<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, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 1-11071
UGI CORPORATION
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2668356
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
UGI CORPORATION
460 North Gulph Road, King of Prussia, PA
(Address of principal executive offices)
19406
(Zip Code)
(610) 337-1000
(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, 1996, there were 33,073,793 shares of UGI Corporation
Common Stock, without par value, outstanding.
<PAGE> 2
UGI CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGES
-----
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 1996,
September 30, 1995 and March 31, 1995 1
Condensed Consolidated Statements of Income for the
three, six and twelve months ended March 31, 1996 and 1995 2
Condensed Consolidated Statements of Cash Flows for the
six and twelve months ended March 31, 1996 and 1995 3
Notes to Condensed Consolidated Financial Statements 4 - 12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13 - 28
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 29
Item 5. Other Information 29
Item 6. Exhibits and Reports on Form 8-K 29
Signatures 30
</TABLE>
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<PAGE> 3
UGI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(Millions of dollars)
<TABLE>
<CAPTION>
March 31, September 30, March 31,
1996 1995 1995
--------- ------------- ---------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 72.1 $ 121.7 $ 102.6
Short-term investments, at cost which approximates market value 23.0 11.0 -
Accounts receivable (less allowances for doubtful accounts of
$11.9, $7.3 and $6.3, respectively) 214.2 85.9 96.2
Accrued utility revenues 17.9 7.9 12.1
Inventories 70.0 102.2 34.4
Deferred income taxes 24.3 22.1 23.8
Prepayments and other current assets 13.3 16.5 10.7
-------- -------- --------
Total current assets 434.8 367.3 279.8
Investments:
Investment in Petrolane - - 37.6
Other investments 6.2 6.1 5.4
-------- -------- --------
Total investments 6.2 6.1 43.0
Property, plant and equipment, at cost (less accumulated depreciation
and amortization of $343.0, $320.0 and $283.6, respectively) 963.3 954.7 630.0
Intangible assets (less accumulated amortization of $86.7, $74.3 and
$47.9, respectively) 694.5 740.7 242.0
Deferred recoverable utility costs 43.6 41.3 30.9
Other assets 55.0 53.9 26.0
-------- -------- --------
Total assets $2,197.4 $2,164.0 $1,251.7
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt - Propane $ 5.5 $ 5.4 $ 40.4
Current maturities of long-term debt - Utilities 25.5 53.2 7.3
Current maturities of long-term debt - other 0.3 0.3 0.3
Bank loans - Utilities 25.5 42.0 37.5
Accounts payable 89.0 69.1 53.7
Other current liabilities 191.8 159.3 130.0
-------- -------- --------
Total current liabilities 337.6 329.3 269.2
Long-term debt - Propane 665.7 653.1 169.8
Long-term debt - Utilities 156.4 153.1 158.2
Long-term debt - other 8.8 9.0 9.1
Deferred income taxes 139.4 169.5 126.4
Other noncurrent liabilities 110.3 115.4 42.3
Minority interest in AmeriGas Partners 328.2 318.9 -
UGI Utilities redeemable preferred stock 35.2 35.2 35.2
Common stockholders' equity:
Common Stock, without par value (authorized - 100,000,000 shares;
issued - 33,058,839, 32,921,830 and 32,654,410 shares, respectively) 391.6 386.1 380.8
Retained earnings (accumulated deficit) 27.1 (5.5) 60.8
-------- -------- --------
418.7 380.6 441.6
Less treasury stock, at cost 2.9 0.1 0.1
-------- -------- --------
Total common stockholders' equity 415.8 380.5 441.5
-------- -------- --------
Total liabilities and stockholders' equity $2,197.4 $2,164.0 $1,251.7
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 1 -
<PAGE> 4
UGI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(Millions, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended Twelve Months Ended
March 31, March 31, March 31,
---------------- ---------------- -----------------
1996 1995 1996 1995 1996 1995
------ ------ ------ ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Propane $374.8 $121.0 $660.6 $216.4 $ 955.9 $343.3
Utilities 172.2 137.8 291.3 237.3 411.4 357.6
Energy marketing 26.5 - 45.3 - 53.8 -
------ ------ ------ ------ -------- ------
573.5 258.8 997.2 453.7 1,421.1 700.9
------ ------ ------ ------ -------- ------
Costs and expenses:
Propane cost of sales 209.3 60.5 372.0 107.1 525.9 168.4
Utilities - gas, fuel and purchased power 91.4 70.6 148.1 119.3 198.5 173.8
Energy marketing cost of sales 22.9 - 40.6 - 48.6 -
Operating and administrative expenses 119.1 72.0 225.3 139.5 417.4 262.5
Depreciation and amortization 21.6 11.0 43.0 21.9 82.0 42.5
Petrolane fee income - (8.9) - (17.7) (2.8) (34.4)
Miscellaneous (income), net (2.5) (2.5) (6.2) (4.9) (12.7) (9.9)
------ ------ ------ ------ -------- ------
461.8 202.7 822.8 365.2 1,256.9 602.9
------ ------ ------ ------ -------- ------
Operating income 111.7 56.1 174.4 88.5 164.2 98.0
Interest charges (19.9) (10.9) (39.8) (21.7) (77.4) (43.1)
Minority interest in AmeriGas Partners (21.4) - (28.7) - (9.0) -
------ ------ ------ ------ -------- ------
Income before income taxes, subsidiary
preferred stock dividends and
equity in Petrolane 70.4 45.2 105.9 66.8 77.8 54.9
Income taxes (32.1) (19.1) (48.7) (28.7) (42.7) (23.8)
Dividends on UGI Utilities Series
Preferred Stock (0.7) (0.7) (1.4) (1.4) (2.8) (2.1)
Equity in Petrolane - 1.6 - 1.3 (6.6) (0.5)
------ ------ ------ ------ -------- ------
Income before extraordinary loss and
accounting change 37.6 27.0 55.8 38.0 25.7 28.5
Extraordinary loss - propane debt
restructuring - - - - (13.2) -
Change in accounting for
postemployment benefits - - - (3.1) - (3.1)
------ ------ ------ ------ -------- ------
Net income $ 37.6 $ 27.0 $ 55.8 $ 34.9 $ 12.5 $ 25.4
====== ====== ====== ====== ======== ======
Earnings (loss) per common and common
equivalent share:
Earnings before extraordinary loss
and accounting change $ 1.13 $ .83 $ 1.69 $ 1.17 $ .78 $ .88
Extraordinary loss - propane debt
restructuring - - - - (.40) -
Change in accounting for
postemployment benefits - - - (.10) - (.10)
------ ------ ------ ------ -------- ------
Net earnings $ 1.13 $ .83 $ 1.69 $ 1.07 $ .38 $ .78
====== ====== ====== ====== ======== ======
Dividends declared per share $ .35 $ .345 $ .70 $ .69 $ 1.40 $ 1.38
====== ====== ====== ====== ======== ======
Average common and common
equivalent shares outstanding 33.1 32.6 33.1 32.6 33.0 32.5
====== ====== ====== ====== ======== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 2 -
<PAGE> 5
UGI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(Millions of dollars)
<TABLE>
<CAPTION>
Six Months Ended Twelve Months Ended
March 31, March 31,
--------------- ----------------
1996 1995 1996 1995
------ ------ ------- ------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 55.8 $ 34.9 $ 12.5 $ 25.4
Reconcile to net cash provided by
continuing operations:
Depreciation and amortization 43.0 21.9 82.0 42.5
Deferred income taxes, net 0.7 (4.3) 10.1 (0.8)
Equity in (income) loss of Petrolane - (1.3) 6.6 0.5
Extraordinary loss - - 13.2 -
Minority interest in AmeriGas Partners 28.7 - 9.0 -
Change in accounting for postemployment benefits - 3.1 - 3.1
Other, net 1.3 5.1 3.6 6.9
------ ------ ------- ------
129.5 59.4 137.0 77.6
Net change in:
Accounts receivable and accrued utility revenues (143.4) (39.7) (96.6) 22.2
Inventories 32.7 24.6 (6.2) (3.9)
Deferred fuel adjustments 6.2 15.8 (9.7) (1.3)
Pipeline transition costs, net 1.0 2.4 0.5 1.0
Producer settlements, net (1.7) (5.9) (5.3) 7.6
Accounts payable 19.5 (6.9) 29.0 (10.5)
Other current assets and liabilities 30.0 11.9 40.3 (0.2)
------ ------ ------- ------
Net cash provided by continuing operations 73.8 61.6 89.0 92.5
Net cash used by discontinued operations - - - (0.5)
------ ------ ------- ------
Net cash provided by operating activities 73.8 61.6 89.0 92.0
------ ------ ------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant and equipment (31.6) (26.7) (73.7) (54.7)
Net proceeds from disposals of property,
plant and equipment 2.0 0.8 2.6 3.2
Acquisitions of businesses, net of cash acquired (8.6) (0.8) (11.9) (1.1)
Short-term investments increase (12.0) - (23.0) -
Other, net (0.3) (2.4) 3.3 (3.5)
------ ------ ------- ------
Net cash used by investing activities (50.5) (29.1) (102.7) (56.1)
------ ------ ------- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends on Common Stock (23.1) (22.4) (45.9) (44.3)
Distributions on Partnership Common Units (19.4) - (27.3) -
Issuance of long-term debt 34.1 - 82.1 -
Repayment of long-term debt (50.8) (10.2) (60.6) (18.6)
UGI Utilities bank loans increase (decrease) (16.5) 20.5 (12.0) 12.5
Issuance of UGI Utilities Series Preferred Stock - - - 19.8
Issuance of Common Stock 6.6 4.8 11.9 9.7
Repurchases of Common Stock (3.8) - (3.8) -
------ ------ ------- ------
Net cash used by financing activities (72.9) (7.3) (55.6) (20.9)
------ ------ ------- ------
AMERIGAS PARTNERS FORMATION TRANSACTIONS:
Acquisition of Petrolane Class B shares - - (90.9) -
Issuance of AmeriGas Partners Common Units - - 349.7 -
Issuance of long-term debt - - 208.5 -
Repayment of long-term debt and related interest - - (408.9) -
Other fees and expenses - - (19.6) -
------ ------ ------- ------
Net cash provided by AmeriGas Partners
formation transactions - - 38.8 -
------ ------ ------- ------
Cash and cash equivalents increase (decrease) $(49.6) $ 25.2 $ (30.5) $ 15.0
====== ====== ======= ======
Cash and cash equivalents:
End of period $ 72.1 $102.6 $ 72.1 $102.6
Beginning of period 121.7 77.4 102.6 87.6
------ ------ ------- ------
Increase (decrease) $(49.6) $ 25.2 $ (30.5) $ 15.0
====== ====== ======= ======
</TABLE>
During the twelve months ended March 31, 1996 and 1995, UGI Utilities, Inc.
paid cash dividends to UGI of $11.6 and $29.2, respectively. During the twelve
months ended March 31, 1996 and 1995, AmeriGas, Inc. paid cash dividends to UGI
of $43.3 and $9.5, respectively. During those same periods, UGI paid cash
dividends to holders of Common Stock of $45.9 and $44.3, respectively. The
ability of UGI Corporation to declare and pay cash dividends on its Common
Stock is dependent upon the receipt of cash dividends and distributions from
its wholly owned subsidiaries, principally UGI Utilities, Inc. and AmeriGas,
Inc.
The accompanying notes are an integral part of these financial statements.
- 3 -
<PAGE> 6
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Millions of dollars, except per share amounts)
1. BASIS OF PRESENTATION
UGI Corporation (UGI) is a holding company with two principal lines of
business. UGI's utility business is conducted through a wholly owned
subsidiary, UGI Utilities, Inc. (UGI Utilities), which owns and operates
a natural gas distribution utility (Gas Utility) and an electric utility
(Electric Utility) in Pennsylvania. Commencing with the April 19, 1995
Partnership Formation described below, UGI conducts a national propane
distribution business through AmeriGas Partners, L.P. (AmeriGas Partners)
and its operating subsidiary, AmeriGas Propane, L.P. (the "Operating
Partnership"), both of which are Delaware limited partnerships. At March
31, 1996, UGI, through wholly owned subsidiaries, holds an effective 2%
general partner interest and a 56.7% limited partnership interest in the
Operating Partnership. This limited partner interest is evidenced by
common units (Common Units) and subordinated units (Subordinated Units)
representing limited partner interests in AmeriGas Partners. The
remaining 41.3% effective interest in the Operating Partnership is
publicly held. AmeriGas Partners and the Operating Partnership are
collectively referred to herein as the Partnership. UGI also conducts an
energy marketing business through its wholly owned subsidiary, UGI
Enterprises, Inc. (UGI Enterprises).
Prior to the Partnership Formation, UGI's AmeriGas, Inc. subsidiary
(AmeriGas) conducted a national propane distribution business principally
through its wholly owned subsidiaries AmeriGas Propane, Inc. (AmeriGas
Propane) and AmeriGas Propane-2, Inc. (AGP-2) and equity investee
Petrolane Incorporated (Petrolane). On April 19, 1995, a wholly owned
subsidiary of AmeriGas acquired by merger (the "Petrolane Merger") the
approximately 65% of Petrolane common shares outstanding not already
owned by UGI or AmeriGas and combined the propane distribution businesses
of Petrolane, AmeriGas Propane and AGP-2 (the "Partnership Formation")
into the Operating Partnership, which was formed to acquire these propane
businesses and assets. A wholly owned subsidiary of AmeriGas (the
"General Partner") serves as the general partner of AmeriGas Partners and
the Operating Partnership.
The consolidated financial statements include the accounts of UGI and its
majority-owned subsidiaries (collectively, the Company). All significant
intercompany accounts and transactions have been eliminated in
consolidation. The public unitholders' interest in AmeriGas Partners'
results of operations and net assets is reflected as minority interest in
the condensed consolidated statements of income and balance sheets. The
Company's investment in Petrolane through April 19, 1995 was accounted
for by the equity method under which the investment was recorded at cost
and adjusted by the Company's share of Petrolane's undistributed income
or loss.
Primary earnings per common share are computed by dividing net income by
the weighted average number of common and dilutive common equivalent
shares outstanding during each period. Common equivalent shares included
in the computation represent shares issuable upon assumed exercise of
stock options. Fully diluted earnings per share are not materially
different from primary earnings per share and therefore are not
presented.
- 4 -
<PAGE> 7
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The accompanying condensed consolidated financial statements are
unaudited and have been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission (SEC). 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, 1995. 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.
2. AMERIGAS PARTNERS
QUARTERLY DISTRIBUTIONS OF AVAILABLE CASH
AmeriGas Partners makes distributions of its Available Cash approximately
45 days after the end of each fiscal quarter. Available Cash generally
means, with respect to any fiscal quarter of the Partnership, all cash on
hand at the end of such quarter plus all additional cash on hand as of
the date of determination resulting from borrowings subsequent to the end
of such quarter less the amount of reserves established by the General
Partner in its reasonable discretion for future cash requirements. A
distribution of 55 cents per unit (the "Minimum Quarterly Distribution")
for each of the quarters ended December 31, 1995 and September 30, 1995
was made on February 18, 1996 and November 18, 1995 to holders of record
on February 8, 1996 and November 10, 1995, respectively, of all Common
and Subordinated units. The Minimum Quarterly Distribution for the
quarter ended March 31, 1996 will be made on May 18, 1996 to holders of
record on May 10, 1996 of all Common and Subordinated units.
UNUSUAL ITEMS
During the three months ended March 31, 1996, the Partnership completed
the arrangements for a refund of general liability insurance premium
deposits totaling $4.4 million which were previously paid by Petrolane
prior to the Partnership Formation. The anticipated refund has been
reflected as a reduction to operating and administrative expenses in the
accompanying Condensed Consolidated Statements of Income. In addition,
during the three months ended March 31, 1996, the Partnership completed a
reassessment of its potential liability for environmental matters
principally relating to the clean up of underground storage tanks (USTs).
The reassessment indicated a reduction in estimated future costs and the
resulting adjustment of $3.3 million has also been reflected as a
reduction to operating expenses. The after-tax total of these
adjustments increased net income for the three, six and twelve months
ended March 31, 1996 by $2.7 million or $.08 per share.
During the three months ended March 31, 1996, the General Partner
completed AmeriGas Partners' and the Operating Partnership's federal
income tax returns for the Partnership's initial period of operation. As
a part of this process, a final determination was made as to how to
allocate the tax basis of certain of the assets contributed to the
Partnership by the General Partner and Petrolane pursuant to the
Partnership Formation. The completion of the allocation process resulted
in reductions in the deferred income tax liabilities of the General
Partner and Petrolane
- 5 -
<PAGE> 8
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
existing at the date of the Partnership Formation, which had been
recorded in connection with the Petrolane Merger and the Partnership
Formation. As a result, during the three months ended March 31, 1996,
the Company recorded a $37.0 million reduction in deferred income tax
liabilities and a corresponding reduction in goodwill which adjustments
are reflected in the accompanying condensed consolidated balance sheet at
March 31, 1996.
PRO FORMA INCOME STATEMENT DATA
The following unaudited pro forma condensed consolidated financial
information of the Company for the three and six months ended March 31,
1995 was derived from the historical financial information of the Company
and Petrolane and was prepared to reflect the effects of the Petrolane
Merger and the Partnership Formation as if these transactions had been
completed as of the beginning of the periods presented. The following
unaudited pro forma condensed consolidated financial information does not
purport to present the results of operations of the Company had the
transactions described above actually been completed as of the beginning
of these periods. In addition, the unaudited pro forma condensed
consolidated financial information is not necessarily indicative of
results to be expected in the future.
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Three Months Six Months
Ended Ended
March 31, March 31,
1995 1995
------------ ------------
<S> <C> <C>
Revenues $ 437.5 $ 783.9
Cost of sales (227.1) (404.8)
Depreciation and amortization (21.1) (41.9)
Other costs and expenses (105.8) (205.2)
------- -------
Operating income 83.5 132.0
Interest expense (19.8) (39.3)
Minority interest in AmeriGas Partners (14.8) (20.5)
Income taxes (20.7) (31.8)
Dividends on UGI Utilities Series Preferred Stock (.7) (1.4)
------- -------
Income before extraordinary loss and accounting
change $ 27.5 $ 39.0
======= =======
Earnings per share before extraordinary loss and
accounting change $ .84 $ 1.20
======= =======
</TABLE>
Significant pro forma adjustments reflected in the data above include
the following:
1. The consolidation of the operations of Petrolane and the
elimination of intercompany revenues and expenses.
- 6 -
<PAGE> 9
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. A net reduction in amortization expense resulting from the
longer-term (40-year) amortization of the excess purchase
price over fair value of 65% of the net identifiable assets of
Petrolane, compared with the amortization of Petrolane's
excess reorganization value over 20 years.
3. An adjustment to interest expense resulting from the
retirement of approximately $377 million of Petrolane term
loans, the restructuring of Petrolane and AmeriGas Propane
senior debt, and the issuance of an aggregate $210 million
face value of notes of AmeriGas Partners and the Operating
Partnership.
4. An adjustment to income taxes to reflect income taxes on the
Company's share of the Partnership's taxable income.
5. An adjustment to reflect the public unitholders' interest in
the results of the Partnership as a minority interest.
3. INVESTMENT IN PETROLANE
The following table includes summarized consolidated results of
operations for Petrolane for periods through April 19, 1995:
<TABLE>
<CAPTION>
Three Months Six Months March 24, Twelve Months
Ended Ended 1995 to Ended
March 23, March 23, April 19, March 23,
1995 1995 1995 1995
------ ------- ------ -------
<S> <C> <C> <C> <C>
Revenues $181.0 $ 334.6 $ 37.5 $ 544.1
Cost of sales (98.2) (182.8) (20.4) (297.6)
Depreciation and
amortization (11.8) (23.4) (4.0) (46.4)
Other costs and expenses (45.3) (88.2) (11.9) (163.6)
------ ------- ------ -------
Operating income 25.7 40.2 1.2 36.5
Interest expense (13.4) (26.1) (3.9) (48.7)
Income tax (expense)
benefit (a) (7.8) (10.3) .3 10.9
------ ------- ------ -------
Income (loss) before
change in accounting 4.5 3.8 (2.4) (1.3)
Change in accounting for
postemployment benefits - (.9) - (.9)
------ ------- ------ -------
Net income (loss) $ 4.5 $ 2.9 $ (2.4) $ (2.2)
====== ======= ====== =======
</TABLE>
(a) Due to potential interim period volatility in Petrolane's 1995
effective tax rate resulting from the combination of lower
than expected year-to-date pre-tax earnings (due in large part
from warmer-than-normal weather) and relatively high amounts
of nondeductible excess reorganization costs,
- 7 -
<PAGE> 10
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Petrolane calculated its income taxes for the six months ended
March 23, 1995 based upon year-to-date pre-tax income as
adjusted for nondeductible expenses. Previously, Petrolane
calculated its year-to-date income taxes based upon an
estimated annual effective income tax rate.
Prior to the Partnership Formation, AmeriGas Propane and Petrolane
were parties to a customer services agreement (Customer Services
Agreement) pursuant to which AmeriGas Propane served customers of
closed Petrolane districts and Petrolane served customers of closed
AmeriGas Propane districts. These districts were closed in order to
achieve cost reductions and operational efficiencies in overlapping
geographical markets served by AmeriGas Propane and Petrolane. Fees
billed by Petrolane to AmeriGas Propane under the Customer Services
Agreement totaled $.8 million, $3.1 million, $6.1 million and $11.1
million in the twelve months ended March 31, 1996 and the three, six
and twelve months ended March 31, 1995, respectively, and are included
in operating and administrative expenses. Fees billed to Petrolane
totaled $.7 million, $2.4 million, $4.6 million and $8.9 million
during the twelve months ended March 31, 1996 and the three, six and
twelve months ended March 31, 1995, respectively, and are included in
Petrolane fee income. The Customer Services Agreement terminated on
April 19, 1995.
Prior to the Partnership Formation, UGI provided Petrolane with
certain financial, accounting, human resources, risk management,
insurance, legal, corporate communications, investor relations,
treasury and corporate development services. For such services, UGI
received a quarterly fee from Petrolane. During the twelve months
ended March 31, 1996, and the three, six and twelve months ended March
31, 1995, UGI recorded management fee income of $.9 million, $2.9
million, $5.9 million and $11.8 million, respectively, under this
agreement which amounts are included in Petrolane fee income.
Prior to the Partnership Formation, AmeriGas Management Company (AMC)
and AmeriGas Transportation Management Company (ATMC), first-tier
subsidiaries of UGI, provided general management, supervisory,
administrative and transportation services to Petrolane, AmeriGas
Propane and AGP-2. For such services, AMC and ATMC each received a
monthly fee from Petrolane in an amount which, together with fees
received from AmeriGas Propane and AGP-2, effectively reimbursed AMC
and ATMC for costs incurred to provide such services. During the
twelve months ended March 31, 1996, and the three, six and twelve
months ended March 31, 1995, the Company recorded fee income under
these agreements of $1.2 million, $3.6 million, $7.2 million and $13.8
million, respectively, which amounts are included in Petrolane fee
income.
- 8 -
<PAGE> 11
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. 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,
-------------------- -------------------- ----------------------
1996 1995 1996 1995 1996 1995
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Propane $ 374.8 $ 121.0 $ 660.6 $ 216.4 $ 955.9 $ 343.3
Gas utility 153.0 119.6 255.0 202.9 343.4 293.0
Electric utility 19.2 18.2 36.3 34.4 68.0 64.6
Energy marketing 26.5 - 45.3 - 53.8 -
-------- -------- -------- -------- -------- --------
Total consolidated operations $ 573.5 $ 258.8 $ 997.2 $ 453.7 $1,421.1 $ 700.9
======== ======== ======== ======== ======== ========
Petrolane (a) $ - $ 181.0 $ - $ 334.6 $ 37.5 $ 544.1
======== ======== ======== ======== ======== ========
OPERATING INCOME (LOSS)
Propane $ 69.7(b) $ 23.4 $ 105.3(b) $ 35.9 $ 91.2(b,c) $ 39.2
Gas utility 39.2 29.6 66.2 47.0 71.1 50.5(d)
Electric utility 2.7 3.1 4.9 5.4 8.6 8.6
Energy marketing 3.0 0.5 3.9 0.9 4.8 1.3
Petrolane management fee - 2.9 - 5.9 0.9 11.8
Corporate general and other (2.9) (3.4) (5.9) (6.6) (12.4) (13.4)
-------- -------- -------- -------- -------- --------
Total consolidated operations $ 111.7 $ 56.1 $ 174.4 $ 88.5 $ 164.2 $ 98.0
======== ======== ======== ======== ======== ========
Petrolane (a) $ - $ 25.7 $ - $ 40.2 $ 1.3 $ 36.5
======== ======== ======== ======== ======== ========
DEPRECIATION AND AMORTIZATION
Propane - depreciation $ 9.7 $ 3.2 $ 19.1 $ 6.6 $ 36.3 $ 13.8
Propane - amortization 6.4 2.8 13.0 5.2 24.8 9.4
Gas utility 4.4 3.9 8.7 8.0 16.8 15.5
Electric utility 1.0 1.0 2.0 1.9 3.8 3.5
Corporate general 0.1 0.1 0.2 0.2 0.3 0.3
-------- -------- -------- -------- -------- --------
Total consolidated operations $ 21.6 $ 11.0 $ 43.0 $ 21.9 $ 82.0 $ 42.5
======== ======== ======== ======== ======== ========
Petrolane - depreciation (a) $ - $ 5.7 $ - $ 11.2 $ 1.9 $ 21.8
======== ======== ======== ======== ======== ========
Petrolane - amortization (a) $ - $ 6.1 $ - $ 12.2 $ 2.1 $ 24.6
======== ======== ======== ======== ======== ========
IDENTIFIABLE ASSETS
(at period end)
Propane $1,444.8 $ 566.5 $1,444.8 $ 566.5 $1,444.8 $ 566.5
Gas utility 583.3 524.4 583.3 524.4 583.3 524.4
Electric utility 85.4 82.5 85.4 82.5 85.4 82.5
Energy marketing 15.5 0.8 15.5 0.8 15.5 0.8
Corporate general and other 68.4 77.5 68.4 77.5 68.4 77.5
-------- -------- -------- -------- -------- --------
Total consolidated operations $2,197.4 $1,251.7 $2,197.4 $1,251.7 $2,197.4 $1,251.7
======== ======== ======== ======== ======== ========
Petrolane (a) $ - $ 919.0 $ - $ 919.0 $ - $ 919.0
======== ======== ======== ======== ======== ========
OPERATING STATISTICS
Propane sales - millions of gallons:
AmeriGas (through April 19, 1995) -
Retail - 112.7 - 200.3 24.7 313.8
Wholesale - 16.6 - 29.5 3.0 56.6
Petrolane (through April 19, 1995) -
Retail (a) - 158.0 - 285.9 33.5 459.8
Wholesale (a) - 47.1 - 89.9 10.0 152.7
AmeriGas Partners (after April 19, 1995) -
Retail 315.3 - 559.6 - 803.2 -
Wholesale 96.0 - 215.2 - 280.8 -
Natural gas throughput -
billions of cubic feet 30.3 29.9 55.4 52.4 85.4 81.5
Electric sales - millions of kilowatt hours 260.9 247.5 485.6 461.6 884.9 851.9
</TABLE>
- 9 -
<PAGE> 12
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTES TO SEGMENT INFORMATION:
(a) Includes 100% of amounts for Petrolane through April 19, 1995.
(b) Includes reductions in operating expenses of $4.4 million from
the anticipated refund of insurance premium deposits and $3.3
million from a reduction in accrued environmental costs.
(c) Includes accrual for Partnership management organizational
changes of $4.3 million.
(d) Includes income from producer settlement refunds of $2.3
million.
5. UTILITY REGULATORY MATTERS
On June 22, 1993, the Pennsylvania Public Utility Commission (PUC)
entered an order permitting Gas Utility to record a regulatory asset
for the difference between the costs incurred under Statement of
Financial Accounting Standards (SFAS) No. 106, "Employers Accounting
for Postretirement Benefits other than Pensions" (SFAS 106) and costs
incurred on a pay-as-you-go basis. Under the terms of the order, the
regulatory asset resulting from the deferral of SFAS 106 costs was
allowable for ratemaking purposes subject to prior review in a base
rate proceeding. As part of Gas Utility's August 31, 1995 base rate
settlement (Gas Utility Base Rate Settlement) with the PUC, Gas
Utility was permitted the recovery over 17.25 years of the
approximately $4.0 million in deferred excess SFAS 106 costs for the
period January 1, 1993 (the date Gas Utility adopted SFAS 106) through
August 31, 1995. The Gas Utility Base Rate Settlement, however,
reserved the right of any party to challenge the prospective recovery
of these deferred excess SFAS 106 costs in future rate proceedings.
In a proceeding involving an unaffiliated Pennsylvania utility,
Pennsylvania Power & Light Company (PP&L), the Commonwealth Court of
Pennsylvania (Commonwealth Court) reversed a PUC declaratory order
outside a full base rate proceeding permitting PP&L to defer excess
SFAS 106 costs pending its next base rate order. PP&L and the PUC
appealed the Commonwealth Court decision to the Pennsylvania Supreme
Court which, on March 12, 1996, declined to review the matter. The
Company will continue to monitor administrative and judicial
proceedings involving deferred excess SFAS 106 costs and recognizes
that, based on applicable law, it is possible that in future base rate
proceedings Gas Utility could prospectively be denied recovery of some
or all of its deferred excess SFAS 106 costs.
Also as part of the Gas Utility Base Rate Settlement, Gas Utility was
permitted to recover in its rates approximately $2.4 million in
ongoing annual costs incurred under the provisions of SFAS 106. Gas
Utility is required to defer the difference between the amount of SFAS
106 costs included in rates and the actuarially determined annual SFAS
106 costs for recovery or refund to ratepayers in future rate
proceedings. The ultimate recovery of SFAS 106 costs in excess of
pay-as-you-go costs was subject to the outcome of a legal challenge
brought by the Pennsylvania Office of Consumer Advocate (OCA) against
an unaffiliated Pennsylvania utility, Pennsylvania-American Water
Company (PAWC). In Irwin Popowsky v. PA P.U.C. (1994), the
Commonwealth Court rejected the claim of the OCA that principles of
ratemaking prohibit the PUC from permitting PAWC to recover excess
SFAS 106 costs. The OCA filed a petition for allowance of appeal with
the Pennsylvania Supreme Court with respect to this decision and the
Pennsylvania Supreme Court, on March 12, 1996, denied this petition.
- 10 -
<PAGE> 13
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. COMMITMENTS AND CONTINGENCIES
The Partnership has succeeded to the lease guarantee obligations of
Petrolane relating to Petrolane's divestiture of nonpropane operations
prior to its 1989 acquisition by QFB Partners which are currently
estimated to aggregate approximately $100 million (subject to
reduction in certain circumstances). The leases expire through 2007
and some of them are currently in default. Under certain
circumstances such lease obligations may be reduced by the earnings of
such divested operations. The Partnership has succeeded to the
indemnity agreement of Petrolane by which Texas Eastern Corporation
(Texas Eastern), a prior owner of Petrolane, agreed to indemnify
Petrolane against any liabilities arising out of the conduct of
businesses that do not relate to, and are not a part of, the propane
business, including lease guarantees. To date, Texas Eastern has
directly satisfied its obligations without the Partnership having to
honor its guarantee.
In addition, the Partnership has succeeded to Petrolane's agreement to
indemnify Shell Petroleum N.V. (Shell) for various scheduled claims
that were pending against Tropigas de Puerto Rico (Tropigas). This
indemnification agreement had been entered into by Petrolane in
conjunction with Petrolane's sale of the international operations of
Tropigas to Shell in 1989. The Partnership also succeeded to
Petrolane's right to seek indemnity on these claims first from
International Controls Corp., which sold Tropigas to Petrolane, and
then from Texas Eastern. To date, neither the Partnership nor
Petrolane has paid any sums under this indemnity, but several claims
by Shell, including claims related to certain antitrust actions
aggregating at least $68 million, remain pending.
The Company, along with other companies, has been named as a
potentially responsible party in several administrative proceedings
for the cleanup of various waste sites, including some Superfund
sites. Also, certain private parties have filed, or threatened to
file, suit against the Company to recover costs of investigation and,
as appropriate, remediation of several waste sites. In addition, the
Company has identified environmental contamination at several of its
properties and has voluntarily undertaken investigation and, as
appropriate, remediation of these sites in cooperation with
appropriate environmental agencies or private parties.
At a manufactured gas plant site in Burlington, Vermont, the United
States Environmental Protection Agency (EPA) has named nineteen
parties, including UGI Utilities, as potentially responsible parties
for gas plant contamination that resulted from the operations of a
former subsidiary of UGI Utilities. In May 1993, after receiving and
reviewing extensive public comment, EPA withdrew a proposed plan of
remediation that would have cost an estimated $50 million. EPA is now
working with community groups and potentially responsible parties to
develop a revised remediation plan. These groups continue to study
the site and evaluate the effect of the contamination on the
environment. UGI Utilities cannot estimate the cost associated with
any revised plan, but it does not believe such cost will exceed the
estimated cost of the originally proposed plan.
With respect to a manufactured gas plant site in Concord, New
Hampshire, EnergyNorth Natural Gas, Inc. (EnergyNorth) has filed suit
against UGI Utilities alone seeking UGI Utilities' purportedly
allocable share of response costs associated with remediating gas
plant related contaminants at that site. EnergyNorth alleges that to
date it has spent $3.5 million to remediate
- 11 -
<PAGE> 14
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
part of the site and that it will be required to spend an unknown
amount in the future to complete remediation.
At Burlington, Concord and other sites, management believes that UGI
Utilities should not have significant liability in those instances in
which a former subsidiary operated a manufactured gas plant because
UGI Utilities generally is not legally liable for the obligations of
its subsidiaries. Under certain circumstances, however, courts have
found parent companies liable for environmental damage caused by
subsidiary companies when the parent company exercised such
substantial control over the subsidiary that the court concluded that
the parent company either (i) itself operated the facility causing the
environmental damage or (ii) otherwise so controlled the subsidiary
that the subsidiary's separate corporate form should be disregarded.
There could be, therefore, significant future costs of an uncertain
amount associated with environmental damage caused by manufactured gas
plants that UGI Utilities owned or directly operated, or that were
owned or operated by former subsidiaries of UGI Utilities, if a court
were to conclude that the level of control exercised by UGI Utilities
over the subsidiary satisfies the standard described above. In many
circumstances where UGI Utilities may be liable, expenditures may not
be reasonably quantifiable because of a number of factors, including
various costs associated with potential remedial alternatives, the
unknown number of other potentially responsible parties involved and
their ability to contribute to the costs of investigation and
remediation, and changing environmental laws and regulations.
The Company's policy is to accrue environmental investigation and
cleanup costs when it is probable that a liability exists and the
amount or range of amounts is reasonably estimable. The Company
intends to pursue recovery of any incurred costs through all
appropriate means, including regulatory relief, although such recovery
cannot be assured. Under the terms of the Gas Utility Base Rate
Settlement, Gas Utility is permitted to amortize as removal costs
site-specific environmental investigation and remediation costs, net
of related third-party payments, associated with Pennsylvania sites.
Gas Utility will be permitted to include in rates, through future base
rate proceedings, a five-year average of such prudently incurred
removal costs.
In addition to these environmental matters, there are various other
pending claims and legal actions arising out of the normal conduct of
the Company's businesses. The final results of environmental and
other matters cannot be predicted with certainty. However, it is
reasonably possible that some of them could be resolved unfavorably to
the Company. Management believes, after consultation with counsel,
that damages or settlements, if any, recovered by the plaintiffs in
such claims or actions will not have a material adverse effect on the
Company's financial position but could be material to operating
results or cash flows in future periods depending on the nature and
timing of future developments with respect to these matters and the
amounts of future operating results and cash flows.
- 12 -
<PAGE> 15
UGI CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ANALYSIS OF RESULTS OF OPERATIONS
The following analyses of the Company's results of operations should be read in
conjunction with the segment information included in Note 4 to Condensed
Consolidated Financial Statements. Due to the seasonality of the Company's
businesses, the results of operations for interim periods are not necessarily
indicative of results to be expected for a full year. The comparisons of the
results of operations from consolidated propane operations for the three, six
and twelve months ended March 31, 1996 and 1995 have been complicated by the
impact of the Petrolane Merger and the Partnership Formation. In order to
permit more meaningful analysis, the following analyses of the results of
propane operations also includes pro forma results for the three and six months
ended March 31, 1995 as if the effects of the Petrolane Merger and the
transactions related to the Partnership Formation had occurred as of the
beginning of these periods.
- 13 -
<PAGE> 16
UGI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS:
THREE MONTHS ENDED MARCH 31, 1996 (1996 THREE-MONTH PERIOD) COMPARED
WITH THREE MONTHS ENDED MARCH 31, 1995 (1995 THREE-MONTH PERIOD)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
Increase
Three Months Ended March 31, 1996 1995 (Decrease)
--------------------------------------------------------------------------------------------------------
(Millions of dollars)
<S> <C> <C> <C> <C>
REVENUES
Consolidated propane (a) $374.8 $121.0 N.M. N.M.
Gas utility 153.0 119.6 $ 33.4 27.9%
Electric utility 19.2 18.2 1.0 5.5
Energy marketing 26.5 - N.M. N.M.
Petrolane (b) - 181.0 N.M. N.M.
Pro forma propane 374.8 299.7 75.1 25.1
TOTAL MARGIN (c)
Consolidated propane (a) $165.5 $ 60.5 N.M. N.M.
Gas utility 64.5 52.7 $ 11.8 22.4%
Electric utility 8.8 8.5 .3 3.5
Energy marketing 3.6 - N.M. N.M.
Petrolane (b) - 82.8 N.M. N.M.
Pro forma propane 165.5 143.3 22.2 15.5
OPERATING INCOME (LOSS)
Consolidated propane (a) $ 69.7 $ 23.4 N.M. N.M.
Gas utility 39.2 29.6 $ 9.6 32.4%
Electric utility 2.7 3.1 (.4) (12.9)
Energy marketing 3.0 .5 2.5 500.0
Petrolane management fee - 2.9 N.M. N.M.
Corporate general and other (2.9) (3.4) (.5) (14.7)
Petrolane (b) - 25.7 N.M. N.M.
Pro forma propane 69.7 53.7 16.0 29.8
OPERATING DATA
Propane-retail sales (million of gallons)-
Consolidated propane (a) 315.3 112.7 N.M. N.M.
Petrolane (b) - 158.0 N.M. N.M.
Pro forma propane 315.3 270.7 44.6 16.5%
Natural gas throughput-bcf 30.3 29.9 .4 1.3
Electric sales-gwh 260.9 247.5 13.4 5.4
--------------------------------------------------------------------------------------------------------
</TABLE>
- 14 -
<PAGE> 17
UGI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
bcf - billions of cubic feet. gwh - millions of kilowatt hours.
(a) Consolidated propane includes the results of the operations of
AmeriGas Partners (successor to AmeriGas Propane and Petrolane) in the
1996 three-month period and AmeriGas Propane in the 1995 three-month
period. As a result, comparisons of consolidated propane amounts are
not meaningful (N.M.).
(b) Reflects 100% of Petrolane's results in the 1995 three-month period.
Accordingly, comparisons of Petrolane amounts are not meaningful
(N.M.). The results of operations of Petrolane in the 1995
three-month period are reflected in the Condensed Consolidated
Financial Statements of the Company on the equity method of
accounting.
(c) Consolidated propane and Petrolane total margin represents total
revenues less cost of sales. Gas and Electric utilities' total margin
represents total revenues less cost of sales and revenue-related
taxes. Energy marketing total margin, which represents margin from
the Company's gas marketing activities for periods subsequent to July
31, 1995, represents total revenues less cost of sales. For periods
prior to August 1, 1995, total margin from energy marketing activities
was reflected in miscellaneous income on the Condensed Consolidated
Statements of Income. Accordingly, comparisons of energy marketing
revenues and total margin are not meaningful (N.M.).
PROPANE OPERATIONS
CONSOLIDATED PROPANE. As previously mentioned, the Petrolane Merger, which
resulted in the consolidation of the results of operations of Petrolane
effective April 19, 1995, and the effects of the Partnership Formation
significantly affect the comparison of consolidated propane results. During
the 1995 three-month period, the results of Petrolane's operations were
accounted for by the equity method with the Company's 35% share of Petrolane's
results reflected in the Condensed Consolidated Statement of Income as a single
line item "Equity in Petrolane." As a result of the consolidation of the
operations of Petrolane effective April 19, 1995, retail volumes of propane,
propane revenues, total propane margin and propane operating income were
significantly higher in the 1996 three-month period compared with amounts in
the prior-year period. In addition, consolidated propane operations benefitted
from weather which was 0.8% colder than normal compared to weather that was
14.1% warmer than normal in AmeriGas Propane's service territory during the
prior-year period.
Consolidated propane revenues increased $253.8 million in the 1996 three-month
period principally reflecting the previously mentioned consolidation of
Petrolane's operations, the impact of colder weather on retail sales, higher
sales of low margin excess storage inventories and higher average retail and
wholesale prices. Consolidated propane cost of sales increased $148.8 million
reflecting the consolidation of Petrolane's operations, the impact on sales
resulting from the colder weather, and higher average propane product costs.
Consolidated propane total margin increased $105.0 million reflecting the
effects of the consolidation of Petrolane's operations, the impact of the
colder weather and, to a much lesser extent, higher volumes of low margin
wholesale gallons sold.
Consolidated propane operating income increased $46.3 million reflecting the
previously mentioned
- 15 -
<PAGE> 18
UGI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
increase in total propane margin partially offset by higher operating expenses
resulting primarily from the consolidation of the operations of Petrolane.
PRO FORMA CONSOLIDATED PROPANE. Retail volumes of propane sold increased 44.6
million gallons (16.5%) in the 1996 three-month period reflecting the effects
of colder weather on heating-related sales, the effects of acquisitions, and
other nonweather-related volume growth. Weather across the U.S. markets served
by the Partnership was, on average, 0.8% colder than normal in the 1996
three-month period compared with weather that was, on average, 16.5% warmer
than normal in the pro forma 1995 three-month period. Although the weather
averaged only slightly colder than normal, temperatures were significantly
different across U.S. regions with the Partnership's eastern and midwestern
U.S. markets experiencing colder than normal weather and the Partnership's
western U.S. markets experiencing significantly warmer than normal weather.
Wholesale volumes of propane increased 32.0 million gallons (50.1%) reflecting
the effects of the colder 1996 weather and sales of low margin excess storage
inventories.
Revenues from the sale of propane increased $77.1 million (28.0%) reflecting
the increased retail and wholesale volumes sold as well as higher average
retail and wholesale prices. Other revenues in the 1996 three-month period
from sales of appliances, parts and other products and services, decreased $2.0
million (8.2%) as a result of higher pro forma 1995 three-month period sales of
low margin diesel and other fuels. Total propane cost of sales increased $52.9
million (33.8%) as a result of the increased volumes of propane sold and, to a
lesser extent, significantly higher average propane product costs.
Total margin from the sale of propane increased $22.0 million (16.7%) in the
1996 three-month period reflecting the effects of the higher retail volumes of
propane sold. Although the sale of low margin excess storage inventories had a
significant effect on propane revenues, such sales had very little effect on
total propane margin. Average retail unit margins in the 1996 three-month
period were approximately equal to unit margins in the pro forma 1995
three-month period. Higher average retail selling prices offset the impact of
significantly higher average propane product costs. Total margin from other
propane-related sales and services in the 1996 three-month period was virtually
unchanged from the prior-year pro forma period.
Total propane operating income increased $16.0 million (29.8%) reflecting the
impact of the previously mentioned higher total propane margin partially offset
by higher operating expenses. Propane operating expenses in the 1996
three-month period are net of $4.4 million from an expected refund of insurance
premium deposits made in prior years and $3.3 million from reductions to
accruals for potential liabilities for environmental matters. Total propane
operating expenses, exclusive of these items, increased $13.5 million (17.1%)
principally as a result of higher payroll and employee compensation expenses,
increased sales and marketing expenses, and higher vehicle repairs and
maintenance expenses.
INVESTMENT IN PETROLANE. During the three months ended March 31, 1995, the
Company recorded equity income of $1.6 million from its investment in Petrolane
representing its share of Petrolane's net income for the period. Included in
the $1.6 million is approximately $3.4 million in income resulting from a
change in Petrolane's method of calculating income taxes on year-to-date
pre-tax income (see Note 3 to Condensed Consolidated Financial Statements).
During the three months ended March 31, 1995, the Company also recorded pre-tax
management fee income of $2.9 million from its management services
- 16 -
<PAGE> 19
UGI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
agreement with Petrolane. This management agreement terminated April 19, 1995.
UTILITY OPERATIONS
GAS UTILITY. Weather in the Gas Utility service area during the 1996
three-month period was 4.7% colder than normal compared with weather in the
prior-year period that was 5.1% warmer than normal. Although the colder
weather had a significant impact on sales to firm-residential, firm-commercial,
and firm-industrial (collectively, "core-market") customers, total system
throughput increased only 1.3%. The relatively modest increase in total system
throughput reflects more frequent interruptions of gas transported or sold to
interruptible customers resulting from higher 1996-period firm customer
requirements. Gas Utility total revenues increased $33.4 million (27.9%)
principally as a result of higher sales to core market customers, higher base
rates, and to a lesser extent, higher purchased gas cost (PGC) rates in effect
during the three months ended March 31, 1996. Cost of gas sold by Gas Utility
was $81.8 million during the 1996 three-month period, an increase of $20.0
million (32.4%) over the prior-year period, reflecting higher gas costs
associated with the increased sales to core market customers and higher average
PGC rates.
Gas Utility total margin increased $11.8 million (22.4%) during the 1996
three-month period reflecting a $15.6 million increase in total margin from
core market customers partially offset by lower total margin from interruptible
customers. The increase in core market total margin reflects the impact of
higher volumes and higher base rates. Total interruptible margin declined $3.9
million as a result of lower interruptible delivery service throughput and
lower margins from sales to interruptible customers due to significantly higher
gas costs. Gas Utility operating income for the three months ended March 31,
1996 increased $9.6 million (32.4%) reflecting the previously discussed higher
total margin partially offset by higher system maintenance expenses, higher
general and administrative expenses, and higher charges for depreciation.
ELECTRIC UTILITY. Electric Utility sales increased 5.4% during the 1996
three-month period over sales in the prior-year period on weather that was
17.5% colder. Electric Utility revenues increased $1.0 million (5.5%)
reflecting the higher sales and a higher 1996 three-month period Energy Cost
Rate (ECR). Cost of sales was $9.6 million in the 1996 three-month period
compared with $8.8 million in the prior-year period as a result of the higher
sales and higher ECR.
Electric Utility total margin increased $.3 million (3.5%) in the three months
ended March 31, 1996 reflecting the benefit of the higher sales.
Notwithstanding the higher total margin, operating income declined $.4 million
(12.9%) as the increase in total margin was more than offset by higher
customer-related expenses and higher general and administrative expenses.
ENERGY MARKETING AND OTHER
Total revenues and margin from energy marketing in the 1996 three-month period
represents total revenues and margin from the energy marketing operations of
UGI Energy Services, Inc. (UGI Energy Services), a wholly owned subsidiary of
UGI Enterprises. Prior to August 1, 1995, energy marketing was conducted by
GASMARK, a division of UGI Utilities' wholly owned subsidiary, UGI Development
Company. Total margin from the gas marketing operations of GASMARK in the 1995
three-month
- 17 -
<PAGE> 20
UGI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
period is reflected in miscellaneous income in the Condensed Consolidated
Statements of Income. Operating income from energy marketing was $3.0 million
in the 1996 three-month period compared with $.5 million in the prior-year
period reflecting an increase in 1996 three-month period total margin.
Operating income from corporate general and other, net, consisting of expenses
incurred by UGI corporate headquarters and other miscellaneous operating
income, was $(2.9) million in the 1996 three-month period compared with $(3.4)
million in the prior-year period reflecting lower UGI corporate administrative
expenses.
INTEREST EXPENSE AND INCOME TAXES
Interest expense increased to $19.9 million in the 1996 three-month period from
$10.9 million in the prior-year period reflecting the effect of higher levels
of consolidated debt outstanding subsequent to the Petrolane Merger and the
Partnership Formation. On a pro forma basis, interest expense for the 1995
three-month period is $19.8 million. The effective income tax rate for the
three months ended March 31, 1996 was 45.6% compared with a rate of 42.3% for
the three months ended March 31, 1995. The higher 1996 rate reflects a higher
effective tax rate on the Company's consolidated propane operations.
- 18 -
<PAGE> 21
UGI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS:
SIX MONTHS ENDED MARCH 31, 1996 (1996 SIX-MONTH PERIOD) COMPARED WITH
SIX MONTHS ENDED MARCH 31, 1995 (1995 SIX-MONTH PERIOD)
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------
Increase
Six Months Ended March 31, 1996 1995 (Decrease)
- - ----------------------------------------------------------------------------------------------------------
(Millions of dollars)
<S> <C> <C> <C> <C>
REVENUES
Consolidated propane (a) $660.6 $216.4 N.M. N.M.
Gas utility 255.0 202.9 $52.1 25.7%
Electric utility 36.3 34.4 1.9 5.5
Energy marketing 45.3 - N.M. N.M.
Petrolane (b) - 334.6 N.M. N.M.
Pro forma propane 660.6 546.6 114.0 20.9
TOTAL MARGIN (c)
Consolidated propane (a) $288.6 $109.3 N.M. N.M.
Gas utility 113.7 91.5 $22.2 24.3%
Electric utility 16.9 16.4 .5 3.0
Energy marketing 4.7 - N.M. N.M.
Petrolane (b) - 151.8 N.M. N.M.
Pro forma propane 288.6 261.1 27.5 10.5
OPERATING INCOME (LOSS)
Consolidated propane (a) $105.3 $ 35.9 N.M. N.M.
Gas utility 66.2 47.0 $19.2 40.9%
Electric utility 4.9 5.4 (.5) (9.3)
Energy marketing 3.9 .9 3.0 333.3
Petrolane management fee - 5.9 N.M. N.M.
Corporate general and other (5.9) (6.6) (.7) (10.6)
Petrolane (b) - 40.2 N.M. N.M.
Pro forma propane 105.3 85.3 20.0 23.4
OPERATING DATA
Propane-retail sales (million of gallons)-
Consolidated propane (a) 559.6 200.3 N.M. N.M.
Petrolane (b) - 285.9 N.M. N.M.
Pro forma propane 559.6 486.2 73.4 15.1%
Natural gas throughput-bcf 55.4 52.4 3.0 5.7
Electric sales-gwh 485.6 461.6 24.0 5.2
- - ----------------------------------------------------------------------------------------------------------
</TABLE>
- 19 -
<PAGE> 22
UGI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
bcf - billions of cubic feet. gwh - millions of kilowatt hours.
(a) Consolidated propane includes the results of the operations of
AmeriGas Partners (successor to AmeriGas Propane and Petrolane) in the
1996 six-month period and AmeriGas Propane in the 1995 six-month
period. As a result, comparisons of consolidated propane amounts are
not meaningful (N.M.).
(b) Reflects 100% of Petrolane results in the 1995 six-month period.
Accordingly, comparisons of Petrolane amounts are not meaningful
(N.M.). The results of operations of Petrolane in the 1995 six-month
period are reflected in the Condensed Consolidated Financial
Statements of the Company on the equity method of accounting.
(c) Consolidated propane and Petrolane total margin represents total
revenues less cost of sales. Gas and Electric utilities' total margin
represents total revenues less cost of sales and revenue-related
taxes. Energy marketing total margin, which represents margin from
the Company's gas marketing activities for periods subsequent to July
31, 1995, represents total revenues less cost of sales. For periods
prior to August 1, 1995, total margin from energy marketing activities
was reflected in miscellaneous income on the Condensed Consolidated
Statements of Income. Accordingly, comparisons of energy marketing
revenues and total margin are not meaningful (N.M.).
PROPANE OPERATIONS
CONSOLIDATED PROPANE. Consolidated propane revenues increased $444.2 million
in the 1996 six-month period principally reflecting the previously mentioned
consolidation of Petrolane's operations, the effect of colder weather on retail
sales, higher average retail prices and higher sales of low margin excess
storage inventories. During the six months ended March 31, 1996, weather
averaged 1.1% colder than normal across markets served by the Partnership. In
the prior-year period, weather in AmeriGas Propane's service territory averaged
13.5% warmer than normal. Total consolidated propane cost of sales increased
$264.9 million reflecting the higher volumes of propane sold and higher average
propane product costs. Consolidated propane total margin increased $179.3
million principally due to the consolidation of Petrolane's operations, the
volume effects of the colder weather and, to a lesser extent, higher wholesale
sales. Consolidated propane operating income increased $69.4 million
reflecting the higher consolidated margin partially offset by higher
consolidated propane operating expenses resulting primarily from the
consolidation of the operations of Petrolane.
PRO FORMA CONSOLIDATED PROPANE. Retail volumes of propane sold increased 73.4
million gallons (15.1%) in the 1996 six-month period reflecting the effects of
colder heating-season weather on heating-related sales, the effects of
acquisitions, and other nonweather-related volume growth. Weather across the
Partnership's markets averaged 1.1% colder than normal in the 1996 six-month
period compared to weather that averaged 18.8% warmer than normal in the 1995
six-month period. Regional temperature variations were significantly different
with the western U.S. experiencing substantially warmer than normal
temperatures and the eastern and midwestern U.S. experiencing colder than
normal temperatures. Wholesale volumes of propane increased 95.7 million
gallons (80.1%) reflecting the effects of the colder weather and an increase in
sales of low margin excess storage inventories.
- 20 -
<PAGE> 23
UGI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Revenues from the sale of propane increased $120.4 million (24.6%) reflecting
the higher retail and wholesale volumes sold and higher average retail prices.
Average wholesale prices were slightly lower in the 1996 six-month period due
principally to a high percentage of very low margin wholesale sales. Other
revenues in the 1996 six-month period decreased $6.4 million (11.1%)
principally as a result of higher pro forma 1995 six-month period sales of low
margin diesel and other fuels. Total cost of sales increased $86.5 million
(30.3%) as a result of the higher volumes of propane sold and, to a lesser
extent, higher average propane product costs.
Total margin from the sale of propane increased $26.9 million (11.4%) in the
1996 six-month period principally as a result of the greater retail volumes of
propane sold partially offset by the effects of lower average retail unit
margins. Average retail unit margins in the 1996 six-month period were lower
than in the pro forma 1995 six-month period, despite increased average retail
selling prices, reflecting the impact of higher average propane product costs.
Total margin from other sales and services during the 1996 six-month period was
virtually unchanged from the prior-year period.
Operating income was $105.3 million in the 1996 six-month period compared to
$85.3 million in the pro forma 1995 six-month period. The higher operating
income principally reflects the impact of the higher total margin partially
offset by higher operating expenses. The 1996 six-month period operating
expenses are net of $4.4 million from an expected refund of insurance premium
deposits made in prior years and $3.3 million from reductions to accruals for
potential liabilities for environmental matters. Operating expenses, exclusive
of these items, increased $14.8 million (9.6%) principally reflecting higher
payroll and employee compensation expenses, higher vehicle repairs and
maintenance expenses, and higher expenses associated with the Partnership's
sales and marketing programs.
INVESTMENT IN PETROLANE. During the six months ended March 31, 1995, the
Company recorded equity income of $1.3 million from its investment in
Petrolane. During the 1995 six-month period, the Company also recorded pre-tax
income of $5.9 million from its management services agreement with Petrolane.
UTILITY OPERATIONS
GAS UTILITY. Weather in Gas Utility's service territory in the 1996 six-month
period was 5.0% colder than normal compared with weather which was 7.2% warmer
than normal in the 1995 six-month period. Due in large part to the colder
weather's impact on sales to core market customers, total system throughput
increased 3.0 bcf (5.7%) in the 1996 six-month period. The higher throughput
reflects a 19.6% increase in throughput to core market customers partially
offset principally by lower throughput to firm delivery service customers. The
lower firm delivery service throughput reflects customer switching to
interruptible delivery service tariffs. Gas Utility total revenues increased
$52.1 million (25.7%) in the 1996 six-month period principally as a result of
higher sales to core market customers, higher base rates, and lower refunds of
prior- year gas cost overcollections partially offset by lower average PGC
rates during the 1996 six-month period. Cost of gas sold by Gas Utility was
$130.3 million during the 1996 six-month period, an increase of $27.4 million
(26.7%) over the 1995 six-month period, reflecting higher gas costs associated
with the increased sales to core market customers and lower refunds of
prior-year gas cost overcollections partially offset by lower average PGC
rates.
- 21 -
<PAGE> 24
UGI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Gas Utility total margin increased $22.2 million (24.3%) during the 1996
six-month period reflecting a $26.3 million increase in total margin from core
market customers partially offset by lower total margin from interruptible
customers. The higher total margin from core market customers reflects the
effects of higher base rates and higher 1996 six-month period volumes. Total
margin from interruptible customers declined $3.8 million principally as a
result of higher 1996 six-month period gas costs associated with sales of gas
to interruptible-retail customers. Firm delivery service total margin in the
1996 six-month period was also lower due principally to reduced throughput
resulting in large part from customer switching to interruptible delivery
service. Gas Utility operating income increased $19.2 million (40.9%)
reflecting the previously discussed higher total margin partially offset by
higher operating and administrative expenses and higher charges for
depreciation.
ELECTRIC UTILITY. Electric Utility sales increased 5.2% during the 1996
six-month period from weather that was 22.3% colder than in the 1995 six-month
period. Electric Utility revenues increased $1.9 million (5.5%) reflecting the
impact of the higher sales and higher ECR revenues. Electric Utility cost of
sales was $17.8 million in the 1996 six-month period compared with $16.5
million in the prior-year period reflecting the higher sales and higher ECR.
Electric Utility total margin increased $.5 million (3.0%) in the 1996
six-month period reflecting the benefit of the higher sales. Operating income
decreased, however, as the increase in Electric Utility total margin was more
than offset by higher distribution system maintenance expenses, higher general
and administrative expenses, and higher charges for depreciation.
ENERGY MARKETING AND OTHER
Total revenues and margin from energy marketing in the 1996 six-month period
represent revenues and total margin of UGI Energy Services. In the prior-year
period, energy marketing activities were conducted by GASMARK which reflected
margin from its gas marketing activities as miscellaneous income in the
Condensed Consolidated Statement of Income. Operating income from energy
marketing was $3.9 million in the 1996 six-month period compared with $.9
million in the 1995 six-month period. Corporate general and other, net, was
$(5.9) million in the 1996 six-month period compared with $(6.6) million in
the prior-year period reflecting lower UGI corporate administrative expenses.
INTEREST EXPENSE AND INCOME TAXES
Interest expense increased to $39.8 million in the 1996 six-month period from
$21.7 million in the 1995 six-month period reflecting higher levels of
consolidated propane debt outstanding subsequent to the Petrolane Merger and
the Partnership Formation. On a pro forma basis, interest expense for the 1995
six-month period is $39.3 million. The effective income tax rate for the 1996
six-month period is 46.0% compared with a rate of 43.0% in the prior-year
period. The higher rate reflects in large part a higher effective tax rate on
consolidated propane operations.
- 22 -
<PAGE> 25
UGI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS:
TWELVE MONTHS ENDED MARCH 31, 1996 (1996 TWELVE-MONTH PERIOD) COMPARED WITH
TWELVE MONTHS ENDED MARCH 31, 1995 (1995 TWELVE-MONTH PERIOD)
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------
Increase
Twelve Months Ended March 31, 1996 1995 (Decrease)
- - ---------------------------------------------------------------------------------------------------------
(Millions of dollars)
<S> <C> <C> <C> <C>
REVENUES
Consolidated propane (a) $955.9 $343.3 N.M. N.M.
Gas utility 343.4 293.0 $50.4 17.2%
Electric utility 68.0 64.6 3.4 5.3
Energy marketing 53.8 - N.M. N.M.
Petrolane (b) - 544.1 N.M. N.M.
TOTAL MARGIN (c)
Consolidated propane (a) $430.0 $174.9 N.M. N.M.
Gas utility 163.1 137.6 $25.5 18.5%
Electric utility 32.6 31.4 1.2 3.8
Energy marketing 5.2 - N.M. N.M.
Petrolane (b) - 246.5 N.M. N.M.
OPERATING INCOME (LOSS)
Consolidated propane (a) $ 91.2 $ 39.2 N.M. N.M.
Gas utility 71.1 50.5 $20.6 40.8%
Electric utility 8.6 8.6 - -
Energy marketing 4.8 1.3 3.5 269.2
Petrolane management fee .9 11.8 N.M. N.M.
Corporate general and other (12.4) (13.4) (1.0) (7.5)
Petrolane (b) 1.3 36.5 N.M. N.M.
OPERATING DATA
Propane-retail sales (million of gallons)-
Consolidated propane (a) 827.9 313.8 N.M. N.M.
Petrolane (b) 33.5 459.8 N.M. N.M.
Natural gas throughput-bcf 85.4 81.5 3.9 4.8%
Electric sales-gwh 884.9 851.9 33.0 3.9
- - ---------------------------------------------------------------------------------------------------------
</TABLE>
bcf - billions of cubic feet. gwh - millions of kilowatt hours.
(a) Consolidated propane includes the results of the operations of
AmeriGas Propane prior to the Partnership Formation and AmeriGas
Partners (successor to AmeriGas Propane and Petrolane) subsequent to
the Partnership Formation. As a result, comparisons of consolidated
propane amounts are not meaningful (N.M.).
- 23 -
<PAGE> 26
UGI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(b) Reflects 100% of Petrolane results through April 19, 1995.
Accordingly, comparisons of Petrolane amounts are not meaningful
(N.M.). The results of operations of Petrolane are reflected in the
Condensed Consolidated Financial Statements of the Company on the
equity method of accounting through April 19, 1995.
(c) Consolidated propane and Petrolane total margin represents total
revenues less cost of sales. Gas and Electric utilities' total margin
represents total revenues less cost of sales and revenue-related
taxes. Energy marketing total margin, which represents margin from
the Company's gas marketing activities subsequent to July 31, 1995,
represents total revenues less cost of sales. Prior to August 1,
1995, total margin from energy marketing activities was reflected in
miscellaneous income on the Condensed Consolidated Statements of
Income. Accordingly, comparisons of energy marketing revenues and
total margin are not meaningful (N.M.).
PROPANE OPERATIONS
CONSOLIDATED PROPANE. Retail volumes of propane sold from consolidated propane
operations during the 1996 twelve-month period increased to 827.9 million
gallons from 313.8 million gallons sold during the 1995 twelve-month period.
The significant increase in retail gallons sold is principally a result of the
consolidation of the operations of Petrolane subsequent to April 19, 1995 as
well as colder 1996 twelve-month period weather. Consolidated propane
revenues, cost of sales and total margin all increased from the prior-year
period principally as a result of the consolidation of the operations of
Petrolane and the volume effects of the colder weather. In addition,
consolidated propane revenues, cost of sales and total margin increased as a
result of higher sales of low margin excess storage inventories. Total
consolidated propane margin in the 1996 twelve-month period was negatively
impacted by lower average retail unit margins in the Company's consolidated
propane operations resulting in part from the implementation of sales and
marketing programs early in the 1996 twelve-month period. Consolidated propane
operating income increased $52.0 million reflecting the higher consolidated
propane total margin partially offset by higher consolidated propane operating
expenses resulting principally from the consolidation of Petrolane.
INVESTMENT IN PETROLANE. During the 1996 twelve-month period, the Company
recorded an equity loss of $6.6 million from its investment in Petrolane
representing its share of Petrolane's net loss from April 1, 1995 to the date
of the Partnership Formation. In the 1995 twelve-month period, the Company's
equity in Petrolane's loss was $.5 million. Included in the 1996 twelve-month
period amount is the Company's $5.8 million share of a write-off of net
deferred tax benefits of Petrolane no longer realizable by the Company as a
result of the sale of AmeriGas Partners' Common Units to the public. During
the 1996 twelve-month period, UGI recorded pre-tax management fee income of $.9
million from its management services agreement with Petrolane through April 19,
1995. During the 1995 twelve-month period, such management fee income totaled
$11.8 million.
- 24 -
<PAGE> 27
UGI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
UTILITY OPERATIONS
GAS UTILITY. Weather in Gas Utility's service territory, as measured by degree
days for heating, was 5.2% colder than normal in the 1996 twelve-month period
compared with weather which was 6.6% warmer than normal in the 1995
twelve-month period. Total system throughput increased 3.9 bcf (4.8%) from
higher core market sales and slightly higher throughput to interruptible
delivery service customers.
Gas Utility revenues increased $50.4 million (17.2%) in the 1996 twelve-month
period as a result of higher sales to core market customers, higher base rates
in effect since August 31, 1995, and lower refunds of prior-year PGC and other
gas cost overcollections. These increases in Gas Utility revenues were
partially offset by the recovery of lower average purchased gas costs through
PGC rates.
Cost of gas sold was $166.0 million in the 1996 twelve-month period compared
with $143.4 million in the 1995 twelve-month period. The increase principally
reflects the higher core market sales and lower 1996-period refunds of prior
year PGC overcollections partially offset by the recovery of lower average
purchased gas costs through PGC rates.
Gas Utility total margin increased $25.5 million (18.5%) during the 1996
twelve-month period principally reflecting a $28.1 million increase in total
margin from core market customers partially offset by a $1.8 million decrease
in total margin from firm delivery service customers as a result of lower
volumes transported for these customers and slightly lower average margins.
Interruptible delivery service total margin increased during the 1996
twelve-month period reflecting higher volumes and higher average margins.
Interruptible retail margin declined, however, due to lower volumes sold and
higher 1996-period gas costs. In addition, Gas Utility margin in the 1995
twelve-month period includes $1.4 million of income resulting from the PUC's
June 2, 1994 decision on the sharing of producer settlement refunds. Gas
Utility operating income increased $20.6 million (40.8%) reflecting the higher
total margin partially offset by higher operating expenses and charges for
depreciation.
ELECTRIC UTILITY. Electric Utility sales increased 3.9% in the 1996
twelve-month period as heating-related sales benefitted from colder
heating-season weather and air conditioning related sales benefitted from
record setting temperatures in July and August 1995. Electric Utility revenues
increased $3.4 million (5.3%) as a result of the greater sales, a higher 1996
twelve-month period ECR and an increase in base rate revenues resulting from
the full-year effect of the July 27, 1994, $1.3 million base rate increase.
Cost of sales increased $2.0 million as a result of a higher average ECR rate
and higher sales.
Electric Utility total margin increased $1.2 million (3.8%) in the 1996
twelve-month period due to the greater 1996 twelve-month period sales and the
full-year effect of the July 1994 base rate increase. However, operating
income was virtually unchanged as the increase in total margin was offset by
higher operating and administrative expenses and higher charges for
depreciation.
ENERGY MARKETING AND OTHER
Total revenues and margin from energy marketing represents revenues and margin
from the energy marketing operations of UGI Energy Services commencing August
1, 1995. Prior to August 1, 1995, this business was conducted by GASMARK which
reflected margin from its energy marketing activities
- 25 -
<PAGE> 28
UGI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
in miscellaneous income in the Condensed Consolidated Statements of Income.
Combined operating income from energy marketing activities (reflecting both UGI
Energy Services and GASMARK) was $4.8 million in the 1996 twelve-month period
compared with $1.3 million in the 1995 twelve-month period. Corporate general
and other, net, was $(12.4) in the 1996 twelve-month period compared with
$(13.4) million in the prior-year period.
INTEREST EXPENSE AND INCOME TAXES
Interest expense increased to $77.4 million in the 1996 twelve-month period
from $43.1 million in the 1995 twelve-month period reflecting higher levels of
consolidated propane debt outstanding subsequent to the April 19, 1995
Petrolane Merger and Partnership Formation. Income tax expense for the 1996
twelve-month period includes the write-off of $5.9 million of net deferred tax
benefits of AmeriGas Propane (representing the Company's share of such tax
benefits no longer realizable by the Company as a result of the sale of
AmeriGas Partners' Common Units to the public) and also includes the benefit of
a $4.3 million adjustment to deferred state income taxes. In addition, income
taxes for the 1996 twelve-month period are higher reflecting a low effective
tax rate applicable to the Partnership's seasonal pre-tax loss recorded during
its initial period of operations ended September 30, 1995.
FINANCIAL CONDITION AND LIQUIDITY
The Company's consolidated debt-to-total-capitalization ratio was 53.3% at
March 31, 1996 compared to a ratio of 55.5% at September 30, 1995. The
decrease in the ratio is principally a result of an increase in common
stockholders' equity and a net decrease in UGI Utilities' total debt
outstanding.
In October 1995, UGI Utilities redeemed $45.9 million face value of 9% Series
and 9% Series B First Mortgage Bonds at a redemption price of 104% of the
principal amount outstanding. The redemption was paid principally from the
proceeds of UGI Utilities' issuance of $48 million of notes under its
Medium-Term Note program on September 29, 1995. In accordance with utility
practice, the amount of the premium on the redemption has been deferred and is
being amortized over the term of the refunding debt. On November 16, 1995, UGI
Utilities issued $20 million of notes due May 15, 2005 under its Medium-Term
Note program bearing interest at a rate of 6.62% the proceeds of which were
used to reduce UGI Utilities' bank loans. In early May 1996, UGI Utilities
filed, and the SEC declared effective, a registration statement for the
issuance from time to time of up to $75 million of debt securities, none of
which has been issued.
During the three months ended March 31, 1996, the General Partner completed
AmeriGas Partners' and the Operating Partnership's federal income tax returns
for the Partnership's initial period of operation. As a part of this process,
a final determination was made as to how to allocate the tax basis of certain
of the assets contributed to the Partnership by the General Partner and
Petrolane. The completion of the allocation process resulted in reductions in
the deferred income tax liabilities of the General Partner and Petrolane
existing at the date of the Partnership Formation, which had been recorded in
connection with the Petrolane Merger and the Partnership Formation. As a
result, during the three months ended March 31, 1996, the Company recorded a
$37.0 million reduction in deferred income tax liabilities and a corresponding
reduction in goodwill which adjustments are reflected in the accompanying
Condensed Consolidated Balance Sheet at March 31, 1996.
- 26 -
<PAGE> 29
UGI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
AmeriGas Partners makes distributions of its Available Cash approximately 45
days after the end of each fiscal quarter. Available Cash generally means,
with respect to any fiscal quarter of the Partnership, all cash on hand at the
end of such quarter plus all additional cash on hand as of the date of
determination resulting from borrowings subsequent to the end of such quarter
less the amount of reserves established by the General Partner in its
reasonable discretion for future cash requirements. A distribution of 55 cents
per unit (the "Minimum Quarterly Distribution") for each of the quarters ended
December 31, 1995 and September 30, 1995 was made on February 18, 1996 and
November 18, 1995 to holders of record on February 8, 1996 and November 10,
1995, respectively, of all Common and Subordinated units. The Minimum
Quarterly Distribution for the quarter ended March 31, 1996 will be made on May
18, 1996 to holders of record on May 10, 1996 of all Common and Subordinated
units.
On April 30, 1996, the Company's Board of Directors increased the quarterly
dividend on the Common Stock to 35.5 cents a share from 35 cents a share,
effective for the dividend payable July 1, 1996.
UTILITY REGULATORY MATTERS
On January 26, 1996, Electric Utility filed with the PUC for a $6.2 million
increase in its base rates to be effective March 26, 1996. In accordance with
its normal practice, the effective date was suspended by the PUC for up to an
additional seven months from the proposed effective date for investigation and
public hearings.
On June 22, 1993, the PUC entered an order permitting Gas Utility to record a
regulatory asset for the difference between the costs incurred under SFAS 106,
"Employers Accounting for Postretirement Benefits other than Pensions" and
costs incurred on a pay-as-you-go basis. Under the terms of the order, the
regulatory asset resulting from the deferral of SFAS 106 costs was allowable
for ratemaking purposes subject to prior review in a base rate proceeding. As
part of the Gas Utility Base Rate Settlement with the PUC, Gas Utility was
permitted the recovery over 17.25 years of the approximately $4.0 million in
deferred excess SFAS 106 costs for the period January 1, 1993 (the date Gas
Utility adopted SFAS 106) through August 31, 1995. The Gas Utility Base Rate
Settlement, however, reserved the right of any party to challenge the
prospective recovery of these deferred excess SFAS 106 costs in future rate
proceedings.
In a proceeding involving an unaffiliated Pennsylvania utility, PP&L, the
Commonwealth Court reversed a PUC declaratory order outside a full base rate
proceeding permitting PP&L to defer excess SFAS 106 costs pending its next base
rate order. PP&L and the PUC appealed the Commonwealth Court decision to the
Pennsylvania Supreme Court which, on March 12, 1996, declined to review the
matter. The Company will continue to monitor administrative and judicial
proceedings involving deferred excess SFAS 106 costs and recognizes that, based
on applicable law, it is possible that in future base rate proceedings Gas
Utility could prospectively be denied recovery of some or all of its deferred
excess SFAS 106 costs.
CASH FLOWS
Cash and cash equivalents totaled $72.1 million at March 31, 1996 compared with
$121.7 million at September 30, 1995. The Company's cash flows are seasonal
and are generally greatest during the
- 27 -
<PAGE> 30
UGI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
second and third fiscal quarters when customers pay bills incurred during the
heating season. Conversely, cash flows from operating activities during the
first and fourth fiscal quarters are typically at their lowest levels as the
Company purchases propane and natural gas inventories and finances increases in
other working capital in advance of the heating season. Accordingly, cash
flows from operations during the six months ended March 31, 1996 are not
necessarily indicative of cash flows to be expected for a full year.
OPERATING ACTIVITIES. Cash flow from operating activities was $73.8 million
during the six months ended March 31, 1996 compared with $61.6 million during
the six months ended March 31, 1995. Cash flow from operating activities
before changes in operating working capital totaled $129.5 million in the six
months ended March 31, 1996 compared with $59.4 million in the prior-year
period. The significant increase in cash flow from operating activities before
changes in operating working capital reflects the consolidation of the
operations of Petrolane and improved consolidated propane and Gas Utility
results. Changes in operating working capital in the current-year period
reflect a net use of cash of $55.7 million principally from a seasonal increase
in customer accounts receivable partially offset by cash flow from changes in
inventories, accounts payable and other current assets and liabilities. In the
prior-year period, changes in operating working capital provided $2.2 million
in operating cash flow.
INVESTING ACTIVITIES. Cash expenditures for property, plant and equipment
totaled $31.6 million in the six months ended March 31, 1996 compared with
$26.7 million in the prior-year period. The increase principally reflects the
consolidation of the operations of Petrolane partially offset by slightly lower
Gas Utility capital expenditures. During the six months ended March 31, 1996,
the Company made several propane business acquisitions for total net cash
consideration of $8.6 million.
FINANCING ACTIVITIES. During the six months ended March 31, 1996, the Company
paid cash dividends on Common Stock of $23.1 million compared with $22.4
million in the prior-year period. Also during the six months ended March 31,
1996, AmeriGas Partners paid distributions of $19.4 million to public
unitholders (and $27.0 million to the General Partner) representing the Minimum
Quarterly Distribution on all limited partner units for the quarters ended
September 30 and December 31, 1995. UGI Utilities repaid $16.5 million of
borrowings under its revolving credit agreements during the six months ended
March 31, 1996, compared with net borrowings of $20.5 million in the prior-year
period. In addition, UGI Utilities redeemed $45.9 million face value of its 9%
Series and 9% Series B First Mortgage Bonds at a redemption price of 104% of
the principal amount outstanding and issued $20 million of notes under its
Medium-Term Note program. During the six months ended March 31, 1996, the
Partnership borrowed $9 million under its acquisition facility and $5 million
under its special purpose facility.
- 28 -
<PAGE> 31
UGI CORPORATION AND SUBSIDIARIES
PART II OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On February 27, 1996, the Annual Meeting of Shareholders of
UGI was held. The shareholders reelected the ten nominees from the existing
Board of Directors to another term and ratified the appointment of Coopers &
Lybrand L.L.P. as independent public accountants. No other matters were
considered at the meeting. The number of votes cast for and withheld from the
election of each nominee is set forth below. There were no votes against,
abstentions or broker non-votes in the election of directors.
<TABLE>
<CAPTION>
Election of Directors:
For Withheld
--- --------
<S> <C> <C>
James W. Stratton 28,446,957 240,601
James A. Sutton 28,425,792 261,766
Robert C. Forney 28,433,137 254,421
David I. J. Wang 28,447,937 239,621
Richard C. Gozon 28,471,370 216,188
Cyrus H. Holley 28,469,670 217,888
Quentin I. Smith, Jr. 28,445,621 241,937
Stephen D. Ban 28,474,903 212,655
Anne Pol 28,458,984 228,574
Lon R. Greenberg 28,465,324 222,234
</TABLE>
The number of votes cast for and against, and the number of abstentions in the
ratification of the appointment of Coopers & Lybrand L.L.P. is as follows:
For, 28,470,863; Against, 88,698; Abstain, 127,997. There were no broker
non-votes.
ITEM 5. OTHER INFORMATION
Pursuant to the 1993 Petrolane Plan of Reorganization, UGI issued 1,250,000
warrants to purchase an identical number of shares of UGI Common Stock at an
exercise price of $24 a share, subject to adjustment. The warrants would have
been exercisable during the period June 30, 1996 through March 31, 1998
provided that Petrolane's adjusted indebtedness, as defined in the Warrant
Agreement dated as of July 12, 1993 among UGI, AmeriGas and Mellon Bank, N.A.,
was equal to or less than $530 million on or before March 31, 1996. As of
March 31, 1996, such adjusted indebtedness totaled $568.4 million and was never
less than or equal to $530 million. Accordingly, the warrants have expired
without becoming exercisable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits:
11. Statement re: computation of per share earnings
27. Financial Data Schedule
(b) The Company did not file any Current Reports on Form 8-K
during the quarter ended March 31, 1996.
- 29 -
<PAGE> 32
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 Corporation
------------------------------------------------
(Registrant)
Date: May 13, 1996 By: C.L. Ladner
------------------------------------------------
C. L. Ladner, Senior Vice President - Finance
Date: May 13, 1996 By: M. J. Cuzzolina
------------------------------------------------
M. J. Cuzzolina, Vice President - Accounting and
Financial Control (Principal Accounting Officer)
- 30 -
<PAGE> 33
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
11 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
27 FINANCIAL DATA SCHEDULE
<PAGE> 1
UGI CORPORATION AND SUBSIDIARIES Exhibit (11)
(Page 1 of 2)
COMPUTATION OF EARNINGS PER SHARE
(Millions, Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended Twelve Months Ended
March 31, March 31, March 31,
1996 1995 1996 1995 1996 1995
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Primary earnings per share:
Actual average common shares outstanding 33.0 32.6 33.0 32.6 32.9 32.5
Incremental shares issuable upon
exercise of stock options outstanding 0.1 - 0.1 - 0.1 -
------ ------ ------ ------ ------ ------
Total average common and common
equivalent shares outstanding 33.1 32.6 33.1 32.6 33.0 32.5
====== ====== ====== ====== ====== ======
Earnings applicable to common
and common equivalent shares:
Earnings before extraordinary loss
and change in accounting $ 37.6 $ 27.0 $ 55.8 $ 38.0 $ 25.7 $ 28.5
Extraordinary loss-propane debt restructuring - - - - (13.2) -
Change in accounting for
postemployment benefits - - - (3.1) - (3.1)
------ ------ ------ ------ ------ ------
Net earnings $ 37.6 $ 27.0 $ 55.8 $ 34.9 $ 12.5 $ 25.4
====== ====== ====== ====== ====== ======
Primary earnings per common
and common equivalent share:
Earnings before extraordinary loss
and change in accounting $ 1.13 $ .83 $ 1.69 $ 1.17 $ .78 $ .88
Extraordinary loss-propane debt restructuring - - - - (.40) -
Change in accounting for
postemployment benefits - - - (.10) - (.10)
------ ------ ------ ------ ------ ------
Net earnings $ 1.13 $ .83 $ 1.69 $ 1.07 $ .38 $ .78
====== ====== ====== ====== ====== ======
</TABLE>
<PAGE> 2
UGI CORPORATION AND SUBSIDIARIES Exhibit (11)
(Page 2 of 2)
COMPUTATION OF EARNINGS PER SHARE
(Millions, Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended Twelve Months Ended
March 31, March 31, March 31,
1996 1995 1996 1995 1996 1995
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Fully diluted earnings per share:
Actual average common shares outstanding 33.0 32.6 33.0 32.6 32.9 32.5
Incremental shares issuable upon
exercise of stock options outstanding 0.1 - 0.1 - 0.1 -
------ ------ ------ ------ ------ ------
Total shares for fully diluted computation 33.1 32.6 33.1 32.6 33.0 32.5
====== ====== ====== ====== ====== ======
Earnings applicable to common stock:
Earnings before extraordinary loss
and change in accounting $ 37.6 $ 27.0 $ 55.8 $ 38.0 $ 25.7 $ 28.5
Extraordinary loss-propane debt restructuring - - - - (13.2) -
Change in accounting for
postemployment benefits - - - (3.1) - (3.1)
------ ------ ------ ------ ------ ------
Net earnings $ 37.6 $ 27.0 $ 55.8 $ 34.9 $ 12.5 $ 25.4
====== ====== ====== ====== ====== ======
Fully diluted earnings per common share:
Earnings before extraordinary loss
and change in accounting $ 1.13 $ .83 $ 1.69 $ 1.17 $ .78 $ .88
Extraordinary loss-propane debt restructuring - - - - (.40) -
Change in accounting for
postemployment benefits - - - (.10) - (.10)
------ ------ ------ ------ ------ ------
Net earnings $ 1.13 $ .83 $ 1.69 $ 1.07 $ .38 $ .78
====== ====== ====== ====== ====== ======
</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 CORPORATION AS
OF AND FOR THE SIX MONTHS ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS INCLUDED IN UGI CORPORATION'S
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1996.
</LEGEND>
<CIK> 0000884614
<NAME> UGI CORP
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> MAR-31-1996
<CASH> 72,100
<SECURITIES> 23,000
<RECEIVABLES> 244,000
<ALLOWANCES> 11,900
<INVENTORY> 70,000
<CURRENT-ASSETS> 434,800
<PP&E> 1,306,300
<DEPRECIATION> 343,000
<TOTAL-ASSETS> 2,197,400
<CURRENT-LIABILITIES> 337,600
<BONDS> 830,900
35,200
0
<COMMON> 391,600
<OTHER-SE> 24,200
<TOTAL-LIABILITY-AND-EQUITY> 2,197,400
<SALES> 997,200
<TOTAL-REVENUES> 997,200
<CGS> 560,700
<TOTAL-COSTS> 560,700
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39,800
<INCOME-PRETAX> 105,900
<INCOME-TAX> 48,700
<INCOME-CONTINUING> 55,800
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 55,800
<EPS-PRIMARY> 1.69
<EPS-DILUTED> 1.69
</TABLE>
