<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 December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 1-1398
UGI UTILITIES, INC.
(Exact name of registrant as specified in its charter)
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 January 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
PART I FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of December 31, 1996
September 30, 1996 and December 31, 1995 1
Condensed Consolidated Statements of Income for the
three and twelve months ended December 31, 1996 and 1995 2
Condensed Consolidated Statements of Cash Flows for the
three and twelve months ended December 31, 1996 and 1995 3
Notes to Condensed Consolidated Financial Statements 4 - 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8 - 13
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
</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>
December 31, September 30, December 31,
1996 1996 1995(a)
-------- -------- --------
ASSETS
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 3,546 $ 3,100 $ 2,891
Accounts receivable (less allowances for doubtful accounts of
$3,585, $3,976 and $2,941, respectively) 49,821 26,288 47,345
Accrued utility revenues 22,443 8,612 24,245
Inventories 28,426 30,035 18,836
Deferred income taxes 6,193 6,316 9,421
Prepaid expenses and other current assets 173 1,920 2,059
-------- -------- --------
Total current assets 110,602 76,271 104,797
Property, plant and equipment, at cost (less accumulated depreciation
and amortization of $227,832, $222,559 and $214,561, respectively) 511,288 507,300 492,598
Regulatory income tax asset 43,257 42,908 38,134
Other assets 21,565 23,420 21,839
-------- -------- --------
Total assets $686,712 $649,899 $657,368
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 17,143 $ 25,543 $ 15,723
Bank loans 69,300 50,500 44,500
Accounts payable 41,259 39,517 38,140
Other current liabilities 49,812 41,369 54,504
-------- -------- --------
Total current liabilities 177,514 156,929 152,867
Long-term debt 151,116 151,111 168,237
Deferred income taxes 96,742 95,452 87,674
Other noncurrent liabilities 21,218 21,779 24,237
Redeemable preferred stock 35,187 35,187 35,202
Common stockholder's equity:
Common Stock, $2.25 par value (authorized - 40,000,000 shares;
issued and outstanding - 26,781,785 shares) 60,259 60,259 60,259
Additional paid-in capital 68,052 68,052 68,052
Retained earnings 76,624 61,130 60,840
-------- -------- --------
Total common stockholder's equity 204,935 189,441 189,151
-------- -------- --------
Total liabilities and stockholders' equity $686,712 $649,899 $657,368
======== ======== ========
</TABLE>
(a) Certain amounts have been reclassified.
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 Twelve Months Ended
December 31, December 31,
------------------------- ------------------------
1996 1995(a) 1996 1995(a)
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues $ 134,154 $ 122,241 $ 472,409 $ 380,080
--------- --------- --------- ---------
Costs and expenses:
Gas, fuel and purchased power 69,295 59,879 249,059 180,882
Operating and administrative expenses 28,336 28,342 119,426 110,072
Operating and administrative expenses
- related parties 1,246 1,500 3,596 6,447
Depreciation and amortization 5,564 5,308 21,858 20,114
Miscellaneous income, net (630) (500) (1,972) (3,197)
--------- --------- --------- ---------
103,811 94,529 391,967 314,318
--------- --------- --------- ---------
Operating income 30,343 27,712 80,442 65,762
Interest charges 4,242 4,244 16,092 16,874
--------- --------- --------- ---------
Income before income taxes 26,101 23,468 64,350 48,888
Income taxes 9,916 8,808 24,477 14,849
--------- --------- --------- ---------
Net income 16,185 14,660 39,873 34,039
Dividends on preferred stock 691 691 2,765 2,765
--------- --------- --------- ---------
Net income after dividends on preferred stock $ 15,494 $ 13,969 $ 37,108 $ 31,274
========= ========= ========= =========
</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>
Three Months Ended Twelve Months Ended
December 31, December 31,
----------------------- -----------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 16,185 $ 14,660 $ 39,873 $ 34,039
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Depreciation and amortization 5,564 5,308 21,858 20,114
Deferred income taxes, net 964 2,734 5,711 4,814
Other, net (739) 992 2,498 2,847
-------- -------- -------- --------
21,974 23,694 69,940 61,814
Net change in:
Accounts receivable and accrued utility revenues (38,171) (42,051) (5,564) (24,175)
Inventories 1,609 4,591 (9,590) 2,453
Deferred fuel adjustments 1,225 (4) (9,502) (3,839)
Pipeline transition and producer settlement
recoveries (costs), net (380) (1,328) 2,022 (7,786)
Accounts payable 1,742 4,517 3,119 13,766
Other current assets and liabilities 11,878 12,430 4,632 (1,239)
-------- -------- -------- --------
Net cash provided (used) by operating activities (123) 1,849 55,057 40,994
-------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant and equipment (9,594) (10,104) (39,149) (50,005)
Net costs of property, plant and equipment disposals (46) (89) (1,146) (875)
Other, net 500 500 740 1,225
-------- -------- -------- --------
Net cash used by investing activities (9,140) (9,693) (39,555) (49,655)
-------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of dividends (691) (12,251) (24,089) (22,800)
Issuance of long-term debt - 20,000 - 68,000
Repayment of long-term debt (8,400) (47,685) (15,543) (64,921)
Bank loans increase 18,800 2,500 24,800 12,000
Redemption of Series Preferred Stock - - (15) -
-------- -------- -------- --------
Net cash provided (used) by financing activities 9,709 (37,436) (14,847) (7,721)
-------- -------- -------- --------
Cash and cash equivalents increase (decrease) $ 446 $(45,280) $ 655 $(16,382)
======== ======== ======== ========
CASH AND CASH EQUIVALENTS:
End of period $ 3,546 $ 2,891 $ 3,546 $ 2,891
Beginning of period 3,100 48,171 2,891 19,273
-------- -------- -------- --------
Increase (decrease) $ 446 $(45,280) $ 655 $(16,382)
======== ======== ======== ========
</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
(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 Twelve Months Ended
December 31, December 31,
------------------------- -------------------------
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES
Gas utility $ 115,772 $ 105,148 $ 401,618 $ 313,101
Electric utility 18,382 17,093 70,791 66,979
--------- --------- --------- ---------
Total $ 134,154 $ 122,241 $ 472,409 $ 380,080
========= ========= ========= =========
OPERATING INCOME (LOSS)
Gas utility $ 28,582 $ 27,002 $ 74,517 $ 61,629
Electric utility 2,980 2,164 9,438 8,997
Other 27 46 83 1,583
Corporate general (1,246) (1,500) (3,596) (6,447)
--------- --------- --------- ---------
Total $ 30,343 $ 27,712 $ 80,442 $ 65,762
========= ========= ========= =========
DEPRECIATION AND AMORTIZATION
Gas utility $ 4,547 $ 4,300 $ 17,823 $ 16,351
Electric utility 1,017 1,007 4,034 3,758
Corporate general and other - 1 1 5
--------- --------- --------- ---------
Total $ 5,564 $ 5,308 $ 21,858 $ 20,114
========= ========= ========= =========
IDENTIFIABLE ASSETS
(at period end)
Gas utility $ 596,070 $ 569,018 $ 596,070 $ 569,018
Electric utility 86,391 83,870 86,391 83,870
Corporate general and other 4,251 4,480 4,251 4,480
--------- --------- --------- ---------
Total $ 686,712 $ 657,368 $ 686,712 $ 657,368
========= ========= ========= =========
OPERATING STATISTICS
Natural gas system throughput -
billions of cubic feet 24.6 25.1 84.9 85.1
Electric sales - millions of kilowatt hours 223.7 224.7 883.6 871.5
</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 DECEMBER 31, 1996 (1996 THREE-MONTH PERIOD) COMPARED WITH
THREE MONTHS ENDED DECEMBER 31, 1995 (1995 THREE-MONTH PERIOD)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Increase
Three Months Ended December 31, 1996 1995 (Decrease)
- --------------------------------------------------------------------------------------------------
(Millions of dollars)
<S> <C> <C> <C> <C>
GAS UTILITY:
Natural gas system throughput - bcf 24.6 25.1 (.5) (2.0)%
Degree days - % colder (warmer)
than normal (3.2) 5.4 - -
Revenues $ 115.8 $ 105.1 $ 10.7 10.2%
Total margin (a) $ 50.6 $ 49.2 $ 1.4 2.8%
Operating income $ 28.6 $ 27.0 $ 1.6 5.9%
ELECTRIC UTILITY:
Electric sales - gwh 223.7 224.7 (1.0) (.4)%
Degree days - % colder than
normal 2.8 9.2 - -
Revenues $ 18.4 $ 17.1 $ 1.3 7.6%
Total margin (a) $ 8.8 $ 8.1 $ .7 8.6%
Operating income $ 3.0 $ 2.2 $ .8 36.4%
CORPORATE GENERAL:
Corporate general expenses $ (1.2) $ (1.5) $ (.3) (20.0)%
- --------------------------------------------------------------------------------------------------
</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 the Gas Utility service area during the three months
ended December 31, 1996 was 3.2% warmer than normal compared with weather that
was 5.4% colder than normal in the prior-year period. Total system throughput
decreased 2.0% during the 1996 three-month period
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<PAGE> 11
UGI UTILITIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
principally reflecting the effect of the warmer weather on firm-residential,
firm-commercial and firm-industrial (collectively, "core market") sales.
The increase in Gas Utility's total revenues reflects higher purchased gas cost
(PGC) rates in effect during the 1996 three-month period and greater revenues
from sales to customers outside Gas Utility's distribution system (off-system
sales). Cost of gas sold by the Gas Utility was $60.5 million during the 1996
three-month period, an increase of $8.9 million over the prior-year period,
reflecting the higher average PGC rates and gas costs associated with off-system
sales.
The increase in Gas Utility total margin principally reflects an increase in
total margin from interruptible customers partially offset by lower total margin
from core market customers. The increase in interruptible total margin includes
higher total margin from interruptible delivery service customers. The decrease
in total margin from core market customers reflects the effects of the warmer
weather on volumes sold.
Gas Utility operating income during the 1996 three-month period increased $1.6
million principally reflecting the increase in total margin. Operating and
administrative expenses during the 1996 three-month period were essentially
unchanged from the prior-year period.
ELECTRIC UTILITY. Electric Utility sales decreased during the 1996 three-month
period reflecting weather which was 5.9% warmer than last year. Electric Utility
revenues increased $1.3 million, notwithstanding the lower sales, reflecting a
higher energy cost (EC) rate and an increase in base rates effective July 19,
1996. Cost of sales increased to $8.7 million in the 1996 three-month period
from $8.2 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 1996
three-month period principally as a result of the higher base rates effective in
July. Electric Utility operating and administrative expenses in the 1996
three-month period were virtually unchanged from the prior-year period.
CORPORATE GENERAL. Corporate general expenses, which represent an allocated
share of UGI corporate headquarters' expenses, were $1.2 million in the 1996
three-month period compared with $1.5 million in the 1995 three-month period.
The decrease reflects lower UGI corporate headquarters' expenses.
INTEREST EXPENSE AND INCOME TAXES. Interest expense during the 1996 three-month
period was $4.2 million, virtually unchanged from interest expense in the
prior-year period. The effective income tax rate for the 1996 three-month period
was 38.0% compared with a rate of 37.5% in the three months ended December 31,
1995.
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<PAGE> 12
UGI UTILITIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
TWELVE MONTHS ENDED DECEMBER 31, 1996 (1996 TWELVE-MONTH PERIOD) COMPARED WITH
TWELVE MONTHS ENDED DECEMBER 31, 1995 (1995 TWELVE-MONTH PERIOD)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Increase
Twelve Months Ended December 31, 1996 1995 (Decrease)
- --------------------------------------------------------------------------------------------------
(Millions of dollars)
<S> <C> <C> <C> <C>
GAS UTILITY:
Natural gas system throughput - bcf 84.9 85.1 (.2) (.2)%
Degree days - % colder than normal .9 .2 - -
Revenues $ 401.6 $ 313.1 $ 88.5 28.3%
Total margin (a) $ 171.0 $ 151.3 $ 19.7 13.0%
Operating income $ 74.5 $ 61.6 $ 12.9 20.9%
ELECTRIC UTILITY:
Electric sales - gwh 883.6 871.5 12.1 1.4%
Degree days - % warmer than normal (1.3) (6.1) - -
Revenues $ 70.8 $ 67.0 $ 3.8 5.7%
Total margin (a) $ 33.8 $ 32.3 $ 1.5 4.6%
Operating income $ 9.4 $ 9.0 $ .4 4.4%
CORPORATE GENERAL AND OTHER:
Corporate general expenses $ (3.6) $ (6.4) $ (2.8) (43.8)%
Other operating income $ .1 $ 1.6 $ (1.5) (93.8)%
- --------------------------------------------------------------------------------------------------
</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 1996 twelve-month
period was colder than normal and also colder than in the 1995 twelve-month
period. Notwithstanding the colder weather, total system throughput declined
principally reflecting lower interruptible volumes from more frequent
weather-related interruptions of service and a decrease in firm delivery service
volumes as a result of customer switching to interruptible service. These
decreases were partially offset by a 3.0 bcf increase in sales to core market
customers.
The increase in Gas Utility total revenues reflects higher sales to core market
customers, greater off-system sales, higher base rate revenues resulting from
the full-year effect of Gas Utility's $19.5 million annual base rate increase
effective August 31, 1995, and higher PGC revenues. Cost of gas sold was $215.2
million during the 1996 twelve-month period, an increase of $66.0 million from
the same period
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<PAGE> 13
UGI UTILITIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
in 1995, reflecting principally the greater sales to core market customers,
higher off-system sales, and higher average PGC rates.
The increase in Gas Utility total margin in the twelve months ended December 31,
1996 reflects a $23.3 million increase in total margin from core market
customers as a result of the colder weather and higher base rates. However,
partially offsetting the increase in core market margin was a decrease in total
margin from interruptible customers reflecting lower 1996 twelve-month period
average unit margins, and a decrease in total margin from firm delivery service
customers due in large part to the lower volumes.
Gas Utility operating income during the 1996 twelve-month period benefitted from
the increase in total margin. However, the benefit was partially offset by
higher operating and administrative expenses and higher charges for
depreciation.
ELECTRIC UTILITY. Electric Utility sales increased during the 1996 twelve-month
period principally from colder 1996 winter weather. The increase in Electric
Utility revenues reflects the impact of the higher sales, a higher EC rate, and
an increase in base rates effective July 19, 1996. Electric Utility cost of
sales was $33.9 million, an increase of $2.2 million from the prior-year period.
The increase in the cost of sales resulted from the higher sales and a higher
average EC rate.
Electric Utility total margin increased as a result of the increased sales and
higher base rates effective in July. Although Electric Utility operating income
benefitted from the increase in total margin, this benefit was partially offset
by higher general and administrative expenses and depreciation.
CORPORATE GENERAL. Corporate general expenses were $(3.6) million in the 1996
twelve-month period compared with $(6.4) million in the 1995 twelve-month
period. The decrease represents lower levels of UGI corporate headquarters'
expenses.
INTEREST EXPENSE AND INCOME TAXES. Interest expense was $16.1 million in the
1996 twelve-month period compared with $16.9 million in the 1995 twelve-month
period. The decrease in interest expense in the 1996 twelve-month period is
principally due to a lower average interest rate on long-term debt outstanding.
The effective income tax rate for the 1996 twelve-month period was 38.0%
compared with a rate of 30.4% in the prior year period. The lower income tax
rate in the 1995 twelve-month period principally reflects the benefit of an
adjustment to deferred state income taxes of $4.3 million recorded in September
1995.
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<PAGE> 14
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 49.7% at
December 31, 1996 compared with a ratio of 50.3% at September 30, 1996. The
lower ratio reflects the retirement of $8.4 million of UGI Utilities' 7.85%
Series First Mortgage Bonds in November 1996 and an increase in common
stockholder's equity partially offset by an $18.8 million seasonal increase in
bank loans.
CASH FLOWS
Cash and cash equivalents totaled $3.5 million at December 31, 1996 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 three months ended
December 31, 1996 are not necessarily indicative of cash flows to be expected
for a full year.
OPERATING ACTIVITIES. Cash used by operating activities was $.1 million during
the three months ended December 31, 1996 compared with cash inflows from
operating activities of $1.8 million in the comparable prior-year period. Cash
flow from operations before changes in operating working capital totaled $22.0
million during the three months ended December 31, 1996 compared with $23.7
million in the prior-year period reflecting a reduction in net deferred income
taxes and the timing of certain Electric Utility operating expense payments.
Changes in operating working capital during the three months ended December 31,
1996 required $22.1 million of operating cash flow principally from a $38.2
million seasonal increase in accounts receivable and accrued utility revenues
partially offset by increases in accrued liabilities, principally accrued income
taxes, and to a lesser extent changes in accounts payable and inventories. In
the three months ended December 31, 1995, changes in operating working capital
required $21.8 million of operating cash flow.
INVESTING ACTIVITIES. Cash expenditures for property, plant and equipment
totaled $9.6 million in the three months ended December 31, 1996 compared with
$10.1 million in the same period in 1995. The decrease reflects lower Gas
Utility and Electric Utility capital expenditures.
FINANCING ACTIVITIES. Cash flows from financing activities for the three months
ended December 31, 1996 and 1995 include dividends to preferred stockholders of
$.7 million. Dividends during the three months ended December 31, 1995 also
include $11.6 million of dividend payments to UGI.
-12-
<PAGE> 15
UGI UTILITIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Borrowings under UGI Utilities' revolving credit agreements totaled $18.8
million in the 1996 three-month period compared with $2.5 million 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 Medium-Term Note program.
During the three months ended December 31, 1996, UGI Utilities repaid $8.4
million of its 7.85% Series First Mortgage Bonds. 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. 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 resulting from competition. The PUC has directed Electric Utility to file
its restructuring plan by August 1, 1997.
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.
-13-
<PAGE> 16
UGI UTILITIES, INC. AND SUBSIDIARIES
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits:
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 filed a Current Report on Form 8-K dated November
19, 1996, reporting factors affecting forward-looking
statements under Item 5.
-14-
<PAGE> 17
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: February 13, 1997 By: J. C. Barney
- ------------------------ --------------------------------
J. C. Barney, Vice President -
Finance and Accounting
(Principal Financial Officer)
-15-
<PAGE> 18
UGI UTILITIES, INC. AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
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>
Three Nine
Months Months Year
Ended Year Ended September 30, Ended Ended
December 31, --------------------------------- September 30, December 31,
1996 1996 1995 1994 1993 1992
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
EARNINGS:
Earnings before income taxes $26,101 $61,717 $39,759 $41,244 $28,009 $43,054
Interest expense 4,199 15,921 16,632 16,482 12,664 21,913
Amortization of debt discount and expense 43 173 206 187 147 250
Interest component of rental expense 566 1,838 1,604 1,344 953 1,256
------- ------- ------- ------- ------- -------
$30,909 $79,649 $58,201 $59,257 $41,773 $66,473
======= ======= ======= ======= ======= =======
FIXED CHARGES:
Interest expense $ 4,199 $15,921 $16,632 $16,482 $12,664 $21,913
Amortization of debt discount and expense 43 173 206 187 147 250
Allowance for funds used during
construction (capitalized interest) 16 107 65 136 87 57
Interest component of rental expense 566 1,838 1,604 1,344 953 1,256
------- ------- ------- ------- ------- -------
$ 4,824 $18,039 $18,507 $18,149 $13,851 $23,476
======= ======= ======= ======= ======= =======
Ratio of earnings to fixed charges 6.41 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>
Three Nine
Months Months Year
Ended Year Ended September 30, Ended Ended
December 31, --------------------------------- September 30, December 31,
1996 1996 1995 1994 1993 1992
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
EARNINGS:
Earnings before income taxes $26,101 $61,717 $39,759 $41,244 $28,009 $43,054
Interest expense 4,199 15,921 16,632 16,482 12,664 21,913
Amortization of debt discount and expense 43 173 206 187 147 250
Interest component of rental expense 566 1,838 1,604 1,344 953 1,256
------- ------- ------- ------- ------- -------
$30,909 $79,649 $58,201 $59,257 $41,773 $66,473
======= ======= ======= ======= ======= =======
COMBINED FIXED CHARGES AND PREFERRED
STOCK DIVIDENDS:
Interest expense $ 4,199 $15,921 $16,632 $16,482 $12,664 $21,913
Amortization of debt discount and expense 43 173 206 187 147 250
Allowance for funds used during
construction (capitalized interest) 16 107 65 136 87 57
Interest component of rental expense 566 1,838 1,604 1,344 953 1,256
Preferred stock dividend requirements 691 2,765 2,778 1,356 2,124 2,613
Adjustment required to state preferred stock
dividend requirements on a pretax basis 423 1,685 1,164 1,018 1,589 1,846
------- ------- ------- ------- ------- -------
$ 5,938 $22,489 $22,449 $20,523 $17,564 $27,935
======= ======= ======= ======= ======= =======
Ratio of earnings to combined fixed charges
and preferred stock dividends 5.20 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 THREE MONTHS ENDED DECEMBER 31, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS INCLUDED IN
UGI UTILITIES QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED DEC. 31, 1996.
</LEGEND>
<CIK> 0000100548
<NAME> UGI UTILITIES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,546
<SECURITIES> 0
<RECEIVABLES> 75,849
<ALLOWANCES> 3,585
<INVENTORY> 28,426
<CURRENT-ASSETS> 110,602
<PP&E> 739,120
<DEPRECIATION> 227,832
<TOTAL-ASSETS> 686,712
<CURRENT-LIABILITIES> 177,514
<BONDS> 151,116
35,187
0
<COMMON> 60,259
<OTHER-SE> 144,676
<TOTAL-LIABILITY-AND-EQUITY> 686,712
<SALES> 134,154
<TOTAL-REVENUES> 134,154
<CGS> 69,295
<TOTAL-COSTS> 69,295
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,242
<INCOME-PRETAX> 26,101
<INCOME-TAX> 9,916
<INCOME-CONTINUING> 16,185
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,185
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0<F1>
<FN>
<F1>THERE ARE NO PUBLICLY HELD SHARES OUTSTANDING
</FN>
</TABLE>
