<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 1-11071
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 January 31, 2000, there were 27,276,265 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 December 31, 1999,
September 30, 1999 and December 31, 1998 1
Condensed Consolidated Statements of Income for the three
and twelve months ended December 31, 1999 and 1998 2
Condensed Consolidated Statements of Cash Flows for the
three and twelve months ended December 31, 1999 and 1998 3
Notes to Condensed Consolidated Financial Statements 4 - 11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12 - 22
Item 3. Quantitative and Qualitative Disclosures About Market Risk 23 - 24
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 24
Signatures 25
</TABLE>
-i-
<PAGE> 3
UGI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(Millions of dollars)
<TABLE>
<CAPTION>
December 31, September 30, December 31,
1999 1999 1998
------------ ------------- ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 71.3 $ 40.5 $ 80.5
Short-term investments, at cost which approximates market value 4.3 15.1 70.2
Accounts receivable (less allowances for doubtful accounts of
$8.1, $8.0 and $8.0, respectively) 178.4 102.9 131.3
Accrued utility revenues 25.6 6.9 21.7
Inventories 84.2 87.1 70.3
Deferred income taxes 13.5 13.7 14.7
Prepaid expenses and other current assets 25.4 24.7 16.5
-------- -------- --------
Total current assets 402.7 290.9 405.2
Property, plant and equipment, at cost (less accumulated depreciation
and amortization of $532.2, $514.9 and $479.9, respectively) 1,059.7 1,084.1 1,000.3
Intangible assets (less accumulated amortization of $171.9, $165.9 and
$147.6, respectively) 659.6 653.1 626.5
Utility regulatory assets 61.6 61.1 59.3
Other assets 46.0 46.7 36.2
-------- -------- --------
Total assets $2,229.6 $2,135.9 $2,127.5
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 32.5 $ 26.7 $ 13.8
Operating Partnership bank loans 50.0 22.0 62.0
UGI Utilities bank loans 101.8 87.4 70.2
Other bank loans -- 11.6 --
Accounts payable 121.9 100.6 97.7
Other current liabilities 148.4 154.0 139.9
-------- -------- --------
Total current liabilities 454.6 402.3 383.6
Long-term debt 1,034.9 989.6 881.3
Deferred income taxes 170.2 174.3 156.0
Other noncurrent liabilities 82.4 90.6 78.3
Commitments and contingencies
Minority interest in AmeriGas Partners 208.2 209.9 234.2
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) 394.8 394.8 394.3
Retained earnings (accumulated deficit) 2.6 (8.2) (11.8)
Accumulated other comprehensive income 0.5 0.5 --
Unearned compensation - restricted stock (1.5) (1.7) --
-------- -------- --------
396.4 385.4 382.5
Treasury stock, at cost (137.1) (136.2) (8.4)
-------- -------- --------
Total common stockholders' equity 259.3 249.2 374.1
-------- -------- --------
Total liabilities and stockholders' equity $2,229.6 $2,135.9 $2,127.5
======== ======== ========
</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 Twelve Months Ended
December 31, December 31,
------------------------ --------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
AmeriGas Propane $ 301.0 $ 237.8 $ 935.7 $ 849.3
UGI Utilities 121.2 112.8 429.0 399.6
International Propane 13.9 -- 13.9 --
Energy Services and other 30.5 23.1 97.9 93.3
---------- ---------- ---------- ----------
466.6 373.7 1,476.5 1,342.2
---------- ---------- ---------- ----------
Costs and expenses:
AmeriGas Propane cost of sales 158.7 104.5 445.0 385.1
UGI Utilities - gas, fuel and purchased power 57.5 55.3 207.4 197.4
International Propane cost of sales 8.1 -- 8.1 --
Energy Services and other cost of sales 28.6 21.8 91.2 88.5
Operating and administrative expenses 125.1 112.7 466.8 441.4
Depreciation and amortization 23.5 21.7 91.5 87.9
Other income, net (5.6) (3.8) (18.6) (12.2)
---------- ---------- ---------- ----------
395.9 312.2 1,291.4 1,188.1
---------- ---------- ---------- ----------
Operating income 70.7 61.5 185.1 154.1
Merger fee income, net -- -- 19.9 --
Interest expense (23.8) (21.2) (87.2) (84.2)
Minority interest in AmeriGas Partners (8.0) (7.4) (11.3) (5.2)
---------- ---------- ---------- ----------
Income before income taxes and
subsidiary preferred stock dividends 38.9 32.9 106.5 64.7
Income tax expense (17.4) (14.5) (46.1) (29.3)
Dividends on UGI Utilities Series
Preferred Stock (0.4) (0.4) (1.6) (1.9)
---------- ---------- ---------- ----------
Net income $ 21.1 $ 18.0 $ 58.8 $ 33.5
========== ========== ========== ==========
Earnings per share:
Basic $ 0.77 $ 0.55 $ 1.92 $ 1.02
========== ========== ========== ==========
Diluted $ 0.77 $ 0.55 $ 1.92 $ 1.01
========== ========== ========== ==========
Average common shares outstanding:
Basic 27.295 32.855 30.553 32.953
========== ========== ========== ==========
Diluted 27.375 32.939 30.615 33.081
========== ========== ========== ==========
Dividends declared per share $ 0.375 $ 0.365 $ 1.48 $ 1.455
========== ========== ========== ==========
</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>
Three Months Ended Twelve Months Ended
December 31, December 31,
-------------------- --------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 21.1 $ 18.0 $ 58.8 $ 33.5
Reconcile to net cash provided (used) by operating activities:
Depreciation and amortization 23.5 21.7 91.5 87.9
Minority interest in AmeriGas Partners 8.0 7.4 11.3 5.2
Deferred income taxes, net 1.9 1.7 7.9 10.9
Other, net (4.5) (4.8) 6.8 0.2
------- ------- ------- -------
50.0 44.0 176.3 137.7
Net change in:
Accounts receivable and accrued utility revenues (96.4) (66.2) (54.7) 43.4
Inventories and prepaid propane purchases (1.5) 8.7 (15.2) 35.8
Deferred fuel costs 0.2 -- (4.9) (8.2)
Accounts payable 21.5 17.8 21.1 (7.9)
Other current assets and liabilities (3.1) (7.4) (6.9) (10.5)
------- ------- ------- -------
Net cash provided (used) by operating activities (29.3) (3.1) 115.7 190.3
------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant and equipment (14.2) (16.2) (68.2) (69.8)
Net proceeds from disposals of assets 1.5 0.9 5.5 3.7
Acquisitions of businesses, net of cash acquired (2.4) (2.4) (77.6) (9.1)
Investments in joint venture partnerships -- -- (4.9) --
Short-term investments decrease 10.8 11.6 65.9 3.6
Other, net -- -- (5.4) 1.4
------- ------- ------- -------
Net cash used by investing activities (4.3) (6.1) (84.7) (70.2)
------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends on Common Stock (10.2) (12.0) (46.1) (47.7)
Distributions on Partnership public Common Units (9.8) (9.7) (39.1) (39.0)
Issuance of long-term debt 57.0 -- 230.7 25.0
Repayment of long-term debt (2.6) (10.0) (63.5) (30.6)
AmeriGas Propane bank loans increase (decrease) 28.0 52.0 (12.0) (13.0)
UGI Utilities bank loans increase 14.4 1.8 31.6 7.5
Other bank loans decrease (11.4) -- (11.4) --
Issuance of treasury stock 1.5 1.0 5.2 4.6
Repurchases of Common Stock (2.4) -- (135.5) (9.7)
Redemption of UGI Utilities preferred stock -- -- -- (15.5)
------- ------- ------- -------
Net cash provided (used) by financing activities 64.5 23.1 (40.1) (118.4)
------- ------- ------- -------
FOREIGN CURRENCY EXCHANGE EFFECT ON CASH: (0.1) -- (0.1) --
------- ------- ------- -------
Cash and cash equivalents increase (decrease) $ 30.8 $ 13.9 $ (9.2) $ 1.7
======= ======= ======= =======
Cash and cash equivalents:
End of period $ 71.3 $ 80.5 $ 71.3 $ 80.5
Beginning of period 40.5 66.6 80.5 78.8
------- ------- ------- -------
Increase (decrease) $ 30.8 $ 13.9 $ (9.2) $ 1.7
======= ======= ======= =======
</TABLE>
During the twelve months ended December 31, 1999 and 1998, UGI Utilities, Inc.
paid cash dividends to UGI of $49.0 and $10.0 , respectively. During the twelve
months ended December 31, 1999 and 1998, AmeriGas, Inc. paid cash dividends to
UGI of $46.7 and $50.8, respectively. During those same periods, UGI paid cash
dividends to holders of Common Stock of $46.1 and $47.7, 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 December 31, 1999, 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 for the three months ended December 31,
1999, as determined under Statement of Financial Accounting Standards
("SFAS") No. 130 "Reporting Comprehensive Income" was less than $0.1
million.
Management makes estimates and assumptions when preparing financial
statements in conformity with generally accepted accounting principles.
These estimates and assumptions affect the reported amounts of assets
and liabilities, revenues and expenses, as well as the disclosure of
contingent assets and liabilities. Actual results could differ from
these estimates.
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 national 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 chosen
to include 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 December 31, 1999:
<TABLE>
<CAPTION>
AmeriGas Gas Electric
Total Elims. Propane Utility Utility
------------ -------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenues $ 466.6 $ (0.8) $ 301.0 $ 102.0 $ 19.2
========= ========= ========= ========= =========
Segment profit (loss):
EBITDA $ 94.2 $ -- $ 54.2 $ 32.7 $ 6.8
Depreciation and amortization (23.5) -- (16.5) (4.9) (0.8)
--------- --------- --------- --------- ---------
Operating income (loss) 70.7 -- 37.7 27.8 6.0
Interest expense (23.8) -- (18.0) (4.2) (0.5)
Minority interest (8.0) -- (8.0) -- --
--------- --------- --------- --------- ---------
Income (loss) before income taxes $ 38.9 $ -- $ 11.7 $ 23.6 $ 5.5
========= ========= ========= ========= =========
Segment assets (at period end) $ 2,229.6 $ (28.2) $ 1,290.9 $ 638.6 $ 96.4
========= ========= ========= ========= =========
Investment in equity investees $ 6.0 $ -- $ -- $ -- $ --
========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Energy International Other Corp.
Services Propane Enterprises & Other
-------- ------------- ----------- -------
<S> <C> <C> <C> <C>
Revenues $ 29.8 $ 13.9 $ 0.7 $ 0.8
====== ====== ====== ======
Segment profit (loss):
EBITDA $ 0.8 $ 0.6 $ (1.4) $ 0.5
Depreciation and amortization (0.1) (1.1) -- (0.1)
------ ------ ------ ------
Operating income (loss) 0.7 (0.5) (1.4) 0.4
Interest expense -- (0.9) -- (0.2)
Minority interest -- -- -- --
------ ------ ------ ------
Income (loss) before income taxes $ 0.7 $ (1.4) $ (1.4) $ 0.2
====== ====== ====== ======
Segment assets (at period end) $ 15.8 $130.7 $ 4.7 $ 80.7
====== ====== ====== ======
Investment in equity investees $ -- $ 6.0 $ -- $ --
====== ====== ====== ======
</TABLE>
Three Months Ended December 31, 1998:
<TABLE>
<CAPTION>
AmeriGas Gas
Total Elims. Propane Utility
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $ 373.7 $ (0.5) $ 237.8 $ 94.6
======== ======== ======== ========
Segment profit (loss):
EBITDA $ 83.2 $ -- $ 50.8 $ 26.2
Depreciation and amortization (21.7) -- (16.1) (4.6)
-------- -------- -------- --------
Operating income (loss) 61.5 -- 34.7 21.6
Interest expense (21.2) -- (16.6) (3.8)
Minority interest (7.4) -- (7.4) --
-------- -------- -------- --------
Income (loss) before income taxes $ 32.9 $ -- $ 10.7 $ 17.8
======== ======== ======== ========
Segment assets (at period end) $2,127.5 $ (19.8) $1,264.6 $ 619.9
======== ======== ======== ========
Investment in equity investees $ 1.8 $ -- $ -- $ --
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Electric Energy International Other Corp.
Utility Services Propane Enterprises & Other
-------- -------- ------------- ----------- -------
<S> <C> <C> <C> <C> <C>
Revenues $ 18.2 $ 23.1 $ -- $ -- $ 0.5
====== ====== ====== ====== ======
Segment profit (loss):
EBITDA $ 4.7 $ 0.7 $(0.2) $ (0.7) $ 1.7
Depreciation and amortization (0.8) (0.1) -- -- (0.1)
------ ------ ------ ------ ------
Operating income (loss) 3.9 0.6 (0.2) (0.7) 1.6
Interest expense (0.6) -- -- -- (0.2)
Minority interest -- -- -- -- --
====== ====== ====== ====== ======
Income (loss) before income taxes $ 3.3 $ 0.6 $ (0.2) $ (0.7) $ 1.4
====== ====== ====== ====== ======
Segment assets (at period end) $ 96.8 $ 15.8 $ 1.8 $ 0.7 $147.7
====== ====== ====== ====== ======
Investment in equity investees $ -- $ -- $ 1.8 $ -- $ --
====== ====== ====== ====== ======
</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)
Twelve Months Ended December 31, 1999:
<TABLE>
<CAPTION>
AmeriGas Gas
Total Elims. Propane Utility
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Revenues $1,476.5 $ (2.6) $ 935.7 $ 353.0
======== ======== ======== ========
Segment profit (loss):
EBITDA $ 276.6 $ -- $ 162.2 $ 93.5
Depreciation and amortization (91.5) -- (66.7) (19.3)
--------- -------- --------- ---------
Operating income (loss) 185.1 -- 95.5 74.2
Merger fee income, net 19.9 -- --
Interest expense (87.2) -- (67.9) (15.6)
Minority interest (11.3) -- (11.3) --
-------- --------- --------- ---------
Income (loss) before income taxes $ 106.5 $ -- $ 16.3 $ 58.6
======== ========= ======== ========
Segment assets (at period end) $2,229.6 $ (28.2) $1,290.9 $ 638.6
======== ========= ========= ========
Investment in equity investees $ 6.0 $ -- $ -- $ --
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Electric Energy International Other Corp.
Utility Services Propane Enterprises & Other
------- -------- ------------- ----------- -------
<S> <C> <C> <C> <C> <C>
Revenues $ 76.0 $ 97.1 $ 13.9 $ 0.8 $ 2.6
====== ====== ====== ====== ======
Segment profit (loss):
EBITDA $ 18.8 $ 2.8 $ 0.6 $ (6.4) $ 5.1
Depreciation and amortization (4.0) (0.1) (1.1) -- (0.3)
------ ------ ------ ------ ------
Operating income (loss) 14.8 2.7 (0.5) (6.4) 4.8
Merger fee income, net -- -- -- -- 19.9
Interest expense (2.2) -- (0.9) -- (0.6)
Minority interest -- -- -- -- --
------ ------ ------ ------ ------
Income (loss) before income taxes $ 12.6 $ 2.7 $ (1.4) $ (6.4) $ 24.1
====== ====== ====== ====== ======
Segment assets (at period end) $ 96.4 $ 15.8 $130.7 $ 4.7 $ 80.7
====== ====== ====== ====== ======
Investment in equity investees $ -- $ -- $ 6.0 $ -- $ --
====== ====== ====== ====== ======
</TABLE>
Twelve Months Ended December 31, 1998:
<TABLE>
<CAPTION>
AmeriGas Gas Electric
Total Elims. Propane Utility Utility
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenues $ 1,342.2 $ (2.3) $ 849.3 $ 327.9 $ 71.7
========== ========== ========== ========== ==========
Segment profit (loss):
EBITDA $ 242.0 $ -- $ 144.0 $ 77.4 $ 14.5
Depreciation and amortization (87.9) -- (65.4) (18.4) (3.8)
---------- ---------- ---------- ---------- ----------
Operating income (loss) 154.1 -- 78.6 59.0 10.7
Interest expense (84.2) -- (65.7) (15.4) (2.3)
Minority interest (5.2) -- (5.2) -- --
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes $ 64.7 $ -- $ 7.7 $ 43.6 $ 8.4
========== ========== ========== ========== ==========
Segment assets (at period end) $ 2,127.5 $ (19.8) $ 1,264.6 $ 619.9 $ 96.8
========== ========== ========== ========== ==========
Investment in equity investees $ 1.8 $ -- $ -- $ -- $ --
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Energy International Other Corp.
Services Propane Enterprises & Other
-------- ------------- ----------- -------
<S> <C> <C> <C> <C>
Revenues $ 93.3 $ -- $ -- $ 2.3
====== ====== ====== ======
Segment profit (loss):
EBITDA $ 2.3 $ (1.2) $ (2.4) $ 7.4
Depreciation and amortization (0.2) -- -- (0.1)
------ ------ ------ ------
Operating income (loss) 2.1 (1.2) (2.4) 7.3
Interest expense -- -- -- (0.8)
Minority interest -- -- -- --
------ ------ ------ ------
Income (loss) before income taxes $ 2.1 $ (1.2) $ (2.4) $ 6.5
====== ====== ====== ======
Segment assets (at period end) $ 15.8 $ 1.8 $ 0.7 $147.7
====== ====== ====== ======
Investment in equity investees $ -- $ 1.8 $ -- $ --
====== ====== ====== ======
</TABLE>
-8-
<PAGE> 11
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 relating to Petrolane's divestiture of nonpropane operations
before its 1989 acquisition by QFB Partners. Future lease payments
under these leases total approximately $40 million. The leases expire
through 2010, and some of them are currently in default. The
Partnership has succeeded to the indemnity agreement of Petrolane
Incorporated ("Petrolane") a predecessor company of the partnership 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. The
Partnership believes the probability that it will be required to
directly satisfy such lease obligations is remote.
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").
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, but several claims by Shell, including claims related
to certain antitrust actions, aggregate at least $68 million. One of
the antitrust cases which is the subject of the indemnity, Pressure
Vessels of Puerto Rico, et al. v. Empire Gas, et al., has been
dismissed by the trial court. The grounds for the dismissal are that
the Public Service Commission of Puerto Rico has exclusive jurisdiction
over the claims asserted against the defendants which are public
service companies under the laws of Puerto Rico. Our inquiries have
failed to uncover any information that an appeal has been filed or that
any complaint has been filed with the Public Service Commission. The
remaining antitrust suit, Puerto Rico Fuels, is pending before the
Puerto Rico Supreme Court.
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 appropriate, remediation of these
sites in cooperation with appropriate environmental agencies or private
parties.
-9-
<PAGE> 12
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Millions of dollars, except per share amounts)
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 to the suit are in the early
stages of exchanging information.
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 and
timing of future developments with respect to these matters and the
amounts of future operating results and cash flows.
-10-
<PAGE> 13
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Millions of dollars, except per share amounts)
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 preliminary 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 months ended
December 31, 1998 as if the acquisition of FLAGA had occurred as of
October 1, 1998 are $383.8 million, $18.2 million, and $0.55,
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.
-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 compare our results of operations for (1) the three
months ended December 31, 1999 ("1999 three-month period") with the three months
ended December 31, 1998 ("1998 three-month period") and (2) the twelve months
ended December 31, 1999 ("1999 twelve-month period") with the twelve months
ended December 31, 1998 ("1998 twelve-month period"). Our analyses of results of
operations should be read in conjunction with the segment information included
in Note 2 to Condensed Consolidated Financial Statements.
-12-
<PAGE> 15
UGI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
1999 THREE-MONTH PERIOD COMPARED WITH 1998 THREE-MONTH PERIOD
<TABLE>
<CAPTION>
Three Months Ended December 31, 1999 1998 Increase
(Millions of dollars)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AMERIGAS PROPANE:
Revenues $301.0 $237.8 $ 63.2 26.6%
Total margin $142.3 $133.3 $ 9.0 6.8%
EBITDA $ 54.2 $ 50.8 $ 3.4 6.7%
Operating income $ 37.7 $ 34.7 $ 3.0 8.6%
Retail gallons sold (millions) 233.7 220.7 13.0 5.9%
Degree days - % warmer than normal (a) (14.1) (11.0) -- --
GAS UTILITY:
Revenues $102.0 $ 94.6 $ 7.4 7.8%
Total margin (b) $ 47.9 $ 43.2 $ 4.7 10.9%
EBITDA (c) $ 32.7 $ 26.2 $ 6.5 24.8%
Operating income $ 27.8 $ 21.6 $ 6.2 28.7%
System throughput - billions of
cubic feet ("bcf") 22.1 20.3 1.8 8.9%
Degree days - % warmer than normal (12.2) (17.1) -- --
ELECTRIC UTILITY:
Revenues $ 19.2 $ 18.2 $ 1.0 5.5%
Total margin (b) $ 11.0 $ 9.7 $ 1.3 13.4%
EBITDA (c) $ 6.8 $ 4.7 $ 2.1 44.7%
Operating income $ 6.0 $ 3.9 $ 2.1 53.8%
Sales - millions of kilowatt hours ("gwh") 225.5 223.2 2.3 1.0%
ENERGY SERVICES:
Revenues $ 29.8 $ 23.1 $ 6.7 29.0%
Total margin $ 1.5 $ 1.3 $ 0.2 15.4%
EBITDA (c) $ 0.8 $ 0.7 $ 0.1 14.3%
Operating income $ 0.7 $ 0.6 $ 0.1 16.7%
INTERNATIONAL PROPANE:
Revenues $ 13.9 $ -- $ 13.9 N.M.
Total margin $ 5.8 $ -- $ 5.8 N.M.
EBITDA (c) (d) $ 0.6 $ (0.2) $ 0.8 N.M.
Operating loss (d) $ (0.5) $ (0.2) $ (0.3) N.M.
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
-13-
<PAGE> 16
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.
(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 second consecutive year, results for the three-month
period ended December 31 were impacted significantly by warmer than normal
weather. Based upon national heating degree day data, temperatures in the 1999
three-month period were 14.1% warmer than normal and 3.4% warmer than in the
prior-year period. Notwithstanding the warmer weather, retail volumes of propane
sold increased 13.0 million gallons (5.9%) reflecting higher sales in virtually
all of the Partnership's customer categories. The increase in retail volumes is
attributable in large part to the acceleration of purchases by some customers
resulting from the year 2000 ("Y2K") issue as well as an increase in the number
of customers and further expansion of our PPX Prefilled Propane Xchange(R)
program.
Total revenues from retail propane sales increased $46.7 million during the 1999
three-month period reflecting a $35.3 million increase as a result of higher
average selling prices and an $11.4 million increase as a result of the higher
retail volumes sold. Wholesale propane revenues increased $11.0 million due
primarily to higher selling prices and, to a lesser extent, higher volumes. The
higher retail and wholesale selling prices resulted from higher propane supply
costs. Other revenues increased $5.5 million reflecting, in part, higher
customer fee, hauling, appliance and service revenues. Cost of sales in the 1999
three-month period increased $54.2 million primarily as a result of the higher
propane product costs and the increase in retail volumes sold.
Total margin increased $9.0 million in the 1999 three-month period principally
as a result of (1) the impact of greater volumes sold to higher margin
residential and PPX(R) customers, (2) an increase in total margin from
customer fees, and (3) an increase in total margin from higher appliance sales
and hauling and terminal revenues.
EBITDA and operating income were higher in the 1999 three-month period as a
result of the higher total margin and a $0.4 million increase in other income.
These increases were partially offset by a $5.9 million increase in the
Partnership's operating and administrative expenses. The increase in operating
and administrative expenses includes (1) higher expenses associated with new
business initiatives and (2) increased vehicle fuel costs and vehicle and tank
repair and
-14-
<PAGE> 17
UGI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
maintenance expenses. Partially offsetting these increases in operating expenses
was $0.8 million of income from adjustments to incentive compensation accruals.
GAS UTILITY. Weather in Gas Utility's service territory during the 1999
three-month period was 12.2% warmer than normal but 5.9% colder than the
prior-year period. The colder weather was the primary factor in a 1.8 bcf (8.9%)
increase in total system throughput.
The $7.4 million increase in Gas Utility's revenues during the 1999 three-month
period principally resulted from (1) a $6.5 million increase from higher sales
to our firm residential, commercial and industrial ("core market") customers,
and (2) a $2.0 million increase in revenues from interruptible customers. These
increases were partially offset by lower revenues from off-system sales. Gas
Utility cost of gas was $50.0 million, an increase of $2.3 million from the
prior-year period, primarily reflecting increased gas costs associated with the
higher core market sales partially offset by lower gas costs associated with
off-system sales.
Gas Utility total margin during the 1999 three-month period was $4.7 million
higher than in the 1998 three-month period. The higher total margin includes (1)
a $2.2 million increase in total core market margin as a result of the colder
weather, (2) a $1.7 million increase in total interruptible retail and delivery
service margin reflecting higher throughput and the impact of a greater spread
between oil and natural gas prices, and (3) greater firm delivery service
margin.
Gas Utility EBITDA and operating income were higher in the 1999 three-month
period reflecting the increase in total margin and higher other income. Other
income in the current-year period includes a total of $1.6 million of interest
income from (1) revenue-related tax overpayments made in prior years and (2)
purchased gas cost undercollections. Operating and administrative expenses in
the 1999 three-month period, which are net of $0.9 million of income from
adjustments to incentive compensation accruals, were essentially unchanged from
the prior-year period.
ELECTRIC UTILITY. The increase in kilowatt-hour sales in the 1999 three-month
period reflects the impact of increased sales from weather that was 5% colder
than the prior-year period. Electric Utility revenues increased as a result of
the higher sales as well as transmission revenues from alternate electric power
suppliers selling electricity to some of our customers pursuant to
Pennsylvania's Electricity Customer Choice Act. Approximately 5% of our
kilowatt-hour sales during the 1999 three-month period represented electricity
we distributed for alternate suppliers. Notwithstanding the slight increase in
electric sales, cost of sales decreased $0.2 million to $7.4 million reflecting
lower average purchased power costs.
Electric Utility operations total margin increased $1.3 million reflecting the
impact of (1) lower power costs and (2) higher electric sales. EBITDA and
operating income were also higher reflecting the higher total margin and higher
other income. Operating expenses in the 1999 three-
-15-
<PAGE> 18
UGI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
month period were slightly higher reflecting modestly higher power generation
maintenance costs offset by $0.3 million of income from adjustments to incentive
compensation accruals.
ENERGY SERVICES. Total revenues from Energy Services increased $6.7 million as a
result of higher average prices for natural gas and, to a lesser extent, higher
sales of natural gas and electricity. Total margin increased $0.2 million
reflecting slightly higher margin from gas marketing and greater income from
power marketing. The increase in 1999 three-month period EBITDA and operating
income reflects the higher total margin.
INTERNATIONAL PROPANE. International Propane in the 1999 three-month period
includes results of the Company's European propane distribution operation,
FLAGA, acquired in September 1999, and equity income (loss) from the Company's
effective 25% interests in propane joint-ventures in China and Romania. The
variance in revenues, total margin, EBITDA, and operating income (loss) is
principally attributable to the inclusion of FLAGA in the 1999 three-month
period.
OTHER ENTERPRISES. Other Enterprises in the 1999 three-month period primarily
reflects the start-up operating results of Hearth USA(TM), the Company's
retail hearth, grill and spa superstores. Other Enterprises' results in the
prior-year period include due diligence expenses associated with Enterprises'
domestic and international new business activities.
-16-
<PAGE> 19
UGI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
1999 TWELVE-MONTH PERIOD COMPARED WITH 1998 TWELVE-MONTH PERIOD
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Twelve Months Ended December 31, 1999 1998 Increase
- ---------------------------------------------------------------------------------------------------------------------
(Millions of dollars)
<S> <C> <C> <C> <C>
AMERIGAS PROPANE:
Revenues $935.7 $849.3 $ 86.4 10.2%
Total margin $490.7 $464.2 $ 26.5 5.7%
EBITDA $162.2 $144.0 $ 18.2 12.6%
Operating income $ 95.5 $ 78.6 $ 16.9 21.5%
Retail gallons sold (millions) 796.2 757.4 38.8 5.1%
Degree days - % warmer than normal (11.0) (13.1) -- --
GAS UTILITY:
Revenues $353.0 $327.9 $ 25.1 7.7%
Total margin $165.3 $151.8 $ 13.5 8.9%
EBITDA $ 93.5 $ 77.4 $ 16.1 20.8%
Operating income $ 74.2 $ 59.0 $ 15.2 25.8%
System throughput - billions of
cubic feet ("bcf") 77.9 72.6 5.3 7.3%
Degree days - % warmer than normal (11.0) (21.8) -- --
ELECTRIC UTILITY:
Revenues $ 76.0 $ 71.7 $ 4.3 6.0%
Total margin $ 39.9 $ 34.8 $ 5.1 14.7%
EBITDA $ 18.8 $ 14.5 $ 4.3 29.7%
Operating income $ 14.8 $ 10.7 $ 4.1 38.3%
Sales - millions of kilowatt hours ("gwh") 902.8 871.8 31.0 3.6%
ENERGY SERVICES:
Revenues $ 97.1 $ 93.3 $ 3.8 4.1%
Total margin $ 6.4 $ 4.8 $ 1.6 33.3%
EBITDA $ 2.8 $ 2.3 $ 0.5 21.7%
Operating income $ 2.7 $ 2.1 $ 0.6 28.6%
INTERNATIONAL PROPANE:
Revenues $ 13.9 $ -- $ 13.9 N.M.
Total margin $ 5.8 $ -- $ 5.8 N.M.
EBITDA $ 0.6 $ (1.2) $ 1.8 N.M.
Operating loss $ (0.5) $ (1.2) $ 0.7 N.M.
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
-17-
<PAGE> 20
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 11.0% warmer
than normal in the 1999 twelve-month period but 2.5% colder than during the
prior-year period. Retail propane gallons sold increased 38.8 million gallons as
a result of the slightly colder weather, the impact of targeted customer growth
in higher-margin residential heating and PPX(R) cylinder exchange markets,
and the acceleration of purchases by some of our customers in anticipation of
Y2K. Wholesale volumes of propane sold increased 28.7 million gallons reflecting
in part the effects of the slightly colder weather.
Total retail propane revenues increased $56.9 million in the 1999 twelve-month
period reflecting (1) a $35.8 million increase as a result of the higher volumes
sold and (2) a $21.1 million increase as a result of higher average retail
propane selling prices. Wholesale propane revenues increased $16.7 million on
higher volumes sold and higher average selling prices. Propane selling prices in
the 1999 twelve-month period were generally lower during the first half of the
period and higher during the latter part of the year reflecting a significant
increase in propane supply costs. Other revenues increased $13.0 million in the
1999 twelve-month period reflecting higher appliance sales, increased terminal
and hauling revenues, and greater customer fee revenues. Cost of sales increased
$59.9 million primarily as a result of the higher propane volumes sold and
higher average product costs.
Total margin increased $26.5 million in the 1999 twelve-month period due to (1)
the higher retail propane volumes sold and (2) an increase in total margin from
appliance sales, customer fees, and hauling and terminal revenue.
The increase in EBITDA and operating income reflects (1) the greater total
margin and (2) higher other income. The impact of these increases was partially
offset by higher operating and administrative expenses. Other income, net, in
the 1998 twelve-month period is net of a $4.0 million loss from two interest
rate protection agreements entered into to reduce interest rate exposure
associated with an anticipated debt refinancing. Operating expenses of the
Partnership were $335.5 million in the 1999 twelve-month period compared with
$322.9 million in the prior-year period. Operating expenses in the prior-year
period are net of (1) $2.7 million of income from lower required accruals for
environmental matters and (2) $2.0 million of income from lower required
accruals for property taxes. Excluding the impact of these items in the prior
year, operating expenses of the Partnership increased $7.9 million principally
due to expenses associated with new business initiatives and, to a lesser
extent, higher vehicle expenses.
GAS UTILITY. Weather in Gas Utility's service territory during the 1999
twelve-month period was 11.0% warmer than normal but 13.9% colder than the
prior-year twelve-month period. As a result of the colder weather and, to a
lesser extent, an increase in total customers, system throughput increased 5.3
bcf (7.3%).
The increase in Gas Utility's revenues during the 1999 twelve-month period
resulted from a $19.1 million increase in core market revenues, due primarily to
higher sales, and higher delivery service
-18-
<PAGE> 21
UGI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
revenues. Gas Utility cost of gas was $174.3 million in the 1999 twelve-month
period, an increase of $10.6 million, principally reflecting the higher core
market sales.
Gas Utility total margin in the 1999 twelve-month period increased $13.5 million
from the prior-year period. The increase includes (1) $8.4 million from core
market customers, (2) a $2.0 million increase from interruptible retail and
delivery service customers, and (3) higher margin from firm delivery service
customers.
Gas Utility EBITDA and operating income were higher in the 1999 twelve-month
period reflecting the increase in total margin and higher other income. The
increase in other income includes, among other things, interest income from
revenue-related tax overpayments and purchased gas cost undercollections. Gas
Utility total operating expenses in the 1999 twelve-month period, excluding
charges for depreciation and amortization, were virtually unchanged from the
prior-year twelve-month period.
ELECTRIC UTILITY. Total kilowatt-hour sales were 31.0 gwh (3.6%) higher in the
1999 twelve-month period reflecting higher weather-related sales for both
heating and air conditioning. Electric Utility revenues increased $4.3 million
as a result of the higher sales and higher transmission revenue from alternate
suppliers serving customers on our distribution system pursuant to the
Electricity Customer Choice Act. Notwithstanding the increase in kilowatt-hour
sales, cost of sales decreased $0.9 million to $32.9 million. The increase in
purchased power costs resulting from the higher sales was more than offset by
(1) lower average purchased power costs and (2) the benefit of a power supply
agreement settlement.
Electric Utility's total margin increased $5.1 million as a result of (1) the
lower average purchased power costs, (2) the power supply agreement settlement,
and (3) the higher 1999 twelve-month period sales. EBITDA and operating income
were also higher reflecting the increase in total margin and higher other income
partially offset by higher (1) power generation maintenance costs, (2) customer
service and information expenses, and (3) charges for depreciation.
ENERGY SERVICES. Total revenues from Energy Services increased $3.8 million as a
result of slightly higher average gas prices. Total margin increased $1.6
million reflecting higher average margins from gas marketing and greater income
from power marketing and other services. EBITDA and operating income increased
$0.5 million and $0.6 million, respectively, as a result of the higher total
margin offset by slightly higher operating expenses.
INTERNATIONAL PROPANE. Revenues and total margin in the 1999 twelve-month period
include the results of FLAGA subsequent to its acquisition on September 22,
1999. EBITDA in the 1999 period includes $0.7 million of EBITDA from FLAGA
subsequent to its acquisition in September 1999 and a decrease in equity losses
from our international propane joint ventures. International Propane operating
losses in the 1999 twelve-month period were lower due to the lower equity losses
from our international propane joint ventures.
-19-
<PAGE> 22
UGI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
OTHER ENTERPRISES. The higher losses from other Enterprises' operations during
the 1999 twelve-month period principally reflects start-up operating costs
associated with Hearth USA(TM).
FINANCIAL CONDITION AND LIQUIDITY
FINANCIAL CONDITION
The Company's debt outstanding totaled $1,219.2 million at December 31, 1999
compared with $1,137.3 million at September 30, 1999. The increase in debt
principally reflects the issuance of $46 million under the Operating
Partnership's Acquisition Facility and increases in borrowings under UGI
Utilities and the Operating Partnership's revolving credit facilities.
During the three months ended December 31, 1999, 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 quarter ended September
30, 1999. The MQD for the quarter ended December 31, 1999 will be paid on
February 18, 2000 to holders of record on February 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 will depend upon a number of factors including highly
seasonal operating results, changes in working capital, asset sales and debt
refinancings. Due in large part to the impact of higher propane product costs on
working capital, it is possible but unlikely that the cash generation based
requirements for conversion will be attained during fiscal 2000.
CASH FLOWS
Our consolidated cash and short-term investments totaled $71.3 million at
December 31, 1999 compared with $40.5 million at September 30, 1999. These
amounts include $38.1 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
-20-
<PAGE> 23
UGI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
quarters. Accordingly, cash flows from operations during the three months ended
December 31, 1999 are not necessarily indicative of the cash flows to be
expected for a full year.
OPERATING ACTIVITIES. Cash used by operating activities during the three months
ended December 31, 1999 totaled $(29.3) million compared with $(3.1) million
during the prior-year three-month period. The Partnership's cash used by
operations during the 1999 three-month period was $(26.6) million compared with
cash used by operations of $(4.8) million in the prior-year period. Much of this
increase in cash used by the Partnership is due to higher cash needed to finance
operating working capital due in large part to higher 1999 three-month period
propane product costs. UGI Utilities' operating cash flow for the 1999
three-month period was $7.2 million compared with $6.0 million in the prior
year.
Changes in consolidated operating working capital during the three months ended
December 31, 1999 used $79.3 million of operating cash flow while changes in
consolidated operating working capital during the three months ended December
31, 1998 used $47.1 million of operating cash flow. Cash flow from operating
activities before changes in operating working capital was $50.0 million in the
three months ended December 31, 1999 compared with $44.0 million of cash flow in
the prior-year period reflecting the improved UGI Utilities and AmeriGas
Partners results.
INVESTING ACTIVITIES. Cash used by investing activities during the three months
ended December 31, 1999 totaled $(4.3) million compared with net cash used of
$(6.1) million in the prior-year period. We spent $14.2 million for property,
plant and equipment during the three months ended December 31, 1999 compared
with $16.2 million in the same period last year. The decrease is principally a
result of a $2.0 million decrease in Partnership capital expenditures.
FINANCING ACTIVITIES. During the three months ended December 31, 1999 and 1998,
we paid cash dividends on Common Stock of $10.2 million and $12.0 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 three months ended December 31, 1999, the Operating Partnership
borrowed $46 million under its Acquisition Facility relating to propane business
and asset expenditures incurred in prior fiscal years. During the three months
ended December 31, 1999, the Operating Partnership had net borrowings of $28
million compared with net borrowings of $52 million in the 1998 three-month
period. During the three months ended December 31, 1999, UGI Utilities had net
borrowings of $14.4 million under its revolving credit agreements compared with
net borrowings of $1.8 million in the same period a year ago.
YEAR 2000 MATTERS
The Y2K issue is a result of computer programs being written using two digits
(rather than four) to identify and process a year in a date field. Computer
programs, computer-controlled systems and equipment with embedded software may
recognize date fields using "00" as the year 1900
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<PAGE> 24
UGI CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
rather than the year 2000. If uncorrected, miscalculations and possible
computer-based system failures could result which might disrupt business
operations. We are designating the following information as our "Year 2000
Readiness Disclosure."
Recognizing the potential business consequences of the Y2K issue, we conducted a
detailed assessment of our critical, date sensitive, computer-based systems to
identify those systems that were not Y2K compliant and modified those systems
that were not otherwise scheduled for replacement prior to the year 2000. Our
Y2K compliance efforts focused on our ability to continue to perform three
critical operating functions: (1) obtain products to sell; (2) provide service
to our customers; and (3) bill customers and pay our vendors and employees. In
addition to assessing, identifying and modifying our own systems, we developed
and implemented a program to attempt to determine the Y2K compliance status of
third parties, including our key suppliers and vendors, and certain of our
customers.
Since December 31, 1999, we have not experienced, nor have we become aware of,
any Y2K-related problems affecting any of our mission critical computer-based
systems or our computer-controlled systems and equipment that contain embedded
systems with potentially date sensitive components. Furthermore, we have not
experienced, nor have we become aware of, any Y2K-related problems with any of
our key suppliers and third-party providers including utility and
telecommunications companies or financial institutions with which we do
business.
The Partnership believes that a significant portion of the 13.0 million increase
in retail gallons sold during the 1999 three-month period may have resulted from
customers accelerating purchases in advance of Y2K. Expenses associated with our
Y2K compliance efforts during the last three years total approximately $3.0
million. We do not expect additional Y2K-related expenditure of a material
amount in the future.
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<PAGE> 25
UGI CORPORATION AND SUBSIDIARIES
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.
Price risk associated with fluctuations in the prices the Partnership pays for
propane and Energy Services pays for natural gas is principally a result of
market forces reflecting changes in supply and demand. The Partnership's
profitability is sensitive to changes in propane supply costs, and the
Partnership generally seeks to pass on increases in such costs to customers.
There is no assurance, however, that the Partnership will be able to do so. In
order to manage a portion of our propane market price risk, we use contracts for
the forward purchase of propane, propane fixed-price supply agreements, and
derivative commodity instruments such as price swap and option contracts. 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 we use derivative financial and
commodity instruments to reduce market price risk associated with firm
commitments or forecasted transactions, we do not use derivative financial and
commodity instruments for speculative or trading purposes.
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, there is
limited commodity price risk associated with our Gas Utility operations.
Electric Utility purchases electricity it does not otherwise produce,
representing slightly more than 50% of its electric power needs, under power
supply arrangements with other producers and, to a lesser extent, from monthly
market based contracts and on the spot market. Spot market prices for
electricity and, to a lesser extent, monthly market based contracts, can be
volatile, especially during periods of high demand. Because Electric Utility's
generation rates are capped during the period that it is recovering stranded
costs under its Restructuring Order issued pursuant to the Electricity Customer
Choice Act, any increases in costs to purchase power will negatively impact
Electric Utility's results.
We have 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 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. We also use
long-term debt as a source of capital. This debt is typically issued at fixed
rates of interest based upon market rates for debt having similar terms and
credit ratings. As these long-term debt issues mature, we may refinance such
debt with new debt having interest rates reflecting then-current market
conditions.
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<PAGE> 26
UGI CORPORATION AND SUBSIDIARIES
This debt may have an interest rate that is more or less than the
refinanced debt. On occasion, we enter into interest rate protection agreements
to reduce interest rate risk associated with a forecasted issuance 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 December 31, 1999, 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 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 December 31, 1999.
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<PAGE> 27
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: February 11, 2000 By: A. J. Mendicino
- ------------------------ ---------------------------------------------
A. J. Mendicino, Vice President - Finance and
Chief Financial Officer
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<PAGE> 28
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 THREE MONTHS ENDED DECEMBER 31, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS IN UGI
CORPORATION'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31,
1999.
</LEGEND>
<CIK> 0000884614
<NAME> UGI CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 71,300
<SECURITIES> 4,300
<RECEIVABLES> 212,100
<ALLOWANCES> 8,100
<INVENTORY> 84,200
<CURRENT-ASSETS> 402,700
<PP&E> 1,591,900
<DEPRECIATION> 532,200
<TOTAL-ASSETS> 2,229,600
<CURRENT-LIABILITIES> 454,600
<BONDS> 1,034,900
20,000
0
<COMMON> 394,800
<OTHER-SE> (135,500)
<TOTAL-LIABILITY-AND-EQUITY> 2,229,600
<SALES> 466,600
<TOTAL-REVENUES> 466,600
<CGS> 252,900
<TOTAL-COSTS> 252,900
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,148
<INTEREST-EXPENSE> 23,800
<INCOME-PRETAX> 38,900
<INCOME-TAX> 17,400
<INCOME-CONTINUING> 21,100
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,100
<EPS-BASIC> .77
<EPS-DILUTED> .77
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