<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, 1998
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, 1998, 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 March 31, 1998,
September 30, 1997 and March 31, 1997 1
Condensed Consolidated Statements of Income for the three,
six and twelve months ended March 31, 1998 and 1997 2
Condensed Consolidated Statements of Cash Flows for the
six and twelve months ended March 31, 1998 and 1997 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 4. Submission of Matters to a Vote of Security Holder 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
</TABLE>
<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
1998 1997 1997
----------- ------------- -----------
<S> <C> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 4,095 $ 12,813 $ 5,614
Accounts receivable (less allowances for doubtful accounts
of $3,457, $3,333 and $4,262, respectively) 59,178 25,309 65,014
Accrued utility revenues 13,838 7,688 18,244
Inventories 9,213 30,645 8,878
Deferred income taxes 12,022 7,179 11,676
Prepaid expenses and other current assets 9,685 4,653 9,781
----------- ------------- -----------
Total current assets 108,031 88,287 119,207
Property, plant and equipment, at cost (less accumulated depreciation
and amortization of $246,470, $237,293 and $232,628, respectively) 533,200 528,355 514,620
Regulatory income tax asset 45,218 44,438 43,257
Other assets 20,583 20,298 21,596
----------- ------------- -----------
Total assets $ 707,032 $ 681,378 $ 698,680
=========== ============= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Current maturities of long-term debt $ 7,143 $ 17,143 $ 17,143
Current portion of redeemable preferred stock 15,187 3,000 --
Bank loans 42,900 67,000 95,000
Accounts payable 25,491 45,367 27,169
Other current liabilities 63,346 43,591 61,701
----------- ------------- -----------
Total current liabilities 154,067 176,101 201,013
Long-term debt 187,161 152,151 141,121
Deferred income taxes 103,440 99,868 97,638
Other noncurrent liabilities 19,680 20,577 20,774
Commitments and contingencies
Redeemable preferred stock 20,000 32,187 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 68,249 68,249 68,052
Retained earnings 94,176 71,986 74,636
----------- ------------- -----------
Total common stockholder's equity 222,684 200,494 202,947
----------- ------------- -----------
Total liabilities and stockholders' equity $ 707,032 $ 681,378 $ 698,680
=========== ============= ===========
</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 Six Months Ended Twelve Months Ended
March 31, March 31, March 31,
---------------------- ------------------------ -----------------------
1998 1997 1998 1997 1998 1997
---------- --------- ----------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 152,333 $173,304 $ 287,797 $307,458 $441,547 $464,301
---------- --------- ----------- ---------- ---------- ---------
Costs and expenses:
Gas, fuel and purchased power 80,661 94,328 153,158 163,623 228,513 242,818
Operating and administrative expenses 29,841 31,629 56,916 59,965 114,825 117,224
Operating and administrative expenses
- related parties 1,291 1,400 2,389 2,646 5,298 3,578
Depreciation and amortization 5,510 5,708 10,861 11,272 21,020 22,201
Miscellaneous income, net (1,120) (783) (2,006) (1,413) (3,370) (2,489)
---------- --------- ----------- ---------- ---------- ---------
116,183 132,282 221,318 236,093 366,286 383,332
---------- --------- ----------- ---------- ---------- ---------
Operating income 36,150 41,022 66,479 71,365 75,261 80,969
Interest expense 4,385 4,314 8,706 8,556 17,022 16,335
---------- --------- ----------- ---------- ---------- ---------
Income before income taxes 31,765 36,708 57,773 62,809 58,239 64,634
Income taxes 11,766 13,945 21,566 23,861 22,269 24,423
---------- --------- ----------- ---------- ---------- ---------
Net income 19,999 22,763 36,207 38,948 35,970 40,211
Dividends on preferred stock 691 691 1,382 1,382 2,764 2,765
---------- --------- ----------- ---------- ---------- ---------
Net income after dividends on preferred stock $ 19,308 $ 22,072 $ 34,825 $ 37,566 $ 33,206 $ 37,446
========== ========= =========== ========== ========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE> 5
UGI UTILITIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(Thousands of dollars)
<TABLE>
<CAPTION>
Six Months Ended Twelve Months Ended
March 31, March 31,
------------------------ -------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 36,207 $ 38,948 $ 35,970 $ 40,211
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 10,861 11,272 21,020 22,201
Deferred income taxes, net (2,782) (4,255) 2,022 3,280
Other, net 2,377 647 5,152 1,818
---------- ---------- ---------- ----------
46,663 46,612 64,164 67,510
Net change in:
Accounts receivable and accrued utility revenues (42,889) (50,756) 5,466 247
Inventories 21,432 21,157 (335) (1,433)
Deferred fuel adjustments 11,727 13,910 2,456 (3,032)
Accounts payable (19,876) (12,348) (1,678) (7,642)
Other current assets and liabilities 3,122 1,604 (589) (7,853)
---------- ---------- ---------- ----------
Net cash provided by operating activities 20,179 20,179 69,484 47,797
---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant and equipment (15,615) (18,623) (38,676) (41,483)
Net proceeds (costs) of property, plant and equipment disposals (165) (200) (849) (754)
Other, net - 500 - 515
---------- ---------- ---------- ----------
Net cash used by investing activities (15,780) (18,323) (39,525) (41,722)
---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of dividends (14,017) (25,442) (15,398) (48,149)
Issuance of long-term debt 35,000 - 55,000 -
Repayment of long-term debt (10,000) (18,400) (18,980) (25,543)
Bank loans increase (decrease) (24,100) 44,500 (52,100) 69,500
---------- ---------- ---------- ----------
Net cash provided (used) by financing activities (13,117) 658 (31,478) (4,192)
---------- ---------- ---------- ----------
Cash and cash equivalents increase (decrease) $ (8,718) $ 2,514 $ (1,519) $ 1,883
========== ========== =========== ==========
CASH AND CASH EQUIVALENTS:
End of period $ 4,095 $ 5,614 $ 4,095 $ 5,614
Beginning of period 12,813 3,100 5,614 3,731
---------- ---------- ---------- ----------
Increase (decrease) $ (8,718) $ 2,514 $ (1,519) $ 1,883
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-3-
<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 wholly owned
subsidiary UGI Development Company (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) in parts of eastern and southeastern Pennsylvania and an electric
utility (Electric Utility) in northeastern Pennsylvania.
The accompanying condensed consolidated financial statements are unaudited
and have been prepared in accordance with the rules and 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, 1997. 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,
----------------------- ----------------------- -----------------------
1998 1997 1998 1997 1998 1997
---------- --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
- --------
Gas utility $133,226 $153,323 $250,057 $269,095 $370,026 $392,767
Electric utility 19,107 19,981 37,740 38,363 71,521 71,534
---------- --------- ---------- ---------- ---------- ----------
Total $152,333 $173,304 $287,797 $307,458 $441,547 $464,301
========== ========= ========== ========== ========== ==========
OPERATING INCOME (LOSS)
- -----------------------
Gas utility $ 33,735 $ 38,933 $ 62,040 $ 67,515 $ 69,315 $ 74,291
Electric utility 3,477 3,345 6,611 6,325 10,975 10,036
Other 229 144 217 171 269 220
Corporate general (1,291) (1,400) (2,389) (2,646) (5,298) (3,578)
---------- --------- ---------- ---------- ---------- ----------
Total $ 36,150 $ 41,022 $ 66,479 $ 71,365 $ 75,261 $ 80,969
========== ========= ========== ========== ========== ==========
DEPRECIATION AND AMORTIZATION
- -----------------------------
Gas utility $ 4,516 $ 4,683 $ 8,991 $ 9,230 $ 16,955 $ 18,150
Electric utility 994 1,025 1,870 2,042 4,065 4,051
---------- --------- ---------- ---------- ---------- ----------
Total $ 5,510 $ 5,708 $ 10,861 $ 11,272 $ 21,020 $ 22,201
========== ========= ========== ========== ========== ==========
IDENTIFIABLE ASSETS
- -------------------
(at period end)
Gas utility $618,113 $606,689 $618,113 $606,689 $618,113 $606,689
Electric utility 87,811 88,242 87,811 88,242 87,811 88,242
Corporate general and other 1,108 3,749 1,108 3,749 1,108 3,749
---------- --------- ---------- ---------- ---------- ----------
Total $707,032 $698,680 $707,032 $698,680 $707,032 $698,680
========== ========= ========== ========== ========== ==========
OPERATING STATISTICS
- --------------------
Natural gas system throughput -
billions of cubic feet 25.9 27.9 48.5 52.5 76.3 82.5
Electric sales and transportation -
millions of kilowatt hours 237.2 248.6 464.9 472.3 861.1 871.4
</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 August 7, 1997, Electric Utility filed with the Pennsylvania Public
Utility Commission (PUC) its restructuring plan pursuant to the Electricity
Generation Customer Choice and Competition Act (Customer Choice Act). The
restructuring plan includes a claim for the recovery of $34,426 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 estimated competitive market value and electric generation
facility retirement costs; (2) potential costs associated with existing
power purchase agreements; and (3) regulatory assets (principally income
taxes of approximately $500) recoverable from ratepayers under current
regulatory practice. The claim also seeks to establish a recovery
mechanism that would permit the recovery of up to an additional $28,000
of costs associated with the buy out or implementation of a December 1993
agreement to purchase power from an independent power producer. The PUC
is expected to take action on Electric Utility's filing during the summer
of 1998.
The Customer Choice Act also authorized the PUC to implement pilot customer
choice programs for up to five percent of the peak load of each customer
class. In accordance with PUC directives, Electric Utility implemented
such a pilot program effective November 1, 1997. The implementation of
the pilot program did not have a material effect on Electric Utility's
results of operations.
The Financial Accounting Standards Board's (FASB's) Emerging Issues Task
Force (EITF) has addressed the appropriateness of the continued application
of Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting
for the Effects of Certain Types of Regulation" (SFAS 71) by utilities in
states that have enacted restructuring legislation similar to the
Customer Choice Act. 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 EITF issued its
statement 97-4, "Deregulation of the Pricing of Electricity - Issues
Related to the Application of FASB Statements 71 and 101" which concluded
that utilities should discontinue application of SFAS 71 for the
generation portion of their business when a restructuring plan is in
place and its terms are known. For UGI Utilities, this will be upon the
issuance of the PUC's restructuring order which is expected to occur
during the summer of 1998. If pursuant to the restructuring plan such
electric generation assets no longer meet the criteria of SFAS 71,
any related regulatory assets would be written-off unless the form of
transition cost recovery under the plan meets the requirements under
generally accepted accounting principles for continued accounting as
regulatory assets. Any generation-related, long-lived fixed and intangible
assets would be evaluated for impairment under the provisions of SFAS No.
-6-
<PAGE> 9
UGI UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Thousands of dollars)
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 adoption of a PUC
restructuring order 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 (PRP) in several administrative proceedings and private
party recovery actions for the cleanup or recovery of costs associated with
cleanup of various waste sites, including some Superfund 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 sites in which a former subsidiary of UGI Utilities operated a
manufactured gas plant, UGI Utilities should not have significant liability
because UGI Utilities generally is not legally liable for the obligations
of its subsidiaries. Under certain circumstances, however, courts have
found parent companies liable for environmental damage caused by subsidiary
companies when the parent company exercised such substantial control over
the subsidiary that the court concluded that the parent company either (i)
itself operated the facility causing the environmental damage or (ii)
otherwise so controlled the subsidiary that the subsidiary's separate
corporate form should be disregarded. There could be, therefore,
significant future costs of an uncertain amount associated with
environmental damage caused by manufactured gas plants that UGI Utilities
owned or directly operated or that were owned or operated by former
subsidiaries of UGI Utilities, if a court were to conclude that the level
of control exercised by UGI Utilities over the subsidiary satisfies the
standard described above. In many circumstances where UGI Utilities may
be liable, expenditures may not be reasonably quantifiable because of a
number of factors including various costs associated with potential
remedial alternatives, the unknown number of other potentially
responsible parties involved and their ability to contribute to the costs
of investigation and remediation, and changing environmental laws and
regulations.
The Company's policy is to accrue environmental investigation and cleanup
costs when it is probable that a liability exists and the amount or range
of amounts 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. Gas Utility
is currently permitted to amortize as removal costs site-specific
environmental
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<PAGE> 10
UGI UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Thousands of dollars)
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 in the normal course 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.
-8-
<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 compare the Company's results of operations for the
three months ended March 31, 1998 (1998 three-month period) with the three
months ended March 31, 1997 (1997 three-month period); the six months ended
March 31, 1998 (1998 six-month period) with the six months ended March 31, 1997
(1997 six-month period); and the twelve months ended March 31, 1998 (1998
twelve-month period) with the twelve months ended March 31, 1997 (1997
twelve-month period). 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.
1998 THREE-MONTH PERIOD COMPARED WITH 1997 THREE-MONTH PERIOD
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Increase
Three Months Ended March 31, 1998 1997 (Decrease)
- --------------------------------------------------------------------------------------------------------------------------
(Millions of dollars)
<S> <C> <C> <C> <C>
GAS UTILITY:
Natural gas system throughput - bcf 25.9 27.9 (2.0) (7.2)%
Degree days - % warmer than normal (24.0) (10.0) - -
Revenues $133.2 $153.3 $(20.1) (13.1)%
Total margin (a) $ 56.2 $ 62.2 $ (6.0) (9.6)%
Operating income $ 33.7 $ 38.9 $ (5.2) (13.4)%
ELECTRIC UTILITY:
Electric sales and transportation - gwh 237.2 248.6 (11.4) (4.6)%
Revenues $ 19.1 $ 20.0 $ (.9) (4.5)%
Total margin (a) $ 9.3 $ 9.4 $ (.1) (1.1)%
Operating income $ 3.5 $ 3.3 $ .2 6.1%
CORPORATE GENERAL AND OTHER:
Corporate general expenses $ (1.3) $ (1.4) $ (.1) (7.1)%
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.
-9-
<PAGE> 12
UGI UTILITIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
GAS UTILITY. Weather in the Gas Utility service area during the three months
ended March 31, 1998 was 24.0% warmer than normal compared with weather that
was 10.0% warmer than normal in the prior-year period. As a result, total
system throughput decreased 7.2% during the 1998 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 1998 three-month period
is due principally to a $20.7 million decrease in core market revenues
resulting primarily from the lower volumes sold. Cost of gas sold by the Gas
Utility was $71.7 million during the 1998 three-month period, a decrease of
$12.9 million from the prior-year period, reflecting the decrease in core
market sales.
Gas Utility total margin during the 1998 three-month period was $6.0 million
lower than in the prior-year period principally reflecting a $6.3 million
decrease in total margin from core market customers. Total margin from Gas
Utility interruptible customers during the 1998 three-month period was slightly
lower than the prior-year period, notwithstanding an increase in throughput, as
the price of alternative fuels, principally oil, declined relative to gas
prices, resulting in lower interruptible transportation rates.
Although 1998 three-month period total margin decreased $6.0 million from the
prior-year period, Gas Utility operating income decreased $5.2 million
principally as a result of lower general and administrative expenses and
slightly higher miscellaneous income.
ELECTRIC UTILITY. Electric Utility sales and transportation decreased during
the 1998 three-month period on weather which was 18.2% warmer than last year.
Electric Utility revenues decreased $.9 million during the three months ended
March 31, 1998 principally as a result of the warmer weather and customers
choosing alternative electric generation suppliers pursuant to the Customer
Choice Act pilot program. Under transportation service, Electric Utility bills
only for the transportation of electricity but not for the cost of the
electricity itself. Electric Utility cost of sales decreased $.8 million as a
result of the warmer weather and the effects of the pilot program on sales of
electricity. Pursuant to the provisions of the Customer Choice Act, Electric
Utility's rates were capped at levels in effect on January 1, 1997.
Consequently, the rates Electric Utility charged customers were the same in
both periods.
Although Electric Utility sales and transportation were lower in the 1998
three-month period, total margin and operating income were virtually unchanged.
Electric Utility's rates, including rates associated with the recovery of
energy costs, have been capped as of January 1, 1997, but the rate caps did not
materially affect Electric Utility results during the 1997 three-month period.
In addition, the implementation of Electric Utility's pilot program pursuant to
the Customer Choice Act did not have a material effect on Electric Utility's
results of operations.
CORPORATE GENERAL EXPENSES. Corporate general expenses, which represent an
allocated share of UGI corporate headquarters' expenses, were $1.3 million in
the 1998 three-month period
-10-
<PAGE> 13
UGI UTILITIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
compared with $1.4 million in the 1997 three-month period. The decrease
reflects lower levels of UGI corporate headquarters' expenses.
INTEREST EXPENSE AND INCOME TAXES. Interest expense during the 1998
three-month period was $4.4 million, comparable with interest expense of $4.3
million recorded in the prior-year period. The effective income tax rate for
the 1998 three-month period was 37.0% compared with a rate of 38.0% in the
three months ended March 31, 1997.
1998 SIX-MONTH PERIOD COMPARED WITH 1997 SIX-MONTH PERIOD
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Increase
Six Months Ended March 31, 1998 1997 (Decrease)
- --------------------------------------------------------------------------------------------------------------------------
(Millions of dollars)
<S> <C> <C> <C> <C>
GAS UTILITY:
Natural gas system throughput - bcf 48.5 52.5 (4.0) (7.6)%
Degree days - % warmer than normal (14.8) (7.2) - -
Revenues $250.1 $ 269.1 $(19.0) (7.1)%
Total margin (a) $104.8 $ 112.8 $ (8.0) (7.1)%
Operating income $ 62.0 $ 67.5 $ (5.5) (8.1)%
ELECTRIC UTILITY:
Electric sales and transportation - gwh 464.9 472.3 (7.4) (1.6)%
Revenues $ 37.7 $ 38.4 $ (.7) (1.8)%
Total margin (a) $ 18.2 $ 18.2 $ - -%
Operating income $ 6.6 $ 6.3 $ .3 4.8%
CORPORATE GENERAL AND OTHER:
Corporate general expenses $ (2.4) $ (2.6) $ (.2) (7.7)%
Other operating income $ .2 $ .2 $ - -%
- --------------------------------------------------------------------------------------------------------------------------
</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 1998 six-month
period was 14.8% warmer than normal compared with weather that was 7.2% warmer
than normal in the prior-year period. Total system throughput decreased 7.6%
during the 1998 six-month period principally reflecting the effect of the
warmer weather on core market sales as well as a decrease in low-margin
interruptible delivery service volumes resulting from the shut-down of a
gas-fired cogeneration facility.
-11-
<PAGE> 14
UGI UTILITIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The decrease in Gas Utility's total revenues reflects a $24.7 million decrease
from lower sales to core market customers and a $1.2 million decrease from
lower sales to interruptible customers partially offset by a $4.8 million
increase from higher average purchased gas cost (PGC) rates and a $2.0 million
increase from greater off-system sales volumes. Cost of gas sold by Gas Utility
decreased $9.9 million to $135.3 million during the 1998 six-month period
reflecting the lower sales to core market customers.
The decrease in Gas Utility total margin principally reflects a $6.2 million
decrease from core market customers resulting from the warmer weather and a
$1.8 million decrease from interruptible customers.
Gas Utility operating income decreased $5.5 million during the 1998 six-month
period principally reflecting the lower total margin partially offset by lower
operating expenses and higher miscellaneous income. Operating and
administrative expenses during the 1998 six-month period decreased $1.6 million
principally as a result of income from an insurance recovery, a decrease in
distribution system expenses and lower general and administrative expense
partially offset by an increase in gas supply expenses.
ELECTRIC UTILITY. Electric Utility sales and transportation decreased during
the 1998 six-month period on weather which was 7.0% warmer than in the 1997
six-month period. Electric Utility revenues decreased $.7 million reflecting
the warmer weather and the effects of Electric Utility's pilot program on sales
of electricity. Cost of sales decreased to $17.9 million in the 1998 six-month
period from $18.5 million in the prior-year period as a result of the lower
sales.
Electric Utility total margin was $18.2 million during the 1998 six-month
period, unchanged from the prior-year period. However, Electric Utility
operating income increased during the six months ended March 31, 1998
principally as a result of lower operating and administrative expenses and
lower charges for depreciation.
CORPORATE GENERAL. Corporate general expenses were $2.4 million in the 1998
six-month period compared with $2.6 million in the 1997 six-month period. The
decrease represents lower levels of UGI corporate headquarters' expenses.
INTEREST EXPENSE AND INCOME TAXES. Interest expense was $8.7 million during
the 1998 six-month period compared with $8.6 million in the 1997 six-month
period. The increase in interest expense reflects higher average long-term debt
outstanding partially offset by lower average bank loans outstanding. The
effective income tax rate for the 1998 six-month period was 37.3% compared with
a rate of 38.0% for the six months ended March 31, 1997.
-12-
<PAGE> 15
UGI UTILITIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
1998 TWELVE-MONTH PERIOD COMPARED WITH 1997 TWELVE-MONTH PERIOD
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Increase
Twelve Months Ended March 31, 1998 1997 (Decrease)
- ---------------------------------------------------------------------------------------------------------------------
(Millions of dollars)
<S> <C> <C> <C> <C>
GAS UTILITY:
Natural gas system throughput - bcf 76.3 82.5 (6.2) (7.5)%
Degree days - % warmer than normal (11.5) (6.0) - -
Revenues $370.0 $392.8 $(22.8) (5.8)%
Total margin (a) $160.7 $168.8 $ (8.1) (4.8)%
Operating income $ 69.3 $ 74.3 $ (5.0) (6.7)%
ELECTRIC UTILITY:
Electric sales and transportation - gwh 861.1 871.4 (10.3) (1.2)%
Revenues $ 71.5 $ 71.5 $ - -%
Total margin (a) $ 35.2 $ 34.3 $ .9 2.6%
Operating income $ 11.0 $ 10.0 $ 1.0 10.0%
CORPORATE GENERAL AND OTHER:
Corporate general expenses $ (5.3) $ (3.6) $ 1.7 47.2%
Other operating income $ .3 $ .2 $ .1 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 1998
twelve-month period was warmer than in the 1997 twelve-month period. Total
system throughput declined principally as a result of a decrease in low-margin
interruptible delivery service volumes resulting from the shut-down of a
gas-fired cogeneration facility and the effects of the warmer weather on core
market sales.
Gas Utility revenues were $22.8 million lower in the 1998 twelve-month period
as a result of a $28.8 million decrease in core market revenues due to the
lower volumes sold that was partially offset by a $9.9 million increase in core
market revenues primarily from higher average PGC rates, a $2.6 million
decrease in revenues from off-system sales, and lower revenues from
interruptible customers. Cost of gas sold was $195.3 million during the 1998
twelve-month period, a decrease of $13.4 million from the same period in 1997,
principally reflecting the reduced core market and off-system sales partially
offset by the effects of higher average PGC rates.
-13-
<PAGE> 16
UGI UTILITIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Gas Utility total margin decreased in the twelve months ended March 31, 1998
principally reflecting a $7.1 million decrease in total margin from core market
customers and a $1.3 million decrease in total margin from interruptible
customers.
Gas Utility operating income decreased $5.0 million during the 1998
twelve-month period as the lower total margin was partially offset by a $.9
million decrease in operating expenses, a $1.2 million decrease in depreciation
and amortization, and higher miscellaneous income.
ELECTRIC UTILITY. Electric Utility sales and transportation were lower during
the twelve months ended March 31, 1998 than in the prior-year period due in
part to warmer heating-season weather. Notwithstanding lower sales, Electric
Utility revenues were essentially unchanged from the prior-year period as the
effect of the lower sales was offset by an increase in base rates effective in
July 1996. Electric Utility cost of sales decreased $.9 million to $33.2
million during the 1998 twelve-month period as a result of the lower sales.
Electric Utility total margin during the 1998 twelve-month period increased
principally as a result of the full year effect of the higher base rates
effective July 19, 1996. The increase in operating income reflects the increase
in total margin.
CORPORATE GENERAL EXPENSES. Corporate general expenses were $5.3 million in
the 1998 twelve-month period compared with $3.6 million in the 1997
twelve-month period. The 1997 twelve-month period allocated UGI corporate
expenses were lower as a result of adjustments to incentive compensation
accruals recorded in September 1996.
INTEREST EXPENSE AND INCOME TAXES. Interest expense was $17.0 million in the
1998 twelve-month period compared with $16.3 million in the 1997 twelve-month
period. The increase in interest expense during the 1998 twelve-month period is
principally due to higher levels of bank loans outstanding at slightly higher
average interest rates. The effective income tax rate for the 1998 twelve-month
period was 38.2% compared with a rate of 37.8% in the prior-year period.
-14-
<PAGE> 17
UGI UTILITIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FINANCIAL CONDITION AND LIQUIDITY
CAPITAL STRUCTURE
The Company's debt outstanding at March 31, 1998 totaled $237.2 million
compared with $236.3 million at September 30, 1997. The increase is a result of
the issuance of a combined $35 million of notes under UGI Utilities' Series B
Medium-Term Note program offset by a $24.1 million decrease in bank loans
outstanding and $10 million in long-term debt repayments.
On February 25, 1998, UGI Utilities announced the early redemption of 120,000
shares of its $8.00 Series Preferred Stock effective April 2, 1998 at a
redemption price of $102.667 per share plus accrued and unpaid dividends. UGI
Utilities also announced the optional redemption of all 7,983 outstanding
shares of its $1.80 Series Preferred Stock on April 1, 1998 at a redemption
price of $23.50 per share plus accrued and unpaid dividends. UGI Utilities used
borrowings under its revolving credit agreements to fund such redemptions.
CASH FLOWS
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, 1998 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 each of the six month periods ended March 31, 1998 and 1997. Cash
generated by operations before changes in operating working capital totaled
$46.7 million during the six months ended March 31, 1998, comparable to the
$46.6 million in the prior-year period. Changes in operating working capital
during the six months ended March 31, 1998 required $26.5 million of operating
cash flow principally from a $42.9 million seasonal increase in accounts
receivable and accrued utility revenues and a $19.9 million decrease in
accounts payable partially offset by a $21.4 million seasonal decrease in
inventories and $11.7 million in purchased gas cost overcollections. In the six
months ended March 31, 1997, changes in operating working capital required
$26.4 million of operating cash flow.
INVESTING ACTIVITIES. Cash expenditures for property, plant and equipment
totaled $15.6 million in the six months ended March 31, 1998 compared with
$18.6 million in the same period in 1997. The decrease reflects lower Gas
Utility capital expenditures.
FINANCING ACTIVITIES. Cash flows from financing activities for each of the
six-month periods ended March 31, 1998 and 1997 include dividends on preferred
stock of $1.4 million. Dividends during the six months ended March 31, 1998 and
1997 also include $12.6 million and $24.1 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)
During the 1998 six-month period, UGI Utilities issued $20 million of
twenty-year 7.25% notes and $15 million of three-year 6.17% notes under its
Series B Medium-Term Note program the proceeds of which were used to reduce
bank loans. During the six months ended March 31, 1998, UGI Utilities repaid
$10 million of its 8.70% Notes. During the prior-year period, UGI Utilities
repaid $8.4 million of its Series First Mortgage Bonds and $10 million of its
8.70% Notes. Net repayments under UGI Utilities' revolving credit agreements
totaled $24.1 million in the 1998 six-month period compared with net borrowings
of $44.5 million in the prior-year period.
ELECTRICITY GENERATION CUSTOMER CHOICE AND COMPETITION ACT
On August 7, 1997, Electric Utility filed with the PUC its restructuring plan
pursuant to the Customer Choice Act. The restructuring plan includes a claim
for therecovery 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 estimated competitive market value and
electric generation facility retirement costs; (2) potential costs associated
with existing power purchase agreements; and (3) regulatory assets (principally
income taxes of approximately $.5 million) recoverable from ratepayers under
current regulatory practice. The claim also seeks to establish a recovery
mechanism that would permit the recovery of up to an additional $28 million of
costs associated with the buy out or implementation of a December 1993
agreement to purchase power from an independent power producer. The PUC is
expected to take action on Electric Utility's filing during the summer of 1998.
The Financial Accounting Standards Board's (FASB's) Emerging Issues Task Force
(EITF) has addressed the appropriateness of the continued application of
Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for the
Effects of Certain Types of Regulation" (SFAS 71) by utilities in states that
have enacted restructuring legislation similar to the Customer Choice Act. 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 EITF issued its statement 97-4, "Deregulation of the Pricing of
Electricity - Issues Related to the Application of FASB Statements 71 and 101"
which concluded that utilities should discontinue application of SFAS 71 for
the generation portion of their business when a restructuring plan is in place
and its terms are known. For UGI Utilities, this will be upon the issuance of
the PUC's restructuring order which is expected to occur during the summer of
1998. If pursuant to the restructuring plan such electric generation assets no
longer meet the criteria of SFAS 71, any related regulatory assets would be
written-off unless the form of transition cost recovery meets the requirements
under generally accepted accounting principles for continued accounting as
regulatory assets. Any generation-related, long-lived fixed and intangible
assets would be evaluated for impairment under the provisions of SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of."
-16-
<PAGE> 19
UGI UTILITIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Based upon an evaluation of the various factors and conditions affecting future
cost recovery, the Company does not expect the adoption of a PUC restructuring
order 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. Legislative committees have conducted public hearings
on the proposed legislation and the Company has provided testimony on such
issues as the recovery of costs associated with its existing gas supply assets
and the need for standards to assure reliability of future gas supplies. At
the request of the Governor of Pennsylvania, in December 1997 a collaborative
group of industry stakeholders was convened to attempt to further develop the
proposed legislation. To date, this group has failed to reach a consensus. The
Company expects the collaborative process to continue, and it will participate
and monitor developments, as appropriate.
YEAR 2000 MATTERS
The Company has conducted a detailed assessment of its critical computer-based
systems in order to evaluate its Year 2000 ("Y2K") exposure. The Y2K issue is a
result of computer programs being written using two digits (rather than four)
to identify and process a year in a date field. Computer programs having date
sensitive software may recognize date fields using "00" as the year 1900 rather
than the year 2000, resulting in miscalculations and possible computer-based
system failures. The Company has also identified and is contacting major
vendors on which it depends for products or services in order to assess their
Y2K compliance readiness and, if necessary, to develop appropriate contingency
plans.
The Company has begun modifying its computer-based systems that are not
currently Y2K compliant. The Company anticipates that its critical
computer-based systems will be Y2K compliant by March 31, 1999.
The Company does not expect the costs to modify its computer-based systems,
which will be expensed as incurred, will have a material effect on its results
of operations or cash flows. However, in the event that the Company or its
major suppliers experience disruptions due to Y2K issues, the Company's
operations could be adversely affected.
-17-
<PAGE> 20
UGI UTILITIES, INC. AND SUBSIDIARIES
PART II OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDER
On January 28, 1998, 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, electing all eight nominees to the
Board of Directors. Each of the following nominees received 26,781,785 votes
for his election: Stephen D. Ban, Richard L. Bunn, Thomas F. Donovan, Richard
C. Gozon, Lon R. Greenberg, Marvin O. Schlanger, James W. Stratton and David I.
J. Wang.
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 February
24, 1998, to report under Item 5 the prospective retirement of
Richard L. Bunn, the Company's Chief Executive Officer, in
1999.
-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: May 13, 1998 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
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
Months
Ended Year Ended September 30,
March 31, ------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
EARNINGS:
Earnings before income taxes $ 57,773 $ 63,275 $ 61,717 $ 39,759 $ 41,244
Interest expense 8,607 16,696 15,921 16,632 16,482
Amortization of debt discount and expense 99 176 173 206 187
Interest component of rental expense 797 1,887 1,838 1,604 1,344
----------- ----------- ----------- ----------- -----------
$ 67,276 $ 82,034 $ 79,649 $ 58,201 $ 59,257
=========== =========== =========== =========== ===========
FIXED CHARGES:
Interest expense $ 8,607 $ 16,696 $ 15,921 $ 16,632 $ 16,482
Amortization of debt discount and expense 99 176 173 206 187
Allowance for funds used during
construction (capitalized interest) 21 114 107 65 136
Interest component of rental expense 797 1,887 1,838 1,604 1,344
----------- ----------- ----------- ----------- -----------
$ 9,524 $ 18,873 $ 18,039 $ 18,507 $ 18,149
=========== =========== =========== =========== ===========
Ratio of earnings to fixed charges 7.06 4.35 4.42 3.14 3.27
=========== =========== =========== =========== ===========
</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
Months
Ended Year Ended September 30,
March 31, --------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
EARNINGS:
Earnings before income taxes $ 57,773 $ 63,275 $ 61,717 $ 39,759 $ 41,244
Interest expense 8,607 16,696 15,921 16,632 16,482
Amortization of debt discount and expense 99 176 173 206 187
Interest component of rental expense 797 1,887 1,838 1,604 1,344
------------ ------------ ------------ ----------- -------------
$ 67,276 $ 82,034 $ 79,649 $ 58,201 $ 59,257
============ ============ ============ =========== =============
COMBINED FIXED CHARGES AND PREFERRED
STOCK DIVIDENDS:
Interest expense $ 8,607 $ 16,696 $ 15,921 $ 16,632 $ 16,482
Amortization of debt discount and expense 99 176 173 206 187
Allowance for funds used during
construction (capitalized interest) 21 114 107 65 136
Interest component of rental expense 797 1,887 1,838 1,604 1,344
Preferred stock dividend requirements 1,382 2,764 2,765 2,778 1,356
Adjustment required to state preferred stock
dividend requirements on a pretax basis 823 1,754 1,685 1,164 1,018
------------ ------------ ------------ ----------- -------------
$ 11,729 $ 23,391 $ 22,489 $ 22,449 $ 20,523
============ ============ ============ =========== =============
Ratio of earnings to combined fixed charges
and preferred stock dividends 5.74 3.51 3.54 2.59 2.89
============ ============ ============ =========== =============
</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, 1998 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,
1998.
</LEGEND>
<CIK> 0000100548
<NAME> UGI UTILITIES, INC.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 4,095
<SECURITIES> 0
<RECEIVABLES> 76,473
<ALLOWANCES> 3,457
<INVENTORY> 9,213
<CURRENT-ASSETS> 108,031
<PP&E> 779,670
<DEPRECIATION> 246,470
<TOTAL-ASSETS> 707,032
<CURRENT-LIABILITIES> 154,067
<BONDS> 187,161
20,000
0
<COMMON> 60,259
<OTHER-SE> 162,425
<TOTAL-LIABILITY-AND-EQUITY> 707,032
<SALES> 287,797
<TOTAL-REVENUES> 287,797
<CGS> 153,158
<TOTAL-COSTS> 153,158
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,706
<INCOME-PRETAX> 57,773
<INCOME-TAX> 21,566
<INCOME-CONTINUING> 36,207
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 36,207
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0<F1>
<FN>
<F1>THERE ARE NO PUBLICLY HELD SHARES OUTSTANDING
</FN>
</TABLE>
