<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, 2000
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, 2000, there were 27,186,875 shares of UGI Corporation
Common Stock, without par value, outstanding.
<PAGE> 2
UGI CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGES
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 2000,
September 30, 1999 and March 31, 1999 1
Condensed Consolidated Statements of Income for the three, six
and twelve months ended March 31, 2000 and 1999 2
Condensed Consolidated Statements of Cash Flows for the six
and twelve months ended March 31, 2000 and 1999 3
Notes to Condensed Consolidated Financial Statements 4 - 12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13 - 27
Item 3. Quantitative and Qualitative Disclosures About Market Risk 27 - 28
PART II OTHER INFORMATION
Item 1. Legal Proceedings 28
Item 4. Submission of Matters to a Vote of Security Holders 29
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>
March 31, September 30, March 31,
2000 1999 1999
---------- ---------- ----------
ASSETS
Current assets:
<S> <C> <C> <C>
Cash and cash equivalents $ 60.4 $ 40.5 $ 128.2
Short-term investments, at cost which approximates market value 4.3 15.1 21.7
Accounts receivable (less allowances for doubtful accounts of
$10.2, $8.0 and $10.2, respectively) 202.9 102.9 166.5
Accrued utility revenues 16.2 6.9 14.4
Inventories 66.0 87.1 47.6
Deferred income taxes 19.1 13.7 19.5
Prepaid expenses and other current assets 20.5 24.7 25.8
---------- ---------- ----------
Total current assets 389.4 290.9 423.7
Property, plant and equipment, at cost (less accumulated depreciation
and amortization of $548.3, $514.9 and $494.5, respectively) 1,060.6 1,084.1 999.9
Intangible assets (less accumulated amortization of $178.1, $165.9 and
$153.7, respectively) 658.8 653.1 621.1
Utility regulatory assets 57.0 61.1 59.9
Other assets 48.1 46.7 44.4
---------- ---------- ----------
Total assets $ 2,213.9 $ 2,135.9 $ 2,149.0
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 25.2 $ 26.7 $ 12.7
Operating Partnership bank loans 5.0 22.0 5.0
UGI Utilities bank loans 71.2 87.4 72.8
Other bank loans 6.8 11.6 --
Accounts payable 104.2 100.6 80.1
Other current liabilities 182.7 154.0 187.8
---------- ---------- ----------
Total current liabilities 395.1 402.3 358.4
Long-term debt 1,042.8 989.6 902.3
Deferred income taxes 169.3 174.3 158.0
Other noncurrent liabilities 81.4 90.6 78.8
Commitments and contingencies
Minority interest in AmeriGas Partners 218.9 209.9 247.6
UGI Utilities redeemable preferred stock 20.0 20.0 20.0
Common stockholders' equity:
Common Stock, without par value (authorized - 100,000,000 shares;
issued - 33,198,731 shares) 394.6 394.8 394.3
Retained earnings (accumulated deficit) 31.2 (8.2) 13.5
Accumulated other comprehensive income 0.4 0.5 --
Unearned compensation - restricted stock (1.2) (1.7) --
---------- ---------- ----------
425.0 385.4 407.8
Treasury stock, at cost (138.6) (136.2) (23.9)
---------- ---------- ----------
Total common stockholders' equity 286.4 249.2 383.9
---------- ---------- ----------
Total liabilities and stockholders' equity $ 2,213.9 $ 2,135.9 $ 2,149.0
========== ========== ==========
</TABLE>
See accompanying notes to consolidated 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,
---------------------- ----------------------- -----------------------
2000 1999 2000 1999 2000 1999
---------- ---------- ---------- ---------- ---------- ----------
Revenues:
<S> <C> <C> <C> <C> <C> <C>
AmeriGas Propane $ 388.9 $ 304.9 $ 689.9 $ 542.7 $ 1,019.7 $ 848.0
UGI Utilities 169.8 167.7 291.0 280.5 431.1 415.0
International Propane 15.4 -- 29.3 -- 29.3 --
Energy Services and other 36.3 26.6 66.8 49.7 107.6 90.1
---------- ---------- ---------- ---------- ---------- ----------
610.4 499.2 1,077.0 872.9 1,587.7 1,353.1
---------- ---------- ---------- ---------- ---------- ----------
Costs and expenses:
AmeriGas Propane cost of sales 215.4 128.8 374.1 233.3 531.6 367.1
UGI Utilities - gas, fuel and purchased power 92.4 87.5 149.9 142.8 212.3 204.2
International Propane cost of sales 9.1 -- 17.2 -- 17.2 --
Energy Services and other cost of sales 34.4 25.1 63.0 46.9 100.5 85.4
Operating and administrative expenses 121.0 112.3 238.9 218.4 449.7 421.0
Utility taxes other than income taxes 4.2 9.6 11.4 16.2 20.4 25.3
Depreciation and amortization 23.5 22.6 47.0 44.3 92.4 88.6
Other income, net (7.5) (2.3) (13.1) (6.1) (23.8) (10.5)
---------- ---------- ---------- ---------- ---------- ----------
492.5 383.6 888.4 695.8 1,400.3 1,181.1
---------- ---------- ---------- ---------- ---------- ----------
Operating income 117.9 115.6 188.6 177.1 187.4 172.0
Merger fee income (expenses), net -- (1.6) -- (1.6) 21.5 (1.6)
Interest expense (24.0) (20.9) (47.8) (42.1) (90.3) (83.6)
Minority interest in AmeriGas Partners (20.6) (23.2) (28.6) (30.6) (8.7) (10.7)
---------- ---------- ---------- ---------- ---------- ----------
Income before income taxes and
subsidiary preferred stock dividends 73.3 69.9 112.2 102.8 109.9 76.1
Income taxes (34.1) (32.0) (51.5) (46.5) (48.2) (34.7)
Dividends on UGI Utilities Series
Preferred Stock (0.4) (0.4) (0.8) (0.8) (1.6) (1.6)
---------- ---------- ---------- ---------- ---------- ----------
Net income $ 38.8 $ 37.5 $ 59.9 $ 55.5 $ 60.1 $ 39.8
========== ========== ========== ========== ========== ==========
Earnings per share:
Basic $ 1.42 $ 1.15 $ 2.19 $ 1.69 $ 2.05 $ 1.21
========== ========== ========== ========== ========== ==========
Diluted $ 1.42 $ 1.14 $ 2.19 $ 1.69 $ 2.05 $ 1.21
========== ========== ========== ========== ========== ==========
Average common shares outstanding:
Basic 27.286 32.733 27.312 32.795 29.272 32.873
========== ========== ========== ========== ========== ==========
Diluted 27.286 32.773 27.331 32.855 29.317 32.958
========== ========== ========== ========== ========== ==========
Dividends declared per share $ 0.375 $ 0.365 $ 0.73 $ 0.73 $ 1.49 $ 1.46
========== ========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated 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,
-------------------- --------------------
2000 1999 2000 1999
------- ------- ------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C> <C>
Net income $ 59.9 $ 55.5 $ 60.1 $ 39.8
Reconcile to net cash provided by operating activities:
Depreciation and amortization 47.0 44.3 92.4 88.6
Minority interest in AmeriGas Partners 28.6 30.6 8.7 10.7
Deferred income taxes, net (4.7) (3.2) 6.2 8.8
Other, net 0.4 6.0 0.9 6.5
------- ------- ------- -------
131.2 133.2 168.3 154.4
Net change in:
Accounts receivable and accrued utility revenues (114.5) (96.6) (42.4) (6.0)
Inventories and prepaid propane purchases 23.4 31.1 (12.7) 14.7
Deferred fuel costs 15.5 12.2 (1.8) (5.3)
Accounts payable 3.9 0.1 21.2 4.3
Other current assets and liabilities 15.3 13.8 (9.7) (3.6)
------- ------- ------- -------
Net cash provided by operating activities 74.8 93.8 122.9 158.5
------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant and equipment (30.5) (32.6) (68.1) (70.5)
Net proceeds from disposals of assets 1.6 2.2 4.3 6.3
Acquisitions of businesses, net of cash acquired (14.8) (3.0) (89.4) (5.5)
Investments in joint venture partnerships -- (4.9) -- (6.9)
Short-term investments decrease 10.8 60.1 17.4 48.3
Other, net (0.7) (5.4) (0.7) (4.2)
------- ------- ------- -------
Net cash provided (used) by investing activities (33.6) 16.4 (136.5) (32.5)
------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends on Common Stock (20.4) (24.0) (44.3) (47.9)
Distributions on Partnership public Common Units (19.6) (19.5) (39.1) (39.0)
Issuance of long-term debt 134.9 73.0 235.6 83.0
Repayment of long-term debt (76.0) (62.7) (84.2) (72.2)
AmeriGas Propane bank loans increase (decrease) (17.0) (5.0) -- 5.0
UGI Utilities bank loans increase (decrease) (16.2) 4.4 (1.6) 29.9
Other bank loans decrease (4.5) -- (4.5) --
Issuance of treasury stock 2.4 2.1 5.0 4.6
Repurchases of Common Stock (4.9) (16.9) (121.1) (24.1)
Redemption of UGI Utilities preferred stock -- -- -- (15.5)
------- ------- ------- -------
Net cash used by financing activities (21.3) (48.6) (54.2) (76.2)
------- ------- ------- -------
Cash and cash equivalents increase (decrease) $ 19.9 $ 61.6 $ (67.8) $ 49.8
======= ======= ======= =======
Cash and cash equivalents:
End of period $ 60.4 $ 128.2 $ 60.4 $ 128.2
Beginning of period 40.5 66.6 128.2 78.4
------- ------- ------- -------
Increase (decrease) $ 19.9 $ 61.6 $ (67.8) $ 49.8
======= ======= ======= =======
</TABLE>
During the twelve months ended March 31, 2000 and 1999, UGI Utilities, Inc. paid
cash dividends to UGI of $33.0 and $34.0, respectively. During the twelve months
ended March 31, 2000 and 1999, AmeriGas, Inc. paid cash dividends to UGI of
$48.5 and $49.6, respectively. During those same periods, UGI paid cash
dividends to holders of Common Stock of $44.3 and $47.9, respectively. The
ability of UGI to declare and pay cash dividends on its Common Stock is
dependent upon its cash balances and the receipt of cash dividends from its
wholly owned subsidiaries, principally UGI Utilities, Inc. and AmeriGas, Inc.
AmeriGas's ability to pay dividends is dependent upon distributions paid by the
Partnership.
See accompanying notes to consolidated 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 three primary
subsidiaries. Our natural gas utility and electric utility operations
are conducted through a wholly owned subsidiary, UGI Utilities, Inc.
("UGI Utilities"). UGI Utilities owns and operates a natural gas
distribution utility ("Gas Utility") in parts of eastern and
southeastern Pennsylvania and an electric utility generation and
distribution operation ("Electric Utility") in northeastern
Pennsylvania (together we refer to them as "Utilities"). We conduct 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. We refer to AmeriGas Partners and the Operating
Partnership together as "the Partnership." At March 31, 2000, UGI,
through subsidiaries, held an effective 2% general partner interest and
a 56.4% limited partner interest in the Operating Partnership. Our
wholly owned subsidiary, UGI Enterprises, Inc. ("Enterprises"),
conducts an energy marketing business through its wholly owned
subsidiary, UGI Energy Services, Inc. ("Energy Services"). Through
other subsidiaries, Enterprises (1) owns and operates a propane
distribution business in Austria, the Czech Republic and Slovakia, (2)
owns and operates a newly formed retail hearth products business in the
Middle Atlantic region of the U.S., and (3) participates in propane
joint-venture projects in Romania and China.
Our condensed consolidated financial statements include the accounts of
UGI and its majority-owned subsidiaries, together referred to as "we"
or "the Company." We eliminate all significant intercompany accounts
and transactions when we consolidate. We report the public unitholders'
interest in AmeriGas Partners' results of operations and net assets as
minority interest in the condensed consolidated statements of income
and balance sheets. We have reclassified certain prior-period balances
to conform with the current period presentation.
The accompanying condensed consolidated financial statements are
unaudited and have been prepared in accordance with the rules and
regulations of the U.S. Securities and Exchange Commission. They
include all adjustments which we consider necessary for a fair
statement of the results for the interim periods presented. Such
adjustments consisted only of normal recurring items unless otherwise
disclosed. These financial statements should be read in conjunction
with the financial statements and the related notes included in our
Annual Report on Form 10-K for the year ended September 30, 1999
("Company's
-4-
<PAGE> 7
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Millions of dollars, except per share amounts)
1999 Annual Report"). Due to the seasonal nature of our businesses, the
results of operations for interim periods are not necessarily
indicative of the results to be expected for a full year. The Company's
other comprehensive income (loss) for the six months ended March 31,
2000 as determined under Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income," was less than
$(0.1) million.
2. SEGMENT INFORMATION
Based upon SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information" ("SFAS 131"), we have determined that the
Company has five business segments: (1) a U.S. propane distribution
business ("AmeriGas Propane"), (2) a natural gas utility operating in
eastern Pennsylvania ("Gas Utility"), (3) an electricity distribution
and generation operation in northeastern Pennsylvania ("Electric
Utility"), (4) an energy marketing business arranging the supply and
transportation of natural gas and electricity to customers in the
Middle Atlantic states ("Energy Services"), and (5) an international
propane distribution segment comprising a wholly owned propane
distribution business in eastern Europe and joint-venture projects in
Romania and China ("International Propane"). Although AmeriGas Propane
and Gas Utility are the only segments that meet the SFAS 131
quantitative thresholds for reportable segments, the Company has
included supplemental segment information for Electric Utility, Energy
Services, and International Propane.
The accounting policies of the five segments disclosed are the same as
those described in the Significant Accounting Policies note contained
in the Company's 1999 Annual Report. We evaluate our AmeriGas Propane
and International Propane segments' performance principally based on
their earnings before interest expense, income taxes, depreciation and
amortization ("EBITDA"). Although we use EBITDA to evaluate these
segments' performance, it 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. We
evaluate the performance of Gas Utility, Electric Utility, and Energy
Services principally based upon their earnings before income taxes.
-5-
<PAGE> 8
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Millions of dollars, except per share amounts)
No single customer represents more than 5% of consolidated revenues. In
addition, all of our reportable segments' revenues, other than those of
our International Propane segment, are derived from sources within the
U. S., and all of our reportable segments' long-lived assets, other
than those of our International Propane segment, are located in the
U.S. Financial information by business segment follows:
-6-
<PAGE> 9
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Millions of dollars, except per share amounts)
2. SEGMENT INFORMATION (CONTINUED)
Three Months Ended March 31, 2000:
<TABLE>
<CAPTION>
AmeriGas Gas Electric
Total Elims. Propane Utility Utility
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues $ 610.4 $ (0.8) $ 388.9 $ 148.8 $ 21.0
======== ======== ======== ======== ========
Segment profit (loss):
EBITDA $ 141.4 $ -- $ 84.0 $ 49.7 $ 5.0
Depreciation and amortization (23.5) -- (16.8) (4.5) (1.2)
-------- -------- -------- -------- --------
Operating income (loss) 117.9 -- 67.2 45.2 3.8
Interest expense (24.0) -- (18.0) (4.1) (0.6)
Minority interest (20.6) -- (20.6) -- --
-------- -------- -------- -------- --------
Income (loss) before income
taxes and subsidiary preferred
stock dividends $ 73.3 $ -- $ 28.6 $ 41.1 $ 3.2
======== ======== ======== ======== ========
Segment assets (at period end) $2,213.9 $ (39.2) $1,267.7 $ 637.9 $ 98.9
======== ======== ======== ======== ========
Investment in equity investees $ 6.0 $ -- $ -- $ -- $ --
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Energy International Other Corp.
Services Propane Enterprises & Other
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $ 35.7 $ 15.4 $ 0.6 $ 0.8
======== ======== ======== ========
Segment profit (loss):
EBITDA $ 0.9 $ 1.3 $ (1.3) $ 1.8
Depreciation and amortization -- (0.9) (0.1) --
-------- -------- -------- --------
Operating income (loss) 0.9 0.4 (1.4) 1.8
Interest expense -- (1.2) -- (0.1)
Minority interest -- -- -- --
-------- -------- -------- --------
Income (loss) before income
taxes and subsidiary preferred
stock dividends $ 0.9 $ (0.8) $ (1.4) $ 1.7
======== ======== ======== ========
Segment assets (at period end) $ 20.6 $ 124.4 $ 6.0 $ 97.6
======== ======== ======== ========
Investment in equity investees $ -- $ 6.0 $ -- $ --
======== ======== ======== ========
</TABLE>
Three Months Ended March 31, 1999:
<TABLE>
<CAPTION>
AmeriGas Gas Electric
Total Elims. Propane Utility Utility
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues $ 499.2 $ (0.5) $ 304.9 $ 147.6 $ 20.1
======== ======== ======== ======== ========
Segment profit (loss):
EBITDA $ 138.2 $ -- $ 89.0 $ 44.0 $ 5.0
Depreciation and amortization (22.6) -- (16.7) (4.8) (1.1)
-------- -------- -------- -------- --------
Operating income (loss) 115.6 -- 72.3 39.2 3.9
Merger expenses (1.6) -- -- -- --
Interest expense (20.9) -- (16.4) (3.8) (0.6)
Minority interest (23.2) -- (23.2) -- --
-------- -------- -------- -------- --------
Income (loss) before income
taxes and subsidiary preferred
stock dividends $ 69.9 $ -- $ 32.7 $ 35.4 $ 3.3
======== ======== ======== ======== ========
Segment assets (at period end) $2,149.0 $ (15.3) $1,261.0 $ 636.3 $ 97.9
======== ======== ======== ======== ========
Investment in equity investees $ 6.3 $ -- $ -- $ -- $ --
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Energy International Other Corp.
Services Propane Enterprises & Other
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $ 26.6 $ -- $ -- $ 0.5
======== ======== ======== ========
Segment profit (loss):
EBITDA $ 0.6 $ (0.1) $ (2.0) $ 1.7
Depreciation and amortization -- -- -- --
-------- -------- -------- --------
Operating income (loss) 0.6 (0.1) (2.0) 1.7
Merger expenses -- -- -- (1.6)
Interest expense -- -- -- (0.1)
Minority interest -- -- -- --
-------- -------- -------- --------
Income (loss) before income
taxes and subsidiary preferred
stock dividends $ 0.6 $ (0.1) $ (2.0) $ --
======== ======== ======== ========
Segment assets (at period end) $ 19.6 $ 6.3 $ 1.0 $ 142.2
======== ======== ======== ========
Investment in equity investees $ -- $ 6.3 $ -- $ --
======== ======== ======== ========
</TABLE>
- 7 -
<PAGE> 10
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Millions of dollars, except per share amounts)
2. SEGMENT INFORMATION (CONTINUED)
Six Months Ended March 31, 2000:
<TABLE>
<CAPTION>
AmeriGas Gas Electric
Total Elims. Propane Utility Utility
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues $1,077.0 $ (1.6) $ 689.9 $ 250.8 $ 40.2
======== ======== ======== ======== ========
Segment profit (loss):
EBITDA $ 235.6 $ -- $ 138.2 $ 82.4 $ 11.8
Depreciation and amortization (47.0) -- (33.3) (9.4) (2.0)
-------- -------- -------- -------- --------
Operating income (loss) 188.6 -- 104.9 73.0 9.8
Interest expense (47.8) -- (36.0) (8.3) (1.1)
Minority interest (28.6) -- (28.6) -- --
-------- -------- -------- -------- --------
Income (loss) before income
taxes and subsidiary preferred
stock dividends $ 112.2 $ -- $ 40.3 $ 64.7 $ 8.7
======== ======== ======== ======== ========
Segment assets (at period end) $2,213.9 $ (39.2) $1,267.7 $ 637.9 $ 98.9
======== ======== ======== ======== ========
Investment in equity investees $ 6.0 $ -- $ -- $ -- $ --
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Energy International Other Corp.
Services Propane Enterprises & Other
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $ 65.5 $ 29.3 $ 1.3 $ 1.6
======== ======== ======== ========
Segment profit (loss):
EBITDA $ 1.7 $ 1.9 $ (2.7) $ 2.3
Depreciation and amortization (0.1) (2.0) (0.1) (0.1)
-------- -------- -------- --------
Operating income (loss) 1.6 (0.1) (2.8) 2.2
Interest expense -- (2.1) -- (0.3)
Minority interest -- -- -- --
-------- -------- -------- --------
Income (loss) before income
taxes and subsidiary preferred
stock dividends $ 1.6 $ (2.2) $ (2.8) $ 1.9
======== ======== ======== ========
Segment assets (at period end) $ 20.6 $ 124.4 $ 6.0 $ 97.6
======== ======== ======== ========
Investment in equity investees $ -- $ 6.0 $ -- $ --
======== ======== ======== ========
</TABLE>
Six Months Ended March 31, 1999:
<TABLE>
<CAPTION>
AmeriGas Gas Electric
Total Elims. Propane Utility Utility
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues $ 872.9 $ (1.0) $ 542.7 $ 242.2 $ 38.3
======== ======== ======== ======== ========
Segment profit (loss):
EBITDA $ 221.4 $ -- $ 139.8 $ 70.2 $ 9.7
Depreciation and amortization (44.3) -- (32.8) (9.4) (1.9)
-------- -------- -------- -------- --------
Operating income (loss) 177.1 -- 107.0 60.8 7.8
Merger expenses (1.6) -- -- -- --
Interest expense (42.1) -- (33.0) (7.6) (1.2)
Minority interest (30.6) -- (30.6) -- --
-------- -------- -------- -------- --------
Income (loss) before income
taxes and subsidiary preferred
stock dividends $ 102.8 $ -- $ 43.4 $ 53.2 $ 6.6
======== ======== ======== ======== ========
Segment assets (at period end) $2,149.0 $ (15.3) $1,261.0 $ 636.3 $ 97.9
======== ======== ======== ======== ========
Investment in equity investees $ 6.3 $ -- $ -- $ -- $ --
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Energy International Other Corp.
Services Propane Enterprises & Other
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $ 49.7 $ -- $ -- $ 1.0
======== ======== ======== ========
Segment profit (loss):
EBITDA $ 1.3 $ (0.3) $ (2.7) $ 3.4
Depreciation and amortization (0.1) -- -- (0.1)
-------- -------- -------- --------
Operating income (loss) 1.2 (0.3) (2.7) 3.3
Merger expenses -- -- -- (1.6)
Interest expense -- -- -- (0.3)
Minority interest -- -- -- --
-------- -------- -------- --------
Income (loss) before income
taxes and subsidiary preferred
stock dividends $ 1.2 $ (0.3) $ (2.7) $ 1.4
======== ======== ======== ========
Segment assets (at period end) $ 19.6 $ 6.3 $ 1.0 $ 142.2
======== ======== ======== ========
Investment in equity investees $ -- $ 6.3 $ -- $ --
======== ======== ======== ========
</TABLE>
- 8 -
<PAGE> 11
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Millions of dollars, except per share amounts)
2. SEGMENT INFORMATION (CONTINUED)
Twelve Months Ended March 31, 2000:
<TABLE>
<CAPTION>
AmeriGas Gas Electric
Total Elims. Propane Utility Utility
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues $1,587.7 $ (2.9) $1,019.7 $ 354.2 $ 76.9
======== ======== ======== ======== ========
Segment profit (loss):
EBITDA $ 279.8 $ -- $ 157.2 $ 99.2 $ 18.8
Depreciation and amortization (92.4) -- (66.8) (19.0) (4.1)
-------- -------- -------- -------- --------
Operating income (loss) 187.4 -- 90.4 80.2 14.7
Merger fee income, net 21.5 -- -- -- --
Interest expense (90.3) -- (69.5) (15.9) (2.2)
Minority interest (8.7) -- (8.7) -- --
-------- -------- -------- -------- --------
Income (loss) before income
taxes and subsidiary preferred
stock dividends $ 109.9 $ -- $ 12.2 $ 64.3 $ 12.5
======== ======== ======== ======== ========
Segment assets (at period end) $2,213.9 $ (39.2) $1,267.7 $ 637.9 $ 98.9
======== ======== ======== ======== ========
Investment in equity investees $ 6.0 $ -- $ -- $ -- $ --
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Energy International Other Corp.
Services Propane Enterprises & Other
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $ 106.2 $ 29.3 $ 1.4 $ 2.9
======== ======== ======== ========
Segment profit (loss):
EBITDA $ 3.1 $ 2.1 $ (5.7) $ 5.1
Depreciation and amortization (0.1) (2.0) (0.1) (0.3)
-------- -------- -------- --------
Operating income (loss) 3.0 0.1 (5.8) 4.8
Merger fee income, net -- -- -- 21.5
Interest expense -- (2.1) -- (0.6)
Minority interest -- -- -- --
-------- -------- -------- --------
Income (loss) before income
taxes and subsidiary preferred
stock dividends $ 3.0 $ (2.0) $ (5.8) $ 25.7
======== ======== ======== ========
Segment assets (at period end) $ 20.6 $ 124.4 $ 6.0 $ 97.6
======== ======== ======== ========
Investment in equity investees $ -- $ 6.0 $ -- $ --
======== ======== ======== ========
</TABLE>
Twelve Months Ended March 31,1999:
<TABLE>
<CAPTION>
AmeriGas Gas Electric
Total Elims. Propane Utility Utility
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues $1,353.1 $ (2.3) $ 848.0 $ 342.3 $ 72.7
======== ======== ======== ======== ========
Segment profit (loss):
EBITDA $ 260.6 $ -- $ 157.2 $ 84.2 $ 15.2
Depreciation and amortization (88.6) -- (65.8) (18.6) (3.9)
-------- -------- -------- -------- --------
Operating income (loss) 172.0 -- 91.4 65.6 11.3
Merger expenses, net (1.6) -- -- -- --
Interest expense (83.6) -- (65.3) (15.3) (2.4)
Minority interest (10.7) -- (10.7) -- --
-------- -------- -------- -------- --------
Income (loss) before income
taxes and subsidiary preferred
stock dividends $ 76.1 $ -- $ 15.4 $ 50.3 $ 8.9
======== ======== ======== ======== ========
Segment assets (at period end) $2,149.0 $ (15.3) $1,261.0 $ 636.3 $ 97.9
======== ======== ======== ======== ========
Investment in equity investees $ 6.3 $ -- $ -- $ -- $ --
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Energy International Other Corp.
Services Propane Enterprises & Other
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $ 90.1 $ -- $ -- $ 2.3
======== ======== ======== ========
Segment profit (loss):
EBITDA $ 2.0 $ (1.3) $ (3.9) $ 7.2
Depreciation and amortization (0.2) -- -- (0.1)
-------- -------- -------- --------
Operating income (loss) 1.8 (1.3) (3.9) 7.1
Merger expenses, net -- -- -- (1.6)
Interest expense -- -- -- (0.6)
Minority interest -- -- -- --
-------- -------- -------- --------
Income (loss) before income
taxes and subsidiary preferred
stock dividends $ 1.8 $ (1.3) $ (3.9) $ 4.9
======== ======== ======== ========
Segment assets (at period end) $ 19.6 $ 6.3 $ 1.0 $ 142.2
======== ======== ======== ========
Investment in equity investees $ -- $ 6.3 $ -- $ --
======== ======== ======== ========
</TABLE>
- 9 -
<PAGE> 12
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Millions of dollars, except per share amounts)
3. COMMITMENTS AND CONTINGENCIES
The Partnership has succeeded to certain lease guarantee obligations of
Petrolane Incorporated ("Petrolane"), a predecessor company of the
Partnership, relating to Petrolane's divestiture of nonpropane
operations before its 1989 acquisition by QFB Partners. Future lease
payments under these leases total approximately $37 million. The leases
expire through 2010, and some of them are currently in default. 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 defaulted lease 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,
including claims related to antitrust actions, that were pending
against Tropigas de Puerto Rico ("Tropigas"). Petrolane had entered
into this indemnification agreement in conjunction with its 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. In
1999, a case brought by an unsuccessful entrant into the Puerto Rican
propane market was dismissed by the Supreme Court of Puerto Rico for
lack of subject matter jurisdiction, with the Court concluding that the
Public Service Commission of Puerto Rico has exclusive jurisdiction
over the matter. In the only pending litigation, the Supreme Court of
Puerto Rico denied the motion of the defendants to dismiss, remanding
the matter to the trial court for proceedings consistent with its
ruling. In this case the plaintiff seeks treble damages in excess of
$11.7 million.
The Partnership believes the probability that it will be required to
directly satisfy the above-described lease obligations and the
remaining claim subject to the indemnification agreements is remote.
We, along with other companies, have been named as a potentially
responsible party ("PRP") in several administrative proceedings and
private party recovery actions for the cleanup or recovery of costs
associated with cleanup of various waste sites, including some
Superfund sites. In addition, we have identified environmental
contamination at several of our properties and have voluntarily
undertaken investigation and, as
-10-
<PAGE> 13
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Millions of dollars, except per share amounts)
appropriate, remediation of these sites in cooperation with appropriate
environmental agencies or private parties.
The gas distribution business has been one of UGI Utilities' main
businesses since it began in 1882. Prior to the construction of major
natural gas pipelines in the 1950s, gas used for lighting and heating
was produced at manufactured gas plants ("MGPs") from processes
involving coal, coke or oil. Some constituents of coal tars produced
from this process are today considered hazardous substances under the
Superfund Law and may be located at these sites. At sites where a
former subsidiary of UGI Utilities operated an MGP, we believe that UGI
Utilities should not have significant liability because UGI Utilities
generally is not legally liable for the obligations of its
subsidiaries. Under certain circumstances, however, a court could find
a parent company liable for environmental damage at sites owned by a
subsidiary company when the parent company either (1) itself operated
the facility causing the environmental damage or (2) otherwise so
controlled the subsidiary that the subsidiary's separate corporate form
should be disregarded. There could be, therefore, significant future
costs of an uncertain amount associated with environmental damage
caused by MGPs that UGI Utilities owned or directly operated, or that
were owned or operated by former subsidiaries of UGI Utilities, if a
court were to conclude that the subsidiary's separate corporate form
should be disregarded. In many circumstances where UGI Utilities may be
liable, we may not be able to reasonably quantify expenditures because
of a number of factors. These factors include the various costs
associated with potential remedial alternatives, the unknown number of
other potentially responsible parties involved and their ability to
contribute to the costs of investigation and remediation, and changing
environmental laws and regulations.
UGI Utilities has filed suit against more than fifty insurance
companies alleging that the defendants breached contracts of insurance
by failing to indemnify UGI Utilities for certain environmental costs.
The suit seeks to recover more than $11 million in costs incurred by
UGI Utilities at various MGPs. The parties have agreed to stay the
litigation pending the voluntary exchange of documents and settlement
negotiations. To date, UGI Utilities has entered into settlement
agreements with several of the insurers and during the three months
ended March 31, 2000 recorded pretax income of $2.4 million which is
net of recoveries applied to site-specific environmental costs
associated with Pennsylvania sites.
In addition to these matters, there are other pending claims and legal
actions arising in the normal course of our businesses. We cannot
predict with certainty the final results of environmental and other
matters. However, it is reasonably possible that some of them could be
resolved unfavorably to us. Management believes, after consultation
with counsel, that damages or settlements, if any, recovered by the
plaintiffs in such claims or actions will not have a material adverse
effect on our financial position but could be material to our operating
results or cash flows in future periods depending on the nature
-11-
<PAGE> 14
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Millions of dollars, except per share amounts)
and timing of future developments with respect to these matters and the
amounts of future operating results and cash flows.
4. PRO FORMA FINANCIAL INFORMATION
On September 21, 1999, Enterprises, through subsidiaries, acquired all
of the outstanding stock of FLAGA Beteiligungs Aktiengesellschaft
("FLAGA") for net cash consideration of $73.7 million and the
assumption of approximately $18 million of debt. The purchase price has
been allocated to the net assets acquired based upon their estimated
fair values. Unaudited pro forma revenues, net income and diluted
earnings per share of the Company for the three and six months ended
March 31, 1999 as if the acquisition of FLAGA had occurred as of
October 1, 1998 are $516.3 million, $37.3 million, and $1.14; and
$900.1 million, $55.5 million and $1.69, respectively. The pro forma
results of operations give effect to FLAGA's historical operating
results in accordance with U.S. generally accepted accounting
principles and adjustments for interest expense, goodwill amortization
and depreciation expense, and income taxes, but do not adjust for
normal weather conditions and anticipated operating efficiencies. In
management's opinion, the unaudited pro forma results are not
indicative of the actual results that would have occurred had the
acquisition of FLAGA occurred as of October 1, 1998, or of future
operating results under the ownership and management of the Company.
-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 compare our results of operations for (1) the three
months ended March 31, 2000 ("2000 three-month period") with the three months
ended March 31, 1999 ("1999 three-month period"); (2) the six months ended March
31, 2000 ("2000 six-month period") with the six months ended March 31, 1999
("1999 six-month period"); and (3) the twelve months ended March 31, 2000 ("2000
twelve-month period") with the twelve months ended March 31, 1999 ("1999
twelve-month period"). Our analyses of results of operations should be read in
conjunction with the segment information included in Note 2 to Condensed
Consolidated Financial Statements.
-13-
<PAGE> 16
UGI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
2000 THREE-MONTH PERIOD COMPARED WITH 1999 THREE-MONTH PERIOD
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Increase
Three Months Ended March 31, 2000 1999 (Decrease)
- ----------------------------------------------------------------------------------------------------
(Millions of dollars)
<S> <C> <C> <C> <C>
AMERIGAS PROPANE:
Revenues $ 388.9 $ 304.9 $ 84.0 27.6%
Total margin $ 173.5 $ 176.1 $ (2.6) (1.5)%
EBITDA (c) $ 84.0 $ 89.0 $ (5.0) (5.6)%
Operating income $ 67.2 $ 72.3 $ (5.1) (7.1)%
Retail gallons sold (millions) 266.8 284.8 (18.0) (6.3)%
Degree days - % warmer than normal (a) 15.4 11.0 - -
GAS UTILITY:
Revenues $ 148.8 $ 147.6 $ 1.2 0.8%
Total margin (b) $ 65.4 $ 63.2 $ 2.2 3.5%
EBITDA (c) $ 49.7 $ 44.0 $ 5.7 13.0%
Operating income $ 45.2 $ 39.2 $ 6.0 15.3%
System throughput - billions of
cubic feet ("bcf") 29.8 29.1 0.7 2.4%
Degree days - % warmer than normal 11.1 8.4 - -
ELECTRIC UTILITY:
Revenues $ 21.0 $ 20.1 $ 0.9 4.5%
Total margin (b) $ 11.2 $ 10.2 $ 1.0 9.8%
EBITDA (c) $ 5.0 $ 5.0 $ - - %
Operating income $ 3.8 $ 3.9 $ (0.1) (2.6)%
Sales - millions of kilowatt hours ("gwh") 258.4 255.2 3.2 1.3%
ENERGY SERVICES:
Revenues $ 35.7 $ 26.6 $ 9.1 34.2%
Total margin $ 1.6 $ 1.5 $ 0.1 6.7%
EBITDA (c) $ 0.9 $ 0.6 $ 0.3 50.0%
Operating income $ 0.9 $ 0.6 $ 0.3 50.0%
INTERNATIONAL PROPANE:
Revenues $ 15.4 $ - $ 15.4 N.M.
Total margin $ 6.3 $ - $ 6.3 N.M.
EBITDA (c) (d) $ 1.3 $ (0.1) $ 1.4 N.M.
Operating income (loss) (d) $ 0.4 $ (0.1) $ 0.5 N.M.
- ------------------------------------------------------- -------------- --------------- --------------- -------------
</TABLE>
-14-
<PAGE> 17
UGI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
(a) Based upon national weather statistics provided by the National Oceanic
and Atmospheric Administration ("NOAA") for 335 airports in the
continental U.S.
(b) Gas and Electric utilities' total margin represents revenues less cost
of sales and revenue-related taxes, i.e. gross receipts taxes. For
financial statement purposes, revenue-related taxes are included in
"Utility taxes other than income taxes" on the condensed consolidated
statements of income.
(c) 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.
(d) Includes equity in net income (loss) of international joint ventures.
N.M. Not meaningful.
AMERIGAS PROPANE. For the third consecutive year, results for the three-month
period ended March 31 were significantly impacted by warmer than normal weather.
Based upon national heating degree day data, temperatures in the 2000
three-month period were 15.4% warmer than normal and 4.6% warmer than in the
prior-year period. Retail volumes of propane sold decreased 18.0 million gallons
(6.3%) principally reflecting the impact of the warmer winter weather on sales
to our residential heating customers and the Year 2000 ("Y2K") issue which
resulted in some of our customers accelerating propane deliveries in November
and December 1999. Wholesale volumes of propane sold increased 19.8 million
gallons in the 2000 three-month period reflecting higher sales associated with
product cost management activities.
Total revenues from retail propane sales increased $54.0 million during the 2000
three-month period reflecting a $70.4 million increase as a result of higher
average selling prices partially offset by a $16.4 million decrease as a result
of the lower retail volumes sold. Wholesale propane revenues increased $27.9
million due primarily to higher selling prices and, to a lesser extent, higher
volumes sold. The higher retail and wholesale selling prices resulted from
higher propane product costs. Other revenues increased $2.1 million reflecting,
in part, higher customer fees and hauling revenues. Cost of sales in the 2000
three-month period increased $86.6 million as a result of the higher propane
product costs and the increase in wholesale volumes sold.
Total margin decreased $2.6 million in the 2000 three-month period principally
as a result of lower volumes sold to residential customers partially offset by
greater total margin from PPX Prefilled Propane Xchange(R) ("PPX(R)") and
higher customer fees.
-15-
<PAGE> 18
UGI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
EBITDA and operating income were lower in the 2000 three-month period
principally as a result of the lower total margin and an increase in operating
expenses. Operating and administrative expenses of the Partnership were $92.0
million in the 2000 three-month period compared to $88.7 million in the
prior-year period. The increase in operating and administrative expenses
includes (1) increased vehicle fuel costs and vehicle repair and maintenance
expenses and (2) higher expenses associated with new business initiatives.
GAS UTILITY. Weather in Gas Utility's service territory during the 2000
three-month period was 11.1% warmer than normal and 2.0% warmer than the
prior-year period. The increase in total system throughput principally resulted
from higher interruptible delivery service volumes and, to a lesser extent,
higher core market sales resulting from an increase in the number of customers.
Gas Utility revenues were virtually unchanged in the 2000 three-month period as
the impact on revenues from higher core market sales, higher average purchased
gas costs, and greater interruptible delivery service volumes was offset by the
elimination of gross receipts tax revenue effective January 1, 2000 pursuant to
the Gas Competition Act. Gas Utility cost of sales was $83.6 million in the 2000
three-month period, an increase of $5.1 million, principally reflecting higher
average purchased gas costs and slightly higher core market sales. Gas Utility
total margin increased $2.2 million principally reflecting (1) increased margin
from interruptible customers as a result of the higher interruptible throughput
and a greater spread between oil and natural gas prices and (2) increased core
market margin.
Gas Utility EBITDA and operating income increased $5.7 million and $6.0 million,
respectively, during the 2000 three-month period. The increase reflects (1) the
previously mentioned $2.2 million increase in total margin; (2) higher other
income; and (3) a decrease in net operating and administrative expenses. Other
income in the 2000 three-month period includes income from the refund of
revenue-related tax overpayments made in prior years and greater income from a
construction project and other activities. Operating and administrative
expenses, excluding depreciation and amortization, declined $1.4 million in the
2000 three-month period principally reflecting modest increases in distribution
system, uncollectible accounts and environmental matters expenses which were
more than offset by income of $2.4 million from an insurance settlement.
ELECTRIC UTILITY. Electric Utility sales during the 2000 three-month period
increased slightly on weather that was generally comparable to the prior year.
Revenues increased as a result of the higher sales as well as higher
transmission revenues from alternate electric power suppliers selling
electricity to some of our customers pursuant to the Electricity Customer Choice
Act. Notwithstanding the higher sales, Electric Utility cost of sales was $8.9
million, a decrease of $0.1 million, reflecting slightly lower average power
costs.
-16-
<PAGE> 19
UGI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Electric Utility's total margin increased $1.0 million reflecting the impact of
the lower average power costs and the slightly higher sales. EBITDA and
operating income were virtually unchanged from the prior year as the higher
margin was offset by higher utility realty taxes.
ENERGY SERVICES. Total revenues from Energy Services increased $9.1 million
(34.2%) in the 2000 three-month period principally as a result of higher average
natural gas costs. Total margin increased $0.1 million principally reflecting
the impact of higher power marketing (electricity) sales. The higher 2000
three-month period EBITDA and operating income reflects the higher total margin
and greater other income.
INTERNATIONAL PROPANE. The variance in revenues, total margin, EBITDA and
operating income (loss) is principally due to the Company's European propane
distribution operation, FLAGA, which was acquired in September 1999. Weather in
Austria and the Czech Republic was approximately 8% warmer than normal during
the 2000 three-month period. The warmer weather, and conservation by customers
resulting from higher propane supply costs, reduced volumes sold. Additionally,
FLAGA's unit margins during the 2000 three-month period were lower than normal
due to the higher propane product costs.
CORPORATE AND OTHER ENTERPRISES. Corporate and other EBITDA and operating income
during the 2000 three-month period were virtually unchanged from the prior year.
Other Enterprises' results in the 2000 three-month period reflects the operating
results of the Company's retail hearth, grill and spa superstore business,
Hearth USA(TM), while results in the prior-year period principally reflect due
diligence and start-up expenses associated with Enterprises' domestic and
international new business activities.
-17-
<PAGE> 20
UGI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
2000 SIX-MONTH PERIOD COMPARED WITH 1999 SIX-MONTH PERIOD
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Increase
Six Months Ended March 31, 2000 1999 (Decrease)
- ---------------------------------------------------------------------------------------------------
(Millions of dollars)
<S> <C> <C> <C> <C>
AMERIGAS PROPANE:
Revenues $ 689.9 $ 542.7 $ 147.2 27.1%
Total margin $ 315.8 $ 309.4 $ 6.4 2.1%
EBITDA $ 138.2 $ 139.8 $ (1.6) (1.1)%
Operating income $ 104.9 $ 107.0 $ (2.1) (2.0)%
Retail gallons sold (millions) 500.5 505.5 (5.0) (1.0)%
Degree days - % warmer than normal 14.8 11.0 - -
GAS UTILITY:
Revenues $ 250.8 $ 242.2 $ 8.6 3.6%
Total margin $ 113.2 $ 106.4 $ 6.8 6.4%
EBITDA $ 82.4 $ 70.2 $ 12.2 17.4%
Operating income $ 73.0 $ 60.8 $ 12.2 20.1%
System throughput - billions of
cubic feet ("bcf") 51.8 49.4 2.4 4.9%
Degree days - % warmer than normal 11.6 12.0 - -
ELECTRIC UTILITY:
Revenues $ 40.2 $ 38.3 $ 1.9 5.0%
Total margin $ 22.2 $ 20.0 $ 2.2 11.0%
EBITDA $ 11.8 $ 9.7 $ 2.1 21.6%
Operating income $ 9.8 $ 7.8 $ 2.0 25.6%
Sales - millions of kilowatt hours ("gwh") 483.9 478.4 5.5 1.1%
ENERGY SERVICES:
Revenues $ 65.5 $ 49.7 $ 15.8 31.8%
Total margin $ 3.2 $ 2.8 $ 0.4 14.3%
EBITDA $ 1.7 $ 1.3 $ 0.4 30.8%
Operating income $ 1.6 $ 1.2 $ 0.4 33.3%
INTERNATIONAL PROPANE:
Revenues $ 29.3 $ - $ 29.3 N.M.
Total margin $ 12.1 $ - $ 12.1 N.M.
EBITDA $ 1.9 $ (0.3) $ 2.2 N.M.
Operating loss $ (0.1) $ (0.3) $ 0.2 N.M.
- ---------------------------------------------------------------------------------------------------
</TABLE>
-18-
<PAGE> 21
UGI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
AMERIGAS PROPANE. Temperatures based upon heating degree days were 14.8% warmer
than normal in the 2000 six-month period and 4.1% warmer than the prior-year
period. Retail propane volumes sold decreased 5.0 million gallons as a result of
the warmer weather's effect on heating-related sales partially offset by
increased non-heating related PPX(R) and motor fuel sales. Wholesale volumes
increased 28.3 million gallons (24.6%) as a result of higher wholesale sales
associated with product cost management activities.
Total retail propane revenues increased $100.7 million due almost entirely to
higher average selling prices resulting from significantly higher propane
product costs. Wholesale propane revenues increased $38.9 million reflecting a
$28.3 million increase from higher average selling prices and a $10.6 million
increase as a result of the higher wholesale volumes sold. Other revenues
increased $7.6 million reflecting, in part, higher customer fees and hauling,
service and PPX(R) cylinder sales revenue. Cost of sales in the 2000 six-month
period increased $140.8 million as a result of the higher propane product costs
and higher wholesale volumes sold.
Notwithstanding the overall lower retail volumes in the 2000 six-month period,
total margin increased $6.4 million principally as a result of (1) greater
volumes sold to higher margin PPX(R) customers and (2) an increase in other
margin from customer fees and hauling and service related revenues.
EBITDA declined $1.6 million, notwithstanding the slightly higher total margin,
reflecting higher operating and administrative expenses in the 2000 six-month
period. Operating and administrative expenses of the Partnership were $181.5
million in the 2000 six-month period compared with $172.3 million in the 1999
six-month period. The increase in operating expenses includes (1) higher vehicle
fuel and repairs and maintenance expenses and (2) higher expenses associated
with the expansion of PPX(R) and other new business initiatives. Operating
income decreased $2.1 million in the 2000 six-month period reflecting the lower
EBITDA and slightly higher depreciation and amortization expense.
GAS UTILITY. Weather in Gas Utility's service territory in the 2000 six-month
period was 11.6% warmer than normal but comparable to weather during the prior
year period. Approximately seventy-five percent of the increase in system
throughput reflects increased delivery service volumes to interruptible
customers with the remainder representing higher sales to core market customers
reflecting an increase in the number of core market customers.
The increase in Gas Utility's revenues during the 2000 six-month period
principally resulted from (1) a $6.0 million increase in core market revenues
reflecting higher sales and higher average purchased gas costs partially offset
by the impact of the elimination of gross receipts tax effective January 1, 2000
and (2) a $4.7 million increase in revenues from interruptible customers. These
increases in revenue were partially offset by lower off-system sales and lower
firm delivery service revenues. Gas Utility cost of gas was $133.6 million in
the 2000 six-month period compared with $126.1 million in the prior-year period.
The increase reflects higher average purchased gas cost
-19-
<PAGE> 22
UGI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
rates and higher core market sales partially offset by lower costs associated
with the previously mentioned decline in off-system sales.
Gas Utility total margin increased $6.8 million reflecting (1) an increase in
total interruptible retail and interruptible delivery service margin; (2)
increased core market margin; and (3) slightly higher firm delivery service
total margin.
Gas Utility EBITDA and operating income each increased $12.2 million during the
2000 six-month period as a result of (1) the higher total margin; (2) a $3.7
million increase in other income; and (3) a slight decrease in net operating
expenses. Other income in the 2000 six-month period includes (1) income from the
refund of revenue-related tax overpayments made in prior years (including
associated interest); (2) interest income from purchased gas cost
undercollections; and (3) higher income from a construction project and other
activities. Gas Utility's net operating expenses declined $1.5 million
reflecting higher distribution system, environmental matters, and customer
accounts expense more than offset by (1) $2.4 million in income from an
insurance settlement and (2) $0.9 million from adjustments to incentive
compensation accruals recorded in the three months ended December 31, 1999.
ELECTRIC UTILITY. Electric sales for the 2000 six-month period increased 1.1
percent on weather that was only slightly colder than in the prior year.
Revenues increased as a result of the higher sales as well as an increase in
transmission revenues from alternate electric power suppliers selling
electricity to some of our customers. Cost of sales decreased to $16.4 million
in the 2000 six-month period from $16.7 million in the prior year reflecting
lower average purchased power costs.
Electric Utility operations total margin increased $2.2 million reflecting the
impact of (1) lower power costs and (2) higher sales. EBITDA and operating
income also increased reflecting higher total margin and a $1.4 million increase
in other income reduced by higher operating expenses, principally higher utility
realty taxes.
ENERGY SERVICES. Energy Services' revenues increased $15.8 million (31.8%)
during the 2000 six-month period principally as a result of higher average
natural gas prices. Total margin increased $0.4 million reflecting higher
average unit margins from gas marketing and greater income from power marketing.
The higher 2000 six-month period EBITDA and operating income resulted from the
greater total margin.
INTERNATIONAL PROPANE. International Propane results for the six months ended
March 31, 2000 include the results of FLAGA which was acquired in September
1999. The results of FLAGA during the 2000 six-month period were negatively
impacted by warmer than normal weather in Austria and the Czech Republic and
higher propane supply costs which resulted in lower than normal unit margins and
price-induced conservation.
-20-
<PAGE> 23
UGI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
CORPORATE AND OTHER ENTERPRISES. The decrease in corporate and other EBITDA and
operating income during the 2000 six-month period reflects lower interest income
on cash investments. Other Enterprises' results in the 2000 six-month period
primarily reflects the operating results of Hearth USA(TM). The prior-year
results principally include due diligence and start-up expenses associated with
Enterprises' domestic and international new business activities.
-21-
<PAGE> 24
UGI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
2000 TWELVE-MONTH PERIOD COMPARED WITH 1999 TWELVE-MONTH PERIOD
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Increase
Twelve Months Ended March 31, 2000 1999 (Decrease)
- ------------------------------------------------------------------------------------------------------
(Millions of dollars)
<S> <C> <C> <C> <C>
AMERIGAS PROPANE:
Revenues $ 1,019.7 $ 848.0 $ 171.7 20.2%
Total margin $ 488.1 $ 480.9 $ 7.2 1.5%
EBITDA $ 157.2 $ 157.2 $ - - %
Operating income $ 90.4 $ 91.4 $ (1.0) (1.1)%
Retail gallons sold (millions) 778.2 776.5 1.7 0.2%
Degree days - % warmer than normal 13.2 11.7 - -
GAS UTILITY:
Revenues $ 354.2 $ 342.3 $ 11.9 3.5%
Total margin $ 167.4 $ 158.7 $ 8.7 5.5%
EBITDA $ 99.2 $ 84.2 $ 15.0 17.8%
Operating income $ 80.2 $ 65.6 $ 14.6 22.3%
System throughput - billions of
cubic feet ("bcf") 78.5 75.8 2.7 3.6%
Degree days - % warmer than normal 12.4 13.8 - -
ELECTRIC UTILITY:
Revenues $ 76.9 $ 72.7 $ 4.2 5.8%
Total margin $ 40.9 $ 35.7 $ 5.2 14.6%
EBITDA $ 18.8 $ 15.2 $ 3.6 23.7%
Operating income $ 14.7 $ 11.3 $ 3.4 30.1%
Sales - millions of kilowatt hours ("gwh") 905.9 889.9 16.0 1.8%
ENERGY SERVICES:
Revenues $ 106.2 $ 90.1 $ 16.1 17.9%
Total margin $ 6.5 $ 4.7 $ 1.8 38.3%
EBITDA $ 3.1 $ 2.0 $ 1.1 55.0%
Operating income $ 3.0 $ 1.8 $ 1.2 66.7%
INTERNATIONAL PROPANE:
Revenues $ 29.3 $ - $ 29.3 N.M.
Total margin $ 12.1 $ - $ 12.1 N.M.
EBITDA $ 2.1 $ (1.3) $ 3.4 N.M.
Operating income (loss) $ 0.1 $ (1.3) $ 1.4 N.M.
- -------------------------------------------------------------------------------------------------------
</TABLE>
-22-
<PAGE> 25
UGI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
AMERIGAS PROPANE. Temperatures based upon heating degree days were 13.2% warmer
than normal in the 2000 twelve-month period and slightly warmer than in the 1999
twelve-month period. Notwithstanding the warmer weather, retail propane gallons
sold were virtually unchanged as weather-related reductions were offset by
higher motor fuel and PPX(R) sales. Wholesale volumes of propane sold increased
42.4 million gallons to 218.9 million gallons reflecting an increase in sales
associated with propane product cost management activities.
Total retail propane revenues increased $111.8 million due almost entirely to
higher average retail propane selling prices. Wholesale propane revenues
increased $47.0 million reflecting (1) a $30.9 million increase from higher
average prices and (2) a $16.1 million increase as a result of the higher
wholesale volumes. The higher average propane selling prices during the 2000
twelve-month period were a result of significantly higher propane product costs.
Other revenues increased $13.0 million reflecting higher hauling revenue, higher
ancillary sales and service revenue, and greater customer fee revenues. Cost of
sales increased $164.5 million as a result of the higher propane product costs.
Total margin increased $7.2 million in the 2000 twelve-month period due to (1)
an increase in margin from customer fees and ancillary sales and services and
(2) higher total margin from our expanding PPX(R) cylinder exchange business.
EBITDA and operating income were virtually unchanged from the prior year as the
increase in total margin and higher other income was offset by higher operating
and administrative expenses. Other income in the 1999 twelve-month period is net
of a $4.0 million loss from interest rate protection agreements. Operating
expenses of the Partnership were $338.8 million in the 2000 twelve-month period
compared with $326.1 million in the prior-year period. The increase in operating
and administrative expenses includes higher expenses associated with new
business activities and higher vehicle expenses.
GAS UTILITY. Weather in Gas Utility's service territory during the 2000
twelve-month period was 12.4% warmer than normal but 2.1% colder than the prior
year. Total system throughput increased as a result of the colder weather and an
increase in total customers.
The increase in Gas Utility's revenues during the 2000 twelve-month period
resulted from a $5.1 million increase in core market revenues (due primarily to
higher core market volumes), greater interruptible delivery service revenues,
and slightly higher revenues from off-system sales. Gas Utility cost of sales
was $179.4 million in the 2000 twelve-month period compared with $170.5 million
in the 1999 twelve-month period reflecting higher average purchased gas cost
rates and the higher core market and off-system sales.
-23-
<PAGE> 26
UGI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Gas Utility total margin increased $8.7 million reflecting (1) increased margin
from interruptible customers from higher volumes transported and higher average
margins (2) increased core market margin, and (3) a slight increase in firm
delivery service margin.
Gas Utility EBITDA and operating income were higher in the 2000 twelve-month
period principally as a result of the greater total margin and a $4.7 million
increase in other income. Other income in the 2000 twelve-month period includes
(1) income from the refund of revenue-related tax overpayments made in prior
years (including associated interest), (2) greater income from a construction
project and other activities, and (3) interest income from purchased gas cost
undercollections.
ELECTRIC UTILITY. Total kilowatt-hour sales were higher in the 2000 twelve-month
period reflecting greater air-conditioning related sales during the warmer than
normal summer of 1999 and an increase in the number of customers. Electric
Utility revenues increased $4.2 million as a result of the increased sales and
higher transmission revenues associated with alternate suppliers serving
customers on our distribution system. Cost of sales decreased $0.9 million,
notwithstanding the increase in sales, reflecting (1) lower average purchased
power costs and (2) the benefit of a power supply agreement settlement.
Electric Utility's total margin increased $5.2 million as a result of (1) lower
average purchased power costs, (2) the power supply agreement settlement, and
(3) the higher 2000 twelve-month period sales. EBITDA and operating income
increased $3.6 million and $3.4 million, respectively, reflecting the increase
in total margin and higher other income partially offset by greater (1) utility
realty taxes, (2) power generation maintenance costs, and (3) customer service
and information expenses.
ENERGY SERVICES. Total revenues from Energy Services increased $16.1 million as
a result of higher average natural gas prices during the 2000 winter heating
season. Total margin increased $1.8 million reflecting higher average margins
from gas marketing and greater income from power marketing and other services.
EBITDA and operating income increased $1.1 million and $1.2 million,
respectively, as a result of the higher total margin offset by slightly higher
operating expenses.
INTERNATIONAL PROPANE. Revenues and total margin in the 2000 twelve-month period
include the results of FLAGA subsequent to its acquisition on September 21,
1999. EBITDA from International Propane in the 2000 twelve-month period included
$1.9 million from FLAGA as well as income associated with the Company's joint
venture investments in China and Romania. International Propane EBITDA and
operating income in the 2000 twelve-month period was higher than the prior year
reflecting lower equity losses from joint ventures and the impact of FLAGA
subsequent to September 21, 1999.
-24-
<PAGE> 27
UGI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
CORPORATE AND OTHER ENTERPRISES. The decrease in corporate and other EBITDA and
operating income reflects lower interest income on cash investments. Other
Enterprises' results in the 2000 twelve-month period primarily reflects start-up
costs and operating losses of Hearth USA(TM). Results in the prior twelve-month
period reflect due diligence and start-up expenses associated with Enterprises'
domestic and international new business activities.
FINANCIAL CONDITION AND LIQUIDITY
FINANCIAL CONDITION
The Company's debt outstanding totaled $1,151.0 million at March 31, 2000
compared with $1,137.3 million at September 30, 1999. The increase in debt
principally reflects the issuance of $80 million of Series E First Mortgage
Notes by the Operating Partnership offset by decreases in borrowings under UGI
Utilities' revolving credit facility and the Operating Partnership's Acquisition
and revolving credit facilities.
During the six months ended March 31, 2000, the Partnership declared and paid
the minimum quarterly distribution of $0.55 (the "MQD") on all limited partner
units and the general partner interests for the quarters ended September 30,
1999 and December 31, 1999. The MQD for the quarter ended March 31, 2000 will be
paid on May 18, 2000 to holders of record on May 10, 2000 of all Common and
Subordinated units. The ability of the Partnership to pay the MQD on all units
depends upon a number of factors. These factors include (1) the level of
Partnership earnings, (2) the cash needs of the Partnership's operations
(including cash needed for maintaining and growing operating capacity), (3)
changes in operating working capital, and (4) the Partnership's ability to
borrow and refinance debt. Some of these factors are affected by conditions
beyond our control including weather, competition in markets we serve, and the
cost of propane.
The 9,891,072 Subordinated Units of the Partnership which are held by the
Company are eligible to convert to Common Units on the first day after the
record date for any quarter ending on or after March 31, 2000 in respect of
which certain historical cash-based performance and distribution requirements
are met. The ability of the Partnership to attain the cash-based performance and
distribution requirements depends upon a number of factors including highly
seasonal operating results, changes in working capital, asset sales and debt
refinancings. Due to significantly warmer than normal weather and the impact of
higher propane product costs on working capital, the Partnership did not achieve
the cash-based performance requirements in respect of the quarter ended March
31, 2000. Due to the historical "look-back" provisions of the conversion test,
the possibility is remote that the Partnership will satisfy the cash-based
performance requirements for conversion any earlier than in respect of the
quarter ending March 31, 2002.
-25-
<PAGE> 28
UGI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
On April 25, 2000, we announced a 3.3% increase in our quarterly dividend to
$0.3875 per common share, or $1.55 per share on an annual basis. The dividend is
payable July 1, 2000 to shareholders of record on May 31, 2000.
CASH FLOWS
Our consolidated cash and short-term investments totaled $60.4 million at March
31, 2000 compared with $40.5 million at September 30, 1999. These amounts
include $42.6 million and $23.3 million, respectively, of cash and short-term
investments held by UGI. Our 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 six months ended March 31, 2000 are not necessarily indicative of the cash
flows to be expected for a full year.
OPERATING ACTIVITIES. Cash provided by operating activities during the six
months ended March 31, 2000 totaled $74.8 million compared with $93.8 million
during the prior-year period. Changes in operating working capital during the
2000 six-month period required $56.4 million of operating cash flow while
changes in operating working capital during the prior-year period required $39.4
million of operating cash flow. The higher cash required for working capital in
the 2000 six-month period reflects the impact of higher propane product costs on
accounts receivable and inventories. Operating cash flow before changes in
working capital was $131.2 million in the 2000 six-month period compared to
$133.2 million in the 1999 six-month period.
INVESTING ACTIVITIES. Cash used by investing activities during the six months
ended March 31, 2000 totaled $33.6 million compared with cash provided by
investing activities of $16.4 million in the prior-year period. The prior year
includes cash from changes in short-term investments of $60.1 million compared
to $10.8 million in the current year. We spent $30.5 million for property, plant
and equipment in the 2000 six-month period compared with $32.6 million in the
prior year principally reflecting lower Partnership capital expenditures. Cash
paid for Partnership acquisitions totaled $14.8 million in the 2000 six-month
period compared with $3.0 million in the prior-year six-month period.
FINANCING ACTIVITIES. During the six months ended March 31, 2000 and 1999, we
paid cash dividends on Common Stock of $20.4 million and $24.0 million,
respectively, and the Partnership paid the MQD on all publicly held Common Units
(as well as on the Common and Subordinated units we own). During the 2000
six-month period, the Operating Partnership borrowed $46 million under the
Acquisition Facility and subsequently repaid all Acquisition Facility
borrowings, totaling $69 million, with proceeds from the issuance of ten-year
Series E First Mortgage Notes. These notes bear interest at an effective rate of
8.47%.
During the six months ended March 31, 2000, the Operating Partnership made net
repayments of $17 million under its Revolving Credit Facility compared with net
repayments of $5 million in the prior-year
-26-
<PAGE> 29
UGI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
period. UGI Utilities made net revolving credit agreement repayments of $16.2
million in the 2000 six-month period compared with net borrowings of $4.4
million in the same period last year.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our primary market risk exposures are market prices for propane, natural gas and
electricity, and changes in interest rates.
In order to manage a portion of our propane market price risk, the Partnership
uses contracts for the forward purchase of propane, propane fixed-price supply
agreements, and derivative commodity instruments such as price swap and option
contracts. On occasion, the Partnership enters into wholesale product cost
management activities to reduce price risk associated with changes in the fair
value of a portion of its propane storage inventory. In order to manage market
price risk relating to substantially all of UGI Energy Services' firm
commitments to sell natural gas, we purchase exchange-traded natural gas futures
contracts.
Although Gas Utility is also subject to changes in the price of natural gas, the
current regulatory framework allows Gas Utility to recover prudently incurred
gas costs from its customers. In addition, Pennsylvania's Natural Gas Choice and
Competition Act permits local distribution companies to recover prudently
incurred costs of gas sold to customers. Because of this ratemaking mechanism,
there is limited commodity price risk associated with our Gas Utility
operations.
The Company's Electric Utility operations include the regulated sale of
electricity through its distribution business and the production of electricity
through its electric generation business unit. Currently our electric generation
operations produces electricity exclusively for our distribution business,
generating approximately 50% of the distribution businesses' electricity needs.
Electric Utility purchases the remainder of its electric power needs under power
supply arrangements of varying length terms with other producers and, to a
lesser extent, on the spot market. Spot market prices for electricity and, to a
lesser extent, monthly market-based contracts can be volatile, especially during
periods of high demand. In accordance with Electric Utility's Restructuring
Order, the transmission and distribution components of Electric Utility's rates
are "capped" through July 1, 2001. In addition, Electric Utility's generation
rate cap is expected to extend through December 31, 2002. Accordingly, Electric
Utility does not currently have the ability to pass on increases in its power
costs through rate increases to its customers.
We have market risk exposure from changes in interest rates on borrowings
primarily from the Operating Partnership's Bank Credit Agreement, UGI Utilities'
revolving credit agreements and debt agreements of FLAGA. These agreements have
interest rates on borrowings that are indexed to short-term market interest
rates. Based upon average borrowings under these agreements
-27-
<PAGE> 30
UGI CORPORATION AND SUBSIDIARIES
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (CONTINUED)
during fiscal 1999, an increase in short-term interest rates of 100 basis points
(1%) would have increased annual interest expense by approximately $2.0 million.
On occasion we enter into interest rate protection agreements to reduce interest
rate risk associated with forecasted issuances of debt.
We do not currently use derivative instruments to hedge foreign currency
exposure associated with our international propane operations, principally
FLAGA. As a result, the U.S. dollar value of foreign denominated assets and
liabilities will fluctuate with changes in the associated foreign currency
exchange rates. Our net exposure to changes in foreign currency exchange rates
has been significantly limited, however, because our net investment in FLAGA,
our principal international propane operation, was financed with EURO
denominated debt.
At March 31, 2000, the impact on the fair value of market risk sensitive
derivative instruments from an adverse change in (1) the market price of propane
of 10 cents a gallon, (2) the market price of natural gas of 50 cents a
dekatherm (3) interest rates on ten-year U.S. treasury notes of 100 basis
points, and (4) the market price of oil of 10 cents a gallon, would not be
materially different from that reported in the Company's 1999 Annual Report.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
1. UGI Utilities, Inc. v. Insurance Co. of North America, et. al. On
February 11, 1999, UGI Utilities, Inc. filed suit in the Court of Common Pleas
of Montgomery County, Pennsylvania, against more than fifty insurance companies,
including Associated Electric & Gas Insurance Services, Limited (AEGIS). The
complaint alleges that the defendants breached contracts of insurance by failing
to indemnify UGI Utilities for certain environmental costs. The suit seeks to
recover more than $11 million in costs incurred by UGI Utilities at various
manufactured gas plant sites.
The parties have agreed to stay the litigation through July 2000
pending the voluntary exchange of documents and settlement negotiations. To
date, UGI Utilities has settled with three defendants, including AEGIS.
-28-
<PAGE> 31
UGI CORPORATION AND SUBSIDIARIES
PART II OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On February 29, 2000, the Annual Meeting of Shareholders of UGI was
held. The shareholders reelected the eight nominees from the existing Board of
Directors to another term, approved two new compensation plans, the UGI
Corporation 2000 Stock Incentive Plan and the UGI Corporation 2000 Directors'
Stock Option Plan, and ratified the appointment of Arthur Andersen LLP as
independent certified public accountants. No other matters were considered at
the meeting.
The number of votes cast for and withheld from election of each
director nominee is set forth below. There were no abstentions or broker
non-votes in the election of directors.
<TABLE>
<CAPTION>
Director
Nominees For Withheld
-------- --- --------
<S> <C> <C>
James W. Stratton 19,218,934 5,410,487
David I. J. Wang 19,230,112 5,399,309
Richard C. Gozon 19,239,027 5,390,394
Stephen D. Ban 19,304,524 5,324,897
Lon R. Greenberg 19,237,616 5,391,805
Marvin O. Schlanger 19,285,601 5,343,820
Thomas F. Donovan 19,234,395 5,395,026
Anne Pol 19,282,260 5,347,161
</TABLE>
The number of votes cast for and against, and the number of abstentions
in the approval of the UGI Corporation 2000 Stock Incentive Plan is as follows:
For, 18,512,467; Against, 5,612,484; Abstain, 503,064. There were 1,406 broker
non-votes.
The number of votes cast for and against, and the number of abstentions
in the approval of the UGI Corporation 2000 Directors' Stock Option Plan is as
follows: For, 17,210,182; Against, 6,852,476; Abstain, 565,359. There were 1,404
broker non-votes.
The number of votes cast for and against, and the number of abstentions
in the ratification of the appointment of Arthur Andersen LLP is as follows:
For, 24,337,395; Against, 107,447; Abstain, 144,579. There were no broker
non-votes.
-29-
<PAGE> 32
UGI CORPORATION AND SUBSIDIARIES
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits:
27 Financial Data Schedule
(b) The Company did not file any Current Reports on Form 8-K
during the fiscal quarter ended March 31, 2000.
-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: May 12, 2000 By: A. J. Mendicino
- ------------------- ----------------------------------------------
A. J. Mendicino, Vice President - Finance and
Chief Financial Officer
-31-
<PAGE> 34
UGI CORPORATION AND SUBSIDIARIES
EXHIBIT INDEX
27 Financial Data Schedule
<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 SIX MONTHS ENDED MARCH 31, 2000 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS IN UGI CORPORATION'S
QUARTERLY REPORT ON FORM 10-Q FOR THE SIX MONTHS ENDED MARCH 31, 2000
</LEGEND>
<CIK> 0000884614
<NAME> UGI CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 60,400
<SECURITIES> 4,300
<RECEIVABLES> 229,300
<ALLOWANCES> 10,200
<INVENTORY> 66,000
<CURRENT-ASSETS> 389,400
<PP&E> 1,608,900
<DEPRECIATION> 548,300
<TOTAL-ASSETS> 2,213,900
<CURRENT-LIABILITIES> 395,100
<BONDS> 1,042,800
20,000
0
<COMMON> 394,600
<OTHER-SE> (108,200)
<TOTAL-LIABILITY-AND-EQUITY> 2,213,900
<SALES> 1,077,000
<TOTAL-REVENUES> 1,077,000
<CGS> 604,200
<TOTAL-COSTS> 604,200
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 5,506
<INTEREST-EXPENSE> 47,800
<INCOME-PRETAX> 112,200
<INCOME-TAX> 51,500
<INCOME-CONTINUING> 59,900
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 59,900
<EPS-BASIC> 2.19
<EPS-DILUTED> 2.19
</TABLE>
