<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 June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 1-11071
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 July 31, 1997, there were 32,889,897 shares of UGI Corporation Common
Stock, without par value, outstanding.
<PAGE> 2
UGI CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGES
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PART I FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 1997,
September 30, 1996 and June 30, 1996 1
Condensed Consolidated Statements of Income for the three,
nine and twelve months ended June 30, 1997 and 1996 2
Condensed Consolidated Statements of Cash Flows for the
nine and twelve months ended June 30, 1997 and 1996 3
Notes to Condensed Consolidated Financial Statements 4 - 11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12 - 29
PART II OTHER INFORMATION
Item 1. Legal Proceedings 29 - 30
Item 6. Exhibits and Reports on Form 8-K 30
Signatures 31
</TABLE>
i
<PAGE> 3
UGI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(Millions of dollars)
<TABLE>
<CAPTION>
June 30, September 30, June 30,
1997 1996 1996
---------- ------------- ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 93.9 $ 74.0 $ 40.7
Short-term investments, at cost which approximates market value 43.2 23.1 45.2
Accounts receivable (less allowances for doubtful accounts of
$12.0, $10.6 and $12.2, respectively) 126.1 113.3 126.4
Accrued utility revenues 6.7 8.6 7.3
Inventories 79.7 113.2 83.2
Deferred income taxes 22.3 17.4 23.1
Prepaid expenses and other current assets 15.0 32.0 10.1
---------- ---------- ----------
Total current assets 386.9 381.6 336.0
Property, plant and equipment, at cost (less accumulated depreciation
and amortization of $401.7, $368.2 and $356.1, respectively) 978.7 974.6 959.9
Intangible assets (less accumulated amortization of $110.4, $94.9 and
$92.8, respectively) 677.8 692.5 688.5
Regulatory income tax asset 44.0 42.9 38.9
Other assets 47.3 53.3 67.7
---------- ---------- ----------
Total assets $ 2,134.7 $ 2,144.9 $ 2,091.0
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt - Propane $ 12.2 $ 5.2 $ 5.5
Current maturities of long-term debt - Utilities 17.1 25.5 25.5
Current maturities of long-term debt - other 0.4 0.4 0.3
Bank loans - Propane - 15.0 -
Bank loans - Utilities 43.2 50.5 10.0
Accounts payable 71.3 94.7 65.7
Other current liabilities 172.1 177.9 155.1
---------- ---------- ----------
Total current liabilities 316.3 369.2 262.1
Long-term debt - Propane 685.0 687.3 664.1
Long-term debt - Utilities 159.3 149.3 156.4
Long-term debt - other 8.3 8.6 8.7
Deferred income taxes 153.7 148.6 140.6
Other noncurrent liabilities 88.8 84.7 113.7
Commitments and contingencies
Minority interest in AmeriGas Partners 288.6 284.4 309.3
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 - 32,908,688, 33,198,731 and 33,081,447 shares, respectively) 392.7 391.9 391.7
Retained earnings (accumulated deficit) 13.6 (12.8) 11.7
---------- ---------- ----------
406.3 379.1 403.4
Less treasury stock, at cost 6.8 1.5 2.5
---------- ---------- ----------
Total common stockholders' equity 399.5 377.6 400.9
---------- ---------- ----------
Total liabilities and stockholders' equity $ 2,134.7 $ 2,144.9 $ 2,091.0
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE> 4
UGI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(Millions, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
June 30, June 30, June 30,
------------------------ ------------------------- ------------------------
1997 1996(a) 1997 1996(a) 1997 1996(a)
---------- ----------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Propane $ 177.6 $ 175.5 $ 908.9 $ 836.1 $ 1,086.0 $ 992.0
Utilities 88.3 88.9 395.7 392.5 463.7 446.4
Energy marketing 18.2 19.5 85.5 64.8 104.6 73.3
--------- --------- ----------- ---------- ---------- ----------
284.1 283.9 1,390.1 1,293.4 1,654.3 1,511.7
--------- --------- ----------- ---------- ---------- ----------
Costs and expenses:
Propane cost of sales 89.4 96.2 509.9 468.2 611.4 551.1
Utilities - gas, fuel and purchased power 44.2 45.6 207.8 206.0 241.5 227.2
Other cost of sales 17.1 18.4 82.5 59.0 101.2 67.0
Operating and administrative expenses 104.2 102.5 331.3 327.8 441.0 427.6
Depreciation and amortization 21.6 21.4 65.3 64.4 86.9 85.2
Miscellaneous income, net (5.5) (4.0) (17.1) (10.2) (19.6) (13.3)
--------- --------- ----------- ---------- ---------- ----------
271.0 280.1 1,179.7 1,115.2 1,462.4 1,344.8
--------- --------- ----------- ---------- ---------- ----------
Operating income 13.1 3.8 210.4 178.2 191.9 166.9
Interest charges (20.3) (19.8) (62.8) (59.6) (82.7) (79.4)
Minority interest in AmeriGas Partners 6.3 9.3 (30.6) (19.4) (15.5) (8.3)
--------- --------- ----------- ---------- ---------- ----------
Income (loss) before income taxes and
subsidiary preferred stock dividends (0.9) (6.7) 117.0 99.2 93.7 79.2
Income tax (expense) benefit 0.4 3.7 (52.4) (45.0) (41.0) (34.9)
Dividends on UGI Utilities Series
Preferred Stock (0.7) (0.7) (2.1) (2.1) (2.8) (2.8)
--------- --------- ----------- ---------- ---------- ----------
Net income (loss) $ (1.2) $ (3.7) $ 62.5 $ 52.1 $ 49.9 $ 41.5
========= ========= =========== ========== ========== ==========
Earnings (loss) per common and common
equivalent share $ (0.04) $ (0.11) $ 1.88 $ 1.57 $ 1.50 $ 1.26
========= ========= =========== ========== ========== ==========
Dividends declared per share $ 0.36 $ 0.355 $ 1.07 $ 1.055 $ 1.425 $ 1.405
========= ========= =========== ========== ========== ==========
Average common and common
equivalent shares outstanding 33.0 33.1 33.2 33.1 33.2 33.1
========= ========= =========== ========== ========== ==========
</TABLE>
(a) Revenues (and related cost of sales) have been reclassified to reflect
revenues from certain Gas Utility sales on a total, rather than net,
basis.
The accompanying notes are an integral part of these financial statements.
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<PAGE> 5
UGI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(Millions of dollars)
<TABLE>
<CAPTION>
Nine Months Ended Twelve Months Ended
June 30, June 30,
---------------------- ----------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 62.5 $ 52.1 $ 49.9 $ 41.5
Reconcile to net cash provided by
operating activities:
Depreciation and amortization 65.3 64.4 86.9 85.2
Minority interest in AmeriGas Partners 30.6 19.4 15.5 8.3
Deferred income taxes, net (2.0) 3.4 6.6 1.1
Other, net 1.1 4.2 (6.6) 6.0
--------- --------- --------- ---------
157.5 143.5 152.3 142.1
Net change in:
Accounts receivable and accrued utility revenues (18.4) (47.4) (8.1) (54.3)
Inventories 33.9 19.5 4.2 (7.7)
Deferred fuel adjustments 13.0 0.5 1.8 (9.7)
Pipeline transition costs and producer settlements, net (1.7) 1.2 (1.8) (0.7)
Accounts payable (23.4) (3.8) 5.5 16.0
Other current assets and liabilities 4.8 (0.1) 9.6 17.6
--------- --------- --------- ---------
Net cash provided by operating activities 165.7 113.4 163.5 103.3
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant and equipment (47.3) (43.5) (66.5) (68.6)
Net proceeds from disposals of assets 8.7 3.2 9.7 4.1
Acquisitions of businesses, net of cash acquired (4.5) (9.2) (23.3) (10.8)
Short-term investments (increase) decrease (20.1) (34.2) 2.0 (14.2)
Other, net 3.1 (0.3) 3.1 (0.3)
--------- --------- --------- ---------
Net cash used by investing activities (60.1) (84.0) (75.0) (89.8)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends on Common Stock (35.3) (34.6) (47.1) (46.2)
Distributions on Partnership public Common Units (29.1) (29.1) (38.7) (37.0)
Issuance of long-term debt 28.8 34.1 51.8 82.1
Repayment of long-term debt (21.8) (52.0) (29.5) (60.2)
Propane bank loans decrease (15.0) - - -
UGI Utilities bank loans increase (decrease) (7.3) (32.0) 33.2 (25.5)
Issuance of Common Stock 7.2 8.2 10.3 11.0
Repurchases of Common Stock (13.2) (5.0) (15.3) (5.0)
Partnership Formation fees and expenses - - - (2.5)
--------- --------- --------- ---------
Net cash used by financing activities (85.7) (110.4) (35.3) (83.3)
--------- --------- --------- ---------
Cash and cash equivalents increase (decrease) $ 19.9 $ (81.0) $ 53.2 $ (69.8)
========= ========= ========= =========
CASH AND CASH EQUIVALENTS:
End of period $ 93.9 $ 40.7 $ 93.9 $ 40.7
Beginning of period 74.0 121.7 40.7 110.5
--------- --------- --------- ---------
Increase (decrease) $ 19.9 $ (81.0) $ 53.2 $ (69.8)
========= ========= ========= =========
</TABLE>
During the twelve months ended June 30, 1997 and 1996, UGI Utilities, Inc. paid
cash dividends to UGI of $45.4 and $11.6, respectively. During the twelve months
ended June 30, 1997 and 1996, AmeriGas, Inc. paid cash dividends to UGI of $48.3
and $56.9, respectively. During those same periods, UGI paid cash dividends to
holders of Common Stock of $47.1 and $46.2, 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.
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<PAGE> 6
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Million 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 (together referred
to herein as "Utilities"). 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. UGI
also conducts an energy marketing business through its wholly owned
subsidiary, UGI Enterprises, Inc. (UGI Enterprises).
At June 30, 1997, UGI, through wholly owned subsidiaries, holds an
effective 2% general partner interest and a 56.5% 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 41.5% effective interest in the Operating
Partnership is publicly held. AmeriGas Partners and the Operating
Partnership are collectively referred to herein as the Partnership. A
second-tier subsidiary of UGI serves as the general partner of AmeriGas
Partners and the Operating Partnership.
The condensed 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 accompanying condensed consolidated financial statements are
unaudited and have been prepared in accordance with the rules and
regulations of the U.S. Securities and Exchange Commission. They
include all adjustments which the Company considers necessary for a
fair statement of the results for the interim periods presented. Such
adjustments consisted only of normal recurring items unless otherwise
disclosed. These financial statements should be read in conjunction
with the financial statements and the notes thereto included in the
Company's Annual Report on Form 10-K for the year ended September 30,
1996. Due to the seasonal nature of the Company's businesses, the
results of operations for interim periods are not necessarily
indicative of the results to be expected for a full year.
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<PAGE> 7
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Millions of dollars, except per share amounts)
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the
date of the financial statements, and revenues and expenses during the
reporting period. Actual results could differ from these estimates.
2. ACCOUNTING FOR DERIVATIVES
UGI Enterprises utilizes derivative commodity contracts, including
futures contracts, to hedge market risk associated with fluctuations in
the price of natural gas sold under firm commitments with certain of
its customers. AmeriGas Partners utilizes derivative commodity
contracts including price swap agreements, call and put option
contracts and futures contracts, to manage market risk associated with
a portion of its anticipated propane supply requirements, principally
during the heating season. Additionally, UGI Enterprises, from time to
time, utilizes a managed program of derivative contracts including
natural gas and oil futures contracts to preserve margin associated
with certain of the Company's customer segments, which margin otherwise
could be affected by major commodity price movements.
Gains or losses on derivative commodity contracts associated with UGI
Enterprises' firm commitments to sell natural gas are recognized as an
adjustment to cost of sales when the associated transactions affect
earnings. Gains or losses on derivative contracts associated with
forecasted transactions are recognized when such forecasted
transactions affect earnings. If a derivative contract is terminated
early because it is probable that a transaction or forecasted
transaction will not occur, any gain or loss as of such date is
immediately recognized in earnings. If such derivative contract is
terminated early for other economic reasons, any gain or loss as of the
termination date is deferred and recorded when the associated
transaction or forecasted transaction affects earnings.
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<PAGE> 8
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Millions of dollars, except per share amounts)
3. 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 Nine Months Ended Twelve Months Ended
June 30, June 30, June 30,
---------------------- ----------------------- -----------------------
1997 1996 1997 1996 1997 1996
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Propane $ 177.6 $ 175.5 $ 908.9 $ 836.1 $ 1,086.0 $ 992.0
Gas utility 71.7 72.7 340.8 340.0 391.8 377.2
Electric utility 16.6 16.2 54.9 52.5 71.9 69.2
Energy marketing (a) 18.2 19.5 85.5 64.8 104.6 73.3
---------- ---------- ---------- ---------- ---------- ----------
Total $ 284.1 $ 283.9 $ 1,390.1 $ 1,293.4 $ 1,654.3 $ 1,511.7
========== ========== ========== ========== ========== ==========
OPERATING INCOME (LOSS)
Propane $ 2.0 $ (4.9) $ 128.9 $ 100.4 $ 109.3 $ 90.9
Gas utility 8.0 9.1 75.5 75.3 73.1 74.4
Electric utility 2.2 1.5 8.5 6.4 10.7 8.3
Energy marketing 0.7 0.5 1.8 4.4 1.8 5.0
Corporate general and other 0.2 (2.4) (4.3) (8.3) (3.0) (11.7)
---------- ---------- ---------- ---------- ---------- ----------
Total $ 13.1 $ 3.8 $ 210.4 $ 178.2 $ 191.9 $ 166.9
========== ========== ========== ========== ========== ==========
DEPRECIATION AND AMORTIZATION
Propane - depreciation $ 9.6 $ 9.5 $ 28.9 $ 28.6 $ 38.6 $ 37.9
Propane - amortization 6.2 6.4 19.1 19.4 25.5 25.9
Gas utility 4.7 4.5 13.9 13.2 18.3 17.2
Electric utility 1.0 1.0 3.1 3.0 4.1 3.9
Corporate general and other 0.1 - 0.3 0.2 0.4 0.3
---------- ---------- ---------- ---------- ---------- ----------
Total $ 21.6 $ 21.4 $ 65.3 $ 64.4 $ 86.9 $ 85.2
========== ========== ========== ========== ========== ==========
IDENTIFIABLE ASSETS
(at period end)
Propane $ 1,336.4 $ 1,363.6 $ 1,336.4 $ 1,363.6 $ 1,336.4 $ 1,363.6
Gas utility 581.8 559.6 581.8 559.6 581.8 559.6
Electric utility 85.6 83.9 85.6 83.9 85.6 83.9
Energy marketing 7.8 13.0 7.8 13.0 7.8 13.0
Corporate general and other 123.1 70.9 123.1 70.9 123.1 70.9
---------- ---------- ---------- ---------- ---------- ----------
Total $ 2,134.7 $ 2,091.0 $ 2,134.7 $ 2,091.0 $ 2,134.7 $ 2,091.0
========== ========== ========== ========== ========== ==========
OPERATING STATISTICS
Propane sales - millions of gallons:
Retail 145.4 146.5 664.7 706.1 814.0 848.9
Wholesale 34.5 45.7 176.6 260.9 225.4 299.8
Natural gas system throughput -
billions of cubic feet 15.9 16.9 68.4 72.3 81.4 86.5
Electric sales - millions of kilowatt hours 195.0 198.2 667.3 683.8 868.2 892.9
</TABLE>
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<PAGE> 9
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Millions of dollars, except per share amounts)
NOTE TO SEGMENT INFORMATION:
(a) Subsequent to July 31, 1995, the Company's energy marketing
business records separately the revenues and related cost of
sales associated with its billed volumes. Prior to August 1,
1995, net margin from the Company's energy marketing business
was reflected as a component of miscellaneous income.
4. ELECTRICITY GENERATION CUSTOMER CHOICE AND COMPETITION ACT
On January 1, 1997, the Electricity Generation Customer Choice and
Competition Act (Customer Choice Act) became effective. The Customer
Choice Act permits all Pennsylvania retail electric customers to choose
their electric generation supplier over a three-year phase-in period
commencing January 1, 1999. The Customer Choice Act requires all
electric utilities to file restructuring plans with the Pennsylvania
Public Utility Commission (PUC) which, among other things, include
unbundled prices for electric generation, transmission and distribution
and a competitive transition charge (CTC) for the recovery of "stranded
costs" which would be paid by all customers receiving transmission and
distribution service. "Stranded costs" generally are electric
generation-related costs that traditionally would be recoverable in a
regulated environment but may not be recoverable in a competitive
electric generation market. Under the Customer Choice Act, Electric
Utility's rates for transmission and distribution services provided
through June 30, 2001 are capped at levels in effect on January 1,
1997. In addition, Electric Utility generally may not increase the
generation component of prices as long as stranded costs are being
recovered through the CTC. Electric Utility will continue to be the
only regulated electric utility having the right, granted by the PUC or
by law, to transmit and distribute electric energy in its service
territory.
On August 7, 1997, Electric Utility filed its restructuring plan with
the PUC. The restructuring plan includes a claim for the recovery of
$34.4 million for stranded costs during the period January 1, 1999
through December 31, 2002. The claim is primarily for the recovery of:
(1) plant investments in excess of market and electric generation
facility retirement costs; (2) potential costs associated with existing
power purchase agreements; and (3) regulatory assets (principally
income taxes) recoverable from ratepayers under current regulatory
practice. The PUC has nine months to take action on Electric Utility's
filing.
Given the changing regulatory environment in the electric utility
industry, the Company continues to evaluate its ability to apply the
provisions of SFAS No. 71 "Accounting for the Effects of Certain Types
of Regulation" (SFAS 71) as it relates to its electric generation
operations. SFAS 71 permits the recording of costs (regulatory assets)
that have been, or are expected to be, allowed in the ratesetting
process in a period different
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<PAGE> 10
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Millions of dollars, except per share amounts)
from the period in which such costs would be charged to expense by an
unregulated enterprise. The Company believes its electric generation
assets and related regulatory assets continue to satisfy the criteria
of SFAS 71. If and when such electric generation assets no longer meet
the criteria of SFAS 71, any related regulatory assets would be
written-off unless the PUC authorizes the recovery of such costs
through the CTC and any generation-related long-lived fixed and
intangible assets would be evaluated for impairment under the
provisions of SFAS 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of."
Based upon an evaluation of the various factors and conditions
affecting future cost recovery , the Company does not expect the
Customer Choice Act to have a material adverse effect on its financial
condition or results of operations.
5. COMMITMENTS AND CONTINGENCIES
The Partnership has succeeded to the lease guarantee obligations of
Petrolane Incorporated (Petrolane) relating to Petrolane's divestiture
of nonpropane operations prior to its 1989 acquisition by QFB Partners.
These leases are currently estimated to aggregate approximately $81
million (subject to reduction in certain circumstances). The leases
expire through 2010 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's 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
-8-
<PAGE> 11
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Millions of dollars, except per share amounts)
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 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
-9-
<PAGE> 12
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Millions of dollars, except per share amounts)
responsible parties involved and their ability to contribute to the
costs of investigation and remediation, and changing environmental laws
and regulations.
The Company's policy is to accrue environmental investigation and
cleanup costs when it is probable that a liability exists and the
amount or range of amounts can be reasonably estimated. The Company
intends to pursue recovery of any incurred costs through all
appropriate means, including regulatory relief, although such recovery
cannot be assured.
Under the terms of the August 31, 1995 Gas Utility base rate
settlement, Gas Utility is permitted to amortize as removal costs
site-specific environmental investigation and remediation costs, net of
related third-party payments, associated with Pennsylvania sites. Gas
Utility will be permitted to include in rates, through future base rate
proceedings, a five-year average of such prudently incurred removal
costs.
In addition to these environmental matters, there are various other
pending claims and legal actions arising out of the normal conduct of
the Company's businesses. The final results of environmental and other
matters cannot be predicted with certainty. However, it is reasonably
possible that some of them could be resolved unfavorably to the
Company. Management believes, after consultation with counsel, that
damages or settlements, if any, recovered by the plaintiffs in such
claims or actions will not have a material adverse effect on the
Company's financial position but could be material to operating results
or cash flows in future periods depending on the nature and timing of
future developments with respect to these matters and the amounts of
future operating results and cash flows.
6. RECENTLY ISSUED ACCOUNTING PRINCIPLES NOT YET ADOPTED
In February 1997, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 128 "Earnings
Per Share" (SFAS 128). SFAS 128 establishes standards for computing and
presenting earnings per share and simplifies the standards for
computing earnings per share previously found in Accounting Principles
Board Opinion No. 15 (APB 15). It requires a dual presentation of basic
and diluted earnings per share on the face of the income statement for
all entities with complex capital structures and a reconciliation of
the numerator and denominator of the basic earnings per share
computation to the numerator and denominator of the fully diluted
earnings per share computation.
The computation of basic earnings per share excludes the dilutive
effect of common stock equivalents currently required under the
calculation of primary earnings per share and is computed by dividing
income available to common stockholders by the weighted-average number
of common shares outstanding for the period. Diluted earnings per share
under SFAS 128 is computed similarly to fully diluted earnings per
share under APB No. 15.
-10-
<PAGE> 13
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Millions of dollars, except per share amounts)
SFAS 128 is effective for financial statements issued for periods
ending after December 15, 1997; earlier application is not permitted.
When adopted, restatement of all prior-period earnings per share data
is required.
The adoption of SFAS 128 is not expected to have a material effect on
the Company's computation of earnings per share because the Company has
a relatively small number of dilutive potential common shares
outstanding. The effect of the adoption of SFAS 128 on the calculation
of earnings per share in future periods will depend principally on the
amount and terms of dilutive potential common shares then outstanding.
-11-
<PAGE> 14
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 3 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.
THREE MONTHS ENDED JUNE 30, 1997 (1997 THREE-MONTH PERIOD) COMPARED WITH THREE
MONTHS ENDED JUNE 30, 1996 (1996 THREE-MONTH PERIOD)
CONSOLIDATED RESULTS
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
Increase
Three Months Ended June 30, 1997 1996 (Decrease)
--------------------------------------------------------------------------------------------------------
(Millions of dollars, except per share)
<S> <C> <C> <C> <C>
Revenues $ 284.1 $ 283.9 $ .2 .1%
Total margin $ 130.0 $ 120.4 $ 9.6 8.0%
Operating income $ 13.1 $ 3.8 $ 9.3 244.7%
Net loss $ (1.2) $ (3.7) $ (2.5) (67.6)%
Net loss per share $ (.04) $ (.11) $ (.07) (63.6)%
--------------------------------------------------------------------------------------------------------
</TABLE>
The Company's net loss in the 1997 three-month period decreased due principally
to an improvement in the operating results of AmeriGas Partners. In addition,
results in the 1997 three-month period reflect a $1.4 million after-tax gain
from the sale of UTI Energy Corp. (UTI) Common Stock received in conjunction
with the mid-1980's disposition of the Company's former oil field operations.
PROPANE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Increase
Three Months Ended June 30, 1997 1996 (Decrease)
- ---------------------------------------------------------------------------------------------
(Millions of dollars)
<S> <C> <C> <C> <C>
Retail gallons sold - millions 145.4 146.5 (1.1) (.8)%
Degree days - % colder than normal 9.9 2.4 - -
Revenues $ 177.6 $ 175.5 $ 2.1 1.2%
Total margin $ 88.2 $ 79.3 $ 8.9 11.2%
Operating income (loss) $ 2.0 $ (4.9) $ 6.9 140.8%
EBITDA(a) $ 17.8 $ 11.0 $ 6.8 61.8%
- ---------------------------------------------------------------------------------------------
</TABLE>
-12-
<PAGE> 15
UGI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(a) EBITDA (earnings before interest expense, income taxes, depreciation
and amortization) should not be considered as an alternative to net
income (as an indicator of operating performance) or as an alternative
to cash flow (as a measure of liquidity or ability to service debt
obligations) and is not a measure of performance or financial condition
under generally accepted accounting principles.
PROPANE. Retail volumes of propane sold were virtually unchanged during the 1997
three-month period, despite weather which was colder than in the prior-year
period. The correlation of weather and retail sales is significantly lower in
the third fiscal quarter than in the first and second fiscal quarters. The
Partnership's management believes that the pass-through by propane distributors
of higher propane product costs during the 1996/1997 heating season resulted in
industry-wide customer conservation efforts which continued to impact sales
volume in the 1997 three-month period. In addition, warmer-than-normal winter
weather resulted in lower required deliveries during the spring. Although
propane product cost was substantially higher during the first half of the
1996/1997 heating season, the spot price of propane at Mont Belvieu, a major
U.S. storage and distribution hub, has declined from a high of 70.5 cents per
gallon on December 16, 1996 to a price of 34.6 cents per gallon on June 30,
1997. Wholesale volumes of propane sold were 11.2 million gallons lower in the
1997 three-month period reflecting reduced storage inventory sales associated
with product cost management programs.
Total revenues from retail propane sales increased $5.4 million to $143.3
million reflecting a $6.4 million increase as a result of higher average retail
propane selling prices partially offset by a $1.0 million decrease in retail
propane revenues resulting from the lower volumes sold. Wholesale propane
revenues decreased $3.9 million reflecting the lower wholesale volumes sold
partially offset by higher average propane selling prices.
Total propane margin increased in the 1997 three-month period principally
reflecting the impact of higher average retail unit margin partially offset by
reduced volumes of propane sold.
The increase in operating income and EBITDA during the three months ended June
30, 1997 principally reflects the impact of the higher total margin partially
offset by a decrease in miscellaneous income. Total operating expenses of the
Partnership were $74.0 million in the 1997 three-month period, virtually
unchanged from operating expenses incurred by the Partnership in the 1996
three-month period, as higher compensation expenses were offset by reductions in
insurance and marketing costs. Miscellaneous income in the three months ended
June 30, 1997 was $1.1 million less than in the prior-year period principally
due to reduced income from sales of fixed assets.
-13-
<PAGE> 16
UGI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
UTILITIES
<TABLE>
<CAPTION>
-------------------------------------------- -------------- ------------- ----------------------
Increase
Three Months Ended June 30, 1997 1996 (Decrease)
-------------------------------------------- -------------- ------------- ----------------------
(Millions of dollars)
<S> <C> <C> <C> <C>
GAS UTILITY:
Natural gas system throughput - bcf 15.9 16.9 (1.0) (5.9)%
Degree days - % colder than normal 15.9 2.4 - -
Revenues $ 71.7 $ 72.7 $ (1.0) (1.4)%
Total margin (a) $ 32.3 $ 32.3 $ - - %
Operating income $ 8.0 $ 9.1 $ (1.1) (12.1)%
ELECTRIC UTILITY:
Electric sales - gwh 195.0 198.2 (3.2) (1.6)%
Degree days - % colder than normal 27.8 11.8 - -
Revenues $ 16.6 $ 16.2 $ .4 2.5%
Total margin (a) $ 8.4 $ 7.7 $ .7 9.1%
Operating income $ 2.2 $ 1.5 $ .7 46.7%
-------------------------------------------- -------------- ------------- ----------- ----------
</TABLE>
bcf - billions of cubic feet. gwh - millions of kilowatt hours.
(a) Gas and Electric utilities' total margin represents total revenues less
cost of sales and revenue-related taxes.
GAS UTILITY. Weather in the Gas Utility service area during the three months
ended June 30, 1997 was 15.9% colder than normal compared with weather that was
2.4% colder than normal in the prior-year period. Although the weather was
colder in the 1997 three-month period, the correlation of weather and volumes on
sales to firm-residential, firm-commercial and firm-industrial (collectively,
"core market") customers is significantly lower in the third fiscal quarter than
in the first and second fiscal quarters. Total system throughput decreased 5.9%
during the 1997 three-month period principally reflecting a decrease in certain
low-margin interruptible delivery service volumes resulting from the shut-down
of a gas-fired cogeneration facility earlier in the year.
The decrease in Gas Utility's total revenues during the 1997 three-month period
includes a $2.5 million decrease from slightly lower throughput to core market
customers and a $2.0 million decrease in revenues from sales to customers
outside Gas Utility's distribution system (off-system sales). These decreases
were partially offset by a $3.0 million increase from the effects of higher
purchased gas cost (PGC) rates. Cost of gas sold by the Gas Utility was $36.7
million during the
-14-
<PAGE> 17
UGI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
1997 three-month period, a decrease of $1.1 million from the prior-year period,
reflecting lower costs associated with the lower volumes sold to core market
customers and the decrease in off-system sales partially offset by the effects
of higher PGC rates.
Despite the decrease in total throughput, Gas Utility total margin was
essentially unchanged from the prior-year period. Total margin for the three
months ended June 30, 1997 reflects a $.5 million decrease in margin from core
market customers reflecting the effects of lower volumes sold. However, the
decrease in total margin from core market customers was offset by higher total
margin from firm and interruptible delivery service customers.
Gas Utility operating income during the 1997 three-month period decreased $1.1
million principally reflecting an increase in operating expenses. Operating and
administrative expenses during the 1997 three-month period increased $1.3
million primarily from costs associated with environmental matters, distribution
system maintenance, advertising and marketing programs partially offset by lower
accruals for uncollectible accounts.
ELECTRIC UTILITY. Electric Utility sales decreased slightly during the 1997
three-month period principally reflecting a decrease in air conditioning related
sales. Notwithstanding the decline in sales, Electric Utility revenues increased
$.5 million reflecting the effects of an increase in base rates effective July
19, 1996 partially offset by the decrease in sales. Cost of sales decreased $.3
million in the 1997 three-month period reflecting the effects of the lower
sales.
Electric Utility total margin and operating income increased during the 1997
three-month period as a result of the higher base rates. Electric Utility
operating and administrative expenses in the 1997 three-month period were
virtually unchanged from the prior-year period. Pursuant to the provisions of
the Customer Choice Act, Electric Utility's rates have been capped at levels
existing as of January 1, 1997 (see "Electricity Generation Customer Choice and
Competition Act").
ENERGY MARKETING
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Increase
Three Months Ended June 30, 1997 1996 (Decrease)
- ----------------------------------------------------------------------------------------------
(Millions of dollars)
<S> <C> <C> <C> <C>
Revenues $ 18.2 $ 19.5 $ (1.3) (6.7)%
Total margin $ 1.1 $ 1.1 $ - - %
Operating income $ .7 $ .5 $ .2 40.0%
- ----------------------------------------------------------------------------------------------
</TABLE>
ENERGY MARKETING. Total revenues from energy marketing in the 1997 three-month
period decreased due to lower average gas prices partially offset by slightly
higher billed volumes. The
-15-
<PAGE> 18
UGI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
increase in billed volumes was tempered by the loss of low-margin volume from
the previously mentioned shut-down of a gas-fired cogeneration facility on the
Gas Utility's distribution system. Total margin for the 1997 three-month period
was virtually unchanged from the 1996 three-month period. Operating income from
energy marketing was $.7 million in the 1997 three-month period compared with
$.5 million in the prior-year period principally reflecting slightly higher
miscellaneous income.
CORPORATE GENERAL AND OTHER
Operating income (loss) from corporate general and other, net, consisting of
expenses incurred by UGI corporate headquarters net of other miscellaneous
income, was $.2 million in the 1997 three-month period compared with $(2.4)
million in the prior-year period. The 1997 three-month period includes a $2.1
million pre-tax gain from the sale of UTI Common Stock, lower UGI corporate
administrative expenses and higher interest income on temporary cash
investments.
INTEREST EXPENSE AND INCOME TAXES
Interest expense increased to $20.3 million in the 1997 three-month period from
$19.8 million in the prior-year period principally as a result of higher
Utilities' bank loans outstanding and higher levels of debt outstanding under
the Partnership's Acquisition Facility. The effective income tax rate on pre-tax
loss for the three months ended June 30, 1997 was 44.4% compared with 55.2% for
the three months ended June 30, 1996 principally as a result of a lower
effective income tax rate on propane operations.
NINE MONTHS ENDED JUNE 30, 1997 (1997 NINE-MONTH PERIOD) COMPARED WITH NINE
MONTHS ENDED JUNE 30, 1996 (1996 NINE-MONTH PERIOD)
CONSOLIDATED RESULTS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Nine Months Ended June 30, 1997 1996 Increase
- -----------------------------------------------------------------------------------------------------
(Millions of dollars, except per share)
<S> <C> <C> <C> <C>
Revenues $ 1,390.1 $ 1,293.4 $ 96.7 7.5%
Total margin $ 573.8 $ 544.3 $ 29.5 5.4%
Operating income $ 210.4 $ 178.2 $ 32.2 18.1%
Net income $ 62.5 $ 52.1 $ 10.4 20.0%
Net income per share $ 1.88 $ 1.57 $ .31 19.7%
- -----------------------------------------------------------------------------------------------------
</TABLE>
-16-
<PAGE> 19
UGI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The increase in the Company's results in the 1997 nine-month period reflects a
significant improvement in the operating results of AmeriGas Partners. The
improvement in the Partnership's results is principally due to higher average
retail unit margins.
PROPANE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Increase
Nine Months Ended June 30, 1997 1996 (Decrease)
- ------------------------------------------------------------------------------------------------------
(Millions of dollars)
<S> <C> <C> <C> <C>
Retail gallons sold - millions 664.7 706.1 (41.4) (5.9)%
Degree days -% colder (warmer) than normal (4.8) 1.3 - -
Revenues $ 908.9 $ 836.1 $ 72.8 8.7%
Total margin $ 399.0 $ 367.9 $ 31.1 8.5%
Operating income $ 128.9 $ 100.4 $ 28.5 28.4%
EBITDA (a) $ 176.9 $ 148.4 $ 28.5 19.2%
- ------------------------------------------------------------------------------------------------------
</TABLE>
(a) EBITDA (earnings before interest expense, income taxes, depreciation
and amortization) should not be considered as an alternative to net
income (as an indicator of operating performance) or as an alternative
to cash flow (as a measure of liquidity or ability to service debt
obligations) and is not a measure of performance or financial condition
under generally accepted accounting principles.
PROPANE. Retail volumes of propane sold decreased in the nine months ended June
30, 1997 reflecting the effects of warmer heating-season weather. In addition,
significantly higher propane market prices primarily during the first half of
the 1996/1997 heating season resulted in customer conservation efforts which
further reduced retail volumes. Wholesale volumes of propane sold decreased 84.3
million gallons to 176.6 million gallons in the nine months ended June 30, 1997
principally due to reduced low-margin sales of storage inventories.
Total revenues from retail propane sales increased $84.7 million to $737.7
million reflecting a $123.0 million increase as a result of higher average
retail propane selling prices partially offset by a $38.3 million decrease in
retail propane revenues resulting from the lower volumes sold. The higher prices
resulted principally from higher propane product costs experienced by the
Partnership earlier in the fiscal year. Wholesale propane revenues decreased
$7.7 million to $106.6 million reflecting the lower wholesale volumes sold.
Other revenues decreased $4.2 million to $64.6 million as a result of lower
hauling and appliance revenues.
-17-
<PAGE> 20
UGI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Total propane margin was greater in the nine months ended June 30, 1997
reflecting the impact of higher average retail unit margin partially offset by
reduced volumes of propane sold. Although the Partnership's propane product
costs were significantly higher in the 1997 nine-month period, they were
partially mitigated by favorable fixed-price supply commitments and, to a lesser
extent, derivative contracts entered into by the Partnership as part of its
overall propane supply strategy. In addition, the higher 1997 nine-month period
average retail unit margin reflects the fact that retail unit margins in the
prior-year period were adversely impacted by the effects of certain sales and
marketing programs.
The increase in operating income and EBITDA during the 1997 nine-month period
reflects the impact of the higher total margin and greater miscellaneous income
partially offset by an increase in operating expenses. Total operating expenses
of the Partnership were $238.7 million in the nine months ended June 30, 1997
compared with $235.2 million in the 1996 nine-month period. The 1996 operating
expenses are net of $4.4 million from a refund of insurance premium deposits
made in prior years and $3.3 million from a reduction in accrued environmental
costs. Excluding the impact of these items in the 1996 nine-month period,
operating expenses declined principally reflecting lower expenses related to
sales and marketing programs and a reduction in insurance costs. Miscellaneous
income increased $2.9 million in the nine months ended June 30, 1997 reflecting
$4.7 million of income from the sale of the Partnership's 50% interest in
Atlantic Energy, Inc. (Atlantic Energy), a refrigerated liquefied petroleum gas
storage terminal in Chesapeake, Virginia. The Partnership sold its interest in
Atlantic Energy after determining that it was not a strategic asset.
-18-
<PAGE> 21
UGI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
UTILITIES
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
Increase
Nine Months Ended June 30, 1997 1996 (Decrease)
-------------------------------------------------------------------------------------------------------------
(Millions of dollars)
<S> <C> <C> <C> <C>
GAS UTILITY:
Natural gas system throughput - bcf 68.4 72.3 (3.9) (5.4)%
Degree days - % colder (warmer) than normal (4.7) 4.7 - -
Revenues $ 340.8 $ 340.0 $ .8 .2%
Total margin $ 145.2 $ 146.0 $ (.8) (.5)%
Operating income $ 75.5 $ 75.3 $ .2 .3%
ELECTRIC UTILITY:
Electric sales - gwh 667.3 683.8 (16.5) (2.4)%
Degree days - % colder than normal 2.4 8.3 - -
Revenues $ 54.9 $ 52.5 $ 2.4 4.6%
Total margin $ 26.6 $ 24.6 $ 2.0 8.1%
Operating income $ 8.5 $ 6.4 $ 2.1 32.8%
-------------------------------------------------------------------------------------------------------------
</TABLE>
GAS UTILITY. Weather in Gas Utility's service territory in the 1997 nine-month
period was 4.7% warmer than normal and 9.3% warmer than the 1996 nine-month
period. Total system throughput decreased 5.4% during the 1997 nine-month period
principally reflecting the warmer weather's effect on core market sales as well
as a decrease in low-margin interruptible delivery service volumes associated
with the shut-down of a gas-fired cogeneration facility.
Gas Utility revenues were virtually unchanged in the 1997 nine-month period as a
$23.1 million increase in revenues from higher average PGC rates was offset
principally by a $19.6 million decrease in revenues from lower sales to core
market customers and lower off-system sales. Notwithstanding the lower core
market and off-system sales, cost of gas sold by Gas Utility increased $1.4
million to $181.9 million reflecting higher average PGC rates.
The decrease in Gas Utility total margin principally reflects a $5.9 million
decrease in total margin from core market customers resulting from the warmer
weather partially offset by an increase in total margin from interruptible
customers.
Although total margin was slightly lower in the 1997 nine-month period, Gas
Utility operating income increased $.2 million principally as a result of lower
operating and administrative expenses. Operating and administrative expenses
during the 1997 nine-month period decreased
-19-
<PAGE> 22
UGI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
$.9 million principally as a result of a decrease in distribution system
expenses, lower accruals for uncollectible accounts, and lower general and
administrative expenses partially offset by higher costs associated with
environmental matters.
ELECTRIC UTILITY. Electric Utility sales decreased during the 1997 nine-month
period reflecting weather which was 5.5% warmer than in the prior-year period.
Electric Utility revenues increased $2.4 million, notwithstanding the lower
sales, reflecting a $1.5 million increase in base rate revenues resulting from
the July 19, 1996 base rate increase and a $.9 million increase in energy cost
rate (ECR) revenues reflecting a higher average ECR. Cost of sales increased to
$25.9 million in the 1997 nine-month period from $25.5 million in the prior-year
period as a result of the higher average ECR partially offset by the lower
sales.
Electric Utility total margin and operating income increased during the nine
months ended June 30, 1997 principally as a result of the higher base rates.
Electric Utility operating and administrative expenses in the 1997 nine-month
period were essentially unchanged from the prior-year period.
ENERGY MARKETING
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Increase
Nine Months Ended June 30, 1997 1996 (Decrease)
- --------------------------------------------------------------------------------------------
(Millions of dollars)
<S> <C> <C> <C> <C>
Revenues $ 85.5 $ 64.8 $ 20.7 31.9%
Total margin $ 3.0 $ 5.8 $ (2.8) (48.3)%
Operating income $ 1.8 $ 4.4 $ (2.6) (59.1)%
- --------------------------------------------------------------------------------------------
</TABLE>
ENERGY MARKETING. Total revenues from energy marketing in the 1997 nine-month
period increased significantly compared with revenues during the prior-year
period as a result of higher billed volumes principally from increased sales
outside the Gas Utility's service territory and higher natural gas prices.
Notwithstanding the increase in billed volumes, total margin for the 1997
nine-month period was lower than in the prior-year period due to the warmer
winter weather's effect on natural gas prices and the value of pipeline
capacity. Operating income from energy marketing was $1.8 million in the 1997
nine-month period compared with $4.4 million in the prior-year period
principally as a result of the lower total margin.
CORPORATE GENERAL AND OTHER
Operating loss from corporate general and other, net, was $(4.3) million in the
1997 nine-month period compared with $(8.3) million in the 1996 nine-month
period. Corporate general and other
-20-
<PAGE> 23
UGI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
expenses decreased $2.7 million reflecting lower UGI corporate expenses due in
large part to adjustments of incentive accruals in September 1996. Other income
includes a $2.1 million pre-tax gain from the sale of UTI Common Stock and
higher interest income on temporary cash investments.
INTEREST EXPENSE AND INCOME TAXES
Interest expense increased to $62.8 million in the 1997 nine-month period from
$59.6 million in the 1996 nine-month period principally as a result of higher
Utilities' bank loans outstanding and higher levels of debt outstanding under
the Partnership's Revolving Credit and Acquisition facilities. The effective
income tax rate for the nine months ended June 30, 1997 was 44.8% compared with
45.4% for the nine months ended June 30, 1996 principally as a result of a lower
effective income tax rate on propane operations.
TWELVE MONTHS ENDED JUNE 30, 1997 (1997 TWELVE-MONTH PERIOD) COMPARED WITH
TWELVE MONTHS ENDED JUNE 30, 1996 (1996 TWELVE-MONTH PERIOD)
CONSOLIDATED RESULTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Twelve Months Ended June 30, 1997 1996 Increase
- --------------------------------------------------------------------------------------------------------
(Millions of dollars, except per share)
<S> <C> <C> <C> <C>
Revenues $ 1,654.3 $ 1,511.7 $ 142.6 9.4%
Total margin $ 681.8 $ 648.5 $ 33.3 5.1%
Operating income $ 191.9 $ 166.9 $ 25.0 15.0%
Net income $ 49.9 $ 41.5 $ 8.4 20.2%
Net income per share $ 1.50 $ 1.26 $ .24 19.0%
- --------------------------------------------------------------------------------------------------------
</TABLE>
The increase in the Company's results in the 1997 twelve-month period is a
result of a number of factors including improved propane results, the effect of
Electric Utility's July 1996 base rate increase, and lower net corporate
expenses.
-21-
<PAGE> 24
UGI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
PROPANE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Increase
Twelve Months Ended June 30, 1997 1996 (Decrease)
- -------------------------------------------------------------------------------------------------------
(Millions of dollars)
<S> <C> <C> <C> <C>
Retail gallons sold - millions 814.0 848.9 (34.9) (4.1)%
Degree days -% colder (warmer) than normal (4.6) 1.6 - -
Revenues $ 1,086.0 $ 992.0 $ 94.0 9.5%
Total margin $ 474.6 $ 440.9 $ 33.7 7.6%
Operating income $ 109.3 $ 90.9 $ 18.4 20.2%
EBITDA (a) $ 173.4 $ 154.7 $ 18.7 12.1%
- -------------------------------------------------------------------------------------------------------
</TABLE>
(a) EBITDA (earnings before interest expense, income taxes, depreciation
and amortization) should not be considered as an alternative to net
income (as an indicator of operating performance) or as an alternative
to cash flow (as a measure of liquidity or ability to service debt
obligations) and is not a measure of performance or financial condition
under generally accepted accounting principles.
PROPANE. Retail volumes of propane sold decreased in the 1997 twelve-month
period reflecting the effects of warmer heating-season weather and price-induced
customer conservation efforts. Wholesale volumes of propane sold decreased 74.4
million gallons to 225.4 million gallons in the twelve months ended June 30,
1997 principally due to reduced low-margin sales of storage inventories.
Total revenues from retail propane sales increased $101.1 million to $871.6
million reflecting a $132.8 million increase as a result of higher average
retail propane selling prices partially offset by a $31.7 million decrease in
retail propane revenues from the lower volumes sold. The higher average selling
prices resulted principally from higher propane product costs experienced by the
Partnership primarily during the first half of the 1997 twelve-month period.
Wholesale propane and other revenues decreased $7.1 million to $214.4 million
principally reflecting lower hauling and appliance revenues.
Total propane margin was greater in the 1997 twelve-month period reflecting the
impact of higher average retail unit margin partially offset by reduced volumes
of propane sold. Although the Partnership's propane product costs were
significantly higher during the first half of the 1997 twelve-month period, they
were partially mitigated by favorable fixed-price supply commitments and
financial contracts entered into by the Partnership as part of its overall
propane supply strategy. In addition, the higher 1997 twelve-month period
average retail unit margin reflects the
-22-
<PAGE> 25
UGI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
fact that retail unit margins in the prior-year period were adversely impacted
by the effects of certain sales and marketing programs.
The increase in operating income and EBITDA reflects the impact of the higher
total margin and greater miscellaneous income partially offset by an increase in
operating expenses. Total operating expenses of the Partnership were $320.8
million in the twelve months ended June 30, 1997 compared with $306.7 million in
the 1996 twelve-month period. The 1996 twelve-month period operating expenses
are net of $4.4 million from a refund of insurance premium deposits made in
prior years and $3.3 million from a reduction in accrued environmental costs.
The increase in operating expenses during the twelve months ended June 30, 1997,
after adjusting for these items, principally reflects higher equipment
maintenance expenses partially offset by lower costs associated with sales and
marketing programs. Miscellaneous income increased $2.1 million in the 1997
twelve-month period principally from $4.7 million of income from the sale of the
Partnership's 50% interest in Atlantic Energy.
UTILITIES
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
Increase
Twelve Months Ended June 30, 1997 1996 (Decrease)
----------------------------------------------------------------------------------------------------------
(Millions of dollars)
<S> <C> <C> <C> <C>
GAS UTILITY:
Natural gas system throughput - bcf 81.4 86.5 (5.1) (5.9)%
Degree days - % colder (warmer) than normal (4.9) 4.4 - -
Revenues $ 391.8 $ 377.2 $ 14.6 3.9%
Total margin $ 168.8 $ 168.4 $ .4 .2%
Operating income $ 73.1 $ 74.4 $ (1.3) (1.7)%
ELECTRIC UTILITY:
Electric sales - gwh 868.2 892.9 (24.7) (2.8)%
Degree days - % colder than normal 2.4 7.8 - -
Revenues $ 71.9 $ 69.2 $ 2.7 3.9%
Total margin $ 35.0 $ 32.9 $ 2.1 6.4%
Operating income $ 10.7 $ 8.3 $ 2.4 28.9%
----------------------------------------------------------------------------------------------------------
</TABLE>
GAS UTILITY. Weather in Gas Utility's service territory in the 1997 twelve-month
period was warmer than in the 1996 twelve-month period. Total system throughput
declined principally as a result of the effects of the warmer weather as well as
a decrease in low-margin interruptible delivery service volumes associated with
the shut-down of a cogeneration facility.
-23-
<PAGE> 26
UGI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The increase in Gas Utility total revenues includes a $25.5 million increase
from higher average PGC rates, a $3.7 million increase from off-system sales,
and the full-year effect of Gas Utility's $19.5 million annual base rate
increase which became effective August 31, 1995. These increases were partially
offset by a $19.7 million decrease from lower sales to core market customers.
Cost of gas sold was $207.6 million during the 1997 twelve-month period, an
increase of $13.7 million from the same period in 1996, reflecting principally
the effects of higher average PGC rates and greater off-system sales partially
offset by the lower sales to core-market customers.
The slight increase in Gas Utility total margin in the twelve months ended June
30, 1997 principally reflects a $4.0 million increase in total margin from
interruptible customers. The increase in total margin from interruptible
customers was partially offset by a $3.6 million decrease in total margin from
core market customers resulting from the warmer 1996/1997 heating-season
weather.
Although Gas Utility operating income during the 1997 twelve-month period
benefitted from the slight increase in total margin, the benefit was more than
offset by an increase in operating expenses, including an increase in costs
associated with environmental matters, higher distribution system expenses, and
higher depreciation expense.
ELECTRIC UTILITY. Electric Utility sales were lower during the twelve months
ended June 30, 1997 than in the prior-year period principally as a result of
warmer heating-season weather. The increase in Electric Utility revenues
includes a $1.5 million increase in base rate revenues as a result of higher
base rates subsequent to July 19, 1996 partially offset by the effects of the
lower sales. In addition, ECR revenues increased $1.3 million as a result of a
higher average ECR. Electric Utility cost of sales was $33.8 million, an
increase of $.6 million from the prior-year period. The increase in cost of
sales principally reflects a higher average ECR partially offset by the lower
sales.
Electric Utility total margin during the 1997 twelve-month period increased
principally as a result of the higher base rates effective July 19, 1996.
Operating income benefitted principally from the increase in total margin and
slightly lower general and administrative expenses.
ENERGY MARKETING
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Twelve Months Ended June 30, 1997 1996 Decrease
- ---------------------------------------------------------------------------------------
(Millions of dollars)
<S> <C> <C> <C> <C>
Total margin $ 3.4 $ 6.3 $ (2.9) (46.0)%
Operating income $ 1.8 $ 5.0 $ (3.2) (64.0)%
- ---------------------------------------------------------------------------------------
</TABLE>
-24-
<PAGE> 27
UGI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
ENERGY MARKETING. Total margin and operating income were lower in the 1997
twelve-month period compared with the 1996 twelve-month period, notwithstanding
an increase in billed volumes, principally due to lower average unit margins.
The lower unit margins reflect in large part warmer winter weather's effect on
natural gas prices and the value of pipeline capacity.
CORPORATE GENERAL AND OTHER
Operating loss of corporate general and other, net, was significantly lower in
the 1997 twelve-month period reflecting lower UGI corporate expenses (due in
large part to adjustments of incentive compensation accruals in September 1996),
a $2.1 million pre-tax gain on the sale of UTI Common Stock, and higher interest
income on temporary cash investments.
INTEREST EXPENSE AND INCOME TAXES
Interest expense increased to $82.7 million in the 1997 twelve-month period from
$79.4 million in the 1996 twelve-month period principally as a result of higher
levels of debt outstanding under the Partnership's Revolving Credit and
Acquisition facilities. The Company's effective income tax rate in the 1997
twelve-month period was 43.8% compared with 44.1% in the same period last year.
As a result of a significant increase in consolidated propane pre-tax income,
the impact of nondeductible amortization expense on the consolidated propane
effective tax rate was less in the 1997 twelve-month period than in the
prior-year period. In addition, income tax expense for the 1996 twelve-month
period includes the benefit of a $4.3 million adjustment to deferred state
income taxes recorded in September 1995.
FINANCIAL CONDITION AND LIQUIDITY
FINANCIAL CONDITION
The Company's consolidated debt-to-total-capitalization ratio was 56.1% at June
30, 1997 compared to a ratio of 57.5% at September 30, 1996. The decrease in the
ratio is principally a result of an increase in retained earnings and lower
levels of debt outstanding under the Partnership's Revolving Credit Facility.
Effective October 28, 1996, the Operating Partnership has a revolving credit
agreement with the General Partner under which it may borrow up to $20 million
to fund working capital, capital expenditures, and interest and distribution
payments. This agreement is coterminous with, and generally comparable to, the
Operating Partnership's Revolving Credit Facility. Borrowings under the General
Partner Facility are unsecured and subordinated to all senior debt of the
Partnership. Interest
-25-
<PAGE> 28
UGI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
rates on borrowings are based upon one-month offshore interbank borrowing rates.
Facility fees are determined in the same manner as fees under the Revolving
Credit Facility. UGI has agreed to contribute on an as needed basis through its
subsidiaries up to $20 million to the General Partner to fund such borrowings.
Also effective October 28, 1996, the Operating Partnership's Bank Credit
Agreement was amended to include a revolving $15 million sublimit under its
Special Purpose Facility which can be used to fund working capital, capital
expenditures, and interest and distribution payments. This sublimit is scheduled
to expire April 12, 1998. At June 30, 1997, there were no borrowings under the
General Partner Facility or the sublimit under the Special Purpose Facility. The
Partnership is currently in the process of amending its Bank Credit Facilities
to, among other things, extend the terms beyond the originally scheduled
expiration dates.
During the nine months ended June 30, 1997, the Partnership declared and paid
distributions on all units and the general partner interests for the quarters
ended March 31, 1997, December 31, 1996 and September 30, 1996 totaling $70.4
million, $29.1 million of which was paid to public unitholders and $41.3 million
to the Company. The Partnership's Minimum Quarterly Distribution (MQD) of 55
cents per limited partner unit for the quarter ended June 30, 1997 will be paid
on August 18, 1997 to holders of record on August 8, 1997.
CASH FLOWS
Cash and cash equivalents totaled $93.9 million at June 30, 1997 compared with
$74.0 million at September 30, 1996. Included in both of these amounts are cash
and cash equivalents at UGI of $51.4 million. At June 30, 1997 and September 30,
1996, UGI also had short-term investments of $43.2 million and $23.1 million,
respectively. The Company's cash flows are seasonal and are generally greatest
during the second and third fiscal quarters when customers pay bills incurred
during the heating season and are typically at their lowest levels during the
first and fourth fiscal quarters. Accordingly, cash flows from operations during
the nine months ended June 30, 1997 are not necessarily indicative of the cash
flows to be expected for a full year.
OPERATING ACTIVITIES. Cash flows from operating activities during the nine
months ended June 30, 1997 totaled $165.7 million compared with $113.4 million
in the comparable prior-year period. Cash flows from operations before changes
in operating working capital increased to $157.5 million in the nine months
ended June 30, 1997 from $143.5 million in the prior-year period. The increase
principally reflects a significant improvement in the Partnership's operating
performance. Changes in operating working capital during the nine months ended
June 30, 1997 generated $8.2 million of operating cash flow principally from a
$33.9 million decrease in inventories and $13.0 million in purchased gas and
power cost overcollections partially offset by an $18.4 million increase in
accounts receivable and accrued utility revenues and a $23.4 million decrease in
accounts payable. Changes in operating working capital during the nine months
ended June 30, 1996 required $30.1 million of operating cash flow.
-26-
<PAGE> 29
UGI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
INVESTING ACTIVITIES. Cash expenditures for property, plant and equipment
totaled $47.3 million in the nine months ended June 30, 1997 compared with $43.5
million in the same period in 1996. The increase reflects higher Gas Utility
expenditures offset by slightly lower Partnership capital expenditures. During
the nine months ended June 30, 1997, the Company increased its balance of
short-term investments by $20.1 million compared with $34.2 million in the
prior-year period. Net proceeds from disposals of assets increased $5.5 million
in the nine months ended June 30, 1997 due in large part to the sale of the
Partnership's interest in Atlantic Energy.
FINANCING ACTIVITIES. During the nine months ended June 30, 1997, the Company
paid cash dividends on Common Stock of $35.3 million compared with $34.6 million
of cash dividends in the prior-year period. During the nine months ended June
30, 1997, the Company repurchased $13.2 million of its Common Stock compared
with $5.0 million in the same period in the prior-year. Also during each of the
nine-month periods ended June 30, 1997 and 1996, the Partnership paid
distributions of $29.1 million to public unitholders (and $41.3 million to the
General Partner) representing the MQD on all limited partner units and the
general partner interests.
During the nine months ended June 30, 1997, the Partnership made $15 million of
net repayments under its Revolving Credit Facility. The maximum amount of
seasonal borrowings under the Partnership's working capital facilities during
the nine months ended June 30, 1997 was $73 million compared with $25 million of
such borrowings during the nine months ended June 30, 1996. The Partnership's
seasonal borrowing requirements in the prior-year period were lower due to
significant cash balances at the beginning of such period. During the nine
months ended June 30, 1997, UGI Utilities repaid $7.3 million under its
revolving credit agreements compared with net repayments of $32.0 million in the
prior-year period.
During the nine months ended June 30, 1997, the Company issued $28.8 million of
long-term debt including $20 million of 7.17% notes issued under the UGI
Utilities Medium-Term Note Program and $7 million under the Partnership's
Acquisition Facility relating to acquisitions made prior to fiscal 1997. During
the comparable prior-year period, the Company issued $34.1 million of long-term
debt including UGI Utilities' issuance of $20 million of notes under its
Medium-Term Note program and combined borrowings of $14 million under the
Partnership's Acquisition and Special Purpose facilities. During the nine months
ended June 30, 1997, the Company repaid $21.8 million of long-term debt which
includes UGI Utilities' repayment of $8.4 million of its 7.85% Series First
Mortgage Bonds and $10.0 million of its 8.70% Notes. In the prior-year
nine-month period, the Company made long-term debt repayments of $52.0 million
which includes the redemption of UGI Utilities' 9% Series and 9% Series B First
Mortgage Bonds.
-27-
<PAGE> 30
UGI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
ELECTRICITY GENERATION CUSTOMER CHOICE AND COMPETITION ACT
On January 1, 1997, the Electricity Generation Customer Choice and Competition
Act (Customer Choice Act) became effective. The Customer Choice Act permits all
Pennsylvania retail electric customers to choose their electric generation
supplier over a three-year phase-in period commencing January 1, 1999. The
Customer Choice Act requires all electric utilities to file restructuring plans
with the PUC which, among other things, include unbundled prices for electric
generation, transmission and distribution and a competitive transition charge
(CTC) for the recovery of "stranded costs" which would be paid by all customers
receiving transmission and distribution service. "Stranded costs" generally are
electric generation-related costs that traditionally would be recoverable in a
regulated environment but may not be recoverable in a competitive electric
generation market. Under the Customer Choice Act, Electric Utility's rates for
transmission and distribution services provided through June 30, 2001 are capped
at levels in effect on January 1, 1997. In addition, Electric Utility generally
may not increase the generation component of prices as long as stranded costs
are being recovered through the CTC. Electric Utility will continue to be the
only regulated electric utility having the right, granted by the PUC or by law,
to transmit and distribute electric energy in its service territory.
On August 7, 1997, Electric Utility filed its restructuring plan with the PUC.
The restructuring plan includes a claim for the recovery of $34.4 million for
stranded costs during the period January 1, 1999 through December 31, 2002. The
claim is primarily for the recovery of: (1) plant investments in excess of
market and electric generation facility retirement costs; (2) potential costs
associated with existing power purchase agreements; and (3) regulatory assets
(principally income taxes) recoverable from ratepayers under current regulatory
practice. The PUC has nine months to take action on Electric Utility's filing.
Given the changing regulatory environment in the electric utility industry, the
Company continues to evaluate its ability to apply the provisions of SFAS No. 71
"Accounting for the Effects of Certain Types of Regulation" (SFAS 71) as it
relates to its electric generation operations. SFAS 71 permits the recording of
costs (regulatory assets) that have been, or are expected to be, allowed in the
ratesetting process in a period different from the period in which such costs
would be charged to expense by an unregulated enterprise. The Company believes
its electric generation assets and related regulatory assets continue to satisfy
the criteria of SFAS 71. If and when such electric generation assets no longer
meet the criteria of SFAS 71, any related regulatory assets would be written-off
unless the PUC authorizes the recovery of such costs through the CTC and any
generation-related long-lived fixed and intangible assets would be evaluated for
impairment under the provisions of SFAS 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
-28-
<PAGE> 31
UGI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Based upon an evaluation of the various factors and conditions affecting future
cost recovery , the Company does not expect the Customer Choice Act to have a
material adverse effect on its financial condition or results of operations.
On March 27, 1997, proposed customer choice legislation was introduced in the
Pennsylvania General Assembly that would, among other things, extend the
availability of gas transportation service to residential and small commercial
customers of local gas distribution companies. It would permit all customers of
natural gas distribution utilities to transport their natural gas supplies
through the distribution systems of Pennsylvania gas utilities by April 1, 1999
and would also require Pennsylvania gas utilities to exit the merchant function
of selling natural gas. The Company will continue to monitor developments with
regard to the proposed legislation.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
FOSTER WHEELER PENN RESOURCES, INC. V. UGI UTILITIES, INC. CIVIL ACTION NO.
97CV4592. The Company has been informed that on July 14, 1997, Foster Wheeler
Penn Resources, Inc. filed suit against UGI Utilities, Inc. in United States
District Court for the Eastern District of Pennsylvania alleging, among other
things, that UGI Utilities breached an Agreement for the Sale and Purchase of
Net Electrical Energy under which UGI Utilities had agreed to purchase
electricity from a generating facility yet to be built by Foster Wheeler. In its
suit Foster Wheeler seeks, among other things, a declaration that the Sale and
Purchase Agreement remains in effect or in the alternative that Foster Wheeler
be awarded damages in excess of $20 million. Management believes that it has
defenses to Foster Wheeler's claims and will file an appropriate response.
COMMERCIAL ROW CASES, JUDICIAL COUNCIL OF CALIFORNIA, COORDINATION PROCEEDING
NO. 3096. Beginning in June 1994, twenty-one complaints were filed against
AmeriGas Propane, Inc., a Delaware corporation ("API") and a predecessor of
AmeriGas Propane, L.P., in the Superior Court of California, arising from an
explosion which occurred in Truckee, California on November 30, 1993. The
explosion is alleged to have occurred as the result of the escape of propane gas
from a fractured fitting in an underground supply line. The complaints sought
relief for alleged personal injuries and/or property damage and named as
defendants the manufacturer and the distributor of the fitting, in addition to
API. The cases were consolidated by the Judicial Council of California as the
Commercial Row Cases, Judicial Council Coordination Proceeding No. 3096. All of
the claims have been settled and were dismissed with prejudice on June 16, 1997.
All settlements were fully insured, subject to a $500,000 self-insured
retention.
-29-
<PAGE> 32
UGI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
MATEEL ENVIRONMENTAL JUSTICE FOUNDATION V. AMERIGAS PROPANE, L.P. ET AL. On July
29, 1996, Mateel Environmental Justice Foundation ("Mateel") filed a complaint
in the Superior Court of the State of California, County of San Francisco,
alleging that AmeriGas Propane, L.P. (the "Operating Partnership"), and several
other major propane gas distributors, are in violation of Proposition 65, "The
Safe Drinking Water and Toxic Enforcement Act of 1986" (commonly referred to as
"Prop 65"). The Operating Partnership is a 98.99% owned subsidiary of the
Partnership. The Complaint alleges that the Operating Partnership and its
co-defendants are required to provide warnings that the use of liquid propane
would result in exposure to chemicals known to cause cancer and birth defects,
and that the burning of liquid propane in heaters and other appliances causes
exposure to carbon monoxide, benzene, formaldehyde and acetaldehyde. The maximum
penalty under Prop 65 is $2,500 per day, per person exposed. In addition to the
maximum penalty, Mateel sought attorney's fees and costs, together with an Order
mandating compliance with Prop 65. On April 9, 1997, a Consent Judgment was
reached with the Plaintiffs, which was approved by and filed with the Superior
Court of the State of California, City and County of San Francisco. The
settlement amount was not material.
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 fiscal quarter ended June 30, 1997.
-30-
<PAGE> 33
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: August 13, 1997 By: C. L. Ladner
- ---------------------- ---------------------------------------------
C. L. Ladner, Senior Vice President - Finance
Date: August 13, 1997 By: M. J. Cuzzolina
- ---------------------- ---------------------------------------------
M. J. Cuzzolina, Vice President - Accounting and
Financial Control (Principal Accounting Officer)
-31-
<PAGE> 34
UGI CORPORATION AND SUBSIDIARIES
EXHIBIT INDEX
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 Nine Months Ended Twelve Months Ended
June 30, June 30, June 30,
------------------ ------------------- ------------------
1997 1996 1997 1996 1997 1996
-------- -------- --------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Primary earnings per share:
Actual average common shares outstanding 33.0 33.1 33.1 33.0 33.1 33.0
Incremental shares issuable upon
exercise of stock options outstanding - - 0.1 0.1 0.1 0.1
------ ------ ------ ------ ------ ------
Total average common and common
equivalent shares outstanding 33.0 33.1 33.2 33.1 33.2 33.1
====== ====== ====== ====== ====== ======
Net earnings (loss) applicable to common
and common equivalent shares $ (1.2) $ (3.7) $ 62.5 $ 52.1 $ 49.9 $ 41.5
====== ====== ====== ====== ====== ======
Primary earnings (loss) per common
and common equivalent share $ (0.04) $ (0.11) $ 1.88 $ 1.57 $ 1.50 $ 1.26
====== ====== ====== ====== ====== ======
</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 Nine Months Ended Twelve Months Ended
June 30, June 30, June 30,
----------------------- ------------------- -------------------
1997 1996 1997 1996 1997 1996
---------- ---------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Fully diluted earnings per share:
Actual average common shares outstanding 33.0 33.1 33.1 33.0 33.1 33.0
Incremental shares issuable upon
exercise of stock options outstanding - - 0.1 0.1 0.1 0.1
--------- -------- --------- -------- -------- ---------
Total shares for fully diluted computation 33.0 33.1 33.2 33.1 33.2 33.1
========= ======== ========= ======== ======== =========
Net earnings (loss) applicable to common stock $ (1.2) $ (3.7) $ 62.5 $ 52.1 $ 49.9 $ 41.5
========= ======== ========= ======== ======== =========
Fully diluted earnings (loss) per common share $ (0.04) $ (0.11) $ 1.88 $ 1.57 $ 1.50 $ 1.26
========= ======== ========= ======== ======== =========
</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 AND
SUBSIDIARIES AS OF AND FOR THE NINE MONTHS ENDED JUNE 30, 1997 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 JUNE 30, 1997.
</LEGEND>
<CIK> 0000884614
<NAME> UGI CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 93,900
<SECURITIES> 43,200
<RECEIVABLES> 144,800
<ALLOWANCES> 12,000
<INVENTORY> 79,700
<CURRENT-ASSETS> 386,900
<PP&E> 1,380,400
<DEPRECIATION> 401,700
<TOTAL-ASSETS> 2,134,700
<CURRENT-LIABILITIES> 316,300
<BONDS> 852,600
35,200
0
<COMMON> 392,700
<OTHER-SE> 6,800
<TOTAL-LIABILITY-AND-EQUITY> 2,134,700
<SALES> 1,390,100
<TOTAL-REVENUES> 1,390,100
<CGS> 800,200
<TOTAL-COSTS> 800,200
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 62,800
<INCOME-PRETAX> 117,000
<INCOME-TAX> 52,400
<INCOME-CONTINUING> 62,500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 62,500
<EPS-PRIMARY> 1.88
<EPS-DILUTED> 1.88
</TABLE>
