10-K 1 w43405e10-k.txt ANNUAL REPORT FOR FISCAL YEAR ENDED 09/30/2000 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2000 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 IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 460 North Gulph Road, King of Prussia, PA 19406 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (610) 337-1000 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE TITLE OF CLASS ON WHICH REGISTERED Common Stock, without par value New York Stock Exchange, Inc. Philadelphia Stock Exchange, Inc. SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS) AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO . INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. [ ] The aggregate market value of UGI Corporation Common Stock held by nonaffiliates of the registrant on December 1, 2000 was $630,716,648. At December 8, 2000 there were 27,024,689 shares of UGI Corporation Common Stock issued and outstanding. DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Annual Report to Shareholders for the year ended September 30, 2000 are incorporated by reference into Parts I and II of this Form 10-K. Portions of the Proxy Statement for the Annual Meeting of Shareholders to be held on February 27, 2001 are incorporated by reference into Part III of this Form 10-K. ================================================================================ 2
TABLE OF CONTENTS PART I BUSINESS PAGE Items 1 and 2 Business and Properties.................................................... 1 AmeriGas Propane Business.................................................. 2 Utility Operations......................................................... 9 UGI Enterprises, Inc....................................................... 17 - Domestic Businesses ....................................... 17 - International Businesses .................................. 17 Item 3 Legal Proceedings.......................................................... 19 Item 4 Submission of Matters to a Vote of Security Holders........................................................... 21 PART II SECURITIES AND FINANCIAL INFORMATION Item 5 Market for Registrant's Common Equity and Related Stockholder Matters............................................ 21 Item 6 Selected Financial Data.................................................... 23 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations.............................. 24 Item 7A Quantitative and Qualitative Disclosures About Market Risk................. 24 Item 8 Financial Statements and Supplementary Data................................ 24 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure......................... 24 PART III UGI MANAGEMENT AND SECURITY HOLDERS Item 10 Directors and Executive Officers of the Registrant......................... 25 Item 11 Executive Compensation..................................................... 25 Item 12 Security Ownership of Certain Beneficial Owners and Management...................................................... 25 Item 13 Certain Relationships and Related Transactions............................. 25 PART IV ADDITIONAL EXHIBITS, SCHEDULES AND REPORTS Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K.................................................... 28 Signatures................................................................. 34 Index to Financial Statements and Financial Statement Schedules.............................................. F-2
(i) 3 PART I: BUSINESS ITEMS 1 AND 2. BUSINESS AND PROPERTIES UGI Corporation is a holding company that operates propane distribution, gas and electric utility, energy marketing and related businesses through subsidiaries. Our majority-owned subsidiary, AmeriGas Partners, L.P., a Delaware limited partnership ("AmeriGas Partners" or the "Partnership"), conducts one of the nation's largest retail propane distribution businesses through its 98.99% owned subsidiary AmeriGas Propane, L.P. (the "Operating Partnership"). We have been in the retail propane distribution business for over 40 years, operating through various subsidiaries. The Partnership's sole general partner is our subsidiary, AmeriGas Propane, Inc. ("AmeriGas Propane" or the "General Partner"). The common units of AmeriGas Partners, which represent limited partner interests, are traded on the New York Stock Exchange under the symbol "APU." We have a 55.5% combined ownership interest in the Partnership and the Operating Partnership. The remaining interest is publicly held. Our subsidiary UGI Utilities, Inc. ("Utilities") owns and operates a natural gas distribution utility and an electric distribution utility in eastern Pennsylvania. In response to state deregulation legislation, effective October 1, 1999, Utilities' transferred its electric generation assets to its non-utility subsidiary, UGI Development Company ("UGID"). UGID contributed certain of its generation assets to a joint venture with a subsidiary of Allegheny Energy, Inc. in December 2000. Utilities is the successor to a business founded in 1882. It serves 272,000 natural gas customers and 61,000 electric customers. Our subsidiary UGI Enterprises, Inc. ("Enterprises") conducts domestic and international businesses through subsidiaries. The domestic businesses include retail gas and electric marketing, a retailer of hearth, spa and grill products, Hearth USA(TM), and a heating, ventilation and air-conditioning business. In September 1999, Enterprises acquired FLAGA GmbH, the largest retail propane distributor in Austria. Enterprises also has two international energy-related joint ventures. We expect Enterprises to continue to evaluate and develop new related and complementary business opportunities for us. UGI was incorporated in Pennsylvania in 1991. UGI is not subject to regulation by the Pennsylvania Public Utility Commission ("PUC"). It is also exempt from registration as a holding company and not otherwise subject to the Public Utility Holding Company Act of 1935, except for Section 9(a)(2), which regulates the acquisition of voting securities of an electric or gas utility company. Our executive offices are located at 460 North Gulph Road, King of Prussia, Pennsylvania 19406, and our telephone number is (610) 337-1000. In this report, the terms "Company" and "UGI," as well as the terms "our," "we," and "its," are sometimes used as abbreviated references to UGI Corporation or, collectively, UGI Corporation and its consolidated subsidiaries. Similarly, the terms "AmeriGas Partners" and the "Partnership" are sometimes used as abbreviated references to AmeriGas Partners, L.P. or, collectively, AmeriGas Partners, L.P. and its subsidiaries, including the Operating Partnership. BUSINESS STRATEGY In July 1999, following a comprehensive study, we announced our intention to refocus our strategic direction on growing our existing natural gas, electric and propane businesses while seeking additional related and complementary growth opportunities. We are employing our core -1- 4 competencies from our existing businesses, as well as using our national scope, extensive asset base and access to customers, to accelerate growth in related and complementary businesses, both domestic and international. During fiscal year 2000, we completed four transactions in pursuit of this strategy. AMERIGAS PROPANE BUSINESS Our domestic propane distribution business is conducted through AmeriGas Partners. The Partnership is one of the largest retail propane distributors in the United States, based on fiscal year 2000 retail volume of 771 million gallons. The Partnership operates from approximately 550 district locations in 45 states. AmeriGas Propane manages the Partnership. Although our consolidated financial statements include 100% of the Partnership's revenues, assets and liabilities, our net income reflects only our majority interest in the income or loss of the Partnership, due to the publicly-owned limited partner interest. See Note 1 to the Company's Consolidated Financial Statements. GENERAL INDUSTRY INFORMATION Propane is separated from crude oil during the refining process and also extracted from natural gas or oil wellhead gas at processing plants. Propane is normally transported and stored in a liquid state under moderate pressure or refrigeration for economy and ease of handling in shipping and distribution. When the pressure is released or the temperature is increased, it is usable as a flammable gas. Propane is colorless and odorless; an odorant is added to allow its detection. Propane is clean burning, producing negligible amounts of pollutants when properly consumed. The primary customers for propane are residential, commercial, agricultural, motor fuel and industrial users to whom natural gas is not readily available. Propane is typically more expensive than natural gas, competitive with fuel oil when operating efficiencies are taken into account and, in most areas, cheaper than electricity on an equivalent energy basis. Several states have adopted or are considering proposals that would substantially deregulate the generation portion of the electric utility industry and thereby permit retail electric customers to choose their electric supplier. While proponents of electric utility deregulation believe that competition will ultimately reduce the cost of electricity, we are unable to predict whether, or the extent to which, the price of electricity may drop. Therefore, we cannot predict the ultimate impact that electric utility deregulation may have on propane's existing competitive price advantage over electricity. -2- 5 PRODUCTS, SERVICES AND MARKETING As of September 30, 2000, the Partnership distributed propane to approximately 968,000 customers from approximately 550 district locations. The Partnership's operations are located primarily in the Northeast, Southeast, Great Lakes and West Coast regions of the United States. The Partnership also sells, installs and services propane appliances, including heating systems. In certain markets, the Partnership also installs and services propane fuel systems for motor vehicles. Typically, district locations are found in suburban and rural areas where natural gas is not available. Districts generally consist of an office, appliance showroom, warehouse and service facilities, with one or more 18,000 to 30,000 gallon storage tanks on the premises. As part of its overall transportation and distribution infrastructure, the Partnership operates as an interstate carrier in 48 states throughout the United States. It is also licensed as a carrier in Canada. The Partnership sells propane primarily to five markets: residential, commercial/industrial, motor fuel, agricultural and wholesale. Approximately 75% of the Partnership's 2000 fiscal year sales (based on gallons sold) were to retail accounts and approximately 25% were to wholesale customers. Sales to residential customers in fiscal 2000 represented approximately 40% of retail gallons sold, industrial/commercial customers 37%, motor fuel customers 15%, and agricultural customers 8%. Residential customers represented 49% of the Partnership's total propane margin. No single customer accounts for 1% or more of the Partnership's consolidated revenues. In the residential market, which includes both conventional and manufactured housing, propane is used primarily for home heating, water heating and cooking purposes. Commercial users, which include motels, hotels, restaurants and retail stores, generally use propane for the same purposes as residential customers. The PPX Prefilled Propane Xchange program ("PPX(R)") enables consumers to exchange their empty 20-pound propane grill cylinders for filled cylinders at various retail locations such as home center and convenience stores. Sales of our PPX(R) grill cylinders to retailers are included in the commercial/industrial market. Industrial customers use propane to fire furnaces, as a cutting gas and in other process applications. Other industrial customers are large-scale heating accounts and local gas utility customers who use propane as a supplemental fuel to meet peak load deliverability requirements. As a motor fuel, propane is burned in internal combustion engines that power over-the-road vehicles, forklifts and stationary engines. Agricultural uses include tobacco curing and crop drying. In its wholesale operations, the Partnership principally sells propane to large industrial end-users and other propane distributors. Retail deliveries of propane are usually made to customers by means of bobtail and rack trucks. Propane is pumped from the bobtail truck, which generally holds 2,400 to 3,000 gallons of propane, into a stationary storage tank on the customer's premises. The Partnership owns most of these storage tanks and leases them to its customers. The capacity of these tanks ranges from approximately 100 gallons to approximately 1,200 gallons. The Partnership also delivers propane to retail customers in portable cylinders with capacities of 4 to 30 gallons. Some of these deliveries are made to the customer's location, where empty cylinders are either picked up for replenishment or filled in place. The Partnership continues to expand its PPX(R) program. At September 30, 2000, PPX(R) was available at approximately 10,700 retail locations throughout the country. -3- 6 PROPANE SUPPLY AND STORAGE Supplies of propane from the Partnership's sources historically have been readily available. During the year ended September 30, 2000, the Partnership purchased approximately 65% of its propane from 10 suppliers, including Enterprise Products Operating LP (approximately 18%), the BP companies (approximately 17%) and Dynegy (approximately 13%). The availability of propane supply is dependent upon, among other things, the severity of winter weather and the price and availability of competing fuels such as natural gas and heating oil. Although no assurance can be given that supplies of propane will be readily available in the future, management currently expects to be able to secure adequate supplies during fiscal year 2001. If supply from major sources were interrupted, however, the cost of procuring product might be materially higher and, at least on a short-term basis, margins could be affected. Aside from Enterprise Products Operating LP, the BP companies and Dynegy, no single supplier provided more than 10% of the Partnership's total propane supply in fiscal year 2000. In certain market areas, however, some suppliers provide 70% to 80% of the Partnership's requirements. Disruptions in supply in these areas could also have an adverse impact on the Partnership's margins. The Partnership has over 200 sources of supply, and it also makes purchases on the spot market. The Partnership purchases its propane supplies from domestic and international suppliers. Over 90% of propane purchases by the Partnership in fiscal year 2000 were on a contractual basis under one- or two-year agreements subject to annual review. More than 90% of those contracts provided for pricing based upon posted prices at the time of delivery or the current prices established at major storage points such as Mont Belvieu, Texas, or Conway, Kansas. In addition, some agreements provided maximum and minimum seasonal purchase volume guidelines. The percentage of contract purchases, and the amount of supply contracted for at fixed prices, will vary from year to year as determined by the General Partner. The Partnership uses a number of interstate pipelines, as well as railroad tank cars, delivery trucks and barges, to transport propane from suppliers to storage and distribution facilities. The Partnership stores propane at facilities in Arizona, Rhode Island and several other states. Because the Partnership's profitability is sensitive to changes in wholesale propane costs, the Partnership generally seeks to pass on increases in the cost of propane to customers. There is no assurance, however, that the Partnership will always be able to pass on product cost increases fully, particularly when product costs rise rapidly. Product cost increases can be triggered by periods of severe cold weather, supply interruptions, or other unforeseen events. The General Partner has adopted supply acquisition and product price risk management practices to reduce the effect of price volatility on product costs. These practices currently include the use of summer storage, forward purchases and derivative commodity instruments such as options and propane price swaps. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Market Risk Disclosures." -4- 7 The following graph shows the average prices of propane on the propane spot market during the last five fiscal years at Mont Belvieu, Texas and Conway, Kansas, two major storage areas. [PLOT POINTS FOR AVERAGE PROPANE SPOT MARKET PRICES] LP History for Mt Be Mont Belvieu Conway 1995 October Avg. Oct-95 30.946 32.7784 1995 November Avg. Nov-95 30.9531 32.7406 1995 December Avg. Dec-95 35.3219 38.1719 1996 January Avg. Jan-96 36 36.2415 1996 February Avg. Feb-96 40.8563 37.7688 1996 March Avg. Mar-96 37.2292 36.0119 1996 April Avg. Apr-96 35.5744 34.1071 1996 May Avg. May-96 34.9233 34.4773 1996 June Avg. Jun-96 34.925 36.3531 1996 July Avg. Jul-96 35.6339 37.2679 1996 August Avg. Aug-96 38.4403 37.9773 1996 September Avg. Sep-96 47.0156 44.7844 1996 October Avg. Oct-96 51.5734 51.5272 1996 November Avg. Nov-96 58.0493 63.4112 1996 December Avg. Dec-96 61.0446 84.2917 1997 January Avg. Jan-97 47.4545 63.392 1997 February Avg. Feb-97 38.7105 39.0197 1997 March Avg. Mar-97 38.5 37.2563 1997 April Avg. Apr-97 34.875 35.2614 1997 May Avg. May-97 35.3095 36.4762 1997 June Avg. Jun-97 34.4286 35.8631 1997 July Avg. Jul-97 34.9063 34.6278 1997 August Avg. Aug-97 37.0268 36.5268 1997 September Avg. Sep-97 38.6786 37.9524 1997 October Avg. Oct-97 39.8261 37.3207 1997 November Avg. Nov-97 35.9479 35.0035 1997 December Avg. Dec-97 33.571 31.3636 1998 January Avg. Jan-98 30.0656 28.2063 1998 February Avg. Feb-98 29.7862 28.3237 1998 March Avg. Mar-98 27.3892 27.8381 1998 April Avg. Apr-98 29.0565 29.4702 1998 May Avg. May-98 27.4188 27.8231 1998 June Avg. Jun-98 24.4205 24.8409 1998 July Avg. Jul-98 24.5398 24.5483 1998 August Avg. Aug-98 24.1161 23.8661 1998 September Avg. Sep-98 24.8304 24.0417 1998 October Avg. Oct-98 25.7188 24.5682 1998 November Avg. Nov-98 24.7862 23.2007 1998 December Avg. Dec-98 20.8949 18.7188 1999 January Avg. Jan-99 21.7467 19.6086 1999 February Avg. Feb-99 22.4342 20.5822 1999 March Avg. Mar-99 24.1005 23.4022 1999 April Avg. Apr-99 28.2619 27.5774 1999 May Avg. May-99 28.3063 26.8813 1999 June Avg. Jun-99 30.9517 28.679 1999 July Avg. Jul-99 37.2619 34.622 1999 August Avg. Aug-99 40.5085 37.5597 1999 September Avg. Sep-99 43.1786 42.4048 1999 October Avg. Oct-99 45.4554 43.3899 1999 November Avg. Nov-99 43.4406 38.7781 1999 December Avg. Dec-99 42.8304 35.1012 2000 January Avg. Jan-00 56.1086 42.3191 2000 February Avg. Feb-00 59.7219 47.2625 2000 March Avg. Mar-00 51.1277 47.6495 2000 April Avg. Apr-00 46.875 43.6414 2000 May Avg. May-00 51.3068 50.8068 2000 June Avg. Jun-00 55.4716 56.2244 2000 July Avg. Jul-00 54.875 56.2862 2000 August Avg. Aug-00 58.5408 63.5245 2000 September Avg. Sep-00 64.20945 70.9466 COMPETITION Propane competes with other sources of energy, some of which are less costly for equivalent energy value. Propane distributors compete for customers against suppliers of electricity, fuel oil and natural gas, principally on the basis of price, service, availability and portability. Electricity is a major competitor of propane, but propane generally enjoys a competitive price advantage over electricity for space heating, water heating and cooking. As previously stated, we are unable to predict the ultimate impact that deregulation of electric generation may have on propane's current competitive price advantage. Since the 1970s, many new homes have been built to use electrical heating systems and appliances. Fuel oil is also a major competitor of propane and is generally less expensive than propane. Operating efficiencies and other factors such as air quality and environmental advantages, however, generally make propane competitive with fuel oil as a heating source. Furnaces and appliances that burn propane will not operate on fuel oil, and vice versa, and, therefore, a conversion from one fuel to the other requires the installation of new equipment. Propane serves as an alternative to natural gas in rural and suburban areas where natural gas is unavailable or portability of product is required. Natural gas is generally a less expensive source of energy than propane, although in areas where natural gas is available, propane is used for certain industrial and commercial applications and as a standby fuel during interruptions in natural gas service. The gradual expansion of the nation's natural gas distribution systems has resulted in the availability of natural gas in some areas that previously depended upon propane. However, natural gas pipelines are not present in many regions of the country where propane is sold for heating and cooking purposes. -5- 8 The domestic propane retail distribution business is highly competitive. The Partnership competes in this business with other large propane marketers, including other full-service marketers, and thousands of small independent operators. In recent years, some rural electric cooperatives and fuel oil distributors have expanded their businesses to include propane distribution and the Partnership competes with them as well. Based on the most recent annual survey by the American Petroleum Institute, the 1998 domestic retail market for propane (annual sales for other than chemical uses) was approximately 9.5 billion gallons and, based on LP-GAS magazine rankings, 1999 sales volume of the ten largest propane companies (including AmeriGas Partners) represented approximately 41% of domestic retail sales. Management believes the Partnership's 2000 retail volume represents approximately 8% of the domestic retail market. The ability to compete effectively depends on supplying customer service, maintaining competitive retail prices and controlling operating expenses. Competition can intensify in response to a variety of factors, including significantly warmer-than-normal weather, higher prices resulting from extraordinary increases in the cost of propane, and recessionary economic factors. The Partnership may experience greater than normal customer losses in certain years when competitive conditions reflect any of these factors. In the motor fuel market, propane competes with gasoline and diesel fuel. When gasoline prices are high relative to propane, propane competes effectively. Wholesale propane distribution is a highly competitive, low margin business. Propane sales to other retail distributors and large-volume, direct-shipment industrial end users are price sensitive and frequently involve a competitive bidding process. PROPERTIES As of September 30, 2000, the Partnership owned approximately 83% of its district locations. In addition, the Partnership subleases three one-million barrel underground storage caverns in Arizona to store propane and butane for itself and third parties. The Partnership also leases a 600,000 barrel refrigerated, above-ground storage facility in California, which could be used in connection with waterborne imports or exports of propane or butane. The California facility, which the Partnership operates, is currently subleased to several refiners for the storage of butane. In Rhode Island, the Partnership leases storage with a 400,000 barrel capacity. The transportation of propane requires specialized equipment. The trucks and railroad tank cars utilized for this purpose carry specialized steel tanks that maintain the propane in a liquefied state. As of September 30, 2000, the Partnership operated a fleet of approximately 165 transport trucks, approximately 40% of which were leased. It owned approximately 320 transport trailers and leased 270 railroad tank cars. In addition, the Partnership fleet included approximately 2,600 bobtail and rack trucks, and approximately 1,800 other delivery and service vehicles. The vehicle fleet is 62% leased. Other assets owned at September 30, 2000 included approximately 1.0 million stationary storage tanks with typical capacities of 100 to 1,000 gallons and approximately 1.3 million portable propane cylinders with typical capacities of 4 to 100 gallons. The Partnership also owned more than 2,200 large volume tanks which are used for its own storage requirements. Most of the Partnership's debt is secured by liens and mortgages on the Partnership's real and personal property. TRADE NAMES, TRADE AND SERVICE MARKS The Partnership markets propane principally under the "AmeriGas(R)," "America's Propane -6- 9 Company(R)" and "PPX Prefilled Propane Xchange(R)" trade names and related service marks. UGI owns, directly or indirectly, all the right, title and interest in the "AmeriGas" and related trade and service marks. The General Partner owns all right, title and interest in the "America's Propane Company" and "PPX Prefilled Propane Xchange" trade names and related service marks. The Partnership has an exclusive (except for use by UGI, AmeriGas, Inc. and the General Partner), royalty-free license to use these names and trade and service marks. UGI and the General Partner each have the option to terminate its respective license agreement (on 12 months prior notice in the case of UGI), without penalty, if the General Partner is removed as general partner of the Partnership other than for cause. If the General Partner ceases to serve as the general partner of the Partnership for cause, the General Partner has the option to terminate its license agreement upon payment of a fee equal to the fair market value of the licensed trade names. UGI has a similar termination option, however, UGI must provide 12 months prior notice in addition to paying the fee. SEASONALITY Because many customers use propane for heating purposes, the Partnership's retail sales volume is seasonal, with approximately 55% of the Partnership's fiscal year 2000 retail sales volume and approximately 83% of its earnings before interest expense, income taxes, depreciation and amortization occurring during the five-month peak heating season from November through March. As a result of this seasonality, sales are concentrated in the Partnership's first and second fiscal quarters (October 1 through March 31). Cash receipts are greatest during the second and third fiscal quarters when customers pay for propane purchased during the winter heating season. Sales volume for the Partnership traditionally fluctuates from year-to-year in response to variations in weather, prices, competition, customer mix and other factors, such as conservation efforts and general economic conditions. For historical information on national weather statistics, see "Management's Discussion and Analysis of Financial Condition and Results of Operations." GOVERNMENT REGULATION The Partnership is subject to various federal, state and local environmental, safety and transportation laws and regulations governing the storage, distribution and transportation of propane. These laws include, among others, the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA" or, the "Superfund Law"), the Clean Air Act, the Occupational Safety and Health Act, the Emergency Planning and Community Right to Know Act, the Clean Water Act and comparable state statutes. CERCLA imposes joint and several liability on certain classes of persons considered to have contributed to the release or threatened release of a "hazardous substance" into the environment without regard to fault or the legality of the original conduct. Propane is not a hazardous substance within the meaning of federal and state environmental laws. However, the Partnership owns and operates real property where such hazardous substances may exist. See Notes 1 and 11 to the Company's Consolidated Financial Statements. All states in which the Partnership operates have adopted fire safety codes that regulate the storage and distribution of propane. In some states these laws are administered by state agencies, and in others they are administered on a municipal level. The Partnership conducts training programs to help ensure that its operations are in compliance with applicable governmental regulations. With respect to general operations, National Fire Protection Association Pamphlets No. 54 and No. 58, which establish a set of rules and procedures governing the safe handling of -7- 10 propane, or comparable regulations, have been adopted as the industry standard in a majority of the states in which the Partnership operates. The Partnership maintains various permits under environmental laws that are necessary to operate certain of its facilities, some of which may be material to the operations of the Partnership. Management believes that the procedures currently in effect at all of its facilities for the handling, storage and distribution of propane are consistent with industry standards and are in compliance in all material respects with applicable environmental, health and safety laws. With respect to the transportation of propane by truck, the Partnership is subject to regulations promulgated under the Federal Motor Carrier Safety Act. These regulations cover the transportation of hazardous materials and are administered by the United States Department of Transportation ("DOT"). During 1999, the Research and Special Programs Administration ("RSPA"), a division of the DOT, issued new regulations applicable to cargo tanks used to transport propane and procedures for loading propane on and off cargo tanks. Specific provisions include, among other things, revised attendance requirements for unloading propane and new requirements for emergency discharge control equipment, such as remote control devices that enable the driver to stop the unloading process at a distance from the vehicle and passive systems that will shut down loading and unloading without human intervention. The Partnership is in compliance with the new regulations and is evaluating the equipment that is being developed to comply with the passive systems requirements that will become effective in July 2001. The Natural Gas Safety Act of 1968 required the DOT to develop and enforce minimum safety regulations for the transportation of gases by pipeline. The DOT's pipeline safety code applies to, among other things, a propane gas system which supplies 10 or more customers from a single source and a propane gas system any portion of which is located in a public place. The code requires operators of all gas systems to provide training and written instructions for employees, establish written procedures to minimize the hazards resulting from gas pipeline emergencies, and keep records of inspections and testing. EMPLOYEES The Partnership does not directly employ any persons responsible for managing or operating the Partnership. The General Partner provides these services and is reimbursed for its direct and indirect costs and expenses, including all compensation and benefit costs. At September 30, 2000, the General Partner had 4,874 employees, including 311 temporary and part-time employees. UGI also performs certain financial and administrative services for the General Partner on behalf of the Partnership and is reimbursed by the Partnership for its direct and indirect costs and expenses. -8- 11 UTILITY OPERATIONS Our utility business is conducted by UGI Utilities, Inc. a wholly owned subsidiary. Utilities operates its business through two divisions, the gas division ("Gas Utility") and the electric division ("Electric Utility"). The business conducted by each of these divisions is described below. GAS UTILITY NATURAL GAS CHOICE AND COMPETITION ACT On June 22, 1999, Pennsylvania's Natural Gas Choice and Competition Act ("Gas Competition Act") was signed into law. The purpose of the Gas Competition Act is to provide all natural gas consumers in Pennsylvania with the ability to purchase their gas supplies from the supplier of their choice. Under the Gas Competition Act, local gas distribution companies ("LDCs") like Gas Utility may continue to sell gas to customers, and such sales of gas, as well as distribution services provided by LDCs, continue to be subject to price regulation by the Pennsylvania Public Utility Commission ("PUC"). Generally, Pennsylvania LDCs will serve as the supplier of last resort for all residential and small commercial and industrial customers unless the PUC approves another supplier of last resort. The Gas Competition Act requires energy marketers seeking to serve customers of LDCs to accept assignment of a portion of the LDC's interstate pipeline capacity and storage contracts at contract rates, thus avoiding the creation of stranded costs. On October 1, 1999, Gas Utility filed its restructuring plan with the PUC pursuant to the Gas Competition Act. Gas Utility designed its restructuring plan to ensure reliability of gas supply deliveries to Gas Utility on behalf of residential and small commercial customers. The plan also provides for recovery of costs associated with existing pipeline capacity and gas supply contracts. In addition, the plan changes Gas Utility's base rates for firm customers. It also changes the calculation of purchased gas cost rates. See "Utility Regulation and Rates." The effect of these two changes is to lessen the financial impact of volatility in revenues associated with customers who have the ability to switch to another fuel and are served under "interruptible rates." On June 29, 2000, the PUC entered its order ("Gas Restructuring Order") approving Gas Utility's restructuring plan substantially as filed. Effective October 1, 2000, all of Gas Utility's customers have the option to purchase their gas supplies from an alternative gas supplier. Large commercial and industrial customers of Gas Utility have been able to purchase their gas from other suppliers since 1982. Management believes neither the Gas Competition Act nor the Gas Restructuring Order will have a material adverse impact on the Company's financial condition or results of operations. SERVICE AREA; REVENUE ANALYSIS Gas Utility distributes natural gas to approximately 272,000 customers in portions of 14 eastern and southeastern Pennsylvania counties through its distribution system of approximately 4,500 miles of gas mains. The service area consists of approximately 3,000 square miles and includes the cities of Allentown, Bethlehem, Easton, Harrisburg, Hazleton, Lancaster, Lebanon and Reading, Pennsylvania. Located in Gas Utility's service area are major production centers for basic -9- 12 industries such as specialty metals, aluminum and glass. For the fiscal years ended September 30, 2000, 1999 and 1998, revenues of Gas Utility accounted for approximately 20%, 25% and 24%, respectively, of our total consolidated revenues. System throughput (the total volume of gas sold to or transported for customers within Gas Utility's distribution system) for the 2000 fiscal year was approximately 79.7 billion cubic feet ("bcf"). System sales of gas accounted for approximately 40% of system throughput, while gas transported for commercial and industrial customers (who bought their gas from others) accounted for approximately 60% of system throughput. Based on industry data for 1999, residential customers account for approximately 33% of total system throughput by local gas distribution companies in the United States. By contrast, for the 2000 fiscal year, Gas Utility's residential customers represented 23% of its total system throughput. SOURCES OF SUPPLY AND PIPELINE CAPACITY Gas Utility meets its service requirements by utilizing a diverse mix of natural gas purchase contracts with producers and marketers, storage and transportation services from pipeline companies, and its own propane-air and liquefied natural gas peak-shaving facilities. Purchases of natural gas in the spot market are also made to reduce costs and manage storage inventory levels. These arrangements enable Gas Utility to purchase gas from Gulf Coast, Mid-Continent, Appalachian and Canadian sources. For the transportation and storage function, Utilities has agreements with a number of pipeline companies, including Texas Eastern Transmission Corporation, Columbia Gas Transmission Corporation and Transcontinental Gas Pipeline Corporation. GAS SUPPLY CONTRACTS During the 2000 fiscal year, Gas Utility purchased approximately 31.5 bcf of natural gas for sale to customers. Approximately 87% of the volumes purchased were supplied under agreements with ten major suppliers of natural gas. The remaining 13% of gas purchased was supplied by producers and marketers under other arrangements, including multi-month agreements at spot prices. In fiscal year 2001, Gas Utility will continue to obtain necessary gas supplies under contracts no longer than 12 months in duration. SEASONAL VARIATION Because many of its customers use gas for heating purposes, Gas Utility's sales are seasonal. Approximately 58% of fiscal year 2000 throughput and approximately 71% of earnings before interest expense, income taxes, depreciation and amortization occurred during the winter season from November through March. COMPETITION Natural gas is a fuel that competes with electricity and oil, and to a lesser extent, with propane and coal. Competition among these fuels is primarily a function of their comparative price and the relative cost and efficiency of fuel utilization equipment. Electric utilities in Gas Utility's service area are seeking new load, primarily in the new construction market. Competition with fuel oil dealers is focused on industrial customers. Gas Utility responds to this competition with marketing efforts designed to retain and grow its customer base. -10- 13 In substantially all of its service territory, Gas Utility is the only regulated gas distribution utility having the right, granted by the PUC or by law, to provide distribution services. Under the Gas Competition Act, retail customers now have the option to purchase their natural gas from a supplier other than Gas Utility. Commercial and industrial customers in Gas Utility's service territory have been able to do this for over 15 years. Gas Utility will provide transportation services for residential and small commercial retail customers who purchase natural gas from others, however, as of October 1, 2000, no marketers had completed the requirements to serve those customers. Commercial and industrial customers representing approximately 44% of Gas Utility's transportation system throughput (27% of transportation revenues) have the ability to switch to an alternate fuel at any time and, therefore, are served on an interruptible basis under rates which are competitively priced with respect to their alternate fuel. Gas Utility's margins from these customers, therefore, are affected by the difference, or "spread," between the customers' delivered cost of gas and the customers' delivered alternate fuel cost. In addition, other customers representing 30% of transportation system throughput (17% of transportation revenues) have locations which afford them the option, although none has exercised it, of seeking transportation service directly from interstate pipelines, thereby bypassing Gas Utility. The majority of customers in the latter group are served under transportation contracts having three- to twenty-year terms. Included in these two groups are Utilities' ten largest customers in terms of annual volume. All of these customers have contracts with Utilities, seven of which extend into fiscal year 2004. No single customer represents, or is anticipated to represent, more than 1% of the total revenues of Gas Utility. OUTLOOK FOR GAS SERVICE AND SUPPLY Gas Utility anticipates having adequate pipeline capacity and sources of supply available to it to meet the full requirements of all firm customers on its system through fiscal year 2001. Supply mix is diversified, market priced, and delivered pursuant to a number of long- and short-term firm transportation and storage arrangements, including transportation contracts held by some of Utilities' larger customers. Gas Utility also operates propane air and liquefied natural gas facilities to meet winter peak service requirements. During fiscal year 2000, Gas Utility supplied transportation service to three major cogeneration installations and two utility generation sites. Gas Utility continues to pursue opportunities to supply natural gas to electric generation projects located in its service territory. Gas Utility also continues to seek new residential, commercial and industrial customers for both firm and interruptible service. In the residential market sector, Gas Utility connected 7,968 residential heating customers during fiscal year 2000, a 12% increase from the previous year. Of those new customers, new home construction accounted for a record 6,261 heating customers, an increase of approximately 10% from the prior year. Customers converting from other energy sources, primarily oil, and existing non-heating gas customers who have added gas heating systems to replace other energy sources, accounted for the balance of the additions. The total number of new commercial and industrial customers was 1,226. Utilities continues to monitor and participate extensively in rulemaking and individual rate and tariff proceedings before the Federal Energy Regulatory Commission ("FERC") affecting the rates and the terms and conditions under which Gas Utility transports and stores natural gas. Among these proceedings are those arising out of certain FERC orders and/or pipeline filings which relate to (i) the pricing of pipeline services in a competitive energy marketplace; (ii) the flexibility of the terms and conditions of pipeline service tariffs and contracts; and (iii) pipelines' -11- 14 requests to increase their base rates, or change the terms and conditions of their storage and transportation services. Gas Utility's objective in negotiations with interstate pipeline and natural gas suppliers, and in litigation before regulatory agencies, is to assure availability of supply, transportation and storage alternatives to serve market requirements at the lowest cost possible, taking into account the need for security of supply. Consistent with that objective, Gas Utility negotiates the terms of firm transportation capacity on all pipelines serving Gas Utility, arranges for appropriate storage and peak-shaving resources, negotiates with producers for competitively priced gas purchases and aggressively participates in regulatory proceedings related to transportation rights and costs of service. ELECTRIC UTILITY ELECTRICITY GENERATION CUSTOMER CHOICE AND COMPETITION ACT On January 1, 1997, Pennsylvania's Electricity Generation Customer Choice and Competition Act ("ECC Act") became effective. The ECC Act permits all Pennsylvania retail electric customers to choose their electric generation supplier. Pursuant to the Act, all electric utilities were required to file restructuring plans with the PUC which, among other things, included unbundled prices for electric generation, transmission and distribution and a competitive transition charge (CTC) for the recovery of "stranded costs" which would be paid by all customers receiving distribution service. Stranded costs generally are electric generation-related costs that traditionally would be recoverable in a regulated environment but may not be recoverable in a competitive electric generation market. Under the ECC Act, Electric Utility's rates for transmission and distribution services provided through June 30, 2001 are capped at levels in effect on January 1, 1997. In addition, Electric Utility generally may not increase prices for electric generation as long as stranded costs are being recovered through the CTC. In accordance with the restructuring proceedings discussed below, Utilities expects to collect a CTC from all distribution customers until December 31, 2002. Under the ECC Act, Electric Utility remains obligated to provide energy at the capped rates to customers who do not choose alternate suppliers. Electric Utility will continue to be the only regulated electric utility having the right, granted by the PUC or by law, to distribute electric energy in its service territory. On June 19, 1998, the PUC entered its Opinion and Order (the "Restructuring Order") in Electric Utility's restructuring proceeding under the ECC Act. The Restructuring Order authorized Electric Utility to recover from its customers approximately $32.5 million in stranded costs (on a full revenue requirements basis, which includes all income and gross receipts taxes) over a four-year period which commenced January 1, 1999 through a CTC, together with carrying charges on unrecovered balances of 7.94%. Electric Utility's recoverable stranded costs include approximately $8.7 million for the termination of a 1993 power purchase agreement with Foster Wheeler Penn Resources, Inc., an independent power producer. Since January 1, 1999, all of Electric Utility's customers have been permitted to select an alternative electric generation supplier. Customers choosing another supplier currently receive an average generation "shopping credit" (developed from system-wide generation rates) of 3.67 cents per kilowatt hour ("kwh"), which will remain in effect through December 31, 2000. The shopping credit will increase to 4.3 cents per kwh in calendar years 2001 and 2002. As noted above, Electric Utility's power generation rates are capped until December 31, -12- 15 2002. Because Electric Utility has discontinued regulatory accounting, which permitted it to adjust customer charges to reflect changes in Electric Utility's power costs, quarterly results have been, and future results are likely to be, more volatile than they were prior to deregulation, due in large part to seasonal variations in such costs. Results will also be affected by the number of customers who choose to purchase their power from other suppliers during any given time period. SERVICE AREA; REVENUE ANALYSIS Electric Utility supplies electric service to approximately 61,000 customers in portions of Luzerne and Wyoming Counties in northeastern Pennsylvania through a system consisting of approximately 2,100 miles of transmission and distribution lines and 14 transmission substations. For fiscal year 2000, about 52% of sales volume came from residential customers, 35% from commercial customers and 13% from industrial customers. Electricity transported for customers who purchased their power from others pursuant to the ECC Act represented approximately 5% of this sales volume. For the 2000, 1999 and 1998 fiscal years, revenues of Electric Utility accounted for approximately 4%, 5% and 5%, respectively, of our total consolidated revenues. SOURCES OF SUPPLY Effective October 1, 1999, Utilities transferred its electric generation assets to its non-utility subsidiary, UGI Development Company ("UGID"). These generation assets consisted principally of Utilities' Hunlock generating station ("Hunlock Station"), located near Kingston, Pennsylvania and its 1.11% interest in the Conemaugh generating station ("Conemaugh Station"), located near Johnstown, Pennsylvania. These two coal-fired stations provided approximately 50% of Electric Utility's energy requirements during fiscal year 2000. Effective December 8, 2000, UGID entered into a partnership with a subsidiary of Allegheny Energy, Inc. for the purpose of owning and operating electric generation facilities. UGID contributed Hunlock Station, coal inventory and $6 million to the partnership and Allegheny contributed a 44 megawatt gas combustion electric generator. UGID has the right to purchase half the output of the partnership's generation at cost. Electric Utility has contracts in place or control over generation representing in the aggregate approximately 90% of its expected on-peak energy requirements for fiscal year 2001. It plans to meet the balance of its energy needs with short-term contracts and spot market purchases. Electric Utility distributes both electricity that it purchases from others (including UGID) and electricity that customers purchase from other suppliers. At September 30, 2000, alternate suppliers served approximately 3% of system load. Electric Utility expects to continue to provide energy to the great majority of its customers. ENVIRONMENTAL FACTORS The operation of Hunlock Station complies with the air quality standards of the Pennsylvania Department of Environmental Resources ("DER") with respect to stack emissions. Under the Federal Water Pollution Control Act, UGID has a permit from the DER to discharge water from Hunlock Station into the North Branch of the Susquehanna River. The Federal Clean Air Act Amendments of 1990 (the "Clean Air Act Amendments") impose emissions limitations for certain compounds, including sulfur dioxide and nitrous oxides. Both the Conemaugh Station and the Hunlock Station are in material compliance with these emission standards. -13- 16 SEASONALITY Sales and distribution of electricity for residential heating purposes accounted for approximately 20% of the total sales of Electric Utility during fiscal year 2000. Electricity competes with natural gas, oil, propane and other heating fuels in this use. Approximately 53% of volume occurred during the six coldest months of fiscal year 2000 (November through April), demonstrating modest seasonality favoring winter due to the use of electricity for residential heating purposes. UTILITY REGULATION AND RATES PENNSYLVANIA PUBLIC UTILITY COMMISSION JURISDICTION Utilities' gas and electric utility operations, which exclude electric generation, are subject to regulation by the PUC as to rates, terms and conditions of service, accounting matters, issuance of securities, contracts and other arrangements with affiliated entities, and various other matters. As noted earlier, effective October 1, 1999, Utilities contributed its electric generation assets to UGID. UGID has FERC authority to sell power at market-based rates. Generally, UGID is not subject to regulation by the PUC. FERC ORDERS 888 AND 889 In April 1996, FERC issued Orders No. 888 and 889 which established rules for the use of electric transmission facilities for wholesale transactions. FERC has also asserted jurisdiction over the transmission component of electric retail choice transactions. In compliance with these orders, the PJM Interconnection, LLC ("PJM"), of which Utilities is a member, has filed an open access transmission tariff with the FERC establishing transmission rates and procedures for transmission within the PJM control area. Under the PJM tariff and associated agreements, Electric Utility is entitled to receive certain revenues when its transmission facilities are used by third parties. GAS UTILITY RATES The Gas Restructuring Order included an increase in base rates, effective October 1, 2000. The increase, calculated in accordance with the Gas Competition Act, was designed to generate approximately $16.7 million in additional annual revenues. The Order also provides that Gas Utility must reduce its purchased gas cost rates by $16.7 million in the first year of the base rate increase. As a result, customers who purchase their gas from Gas Utility will not be affected by the increase in base rates for twelve months. Beginning in fiscal year 2002, Gas Utility must reduce its purchased gas cost rates by an amount equal to the revenues it receives from customers served under interruptible rates who do not obtain their own pipeline capacity. As a result of these changes in its regulated rates, Gas Utility expects that the risk to operating results associated with year- to- year fluctuations in interruptible revenues will be mitigated. Due to the required allocation of interruptible revenues under the Gas Restructuring Order, beginning with fiscal year 2001, Gas Utility operating results are expected to be more sensitive to heating season weather and less sensitive to the market prices of alternative fuel than in the past. -14- 17 BASE RATES As stated above, Gas Utility's current base rates went into effect October 1, 2000 pursuant to The Gas Restructuring Order. See Note 2 to the Company's Consolidated Financial Statements. PURCHASED GAS COST RATES Gas Utility's gas service tariff contains Purchased Gas Cost ("PGC") rates which provide for annual increases or decreases in the rate per thousand cubic feet ("mcf") which Gas Utility charges for natural gas sold by it, to reflect Utilities' projected cost of purchased gas. PGC rates may also be adjusted quarterly, or monthly, to reflect purchased gas costs. Each proposed annual PGC rate is required to be filed with the PUC six months prior to its effective date. During this period the PUC holds hearings to determine whether the proposed rate reflects a least-cost fuel procurement policy consistent with the obligation to provide safe, adequate and reliable service. After completion of these hearings, the PUC issues an order permitting the collection of gas costs at levels which meet that standard. The PGC mechanism also provides for an annual reconciliation. Utilities has two PGC rates. PGC (1) is applicable to small, firm, core market customers consisting of the residential and small commercial and industrial classes; PGC (2) is applicable to firm, contractual, high-load factor customers served on three separate rates. In addition, residential customers maintaining a high load factor may qualify for the PGC (2) rate. The Gas Restructuring Order provides for a one-time adjustment to Gas Utility's PGC rates as described above, as well as ongoing adjustments to reflect revenues, if any, from interruptible rate customers who do not obtain their own pipeline capacity. ELECTRIC UTILITY RATES Electric Utility's rates for transmission and distribution services provided through June 30, 2001 are capped at levels in effect on January 1, 1997. Its rates for electric generation are capped through December 2002. See "Electricity Generation Customer Choice and Competition Act." The ECC Act obligates Electric Utility to act as "provider of last resort" to customers who do not choose alternate generation suppliers. Electric Utility is actively participating in the regulatory process for establishing rules to ensure that Electric Utility recovers all its costs of providing generation when the rate cap period ends in December 2002. STATE TAX SURCHARGE CLAUSES Utilities' gas and electric service tariffs contain state tax surcharge clauses. The surcharges are recomputed whenever any of the tax rates included in their calculation are changed. These clauses protect Utilities from the effect of increases in most of the Pennsylvania taxes to which it is subject, however, any increase in Electric Utility's state tax surcharge is generally subject to the rate caps discussed above. UTILITY FRANCHISES Utilities holds certificates of public convenience issued by the PUC and certain "grandfather rights" predating the adoption of the Pennsylvania Public Utility Code and its predecessor statutes which it believes are adequate to authorize it to carry on its business in substantially all the territory to which it now renders gas and electric service. Under applicable Pennsylvania law, Utilities also has certain rights of eminent domain as well as the right to maintain its facilities in streets and -15- 18 highways in its territories. OTHER GOVERNMENT REGULATION In addition to regulation by the PUC, the gas and electric utility operations of Utilities are subject to various federal, state and local laws governing environmental matters, occupational health and safety, pipeline safety and other matters. Certain of Utilities' activities involving the interstate movement of natural gas, the transmission of electricity, transactions with non-utility generators of electricity, like UGID, and other matters, are also subject to the jurisdiction of FERC. Utilities is subject to the requirements of the federal Resource Conservation and Recovery Act, CERCLA and comparable state statutes with respect to the release of hazardous substances on property owned or operated by Utilities. See ITEM 3. "LEGAL PROCEEDINGS - Environmental Matters-Manufactured Gas Plants." The electric generation activities of Utilities are also subject to the Clean Air Act Amendments, the Federal Water Pollution Control Act and comparable state statutes and regulations. See "UTILITY OPERATIONS - Electric Utility - Environmental Factors." EMPLOYEES At September 30, 2000, Utilities and its subsidiaries had 1,120 employees. -16- 19 UGI ENTERPRISES, INC. UGI Enterprises, Inc. is a wholly owned subsidiary of UGI that was formed in 1994. Through its subsidiaries, Enterprises is developing the domestic and international businesses described below. DOMESTIC BUSINESSES NATURAL GAS AND ELECTRICITY MARKETING In 1995, the gas marketing business previously conducted by a subsidiary of Utilities was transferred to UGI Energy Services, Inc. ("Energy Services"), a wholly owned subsidiary of Enterprises. Energy Services conducts this business under the trade name GASMARK(R). GASMARK(R) sells natural gas directly to approximately 3,000 commercial and industrial customers in the Mid-Atlantic region through the transportation systems of 16 utility systems. Energy Services also sells electricity to over 200 commercial and industrial customers in Pennsylvania. During fiscal year 2000, GASMARK(R) acquired the gas marketing operations of two large regional energy marketers. These acquisitions doubled GASMARK(R)'s customer base. RETAIL HEARTH PRODUCTS In September 1999, Enterprises opened the first Hearth USA(TM) retail store in Rockville, Maryland. Hearth USA(TM) is the nation's first large-scale retailer to offer a wide selection of hearth, grill and spa products together with installation services. A second store opened in the Washington, DC area during fiscal year 2000. Enterprises expects to refine the Hearth retail concept further prior to scheduling openings in other markets. HVAC SERVICE Effective September 1, 2000, a subsidiary of Enterprises acquired a heating, ventilation and air-conditioning service business serving portions of Utilities' gas service area and adjacent market areas, including portions of northern Delaware. In the prior year, this business generated over $40 million in annual revenues and employed over 450 people. INTERNATIONAL BUSINESSES ENERGY-RELATED JOINT VENTURES During 1996, Enterprises formed a partnership with affiliates of Energy Transportation Group, Inc. ("ETG") and North American World Trade, Ltd. to develop, build and operate a liquefied petroleum gas ("LPG") import project in Romania. ETG has extensive experience in the transportation of liquefied natural gas, and North American World Trade, Ltd. is a consulting firm with Romanian expertise. The joint venture is known as Black Sea LPG Romania, S.A. The Romanian partners in this venture are Regia Autonoma a Gazelor Naturale "Romgaz" Medias, the Romanian national gas utility; Regia Autonoma de Electricitate "Renel", the Romanian national electric utility; and Rompetrol, S.A., a privately-held energy services company. The economic climate in Romania in recent years has slowed project development. During 1998, Enterprises formed ChinaGas Partners, L.P. ("ChinaGas") with affiliates of -17- 20 ETG to develop, build and operate LPG projects in the People's Republic of China. On October 28, 1998, ChinaGas and its wholly owned subsidiary together acquired 50% of the shares of an existing Chinese company known as the Nantong Huayang LPG Port Co., Ltd. ("Port Company") which operates an integrated LPG business, including an import terminal and distribution business, serving the provinces along the lower and middle reaches of the Yangtze River. At September 30, 2000, retail sales of propane represented over 25% of Port Company total sales. The other shareholders in the Port Company are China National Chemical Supply & Sales Corporation and two of its affiliates. Our effective ownership interest in the Port Company is 25%. PROPANE DISTRIBUTION In September 1999, subsidiaries of Enterprises acquired all of the stock of FLAGA GmbH, a privately-held company founded in 1947. FLAGA is the largest retail propane distributor in Austria and a leading distributor in the Czech Republic. FLAGA operates from 7 distribution locations in Austria, 8 in the Czech Republic and 2 in Slovakia. FLAGA marketed approximately 39 million gallons of propane in fiscal year 2000. Its assets totaled approximately $108 million at September 30, 2000. BUSINESS SEGMENT INFORMATION The table stating the amounts of revenues, operating income (loss) and identifiable assets attributable to each of UGI's business segments for the 2000, 1999 and 1998 fiscal years appears in Note 17 to the Consolidated Financial Statements contained in our 2000 Annual Report and is incorporated in this Report by reference. EMPLOYEES At September 30, 2000, UGI and its subsidiaries had 6,966 employees. -18- 21 ITEM 3. LEGAL PROCEEDINGS With the exception of the matters set forth below, no material legal proceedings are pending involving UGI, any of its subsidiaries or any of their properties, and no such proceedings are known to be contemplated by governmental authorities. ENVIRONMENTAL MATTERS - MANUFACTURED GAS PLANTS Prior to the general availability of natural gas, in the 1800s through the mid-1900s, most gas for lighting and heating nationwide was manufactured from combustibles such as coal, oil and coke. 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 manufactured gas plants. Utilities and its former subsidiaries owned and operated a number of manufactured gas plants. Between 1882 and 1953, Utilities owned the stock of subsidiary gas companies in Pennsylvania and elsewhere and also operated the businesses of some gas companies under agreement. By the mid-1930s, Utilities was one of the largest public utility holding companies in the country. Pursuant to the requirements of the Public Utility Holding Company Act of 1935, Utilities divested all of its utility operations other than those which now constitute the Gas Utility and the Electric Utility. Utilities has been notified of several sites outside Pennsylvania on which (i) gas plants were formerly operated by it or owned or operated by its former subsidiaries and (ii) either environmental agencies or private parties are investigating the extent of environmental contamination or performing environmental remediation. Utilities is currently litigating two claims against it relating to out-of-state sites. At one such site, in July 1993, Public Service Electric and Gas Company ("PSE&G") joined Utilities as a third-party defendant in the civil action Fishbein Family Partnership v. PPG Industries, Inc., et al in the United States District Court for the District of New Jersey, seeking damages as a result of contamination relating to the former manufactured gas plant operations at Halladay Street in Jersey City, New Jersey. The Halladay Street gas plant operated from approximately 1884 until 1950. PSE&G has asserted that Utilities is liable for that portion of the costs associated with operations of the plant between 1886 and 1940. PPG Industries, Inc. is also a defendant in the action for costs associated with chemical contamination at the site unrelated to gas plant operations. To date, that action has focused on the chemical contamination allegedly associated with PPG Industries' activities and the third-party action against Utilities has been stayed. Investigations of the site conducted to date are insufficient to establish the extent of environmental remediation necessary, if any. Hence, Utilities is unable to estimate the total cost of cleanup associated with manufactured gas plant wastes at this site. Management believes that Utilities should not have significant liability in those instances in which a former subsidiary operated a manufactured gas plant because Utilities generally is not legally liable for the obligations of its subsidiaries. Under certain circumstances, however, a court could find a parent company liable for environmental damage caused by a subsidiary company when the parent company either (i) itself operated the facility causing the environmental damage or (ii) otherwise so controlled the subsidiary that the subsidiary's separate corporate form should be -19- 22 disregarded. There could be, therefore, significant future costs of an uncertain amount associated with environmental damage caused by manufactured gas plants that Utilities owned or directly operated, or that were owned or operated by former subsidiaries of Utilities, if a court were to conclude that the subsidiary's separate corporate form should be disregarded. See also Notes 1 and 11 to the Company's Consolidated Financial Statements. Utilities has identified 40 sites in Pennsylvania where either (i) Utilities formerly conducted some manufactured gas operations or (ii) Utilities owns or at one time owned the site. Most of the sites are no longer owned by Utilities and there have been no manufactured gas operations at any of the sites since at least the early 1950s. Utilities or other parties are currently conducting or have completed investigative and remedial activities at eleven of the 40 sites. Based on the 1995 settlement agreement with the PUC relating to Gas Utilities' 1995 base rate increase filing, rate relief will be permitted for certain remediation expenditures on environmentally contaminated sites located in Pennsylvania. Because of this, Utilities does not expect its costs for Pennsylvania sites to be material to its results of operations. RELATED MATTER UGI Utilities, Inc. v. Insurance Co. of North America, et. al. On February 11, 1999, UGI Utilities, Inc. filed suit in the Court of Common Pleas of Montgomery County, Pennsylvania against more than fifty insurance companies, including Insurance Services, Ltd. (AEGIS). The complaint alleges that the defendants breached contracts of insurance by failing to indemnify Utilities for certain environmental costs. To date, Utilities has recovered a significant portion of its claims through settlements with most of the defendants, including AEGIS. The court has not yet set a date for trial of the claims against the remaining defendants. See Note 11 to the Company's Consolidated Financial Statements. -20- 23 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of security holders during the last fiscal quarter of fiscal year 2000. EXECUTIVE OFFICERS Information regarding our executive officers is included in Part III of this Report and is incorporated in Part I by reference. PART II: SECURITIES AND FINANCIAL INFORMATION ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS MARKET INFORMATION Our Common Stock is traded on the New York and Philadelphia stock exchanges under the symbol "UGI." The following table sets forth the high and low sales prices for the Common Stock on the New York Stock Exchange Composite Transactions tape as reported in The Wall Street Journal for each full quarterly period within the two most recent fiscal years:
2000 FISCAL YEAR HIGH LOW 4th Quarter $24.313 $20.563 3rd Quarter 22.625 19.750 2nd Quarter 22.313 18.188 1st Quarter 24.000 19.125
1999 FISCAL YEAR HIGH LOW 4th Quarter $24.688 $19.750 3rd Quarter 21.000 16.563 2nd Quarter 24.375 15.000 1st Quarter 25.750 21.625
-21- 24 DIVIDENDS Quarterly dividends on our Common Stock were paid in the 2000 and 1999 fiscal years as follows:
2000 FISCAL YEAR AMOUNT 4th Quarter $0.3875 3rd Quarter 0.375 2nd Quarter 0.375 1st Quarter 0.375
1999 FISCAL YEAR AMOUNT 4th Quarter $0.365 3rd Quarter 0.365 2nd Quarter 0.365 1st Quarter 0.365
HOLDERS On December 1, 2000, UGI had 11,049 holders of record of Common Stock. -22- 25 ITEM 6. SELECTED FINANCIAL DATA
Year Ended September 30, ---------------------------------------------------------- 2000 1999 1998 1997 1996 --------- --------- --------- --------- --------- (Millions of dollars, except per share amounts) FOR THE PERIOD: INCOME STATEMENT DATA: Revenues $ 1,761.7 $ 1,383.6 $ 1,439.7 $ 1,642.0 $ 1,557.6 ========= ========= ========= ========= ========= Net income $ 44.7 $ 55.7 $ 40.3 $ 52.1 $ 39.5 ========= ========= ========= ========= ========= Earnings per common share - diluted (a) $ 1.64 $ 1.74 $ 1.22 $ 1.57 $ 1.19 ========= ========= ========= ========= ========= Cash dividends declared per common share $ 1.525 $ 1.47 $ 1.45 $ 1.43 $ 1.41 ========= ========= ========= ========= ========= AT PERIOD END: BALANCE SHEET DATA: Total assets $ 2,278.8 $ 2,140.5 $ 2,074.6 $ 2,151.7 $ 2,133.0 ========= ========= ========= ========= ========= Capitalization: Debt: Bank loans - AmeriGas Propane $ 30.0 $ 22.0 $ 10.0 $ 28.0 $ 15.0 Bank loans - UGI Utilities 100.4 87.4 68.4 67.0 50.5 Bank loans - other 4.3 11.6 - - - Long-term debt (including current maturities): AmeriGas Propane 857.2 744.7 709.0 691.1 692.5 UGI Utilities 172.9 180.0 187.2 169.3 174.8 Other 85.5 91.6 8.2 8.6 9.0 --------- --------- --------- --------- --------- Total debt 1,250.3 1,137.3 982.8 964.0 941.8 ========= ========= ========= ========= ========= Minority interest in AmeriGas Partners 177.1 209.9 236.5 266.5 284.4 UGI Utilities preferred stock subject to mandatory redemption 20.0 20.0 20.0 35.2 35.2 Common stockholders' equity 247.2 249.2 367.1 376.1 377.6 --------- --------- --------- --------- --------- Total capitalization $ 1,694.6 $ 1,616.4 $ 1,606.4 $ 1,641.8 $ 1,639.0 ========= ========= ========= ========= ========= RATIO OF CAPITALIZATION: Total debt 73.8% 70.4% 61.2% 58.7% 57.5% Minority interest 10.5% 13.0% 14.7% 16.3% 17.4% UGI Utilities preferred stock 1.2% 1.2% 1.2% 2.1% 2.1% Common stockholders' equity 14.5% 15.4% 22.9% 22.9% 23.0% --------- --------- --------- --------- --------- 100.0% 100.0% 100.0% 100.0% 100.0% ========= ========= ========= ========= =========
(a) Basic earnings per share was $1.58 in 1997. For all other periods presented, basic earnings per share was the same as diluted earnings per share. -23- 26 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's Discussion and Analysis of Financial Condition and Results of Operations, entitled "Financial Review" and contained on pages 13 through 23 of UGI's 2000 Annual Report to Shareholders, is incorporated in this report by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. "Quantitative and Qualitative Disclosures About Market Risk" are contained in Management's Discussion and Analysis of Financial Condition and Results of Operations under the caption "Market Risk Disclosures" on page 20 of the UGI 2000 Annual Report to Shareholders and are incorporated in this Report by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Financial Statements and Financial Statement Schedules referred to in the Index contained on pages F-2 and F-3 of this Report are incorporated in this Report by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. -24- 27 PART III: UGI MANAGEMENT AND SECURITY HOLDERS ITEMS 10 THROUGH 13. In accordance with General Instruction G(3), and except as set forth below, the information required by Items 10, 11, 12 and 13 is incorporated in this Report by reference to the following portions of UGI's Proxy Statement, which will be filed with the Securities and Exchange Commission by January 28, 2001:
CAPTIONS OF PROXY STATEMENT INFORMATION INCORPORATED BY REFERENCE Item 10. Directors and Executive Election of Directors - Nominees Officers of Registrant. Item 11. Executive Compensation. Compensation of Executive Officers Compensation of Directors Item 12. Security Ownership of Securities Ownership of Management Certain Beneficial Owners and Management. Item 13. Certain Relationships Compensation of Executive Officers - and Related Transactions. Stock Ownership Policy and Indebtedness of Management
The information concerning the Company's executive officers required by Item 10 is set forth below. EXECUTIVE OFFICERS
NAME AGE POSITION ---- --- -------- Lon R. Greenberg 50 Chairman, Director, President and Chief Executive Officer Eugene V.N. Bissell 47 President and Chief Executive Officer, AmeriGas Propane, Inc. Robert J. Chaney 58 President and Chief Executive Officer, UGI Utilities, Inc. Brendan P. Bovaird 52 Vice President and General Counsel Bradley C. Hall 47 Vice President - New Business Development Anthony J. Mendicino 52 Vice President - Finance and Chief Financial Officer
-25- 28 All officers are elected for a one-year term at the organizational meetings of the respective Boards of Directors held each year. There are no family relationships between any of the officers or between any of the officers and any of the directors. Lon R. Greenberg Mr. Greenberg was elected Chairman of UGI effective August 1, 1996, having been elected Chief Executive Officer effective August 1, 1995. He was elected Director and President of UGI and a Director of UGI Utilities in July 1994. He was elected a Director of AmeriGas Propane, Inc. in 1994 and has been Chairman since 1996. He also served as President and Chief Executive Officer of AmeriGas Propane (1996 to 2000). Mr. Greenberg was Senior Vice President - Legal and Corporate Development (1989 to 1994), and also served as Vice President - Legal and Corporate Development (1987 to 1989). Previously, he was Vice President - Legal (1984 to 1987), General Counsel (1983 to 1994) and Secretary (1982 to 1988). He joined the Company in 1980 as Corporate Development Counsel. Mr. Greenberg is also a director on the Mellon PSFS Advisory Board. Eugene V.N. Bissell Mr. Bissell is President and Chief Executive Officer of AmeriGas Propane, Inc. (since July 2000), having served as Senior Vice President - Sales and Marketing (1999 to 2000) and Vice President - Sales and Operations (1995 to 1999). Previously, he was Vice President - Distributors and Fabrication, BOC Gases (1995), having been Vice President - National Sales (1993 to 1995) and Regional Vice President Southern Region for Distributor and Cylinder Gases Division, BOC Gases (1989 to 1993). From 1981 to 1987, Mr. Bissell held various positions with the Company and its subsidiaries, including Director, Corporate Development. Robert J. Chaney Mr. Chaney is President and Chief Executive Officer of UGI Utilities, Inc., (since March 1999). He previously served as Executive Vice President (1998 to 1999), Vice President and General Manager - Gas Utility Division (1991 to 1998) and Vice President - Rates and Energy Utilization - Gas Utility Division (1981 to 1991). Brendan P. Bovaird Mr. Bovaird is Vice President and General Counsel of UGI (since April 1995). He is also Vice President and General Counsel of UGI Utilities, Inc., and AmeriGas Propane, Inc. (since April 1995). Mr. Bovaird previously served as Division Counsel and Member of the Executive and Operations Committees of Wyeth-Ayerst International Inc. (1992 to 1995) and Senior Vice President, General Counsel and Secretary of Orion Pictures Corporation (1990 to 1991). Bradley C. Hall Mr. Hall was elected Vice President - New Business Development on October 25, 1994, having been Vice President - Marketing and Rates, UGI Utilities, Inc. Gas Division. He also serves as President of UGI Enterprises, Inc. (since 1994). He joined the Company in 1982 and held -26- 29 various positions in Gas Utility. Anthony J. Mendicino Mr. Mendicino was elected Vice President - Finance and Chief Financial Officer on September 8, 1998. He previously served as President and Chief Operating Officer (July 1997 to June 1998) and as Senior Vice President (January 1997 to June 1997) of Eastwind Group, Inc., a holding company formed to acquire and consolidate middle-market manufacturing businesses. Mr. Mendicino was Senior Vice President and Chief Financial Officer and a director (1987 to 1996) of UTI Energy Corp., a diversified oil field service company. From 1981 to 1987 Mr. Mendicino held various positions with UGI, including Treasurer from 1984 to 1987. -27- 30 PART IV: ADDITIONAL EXHIBITS, SCHEDULES AND REPORTS ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) DOCUMENTS FILED AS PART OF THIS REPORT: (1), (2) The financial statements and financial statement schedules incorporated by reference or included in this report are listed in the accompanying Index to Financial Statements and Financial Statement Schedules set forth on pages F-2 through F-3 of this report, which is incorporated herein by reference. (3) LIST OF EXHIBITS: The exhibits filed as part of this report are as follows (exhibits incorporated by reference are set forth with the name of the registrant, the type of report and registration number or last date of the period for which it was filed, and the exhibit number in such filing): -28- 31
--------------------------------------------------------------------------------------------------------------------------------- INCORPORATION BY REFERENCE --------------------------------------------------------------------------------------------------------------------------------- EXHIBIT NO. EXHIBIT REGISTRANT FILING EXHIBIT --------------------------------------------------------------------------------------------------------------------------------- 3.1 (Second) Amended and Restated Articles of UGI Amendment No. 1 on 3.(3)(a) Incorporation of the Company Form 8 to Form 8-B (4/10/92) 3.2 Bylaws of UGI as in effect since October UGI Form 10-K (9/30/98) 3.2 27, 1998 --------------------------------------------------------------------------------------------------------------------------------- 4 Instruments defining the rights of security holders, including indentures. (The Company agrees to furnish to the Commission upon request a copy of any instrument defining the rights of holders of long-term debt not required to be filed pursuant to Item 601(b)(4) of Regulation S-K) --------------------------------------------------------------------------------------------------------------------------------- 4.1 Rights Agreement, as amended as of August UGI Registration 4.3 18, 2000, between the Company and Mellon Statement No. Bank, N.A., successor to Mellon Bank (East) 333-49080 N.A., as Rights Agent, and Assumption Agreement dated April 7, 1992 --------------------------------------------------------------------------------------------------------------------------------- 4.2 The description of the Company's Common UGI Form 8-B/A (4/17/96) 3.(4) Stock contained in the Company's registration statement filed under the Securities Exchange Act of 1934, as amended --------------------------------------------------------------------------------------------------------------------------------- 4.3 UGI's (Second) Amended and Restated Articles of Incorporation and Bylaws referred to in 3.1 and 3.2 above --------------------------------------------------------------------------------------------------------------------------------- 4.4 Note Agreement dated as of April 12, 1995 AmeriGas Partners, Form 10-Q 10.8 among The Prudential Insurance Company of L.P. America, Metropolitan Life Insurance (3/31/95) Company, and certain other institutional investors and AmeriGas Propane, L.P., New AmeriGas Propane, Inc. and Petrolane Incorporated --------------------------------------------------------------------------------------------------------------------------------- 4.5 First Amendment dated as of September 12, AmeriGas Partners, Form 10-K (9/30/97) 4.5 1997 to Note Agreement dated as of April L.P. 12, 1995 --------------------------------------------------------------------------------------------------------------------------------- 4.6 Second Amendment dated as of September 15, AmeriGas Partners, Form 10-K (9/30/98) 4.6 1998 to Note Agreement dated as of April L.P. 12, 1995 --------------------------------------------------------------------------------------------------------------------------------- 4.7 Third Amendment dated as of March 23, 1999 AmeriGas Partners, Form 10-Q (3/31/99) 10.2 to Note Agreement dated as of April 12, 1995 L.P. --------------------------------------------------------------------------------------------------------------------------------- 4.8 Fourth Amendment dated as of March 16, 2000 AmeriGas Partners, Form 10-Q (6/30/00) 10.2 to Note Agreement dated as of April 12, 1995 L.P. ---------------------------------------------------------------------------------------------------------------------------------
-29- 32
--------------------------------------------------------------------------------------------------------------------------------- INCORPORATION BY REFERENCE --------------------------------------------------------------------------------------------------------------------------------- EXHIBIT NO. EXHIBIT REGISTRANT FILING EXHIBIT --------------------------------------------------------------------------------------------------------------------------------- 4.9 Second Amended and Restated Agreement of AmeriGas Partners, Form 8-K 1 Limited Partnership of AmeriGas Partners, L.P. (9/30/00) L.P. --------------------------------------------------------------------------------------------------------------------------------- 10.1 Service Agreement (Rate FSS) dated as of UGI Form 10-K (9/30/95) 10.5 November 1, 1989 between Utilities and Columbia, as modified pursuant to the orders of the Federal Energy Regulatory Commission at Docket No. RS92-5-000 reported at Columbia Gas Transmission Corp., 64 FERC Paragraph 61,060 (1993), order on rehearing, 64 FERC Paragraph 61,365 (1993) --------------------------------------------------------------------------------------------------------------------------------- 10.2 Service Agreement (Rate FTS) dated June 1, Utilities Form 10-K (12/31/90) (10)o. 1987 between Utilities and Columbia, as modified by Supplement No. 1 dated October 1, 1988; Supplement No. 2 dated November 1, 1989; Supplement No. 3 dated November 1, 1990; Supplement No. 4 dated November 1, 1990; and Supplement No. 5 dated January 1, 1991, as further modified pursuant to the orders of the Federal Energy Regulatory Commission at Docket No. RS92-5-000 reported at Columbia Gas Transmission Corp., 64 FERC Paragraph 61,060 (1993), order on rehearing, 64 FERC Paragraph 61,365 (1993) --------------------------------------------------------------------------------------------------------------------------------- 10.3 Transportation Service Agreement (Rate Utilities Form 10-K (12/31/90) (10)p. FTS-1) dated November 1, 1989 between Utilities and Columbia Gulf Transmission Company, as modified pursuant to the orders of the Federal Energy Regulatory Commission in Docket No. RP93-6-000 reported at Columbia Gulf Transmission Co., 64 FERC Paragraph 61,060 (1993), order on rehearing, 64 FERC Paragraph 61,365 (1993) --------------------------------------------------------------------------------------------------------------------------------- 10.4 Amended and Restated Sublease Agreement UGI Form 10-K (9/30/94) 10.35 dated April 1, 1988 between Southwest Salt Co. and AP Propane, Inc. (the "Southwest Salt Co. Agreement") --------------------------------------------------------------------------------------------------------------------------------- 10.5 Letter dated July 8, 1998 pursuant to UGI Form 10-K (9/30/99) 10.5 Article 1, Section 1.2 of the Southwest Salt Co. Agreement re: option to renew for period of June 1, 2000 to May 31, 2005 and related extension notice --------------------------------------------------------------------------------------------------------------------------------- *10.6** UGI Corporation Directors Deferred Compensation Plan Amended and Restated as of January 1, 2000 ---------------------------------------------------------------------------------------------------------------------------------
-30- 33
--------------------------------------------------------------------------------------------------------------------------------- INCORPORATION BY REFERENCE --------------------------------------------------------------------------------------------------------------------------------- EXHIBIT NO. EXHIBIT REGISTRANT FILING EXHIBIT --------------------------------------------------------------------------------------------------------------------------------- 10.7** UGI Corporation 1992 Stock Option and UGI Form 10-Q (6/30/92) (10)ee Dividend Equivalent Plan, as amended May 19, 1992 --------------------------------------------------------------------------------------------------------------------------------- 10.8** UGI Corporation Annual Bonus Plan dated UGI Form 10-Q (6/30/96) 10.4 March 8, 1996 --------------------------------------------------------------------------------------------------------------------------------- *10.9** UGI Corporation Directors' Equity Compensation Plan Amended and Restated as of January 1, 2000 --------------------------------------------------------------------------------------------------------------------------------- 10.10** UGI Corporation 1997 Stock Option and UGI Form 10-Q (3/31/97) 10.2 Dividend Equivalent Plan --------------------------------------------------------------------------------------------------------------------------------- 10.11** UGI Corporation 1992 Directors' Stock Plan UGI Form 10-Q (6/30/92) (10)ff --------------------------------------------------------------------------------------------------------------------------------- 10.12** UGI Corporation Senior Executive Employee UGI Form 10-K (9/30/97) 10.12 Severance Pay Plan effective January 1, 1997 --------------------------------------------------------------------------------------------------------------------------------- 10.13** UGI Corporation 2000 Directors' Stock UGI Form 10-K (9/30/99) 10.13 Option Plan --------------------------------------------------------------------------------------------------------------------------------- 10.14** UGI Corporation 2000 Stock Incentive Plan UGI Form 10-Q (6/30/00) 10.1 --------------------------------------------------------------------------------------------------------------------------------- 10.15** 1997 Stock Purchase Loan Plan UGI Form 10-K (9/30/97) 10.16 --------------------------------------------------------------------------------------------------------------------------------- 10.16** UGI Corporation Supplemental Executive UGI Form 10-Q (6/30/98) 10 Retirement Plan Amended and Restated effective October 1, 1996 --------------------------------------------------------------------------------------------------------------------------------- 10.17** Summary of Terms of UGI Corporation 1999 UGI Form 10-Q (6/30/99) 10 Restricted Stock Awards --------------------------------------------------------------------------------------------------------------------------------- 10.18 Amended and Restated Credit Agreement AmeriGas Form 10-K 10.1 dated as of September 15, 1997 among Partners, L.P. AmeriGas Propane, L.P., AmeriGas Propane, (9/30/97) Inc., Petrolane Incorporated, Bank of America National Trust and Savings Association, as Agent, First Union National Bank, as Syndication Agent and certain banks --------------------------------------------------------------------------------------------------------------------------------- 10.19 First Amendment dated as of September 15, AmeriGas Form 10-K (9/30/98) 10.2 1998 to Amended and Restated Credit Partners, L.P. Agreement --------------------------------------------------------------------------------------------------------------------------------- 10.20 Second Amendment dated as of March 25, AmeriGas Form 10-Q (3/31/99) 10.1 1999 to Amended and Restated Credit Partners, L.P. Agreement --------------------------------------------------------------------------------------------------------------------------------- 10.21 Third Amendment dated as of March 22, 2000 AmeriGas Form 10-Q (6/30/00) 10.3 to Amended and Restated Credit Agreement Partners, L.P. ---------------------------------------------------------------------------------------------------------------------------------
-31- 34
--------------------------------------------------------------------------------------------------------------------------------- INCORPORATION BY REFERENCE --------------------------------------------------------------------------------------------------------------------------------- EXHIBIT NO. EXHIBIT REGISTRANT FILING EXHIBIT --------------------------------------------------------------------------------------------------------------------------------- 10.22 Fourth Amendment dated as of June 6, 2000 AmeriGas Form 10-Q (6/30/00) 10.4 to Amended and Restated Credit Agreement Partners, L.P. --------------------------------------------------------------------------------------------------------------------------------- 10.23 Intercreditor and Agency Agreement dated as AmeriGas Form 10-Q (3/31/95) 10.2 of April 19, 1995 among AmeriGas Propane, Partners, L.P. Inc., Petrolane Incorporated, AmeriGas Propane, L.P., Bank of America National Trust and Savings Association ("Bank of America") as Agent, Mellon Bank, N.A. as Cash Collateral Sub-Agent, Bank of America as Collateral Agent and certain creditors of AmeriGas Propane, L.P. --------------------------------------------------------------------------------------------------------------------------------- 10.24 General Security Agreement dated as of AmeriGas Form 10-Q (3/31/95) 10.3 April 19, 1995 among AmeriGas Propane, Partners, L.P. L.P., Bank of America National Trust and Savings Association and Mellon Bank, N.A. --------------------------------------------------------------------------------------------------------------------------------- 10.25 Subsidiary Security Agreement dated as of AmeriGas Form 10-Q (3/31/95) 10.4 April 19, 1995 among AmeriGas Propane, Partners, L.P. L.P., Bank of America National Trust and Savings Association as Collateral Agent and Mellon Bank, N.A. as Cash Collateral Agent --------------------------------------------------------------------------------------------------------------------------------- 10.26 Restricted Subsidiary Guarantee dated as of AmeriGas Form 10-Q (3/31/95) 10.5 April 19, 1995 by AmeriGas Propane, L.P. Partners, L.P. for the benefit of Bank of America National Trust and Savings Association, as Collateral Agent --------------------------------------------------------------------------------------------------------------------------------- 10.27 Trademark License Agreement dated April 19, AmeriGas Form 10-Q (3/31/95) 10.6 1995 among UGI Corporation, AmeriGas, Inc., Partners, L.P. AmeriGas Propane, Inc., AmeriGas Partners, L.P. and AmeriGas Propane, L.P. --------------------------------------------------------------------------------------------------------------------------------- 10.28 Trademark License Agreement, dated April AmeriGas Form 10-Q (3/31/95) 10.7 19, 1995 among AmeriGas Propane, Inc., Partners, L.P. AmeriGas Partners, L.P. and AmeriGas Propane, L.P. --------------------------------------------------------------------------------------------------------------------------------- 10.29 Agreement dated as of May 1, 1996 between AmeriGas Form 10-K (9/30/97) 10.2 TE Products Pipeline Company, L.P. and Partners, L.P. AmeriGas Propane, L.P. --------------------------------------------------------------------------------------------------------------------------------- 10.30 Pledge Agreement dated September 1999 UGI Form 10-K (9/30/99) 10.28 between Eastfield International Holdings, Inc. and Reiffeisen Zentralbank Osterreich Aktiengesellschaft ("RZB") --------------------------------------------------------------------------------------------------------------------------------- 10.31 Pledge Agreement dated September 1999 UGI Form 10-K (9/30/99) 10.29 between EuroGas Holdings, Inc. and RZB ---------------------------------------------------------------------------------------------------------------------------------
-32- 35
--------------------------------------------------------------------------------------------------------------------------------- INCORPORATION BY REFERENCE --------------------------------------------------------------------------------------------------------------------------------- EXHIBIT NO. EXHIBIT REGISTRANT FILING EXHIBIT --------------------------------------------------------------------------------------------------------------------------------- 10.32 Form of Guarantee Agreement dated September UGI Form 10-K (9/30/99) 10.30 1999 between UGI Corporation and RZB relating to loan amount of EURO 74 million --------------------------------------------------------------------------------------------------------------------------------- *10.33 Form of Guarantee Agreement dated September 2000 between UGI Corporation and RZB relating to loan amount of EURO 14.9 million --------------------------------------------------------------------------------------------------------------------------------- *10.34 Form of Guarantee Agreement dated September 2000 between UGI Corporation and RZB relating to loan amount of EURO 9 million --------------------------------------------------------------------------------------------------------------------------------- 10.35** Description of Change of Control UGI Form 10-K (9/30/99) 10.33 arrangements for Messrs. Greenberg, Bovaird and Mendicino --------------------------------------------------------------------------------------------------------------------------------- 10.36** Description of Change of Control UGI Form 10-K (9/30/99) 10.34 arrangement for Mr. Chaney --------------------------------------------------------------------------------------------------------------------------------- 10.37** Description of Change of Control AmeriGas Form 10-K (9/30/99) 10.31 arrangement for Mr. Bissell Partners, L.P. --------------------------------------------------------------------------------------------------------------------------------- *10.38** Consulting Services Agreement dated as of August 1, 2000 between Stephen D. Ban and UGI Corporation --------------------------------------------------------------------------------------------------------------------------------- *10.39** 1992 Non-Qualified Stock Option Plan, as amended --------------------------------------------------------------------------------------------------------------------------------- *10.40 Service Agreement for comprehensive delivery service (Rate CDS) dated February 23, 1998 between UGI Utilities, Inc. and Texas Eastern Transmission Corporation --------------------------------------------------------------------------------------------------------------------------------- *10.41 Service Agreement for comprehensive delivery service (Rate CDS) dated February 23, 1999 between UGI Utilities, Inc. and Texas Eastern Transmission Corporation --------------------------------------------------------------------------------------------------------------------------------- *13 Pages 13 through 47 of 2000 Annual Report to Shareholders --------------------------------------------------------------------------------------------------------------------------------- *21 Subsidiaries of the Registrant --------------------------------------------------------------------------------------------------------------------------------- *23 Consent of Arthur Andersen LLP --------------------------------------------------------------------------------------------------------------------------------- *27 Financial Data Schedule ---------------------------------------------------------------------------------------------------------------------------------
* Filed herewith. ** As required by Item 14(a)(3), this exhibit is identified as a compensatory plan or arrangement. (b) Reports on Form 8-K: The Company filed no Current Reports on Form 8-K during the last quarter of fiscal year 2000. -33- 36 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. UGI CORPORATION Date: December 19, 2000 By: Anthony J. Mendicino ------------------------------- Anthony J. Mendicino Vice President - Finance and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below on December 19, 2000, by the following persons on behalf of the Registrant in the capacities indicated. SIGNATURE TITLE --------- ----- Lon R. Greenberg Chairman, President ----------------------------- and Chief Executive Officer Lon R. Greenberg (Principal Executive Officer) and Director Anthony J. Mendicino Vice President - Finance ----------------------------- and Chief Financial Officer Anthony J. Mendicino (Principal Financial Officer and Principal Accounting Officer) Stephen D. Ban Director ----------------------------- Stephen D. Ban Thomas F. Donovan Director ----------------------------- Thomas F. Donovan -34- 37 Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below on December 19, 2000, by the following persons on behalf of the Registrant in the capacities indicated. SIGNATURE TITLE --------- ----- Richard C. Gozon Director --------------------------- Richard C. Gozon Anne Pol Director --------------------------- Anne Pol Marvin O. Schlanger Director --------------------------- Marvin O. Schlanger James W. Stratton Director --------------------------- James W. Stratton David I. J. Wang Director --------------------------- David I. J. Wang -35- 38 UGI CORPORATION AND SUBSIDIARIES FINANCIAL INFORMATION FOR INCLUSION IN ANNUAL REPORT ON FORM 10-K YEAR ENDED SEPTEMBER 30, 2000 F-1 39 UGI CORPORATION AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES The consolidated financial statements and supplementary data of UGI Corporation and subsidiaries, together with the report thereon of Arthur Andersen LLP dated November 10, 2000, listed in the following index, are included in UGI's 2000 Annual Report to Shareholders and are incorporated in this Form 10-K Annual Report by reference. With the exception of the pages listed in this index and information incorporated in Items 1, 2, 5, 7 and 8, the 2000 Annual Report to Shareholders is not to be deemed filed as part of this Report.
Reference ------------------------- Annual Report to Form 10-K Shareholders (page) (page) --------- ------------ Reports of Independent Public Accountants: On Consolidated Financial Statements 24 On Financial Statement Schedules F-4 Financial Statements: Consolidated Balance Sheets, September 30, 2000 and 1999 26 and 27 For the years ended September 30, 2000, 1999 and 1998: Consolidated Statements of Income 25 Consolidated Statements of Cash Flows 28 Consolidated Statements of Stockholders' Equity 29
Index F-2 40 UGI CORPORATION AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES (CONTINUED)
Reference ------------------------- Annual Report to Form 10-K Shareholders (page) (page) --------- ------------ Notes to Consolidated Financial Statements 30 to 47 Supplementary Data (unaudited): Quarterly Data for the years ended September 30, 2000 and 1999 46 Financial Statement Schedules: For the years ended September 30, 2000, 1999 and 1998: I - Condensed Financial Information of Registrant (Parent Company) S-1 to S-3 II - Valuation and Qualifying Accounts S-4 to S-5
Annual Reports on Form 10-K/A Annual Reports on Form 10-K/A for the UGI Utilities, Inc. and AmeriGas Propane, Inc. savings plans will be filed by amendment within the time period specified by Rule 15d-21(b). We have omitted all other financial statement schedules because the required information is either (1) not present; (2) not present in amounts sufficient to require submission of the schedule; or (3) the information required is included elsewhere in the financial statements or related notes. F-3 41 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of UGI Corporation: We have audited, in accordance with auditing standards generally accepted in the United States, the consolidated financial statements included in UGI Corporation's annual report to shareholders for the year ended September 30, 2000, incorporated by reference in this Form 10-K, and have issued our report thereon dated November 10, 2000. Our audits were made for the purpose of forming an opinion on those consolidated financial statements taken as a whole. The schedules listed in the Index on pages F-2 and F-3 are the responsibility of UGI Corporation's management and are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Philadelphia, Pennsylvania November 10, 2000 F-4 42 UGI CORPORATION AND SUBSIDIARIES SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY) BALANCE SHEETS (Millions of dollars)
September 30, 2000 1999 -------------- -------------- ASSETS ------ Current assets: Cash and cash equivalents $ 1.1 $ 0.4 Accounts receivable 0.1 0.1 Deferred income taxes 0.2 0.2 Prepaid expenses and other current assets 0.3 0.3 -------------- -------------- Total current assets 1.7 1.0 Investments in subsidiaries 315.9 271.3 Other assets 2.4 2.2 -------------- -------------- Total assets $ 320.0 $ 274.5 ============== ============== LIABILITIES AND COMMON STOCKHOLDERS' EQUITY Current liabilities: Accounts and notes payable $ 9.6 $ 11.1 Accrued liabilities 12.4 10.7 -------------- -------------- Total current liabilities 22.0 21.8 Noncurrent liabilities 50.3 3.5 Commitments and contingencies Common stockholders' equity: Common Stock, without par value (authorized - 100,000,000 shares; issued - 33,198,731 shares) 394.5 394.8 Accumulated deficit (4.9) (8.2) Accumulated other comprehensive income - 0.5 Unearned compensation - restricted stock (0.7) (1.7) -------------- -------------- 388.9 385.4 Less treasury stock, at cost (141.2) (136.2) -------------- -------------- Total common stockholders' equity 247.7 249.2 -------------- -------------- Total liabilities and common stockholders' equity $ 320.0 $ 274.5 ============== ==============
Commitments and Contingencies In addition to the guarantees of FLAGA debt described in Note 3 to Consolidated Financial Statements, UGI Corporation is authorized to guarantee up to $30 million of supplier and customer obligations of its wholly owned second-tier subsidiary UGI Energy Services, Inc., and $5 million of lease obligations of its wholly owned second-tier subsidiary Hearth USA, Inc. S-1 43 UGI CORPORATION AND SUBSIDIARIES SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY) STATEMENTS OF INCOME (Millions of dollars, except per share amounts)
Year Ended September 30, ---------------------------------------------------- 2000 1999 1998 ---------- ---------- ---------- Revenues $ - $ - $ - Costs and expenses: Operating and administrative expenses 8.1 10.4 10.7 Other income, net (8.4) (10.5) (10.4) ---------- ---------- ---------- (0.3) (0.1) 0.3 ---------- ---------- ---------- Operating income (loss) 0.3 0.1 (0.3) Interest expense on intercompany debt (2.0) - - ---------- ---------- ---------- Income (loss) before income taxes (1.7) 0.1 (0.3) Income tax expense (benefit) (1.1) 0.3 (0.1) ---------- ---------- ---------- Loss before equity in income of unconsolidated subsidiaries (0.6) (0.2) (0.2) Equity in income of unconsolidated subsidiaries 45.3 55.9 40.5 ---------- ---------- ---------- Net income $ 44.7 $ 55.7 $ 40.3 ========== ========== ========== Earnings per common share: Basic $ 1.64 $ 1.74 $ 1.22 ========== ========== ========== Diluted $ 1.64 $ 1.74 $ 1.22 ========== ========== ========== Average common shares outstanding (millions): Basic 27.219 31.954 32.971 ========== ========== ========== Diluted 27.255 32.016 33.123 ========== ========== ==========
S-2 44 UGI CORPORATION AND SUBSIDIARIES SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY) STATEMENTS OF CASH FLOWS (Millions of dollars)
Year Ended September 30, ---------------------------------------------------- 2000 1999 1998 ---------- ---------- ---------- NET CASH PROVIDED BY OPERATING ACTIVITIES (a) $ 95.5 $ 178.0 $ 77.8 CASH FLOWS FROM INVESTING ACTIVITIES: Investments in unconsolidated subsidiaries (95.8) (16.5) (34.8) Other - - 2.5 ----------- ---------- ---------- Net cash used by investing activities (95.8) (16.5) (32.3) CASH FLOWS FROM FINANCING ACTIVITIES: Payment of dividends on Common Stock (41.2) (47.9) (47.6) Issuance of intercompany long-term debt 47.5 - - Issuance of Common Stock 3.8 4.7 8.5 Repurchases of Common Stock (9.1) (133.1) (11.3) ----------- ---------- ---------- Net cash used by financing activities 1.0 (176.3) (50.4) ----------- ---------- ---------- Cash and cash equivalents increase (decrease) $ 0.7 $ (14.8) $ (4.9) =========== ========== ========== Cash and cash equivalents: End of period $ 1.1 $ 0.4 $ 15.2 Beginning of period 0.4 15.2 20.1 ----------- ---------- ---------- Increase (decrease) $ 0.7 $ (14.8) $ (4.9) =========== ========== ==========
(a) Includes dividends received from unconsolidated subsidiaries of $96.2, $176.7 and $77.6, respectively, for the years ended September 30, 2000, 1999 and 1998. S-3 45 UGI CORPORATION AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (Millions of dollars)
Charged Balance at (credited) Balance at beginning to costs and end of of year expenses Other year ---------- ------------ ----------- ---------- YEAR ENDED SEPTEMBER 30, 2000 ----------------------------- Reserves deducted from assets in the consolidated balance sheet: Allowance for doubtful accounts $ 8.0 $ 10.0 $ (8.9)(1) $ 9.3 ========== 0.2 (2) ========== Allowance for amortization of deferred financing costs - AmeriGas Propane $ 7.1 $ 1.7 $ - $ 8.8 ========== ========== Allowance for amortization of other deferred costs - AmeriGas Propane $ 2.1 $ 0.4 $ (1.5)(2) $ 1.0 ========== ========== Other reserves: Self-insured property and casualty liability $ 38.7 $ 14.1 $ (15.8)(3) $ 37.1 ========== 0.1 (2) ========== Insured property and casualty liability $ 5.1 $ (3.0) $ 2.1 ========== ========== Environmental, litigation and other $ 12.5 $ (1.3)(3) $ 11.2 ========== ========== YEAR ENDED SEPTEMBER 30, 1999 ----------------------------- Reserves deducted from assets in the consolidated balance sheet: Allowance for doubtful accounts $ 7.9 $ 7.8 $ (7.9)(1) $ 8.0 ========== 0.2 (2) ========== Allowance for amortization of deferred financing costs - AmeriGas Propane $ 5.4 $ 1.7 $ - $ 7.1 ========== ========== Allowance for amortization of other deferred costs - AmeriGas Propane $ 4.6 $ 1.0 $ (3.5)(2) $ 2.1 ========== ========== Other reserves: Self-insured property and casualty liability $ 48.5 $ 12.9 $ (22.9)(3) $ 38.7 ========== 0.2 (2) ========== Insured property and casualty liability $ 4.3 $ 0.8 $ 5.1 ========== ========== Environmental, litigation and other $ 13.9 $ (1.5)(3) $ 12.5 ========== $ 0.1 (2) ==========
S-4 46 UGI CORPORATION AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (CONTINUED) (Millions of dollars)
Charged Balance at (credited) Balance at beginning to costs and end of of year expenses Other year ---------- ------------ ----------- ---------- YEAR ENDED SEPTEMBER 30, 1998 ----------------------------- Reserves deducted from assets in the consolidated balance sheet: Allowance for doubtful accounts $ 11.3 $ 8.4 $ (11.8)(1) $ 7.9 ========== ========== Allowance for amortization of deferred financing costs - AmeriGas Propane $ 3.8 $ 1.6 $ - $ 5.4 ========== ========== Allowance for amortization of other deferred costs - AmeriGas Propane $ 3.9 $ 0.7 $ - $ 4.6 ========== ========== Other reserves: Self-insured property and casualty liability $ 48.5 $ 11.7 $ (11.7)(3) $ 48.5 ========== ========== Insured property and casualty liability $ 1.8 $ 2.9 $ (0.4)(3) $ 4.3 ========== ========== Environmental, litigation and other $ 22.6 $ (4.0) $ (4.7)(3) $ 13.9 ========== ==========
(1) Uncollectible accounts written off, net of recoveries. (2) Other adjustments. (3) Payments, net. S-5 47 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION ----------- ----------- 10.6 UGI Corporation Directors Deferred Compensation Plan Amended and Restated as of January 1, 2000 10.9 UGI Corporation Directors Equity Compensation Plan Amended and Restated as of January 1, 2000 10.33 Form of Guarantee Agreement dated September 2000 between UGI Corporation and RZB relating to loan amount of EURO 14.9 million 10.34 Form of Guarantee Agreement dated September 2000 between UGI Corporation and RZB relating to loan amount of EURO 9 million 10.38 Consulting Services Agreement dated as of August 1, 2000 between Stephen D. Ban and UGI Corporation 10.39 1992 Non-Qualified Stock Option Plan, as amended 10.40 Service Agreement dated February 23, 1998 between UGI Utilities, Inc. and Texas Eastern Transmission Corporation 10.41 Service Agreement dated February 23, 1999 between UGI Utilities, Inc. and Texas Eastern Transmission Corporation 13 Pages 13 to 47 of the 2000 Annual Report 21 Subsidiaries of the Registrant 23 Consent of Arthur Andersen LLP 27 Financial Data Schedule