<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, 1999
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, 2000, 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.
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UGI UTILITIES, INC.
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 December 31, 1999,
September 30, 1999 and December 31, 1998 1
Condensed Consolidated Statements of Income for the three
and twelve months ended December 31, 1999 and 1998 2
Condensed Consolidated Statements of Cash Flows for the three and
twelve months ended December 31, 1999 and 1998 3
Notes to Condensed Consolidated Financial Statements 4 - 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10 - 14
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
</TABLE>
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PART I FINANCIAL INFORMATION
UGI UTILITIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(Thousands of dollars)
<TABLE>
<CAPTION>
December 31, September 30, December 31,
1999 1999 1998
-------- -------- --------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,218 $ 11,063 $ 3,567
Accounts receivable (less allowances for doubtful accounts
of $1,649, $1,716 and $1,349, respectively) 42,311 21,887 33,926
Accrued utility revenues 24,658 6,867 21,687
Inventories 21,007 28,103 27,016
Deferred income taxes 2,843 2,972 4,119
Prepaid expenses and other current assets 2,022 6,283 2,887
-------- -------- --------
Total current assets 97,059 77,175 93,202
Property, plant and equipment, at cost (less accumulated depreciation
and amortization of $275,229, $270,003 and $257,963, respectively) 559,173 556,793 547,127
Regulatory assets 61,590 61,082 59,314
Other assets 17,512 17,483 17,079
-------- -------- --------
Total assets $735,334 $712,533 $716,722
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 7,143 $ 7,143 $ 7,143
Bank loans 101,800 87,400 70,200
Accounts payable 38,150 37,881 43,802
Other current liabilities 40,326 31,048 35,861
-------- -------- --------
Total current liabilities 187,419 163,472 157,006
Long-term debt 172,909 172,904 180,032
Deferred income taxes 113,764 112,284 106,456
Other noncurrent liabilities 24,252 24,313 29,342
Commitments and contingencies
Redeemable preferred stock 20,000 20,000 20,000
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 68,559 68,559 68,559
Retained earnings 88,172 90,742 95,068
-------- -------- --------
Total common stockholder's equity 216,990 219,560 223,886
-------- -------- --------
Total liabilities and stockholders' equity $735,334 $712,533 $716,722
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
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UGI UTILITIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(Thousands of dollars)
<TABLE>
<CAPTION>
Three Months Ended Twelve Months Ended
December 31, December 31,
--------------------------- ---------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues $ 121,156 $ 112,770 $ 429,033 $ 399,589
--------- --------- --------- ---------
Costs and expenses:
Gas, fuel and purchased power 57,433 55,336 207,318 197,470
Operating and administrative expenses 27,470 26,454 112,988 110,554
Operating and administrative expenses
- related parties 561 1,172 4,335 4,911
Depreciation and amortization 5,747 5,477 23,276 22,169
Other income, net (3,877) (1,121) (7,925) (5,228)
--------- --------- --------- ---------
87,334 87,318 339,992 329,876
--------- --------- --------- ---------
Operating income 33,822 25,452 89,041 69,713
Interest expense 4,746 4,438 17,840 17,700
--------- --------- --------- ---------
Income before income taxes 29,076 21,014 71,201 52,013
Income taxes 11,258 7,981 27,548 19,637
--------- --------- --------- ---------
Net income 17,818 13,033 43,653 32,376
Dividends on preferred stock 388 388 1,550 1,857
--------- --------- --------- ---------
Net income after dividends on preferred stock $ 17,430 $ 12,645 $ 42,103 $ 30,519
========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 5
UGI UTILITIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(Thousands of dollars)
<TABLE>
<CAPTION>
Three Months Ended Twelve Months Ended
December 31, December 31,
----------------------- -----------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 17,818 $ 13,033 $ 43,653 $ 32,376
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 5,747 5,477 23,276 22,169
Deferred income taxes, net 1,109 839 6,062 5,823
Other, net 560 (106) 3,543 5,002
-------- -------- -------- --------
25,234 19,243 76,534 65,370
Net change in:
Accounts receivable and accrued utility revenues (39,088) (29,430) (15,678) 13,210
Inventories 7,096 1,444 6,009 (173)
Deferred fuel costs 168 (64) (4,888) (8,182)
Accounts payable 269 4,955 (5,652) 3,188
Other current assets and liabilities 13,539 9,874 7,032 (13,358)
-------- -------- -------- --------
Net cash provided by operating activities 7,218 6,022 63,357 60,055
-------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant and equipment (7,997) (8,539) (35,842) (37,293)
Net proceeds (costs) of property, plant and equipment disposals (78) (48) (771) 250
-------- -------- -------- --------
Net cash used by investing activities (8,075) (8,587) (36,613) (37,043)
-------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of dividends (20,388) (388) (50,550) (12,157)
Issuance of long-term debt - - - 15,000
Repayment of long-term debt - - (7,143) (17,143)
Bank loans increase 14,400 1,800 31,600 7,500
Redemption of Series Preferred Stock - - - (15,507)
-------- -------- -------- --------
Net cash provided (used) by financing activities (5,988) 1,412 (26,093) (22,307)
-------- -------- -------- --------
Cash and cash equivalents increase (decrease) $ (6,845) $ (1,153) $ 651 $ 705
======== ======== ======== ========
CASH AND CASH EQUIVALENTS:
End of period $ 4,218 $ 3,567 $ 4,218 $ 3,567
Beginning of period 11,063 4,720 3,567 2,862
-------- -------- -------- --------
Increase (decrease) $ (6,845) $ (1,153) $ 651 $ 705
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
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UGI UTILITIES, INC.
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
subsidiaries (collectively, "the Company" or "we"). We eliminate all
significant intercompany accounts and transactions when we consolidate.
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 generation
and distribution operation ("Electric Utility") in northeastern
Pennsylvania. Effective October 1, 1999, Electric Utility's interests in
its electric generating facilities were transferred to UGI Utilities'
wholly owned non-utility subsidiary UGI Development Company, ("UGID").
UGID has been granted "Exempt Wholesale Generator" status by the Federal
Energy Regulatory Commission.
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 we consider 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
related notes included in our Annual Report on Form 10-K for the year
ended September 30, 1999 ("Company's 1999 Annual Report"). Due to the
seasonal nature of our businesses, the results of operations for interim
periods are not necessarily indicative of the results to be expected for a
full year. UGI Utilities' comprehensive income as determined under
Statement of Financial Accounting Standards ("SFAS") No. 130 "Reporting
Comprehensive Income" was the same as its net income for all periods
presented.
Management makes estimates and assumptions when preparing financial
statements in conformity with generally accepted accounting principles.
These estimates and assumptions affect the reported amounts of assets and
liabilities, revenues and expenses, as well as the disclosure of
contingent assets and liabilities. Actual results could differ from these
estimates.
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<PAGE> 7
UGI UTILITIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Thousands of dollars)
2. SEGMENT INFORMATION
Based upon SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS 131"), we have determined that the Company has
two reportable segments: (1) Gas Utility and (2) Electric Utility.
Although (1) Pennsylvania's Electricity Customer Choice Act unbundled
prices for electric generation, transmission and distribution services and
(2) on October 1, 1999 we transferred our electric generation assets to
our non-utility subsidiary UGID, we currently manage and evaluate our
electric generation, transmission and distribution operations on a
combined basis. Accordingly, these electric operations have been combined
for segment presentation purposes.
The accounting policies of our two reportable segments are the same as
those described in the Significant Accounting Policies note contained in
the Company's 1999 Annual Report. We evaluate each segment's performance
principally based upon its earnings before income taxes.
No single customer represents more than 5% of the total revenues of either
Gas Utility or Electric Utility. Financial information by business segment
follows:
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<PAGE> 8
UGI UTILITIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Thousands of dollars)
2. SEGMENT INFORMATION (continued)
THREE MONTHS ENDED DECEMBER 31, 1999:
<TABLE>
<CAPTION>
Gas Electric All
Total Eliminations Utility Utility other
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $ 121,156 $-- $ 101,976 $ 19,180 $ --
====================================================================================
EBITDA $ 39,569 $-- $ 32,709 $ 6,860 $ --
Depreciation and amortization (5,747) -- (4,847) (900) --
------------------------------------------------------------------------------------
Operating income 33,822 -- 27,862 5,960 --
Interest expense (4,746) -- (4,208) (538) --
------------------------------------------------------------------------------------
Income before income taxes $ 29,076 $-- $ 23,654 $ 5,422 $ --
====================================================================================
Total assets (at period end) $ 735,334 $-- $ 638,576 $ 96,434 $ 324
====================================================================================
</TABLE>
THREE MONTHS ENDED DECEMBER 31, 1998:
<TABLE>
<CAPTION>
Gas Electric All
Total Eliminations Utility Utility other
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $ 112,770 $ -- $ 94,578 $ 18,192 $ --
=================================================================================
EBITDA $ 30,929 $ -- $ 26,245 $ 4,693 $ (9)
Depreciation and amortization (5,477) -- (4,667) (810) --
---------------------------------------------------------------------------------
Operating income (loss) 25,452 -- 21,578 3,883 (9)
Interest expense (4,438) -- (3,845) (593) --
---------------------------------------------------------------------------------
Income (loss) before income taxes $ 21,014 $ -- $ 17,733 $ 3,290 $ (9)
=================================================================================
Total assets (at period end) $ 716,722 $ (101) $ 619,861 $ 96,768 $ 194
=================================================================================
</TABLE>
-------
EBITDA (earnings before interest expense, income taxes, depreciation
and amortization) should not be considered as an alternative to net
income (as an indicator of operating performance) or as an alternative
to cash flow (as a measure of liquidity or ability to service debt
obligations) and is not a measure of performance or financial condition
under generally accepted accounting principles.
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<PAGE> 9
UGI UTILITIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Thousands of dollars)
SEGMENT INFORMATION (continued)
TWELVE MONTHS ENDED DECEMBER 31, 1999:
<TABLE>
<CAPTION>
Gas Electric All
Total Eliminations Utility Utility other
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $ 429,033 $-- $ 353,035 $ 75,998 $ --
==========================================================================
EBITDA $ 112,317 $-- $ 93,428 $ 18,947 $ (58)
Depreciation and amortization (23,276) -- (19,176) (4,100) --
-------------------------------------------------------------------------
Operating income (loss) 89,041 -- 74,252 14,847 (58)
Interest expense (17,840) -- (15,547) (2,293) --
-------------------------------------------------------------------------
Income (loss) before income taxes $ 71,201 $-- $ 58,705 $ 12,554 $ (58)
==========================================================================
Total assets (at period end) $ 735,334 $-- $ 638,576 $ 96,434 $ 324
==========================================================================
</TABLE>
TWELVE MONTHS ENDED DECEMBER 31, 1998:
<TABLE>
<CAPTION>
Gas Electric All
Total Eliminations Utility Utility other
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $ 399,589 $ -- $ 327,901 $ 71,688 $ --
=================================================================================
EBITDA $ 91,882 $ -- $ 77,341 $ 14,402 $ 139
Depreciation and amortization (22,169) -- (18,357) (3,812) --
---------------------------------------------------------------------------------
Operating income 69,713 -- 58,984 10,590 139
Interest expense (17,700) -- (15,343) (2,357) --
---------------------------------------------------------------------------------
Income before income taxes $ 52,013 $ -- $ 43,641 $ 8,233 $ 139
=================================================================================
Total assets (at period end) $ 716,722 $ (101) $ 619,861 $ 96,768 $ 194
=================================================================================
</TABLE>
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<PAGE> 10
UGI UTILITIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Thousands of dollars)
3. COMMITMENTS AND CONTINGENCIES
The gas distribution business has been one of UGI Utilities' main
businesses since it began in 1882. Prior to the construction of major
natural gas pipelines in the 1950s, gas used for lighting and heating was
produced at manufactured gas plants ("MGPs") from processes involving
coal, coke or oil. Some constituents of coal tars produced from this
process are today considered hazardous substances under the Superfund Law
and may be located at these sites.
Certain private parties have filed, or threatened to file, suit against
UGI Utilities to recover costs of investigation or remediation of several
MGP sites. In addition, we have identified environmental contamination at
several of our properties and have voluntarily undertaken investigation
and, as appropriate, remediation of these sites in cooperation with
appropriate environmental agencies or private parties. At sites where a
former subsidiary of UGI Utilities operated an MGP, we believe that 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, a court could find a parent company
liable for environmental damage at sites owned by a subsidiary company
when the parent company either (1) itself operated the facility causing
the environmental damage or (2) 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 MGPs 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
subsidiary's separate corporate form should be disregarded. In many
circumstances where UGI Utilities may be liable, we may not be able to
reasonably quantify expenditures because of a number of factors. These
factors include the 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.
UGI Utilities has filed suit against more than fifty insurance companies
alleging that the defendants breached contracts of insurance by failing to
indemnify UGI Utilities for certain environmental costs. The suit seeks to
recover more than $11,000 in costs incurred by UGI Utilities at various
manufactured gas plant sites. The major parties to the suit are in the
early stages of exchanging information.
In addition to these environmental matters, there are other pending claims
and legal actions arising in the normal course of our businesses. We
cannot predict with certainty the final results of environmental and other
matters. However, it is reasonably possible
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<PAGE> 11
UGI UTILITIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Thousands of dollars)
that some of them could be resolved unfavorably to us. 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 our financial position. However, such
damages or settlements could be material to our operating results or
cash flows in future periods depending on the nature and timing of
future developments with respect to these matters and the amounts of
future operating results and cash flows.
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<PAGE> 12
UGI UTILITIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ANALYSIS OF RESULTS OF OPERATIONS
The following analyses compare our results of operations for (1) the three
months ended December 31, 1999 ("1999 three-month period") with the three months
ended December 31, 1998 ("1998 three-month period") and (2) the twelve months
ended December 31, 1999 ("1999 twelve-month period") with the twelve months
ended December 31, 1998 ("1998 twelve-month period"). Our analyses of results of
operations should be read in conjunction with the segment information included
in Note 2 to the Condensed Consolidated Financial Statements.
1999 THREE-MONTH PERIOD COMPARED WITH 1998 THREE-MONTH PERIOD
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Three Months Ended December 31, 1999 1998 Increase
- -------------------------------------------------------------------------------------------------------
(Millions of dollars)
<S> <C> <C> <C> <C>
GAS UTILITY:
Revenues $ 102.0 $ 94.6 $ 7.4 7.8%
Total margin (a) $ 47.9 $ 43.2 $ 4.7 10.9%
EBITDA (b) $ 32.7 $ 26.2 $ 6.5 24.8%
Operating income $ 27.9 $ 21.6 $ 6.3 29.2%
Natural gas system throughput - bcf 22.1 20.3 1.8 8.9%
Heating degree days - % warmer
than normal (12.2) (17.1) -- --
ELECTRIC UTILITY:
Revenues $ 19.2 $ 18.2 $ 1.0 5.5%
Total margin (a) $ 11.0 $ 9.7 $ 1.3 13.4%
EBITDA (b) $ 6.9 $ 4.7 $ 2.2 46.8%
Operating income $ 6.0 $ 3.9 $ 2.1 53.8%
Electric sales - gwh 225.5 223.2 2.3 1.0%
- -------------------------------------------------------------------------------------------------------
</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.
(b) EBITDA (earnings before interest expense, income taxes, depreciation and
amortization) should not be considered as an alternative to net income (as
an indicator of operating performance) or as an alternative to cash flow
(as a measure of liquidity or ability to
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<PAGE> 13
UGI UTILITIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
service debt obligations) and is not a measure of performance or financial
condition under generally accepted accounting principles.
GAS UTILITY. Weather in Gas Utility's service territory during the 1999
three-month period was 12.2% warmer than normal but 5.9% colder than the
prior-year period. The colder weather was the primary factor in a 1.8 bcf (8.9%)
increase in total system throughput.
The $7.4 million increase in Gas Utility's revenues during the 1999 three-month
period principally resulted from (1) a $6.5 million increase from higher sales
to our firm residential, commercial and industrial ("core market") customers,
and (2) a $2.0 million increase in revenues from interruptible customers. These
increases were partially offset by lower revenues from off-system sales. Gas
Utility cost of gas was $50.0 million, an increase of $2.3 million from the
prior-year period, primarily reflecting increased gas costs associated with the
higher core market sales partially offset by lower gas costs associated with
off-system sales.
Gas Utility total margin during the 1999 three-month period was $4.7 million
higher than in the 1998 three-month period. The higher total margin includes (1)
a $2.2 million increase in total core market margin as a result of the colder
weather, (2) a $1.7 million increase in total interruptible retail and delivery
service margin reflecting higher throughput and the impact of a greater spread
between oil and natural gas prices, and (3) greater firm delivery service
margin.
Gas Utility EBITDA and operating income were higher in the 1999 three-month
period reflecting the increase in total margin and higher other income. Other
income in the current-year period includes a total of $1.6 million of interest
income from (1) revenue-related tax overpayments made in prior years and (2)
purchased gas cost undercollections. Operating and administrative expenses in
the 1999 three-month period, which are net of $0.9 million of income from
adjustments to incentive compensation accruals, were essentially unchanged from
the prior-year period.
ELECTRIC UTILITY. The increase in kilowatt-hour sales in the 1999 three-month
period reflects the impact of increased sales from weather that was 5% colder
than the prior-year period. Electric Utility revenues increased as a result of
the higher sales as well as transmission revenues from alternate electric power
suppliers selling electricity to some of our customers pursuant to
Pennsylvania's Electricity Customer Choice Act. Approximately 5% of our
kilowatt-hour sales during the 1999 three-month period represented electricity
we distributed for alternate suppliers. Notwithstanding the slight increase in
electric sales, cost of sales decreased $0.2 million to $7.4 million reflecting
lower average purchased power costs.
Electric Utility operations total margin increased $1.3 million reflecting the
impact of (1) lower power costs and (2) higher electric sales. EBITDA and
operating income were also higher reflecting the higher total margin and higher
other income. Operating expenses in the 1999 three-
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<PAGE> 14
UGI UTILITIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
month period were slightly higher reflecting modestly higher power generation
maintenance costs offset by $0.3 million of income from adjustments to incentive
compensation accruals.
1999 TWELVE-MONTH PERIOD COMPARED WITH 1998 TWELVE-MONTH PERIOD
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Twelve Months Ended December 31, 1999 1998 Increase
- --------------------------------------------------------------------------------------------------------
(Millions of dollars)
<S> <C> <C> <C> <C>
GAS UTILITY:
Revenues $ 353.0 $ 327.9 $ 25.1 7.7%
Total margin $ 165.3 $ 151.8 $ 13.5 8.9%
EBITDA $ 93.4 $ 77.3 $ 16.1 20.8%
Operating income $ 74.3 $ 59.0 $ 15.3 25.9%
Natural gas system throughput - bcf 77.9 72.6 5.3 7.3%
Heating degree days - % warmer
than normal (11.0) (21.8) -- --
ELECTRIC UTILITY:
Revenues $ 76.0 $ 71.7 $ 4.3 6.0%
Total margin $ 39.9 $ 34.8 $ 5.1 14.7%
EBITDA $ 18.9 $ 14.4 $ 4.5 31.3%
Operating income $ 14.8 $ 10.6 $ 4.2 39.6%
Electric sales - gwh 902.8 871.8 31.0 3.6%
- --------------------------------------------------------------------------------------------------------
</TABLE>
GAS UTILITY. Weather in Gas Utility's service territory during the 1999
twelve-month period was 11.0% warmer than normal but 13.9% colder than the
prior-year twelve-month period. As a result of the colder weather and, to a
lesser extent, an increase in total customers, system throughput increased 5.3
bcf (7.3%).
The increase in Gas Utility's revenues during the 1999 twelve-month period
resulted from a $19.1 million increase in core market revenues, due primarily to
higher sales, and higher delivery service revenues. Gas Utility cost of gas was
$174.3 million in the 1999 twelve-month period, an increase of $10.6 million,
principally reflecting the higher core market sales.
Gas Utility total margin in the 1999 twelve-month period increased $13.5 million
from the prior-year period. The increase includes (1) $8.4 million from core
market customers, (2) a $2.0 million increase from interruptible retail and
delivery service customers, and (3) higher margin from firm delivery service
customers.
Gas Utility EBITDA and operating income were higher in the 1999 twelve-month
period reflecting the increase in total margin and higher other income. The
increase in other income includes, among other things, interest income from
revenue-related tax overpayments and
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<PAGE> 15
UGI UTILITIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
purchased gas cost undercollections. Gas Utility total operating expenses in the
1999 twelve-month period, excluding charges for depreciation and amortization,
were virtually unchanged from the prior-year twelve-month period.
ELECTRIC UTILITY. Total kilowatt-hour sales were 31.0 gwh (3.6%) higher in the
1999 twelve-month period reflecting higher weather-related sales for both
heating and air conditioning. Electric Utility revenues increased $4.3 million
as a result of the higher sales and higher transmission revenue from alternate
suppliers serving customers on our distribution system pursuant to the
Electricity Customer Choice Act. Notwithstanding the increase in kilowatt-hour
sales, cost of sales decreased $0.9 million to $32.9 million. The increase in
purchased power costs resulting from the higher sales was more than offset by
(1) lower average purchased power costs and (2) the benefit of a power supply
agreement settlement.
Electric Utility's total margin increased $5.1 million as a result of (1) the
lower average purchased power costs, (2) the power supply agreement settlement,
and (3) the higher 1999 twelve-month period sales. EBITDA and operating income
were also higher reflecting the increase in total margin and higher other income
partially offset by higher (1) power generation maintenance costs, (2) customer
service and information expenses, and (3) charges for depreciation.
FINANCIAL CONDITION AND LIQUIDITY
CAPITAL STRUCTURE
The Company's debt outstanding at December 31, 1999 totaled $281.9 million
compared with $267.4 million at September 30, 1999. Included in these amounts
are bank loans of $101.8 million and $87.4 million, respectively. Under our
revolving credit agreements, we may borrow up to $117.0 million.
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 generally lowest during the
first and fourth fiscal quarters. Accordingly, cash flows from operations for
the three months ended December 31, 1999 are not necessarily indicative of cash
flows to be expected for a full year.
OPERATING ACTIVITIES. Cash provided by operating activities was $7.2 million
during the three months ended December 31, 1999. In the prior-year period,
operating activities provided $6.0 million of cash. Changes in operating working
capital during the three months ended December 31, 1999 required $18.0 million
of operating cash flow while changes in operating working capital during the
three months ended December 31, 1998 required $13.2 million of operating cash
flow. Cash generated by operating activities before changes in operating working
capital totaled $25.0 million during the three
-13-
<PAGE> 16
UGI UTILITIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
months ended December 31, 1999, $5.8 million higher than the $19.2 million
generated in the prior-year period, reflecting the Company's greater operating
results in the 1999 three-month period.
INVESTING ACTIVITIES. We spent $8.0 million for property, plant and equipment in
the three months ended December 31, 1999 compared with $8.5 million in the three
months ended December 31, 1998. The decrease reflects lower information services
capital expenditures.
FINANCING ACTIVITIES. Cash flows from financing activities in each of the 1999
and 1998 three-month periods include dividends on preferred stock of $0.4
million. During the 1999 three-month period, we paid $20.0 million of dividends
to our parent company, UGI. Net borrowings under UGI Utilities revolving credit
agreements totaled $14.4 million in the 1999 three-month period compared with
net borrowings of $1.8 million in the prior-year period.
YEAR 2000 MATTERS
The Year 2000 ("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, computer-controlled systems and equipment with embedded
software may recognize date fields using "00" as the year 1900 rather than the
year 2000. If uncorrected, miscalculations and possible computer-based system
failures could result which might disrupt business operations. We are
designating the following information as our "Year 2000 Readiness Disclosure."
Recognizing the potential business consequences of the Y2K issue, we conducted a
detailed assessment of our critical, date sensitive, computer-based systems to
identify those systems that were not Y2K compliant and modified those systems
that were not otherwise scheduled for replacement prior to the year 2000. Our
Y2K compliance efforts focused on our ability to continue to perform three
critical operating functions: (1) obtain products to sell; (2) provide service
to our customers; and (3) bill customers and pay our vendors and employees. In
addition to assessing, identifying and modifying our own systems, we developed
and implemented a program to attempt to determine the Y2K compliance status of
third parties, including our key suppliers and vendors, and certain of our
customers.
Since December 31, 1999, we have not experienced, nor have we become aware of,
any Y2K-related problems affecting any of our mission critical computer-based
systems or our computer-controlled systems and equipment that contain embedded
systems with potentially date sensitive components. Furthermore, we have not
experienced, nor have we become aware of, any Y2K-related problems with any of
our key suppliers and third-party providers including utility and
telecommunications companies or financial institutions with which we do
business.
Expenses associated with our Y2K compliance efforts during the last three years
total approximately $1.0 million. We do not expect additional Y2K-related
expenditures of a material amount in the future.
-14-
<PAGE> 17
UGI UTILITIES, INC.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Although Gas Utility is subject to changes in the price of natural gas, the
current regulatory framework allows Gas Utility to recover prudently incurred
gas costs from its customers. In addition, Pennsylvania's Natural Gas Choice and
Competition Act permits local distribution companies to recover prudently
incurred costs of gas sold to customers. Because of this ratemaking mechanism,
there is limited commodity price risk associated with our Gas Utility
operations.
Electric Utility purchases electricity it does not otherwise produce,
representing approximately 50% of its electric power needs, under power supply
arrangements of varying length terms with other producers and, to a lesser
extent, on the spot market. Spot market prices for electricity and, to a lesser
extent, monthly market-based contracts can be volatile, especially during
periods of high demand. Because Electric Utility's generation rates are capped
during the period that it is recovering stranded costs under its Restructuring
Order issued pursuant to the Electricity Customer Choice Act, any increases in
costs to purchase power will negatively impact Electric Utility's results.
We have interest rate exposure associated with borrowings under our revolving
credit agreements. These agreements provide for interest rates on borrowings
which are indexed to short-term market interest rates. Based upon the average
level of borrowings outstanding under these agreements during the most recent
fiscal year ended September 30, 1999, an increase in short-term interest rates
of 100 basis points (1%) would have increased annual interest expense by
approximately $0.6 million.
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 did not file any Current Reports on Form 8-K during the
fiscal quarter ended December 31, 1999.
-15-
<PAGE> 18
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 11, 2000 By: J. C. Barney
- ------------------------ -------------------------------------
J. C. Barney, Senior Vice President -
Finance
(Principal Financial Officer)
-16-
<PAGE> 19
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>
Three
Months
Ended
December 31, Year Ended September 30,
----------------------------------------------------------------
1999 1999 1998 1997 1996
--------------- ----------- ------------ ----------- ---------------
<S> <C> <C> <C> <C> <C>
EARNINGS:
Earnings before income taxes $ 29,076 $ 63,139 $ 57,007 $ 63,275 $ 61,717
Interest expense 4,694 17,317 17,383 16,696 15,921
Amortization of debt discount and expense 52 215 200 176 173
Interest component of rental expense 324 1,539 1,624 1,887 1,838
--------------- ----------- ------------ ----------- ---------------
$ 34,146 $ 82,210 $ 76,214 $ 82,034 $ 79,649
=============== =========== ============ =========== ===============
FIXED CHARGES:
Interest expense $ 4,694 $ 17,317 $ 17,383 $ 16,696 $ 15,921
Amortization of debt discount and expense 52 215 200 176 173
Allowance for funds used during
construction (capitalized interest) 18 36 39 114 107
Interest component of rental expense 324 1,539 1,624 1,887 1,838
--------------- ----------- ------------ ----------- ---------------
$ 5,088 $ 19,107 $ 19,246 $ 18,873 $ 18,039
=============== =========== ============ =========== ===============
Ratio of earnings to fixed charges 6.71 4.30 3.96 4.35 4.42
=============== =========== ============ =========== ===============
</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
Months
Ended
December 31, Year Ended September 30,
----------------------------------------------------------------
1999 1999 1998 1997 1996
--------------- ----------- ------------ ----------- ---------------
<S> <C> <C> <C> <C> <C>
EARNINGS:
Earnings before income taxes $ 29,076 $ 63,139 $ 57,007 $ 63,275 $ 61,717
Interest expense 4,694 17,317 17,383 16,696 15,921
Amortization of debt discount and expense 52 215 200 176 173
Interest component of rental expense 324 1,539 1,624 1,887 1,838
--------------- ----------- ------------ ----------- ---------------
$ 34,146 $ 82,210 $ 76,214 $ 82,034 $ 79,649
=============== =========== ============ =========== ===============
COMBINED FIXED CHARGES AND PREFERRED
STOCK DIVIDENDS:
Interest expense $ 4,694 $ 17,317 $ 17,383 $ 16,696 $ 15,921
Amortization of debt discount and expense 52 215 200 176 173
Allowance for funds used during
construction (capitalized interest) 18 36 39 114 107
Interest component of rental expense 324 1,539 1,624 1,887 1,838
Preferred stock dividend requirements 388 1,550 2,160 2,764 2,765
Adjustment required to state preferred stock
dividend requirements on a pretax basis 245 968 1,304 1,754 1,685
--------------- ----------- ------------ ----------- ---------------
$ 5,721 $ 21,625 $ 22,710 $ 23,391 $ 22,489
=============== =========== ============ =========== ===============
Ratio of earnings to combined fixed charges
and preferred stock dividends 5.97 3.80 3.36 3.51 3.54
=============== =========== ============ =========== ===============
</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.
AS OF AND FOR THE THREE MONTHS ENDED DECEMBER 31, 1999 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 DECEMBER 31, 1999.
</LEGEND>
<CIK> 0000100548
<NAME> UGI UTILITIES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 4,218
<SECURITIES> 0
<RECEIVABLES> 68,618
<ALLOWANCES> 1,649
<INVENTORY> 21,007
<CURRENT-ASSETS> 97,059
<PP&E> 834,402
<DEPRECIATION> 275,229
<TOTAL-ASSETS> 735,334
<CURRENT-LIABILITIES> 187,419
<BONDS> 172,909
20,000
0
<COMMON> 60,259
<OTHER-SE> 68,559
<TOTAL-LIABILITY-AND-EQUITY> 735,334
<SALES> 121,156
<TOTAL-REVENUES> 121,156
<CGS> 57,433
<TOTAL-COSTS> 57,433
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 873
<INTEREST-EXPENSE> 4,746
<INCOME-PRETAX> 29,076
<INCOME-TAX> 11,258
<INCOME-CONTINUING> 17,818
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,818
<EPS-BASIC> 0<F1>
<EPS-DILUTED> 0<F1>
<FN>
<F1>THERE ARE NO PUBLICLY HELD SHARES OUTSTANDING.
</FN>
</TABLE>
