the Customer Choice Act to have a
material adverse effect on its financial condition or results of operations.
On March 27, 1997, proposed customer choice legislation was introduced in the
Pennsylvania General Assembly that would, among other things, extend the
availability of gas transportation service to residential and small commercial
customers of local gas distribution companies. It would permit all customers of
natural gas distribution utilities to transport their natural gas supplies
through the distribution systems of Pennsylvania gas utilities by April 1, 1999
and would also require Pennsylvania gas utilities to exit the merchant function
of selling natural gas. The Company will continue to monitor developments with
regard to the proposed legislation.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
FOSTER WHEELER PENN RESOURCES, INC. V. UGI UTILITIES, INC. CIVIL ACTION NO.
97CV4592
The Company has been informed that on July 14, 1997, Foster Wheeler
Penn Resources, Inc. filed suit against UGI Utilities, Inc. in United States
District Court for the Eastern District of Pennsylvania alleging, among other
things, that UGI Utilities breached an Agreement for the Sale and Purchase of
Net Electrical Energy under which UGI Utilities had agreed to purchase
electricity from a generating facility yet to be built by Foster Wheeler. In its
suit Foster Wheeler seeks, among other things, a declaration that the Sale and
Purchase Agreement remains in effect or in the alternative that Foster Wheeler
be awarded damages in excess of $20 million. Management believes that it has
defenses to Foster Wheeler's claims and will file an appropriate response.
- 17 -
<PAGE> 20
UGI UTILITIES, INC. AND SUBSIDIARIES
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits:
10 Amendment No. 1 to UGI Corporation 1992 Non-Qualified
Stock Option 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
27 Financial Data Schedule
(b) The Company did not file any Current Reports on Form 8-K
during the fiscal quarter ended June 30, 1997.
- 18 -
<PAGE> 21
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, 1997 By: J. C. Barney
- ---------------------- ------------------------------
J. C. Barney, Vice President -
Finance and Accounting
(Principal Financial Officer)
- 19 -
<PAGE> 22
UGI UTILITIES, INC. AND SUBSIDIARIES
EXHIBIT INDEX
10 Amendment No. 1 to UGI Corporation 1992 Non-Qualified Stock Option 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
27 Financial Data Schedule
<PAGE> 1
UGI CORPORATION
AMENDMENT NO. 1 TO
1992 NON-QUALIFIED STOCK OPTION PLAN
This Amendment No. 1 dated as of December 10, 1996 amends that certain
UGI Corporation 1992 Non-Qualified Stock Option Plan ("the Plan").
BACKGROUND
The Board of Directors of UGI Corporation approved a 1997 Stock Option
and Dividend Equivalent Plan (the "1997 SODEP") and also approved certain
amendments to the Plan to make its vesting provisions and its definition of
"Fair Market Value" conform to the corresponding provisions of the 1997 SODEP.
The purpose of this Amendment is to make those changes in the Plan.
NOW THEREFORE, the Plan is amended as follows:
Section 1. Amendment and Restatement. Sections 2(e), 7.3 and 7.4 of the
Plan are hereby amended and restated in their entirety as follows:
2(e) "Fair Market Value" of Stock means the average, rounded to the
next highest one-eighth of a point (.125), of the highest and lowest sales
prices thereof on the New York Stock Exchange on the day on which Fair Market
Value is being determined, as reported on the Composite Tape for transactions on
the New York Stock Exchange; provided, however, in the case of a cashless
exercise pursuant to Section 7.4, the Fair Market Value shall be the actual sale
price of the shares issued upon exercise of the Option. In the event that there
are no Stock transactions on the New York Stock Exchange on such day, the Fair
Market Value will be determined as of the immediately preceding day on which
there were Stock transactions on that exchange.
7.3 Exercise and Vesting.
(a) Except as otherwise specified by the Committee, an Option
shall be fully and immediately exercisable on the date of grant. Notwithstanding
the foregoing, in the event that any such Options are not by their terms
immediately exercisable, the Committee may accelerate the exercisability of any
or all outstanding Options at any time for any reason. No Option shall be
exercisable on or after the tenth anniversary of the date of grant.
(b) If a Participant holding an Option ceases to be an
Employee, the Option held by such Participant shall be exercisable only with
respect to that number of shares of
-1-
<PAGE> 2
Stock with respect to which it is already exercisable on the date such
Participant ceases to be an Employee. However, if a Participant holding an
Option ceases to be an Employee by reason of a retirement under the Company's or
a Subsidiary's retirement plan, the Option held by any such participant shall
thereafter become exercisable with respect to that additional number of shares
of Stock with respect to which it becomes exercisable on any anniversary of the
date on which the Participant was granted the Option which occurs within
thirteen (13) months after the date of such retirement and such Option shall be
exercisable during such thirteen-month period. Notwithstanding the foregoing,
the Committee shall have the power, in the event of any merger or consolidation
of any other corporation with or into the Company, or the sale of all or
substantially all of the assets of the Company or an offer to purchase made by a
party other than the Company to all shareholders of the Company for all or any
substantial portion of the outstanding Stock, to amend any or all outstanding
Options to permit the exercise of all such Options prior to the effectiveness of
any such merger, consolidation or sale or the expiration of any such offer to
purchase, and to terminate such Options as of such effectiveness or expiration.
Notwithstanding anything contained in this Section 7.3 with respect to the
number of shares with respect to which an Option is or is to become exercisable,
no Option, to the extent that it has not previously been exercised, shall be
exercisable after it has terminated, including without limitation, after any
termination of such Option pursuant to Section 10 hereof.
7.4 Payment of Option Price. The Option Price upon exercise of any
Option shall be payable to the Company in full (i) in cash or its equivalent,
(ii) by tendering shares of previously acquired Stock already beneficially owned
by the Participant for more than one year and having a Fair Market Value at the
time of exercise equal to the total Option Price, (iii) by payment through a
broker in accordance with procedures permitted by Regulation T of the Federal
Reserve Board, or (iv) by a combination of (i) (ii) and/or (iii). The cash
proceeds from such payment will be added to the general funds of the Company and
shall be used for its general corporate purposes. Any shares of previously
acquired Stock tendered to the Company in payment of the Option Price will be
added by the Company to its treasury stock to be used for its general corporate
purposes.
Section 2. Effect of Amendment. All other terms and conditions of the
Plan shall remain unaffected by this Amendment No. 1 and are ratified and
confirmed.
Section 3. Definitions. Capitalized terms used in this Amendment No. 1,
but not defined shall have the meanings ascribed to those terms in the Plan.
-2-
<PAGE> 3
IN WITNESS WHEREOF, and as evidence of the adoption of this Amendment,
an appropriate officer of the Company has caused this Amendment to be executed
as of December 10, 1996.
Attest: UGI CORPORATION
By: /s/ Barton D. Whitman By /s/ Brendan P. Bovaird
------------------------- -------------------------------
Secretary Name: Brendan P. Bovaird
Title: Vice President and
General Counsel
-3-
<PAGE> 1
UGI UTILITIES INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES - EXHIBIT 12.1
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Nine Nine
Months Months Year
Ended Year Ended September 30, Ended Ended
June 30, ------------------------------------- September 30, December 31,
1997 1996 1995 1994 1993 1992
-------- ------- ------- ------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
EARNINGS:
Earnings before income taxes $67,599 $61,717 $39,759 $41,244 $28,009 $43,054
Interest expense 12,614 15,921 16,632 16,482 12,664 21,913
Amortization of debt discount and expense 129 173 206 187 147 250
Interest component of rental expense 1,449 1,838 1,604 1,344 953 1,256
------- ------- ------- ------- ------- -------
$81,791 $79,649 $58,201 $59,257 $41,773 $66,473
======= ======= ======= ======= ======= =======
FIXED CHARGES:
Interest expense $12,614 $15,921 $16,632 $16,482 $12,664 $21,913
Amortization of debt discount and expense 129 173 206 187 147 250
Allowance for funds used during
construction (capitalized interest) 63 107 65 136 87 57
Interest component of rental expense 1,449 1,838 1,604 1,344 953 1,256
------- ------- ------- ------- ------- -------
$14,255 $18,039 $18,507 $18,149 $13,851 $23,476
======= ======= ======= ======= ======= =======
Ratio of earnings to fixed charges 5.74 4.42 3.14 3.27 3.02 2.83
======= ======= ======= ======= ======= =======
</TABLE>
<PAGE> 1
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 Nine
Months Months Year
Ended Year Ended September 30, Ended Ended
June 30, ----------------------------------- September 30, December 31,
1997 1996 1995 1994 1993 1992
-------- ------- ------- ------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
EARNINGS:
Earnings before income taxes $67,599 $61,717 $39,759 $41,244 $28,009 $43,054
Interest expense 12,614 15,921 16,632 16,482 12,664 21,913
Amortization of debt discount and expense 129 173 206 187 147 250
Interest component of rental expense 1,449 1,838 1,604 1,344 953 1,256
------- ------- ------- ------- ------- -------
$81,791 $79,649 $58,201 $59,257 $41,773 $66,473
======= ======= ======= ======= ======= =======
COMBINED FIXED CHARGES AND PREFERRED
STOCK DIVIDENDS:
Interest expense $12,614 $15,921 $16,632 $16,482 $12,664 $21,913
Amortization of debt discount and expense 129 173 206 187 147 250
Allowance for funds used during
construction (capitalized interest) 63 107 65 136 87 57
Interest component of rental expense 1,449 1,838 1,604 1,344 953 1,256
Preferred stock dividend requirements 2,073 2,765 2,778 1,356 2,124 2,613
Adjustment required to state preferred stock
dividend requirements on a pretax basis 1,270 1,685 1,164 1,018 1,589 1,846
------- ------- ------- ------- ------- -------
$17,598 $22,489 $22,449 $20,523 $17,564 $27,935
======= ======= ======= ======= ======= =======
Ratio of earnings to combined fixed charges
and preferred stock dividends 4.65 3.54 2.59 2.89 2.38 2.38
======= ======= ======= ======= ======= =======
</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, 1997 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,
1997.
</LEGEND>
<CIK> 0000100548
<NAME> UGI UTILITIES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 5,299
<SECURITIES> 0
<RECEIVABLES> 51,305
<ALLOWANCES> 4,152
<INVENTORY> 18,337
<CURRENT-ASSETS> 87,620
<PP&E> 756,388
<DEPRECIATION> 237,402
<TOTAL-ASSETS> 671,146
<CURRENT-LIABILITIES> 151,413
<BONDS> 161,126
35,187
0
<COMMON> 60,259
<OTHER-SE> 143,935
<TOTAL-LIABILITY-AND-EQUITY> 671,146
<SALES> 395,666
<TOTAL-REVENUES> 395,666
<CGS> 207,797
<TOTAL-COSTS> 207,797
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,743
<INCOME-PRETAX> 67,599
<INCOME-TAX> 25,681
<INCOME-CONTINUING> 41,918
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 41,918
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0<F1>
<FN>
<F1>There are no publicly held shares outstanding.
</FN>
</TABLE>
