<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 March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 1-1398
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 April 30, 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
PAGES
-----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 1997,
September 30, 1996 and March 31, 1996 1
Condensed Consolidated Statements of Income for the
three, six and twelve months ended March 31, 1997 and 1996 2
Condensed Consolidated Statements of Cash Flows for the
six and twelve months ended March 31, 1997 and 1996 3
Notes to Condensed Consolidated Financial Statements 4 - 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8 - 16
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holder 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
-i-
<PAGE> 3
PART I FINANCIAL INFORMATION
UGI UTILITIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(Thousands of dollars)
<TABLE>
<CAPTION>
March 31, September 30, March 31,
1997 1996 1996
--------- ------------- ---------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,614 $ 3,100 $ 3,731
Accounts receivable (less allowances for doubtful accounts
of $4,262, $3,976 and $4,291, respectively) 65,014 26,288 70,169
Accrued utility revenues 18,244 8,612 17,914
Inventories 8,878 30,035 7,445
Deferred income taxes 11,676 6,316 12,631
Prepaid expenses and other current assets 9,781 1,920 6,360
-------- -------- --------
Total current assets 119,207 76,271 118,250
Property, plant and equipment, at cost (less accumulated depreciation
and amortization of $232,628, $222,559 and $214,185, respectively) 514,620 507,300 494,390
Regulatory income tax asset 43,257 42,908 39,325
Other assets 21,596 23,420 21,467
-------- -------- --------
Total assets $698,680 $649,899 $673,432
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 17,143 $ 25,543 $ 25,543
Bank loans 95,000 50,500 25,500
Accounts payable 27,169 39,517 34,811
Other current liabilities 61,701 41,369 69,528
-------- -------- --------
Total current liabilities 201,013 156,929 155,382
Long-term debt 141,121 151,111 158,243
Deferred income taxes 97,638 95,452 89,386
Other noncurrent liabilities 20,774 21,779 24,349
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 74,636 61,130 82,574
-------- -------- --------
Total common stockholder's equity 202,947 189,441 210,885
-------- -------- --------
Total liabilities and stockholders' equity $698,680 $649,899 $673,432
======== ======== ========
</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 Six Months Ended Twelve Months Ended
March 31, March 31, March 31,
------------------------ ------------------------ ------------------------
1997 1996(a) 1997 1996(a) 1997 1996(a)
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 173,304 $ 181,412 $ 307,458 $ 303,653 $ 464,301 $ 423,770
--------- --------- --------- --------- --------- ---------
Costs and expenses:
Gas, fuel and purchased power 94,328 100,569 163,623 160,448 242,818 210,827
Operating and administrative expenses 31,629 33,831 59,965 62,173 117,224 114,118
Operating and administrative expenses
- related parties 1,400 1,418 2,646 2,918 3,578 6,026
Depreciation and amortization 5,708 5,365 11,272 10,673 22,201 20,530
Miscellaneous income, net (783) (266) (1,413) (766) (2,489) (2,418)
--------- --------- --------- --------- --------- ---------
132,282 140,917 236,093 235,446 383,332 349,083
--------- --------- --------- --------- --------- ---------
Operating income 41,022 40,495 71,365 68,207 80,969 74,687
Interest charges 4,314 4,071 8,556 8,315 16,335 16,553
--------- --------- --------- --------- --------- ---------
Income before income taxes 36,708 36,424 62,809 59,892 64,634 58,134
Income taxes 13,945 13,999 23,861 22,807 24,423 17,867
--------- --------- --------- --------- --------- ---------
Net income 22,763 22,425 38,948 37,085 40,211 40,267
Dividends on preferred stock 691 691 1,382 1,382 2,765 2,769
--------- --------- --------- --------- --------- ---------
Net income after dividends
on preferred stock $ 22,072 $ 21,734 $ 37,566 $ 35,703 $ 37,446 $ 37,498
========= ========= ========= ========= ========= =========
</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.
- 2 -
<PAGE> 5
UGI UTILITIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(Thousands of dollars)
<TABLE>
<CAPTION>
Six Months Ended Twelve Months Ended
March 31, March 31,
------------------------ ------------------------
1997 1996 1997 1996
-------- -------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C> <C>
Net income $ 38,948 $ 37,085 $ 40,211 $ 40,267
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 11,272 10,673 22,201 20,530
Deferred income taxes, net (4,255) (54) 3,280 6,437
Other, net 647 3,058 1,818 3,152
-------- -------- -------- --------
46,612 50,762 67,510 70,386
Net change in:
Accounts receivable and accrued utility revenues (50,756) (60,447) 247 (35,168)
Inventories 21,157 15,982 (1,433) 1,439
Deferred fuel adjustments 13,910 6,211 (3,032) (9,742)
Pipeline transition and producer settlement
recoveries (costs), net (1,371) (675) 378 (4,732)
Accounts payable (12,348) 1,188 (7,642) 15,408
Other current assets and liabilities 2,975 16,390 (8,231) 5,432
-------- -------- -------- --------
Net cash provided by operating activities 20,179 29,411 47,797 43,023
-------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant and equipment (18,623) (16,799) (41,483) (46,570)
Net costs of property, plant and equipment disposals (200) (635) (754) (1,373)
Other, net 500 725 515 1,225
-------- -------- -------- --------
Net cash used by investing activities (18,323) (16,709) (41,722) (46,718)
-------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of dividends (25,442) (12,942) (48,149) (14,324)
Issuance of long-term debt -- 20,000 -- 68,000
Repayment of long-term debt (18,400) (47,685) (25,543) (54,921)
Bank loans increase (decrease) 44,500 (16,500) 69,500 (12,000)
Redemption of Series Preferred Stock -- (15) -- (15)
-------- -------- -------- --------
Net cash provided (used) by financing activities 658 (57,142) (4,192) (13,260)
-------- -------- -------- --------
Cash and cash equivalents increase (decrease) $ 2,514 $(44,440) $ 1,883 $(16,955)
======== ======== ======== ========
CASH AND CASH EQUIVALENTS:
End of period $ 5,614 $ 3,731 $ 5,614 $ 3,731
Beginning of period 3,100 48,171 3,731 20,686
-------- -------- -------- --------
Increase (decrease) $ 2,514 $(44,440) $ 1,883 $(16,955)
======== ======== ======== ========
</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.
- 4 -
<PAGE> 7
UGI UTILITIES, INC. AND SUBSIDIARIES
(unaudited)
(Thousands of dollars)
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 Six Months Ended Twelve Months Ended
March 31, March 31, March 31,
---------------------------- ----------------------------- -----------------------------
1997 1996 1997 1996 1997 1996
------------- ------------- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Gas utility $153,323 $162,174 $269,095 $267,322 $392,767 $355,704
Electric utility 19,981 19,238 38,363 36,331 71,534 68,066
------------- ------------- ------------- -------------- ------------- --------------
Total $173,304 $181,412 $307,458 $303,653 $464,301 $423,770
============= ============= ============= ============== ============= ==============
OPERATING INCOME (LOSS)
Gas utility $ 38,933 $ 39,159 $ 67,515 $ 66,161 $ 74,291 $ 71,184
Electric utility 3,345 2,747 6,325 4,911 10,036 8,601
Other 144 7 171 53 220 928
Corporate general (1,400) (1,418) (2,646) (2,918) (3,578) (6,026)
------------- ------------- ------------- -------------- ------------- --------------
Total $ 41,022 $ 40,495 $ 71,365 $ 68,207 $ 80,969 $ 74,687
============= ============= ============= ============== ============= ==============
DEPRECIATION AND AMORTIZATION
Gas utility $ 4,683 $ 4,356 $ 9,230 $ 8,656 $ 18,150 $ 16,690
Electric utility 1,025 1,008 2,042 2,015 4,051 3,835
Corporate general and other - 1 - 2 - 5
------------- ------------- ------------- -------------- ------------- --------------
Total $ 5,708 $ 5,365 $ 11,272 $ 10,673 $ 22,201 $ 20,530
============= ============= ============= ============== ============= ==============
IDENTIFIABLE ASSETS
(at period end)
Gas utility $606,689 $583,889 $606,689 $583,889 $606,689 $583,889
Electric utility 88,242 85,416 88,242 85,416 88,242 85,416
Corporate general and other 3,749 4,127 3,749 4,127 3,749 4,127
------------- ------------- ------------- -------------- ------------- --------------
Total $698,680 $673,432 $698,680 $673,432 $698,680 $673,432
============= ============= ============= ============== ============= ==============
OPERATING STATISTICS
Natural gas system throughput -
billions of cubic feet 27.9 30.3 52.5 55.4 82.5 85.4
Electric sales -
millions of kilowatt hours 248.6 260.9 472.3 485.6 871.4 884.9
</TABLE>
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<PAGE> 8
UGI UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Thousands of dollars)
3. 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
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
- 6 -
<PAGE> 9
UGI UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Thousands of dollars)
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
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.
- 7 -
<PAGE> 10
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 MARCH 31, 1997 (1997 THREE-MONTH PERIOD) COMPARED WITH THREE
MONTHS ENDED MARCH 31, 1996 (1996 THREE-MONTH PERIOD)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Increase
Three Months Ended March 31, 1997 1996 (Decrease)
- ----------------------------------------------------------------------------------------------------
(Millions of dollars)
<S> <C> <C> <C> <C>
GAS UTILITY:
Natural gas system throughput - bcf 27.9 30.3 (2.4) (7.9)%
Degree days - % colder (warmer)
than normal (10.0) 4.7 -- --
Revenues $153.3 $162.2 $ (8.9) (5.5)%
Total margin (a) $ 62.2 $ 64.5 $ (2.3) (3.6)%
Operating income $ 38.9 $ 39.2 $ (.3) (.8)%
ELECTRIC UTILITY:
Electric sales - gwh 248.6 260.9 (12.3) (4.7)%
Degree days - % colder (warmer)
than normal (4.2) 6.8 -- --
Revenues $ 20.0 $ 19.2 $ .8 4.2%
Total margin (a) $ 9.4 $ 8.8 $ .6 6.8%
Operating income $ 3.3 $ 2.7 $ .6 22.2%
CORPORATE GENERAL AND OTHER:
Corporate general expenses $ (1.4) $ (1.4) $ -- --
Other operating income $ .1 $ -- $ .1 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 March 31, 1997 was 10.0% warmer than normal compared with weather that was
4.7% colder than normal
-8-
<PAGE> 11
UGI UTILITIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
in the prior-year period. As a result, total system throughput decreased 7.9%
during the 1997 three-month period principally reflecting the warmer weather's
effect on firm-residential, firm-commercial and firm-industrial (collectively,
"core market") sales.
The decrease in Gas Utility's total revenues during the 1997 three-month period
principally reflects a $14.8 million decrease from lower throughput to core
market customers and a $4.7 million decrease in revenues from sales to customers
outside Gas Utility's distribution system (off-system sales). These decreases
were partially offset by an $11.1 million increase from the effects of higher
purchased gas cost (PGC) rates. Cost of gas sold by the Gas Utility was $84.6
million during the 1997 three-month period, a decrease of $6.4 million over the
prior-year period, reflecting lower costs associated with the lower volumes sold
to core market customers and the decrease in off-system sales partially offset
by the effects of higher PGC rates.
The decrease in Gas Utility total margin is principally a result of a $4.8
million decrease in total margin from core market customers reflecting the
effects of warmer weather on volumes sold. The decrease in total margin from
core market customers was partially offset by higher total margin from
interruptible customers.
Gas Utility operating income during the 1997 three-month period decreased $.3
million principally reflecting the decrease in total margin. Operating and
administrative expenses during the 1997 three-month period decreased $2.1
million principally due to a $.9 million decrease in distribution system
expenses due in part to the milder 1997 three-month period weather and lower
general and administrative expenses.
ELECTRIC UTILITY. Electric Utility sales decreased during the 1997 three-month
period reflecting weather which was 10.3% warmer than last year. Electric
Utility revenues increased $.8 million, notwithstanding the lower sales,
reflecting a $.5 million increase in energy cost (EC) rate revenues and the
effects of an increase in base rates effective July 19, 1996. Cost of sales
increased $.2 million in the 1997 three-month period reflecting the higher EC
rate partially offset by the lower sales.
Electric Utility total margin and operating income increased during the 1997
three-month period principally as a result of the higher base rates effective
July 19, 1996. Electric Utility operating and administrative expenses in the
1997 three-month period were virtually unchanged from the prior-year period.
Pursuant to the provisions of the Electricity Generation Customer Choice and
Competition Act (Customer Choice Act), Electric Utility's rates have been capped
at levels existing as of January 1, 1997 (see "Electricity Generation Customer
Choice and Competition Act").
CORPORATE GENERAL. Corporate general expenses, which represent an allocated
share of UGI corporate headquarters' expenses, were $1.4 million in the 1997
three-month period, essentially unchanged from the 1996 three-month period.
-9-
<PAGE> 12
UGI UTILITIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
INTEREST EXPENSE AND INCOME TAXES. Interest expense during the 1997 three-month
period was $4.3 million compared with interest expense of $4.1 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.
The effective income tax rate for the 1997 three-month period was 38.0% compared
with a rate of 38.4% in the three months ended March 31, 1996.
SIX MONTHS ENDED MARCH 31, 1997 (1997 SIX-MONTH PERIOD) COMPARED WITH SIX MONTHS
ENDED MARCH 31, 1996 (1996 SIX-MONTH PERIOD)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Increase
Six Months Ended March 31, 1997 1996 (Decrease)
- -------------------------------------------------------------------------------------------------------
(Millions of dollars)
<S> <C> <C> <C> <C>
GAS UTILITY:
Natural gas system throughput - bcf 52.5 55.4 (2.9) (5.2)%
Degree days - % colder (warmer) than
normal (7.2) 5.0 -- --
Revenues $269.1 $267.3 $ 1.8 .7%
Total margin (a) $112.8 $113.7 $ (.9) (.8)%
Operating income $ 67.5 $ 66.2 $ 1.3 2.0%
ELECTRIC UTILITY:
Electric sales - gwh 472.3 485.6 (13.3) (2.7)%
Degree days - % colder (warmer)
than normal (1.3) 7.8 -- --
Revenues $ 38.4 $ 36.3 $ 2.1 5.8%
Total margin (a) $ 18.2 $ 16.9 $ 1.3 7.7%
Operating income $ 6.3 $ 4.9 $ 1.4 28.6%
CORPORATE GENERAL AND OTHER:
Corporate general expenses $ (2.6) $ (2.9) $ (.3) (10.3)%
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.
GAS UTILITY. Weather in Gas Utility's service territory in the 1997 six-month
period was 7.2% warmer than normal and 11.6% warmer than the 1996 six-month
period. Total system throughput decreased 5.2% during the 1997 six-month period
principally reflecting the effect of the warmer weather on core market sales.
-10-
<PAGE> 13
UGI UTILITIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The increase in Gas Utility's total revenues reflects a $20.0 million increase
from higher average PGC rates in effect during the 1997 six-month period
partially offset by a $16.9 million decrease from lower sales to core market
customers and slightly lower off-system sales. Notwithstanding the lower core
market and off-system sales, cost of gas sold by Gas Utility increased $2.5
million to $145.1 million during the 1997 six-month period reflecting the higher
average PGC rates.
The decrease in Gas Utility total margin principally reflects a $5.4 million
decrease from core market customers resulting from the warmer weather partially
offset by an increase in total margin from interruptible customers.
Although total margin was lower in the 1997 six-month period, Gas Utility
operating income increased $1.3 million principally as a result of lower
operating expenses. Operating and administrative expenses during the 1997
six-month period decreased $2.3 million principally as a result of a $1.1
million decrease in distribution system expenses and lower general and
administrative expenses.
ELECTRIC UTILITY. Electric Utility sales decreased during the 1997 six-month
period reflecting weather which was 8.5% warmer than in the 1996 six-month
period. Electric Utility revenues increased $2.1 million, notwithstanding the
lower sales, reflecting a $1.1 million increase in EC rate revenues and a $.9
million increase in base rate revenues resulting from the July 19, 1996 base
rate increase. Cost of sales increased to $18.5 million in the 1997 six-month
period from $17.8 million in the prior-year period as a result of a higher EC
rate partially offset by the lower sales.
Electric Utility total margin and operating income increased during the six
months ended March 31, 1997 principally as a result of the higher base rates.
Electric Utility operating and administrative expenses in the 1997 six-month
period were essentially unchanged from the prior-year period.
CORPORATE GENERAL. Corporate general expenses were $2.6 million in the 1997
six-month period compared with $2.9 million in the 1996 six-month period. The
decrease represents lower levels of UGI corporate headquarters' expenses.
INTEREST EXPENSE AND INCOME TAXES. Interest expense was $8.6 million during the
1997 six-month period compared with $8.3 million in the 1996 six-month period.
The increase in 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 six-month period was 38.0% compared with a rate of
38.1% for the six months ended March 31, 1996.
-11-
<PAGE> 14
UGI UTILITIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
TWELVE MONTHS ENDED MARCH 31, 1997 (1997 TWELVE-MONTH PERIOD) COMPARED WITH
TWELVE MONTHS ENDED MARCH 31, 1996 (1996 TWELVE-MONTH PERIOD)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Increase
Twelve Months Ended March 31, 1997 1996 (Decrease)
- ------------------------------------------------------------------------------------------------------
(Millions of dollars)
<S> <C> <C> <C> <C>
GAS UTILITY:
Natural gas system throughput - bcf 82.5 85.4 (2.9) (3.4)%
Degree days - % colder (warmer)
than normal (6.0) 5.2 -- --
Revenues $392.8 $355.7 $ 37.1 10.4%
Total margin (a) $168.8 $163.1 $ 5.7 3.5%
Operating income $ 74.3 $ 71.2 $ 3.1 4.4%
ELECTRIC UTILITY:
Electric sales - gwh 871.4 884.9 (13.5) (1.5)%
Degree days - % colder than normal .4 5.0 -- --
Revenues $ 71.5 $ 68.1 $ 3.4 5.0%
Total margin (a) $ 34.3 $ 32.6 $ 1.7 5.2%
Operating income $ 10.0 $ 8.6 $ 1.4 16.3%
CORPORATE GENERAL AND OTHER:
Corporate general expenses $ (3.6) $ (6.0) $ (2.4) (40.0)%
Other operating income $ .2 $ .9 $ (.7) (77.8)%
- -------------------------------------------------------------------------------------------------------
</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 11.1% warmer than in the 1996 twelve-month period. Total system
throughput declined principally as a result of the warmer weather.
The increase in Gas Utility total revenues reflects a $25.6 million increase
from higher average PGC rates, a $13.8 million increase in off-system sales and
the full-year effect of Gas Utility's $19.5 million annual base rate increase
effective August 31, 1995. These increases were partially offset by the effects
of the lower system throughput. Cost of gas sold was $208.7 million during the
1997 twelve-month period, an increase of $30.4 million from the same period in
1996, reflecting the effects of higher average PGC rates and greater off-system
sales partially offset by the lower system throughput.
-12-
<PAGE> 15
UGI UTILITIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The increase in Gas Utility total margin in the twelve months ended March 31,
1997 reflects a $2.9 million increase in total margin from core market customers
principally from the full-year effect of the increase in base rates, and higher
total margin from interruptible customers.
Gas Utility operating income during the 1997 twelve-month period benefited from
the increase in total margin. However, the benefit was partially offset by
slightly higher operating expenses and higher charges for depreciation.
ELECTRIC UTILITY. Electric Utility sales were lower during the twelve months
ended March 31, 1997 than in the prior-year period principally as a result of
warmer 1997 winter weather. The increase in Electric Utility revenues reflects a
$2.1 million increase in EC rate revenues and the impact of higher base rates
subsequent to July 19, 1996. Electric Utility cost of sales was $34.1 million,
an increase of $1.6 million from the prior-year period. The increase in cost of
sales principally reflects a higher average EC rate.
Electric Utility total margin during the twelve months ended March 31, 1997
increased principally as a result of the higher base rates effective in July
1996. Electric Utility operating income benefited from the increase in total
margin, however the benefit was partially offset principally by higher charges
for depreciation.
CORPORATE GENERAL. Corporate general expenses were $3.6 million in the 1997
twelve-month period compared with $6.0 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 $16.3 million in the
1997 twelve-month period compared with $16.6 million in the 1996 twelve-month
period. The decrease in interest expense during the 1997 twelve-month period is
principally due to lower average interest rates on long-term debt and slightly
lower levels of long-term debt outstanding. The effective income tax rate for
the 1997 twelve-month period was 37.8% compared with a rate of 30.7% in the
prior-year period. The lower income tax rate in the 1996 twelve-month period
reflects the benefit of an adjustment to deferred state income taxes of $4.3
million recorded in September 1995.
-13-
<PAGE> 16
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 51.5% at March
31, 1997 compared with a ratio of 50.3% at September 30, 1996. The higher ratio
reflects a $44.5 million increase in bank loans partially offset by the
retirement of $8.4 million of UGI Utilities' 7.85% Series First Mortgage Bonds
in November 1996, other long-term debt repayments of $10.0 million, and an
increase in common stockholder's equity.
CASH FLOWS
Cash and cash equivalents totaled $5.6 million at March 31, 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 six months ended
March 31, 1997 are not necessarily indicative of cash flows to be expected for a
full year.
OPERATING ACTIVITIES. Cash provided by operating activities was $20.2 million
during the six months ended March 31, 1997 compared with $29.4 million in the
comparable prior-year period. Cash flow from operations before changes in
operating working capital totaled $46.6 million during the six months ended
March 31, 1997 compared with $50.8 million in the prior-year period reflecting
higher noncash deferred tax benefits. Changes in operating working capital
during the six months ended March 31, 1997 required $26.4 million of operating
cash flow principally from a $50.8 million seasonal increase in accounts
receivable and accrued utility revenues and a $12.3 million decrease in accounts
payable partially offset by a $21.2 million decrease in inventories and $13.9
million in purchased gas and power cost overcollections. In the six months ended
March 31, 1996, changes in operating working capital required $21.4 million of
operating cash flow.
INVESTING ACTIVITIES. Cash expenditures for property, plant and equipment
totaled $18.6 million in the six months ended March 31, 1997 compared with $16.8
million in the same period in 1996. The increase reflects greater Gas Utility
capital expenditures.
FINANCING ACTIVITIES. Cash flows from financing activities for the six months
ended March 31, 1997 and 1996 include dividends to preferred stockholders of
$1.4 million. Dividends during the six months ended March 31, 1997 and 1996 also
include $24.1 million and $11.6 million, respectively, of dividend payments to
UGI.
Borrowings under UGI Utilities' revolving credit agreements totaled $44.5
million in the 1997 six-month period compared with $16.5 million in repayments
in the prior-year period. Cash flows from financing activities in the prior-year
period include the issuance of $20 million of notes under its
-14-
<PAGE> 17
UGI UTILITIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Medium-Term Note program. During the six months ended March 31, 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. UGI Utilities currently expects to reduce its bank loans
outstanding through the issuance of debt under its Medium-Term Note program.
ELECTRICITY GENERATION CUSTOMER CHOICE AND COMPETITION ACT
On January 1, 1997, the Customer Choice Act became effective. The Customer
Choice Act permits all Pennsylvania retail electric customers to choose their
electric generation supplier. One-third of the peak load of each customer class
of an electric utility will have the opportunity for direct access to generation
suppliers by January 1, 1999, two-thirds of the peak load of each customer class
by January 1, 2000, and all customers will have direct access by January 1,
2001, subject to certain exceptions.
The Customer Choice Act establishes rate caps that are designed to prevent a
customer's total electric service costs from increasing above levels existing as
of January 1, 1997 during the transition to full competition. The Pennsylvania
Public Utility Commission (PUC) may grant exceptions to the rate caps in limited
situations where a utility's costs have increased above current levels due to
circumstances beyond its control. Under the Customer Choice Act, Electric
Utility will continue to be the only regulated electric utility having the
right, granted by the PUC or by law, to transmit and distribute electric energy
in its service territory. The Customer Choice Act requires all electric
utilities to file restructuring plans with the PUC which, among other things,
include unbundled prices for electric generation, transmission and distribution
and a proposed competitive transition charge (CTC) for the recovery of stranded
costs. Stranded costs are defined as electric generation-related costs that
traditionally would be recoverable in a regulated environment but may not be
recoverable in a competitive electric generation market. The PUC has directed
Electric Utility to file its restructuring plan by August 1, 1997. The Customer
Choice Act also requires all electric utilities to submit proposed Retail Access
Pilot Programs (Pilot Programs) with the PUC. The PUC may order electric
utilities to begin such programs as early as April 1, 1997. Such pilot programs
shall be available to approximately 5 percent of the utility's peak load for
each customer class. Electric Utility filed its proposed Pilot Program with the
PUC on April 1, 1997 to be effective for a one-year period beginning January 1,
1998.
As permitted by the Customer Choice Act, on February 28, 1997, Electric Utility
filed with the PUC Supplement No. 50 to its Electric Service Tariff to roll the
current ECR rate of 1.058 cents per kilowatt-hour into its base rates. On April
24, 1997, the PUC conditionally approved Electric Utility's Supplement No. 50
but reserved final consideration of its reasonableness and appropriateness for
Electric Utility's Customer Choice Act restructuring proceeding.
-15-
<PAGE> 18
UGI UTILITIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Based upon a current evaluation of the various factors and conditions affecting
future cost recovery, the Company does not expect the Customer Choice Act to
have a material adverse effect on its financial condition or results of
operations. The Company will continue to monitor regulatory proceedings in this
area.
On March 27, 1997, proposed customer choice legislation was introduced in the
Pennsylvania General Assembly that would, among other things, extend the
availability of gas transportation service to residential and small commercial
customers of local gas distribution companies. It would permit all customers of
natural gas distribution utilities to transport their natural gas supplies
through the distribution systems of Pennsylvania gas utilities by April 1, 1999
and would also require Pennsylvania gas utilities to exit the merchant function
of selling natural gas. Public hearings on the proposed legislation are
scheduled to commence in May 1997. The Company will continue to monitor
developments with regard to the proposed legislation.
PART II OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDER
On January 29, 1997, UGI Corporation, the owner of the issued and
outstanding shares of common stock of UGI Utilities, Inc., executed a written
consent of shareholder in lieu of a meeting reelecting the ten nominees from the
existing Board of Directors to another term. Each of the following nominees
received 26,781,785 votes for his or her election: Stephen D. Ban, Richard L.
Bunn, Robert C. Forney, Richard C. Gozon, Lon R. Greenberg, Cyrus H. Holley,
Anne Pol, Quentin I. Smith, Jr., James W. Stratton, and David I. J. Wang.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits:
10.1 UGI Corporation 1997 Stock Option and Dividend
Equivalent Plan is incorporated by reference to
Exhibit 10.2 to the UGI Corporation Quarterly
Report on Form 10-Q for the period ended March 31,
1997
10.2 UGI Corporation Directors' Equity Compensation
Plan is incorporated by reference to Exhibit 10.1
to the UGI Corporation Quarterly Report on Form
10-Q for the period ended March 31, 1997
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 March 31, 1997.
-16-
<PAGE> 19
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: May 14, 1997 By: J.C. Barney
------------------------------
J. C. Barney, Vice President -
Finance and Accounting
(Principal Financial Officer)
-17-
<PAGE> 20
UGI UTILITIES, INC. AND SUBSIDIARIES
EXHIBIT INDEX
10.1 UGI Corporation 1997 Stock Option and Dividend Equivalent Plan is
incorporated by reference to Exhibit 10.2 to the UGI Corporation
Quarterly Report on Form 10-Q for the period ended March 31, 1997
10.2 UGI Corporation Directors' Equity Compensation Plan is incorporated by
reference to Exhibit 10.1 to the UGI Corporation Quarterly Report on
Form 10-Q for the period ended March 31, 1997
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 UTILITIES INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES - EXHIBIT 12.1
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Six Nine
Months Months Year
Ended Year Ended September 30, Ended Ended
March 31, ------------------------------- September 30, December 31,
1997 1996 1995 1994 1993 1992
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
EARNINGS:
Earnings before income taxes $62,809 $61,717 $39,759 $41,244 $28,009 $43,054
Interest expense 8,471 15,921 16,632 16,482 12,664 21,913
Amortization of debt discount and expense 85 173 206 187 147 250
Interest component of rental expense 1,023 1,838 1,604 1,344 953 1,256
------- ------- ------- ------- ------- -------
$72,388 $79,649 $58,201 $59,257 $41,773 $66,473
======= ======= ======= ======= ======= =======
FIXED CHARGES:
Interest expense $ 8,471 $15,921 $16,632 $16,482 $12,664 $21,913
Amortization of debt discount and expense 85 173 206 187 147 250
Allowance for funds used during
construction (capitalized interest) 40 107 65 136 87 57
Interest component of rental expense 1,023 1,838 1,604 1,344 953 1,256
------- ------- ------- ------- ------- -------
$ 9,619 $18,039 $18,507 $18,149 $13,851 $23,476
======= ======= ======= ======= ======= =======
Ratio of earnings to fixed charges 7.53 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>
Six Nine
Months Months Year
Ended Year Ended September 30, Ended Ended
March 31, ------------------------------- September 30, December 31,
1997 1996 1995 1994 1993 1992
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
EARNINGS:
Earnings before income taxes $62,809 $61,717 $39,759 $41,244 $28,009 $43,054
Interest expense 8,471 15,921 16,632 16,482 12,664 21,913
Amortization of debt discount and expense 85 173 206 187 147 250
Interest component of rental expense 1,023 1,838 1,604 1,344 953 1,256
------- ------- ------- ------- ------- -------
$72,388 $79,649 $58,201 $59,257 $41,773 $66,473
======= ======= ======= ======= ======= =======
COMBINED FIXED CHARGES AND PREFERRED
STOCK DIVIDENDS:
Interest expense $ 8,471 $15,921 $16,632 $16,482 $12,664 $21,913
Amortization of debt discount and expense 85 173 206 187 147 250
Allowance for funds used during
construction (capitalized interest) 40 107 65 136 87 57
Interest component of rental expense 1,023 1,838 1,604 1,344 953 1,256
Preferred stock dividend requirements 1,382 2,765 2,778 1,356 2,124 2,613
Adjustment required to state preferred stock
dividend requirements on a pretax basis 847 1,685 1,164 1,018 1,589 1,846
------- ------- ------- ------- ------- -------
$11,848 $22,489 $22,449 $20,523 $17,564 $27,935
======= ======= ======= ======= ======= =======
Ratio of earnings to combined fixed charges
and preferred stock dividends 6.11 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 SIX MONTHS ENDED MARCH 31, 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 MARCH 31,
1997.
</LEGEND>
<CIK> 0000100548
<NAME> UGI UTILITIES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 5,614
<SECURITIES> 0
<RECEIVABLES> 87,520
<ALLOWANCES> 4,262
<INVENTORY> 8,878
<CURRENT-ASSETS> 119,207
<PP&E> 747,248
<DEPRECIATION> 232,628
<TOTAL-ASSETS> 698,680
<CURRENT-LIABILITIES> 201,013
<BONDS> 141,121
35,187
0
<COMMON> 60,259
<OTHER-SE> 142,688
<TOTAL-LIABILITY-AND-EQUITY> 698,680
<SALES> 307,458
<TOTAL-REVENUES> 307,458
<CGS> 163,623
<TOTAL-COSTS> 163,623
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,556
<INCOME-PRETAX> 62,809
<INCOME-TAX> 23,861
<INCOME-CONTINUING> 38,948
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 38,948
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0<F1>
<FN>
<F1>There are no publicly held shares outstanding.
</FN>
</TABLE>
