UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A Amendment No. 1
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2004
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 filed such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes X No ___
At July 31, 2004, there were 50,955,146 shares of UGI Corporation Common
Stock, without par value, outstanding.
Explanatory Note
This Form 10-Q/A is being filed solely for the purposes of (1) restating the
June 2004, September 2003 and June 2003 Condensed Consolidated Balance Sheets
included in Item 1., Financial Statements, (i) to include deferred income tax
liabilities on gains resulting from the conversion of the Registrant's
Subordinated Units in AmeriGas Partners, L.P. ("Partnership") and subsequent
sales of Partnership units to the public and (ii) to decrease common
stockholders' equity by a corresponding amount, as described in the new Note 2
to Condensed Consolidated Financial Statements, (2) making corresponding
adjustments to Item 2., Management's Discussion and Analysis of Financial
Condition and Results of Operations - Financial Condition, (3) amending
references to Notes to Condensed Consolidated Financial Statements resulting
from the addition of a new Note 2 to Condensed Consolidated Financial
Statements, including note references in Item 2., Management's Discussion and
Analysis of Financial Condition and Results of Operations and Item 4., Controls
and Procedures, and (4) amending Item 4., Controls and Procedures, to discuss
the restatement.
PAGES
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 2004,
September 30, 2003 and June 30, 2003 1
Condensed Consolidated Statements of Income for the three
and nine months ended June 30, 2004 and 2003 2
Condensed Consolidated Statements of Cash Flows for the
nine months ended June 30, 2004 and 2003 3
Notes to Condensed Consolidated Financial Statements 4 - 21
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 22 - 36
Item 4. Controls and Procedures 36
Signatures 37
UGI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(Millions of dollars)
June 30, September 30, June 30,
2004 2003 2003
(as restated) (as restated) (as restated)
------------- ------------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 160.4 $ 142.1 $ 121.7
Short-term investments (at cost, which approximates fair value) 25.0 50.0 50.0
Accounts receivable (less allowances for doubtful accounts of
$27.6, $14.8 and $19.6, respectively) 425.0 213.1 253.8
Accrued utility revenues 8.1 7.4 7.9
Inventories 127.4 136.6 97.0
Deferred income taxes 23.1 23.5 33.5
Prepaid expenses and other current assets 30.6 28.6 34.0
-------- ------------- --------
Total current assets 799.6 601.3 597.9
Property, plant and equipment, at cost (less accumulated depreciation
and amortization of $880.0, $805.2 and $787.8, respectively) 1,881.2 1,336.8 1,336.9
Goodwill and excess reorganization value 1,174.8 671.5 665.1
Intangible assets (less accumulated amortization of
$23.5, $16.4 and $9.5, respectively) 140.5 34.7 38.4
Utility regulatory assets 63.0 60.3 60.1
Other assets 128.8 90.6 86.3
-------- ------------- --------
Total assets $4,187.9 $ 2,795.2 $2,784.7
======== ============= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 115.4 $ 65.0 $ 124.6
Current maturities of UGI Utilities preferred shares subject to
mandatory redemption, without par value 1.0 - -
UGI Utilities bank loans 30.1 40.7 2.3
Other bank loans 18.8 15.9 12.6
Accounts payable 270.3 202.5 176.7
Other current liabilities 303.6 260.1 250.3
-------- ------------- --------
Total current liabilities 739.2 584.2 566.5
Long-term debt 1,554.8 1,158.5 1,115.9
Deferred income taxes 477.7 293.8 292.1
UGI Utilities preferred shares subject to
mandatory redemption, without par value 19.0 20.0 -
Other noncurrent liabilities 353.9 105.4 107.5
-------- ------------- --------
Total liabilities 3,144.6 2,161.9 2,082.0
Commitments and contingencies (note 11)
Minority interests 204.9 134.6 167.4
UGI Utilities preferred shares subject to
mandatory redemption, without par value - - 20.0
Common stockholders' equity:
Common Stock, without par value (authorized - 150,000,000 shares;
issued - 57,576,497, 49,798,097, 49,798,097 shares, respectively) 759.6 511.7 506.8
Retained earnings 164.9 90.9 108.7
Accumulated other comprehensive income 15.7 4.7 9.3
Notes receivable from employees (0.3) (0.4) (0.5)
-------- ------------- --------
939.9 606.9 624.3
Treasury stock, at cost (101.5) (108.2) (109.0)
-------- ------------- --------
Total common stockholders' equity 838.4 498.7 515.3
-------- ------------- --------
Total liabilities and stockholders' equity $4,187.9 $ 2,795.2 $2,784.7
======== ============= ========
See accompanying notes to condensed consolidated financial statements.
- 1 -
UGI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(Millions of dollars, except per share amounts)
Three Months Ended Nine Months Ended
June 30, June 30,
--------------------------- ---------------------------
2004 2003 2004 2003
------------ ------------ ------------ ------------
Revenues $ 823.4 $ 623.1 $ 3,033.7 $ 2,498.9
Costs and expenses:
Cost of sales 531.2 430.1 2,042.6 1,638.1
Operating and administrative expenses 223.0 160.1 569.8 490.9
Utility taxes other than income taxes 3.1 2.8 9.8 9.2
Depreciation and amortization 38.5 26.1 94.3 75.7
Other income, net (6.3) (4.4) (6.6) (15.2)
------------ ------------ ------------ ------------
789.5 614.7 2,709.9 2,198.7
------------ ------------ ------------ ------------
Operating income 33.9 8.4 323.8 300.2
Income (loss) from equity investees (0.6) 0.2 12.0 7.1
Loss on extinguishment of debt - - - (3.0)
Interest expense (33.5) (26.5) (86.9) (81.8)
Minority interests, principally in AmeriGas Partners 14.0 14.1 (64.3) (51.2)
------------ ------------ ------------ ------------
Income (loss) before income taxes and subsidiary preferred
stock dividends 13.8 (3.8) 184.6 171.3
Income tax (expense) benefit (5.5) 2.2 (70.4) (65.6)
Dividends on UGI Utilities preferred shares
subject to mandatory redemption - (0.4) - (1.2)
------------ ------------ ------------ ------------
Net income (loss) $ 8.3 $ (2.0) $ 114.2 $ 104.5
============ ============ ============ ============
Earnings (loss) per common share:
Basic $ 0.16 $ (0.05) $ 2.48 $ 2.49
============ ============ ============ ============
Diluted $ 0.16 $ (0.05) $ 2.43 $ 2.43
============ ============ ============ ============
Average common shares outstanding:
Basic 50.915 42.451 46.005 42.031
============ ============ ============ ============
Diluted 51.908 42.451 47.042 43.038
============ ============ ============ ============
Dividends declared per common share $ 0.3125 $ 0.2850 $ 0.8825 $ 0.8450
============ ============ ============ ============
See accompanying notes to condensed consolidated financial statements.
- 2 -
UGI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(Millions of dollars)
Nine Months Ended
June 30,
-------------------
2004 2003
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 114.2 $ 104.5
Reconcile to net cash provided by operating activities:
Depreciation and amortization 94.3 75.7
Provision for uncollectible accounts 15.5 15.6
Minority interests 64.3 51.2
Deferred income taxes, net 2.1 (11.4)
Other, net (10.8) 10.3
Net change in:
Accounts receivable and accrued utility revenues (50.9) (94.1)
Inventories 30.4 14.2
Deferred fuel costs 2.4 35.9
Accounts payable (58.8) 9.0
Other current assets and liabilities (17.9) (5.6)
-------- --------
Net cash provided by operating activities 184.8 205.3
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant and equipment (86.5) (72.5)
Net proceeds from disposals of assets 6.0 4.9
Acquisition of additional interest in Conemaugh Station - (51.3)
Acquisitions of businesses, net of cash acquired (283.7) (38.3)
Short-term investments decrease (increase) 25.0 (50.0)
Other, net 0.7 8.4
-------- --------
Net cash used by investing activities (338.5) (198.8)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends on UGI Common Stock (40.4) (35.6)
Distributions on AmeriGas Partners publicly held Common Units (45.9) (41.1)
Issuance of long-term debt 30.1 122.8
Repayment of long-term debt (61.3) (175.1)
AmeriGas Propane bank loans decrease - (10.0)
UGI Utilities bank loans decrease (10.6) (34.9)
Other bank loans increase 0.5 2.4
Issuance of AmeriGas Partners Common Units 51.2 75.0
Issuance of UGI Common Stock 249.0 17.4
-------- --------
Net cash provided (used) by financing activities 172.6 (79.1)
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (0.6) -
-------- --------
Cash and cash equivalents increase (decrease) $ 18.3 $ (72.6)
======== ========
Cash and cash equivalents:
End of period $ 160.4 $ 121.7
Beginning of period 142.1 194.3
-------- --------
Increase (decrease) $ 18.3 $ (72.6)
======== ========
See accompanying notes to condensed consolidated financial statements.
- 3 -
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 that owns and operates
natural gas and electric utility, electricity generation, retail propane
distribution, energy marketing and related businesses in the United
States. Through foreign subsidiaries and a joint-venture affiliate, UGI
also distributes liquefied petroleum gases ("LPG") in France, Austria, the
Czech Republic, Slovakia and China.
Our natural gas and electric distribution utility businesses are conducted
through our 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 electricity distribution utility ("Electric Utility") in
northeastern Pennsylvania. Gas Utility and Electric Utility are subject to
regulation by the Pennsylvania Public Utility Commission ("PUC").
We conduct a national propane distribution business through AmeriGas
Partners, L.P. ("AmeriGas Partners") and its principal operating
subsidiaries AmeriGas Propane, L.P. ("AmeriGas OLP") and AmeriGas OLP's
subsidiary, AmeriGas Eagle Propane, L.P. ("Eagle OLP"). AmeriGas Partners,
AmeriGas OLP and Eagle OLP are Delaware limited partnerships. UGI's wholly
owned second-tier subsidiary AmeriGas Propane, Inc. (the "General
Partner") serves as the general partner of AmeriGas Partners and AmeriGas
OLP. AmeriGas OLP and Eagle OLP (collectively referred to as "the
Operating Partnerships") comprise the largest retail propane distribution
business in the United States serving residential, commercial, industrial,
motor fuel and agricultural customers from locations in 46 states. We
refer to AmeriGas Partners and its subsidiaries together as "the
Partnership" and the General Partner and its subsidiaries, including the
Partnership, as "AmeriGas Propane." At June 30, 2004, the General Partner
and its wholly owned subsidiary Petrolane Incorporated ("Petrolane")
collectively held a 1% general partner interest and a 44.6% limited
partner interest in AmeriGas Partners, and effective 46.1% and 46.0%
ownership interests in AmeriGas OLP and Eagle OLP, respectively. Our
limited partnership interest in AmeriGas Partners comprises 24,525,004
Common Units. The remaining 54.4% interest in AmeriGas Partners comprises
29,948,268 publicly held Common Units representing limited partner
interests.
Our wholly owned subsidiary, UGI Enterprises, Inc. ("Enterprises"),
conducts an energy marketing business primarily in the Eastern region of
the United States through its wholly owned subsidiary, UGI Energy
Services, Inc. ("Energy Services"). Energy Services' wholly owned
subsidiary UGI Development Company ("UGID"), and UGID's subsidiaries and
joint-venture affiliate Hunlock Creek Energy Ventures, own and operate
interests in Pennsylvania-based electricity generation assets. Prior to
their transfer to Energy Services in June 2003, UGID and its subsidiaries
were wholly owned subsidiaries of UGI Utilities. Through other
subsidiaries, Enterprises (1) owns and operates LPG distribution
businesses in France ("Antargaz") and in Austria, the Czech Republic and
Slovakia ("FLAGA"); (2) owns and operates a heating, ventilation, air
conditioning and refrigeration service business in the Middle Atlantic
states ("HVAC"); and (3) participates in a propane joint-venture business
in China.
- 4 -
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Millions of dollars, except per share amounts)
Our condensed consolidated financial statements include the accounts of
UGI and its controlled subsidiary companies, which, except for the
Partnership, are majority owned, and are together referred to as "we" or
"the Company." We eliminate all significant intercompany accounts and
transactions when we consolidate. We report the public's limited partner
interests in the Partnership and the outside ownership interest in a
subsidiary of Antargaz as minority interests. Entities in which we own 50
percent or less and in which we exercise significant influence over
operating and financial policies are accounted for by the equity method.
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 ("SEC"). 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. The September 30,
2003 condensed consolidated balance sheet data was derived from audited
financial statements, but does not include all disclosures required by
accounting principles generally accepted in the United States of America.
These financial statements should be read in conjunction with the
financial statements and related notes included in our Annual Report on
Form 10-K for the year ended September 30, 2003 ("Company's 2003 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.
EARNINGS PER COMMON SHARE. Basic earnings per share reflect the
weighted-average number of common shares outstanding. Diluted earnings per
share include the effects of dilutive stock options and common stock
awards. Shares used in computing basic and diluted earnings per share are
as follows:
Three Months Ended Nine Months Ended
June 30, June 30,
----------------- -----------------
2004 2003 2004 2003
------ ------ ------ ------
Denominator (millions of shares):
Average common shares
outstanding for basic computation 50.915 42.451 46.005 42.031
Incremental shares issuable for stock
options and awards 0.993 - (a) 1.037 1.007
-------------------------------------------------------------------------------------------
Average common shares outstanding for
diluted computation 51.908 42.451 47.042 43.038
-------------------------------------------------------------------------------------------
(a) As a result of the net loss for the three months ended June 30,
2003, incremental shares issuable for stock options and awards are
antidilutive.
STOCK-BASED COMPENSATION. As permitted by Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), we apply the provisions of Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"), in recording compensation expense for grants of
stock, stock options, and other equity instruments to employees. We use
the intrinsic value method prescribed by APB 25 for our stock-based
employee compensation plans.
- 5 -
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Millions of dollars, except per share amounts)
We recognized total stock and unit-based compensation expense of $2.6
million and $9.1 million in the three and nine months ended June 30, 2004,
respectively, and $3.1 million and $9.7 million in the three and nine
months ended June 30, 2003, respectively. If we had determined stock-based
compensation expense under the fair value method prescribed by SFAS 123,
net income (loss) and basic and diluted earnings (loss) per share for the
three and nine months ended June 30, 2004 and 2003 would have been as
follows:
Three Months Ended Nine Months Ended
June 30, June 30,
-------------------------------------------------
2004 2003 2004 2003
---------------------------------------------------------------------------------------------------------
Net income (loss) as reported $ 8.3 $ (2.0) $ 114.2 $ 104.5
Add: Stock and unit-based employee
compensation expense included in
reported net income, net of related tax effects 1.6 1.8 5.5 5.8
Deduct: Total stock and unit-based
employee compensation expense
determined under the fair value method
for all awards, net of related tax effects (1.9) (2.1) (6.3) (6.5)
---------------------------------------------------------------------------------------------------------
Pro forma net income (loss) $ 8.0 $ (2.3) $ 113.4 $ 103.8
---------------------------------------------------------------------------------------------------------
Basic earnings (loss) per share:
As reported $ 0.16 $ (0.05) $ 2.48 $ 2.49
Pro forma $ 0.16 $ (0.05) $ 2.46 $ 2.47
Diluted earnings (loss) per share:
As reported $ 0.16 $ (0.05) $ 2.43 $ 2.43
Pro forma $ 0.15 $ (0.05) $ 2.41 $ 2.41
---------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME (LOSS). The following table presents the components
of comprehensive income (loss) for the three and nine months ended June
30, 2004 and 2003.
Three Months Ended Nine Months Ended
June 30, June 30,
----------------------- -----------------------
2004 2003 2004 2003
-------------------------------------------------------------------------------------
Net income $ 8.3 $ (2.0) $ 114.2 $ 104.5
Other comprehensive income (loss) 4.3 (0.8) 11.0 2.7
-------------------------------------------------------------------------------------
Comprehensive income (loss) $ 12.6 $ (2.8) $ 125.2 $ 107.2
-------------------------------------------------------------------------------------
Other comprehensive income (loss) principally comprises (1) changes in the
fair value of derivative commodity instruments and interest rate
protection agreements qualifying as hedges and (2) foreign currency
translation adjustments, net of reclassifications to net income (loss).
- 6 -
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Millions of dollars, except per share amounts)
RECLASSIFICATIONS. We have reclassified certain prior-year period balances
to conform to the current-period presentation.
USE OF ESTIMATES. We make estimates and assumptions when preparing
financial statements in conformity with accounting principles generally
accepted in the United States of America. 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.
UGI UTILITIES PREFERRED SHARES SUBJECT TO MANDATORY REDEMPTION. Beginning
July 1, 2003, the Company accounts for UGI Utilities preferred shares
subject to mandatory redemption in accordance with SFAS No. 150,
"Accounting for Certain Financial Instruments with Characteristics of Both
Liabilities and Equity" ("SFAS 150"). SFAS 150 establishes guidelines on
how an issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. The adoption of SFAS 150
results in the Company presenting UGI Utilities preferred shares subject
to mandatory redemption in the liabilities section of the balance sheet
and reflecting dividends paid on these shares as a component of interest
expense for periods presented after June 30, 2003. Because SFAS 150
specifically prohibits the restatement of financial statements prior to
its adoption, prior period amounts have not been reclassified (see Note
13).
2. RESTATEMENT
We have restated the June 30, 2004, September 30, 2003 and June 30, 2003
Condensed Consolidated Balance Sheets to record deferred income tax
liabilities on the gains resulting from the conversion of our Subordinated
Units in the Partnership which occurred in December 2002, and upon
subsequent sales by the Partnership of units to the public. The
restatement has no impact on our Condensed Consolidated Statements of
Income or Condensed Consolidated Statements of Cash Flows.
Under our interpretation of accounting rules at the time of the
conversion, including Staff Accounting Bulletin No. 51, "Accounting for
Sales of Common Stock by a Subsidiary," we accounted for the gains
resulting from the conversion of Subordinated Units in the Partnership,
and subsequent sales by the Partnership of units to the public, as
increases in stockholders' equity in amounts equal to the increase in the
value of our investment in the Partnership. We did not record deferred
income tax liabilities relating to the gains because of our intention to
hold the Partnership units indefinitely. While our intention to hold the
Partnership units indefinitely has not changed, we have reconsidered our
previous judgments in the application of SFAS No. 109, "Accounting for
Income Taxes" ("SFAS 109"), and have recorded deferred income tax
liabilities on the gains with a corresponding decrease in common
stockholders' equity. The following table summarizes the effect of the
restatement:
As previously
reported As restated
-------------- -----------
June 30, 2004 Deferred income taxes $ 390.4 $ 477.7
Common stock $ 846.9 $ 759.6
September 30, 2003 Deferred income taxes $ 223.1 $ 293.8
Common stock $ 582.4 $ 511.7
June 30, 2003 Deferred income taxes $ 221.4 $ 292.1
Common stock $ 577.5 $ 506.8
3. COMMON STOCK ACTIVITY
In March 2004, UGI Corporation sold 7.5 million shares of common stock in
an underwritten public offering at a public offering price of $32.10 per
share. The proceeds of the public offering totaling $230.2 million were
used to fund a portion of the purchase price of the remaining ownership
interests in AGZ Holding. During April 2004, the underwriters exercised a
portion of their overallotment option for the purchase of an additional
0.3 million shares.
4. ACQUISITIONS
On March 31, 2004 (the "Closing Date"), UGI, through its subsidiary, UGI
Bordeaux Holding (as assignee of UGI France, Inc. ("UGI France")),
completed its acquisition of the remaining outstanding 80.5% ownership
interests of AGZ Holding, a French corporation and the parent company of
Antargaz, a French corporation and a leading distributor of liquefied
petroleum gases in France, pursuant to the terms of (i) a Share Purchase
Agreement dated as of February 17, 2004, by and among UGI France, UGI, PAI
partners, a French corporation ("PAI"), and certain officers, directors
and managers of AGZ Holding and Antargaz and their affiliates, and (ii)
that certain Medit Joinder Agreement dated February 20, 2004, by and among
UGI France, UGI, Medit Mediterranea GPL, S.r.L., a company incorporated
under the laws of Italy ("Medit"), and PAI (herein referred to as the
"Antargaz Acquisition"). The acquisition of the remaining interests in AGZ
Holding is consistent with our growth strategies and core competencies.
- 7 -
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Millions of dollars, except per share amounts)
The purchase price on the Closing Date of 261.8 million euros or $319.2
million (excluding transaction fees and expenses) was subject to
post-closing working capital and net debt adjustments. UGI used $230.2
million of cash proceeds from its March 2004 public offering of 7.5
million shares of its common stock and $89.0 million of available cash to
fund the purchase price. In accordance with the Share Purchase Agreement,
UGI paid an additional 5.8 million euros ($7.1 million) as a result of
post-closing adjustments in June 2004. In addition, the preliminary
purchase price allocation reflects transaction fees and expenses of $5.9
million.
The Antargaz Acquisition has been accounted for as a step acquisition.
UGI's initial 19.5% equity investment in AGZ Holding has been allocated to
19.5% of AGZ Holding's assets and liabilities at March 31, 2004. The
amount by which the carrying value of UGI's equity investment exceeded the
aforementioned allocation has been recorded as goodwill. As of June 30,
2004, the purchase price of the remaining 80.5% of AGZ Holding, including
transaction fees and expenses, has been preliminarily allocated to the
assets acquired and liabilities assumed, representing a revaluation of the
portion that was not previously owned by UGI, as follows:
Working capital $ 121.6
Property, plant and equipment 483.5
Goodwill 396.2
Customer relationships (estimated useful life of eleven years) 74.3
Trademark and other intangible assets 18.1
Long-term debt (393.2)
Deferred income taxes (148.0)
Minority interests (11.1)
Other assets and liabilities (209.2)
-------------------------------------------------------------------------
Total $ 332.2
-------------------------------------------------------------------------
The Company is currently in the process of completing the review and
determination of the fair value of the portion of AGZ Holding's assets
acquired and liabilities assumed, principally the fair values of property,
plant and equipment and identifiable intangible assets. Accordingly, the
allocation of the purchase price is subject to revision and due to the
size of the Antargaz Acquisition, revisions, if any, could be material to
our financial statements. The assets, liabilities and equity of AGZ
Holding are included in our Condensed Consolidated Balance Sheet as of
June 30, 2004. All of the operating results of AGZ Holding are included in
our consolidated results beginning April 1, 2004. Prior to April 1, 2004,
our 19.5% equity interest in AGZ Holding is reflected in our condensed
consolidated financial statements under the equity method of accounting.
- 8 -
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Millions of dollars, except per share amounts)
The following table presents unaudited pro forma income statement and
basic and diluted per share data for the three and nine months ended June
30, 2004, and 2003 as if the acquisition of AGZ Holding had occurred as of
the beginning of those periods:
Three Months Ended Nine Months Ended
June 30, June 30,
----------------------------- -----------------------------
2004 2003 2004 2003
-----------------------------------------------------------------------------------
(as reported) (pro forma) (pro forma) (pro forma)
Revenues $ 823.4 $ 738.8 $ 3,538.5 $ 3,142.5
Net income 8.3 0.6 172.1 139.5
Earnings per share:
Basic $ 0.16 $ 0.01 $ 3.39 $ 2.80
Diluted $ 0.16 $ 0.01 $ 3.32 $ 2.75
-----------------------------------------------------------------------------------
The pro forma results of operations reflect AGZ Holding's historical
operating results after giving effect to adjustments directly attributable
to the transaction that are expected to have a continuing effect. The pro
forma amounts are not necessarily indicative of the operating results that
would have occurred had the acquisition been completed as of the date
indicated, nor are they necessarily indicative of future operating
results. The preliminary purchase price allocation was based upon
currently available information and is subject to final adjustments.
Accordingly, the actual adjustments to be recorded in connection with the
final purchase price allocation may differ materially from the preliminary
allocation.
On October 1, 2003, AmeriGas OLP acquired substantially all of the retail
propane distribution assets and business of Horizon Propane LLC ("Horizon
Propane") for total cash consideration of $31.0 million. In December 2003,
AmeriGas OLP paid Horizon Propane a working capital adjustment of $0.1
million in accordance with the Asset Purchase Agreement. During its fiscal
year ended June 30, 2003, Horizon Propane sold over 30 million gallons of
propane from ninety locations in twelve states. In addition, AmeriGas OLP
completed several smaller acquisitions of retail propane businesses and
HVAC acquired a heating, ventilation, air conditioning and refrigeration
business during the nine months ended June 30, 2004. The pro forma effect
of these transactions is not material.
5. SEGMENT INFORMATION
We have organized our business units into five reportable segments
generally based upon products sold, geographic location (domestic or
international) or regulatory environment. Our reportable segments are: (1)
AmeriGas Propane; (2) Gas Utility; (3) Electric Utility; (4) Energy
Services (comprising Energy Services' gas marketing business and UGID's
electricity generation business); and (5) an international LPG segment
comprising Antargaz, FLAGA and our international LPG equity investments
("International Propane"). As discussed in Note 4, the preliminary
purchase price allocation of AGZ Holding is included in
- 9 -
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Millions of dollars, except per share amounts)
the balance sheet segment information and all of Antargaz' results of
operations are included on a consolidated basis beginning April 1, 2004.
Effective October 1, 2003, we realigned our business units in order to
expand the energy management services available to our customers and to
strengthen our focus on power marketing. As a result of this realignment,
the operating results of UGID have been combined with those of Energy
Services rather than with UGI Utilities' Electric Utility as previously
reported. We have restated our prior-year period segment data to be
consistent with the current period presentation.
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 2003 Annual Report. We evaluate AmeriGas Propane's
performance principally based upon the Partnership's earnings before
interest expense, income taxes, depreciation and amortization
("Partnership EBITDA"). Although we use Partnership EBITDA to evaluate
AmeriGas Propane's profitability, 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 of financial
condition under accounting principles generally accepted in the United
States of America. The Company's definition of Partnership EBITDA may be
different from that used by other companies. We evaluate the performance
of our Gas Utility, Electric Utility, Energy Services and International
Propane segments principally based upon their income before income taxes.
- 10 -
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Millions of dollars, except per share amounts)
5. SEGMENT INFORMATION (CONTINUED)
Three Months Ended June 30, 2004:
Reportable Segments
--------------------------------------------------------
AmeriGas Gas Electric Energy International Corporate
Total Elims. Propane Utility Utility Services Propane & Other (a)
--------- ------- ---------- ------- -------- -------- ------------- ----------
Revenues $ 823.4 $ (0.9) $ 315.1 $ 97.7 $ 21.0 $ 217.3 $ 156.8 $ 16.4
========= ======= ========== ======= ====== ======== =========== ==========
Cost of sales $ 531.2 $ - $ 184.0 $ 65.1 $ 9.6 $ 200.8 $ 62.2 $ 9.5
========= ======= ========== ======= ====== ======== =========== ==========
Segment profit:
Operating income (loss) $ 33.9 $ - $ (4.0) $ 6.9 $ 5.5 $ 10.2 $ 14.3 $ 1.0
Income (loss) from equity
investees (0.6) - 0.1 - - - (0.7) -
Interest expense (33.5) - (20.5) (3.9) (0.6) - (8.3) (0.2)
Minority interests in
AmeriGas Partners 14.0 - 14.0 - - - - -
--------- ------- ---------- ------- ------ -------- ----------- ----------
Income (loss) before
income taxes $ 13.8 $ - $ (10.4) $ 3.0 $ 4.9 $ 10.2 $ 5.3 $ 0.8
========= ======= ========== ======= ====== ======== =========== ==========
Depreciation and amortization $ 38.5 $ - $ 20.0 $ 4.9 $ 0.6 $ 1.0 $ 11.8 $ 0.2
Partnership EBITDA (b) $ 16.1
Segment assets (at period end) $ 4,187.9 $(356.3) $ 1,525.2 $ 736.0 $ 88.2 $ 201.8 $ 1,575.7 $ 417.3
========= ======= ========== ======= ====== ======== =========== ==========
Investments in equity investees
(at period end) $ 20.1 $ - $ 3.6 $ - $ - $ 9.1 $ 7.4 $ -
========= ======= ========== ======= ====== ======== =========== ==========
Goodwill and excess reorganization
value (at period end) $ 1,174.8 $ - $ 605.7 $ - $ - $ 2.8 $ 561.0 $ 5.3
========= ======= ========== ======= ====== ======== =========== ==========
Three Months Ended June 30, 2003:
Reportable Segments
--------------------------------------------------------
AmeriGas Gas Electric Energy International Corporate
Total Elims. Propane Utility Utility Services Propane & Other (a)
--------- ------- ---------- ------- -------- -------- ------------- ----------
Revenues $ 623.1 $ (0.6) $ 287.1 $ 99.7 $ 20.3 $ 191.6 $ 11.6 $ 13.4
========= ======= ========== ======= ====== ======== =========== ==========
Cost of sales $ 430.1 $ - $ 158.0 $ 65.2 $ 9.7 $ 183.5 $ 5.8 $ 7.9
========= ======= ========== ======= ====== ======== =========== ==========
Segment profit:
Operating income (loss) $ 8.4 $ - $ (5.8) $ 5.5 $ 4.5 $ 4.3 $ (1.0) $ 0.9
Income (loss) from equity
investees 0.2 - (0.6) - - - 0.8 -
Interest expense (26.5) - (21.5) (3.5) (0.4) - (1.0) (0.1)
Minority interests in
AmeriGas Partners 14.1 - 14.1 - - - - -
--------- ------- ---------- ------- ------ -------- ----------- ----------
Income (loss) before income
taxes $ (3.8) $ - $ (13.8) $ 2.0 $ 4.1 $ 4.3 $ (1.2) $ 0.8
========= ======= ========== ======= ====== ======== =========== ==========
Depreciation and amortization $ 26.1 $ - $ 19.0 $ 4.4 $ 0.8 $ 0.7 $ 1.1 $ 0.1
Partnership EBITDA (b) $ 12.6
Segment assets (at period end) $ 2,784.7 $ (41.1) $ 1,513.9 $ 711.2 $ 85.7 $ 179.1 $ 171.4 $ 164.5
========= ======= ========== ======= ====== ======== =========== ==========
Investments in equity investees
(at period end) $ 41.0 $ - $ 2.9 $ - $ - $ 9.9 $ 28.2 $ -
========= ======= ========== ======= ====== ======== =========== ==========
Goodwill and excess reorganization
value (at period end) $ 665.1 $ - $ 598.8 $ - $ - $ - $ 62.0 $ 4.3
========= ======= ========== ======= ====== ======== =========== ==========
(a) Corporate & Other results of operations principally comprise UGI
Enterprises' HVAC operations, net expenses of UGI's captive general
liability insurance company and UGI Corporation's unallocated corporate
and general expenses, and interest income. Corporate & Other assets
principally comprise cash, short-term investments and an intercompany
loan. The intercompany interest associated with the intercompany loan is
eliminated in the segment presentation.
(b) The following table provides a reconciliation of Partnership EBITDA to
AmeriGas Propane operating income:
Three months ended June 30, 2004 2003
--------------------------- -------- --------
Partnership EBITDA $ 16.1 $ 12.6
Depreciation and amortization (i) (20.0) (18.9)
Minority interests (ii) - (0.1)
(Income) loss from equity investees (0.1) 0.6
Loss on extinguishment of debt - -
-------- --------
Operating loss $ (4.0) $ (5.8)
======== ========
(i) Excludes General Partner depreciation and amortization of $0.1 in the
three months ended June 30, 2003.
(ii) Principally represents the General Partner's 1.01% interest in
AmeriGas OLP.
- 11 -
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Millions of dollars, except per share amounts)
5. SEGMENT INFORMATION (CONTINUED)
Nine Months Ended June 30, 2004:
Reportable Segments
----------------------------------------------------------
AmeriGas Gas Electric Energy International Corporate
Total Elims. Propane Utility Utility Services Propane & Other (a)
-------- -------- --------- -------- -------- -------- ------------- ----------
Revenues $3,033.7 $ (2.2) $ 1,463.0 $ 490.5 $ 67.1 $ 779.0 $ 191.2 $ 45.1
======== ======== ========= ======== ======== ======== ============= ==========
Cost of sales $2,042.6 $ - $ 843.7 $ 325.2 $ 31.6 $ 736.8 $ 79.1 $ 26.2
======== ======== ========= ======== ======== ======== ============= ==========
Segment profit:
Operating income $ 323.8 $ - $ 188.8 $ 82.8 $ 16.8 $ 24.0 $ 9.8 $ 1.6
Income from equity investees 12.0 - 0.8 - - - 11.2 -
Interest expense (86.9) - (62.8) (11.9) (1.6) - (10.2) (0.4)
Minority interests in AmeriGas
Partners (64.3) - (64.3) - - - - -
-------- -------- --------- -------- -------- -------- ------------- ----------
Income before income taxes $ 184.6 $ - $ 62.5 $ 70.9 $ 15.2 $ 24.0 $ 10.8 $ 1.2
======== ======== ========= ======== ======== ======== ============= ==========
Depreciation and amortization $ 94.3 $ - $ 59.5 $ 14.6 $ 2.3 $ 3.0 $ 14.1 $ 0.8
Partnership EBITDA (b) $ 247.3
Segment assets (at period end) $4,187.9 $ (356.3) $ 1,525.2 $ 736.0 $ 88.2 $ 201.8 $ 1,575.7 $ 417.3
======== ======== ========= ======== ======== ======== ============= ==========
Investments in equity investees
(at period end) $ 20.1 $ - $ 3.6 $ - $ - $ 9.1 $ 7.4 $ -
======== ======== ========= ======== ======== ======== ============= ==========
Goodwill and excess reorganization
value (at period end) $1,174.8 $ - $ 605.7 $ - $ - $ 2.8 $ 561.0 $ 5.3
======== ======== ========= ======== ======== ======== ============= ==========
Nine Months Ended June 30, 2003:
Reportable Segments
----------------------------------------------------------
AmeriGas Gas Electric Energy International Corporate
Total Elims. Propane Utility Utility Services Propane & Other (a)
-------- -------- --------- -------- -------- -------- ------------- ----------
Revenues $2,498.9 $ (1.8) $ 1,357.7 $ 484.7 $ 66.5 $ 513.7 $ 44.0 $ 34.1
======== ======== ========= ======== ======== ======== ============= ==========
Cost of sales $1,638.1 $ - $ 762.0 $ 312.6 $ 31.3 $ 488.9 $ 24.4 $ 18.9
======== ======== ========= ======== ======== ======== ============= ==========
Segment profit:
Operating income $ 300.2 $ - $ 174.0 $ 94.1 $ 16.6 $ 14.1 $ 0.6 $ 0.8
Income (loss) from equity
investees 7.1 - (0.5) - - - 7.6 -
Loss on extinguishment of debt (3.0) - (3.0) - - - - -
Interest expense (81.8) - (66.0) (10.7) (1.7) - (3.1) (0.3)
Minority interests in AmeriGas
Partners (51.2) - (51.2) - - - - -
-------- -------- --------- -------- -------- -------- ------------- ----------
Income before income taxes $ 171.3 $ - $ 53.3 $ 83.4 $ 14.9 $ 14.1 $ 5.1 $ 0.5
======== ======== ========= ======== ======== ======== ============= ==========
Depreciation and amortization $ 75.7 $ - $ 55.0 $ 13.6 $ 2.3 $ 1.2 $ 2.9 $ 0.7
Partnership EBITDA (b) $ 223.8
Segment assets (at period end) $2,784.7 $ (41.1) $ 1,513.9 $ 711.2 $ 85.7 $ 179.1 $ 171.4 $ 164.5
======== ======== ========= ======= ======= ======= ============= ==========
Investments in equity investees
(at period end) $ 41.0 $ - $ 2.9 $ - $ - $ 9.9 $ 28.2 $ -
======== ======== ========= ======== ======== ======== ============= ==========
Goodwill and excess reorganization
value (at period end) $ 665.1 $ - $ 598.8 $ - $ - $ - $ 62.0 $ 4.3
======== ======== ========= ======== ======== ======== ============= ==========
(a) Corporate & Other results of operations principally comprise UGI
Enterprises' HVAC operations, net expenses of UGI's captive general
liability insurance company and UGI Corporation's unallocated corporate
and general expenses, and interest income. Corporate & Other assets
principally comprise cash, short-term investments and an intercompany
loan. The intercompany interest associated with the intercompany loan is
eliminated in the segment presentation.
(b) The following table provides a reconciliation of Partnership EBITDA to
AmeriGas Propane operating income:
Nine months ended June 30, 2004 2003
-------------------------- -------- --------
Partnership EBITDA $ 247.3 $ 223.8
Depreciation and amortization (i) (59.4) (54.8)
Minority interests (ii) 1.7 1.5
(Income) loss from equity investees (0.8) 0.5
Loss on extinguishment of debt - 3.0
-------- --------
Operating income $ 188.8 $ 174.0
======== ========
(i) Excludes General Partner depreciation and amortization of $0.1 and
$0.2 in the nine months ended June 30, 2004 and 2003, respectively.
(ii) Principally represents the General Partner's 1.01% interest in
AmeriGas OLP.
- 12 -
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Millions of dollars, except per share amounts)
6. INTANGIBLE ASSETS
The Company's intangible assets comprise the following:
June 30, September 30,
2004 2003
----------------------------------------------------------- ------------
Not subject to amortization:
Goodwill $ 1,081.5 $ 578.2
Excess reorganization value 93.3 93.3
----------------------------------------------------------- ------------
$ 1,174.8 $ 671.5
----------------------------------------------------------- ------------
Other intangible assets:
Customer relationships, noncompete
agreements and other $ 142.9 $ 51.1
Trademark (not subject to amortization) 21.1 -
----------------------------------------------------------- ------------
Gross carrying amount 164.0 51.1
----------------------------------------------------------- ------------
Accumulated amortization (23.5) (16.4)
----------------------------------------------------------- ------------
Net carrying amount $ 140.5 $ 34.7
----------------------------------------------------------- ------------
The increase in intangible assets during the nine months ended June 30,
2004 principally reflects the acquisitions of AGZ Holding and Horizon
Propane. The allocation of AGZ Holding's purchase price to goodwill,
customer list, trademark and other intangible assets is preliminary and is
subject to revision. Amortization expense of intangible assets was $3.9
million and $7.1 million for the three and nine months ended June 30,
2004, respectively, and $1.9 million and $4.4 million for the three and
nine months ended June 30, 2003, respectively. Our expected aggregate
amortization expense of intangible assets for the next five fiscal years
is as follows: Fiscal 2004 - $10.2 million; Fiscal 2005 - $13.2 million;
Fiscal 2006 - $12.7 million; Fiscal 2007 - $12.1 million; Fiscal 2008 -
$11.7 million.
7. ENERGY SERVICES ACCOUNTS RECEIVABLE SECURITIZATION FACILITY
Energy Services has a $100 million receivables purchase facility
("Receivables Facility") with an issuer of receivables-backed commercial
paper expiring on August 26, 2006, although the Receivables Facility may
terminate prior to such date due to the termination of the commitments of
the Receivables Facility back-up purchasers. Under the Receivables
Facility, Energy Services transfers, on an ongoing basis and without
recourse, its trade accounts receivable to its wholly owned, special
purpose subsidiary, Energy Services Funding Corporation ("ESFC"), which is
consolidated for financial statement purposes. ESFC, in turn, has sold,
and subject to certain conditions, may from time to time sell, an
undivided interest in the receivables to a commercial paper conduit of a
major bank. The maximum level of funding available at any one time from
this facility is $100 million. The proceeds of these sales are less than
the face amount of the accounts receivable sold by an amount that
approximates the purchaser's financing cost of issuing its own
receivables-backed commercial paper. ESFC was created and has been
structured to isolate its assets from creditors of Energy Services and its
affiliates, including UGI. This two-step transaction is accounted for as a
sale of receivables following the provisions of SFAS No.
- 13 -
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Millions of dollars, except per share amounts)
140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." Energy Services continues to service,
administer and collect trade receivables on behalf of the commercial paper
issuer and ESFC.
During the three and nine months ended June 30, 2004 Energy Services sold
trade receivables totaling $219.6 million and $762.7 million,
respectively, to ESFC. During the three and nine months ended June 30,
2004, ESFC sold an aggregate $43.0 and $246.0 million, respectively, of
undivided interests in its trade receivables to the commercial paper
conduit. At June 30, 2004, the outstanding balance of ESFC trade
receivables was $72.7 million of which no amount was sold to the
commercial paper conduit.
In addition, a major bank has committed to issue up to $50 million of
standby letters of credit, secured by cash or marketable securities ("LC
Facility"). Energy Services expects to fund the collateral requirements
with borrowings under its Receivables Facility. The LC Facility expires in
April 2005.
8. DEFINED BENEFIT PENSION AND OTHER POSTRETIREMENT PLANS
In December 2003, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 132 (revised 2003), "Employers' Disclosures about Pensions and
Other Postretirement Benefits" ("SFAS 132"). As required by SFAS 132, the
Company is providing the following supplemental disclosures regarding its
defined benefit pension plans and its postretirement health and life
insurance plans.
We sponsor a defined benefit pension plan ("UGI Utilities Pension Plan")
for employees of UGI, UGI Utilities, and certain of UGI's other wholly
owned subsidiaries. In addition, we provide postretirement health care
benefits to certain retirees and a limited number of active employees
meeting certain age and service requirements, and postretirement life
insurance benefits to nearly all domestic active and retired employees.
Net periodic expense (income) and other postretirement benefit costs
include the following components:
- 14 -
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Millions of dollars, except per share amounts)
Other
Pension Benefits Postretirement Benefits
------------------- -----------------------
Three Months Ended Three Months Ended
June 30, June 30,
------------------- -----------------------
2004 2003 2004 2003
-----------------------------------------------------------------------------------------
Service cost $ 1.2 $ 1.1 $ - $ -
Interest cost 3.2 3.2 0.4 0.4
Expected return on assets (4.3) (4.5) (0.1) (0.1)
Amortization of:
Transition (asset) obligation (0.3) (0.4) 0.2 0.2
Prior service cost 0.2 0.2 - -
Actuarial loss 0.3 0.1 0.1 -
---------------------------------------------------------------------------------------
Net benefit cost (income) 0.3 (0.3) 0.6 0.5
Change in regulatory assets
and liabilities - - 0.3 0.3
---------------------------------------------------------------------------------------
Net expense (income) $ 0.3 $ (0.3) $ 0.9 $ 0.8
---------------------------------------------------------------------------------------
Other
Pension Benefits Postretirement Benefits
------------------- ---------------------------
Nine Months Ended Nine Months Ended
June 30, June 30,
------------------- ---------------------------
2004 2003 2004 2003
-----------------------------------------------------------------------------------------
Service cost $ 3.7 $ 3.4 $ 0.2 $ 0.1
Interest cost 9.7 9.7 1.3 1.3
Expected return on assets (13.0) (13.5) (0.4) (0.3)
Amortization of:
Transition (asset) obligation (1.0) (1.2) 0.7 0.7
Prior service cost 0.5 0.5 - -
Actuarial loss 0.9 0.2 0.2 0.1
-----------------------------------------------------------------------------------------
Net benefit cost (income) 0.8 (0.9) 2.0 1.9
Change in regulatory assets
and liabilities - - 0.8 0.8
-----------------------------------------------------------------------------------------
Net expense (income) $ 0.8 $ (0.9) $ 2.8 $ 2.7
-----------------------------------------------------------------------------------------
UGI Utilities Pension Plan assets are held in trust and consist
principally of equity and fixed income mutual funds. The Company does not
believe it will be required to make any contributions to the UGI Utilities
Pension Plan during the year ended September 30, 2004. Pursuant to orders
previously issued by the PUC, UGI Utilities has established a Voluntary
Employees' Beneficiary Association ("VEBA") trust to fund the UGI
Utilities' postretirement obligations and to pay retiree health care and
life insurance benefits by depositing into the VEBA the annual amount of
postretirement benefits costs determined under SFAS No. 106, "Employers
Accounting for Postretirement Benefits Other Than Pensions." The
difference between the annual amount calculated and the amount included in
UGI Utilities' rates is deferred for future recovery from, or refund to,
ratepayers. UGI Utilities expects to contribute approximately $2.3 million
to the VEBA during the year ended September 30, 2004, subject to the
actuarial impact, if any, of the Medicare Prescription Drug Improvement
and Modernization Act of 2003 (as more fully described in Note 12 to
Condensed Consolidated Financial Statements). Through June 30, 2004, UGI
Utilities has made contributions of approximately $1.8 million to the
VEBA.
- 15 -
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Millions of dollars, except per share amounts)
The net benefit cost of our unfunded and non-qualified supplemental
executive retirement plans includes the following components:
Three Months Ended Nine Months Ended
June 30, June 30,
------------------- -------------------
2004 2003 2004 2003
-----------------------------------------------------------------------
Service cost $ 0.1 $ 0.1 $ 0.3 $ 0.2
Interest cost 0.2 0.1 0.5 0.4
Amortization of:
Transition obligation - - 0.1 0.1
Actuarial loss 0.1 0.1 0.3 0.2
-----------------------------------------------------------------------
Net benefit cost $ 0.4 $ 0.3 $ 1.2 $ 0.9
-----------------------------------------------------------------------
9. LONG-TERM DEBT
In conjunction with the Antargaz Acquisition, $445.8 million of long-term
debt has been reflected in our Condensed Consolidated Balance Sheet at
June 30, 2004.
In April 2004, AmeriGas OLP repaid $53.8 million of maturing First
Mortgage Notes. In conjunction with this repayment, in April 2004,
AmeriGas Partners issued $28 million face amount of 8.875% Senior Notes
due 2011, at an effective interest rate of 7.18%, and contributed the net
proceeds of $30.1 million to AmeriGas OLP.
In April 2003, AmeriGas OLP repaid $53.8 million of maturing First
Mortgage Notes. In conjunction with this repayment, in April 2003,
AmeriGas Partners issued $32 million face amount of 8.875% Senior Notes
due 2011, at an effective interest rate of 7.72%, and contributed the net
proceeds of $33.7 million to AmeriGas OLP.
On December 3, 2002, AmeriGas Partners issued $88 million face amount of
8.875% Senior Notes due 2011 at an effective interest rate of 8.30%. The
proceeds, net of underwriters' fees, of $89.1 million were used on January
6, 2003 to redeem prior to maturity AmeriGas Partners' $85 million face
amount of 10.125% Senior Notes due 2007 at a redemption price of 102.25%,
plus accrued interest. The Partnership recognized a loss of $3.0 million
in the quarter ended March 31, 2003 related to the redemption premium and
other associated costs and expenses.
10. AMERIGAS PARTNERS COMMON UNIT ACTIVITY
On May 26, 2004, AmeriGas Partners sold 2,000,000 Common Units in an
underwritten public offering at a public offering price of $25.61 per
unit. On June 10, 2004, the underwriters exercised a portion of their
overallotment option for the purchase of an additional 100,000 Common
Units. The net proceeds of the public offering totaling $51.2 million and
associated capital contributions from the General Partner totaling $1.0
million, were contributed to AmeriGas OLP and used to reduce indebtedness
under its bank credit
- 16 -
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Millions of dollars, except per share amounts)
agreement and for general partnership purposes. Concurrent with this sale
of Common Units, the Company recorded a net gain in the amount of $5.6
million which is reflected in the Company's balance sheet as an increase
in common stockholders' equity in accordance with the guidance in SEC
Staff Accounting Bulletin No. 51 "Accounting for Sales of Common Stock by
a Subsidiary." The gain had no effect on the Company's net income or cash
flow.
11. COMMITMENTS AND CONTINGENCIES
The Partnership has succeeded to certain lease guarantee obligations of
Petrolane relating to Petrolane's divestiture of non-propane operations
before its 1989 acquisition by QFB Partners. Future lease payments under
these leases total approximately $13 million at June 30, 2004. 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. In December 1999, Texas
Eastern filed for dissolution under the Delaware General Corporation Law.
PanEnergy Corporation ("PanEnergy"), Texas Eastern's sole stockholder,
subsequently assumed all of Texas Eastern's liabilities as of December 20,
2002, to the extent of the value of Texas Eastern's assets transferred to
PanEnergy as of that date (which was estimated to exceed $94 million), and
to the extent that such liabilities arise within ten years from Texas
Eastern's date of dissolution. Notwithstanding the dissolution proceeding,
and based on Texas Eastern previously having satisfied directly defaulted
lease obligations without the Partnership's having to honor its guarantee,
we believe that the probability that the Partnership will be required to
directly satisfy the lease obligations subject to the indemnification
agreement is remote.
On August 21, 2001, AmeriGas Partners, through AmeriGas OLP, acquired the
propane distribution businesses of Columbia Energy Group (the "2001
Acquisition") pursuant to the terms of a purchase agreement (the "2001
Acquisition Agreement") by and among Columbia Energy Group ("CEG"),
Columbia Propane Corporation ("Columbia Propane"), Columbia Propane, L.P.
("CPLP"), CP Holdings, Inc. ("CPH," and together with Columbia Propane and
CPLP, the "Company Parties"), AmeriGas Partners, AmeriGas OLP and the
General Partner (together with AmeriGas Partners and AmeriGas OLP, the
"Buyer Parties"). As a result of the 2001 Acquisition, AmeriGas OLP
acquired all of the stock of Columbia Propane and CPH and substantially
all of the partnership interests of CPLP. Under the terms of an earlier
acquisition agreement (the "1999 Acquisition Agreement"), the Company
Parties agreed to indemnify the former general partners of National
Propane Partners, L.P. (a predecessor company of the Columbia Propane
businesses) and an affiliate (collectively, "National General Partners")
against certain income tax and other losses that they may sustain as a
result of the 1999 acquisition by CPLP of National Propane Partners, L.P.
(the "1999 Acquisition") or the operation of the business after the 1999
Acquisition ("National Claims"). At June 30, 2004, the potential amount
payable under this indemnity by the Company Parties was approximately $61
million. These indemnity obligations will expire on the date that CPH
acquires the remaining outstanding partnership interest of CPLP, which is
expected to occur on or after July 19, 2009.
- 17 -
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Millions of dollars, except per share amounts)
Under the terms of the 2001 Acquisition Agreement, CEG agreed to indemnify
the Buyer Parties and the Company Parties against any losses that they
sustain under the 1999 Acquisition Agreement and related agreements
("Losses"), including National Claims, to the extent such claims are based
on acts or omissions of CEG or the Company Parties prior to the 2001
Acquisition. The Buyer Parties agreed to indemnify CEG against Losses,
including National Claims, to the extent such claims are based on acts or
omissions of the Buyer Parties or the Company Parties after the 2001
Acquisition. CEG and the Buyer Parties have agreed to apportion certain
losses resulting from National Claims to the extent such losses result
from the 2001 Acquisition itself.
From the late 1800s through the mid-1900s, UGI Utilities and its former
subsidiaries owned and operated a number of manufactured gas plants
("MGPs") prior to the general availability of natural gas. Some
constituents of coal tars and other residues of the manufactured gas
process are today considered hazardous substances under the Superfund Law
and may be present on the sites of former MGPs. Between 1882 and 1953, UGI
Utilities owned the stock of subsidiary gas companies in Pennsylvania and
elsewhere and also operated the businesses of some gas companies under
agreement. Pursuant to the requirements of the Public Utility Holding
Company Act of 1935, UGI Utilities divested all of its utility operations
other than those which now constitute Gas Utility and Electric Utility.
UGI Utilities does not expect its costs for investigation and remediation
of hazardous substances at Pennsylvania MGP sites to be material to its
results of operations because Gas Utility is currently permitted to
include in rates, through future base rate proceedings, prudently incurred
remediation costs associated with such sites. UGI Utilities has been
notified of several sites outside Pennsylvania on which (1) MGPs were
formerly operated by it or owned or operated by its former subsidiaries
and (2) either environmental agencies or private parties are investigating
the extent of environmental contamination or performing environmental
remediation. UGI Utilities is currently litigating three claims against it
relating to out-of-state sites.
Management believes that under applicable law UGI Utilities should not be
liable in those instances in which a former subsidiary owned or operated
an MGP. There could be, however, significant future costs of an uncertain
amount associated with environmental damage caused by MGPs outside
Pennsylvania that UGI Utilities directly operated, or that were owned or
operated by former subsidiaries of UGI Utilities, if a court were to
conclude that (1) the subsidiary's separate corporate form should be
disregarded or (2) UGI Utilities should be considered to have been an
operator because of its conduct with respect to its subsidiary's MGP.
In April 2003, Citizens Communications Company ("Citizens") served a
complaint naming UGI Utilities as a third-party defendant in a civil
action pending in United States District Court for the District of Maine.
In that action, the plaintiff, City of Bangor, Maine ("City"), sued
Citizens to recover environmental response costs associated with MGP
wastes generated at a plant allegedly operated by Citizens' predecessors
at a site on the Penobscot River. Citizens subsequently joined UGI
Utilities and ten other third party defendants alleging that the
third-party defendants are responsible for an equitable share of costs
- 18 -
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Millions of dollars, except per share amounts)
Citizens may be required to pay to the City for cleaning up tar deposits
in the Penobscot River. The City believes that it could cost as much as
$50 million to clean up the river. UGI Utilities believes that it has good
defenses to the claim and is defending the suit.
By letter dated July 29, 2003, Atlanta Gas Light Company ("AGL") served
UGI Utilities with a complaint filed in the United States District Court
for the Middle District of Florida in which AGL alleges that UGI Utilities
is responsible for 20% of approximately $8 million incurred by AGL in the
investigation and remediation of a former MGP site in St. Augustine,
Florida. UGI Utilities formerly owned stock of the St. Augustine Gas
Company, the owner and operator of the MGP. UGI Utilities believes that it
has good defenses to the claim and is defending the suit.
AGL previously informed UGI Utilities that it was investigating
contamination that appeared to be related to MGP Operations at a site
owned by AGL in Savannah, Georgia. A former subsidiary of UGI Utilities'
operated the MGP in the early 1900s. AGL has recently informed UGI
Utilities that it has begun remediation of MGP wastes at the site and
believes that the total cost of remediation could be as high as $55
million. AGL has stated an intention to make a claim against UGI Utilities
for a share of these costs. UGI Utilities believes that it will have good
defenses to any action that may arise out of this site.
On September 20, 2001, Consolidated Edison Company of New York ("ConEd")
filed suit against UGI Utilities in the United States District Court for
the Southern District of New York, seeking contribution from UGI Utilities
for an allocated share of response costs associated with investigating and
assessing gas plant related contamination at former MGP sites in
Westchester County, New York. The complaint alleges that UGI Utilities
"owned and operated" the MGPs prior to 1904. The complaint also seeks a
declaration that UGI Utilities is responsible for an allocated percentage
of future investigative and remedial costs at the sites. ConEd believes
that the cost of remediation for all of the sites could exceed $70
million. In November 2003, the court granted UGI Utilities' motion for
summary judgment in part, dismissing all claims premised on a disregard of
the separate corporate form of UGI Utilities' former subsidiaries and
dismissing claims premised on UGI Utilities' operation of three of the
MGPs under operating leases with ConEd's predecessors. The courts reserved
decision on the remaining theory of liability, that UGI Utilities was a
direct operator of the remaining MGPs. In March 2004, the court granted
summary judgment on the remaining claims and dismissed ConEd's complaint.
ConEd has appealed.
By letter dated June 24, 2004, KeySpan Energy ("KeySpan") informed UGI
Utilities that KeySpan has spent $2.3 million and expects to spend another
$11 million to clean up a MGP site it owns in Sag Harbor, New York.
KeySpan believes that UGI Utilities is responsible for approximately 50%
of these costs as a result of UGI Utilities' alleged direct ownership and
operation of the plant from 1885 to 1902. UGI Utilities is in the process
of reviewing the information provided by KeySpan and is investigating this
claim.
By letter dated August 5, 2004, Yankee Gas Services Company and
Connecticut Light and Power Company, subsidiaries of Northeast Utilities,
(together, the "Northeast Companies"),
- 19 -
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Millions of dollars, except per share amounts)
demanded contribution from UGI Utilities for past and future remediation
costs related to MGP operations on thirteen sites owned by the Northeast
Companies in nine cities in the State of Connecticut. The Northeast
Companies allege that UGI Utilities controlled operations of the plants
from 1883 to 1941. According to the letter, investigation and remedial
costs at the sites to date total approximately $10 million and complete
remediation costs for all sites could total $182 million. The Northeast
Companies seek an unspecified fair and equitable allocation of these costs
to UGI Utilities. UGI Utilities is in the process of reviewing the
information provided by Northeast Companies and is investigating this
claim.
Antargaz has filed suit against the French tax authorities in connection
with the assessment of business tax related to the tax treatment of
Antargaz owned tanks at customer locations used to store LPG. Antargaz has
recorded a liability for the business tax relating to tanks for the period
from January 1, 1997 through June 30, 2004 of approximately 26.8 million
euros ($32.7 million). Elf Antar France, now Total France, and Elf
Aquitaine, former owners of Antargaz, agreed to indemnify Antargaz for all
payments which would have been due from Antargaz in respect of the
business tax related to its tanks for the period from January 1, 1997
through December 31, 2000. In March 2004, the local court rendered a
decision against Antargaz which resulted in a 1.7 million euros ($2.1
million) assessment by the tax assessor relating to the business tax at
certain sites in the pending suit. Antargaz paid this assessment and was
fully reimbursed in April 2004 for this assessment pursuant to the
indemnity agreement. Antargaz is appealing the assessment. As of June 30,
2004, the indemnity from the former owners represents approximately 9.4
million euros ($11.4 million) of the business tax liability.
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. Although we currently believe 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, damages
or settlements could be material to our operating results or cash flows in
future periods depending on the nature and timing of future developments
with respect to these matters and the amounts of future operating results
and cash flows.
12. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In December 2003, the FASB revised Financial Interpretation No. 46,
"Consolidation of Variable Interest Entities" ("FIN 46"), which was
originally issued in January 2003 and clarifies Accounting Research
Bulletin No. 51, "Consolidated Financial Statements." FIN 46 was effective
immediately for variable interest entities created or obtained after
January 31, 2003. For variable interests created or acquired before
February 1, 2003, FIN 46 was effective beginning with our interim period
ended March 31, 2004. If certain conditions are met, FIN 46 requires the
primary beneficiary to consolidate certain variable interest entities. The
Company has not created or obtained any variable interest entities after
January 31, 2003. The adoption of FIN 46 did not have a material effect on
the Company's financial position or results of operations.
- 20 -
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Millions of dollars, except per share amounts)
On December 8, 2003, the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (the "Act") was signed into law. Among other
things, the Act provides for a prescription drug benefit to Medicare
beneficiaries on a voluntary basis beginning in 2006. To encourage
employers to continue to offer retiree prescription drug benefits, the Act
provides for a tax-free subsidy to employers who offer a prescription drug
benefit that is at least actuarially equivalent to the standard benefit
offered under the Act.
The Company provides postretirement health care benefits principally to
certain of UGI Utilities' retirees and a limited number of active
employees meeting certain age and service requirements. These
postretirement benefits include certain retiree prescription drug
benefits. Pursuant to orders previously issued by the PUC, UGI Utilities
has established a VEBA trust to fund UGI Utilities' postretirement benefit
obligations and to pay retiree health care and life insurance benefits by
depositing into the VEBA the annual amount of postretirement benefit costs
determined under SFAS No. 106, "Employers Accounting for Postretirement
Benefits Other than Pensions." The difference between the annual amount
calculated and the amount in UGI Utilities' rates is deferred for future
recovery from, or refund to, ratepayers.
In May 2004, the FASB issued Staff Position No. FAS 106-2, "Accounting and
Disclosure Requirements Related to the Medicare Prescription Drug,
Improvement and Modernization Act of 2003" ("FSP 106-2"). FSP 106-2 is
effective for periods beginning after June 15, 2004. Therefore, the
Condensed Consolidated Financial Statements and accompanying footnotes do
not reflect the effects of the Act. Under the current ratemaking described
above, any increases or decreases in postretirement benefit costs
resulting from the Act will not affect our reported results. In addition,
because of the limited number of participants in the postretirement
medical benefits program and the current level of postretirement medical
benefits, we do not believe the Act will have a material effect on the
Company's cash flows.
13. SUBSEQUENT EVENT - REDEMPTION OF $7.75 UGI UTILITIES SERIES PREFERRED
STOCK
On July 27, 2004, UGI Utilities' Board of Directors approved the
redemption on October 1, 2004 of all 200,000 shares of the $7.75 UGI
Utilities Series Preferred Stock at a price of $100 per share together
with full cumulative dividends. Currently, we intend to fund the
redemption of the $7.75 UGI Utilities Series Preferred Stock with proceeds
from the issuance of Medium-Term Notes.
- 21 -
UGI CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Information contained in this Management's Discussion and Analysis of Financial
Condition and Results of Operations and elsewhere in this Quarterly Report may
contain forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
Such statements use forward-looking words such as "believe," "plan,"
"anticipate," "continue," "estimate," "expect," "may," "will," or other similar
words. These statements discuss plans, strategies, events or developments that
we expect or anticipate will or may occur in the future.
A forward-looking statement may include a statement of the assumptions or bases
underlying the forward-looking statement. We believe that we have chosen these
assumptions or bases in good faith and that they are reasonable. However, we
caution you that actual results almost always vary from assumed facts or bases,
and the differences between actual results and assumed facts or bases can be
material, depending on the circumstances. When considering forward-looking
statements, you should keep in mind the following important factors which could
affect our future results and could cause those results to differ materially
from those expressed in our forward-looking statements: (1) adverse weather
conditions resulting in reduced demand; (2) price volatility and availability of
propane, LPG, oil, electricity, and natural gas and the capacity to transport
them to our market areas; (3) changes in domestic and foreign laws and
regulations, including safety, tax and accounting matters; (4) competitive
pressures from the same and alternative energy sources; (5) failure to acquire
new customers thereby reducing or limiting an increase in revenues; (6)
liability for environmental claims; (7) customer conservation measures and
improvements in energy efficiency and technology resulting in reduced demand;
(8) adverse labor relations; (9) large customer, counterparty or supplier
defaults; (10) liability for personal injury and property damage arising from
explosions and other catastrophic events, including acts of terrorism, resulting
from operating hazards and risks incidental to generating and distributing
electricity and transporting, storing and distributing natural gas, propane and
LPG including liability in excess of insurance coverage; (11) political,
regulatory and economic conditions in the United States and in foreign
countries; (12) interest rate fluctuations and other capital market conditions,
including foreign currency rate fluctuations; (13) reduced distributions from
subsidiaries; and (14) the timing and success of the Company's efforts to
develop new business opportunities.
These factors are not necessarily all of the important factors that could cause
actual results to differ materially from those expressed in any of our
forward-looking statements. Other unknown or unpredictable factors could also
have material adverse effects on future results. We undertake no obligation to
update publicly any forward-looking statement whether as a result of new
information or future events as required by federal securities laws.
ANALYSIS OF RESULTS OF OPERATIONS
The following analyses compare our results of operations for (1) the three
months ended June 30, 2004 ("2004 three-month period") with the three months
ended June 30, 2003 ("2003 three-month period") and (2) the nine months ended
June 30, 2004 ("2004 nine-month period") with the nine months ended June 30,
2003 ("2003 nine-month period"). Effective October 1, 2003, our Energy Services
segment includes the operating results of Energy Services' gas marketing
business as well as UGID's electricity generation business. Energy Services'
segment presentation for the 2003 three-month period and 2003 nine-month period
have been restated to conform to the current period presentation. All of the
operating
- 22 -
UGI CORPORATION AND SUBSIDIARIES
results of AGZ Holding are included in our consolidated results beginning April
1, 2004. Prior to April 1, 2004, our 19.5% interest in AGZ Holding is reflected
in our consolidated results on the equity method of accounting. Our analyses of
results of operations should be read in conjunction with the segment information
included in Note 5 to the Condensed Consolidated Financial Statements.
Three Months Ended Nine Months Ended
June 30, June 30,
------------------- -------------------
2004 2003 2004 2003
-------------------------------------------------------------------------
(Millions of dollars)
Net income (loss):
AmeriGas Propane (a) $ (7.0) $ (8.3) $ 36.7 $ 32.1
Gas Utility 1.3 1.0 42.1 49.1
Electric Utility 3.2 2.5 9.0 8.7
Energy Services (b) 6.0 2.4 14.0 8.2
International Propane 4.1 (0.4) 11.8 6.2
Corporate & Other 0.7 0.8 0.6 0.2
-------------------------------------------------------------------------
Total net income (loss) $ 8.3 $ (2.0) $ 114.2 $ 104.5
-------------------------------------------------------------------------
(a) Amounts are net of minority interests in AmeriGas Partners, L.P.
(b) Effective October 1, 2003, the Energy Services segment includes the
operating results of Energy Services' gas marketing business as well as
UGID's electricity generation business. Energy Services' segment
presentation for the 2003 three- and nine-month periods have been restated
to conform to the current period presentation.
Net income was $8.3 million for the 2004 three-month period compared to a loss
of $2.0 million in the 2003 three-month period as a result of the consolidation
of Antargaz and improved results across all of our business segments despite the
challenges of warmer than normal weather and the high cost of energy products.
During the 2004 three-month period average diluted shares were 22% higher
reflecting UGI's common share offering used to fund a portion of the purchase
price of AGZ Holding.
Net income for the 2004 nine-month period was $9.7 million higher than in the
2003 nine-month period primarily reflecting the effects of improved Antargaz
results, including the effects of consolidating all of Antargaz' results of
operations beginning April 1, 2004, and the effects of recent acquisitions in
our other business segments.
- 23 -
UGI CORPORATION AND SUBSIDIARIES
2004 THREE-MONTH PERIOD COMPARED WITH 2003 THREE-MONTH PERIOD
Increase
Three months ended June 30, 2004 2003 (Decrease)
---------------------------------------------------------------------------------
(Millions of dollars)
AMERIGAS PROPANE:
Revenues $ 315.1 $ 287.1 $ 28.0 9.8 %
Total margin (a) $ 131.1 $ 129.1 $ 2.0 1.5 %
Partnership EBITDA (b) $ 16.1 $ 12.6 $ 3.5 27.8 %
Operating loss $ (4.0) $ (5.8) $ 1.8 (31.0)%
Retail gallons sold (millions) 175.2 182.4 (7.2) (3.9)%
Degree days - % warmer
than normal (c) (8.0)% (0.5)% - -
GAS UTILITY:
Revenues $ 97.7 $ 99.7 $ (2.0) (2.0)%
Total margin (a) $ 32.6 $ 34.5 $ (1.9) (5.5)%
Operating income $ 6.9 $ 5.5 $ 1.4 25.5%
Income before income taxes $ 3.0 $ 2.0 $ 1.0 50.0%
System throughput -
billions of cubic feet ("bcf") 15.5 15.0 0.5 3.3%
Degree days - % (warmer) colder
than normal (18.7)% 16.3% - -
ELECTRIC UTILITY (d):
Revenues $ 21.0 $ 20.3 $ 0.7 3.4%
Total margin (a) $ 10.3 $ 9.5 $ 0.8 8.4%
Operating income $ 5.5 $ 4.5 $ 1.0 22.2%
Income before income taxes $ 4.9 $ 4.1 $ 0.8 19.5%
Distribution sales - millions of
kilowatt hours ("gwh") 221.5 216.3 5.2 2.4%
ENERGY SERVICES (d):
Revenues $ 217.3 $ 191.6 $ 25.7 13.4%
Total margin (a) $ 16.5 $ 8.1 $ 8.4 103.7%
Income before income taxes $ 10.2 $ 4.3 $ 5.9 137.2%
INTERNATIONAL PROPANE:
Revenues $ 156.8 $ 11.6 $ 145.2 n.m.
Total margin (a) $ 94.6 $ 5.8 $ 88.8 n.m.
Operating income (loss) $ 14.3 $ (1.0) $ 15.3 n.m.
Income (loss) from equity investees $ (0.7) $ 0.8 $ (1.5) n.m.
Income (loss) before income taxes $ 5.3 $ (1.2) $ 6.5 n.m.
n.m. - not meaningful
(a) Total margin represents total revenues less total cost of sales and, with
respect to Electric Utility, revenue-related taxes, i.e. Electric Utility
gross receipts taxes, of $1.1 million in each of the three-month periods
ended June 30, 2004 and 2003. For financial statement purposes,
revenue-related taxes are included in "Utility taxes other than income
taxes" on the Condensed Consolidated Statements of Income.
(b) Partnership EBITDA (earnings before interest expense, income taxes and
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 accounting principles generally accepted in the United
States of America. Management uses Partnership EBITDA
- 24 -
UGI CORPORATION AND SUBSIDIARIES
as the primary measure of segment profitability for the AmeriGas Propane
segment (see Note 5 to the Condensed Consolidated Financial Statements).
(c) Deviation from average heating degree days based upon national weather
statistics provided by the National Oceanic and Atmospheric Administration
("NOAA") for 335 airports in the United States, excluding Alaska.
(d) Effective October 1, 2003, we realigned our business units in order to
expand the energy management services available to our customers and
strengthen our focus on power marketing. As a result of this realignment,
the operating results of UGID's electricity generation business are
combined with Energy Services rather than combined with UGI Utilities'
Electric Utility (see Note 5 to the Condensed Consolidated Financial
Statements).
AMERIGAS PROPANE. Weather based upon heating degree days was 8.0% warmer than
normal during the 2004 three-month period compared to weather that was
essentially normal in the prior-year three-month period. Notwithstanding the
beneficial effects of acquisitions, retail propane volumes sold decreased 7.2
million gallons in the 2004 three-month period due primarily to the warmer than
normal weather and price related conservation. Low margin wholesale volumes
increased 33.3 million gallons primarily reflecting the effects of product cost
hedging activities.
Retail propane revenues increased $3.7 million reflecting a $13.3 million
increase due to higher average selling prices partially offset by a $9.6 million
decrease due to the lower retail volumes sold. Wholesale propane revenues
increased $21.1 million principally reflecting the higher volumes sold due to
product cost hedging activities. Selling prices in the 2004 three-month period
were higher than in the prior-year three-month period as the industry continues
to experience unusually high propane product costs resulting from, among other
things, higher crude oil and natural gas prices. Total cost of sales increased
$26.1 million primarily reflecting the previously mentioned increase in
wholesale volumes sold and higher propane product costs. Total margin increased
$2.0 million principally due to higher average retail propane unit margins
partially offset by the lower retail volumes sold.
Partnership EBITDA increased $3.5 million in the 2004 three-month period
reflecting (1) the previously mentioned increase in total margin, (2) a $1.0
million decrease in operating and administrative expenses and (3) a $0.5 million
increase in other income. The decrease in operating and administrative expenses
was due to the absence of $3.0 million of expenses associated with initiating
the management realignment in June 2003, the continued beneficial effects on
operating expenses of the realignment, and lower incentive compensation
expenses. These decreases were partially offset by incremental operating and
administrative expenses associated with the Horizon Propane and Active Propane
acquisitions. Operating loss in the 2004 three-month period improved less than
the increase in Partnership EBITDA due to higher depreciation and amortization
expense related to recent acquisitions and higher depreciation associated with
PPX(R).
GAS UTILITY. Weather in Gas Utility's service territory during the 2004
three-month period based upon heating degree days was 18.7% warmer than normal
compared with weather that was 16.3% colder than normal in the 2003 three-month
period. Notwithstanding the warmer weather, total distribution system throughput
increased 0.5 bcf or 3.3% reflecting higher volumes transported for delivery
service customers and the volume effects of year-over-year firm- residential,
commercial and industrial ("retail core-market") customer growth. The decrease
in Gas Utility revenues during the 2004 three-month period principally reflects
a $7.9 million decrease in revenues from retail core-market customers as a
result of lower retail core-market sales partially offset by an increase in
revenues from off-system sales. Retail core-market average purchased gas cost
("PGC") rates were slightly higher during the 2004 three-month period. Gas
Utility cost of gas was $65.1 million in the 2004 three-month period compared to
$65.2 million in the 2003 three-month period reflecting the effects of the
previously mentioned lower
- 25 -
UGI CORPORATION AND SUBSIDIARIES
retail core-market sales substantially offset by the effects of the higher
off-system sales and higher average PGC rates.
The decline in Gas Utility total margin reflects a $2.2 million decline in
retail core-market total margin resulting from the lower volumes sold partially
offset by higher commercial and industrial delivery service total margin
reflecting greater volumes transported.
Gas Utility operating income increased $1.4 million in the 2004 three-month
period principally reflecting a $3.8 million decline in operating and
administrative expenses partially offset by the previously mentioned decline in
total margin. The decrease in operating and administrative expenses is due in
large part to the absence of costs related to settling an environmental claim in
the prior-year three-month period and, to a lesser extent, lower stock-based
incentive compensation costs in the current-year three-month period. The
increase in Gas Utility income before income taxes reflects the previously
mentioned higher operating income offset by a $0.4 million increase in interest
expense in the 2004 three-month period principally as a result of including
dividends paid on preferred shares subject to mandatory redemption as a
component of interest expense in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 150, "Accounting for Certain Financial
Instruments with the Characteristics of Both Liabilities and Equity" ("SFAS
150").
ELECTRIC UTILITY. Electric Utility's 2004 three-month period kilowatt-hour sales
and revenues were slightly higher than in the prior-year period due in large
part to greater air conditioning sales partially offset by the adverse effects
of warmer spring weather on heating-related sales. Temperatures based upon the
number of heating degree days in the 2004 three-month period were approximately
22.9% warmer than in the prior-year period. Electric Utility's cost of sales was
essentially equal with the prior-year period.
Electric Utility total margin in the 2004 three-month period increased $0.8
million principally as a result of the previously mentioned increased sales.
Operating income and income before income taxes were higher in the 2004
three-month period principally reflecting the increase in total margin.
ENERGY SERVICES. The increase in Energy Services revenues in the 2004
three-month period resulted primarily from (1) the effects of UGID's June 2003
purchase of an additional 4.9% (83 megawatt) interest in the Conemaugh
electricity generation station ("Conemaugh"), and (2) a 6.5% increase in natural
gas volumes sold. Total margin from Energy Services' gas marketing business
increased $5.2 million in the 2004 three-month period principally a result of
higher average unit margins reflecting a greater proportion of annual
fixed-price customer contracts and, to a lesser extent, the higher volumes sold.
Under these contracts, customers pay an average fixed price for the natural gas
they purchase throughout the year. Although the unit margin and the total margin
to be earned over the term of these contracts is fixed, margin realization is
seasonal because gas costs are generally higher and unit margins lower, during
the peak heating season months of late fall and winter, while gas costs are
generally lower and unit margins higher, during the late spring and summer
months. Total margin from UGID's electricity generation business increased $3.2
million reflecting the additional interest in Conemaugh.
The increase in Energy Services income before income taxes principally reflects
the previously mentioned increase in total margin partially offset by higher
operating expenses resulting from the purchase of the additional interest in
Conemaugh.
INTERNATIONAL PROPANE. International Propane results of operations in the 2004
three-month period have significantly increased compared to the 2003 three-month
period due to the consolidation of all of Antargaz' operations beginning April
1, 2004 which resulted from the acquisition of the remaining
- 26 -
UGI CORPORATION AND SUBSIDIARIES
80.5% ownership interests in AGZ Holding (the "Antargaz Acquisition"). Antargaz'
revenues, margin and operating income during the 2004 three-month period were
$144.1 million, $88.6 million and $14.5 million, respectively. Antargaz sold
approximately 64 million gallons of LPG while experiencing weather that was 8%
warmer than normal during the 2004 three-month period. FLAGA's revenues
increased slightly on lower volumes sold. FLAGA's higher revenues primarily
reflect the currency translation effects of a stronger euro.
The increase in International Propane operating income reflects Antargaz'
operating income and to a much lesser extent a lower base-currency FLAGA
operating loss in the 2004 three-month period.
Income from equity investees declined in the 2004 three-month period due to the
absence of our 19.5% equity investment in AGZ Holding and a loss from Antargaz'
equity investment, which is accounted for under the equity method of accounting.
The increase in income before income taxes reflects the increase in operating
income partially offset by greater interest expense as a result of the Antargaz
Acquisition.
- 27 -
UGI CORPORATION AND SUBSIDIARIES
2004 NINE-MONTH PERIOD COMPARED WITH 2003 NINE-MONTH PERIOD
Increase
Nine months ended June 30, 2004 2003 (Decrease)
------------------------------------------------------------------------------
(Millions of dollars)
AMERIGAS PROPANE:
Revenues $1,463.0 $1,357.7 $ 105.3 7.8%
Total margin (a) $ 619.3 $ 595.7 $ 23.6 4.0%
Partnership EBITDA $ 247.3 $ 223.8 $ 23.5 10.5%
Operating income $ 188.8 $ 174.0 $ 14.8 8.5%
Retail gallons sold (millions) 883.6 900.0 (16.4) (1.8)%
Degree days - % (warmer) colder
than normal (4.6)% 0.9% - -
GAS UTILITY:
Revenues $ 490.5 $ 484.7 $ 5.8 1.2%
Total margin (a) $ 165.3 $ 172.1 $ (6.8) (4.0)%
Operating income $ 82.8 $ 94.1 $ (11.3) (12.0)%
Income before income taxes $ 70.9 $ 83.4 $ (12.5) (15.0)%
System throughput -
billions of cubic feet ("bcf") 70.0 70.7 (0.7) (1.0)%
Degree days - % (warmer) colder
than normal (2.0)% 8.3% - -
ELECTRIC UTILITY:
Revenues $ 67.1 $ 66.5 $ 0.6 0.9%
Total margin (a) $ 31.9 $ 31.6 $ 0.3 0.9%
Operating income $ 16.8 $ 16.6 $ 0.2 1.2%
Income before income taxes $ 15.2 $ 14.9 $ 0.3 2.0%
Distribution sales - millions of
kilowatt hours ("gwh") 747.2 741.8 5.4 0.7%
ENERGY SERVICES:
Revenues $ 779.0 $ 513.7 $ 265.3 51.6%
Total margin (a) $ 42.2 $ 24.8 $ 17.4 70.2%
Income before income taxes $ 24.0 $ 14.1 $ 9.9 70.2%
INTERNATIONAL PROPANE:
Revenues $ 191.2 $ 44.0 $ 147.2 n.m.
Total margin (a) $ 112.1 $ 19.6 $ 92.5 n.m.
Operating income $ 9.8 $ 0.6 $ 9.2 n.m.
Income from equity investees $ 11.2 $ 7.6 $ 3.6 n.m.
Income before income taxes $ 10.8 $ 5.1 $ 5.7 n.m.
n.m. - not meaningful
(a) Total margin represents total revenues less total cost of sales and, with
respect to Electric Utility, revenue-related taxes, i.e. Electric Utility
gross receipts taxes, of $3.6 million in each of the nine-month periods
ended June 30, 2004 and 2003. For financial statement purposes,
revenue-related taxes are included in "Utility taxes other than income
taxes" on the Condensed Consolidated Statements of Income.
AMERIGAS PROPANE. Based upon heating degree day data, temperatures in the 2004
nine-month period were 4.6% warmer than normal compared to temperatures that
were 0.9% colder than normal in the prior-year nine-month period.
Notwithstanding volume growth from acquisitions, retail propane volumes sold
decreased slightly in the 2004 nine-month period due principally to the effects
of the
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UGI CORPORATION AND SUBSIDIARIES
warmer weather in the 2004 nine-month period. Low margin wholesale volumes
increased 11.6 million gallons primarily reflecting the effects of product cost
hedging activities.
Retail propane revenues increased $71.6 million as a $92.6 million increase due
to higher average selling prices was partially offset by a $21.0 million
decrease due to the lower retail volumes sold. Wholesale propane revenues
increased $24.9 million due to a $17.9 million increase due to higher average
selling prices and a $7.0 million increase due to the higher volumes sold
relating to product cost hedging activities. Retail and wholesale selling prices
were higher during the 2004 nine-month period principally as a result of the
continued high propane product costs within the industry. Although total propane
volumes decreased slightly, total cost of sales increased $81.7 million
reflecting the effects of higher propane product costs, the previously mentioned
increase in wholesale volumes sold and, to a lesser extent, greater costs
associated with increased non-propane sales and services.
Total margin increased $23.6 million as a result of (1) recent acquisitions and
higher average retail propane unit margins on reduced gallons sold and (2) a
$4.3 million increase in margin from non-propane sales and services.
Notwithstanding the previously mentioned increase in propane product costs,
retail and wholesale propane unit margins were higher than in the 2003
nine-month period reflecting the effects of higher average selling prices.
Partnership EBITDA increased $23.5 million in the 2004 nine-month period
reflecting (1) the previously mentioned increase in total margin, (2) a $4.4
million increase in other income, and (3) the absence of a $3.0 million loss on
extinguishment of long-term debt in the prior year nine-month period. These
increases were partially offset by an $7.3 million increase in operating and
administrative expenses principally due to higher compensation and distribution
expenses resulting from the impact of Horizon Propane and other recent
acquisitions, partially offset by the absence of $3.0 million of expenses
associated with initiating the management realignment in June 2003 and the
continued beneficial effects on operating expenses of the realignment. Other
income in the 2004 nine-month period increased principally due to greater income
from finance charges, while other income in the prior-year nine-month period was
reduced by a $1.0 million charge due to the adoption of SFAS No. 143,
"Accounting for Asset Retirement Obligations."
Operating income in the 2004 nine-month period increased less than the increase
in Partnership EBITDA due to higher depreciation and amortization expense
related to recent acquisitions, higher depreciation associated with PPX(R) and
the absence of the aforementioned loss on extinguishment of long-term debt. Net
income in the 2004 nine-month period increased to $124.7 million from $103.4
million in the 2003 nine-month period due to (1) the increase in operating
income, (2) a $3.2 million decrease in interest expense, and (3) the absence of
the aforementioned $3.0 million loss on extinguishment of long-term debt in the
2003 nine-month period. Interest expense decreased principally as a result of
lower long-term debt outstanding.
GAS UTILITY. Weather in Gas Utility's service territory during the 2004
nine-month period was 2.0% warmer than normal compared with weather that was
8.3% colder than normal in the 2003 nine-month period. Total distribution system
throughput decreased 0.7 bcf or 1.0% as the adverse effects of the warmer
weather on heating-related sales to retail core-market customers were partially
offset by greater volumes transported for delivery service customers and the
volume effects of year-over-year retail core-market customer growth. The
increase in Gas Utility revenues during the 2004 nine-month period includes a
$15.6 million increase in revenues from off-system sales partially offset by
lower retail core-market and delivery service revenues. The decline in retail
core-market revenues reflects the effects of the reduced retail core-market
volumes partially offset by higher average PGC rates. Gas Utility cost of gas
was $325.2 million in the 2004 nine-month period compared to $312.6 million in
the 2003 nine-
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UGI CORPORATION AND SUBSIDIARIES
month period reflecting greater cost of gas associated with the higher
off-system sales and the higher average PGC rates partially offset by the
effects of the lower retail core-market volumes sold.
Gas Utility total margin declined $6.8 million principally reflecting a $5.1
million decline in retail core-market margin and also reflecting the effects of
lower volumes transported for small weather-sensitive delivery service
customers.
Gas Utility operating income declined $11.3 million in the 2004 nine-month
period principally reflecting the previously mentioned decline in total margin,
lower other income, and a $1.0 million increase in depreciation expense
partially offset by a decrease in operating and administrative expenses. Other
income declined $4.9 million due in large part to a $2.9 million decline in
non-tariff service income and costs related to settling a regulatory claim
resulting from the discontinuance of natural gas service to certain customers.
Operating and administrative expenses decreased $1.4 million due in large part
to the absence of costs related to settling an environmental claim recorded in
the prior-year nine-month period and lower distribution system maintenance
expenses partially offset by increases in provisions for injuries and damages
claims and higher compensation and benefits expenses. The decrease in Gas
Utility income before income taxes reflects the decline in operating income and
higher interest expense in the 2004 nine-month period principally as a result of
including dividends paid on preferred shares subject to mandatory redemption as
a component of interest expense in accordance with SFAS 150.
ELECTRIC UTILITY. Electric Utility's 2004 nine-month period kilowatt-hour sales
and revenues were slightly higher than in the prior-year period due in large
part to greater air conditioning sales partially offset by the adverse effects
of warmer winter weather on heating-related sales. Temperatures based upon
heating degree days in the 2004 nine-month period were approximately 7.4% warmer
than in the prior-year period. Electric Utility's cost of sales increased $0.4
million reflecting higher purchased power costs.
Electric Utility total margin in the 2004 nine-month period increased $0.3
million principally as a result of the previously mentioned increase in sales.
Operating income and income before income taxes were higher in the 2004
nine-month period principally reflecting the increase in total margin.
ENERGY SERVICES. The increase in Energy Services revenues in the 2004 nine-month
period resulted primarily from (1) a more than 35% increase in natural gas
volumes sold due in large part to the March 2003 acquisition of the northeastern
U.S. gas marketing business of TXU Energy Retail Company, L.P., a subsidiary of
TXU Energy (the "TXU Energy Acquisition"), and to a lesser extent customer
growth, and (2) the effects of UGID's June 2003 purchase of an additional 4.9%
(83 megawatt) interest in Conemaugh. Total margin from Energy Services' gas
marketing business increased $6.5 million in the 2004 nine-month period
principally due to the higher natural gas volumes sold. Total margin from UGID's
electricity generation business increased $10.9 million reflecting the
additional interest in Conemaugh and higher unit margins.
The increase in Energy Services income before income taxes principally reflects
the previously mentioned increase in total margin partially offset by higher
operating expenses resulting from our purchase of the additional interest in
Conemaugh and the TXU Energy Acquisition.
INTERNATIONAL PROPANE. International Propane's revenues increased significantly
during the 2004 nine-month period principally due to including all of Antargaz'
results of operations on a consolidated basis beginning April 1, 2004. Total
margin increased primarily due to the Antargaz Acquisition and a $4.0 million
increase in FLAGA's margin. FLAGA's margin increased in the 2004 nine-month
period as a result of the effects of a stronger euro on slightly improved
base-currency margin.
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UGI CORPORATION AND SUBSIDIARIES
The increase in operating income principally reflects the previously mentioned
increases in margin partially offset by higher operating expenses as a result of
the Antargaz Acquisition. Antargaz' operating income was partially offset by a
loss of $9.1 million resulting from the settlement of contracts for the forward
purchase of euros. FLAGA's operating income increased during the 2004 nine-month
period primarily reflecting lower operating expenses which were partially offset
by the effects of a stronger euro.
Income from equity investees in the 2004 nine-month period includes equity
investee income from our 19.5% ownership interest in AGZ Holding through March
31, 2004. The $3.6 million increase over the 2003 nine-month period primarily
reflects higher income from AGZ Holding.
The increase in income before income taxes reflects the combined increase in
Antargaz results as an equity investee and on a consolidated basis and the
previously mentioned increase in FLAGA operating income partially offset by
interest expense.
FINANCIAL CONDITION AND LIQUIDITY
FINANCIAL CONDITION
Our cash, cash equivalents and short-term investments totaled $185.4 million at
June 30, 2004 compared with $192.1 million at September 30, 2003. These amounts
include $34.6 million and $116.3 million at June 30, 2004 and September 30,
2003, respectively, of cash, cash equivalents and short-term investments held by
UGI. The decline in cash, cash equivalents and short-term investments held by
UGI at June 30, 2004 compared to September 30, 2003 is a result of funding a
portion of the Antargaz Acquisition purchase price partially offset by dividends
received from subsidiaries including total fiscal 2004 dividends from Antargaz
of $53.6 million. See Note 4 to the Condensed Consolidated Financial Statements.
The Company's long-term debt outstanding at June 30, 2004 totaled $1,670.2
million (including current maturities of $115.4 million) compared to $1,223.5
million of long-term debt (including current maturities of $65.0 million) at
September 30, 2003 (see Note 9 to the Condensed Consolidated Financial
Statements). In April 2004, AmeriGas OLP repaid $53.8 million of maturing First
Mortgage Notes. In conjunction with this repayment, AmeriGas Partners issued $28
million face amount of 8.875% Senior Notes due 2011, at an effective interest
rate of 7.18%, and contributed the net proceeds of $30.1 million to AmeriGas
OLP.
On May 26, 2004, AmeriGas Partners sold 2,000,000 Common Units in an
underwritten public offering at a public offering price of $25.61 per unit. On
June 10, 2004, the underwriters partially exercised their overallotment option
in the amount of 100,000 Common Units. The net proceeds of the public offering
totaling $51.2 million and associated capital contributions from the General
Partner totaling $1.0 million, were contributed to AmeriGas OLP and used to
reduce indebtedness under its bank credit agreement and for general partnership
purposes. Concurrent with this sale of Common Units, the Company recorded a net
gain in the amount of $5.6 million which is reflected in the Company's balance
sheet as an increase in common stockholders' equity in accordance with the
guidance in SEC Staff Accounting Bulletin No. 51, "Accounting for Sales of
Common Stock by a Subsidiary." The gain had no effect on the Company's net
income or cash flow.
AmeriGas OLP's Credit Agreement expires on October 15, 2006 and consists of (1)
a $100 million Revolving Credit Facility and (2) a $75 million Acquisition
Facility. The Revolving Credit Facility may be used for working capital and
general purposes of AmeriGas OLP. The Acquisition Facility provides
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UGI CORPORATION AND SUBSIDIARIES
AmeriGas OLP with the ability to borrow up to $75 million to finance the
purchase of propane businesses or propane business assets or, to the extent it
is not so used, may be used for working capital and general purposes. Issued and
outstanding letters of credit under the Revolving Credit Facility, which reduce
the amount available for borrowings, totaled $42.8 million at June 30, 2004.
AmeriGas OLP's short-term borrowing needs are seasonal and are typically
greatest during the fall and winter heating-season months due to the need to
fund higher levels of working capital.
AmeriGas Partners periodically issues debt and equity securities and expects to
continue to do so. It has issued debt securities and common units in
underwritten public offerings in each of the last three fiscal years. Most
recently, it has issued debt securities in April 2004 and issued common units in
an underwritten public offering in May 2004. The Partnership has effective debt
and equity shelf registration statements with the SEC under which it may issue
up to an additional (1) 1.4 million AmeriGas Partners Common Units and (2) up to
$446.2 million of debt or equity securities pursuant to an unallocated shelf
registration statement.
UGI Utilities has revolving credit commitments under which it may borrow up to a
total of $110 million. These agreements expire in June 2006 and 2007. At June
30, 2004, UGI Utilities had $30.1 million in borrowings outstanding under these
revolving credit agreements. In addition, UGI Utilities has an uncommitted
arrangement with a major bank under which it may borrow up to $20 million. At
June 30, 2004, there were no borrowings outstanding under this arrangement.
Amounts outstanding under the revolving credit agreements and the uncommitted
arrangement are classified as bank loans on the Condensed Consolidated Balance
Sheets. UGI Utilities also has a shelf registration statement with the SEC under
which it may issue up to an additional $40 million of Medium-Term Notes or other
debt securities.
On July 27, 2004, UGI Utilities' Board of Directors approved the redemption on
October 1, 2004 of all 200,000 shares of the $7.75 UGI Utilities Series
Preferred Stock at a price of $100 per share together with full cumulative
dividends. Currently, we intend to fund the redemption of the $7.75 UGI
Utilities Series Preferred Stock with proceeds from the issuance of Medium-Term
Notes.
Energy Services has a $100 million receivables purchase facility ("Receivables
Facility") with an issuer of receivables-backed commercial paper expiring on
August 26, 2006, although the Receivables Facility may terminate prior to such
date due to the termination of the commitments of the Receivables Facility
back-up purchasers. Under the Receivables Facility, Energy Services transfers,
on an ongoing basis and without recourse, its trade accounts receivable to its
wholly owned, special purpose subsidiary, Energy Services Funding Corporation
("ESFC"), which is consolidated for financial statement purposes. ESFC, in turn,
has sold, and subject to certain conditions, may from time to time sell, an
undivided interest in the receivables to a commercial paper conduit of a major
bank. The maximum level of funding available at any one time from this facility
is $100 million. The proceeds of these sales are less than the face amount of
the accounts receivable sold by an amount that approximates the purchaser's
financing cost of issuing its own receivables-backed commercial paper. ESFC was
created and has been structured to isolate its assets from creditors of Energy
Services and its affiliates, including UGI. This two-step transaction is
accounted for as a sale of receivables following the provisions of SFAS No. 140,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities." Energy Services continues to service, administer and collect
trade receivables on behalf of the commercial paper issuer and ESFC. At June 30,
2004, the outstanding balance of ESFC receivables was $72.7 million of which no
amount was sold to the commercial paper conduit.
In addition, a major bank has committed to Energy Services to issue up to $50
million of standby letters of credit, secured by cash or marketable securities
("LC Facility"). Energy Services expects to fund the
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UGI CORPORATION AND SUBSIDIARIES
collateral requirements with borrowings under its Receivables Facility. The LC
Facility expires in April 2005.
Antargaz has a variable interest rate Senior Facilities Agreement consisting of
a 202 million euro ($246.4 million) term loan and a 50 million euro ($61.0
million) revolver which expires June 2008. In May 2004, the Senior Facilities
Agreement was amended to eliminate the change of control provision as a result
of the Antargaz Acquisition. As of June 30, 2004 there were no borrowings
outstanding under the revolver.
The Senior Facilities Agreement and the Trust Deed, dated July 23, 2002, among
AGZ Finance, a subsidiary of AGZ Holding, as issuer, AGZ Holding, as guarantor,
and the Bank of New York, as trustee, ("Trust Deed") relating to 165 million
euros principal amount of 10% Senior Notes due 2011 restrict the ability of AGZ
Holding to, among other things, incur additional indebtedness, make investments,
incur liens, prepay indebtedness, and effect mergers, consolidations and sales
of assets. Under these agreements, AGZ Holding is generally permitted to make
restricted payments, such as dividends, equal to 50% of consolidated net income,
as defined in each respective agreement, for (1) the immediately preceding
fiscal year, in the case of the Senior Facilities Agreement, and (2) on a
cumulative basis since July 2002, in the case of the Trust Deed, if no event of
default exists or would exist upon payment of such restricted payment.
CASH FLOWS
OPERATING ACTIVITIES. Due to the seasonal nature of the Company's businesses,
cash flows from operating activities are generally strongest during the second
and third fiscal quarters when customers pay for natural gas, propane and
electricity consumed during the heating season months. Conversely, operating
cash flows are generally at their lowest levels during the first and fourth
fiscal quarters when the Company's investment in working capital, principally
inventories and accounts receivable, is generally greatest. The Company's major
business units, except for Antargaz, regularly use revolving credit facilities,
or in the case of Energy Services its Receivables Facility, to satisfy their
seasonal operating cash flow needs. Cash flow from operating activities was
$184.8 million in the 2004 nine-month period compared to $205.3 million in the
2003 nine-month period. The decrease in operating cash flow primarily reflects
higher cash required to fund changes in operating working capital. Cash flow
from operating activities before changes in operating working capital was $279.6
million in the 2004 nine-month period compared with $245.9 million in the
prior-year nine-month period. Changes in operating working capital used $94.8
million in the 2004 nine-month period and $40.6 million in the 2003 nine-month
period.
INVESTING ACTIVITIES. Investing activity cash flow is principally affected by
capital expenditures and investments in property, plant and equipment, cash paid
for acquisitions of businesses, investments in and distributions from our equity
investees, changes in short-term investments and proceeds from sales of assets.
Cash flow used in investing activities was $338.5 million in the 2004 nine-month
period compared to $198.8 million in the prior-year period. We spent $283.7
million principally reflecting the Antargaz Acquisition and the acquisition of
Horizon Propane, net of cash acquired. The cash provided by the decrease in
short-term investments was primarily used to fund a portion of the purchase
price of the remaining 80.5% interests in AGZ Holding.
FINANCING ACTIVITIES. Cash flow provided by financing activities was $172.6
million in the 2004 nine-month period compared with $79.1 million of cash used
in the prior-year nine-month period. Financing activity cash flow changes are
primarily due to issuances and repayments of long-term debt, net borrowing under
revolving credit facilities, dividends and distributions on UGI Common Stock and
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UGI CORPORATION AND SUBSIDIARIES
AmeriGas Partners Common Units, and proceeds from public offerings of AmeriGas
Partners Common Units and issuances of UGI Common Stock. The proceeds from the
issuance of 7.8 million shares of UGI Common Stock totaling approximately $239
million were primarily used to fund the Antargaz Acquisition.
We paid cash dividends on UGI Common Stock of $40.4 million and $35.6 million
during the nine-months ended June 30, 2004 and 2003, respectively. Also, the
Partnership paid the minimum quarterly distribution of $0.55 (the "MQD") on all
limited partner units during both of the nine-month periods ended June 30, 2004
and 2003.
ANTARGAZ ACQUISITION
On March 31, 2004 (the "Closing Date"), UGI, through its subsidiary, UGI
Bordeaux Holding (as assignee of UGI France, Inc. ("UGI France")), completed its
acquisition of the remaining outstanding 80.5% ownership interests of AGZ
Holding, a French corporation and the parent company of Antargaz, a French
corporation and a leading distributor of liquefied petroleum gases in France,
pursuant to the terms of (i) a Share Purchase Agreement dated as of February 17,
2004, by and among UGI France, UGI, PAI partners, a French corporation ("PAI"),
and certain officers, directors and managers of AGZ Holding and Antargaz and
their affiliates, and (ii) that certain Medit Joinder Agreement dated February
20, 2004, by and among UGI France, UGI, Medit Mediterranea GPA, S.r.L., a
company incorporated under the laws of Italy ("Medit"), and PAI (referred to
herein as the "Antargaz Acquisition").
The purchase price on the Closing Date of 261.8 million euros or $319.2 million
(excluding transaction fees and expenses) was subject to post-closing working
capital and net debt adjustments. UGI used $230.2 million of cash proceeds from
its public offering of 7.5 million shares of its common stock in March 2004, and
$89.0 million of available cash to pay the purchase price. The purchase price
was negotiated at arms length by UGI with the other owners of AGZ Holding's
issued and outstanding capital stock. In accordance with the Share Purchase
Agreement, UGI paid an additional 5.8 million euros ($7.1 million) as a result
of post-closing adjustments. In addition, the preliminary purchase price
allocation reflects transaction fees and expenses of $5.9 million.
The Company is currently in the process of completing the review and
determination of the fair value of the portion of AGZ Holding's assets acquired
and liabilities assumed, principally the fair values of property, plant and
equipment and identifiable intangible assets. Accordingly, the allocation of the
purchase price is subject to revision and due to the size of the Antargaz
Acquisition, revisions, if any, could be material to our financial statements.
The assets, liabilities and equity of AGZ Holding are included in our Condensed
Consolidated Balance Sheet as of June 30, 2004. The operating results of all of
AGZ Holding are included in our consolidated results beginning April 1, 2004.
Prior to April 1, 2004, our 19.5% interest in AGZ Holding is reflected in our
Condensed Consolidated Financial Statements on the equity method of accounting.
UGI COMMON DIVIDEND
On July 27, 2004, UGI's Board of Directors declared a quarterly dividend on UGI
Common Stock of $0.3125 per share payable on October 1, 2004 to shareholders of
record on August 31, 2004. UGI had previously raised the annual dividend rate to
$1.25 per share, or $0.3125 per share on a quarterly basis, from $1.14 per
share, or $0.2850 per share on a quarterly basis, effective with the regularly
scheduled July 1, 2004 dividend payment.
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UGI CORPORATION AND SUBSIDIARIES
UGI UTILITIES PREFERRED SHARES SUBJECT TO MANDATORY REDEMPTION
Beginning July 1, 2003, the Company accounts for UGI Utilities preferred shares
subject to mandatory redemption in accordance with SFAS No. 150, "Accounting for
Certain Financial Instruments with Characteristics of Both Liabilities and
Equity" ("SFAS 150"). SFAS 150 establishes guidelines on how an issuer
classifies and measures certain financial instruments with characteristics of
both liabilities and equity. The adoption of SFAS 150 results in the Company
presenting UGI Utilities preferred shares subject to mandatory redemption in the
liabilities section of the balance sheet and reflecting dividends paid on these
shares as a component of interest expense for periods presented after June 30,
2003. Because SFAS 150 specifically prohibits the restatement of financial
statements prior to its adoption, prior period amounts have not been
reclassified. As previously mentioned, on July 27, 2004, UGI Utilities' Board of
Directors approved the redemption on October 1, 2004 of all 200,000 shares of
the $7.75 UGI Utilities Series Preferred Stock.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In December 2003, the Financial Accounting Standards Board ("FASB") revised
Financial Interpretation No. 46, "Consolidation of Variable Interest Entities"
("FIN 46"), which was originally issued in January 2003 and clarifies Accounting
Research Bulletin No. 51, "Consolidated Financial Statements." FIN 46 was
effective immediately for variable interest entities created or obtained after
January 31, 2003. For variable interests created or acquired before February 1,
2003, FIN 46 was effective beginning with our interim period ended March 31,
2004. If certain conditions are met, FIN 46 requires the primary beneficiary to
consolidate certain variable interest entities. The Company has not created or
obtained any variable interest entities after January 31, 2003. The adoption of
FIN 46, as revised, did not have a material effect on the Company's financial
position or results of operations.
On December 2003, the Medicare Prescription Drug, Improvement and Modernization
Act of 2003 (the "Act") was signed into law. Among other things, the Act
provides for a prescription drug benefit to Medicare beneficiaries on a
voluntary basis beginning in 2006. To encourage employers to continue to offer
retiree prescription drug benefits, the Act provides for a tax-free subsidy to
employers who offer a prescription drug benefit that is at least actuarially
equivalent to the standard benefit offered under the Act.
The Company provides postretirement health care benefits principally to certain
of UGI Utilities' retirees and a limited number of active employees meeting
certain age and service requirements. These postretirement benefits include
certain retiree prescription drug benefits. Pursuant to orders previously issued
by the Pennsylvania Public Utility Commission ("PUC"), UGI Utilities has
established a Voluntary Employees' Beneficiary Association ("VEBA") trust to
fund the UGI Utilities' postretirement benefit obligations and to pay retiree
health care and life insurance benefits by depositing into the VEBA the annual
amount of postretirement benefit costs determined under SFAS No. 106, "Employers
Accounting for Postretirement Benefits Other than Pensions." The difference
between the annual amount calculated and the amount in UGI Utilities' rates is
deferred for future recovery from, or refund to, ratepayers.
In May 2004, the FASB issued Staff Position No. FAS 106-2, "Accounting and
Disclosure Requirements Related to the Medicare Prescription Drug, Improvement
and Modernization Act of 2003" ("FSP 106-2"). FSP 106-2 is effective for periods
beginning after June 15, 2004. Therefore, the Condensed Consolidated Financial
Statements and accompanying footnotes do not reflect the effects of the Act.
However, under the current ratemaking described above, any increases or
decreases in postretirement benefit costs resulting from the Act will not affect
our reported results. In addition,
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UGI CORPORATION AND SUBSIDIARIES
because of the limited number of participants in the postretirement medical
benefits program and the current level of postretirement medical benefits, we do
not believe the Act will have a material effect on the Company's cash flows.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
The Company's management, with the participation of the Company's Chief
Executive Officer and Chief Financial Officer, evaluated the
effectiveness of the Company's disclosure controls and procedures as of
the end of the period covered by this report. Based on that evaluation,
the Chief Executive Officer and Chief Financial Officer concluded that
the Company's disclosure controls and procedures as of the end of the
period covered by this report were designed and functioning effectively
to provide reasonable assurance that the information required to be
disclosed by the Company in reports filed under the Securities Exchange
Act of 1934, as amended, is recorded, processed, summarized and reported
within the time periods specified in the SEC's rules and forms. Included
in the Company's evaluation was consideration of the restatement of
previously issued financial statements due to reconsideration of previous
judgments related to the provision of deferred taxes in connection with
gains recorded in fiscal years 2003 and 2004 in accordance with the
guidance in SEC Staff Accounting Bulletin No. 51, "Accounting for Sales
of Common Stock by a Subsidiary." The Company believes that its
reconsideration of previous judgments in the application of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes,"
was not a result of ineffective internal controls or procedures. The
Company believes that a controls system, no matter how well designed and
operated, cannot provide absolute assurance that the objectives of the
controls system are met, and no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud, if
any, within a company have been detected.
(b) Change in Internal Control over Financial Reporting
No change in the Company's internal control over financial reporting
occurred during the Company's most recent fiscal quarter that has
materially affected, or is reasonable likely to materially affect, the
Company's internal control over financial reporting.
As described in Note 4 to the Condensed Consolidated Financial Statements
included in this report, on March 31, 2004, the Company acquired the
remaining outstanding 80.5% ownership in AGZ Holding that it did not
already own. The internal control over financial reporting of AGZ Holding
and its subsidiaries ("Antargaz") is being aligned with that of the
Company as part of the post-acquisition financial integration process. As
a result of this continuing integration process, we have extended internal
control procedures over quarterly financial reporting to include Antargaz.
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UGI CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report on Form 10-Q/A to be signed on its
behalf by the undersigned thereunto duly authorized.
UGI Corporation
---------------
(Registrant)
Date: February 4, 2005 By: /s/ Anthony J. Mendicino
------------------------------------
Anthony J. Mendicino
Senior Vice President-Finance and
Chief Financial Officer
Date: February 4, 2005 By: /s/ Michael J. Cuzzolina
------------------------------------
Michael J. Cuzzolina
Vice President-Accounting and
Financial Control and
Chief Risk Officer
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UGI CORPORATION AND SUBSIDIARIES
EXHIBIT INDEX
10.1 UGI Corporation 2004 Omnibus Equity Compensation Plan, effective as of
January 1, 2004 (Incorporated by reference to Exhibit 99.1 of UGI
Corporation's Registration Statement No. 333-118147).
10.2 UGI Corporation 2000 Stock Incentive Plan Amended and Restated as of
December 16, 2003.
10.3 UGI Corporation Senior Executive Employee Severance Pay Plan, as amended
December 16, 2003.
10.4 UGI Corporation Severance Plan for Exempt Employees in Salary Grades 70-75
and Salary Grades 57-60, as amended December 16, 2003.
10.5 Amendment Agreement dated June 18, 2004, relating to the Senior Facilities
Agreement dated June 26, 2003, as Amended and Restated, between AGZ
Holding, as Parent, Antargaz, the Senior Lenders, (as defined therein) and
Calyon, as Mandated Lead Arranger, Facility Agent and Security Agent.
10.6 Creditor Accession Agreement dated June 18, 2004, between UGI Bordeaux
Holding, as the New Investor, and Calyon, as Security Agent.
10.7 Letter of Undertakings dated June 18, 2004, by UGI Bordeaux Holding, to
AGZ Holding, the Parent of Antargaz, and Calyon, the Facility Agent,
acting on behalf of the Lenders, (as defined within the Senior Facilities
Agreement).
10.8 Tax Consolidation Agreement dated June 18, 2004, entered into by UGI
Bordeaux Holding and its Subsidiaries named therein.
31.1 Certification by the Chief Executive Officer relating to the Registrant's
Report on Form 10-Q/A for the quarter ended June 30, 2004, pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification by the Chief Financial Officer relating to the Registrant's
Report on Form 10-Q/A for the quarter ended June 30, 2004, pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
* 32 Certification by the Chief Executive Officer and the Chief Financial
Officer relating to the Registrant's Report on Form 10-Q/A for the quarter
ended June 30, 2004, pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
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* This Exhibit shall not be deemed "filed" for purposes of Section 18 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
otherwise subject to liability under that section, nor shall it be deemed
incorporated by reference in any filing under the Securities Act of 1933,
as amended, or the Exchange Act, except as expressly set forth by specific
reference in such filing.