-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, F1zmBm5omsBfcFDwsU1Ihj9tllPBrs2KNwLXh8ihvtwJF4KGfaLxKFRRZ0Jwd/Lx 6jQd1J8ODvWE+tFlKMZb1A== 0000893220-05-001069.txt : 20050506 0000893220-05-001069.hdr.sgml : 20050506 20050506163423 ACCESSION NUMBER: 0000893220-05-001069 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20050331 FILED AS OF DATE: 20050506 DATE AS OF CHANGE: 20050506 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UGI CORP /PA/ CENTRAL INDEX KEY: 0000884614 STANDARD INDUSTRIAL CLASSIFICATION: GAS & OTHER SERVICES COMBINED [4932] IRS NUMBER: 232668356 STATE OF INCORPORATION: PA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11071 FILM NUMBER: 05808518 BUSINESS ADDRESS: STREET 1: 460 N GULPH RD STREET 2: P O BOX 858 CITY: KING OF PRUSSIA STATE: PA ZIP: 19406 BUSINESS PHONE: 6103371000 MAIL ADDRESS: STREET 1: 460 NORTH GULPH ROAD CITY: KING OF PRUSSIA STATE: PA ZIP: 19406 FORMER COMPANY: FORMER CONFORMED NAME: NEW UGI CORP DATE OF NAME CHANGE: 19600201 10-Q 1 w08749e10vq.txt UGI CORPORATION FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2005 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission file number 1-11071 UGI CORPORATION (Exact name of registrant as specified in its charter) Pennsylvania 23-2668356 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) UGI CORPORATION 460 North Gulph Road, King of Prussia, PA (Address of principal executive offices) 19406 (Zip Code) (610) 337-1000 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ] At April 30, 2005, there were 51,860,000 shares of UGI Corporation Common Stock, without par value, outstanding. UGI CORPORATION AND SUBSIDIARIES TABLE OF CONTENTS
PAGES ------- PART I FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets as of March 31, 2005, September 30, 2004 and March 31, 2004 1 Condensed Consolidated Statements of Income for the three and six months ended March 31, 2005 and 2004 2 Condensed Consolidated Statements of Cash Flows for the six months ended March 31, 2005 and 2004 3 Notes to Condensed Consolidated Financial Statements 4 - 19 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 20 - 32 Item 3. Quantitative and Qualitative Disclosures About Market Risk 33 - 35 Item 4. Controls and Procedures 36 PART II OTHER INFORMATION Item 1. Legal Proceedings 37 Item 4. Submission of Matters to a Vote of Security Holders 37 Item 6. Exhibits 38 Signatures 39
-i- UGI CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) (Millions of dollars)
March 31, September 30, March 31, 2005 2004 2004 ------------- ---------------- ------------ ASSETS Current assets: Cash and cash equivalents $ 161.6 $ 149.6 $ 143.3 Short-term investments (at cost, which approximates fair value) 65.0 50.0 10.0 Accounts receivable (less allowances for doubtful accounts of $34.8, $22.3 and $28.0, respectively) 747.4 367.3 624.3 Accrued utility revenues 27.4 9.7 24.2 Inventories 135.4 198.4 105.1 Deferred income taxes 30.4 14.9 25.4 Prepaid expenses and other current assets 27.7 46.6 55.6 ------------- ------------- --------- Total current assets 1,194.9 836.5 987.9 Property, plant and equipment, at cost (less accumulated depreciation and amortization of $947.0, $892.4 and $852.6, respectively) 1,819.6 1,781.9 1,884.8 Goodwill and excess reorganization value 1,284.6 1,245.9 1,171.6 Intangible assets (less accumulated amortization of $37.8, $27.5 and $19.6, respectively) 189.3 184.4 144.9 Utility regulatory assets 66.2 65.0 62.1 Other assets 119.8 121.7 118.6 ------------- ------------- --------- Total assets $ 4,674.4 $ 4,235.4 $ 4,369.9 ============= ============= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt $ 172.2 $ 122.8 $ 95.8 Current maturities of UGI Utilities preferred shares subject to mandatory redemption, without par value - 20.0 1.0 AmeriGas Propane bank loans 12.0 - 3.0 UGI Utilities bank loans 39.2 60.9 42.4 Other bank loans 26.0 17.2 15.9 Accounts payable 448.2 323.9 398.5 Other current liabilities 427.1 378.0 263.6 ------------- ------------- --------- Total current liabilities 1,124.7 922.8 820.2 Long-term debt 1,520.3 1,547.3 1,609.7 Deferred income taxes 472.3 441.4 463.4 UGI Utilities preferred shares subject to mandatory redemption, without par value - - 19.0 Other noncurrent liabilities 322.7 311.4 435.5 ------------- ------------- --------- Total liabilities 3,440.0 3,222.9 3,347.8 Commitments and contingencies (note 8) Minority interests 214.2 178.4 198.3 Common stockholders' equity: Common Stock, without par value (authorized - 150,000,000 shares; issued - 57,576,497, 57,576,497 and 57,298,097 shares, respectively) 768.8 762.8 744.7 Retained earnings 309.5 146.2 172.4 Accumulated other comprehensive income 29.5 22.6 11.4 Notes receivable from employees - (0.2) (0.3) ------------- ------------- --------- 1,107.8 931.4 928.2 Treasury stock, at cost (87.6) (97.3) (104.4) ------------- ------------- --------- Total common stockholders' equity 1,020.2 834.1 823.8 ------------- ------------- --------- Total liabilities and stockholders' equity $ 4,674.4 $ 4,235.4 $ 4,369.9 ============= ============= =========
See accompanying notes to condensed consolidated financial statements. -1- UGI CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited) (Millions of dollars, except per share amounts)
Three Months Ended Six Months Ended March 31, March 31, ---------------------------- ------------------------------- 2005 2004 2005 2004 -------- -------- --------- --------- Revenues $1,788.2 $1,316.6 $ 3,151.3 $ 2,210.3 Costs and expenses: Cost of sales 1,195.1 914.4 2,108.4 1,511.4 Operating and administrative expenses 271.7 183.5 529.3 346.8 Utility taxes other than income taxes 3.7 3.6 6.9 6.7 Depreciation and amortization 37.7 28.4 75.3 55.8 Other (income) expense, net (7.7) 5.1 (31.3) (0.3) -------- -------- --------- --------- 1,500.5 1,135.0 2,688.6 1,920.4 -------- -------- --------- --------- Operating income 287.7 181.6 462.7 289.9 Income (loss) from equity investees (0.6) 8.4 (1.3) 12.6 Interest expense (33.3) (26.7) (66.8) (53.4) Minority interests, principally in AmeriGas Partners (53.0) (55.6) (73.6) (78.3) -------- -------- --------- --------- Income before income taxes 200.8 107.7 321.0 170.8 Income tax expense (83.5) (40.6) (125.5) (64.9) -------- -------- --------- --------- Net income $ 117.3 $ 67.1 $ 195.5 $ 105.9 ======== ======== ========= ========= Earnings per common share: Basic $ 2.26 $ 1.51 $ 3.79 $ 2.43 ======== ======== ========= ========= Diluted $ 2.23 $ 1.48 $ 3.72 $ 2.37 ======== ======== ========= ========= Average common shares outstanding (millions): Basic 51.791 44.299 51.581 43.566 ======== ======== ========= ========= Diluted 52.543 45.310 52.564 44.625 ======== ======== ========= ========= Dividends declared per common share $ 0.3125 $ 0.2850 $ 0.6250 $ 0.5700 ======== ======== ========= =========
See accompanying notes to condensed consolidated financial statements. -2- UGI CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (Millions of dollars)
Six Months Ended March 31, ------------------------------ 2005 2004 ------- ------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 195.5 $ 105.9 Adjustments to reconcile to net cash provided by operating activities: Depreciation and amortization 75.3 55.8 Minority interests 73.6 78.3 Deferred income taxes, net 9.7 3.9 Other, net 13.6 10.8 Net change in: Accounts receivable and accrued utility revenues (407.2) (270.0) Inventories 77.0 52.9 Deferred fuel costs 14.8 3.4 Accounts payable 100.8 78.2 Other current assets and liabilities 35.4 (15.0) ------- ------- Net cash provided by operating activities 188.5 104.2 ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Expenditures for property, plant and equipment (74.5) (50.2) Net proceeds from disposals of assets 8.7 3.9 Acquisitions of businesses, net of cash acquired (27.7) (275.7) Short-term investments (increase) decrease (15.0) 40.0 Other, net 3.2 0.1 ------- ------- Net cash used by investing activities (105.3) (281.9) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Dividends on UGI Common Stock (32.2) (24.4) Distributions on AmeriGas Partners publicly held Common Units (32.9) (30.6) Issuance of long-term debt 21.0 - Repayment of long-term debt (22.0) (6.6) AmeriGas Propane bank loans increase 12.0 3.0 UGI Utilities bank loans (decrease) increase (21.7) 1.7 Other bank loans increase (decrease) 8.2 (0.9) Redemption of UGI Utilities preferred shares subject to mandatory redemption (20.0) - Issuance of UGI Common Stock 15.7 236.6 ------- ------- Net cash (used) provided by financing activities (71.9) 178.8 ------- ------- EFFECT OF EXCHANGE RATE CHANGES ON CASH 0.7 0.1 ------- ------- Cash and cash equivalents increase $ 12.0 $ 1.2 ======= ======= Cash and cash equivalents: End of period $ 161.6 $ 143.3 Beginning of period 149.6 142.1 ------- ------- Increase $ 12.0 $ 1.2 ======= =======
See accompanying notes to condensed consolidated financial statements. -3- UGI CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Millions of dollars, except per share amounts) 1. BASIS OF PRESENTATION UGI Corporation ("UGI") is a holding company that owns and operates natural gas and electric utility, electricity generation, retail propane distribution, energy marketing and related businesses in the United States. Through foreign subsidiaries and a joint-venture affiliate, UGI also distributes liquefied petroleum gases ("LPG") in France, Austria, the Czech Republic, Slovakia and China. We conduct a national propane distribution business through AmeriGas Partners, L.P. ("AmeriGas Partners") and its principal operating subsidiaries AmeriGas Propane, L.P. ("AmeriGas OLP") and AmeriGas OLP's subsidiary, AmeriGas Eagle Propane, L.P. ("Eagle OLP"). AmeriGas Partners, AmeriGas OLP and Eagle OLP are Delaware limited partnerships. UGI's wholly owned second-tier subsidiary AmeriGas Propane, Inc. (the "General Partner") serves as the general partner of AmeriGas Partners and AmeriGas OLP. AmeriGas OLP and Eagle OLP (collectively referred to as "the Operating Partnerships") comprise the largest retail propane distribution business in the United States serving residential, commercial, industrial, motor fuel and agricultural customers from locations in 46 states. We refer to AmeriGas Partners and its subsidiaries together as "the Partnership" and the General Partner and its subsidiaries, including the Partnership, as "AmeriGas Propane." At March 31, 2005, the General Partner and its wholly owned subsidiary Petrolane Incorporated ("Petrolane") collectively held a 1% general partner interest and a 44.6% limited partner interest in AmeriGas Partners, and effective 46.1% and 46.0% ownership interests in AmeriGas OLP and Eagle OLP, respectively. Our limited partnership interest in AmeriGas Partners comprises 24,525,004 Common Units. The remaining 54.4% interest in AmeriGas Partners comprises 29,967,601 publicly held Common Units representing limited partner interests. Our wholly owned subsidiary, UGI Enterprises, Inc. ("Enterprises") (1) owns and operates LPG distribution businesses in France ("Antargaz"); (2) owns and operates LPG distribution businesses in Austria, the Czech Republic and Slovakia ("FLAGA"); and (3) participates in a propane joint-venture business in China. We refer to our foreign operations collectively as "International Propane." Our natural gas and electric distribution utility businesses are conducted through our wholly owned subsidiary, UGI Utilities, Inc. ("UGI Utilities"). UGI Utilities owns and operates a natural gas distribution utility ("Gas Utility") in parts of eastern and southeastern Pennsylvania and an electricity distribution utility ("Electric Utility") in northeastern Pennsylvania. Gas Utility and Electric Utility are subject to regulation by the Pennsylvania Public Utility Commission ("PUC"). In addition, Enterprises conducts an energy marketing business primarily in the Eastern region of the United States through its wholly owned subsidiary, UGI Energy Services, Inc. ("Energy Services"). Energy Services' wholly owned subsidiary UGI Development Company ("UGID"), and UGID's subsidiaries and joint-venture affiliate Hunlock Creek Energy Ventures, own and operate interests in Pennsylvania-based electricity generation -4- UGI CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Millions of dollars, except per share amounts) assets. Through other subsidiaries, Enterprises owns and operates a heating, ventilation, air-conditioning and refrigeration service business in the Middle Atlantic states ("HVAC/R"). Our condensed consolidated financial statements include the accounts of UGI and its controlled subsidiary companies, which, except for the Partnership, are majority owned, and are together referred to as "we" or "the Company." We eliminate all significant intercompany accounts and transactions when we consolidate. We report the public's limited partner interests in the Partnership and the outside ownership interest in a subsidiary of Antargaz as minority interests. Entities in which we own 50 percent or less and in which we exercise significant influence over operating and financial policies are accounted for by the equity method. Prior to the March 2004 acquisition of the 80.5% remaining ownership interests in AGZ Holding that we did not already own, Antargaz was accounted for by the equity method. The accompanying condensed consolidated financial statements are unaudited and have been prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). They include all adjustments which we consider necessary for a fair statement of the results for the interim periods presented. Such adjustments consisted only of normal recurring items unless otherwise disclosed. The September 30, 2004 condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. These financial statements should be read in conjunction with the financial statements and related notes included in our Annual Report on Form 10-K for the year ended September 30, 2004 ("Company's 2004 Annual Report"). Due to the seasonal nature of our businesses, the results of operations for interim periods are not necessarily indicative of the results to be expected for a full year. EARNINGS PER COMMON SHARE. Basic earnings per share reflect the weighted-average number of common shares outstanding. Diluted earnings per share include the effects of dilutive stock options and common stock awards. Shares used in computing basic and diluted earnings per share are as follows:
Three Months Ended Six Months Ended March 31, March 31, ------------------------ --------------------- 2005 2004 2005 2004 ------ ------ ------ ------ Denominator (millions of shares): Average common shares outstanding for basic computation 51.791 44.299 51.581 43.566 Incremental shares issuable for stock options and awards 0.752 1.011 0.983 1.059 ------ ------ ------ ------ Average common shares outstanding for diluted computation 52.543 45.310 52.564 44.625 ------ ------ ------ ------
STOCK-BASED COMPENSATION. As permitted by Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), we apply the provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for -5- UGI CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Millions of dollars, except per share amounts) Stock Issued to Employees" ("APB 25"), in recording compensation expense for grants of stock, stock options and other equity instruments to employees. We use the intrinsic value method prescribed by APB 25 for our stock-based employee compensation plans. We recognized total stock and unit-based compensation expense of $2.4 million and $6.9 million in the three and six months ended March 31, 2005, respectively, and $3.2 million and $7.3 million in the three and six months ended March 31, 2004, respectively. If we had determined stock-based compensation expense under the fair value method prescribed by SFAS 123, net income and basic and diluted earnings per share for the three and six months ended March 31, 2005 and 2004 would have been as follows:
Three Months Ended Six Months Ended March 31, March 31, ------------------- ------------------ 2005 2004 2005 2004 ------- ------ ------- ------ Net income, as reported $ 117.3 $ 67.1 $ 195.5 $105.9 Add: Stock and unit-based employee compensation expense included in reported net income, net of related tax effects 1.4 1.9 4.1 4.4 Deduct: Total stock and unit-based employee compensation expense determined under the fair value method for all awards, net of related tax effects (2.3) (2.2) (5.3) (4.9) ------- ------ ------- ------ Pro forma net income $ 116.4 $ 66.8 $ 194.3 $105.4 ------- ------ ------- ------ Basic earnings per share: As reported $ 2.26 $ 1.51 $ 3.79 $ 2.43 Pro forma $ 2.25 $ 1.51 $ 3.77 $ 2.42 Diluted earnings per share: As reported $ 2.23 $ 1.48 $ 3.72 $ 2.37 Pro forma $ 2.22 $ 1.47 $ 3.70 $ 2.36
COMPREHENSIVE INCOME. The following table presents the components of comprehensive income for the three and six months ended March 31, 2005 and 2004.
Three Months Ended Six Months Ended March 31, March 31, --------------------- --------------------- 2005 2004 2005 2004 ------- ----- ------- ------- Net income $ 117.3 $67.1 $ 195.5 $ 105.9 Other comprehensive (loss) income (12.7) (4.2) 6.9 6.7 ------- ----- ------- ------- Comprehensive income $ 104.6 $62.9 $ 202.4 $ 112.6 ------- ----- ------- -------
Other comprehensive (loss) income principally comprises (1) changes in the fair value of derivative commodity instruments, interest rate protection agreements and foreign currency -6- UGI CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Millions of dollars, except per share amounts) derivatives qualifying as hedges and (2) foreign currency translation adjustments, net of reclassifications to net income. RECLASSIFICATIONS. We have reclassified certain prior-year period balances to conform to the current-period presentation. USE OF ESTIMATES. We make estimates and assumptions when preparing financial statements in conformity with accounting principles generally accepted in the United States of America. These estimates and assumptions affect the reported amounts of assets and liabilities, revenues and expenses, as well as the disclosure of contingent assets and liabilities. Actual results could differ from these estimates. 2. ACQUISITIONS In November 2004, a wholly owned subsidiary of Energy Services acquired from ConocoPhillips Company ("Conoco") and a wholly owned, indirect subsidiary of AmeriGas OLP, in separate transactions, 100% of the issued and outstanding common stock of Atlantic Energy, Inc. ("Atlantic Energy"), for an aggregate purchase price of approximately $23.4 million in cash, subject to post-closing adjustments. Atlantic Energy's principal asset is a 20 million gallon propane storage terminal located in Chesapeake, Virginia. We are currently in the process of completing the review and determination of the fair value of the assets acquired and liabilities assumed, principally the fair value of the terminal. The effect of the sale of AmeriGas OLP's 50% ownership interest in Atlantic Energy to Energy Services is eliminated in consolidation and only the 50% of Atlantic Energy's assets and liabilities acquired from Conoco have been subject to a preliminary purchase price allocation. In connection with this acquisition, Atlantic Energy and AmeriGas OLP entered into a long-term propane supply agreement. The pro forma effect of this acquisition was not material to our results of operations. Also, during the six months ended March 31, 2005, AmeriGas OLP completed several acquisitions of small retail propane distribution businesses. The operating results of these businesses have been included in our operating results from their respective dates of acquisition. The pro forma effects of these transactions were not material to our results of operations. 3. SEGMENT INFORMATION We have organized our business units into six reportable segments generally based upon products sold, geographic location (domestic or international) or regulatory environment. Our reportable segments are: (1) AmeriGas Propane; (2) an international LPG segment comprising Antargaz; (3) an international LPG segment comprising FLAGA and our international LPG equity investment in China ("Other"); (4) Gas Utility; (5) Electric Utility; and (6) Energy Services (comprising Energy Services' gas marketing business, UGID's electricity generation business and Atlantic Energy's propane terminal business). We refer to both international segments collectively as "International Propane." -7- UGI CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Millions of dollars, except per share amounts) The accounting policies of the six segments disclosed are the same as those described in the Significant Accounting Policies note contained in the Company's 2004 Annual Report. We evaluate AmeriGas Propane's performance principally based upon the Partnership's earnings before interest expense, income taxes, depreciation and amortization ("Partnership EBITDA"). Although we use Partnership EBITDA to evaluate AmeriGas Propane's profitability, it should not be considered as an alternative to net income (as an indicator of operating performance) or as an alternative to cash flow (as a measure of liquidity or ability to service debt obligations) and is not a measure of performance or financial condition under accounting principles generally accepted in the United States of America. The Company's definition of Partnership EBITDA may be different from that used by other companies. We evaluate the performance of our International Propane, Gas Utility, Electric Utility and Energy Services segments principally based upon their income before income taxes. -8- UGI CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (unaudited) (Millions of dollars, except per share amounts) 3. SEGMENT INFORMATION (CONTINUED) Three Months Ended March 31, 2005:
Reportable Segments -------------------------------------------------------------- International Propane AmeriGas Gas Electric Energy --------------------- Corporate Total Elims. Propane Utility Utility Services Antargaz Other (a) & Other (b) --------- -------- -------- -------- -------- ---------- -------- -------- ---------- Revenues $ 1,788.2 $ - $ 698.3 $ 255.9 $ 25.6 $ 432.2 $ 341.4 $ 22.2 $ 12.6 ========== ======== ======== ======== ======== ========== ======== ======== ========== Cost of sales $ 1,195.1 $ - $ 429.8 $ 177.3 $ 11.9 $ 409.9 $ 146.5 $ 12.4 $ 7.3 ========== ======== ======== ======== ======== ========== ======== ======== ========== Segment profit: Operating income (c) $ 287.7 $ - $ 117.9 $ 48.6 $ 7.2 $ 14.0 $ 96.0 $ 3.0 $ 1.0 Loss from equity investees (0.6) - - - - - (0.6) - - Interest expense (33.3) - (20.7) (4.0) (0.5) - (7.4) (0.6) (0.1) Minority interests (53.0) - (52.4) - - - (0.6) - - ---------- -------- -------- -------- -------- ---------- -------- -------- ---------- Income before income taxes $ 200.8 $ - $ 44.8 $ 44.6 $ 6.7 $ 14.0 $ 87.4 $ 2.4 $ 0.9 ========== ======== ======== ======== ======== ========== ======== ======== ========== Depreciation and amortization $ 37.7 $ - $ 18.5 $ 5.1 $ 0.8 $ 1.5 $ 10.2 $ 1.3 $ 0.3 Partnership EBITDA (c) $ 135.2 Segment assets (at period end) $ 4,674.4 $ (333.6) $1,630.5 $ 802.7 $ 97.3 $ 288.0 $1,574.6 $ 166.2 $ 448.7 ========== ======== ======== ======== ======== ========== ======== ======== ========== Investments in equity investees (at period end) $ 14.3 $ - $ - $ - $ - $ 8.6 $ 3.0 $ 2.7 $ - ========== ======== ======== ======== ======== ========== ======== ======== ========== Goodwill and excess reorganization value (at period end) $ 1,284.6 $ - $ 615.8 $ - $ - $ 4.3 $ 586.2 $ 72.8 $ 5.5 ========== ======== ======== ======== ======== ========== ======== ======== ==========
Three Months Ended March 31, 2004:
Reportable Segments ---------------------------------------------------------- International Propane AmeriGas Gas Electric Energy --------------------- Corporate Total Elims. Propane Utility Utility Services Antargaz Other (a) & Other (b) ----------- ------- --------- ------- ------- -------- -------- --------- ----------- Revenues $ 1,316.6 $ (0.7) $ 687.7 $ 243.5 $ 24.7 $ 328.8 $ - $ 18.6 $ 14.0 =========== ======= ========= ======= ======= ======== ======== ========= =========== Cost of sales $ 914.4 $ - $ 405.2 $ 165.0 $ 11.5 $ 315.3 $ - $ 9.3 $ 8.1 =========== ======= ========= ======= ======= ======== ======== ========= =========== Segment profit: Operating income (loss) $ 181.6 $ - $ 127.2 $ 46.5 $ 6.8 $ 7.5 $ (9.2) $ 2.9 $ (0.1) Income (loss) from equity investees 8.4 - 0.7 - - - 7.8 (0.1) - Interest expense (26.7) - (21.2) (3.9) (0.5) - (0.1) (0.9) (0.1) Minority interests in AmeriGas Partners (55.6) - (55.6) - - - - - - ----------- ------- --------- ------- ------- -------- -------- --------- ----------- Income before income taxes $ 107.7 $ - $ 51.1 $ 42.6 $ 6.3 $ 7.5 $ (1.5) $ 1.9 $ (0.2) =========== ======= ========= ======= ======= ======== ======== ========= =========== Depreciation and amortization $ 28.4 $ - $ 19.8 $ 5.1 $ 1.0 $ 1.0 $ - $ 1.2 $ 0.3 Partnership EBITDA (c) $ 146.6 Segment assets (at period end) $ 4,369.9 $(352.5) $ 1,605.9 $ 763.2 $ 89.0 $ 217.6 $1,487.7 $ 147.4 $ 411.6 =========== ======= ========= ======= ======= ======== ======== ========= =========== Investments in equity investees (at period end) $ 15.1 $ - $ 3.5 $ - $ - $ 8.7 $ - $ 2.9 $ - =========== ======= ========= ======= ======= ======== ======== ========= =========== Goodwill and excess reorganization value (at period end) $ 1,171.6 $ - $ 605.7 $ - $ - $ 2.8 $ 491.6 $ 66.3 $ 5.2 =========== ======= ========= ======= ======= ======== ======== ========= ===========
(a) International Propane-Other principally comprises FLAGA and our joint-venture business in China. (b) Corporate & Other's results principally comprise UGI Enterprises' HVAC/R operations, net expenses of UGI's captive general liability insurance company and UGI Corporation's unallocated corporate and general expenses and interest income. Corporate & Other's assets principally comprise cash, short-term investments and an intercompany loan. The intercompany interest associated with the intercompany loan is removed in the segment presentation. (c) The following table provides a reconciliation of Partnership EBITDA to AmeriGas Propane operating income:
Three months ended March 31, 2005 2004 - ---------------------------- ------- -------- Partnership EBITDA $ 135.2 $ 146.6 Depreciation and amortization (i) (18.4) (19.8) Minority interests (ii) 1.1 1.1 Income from equity investees - (0.7) ------- ------- Operating income $ 117.9 $ 127.2 ======= =======
(i) Excludes General Partner depreciation and amortization of $0.1 million in the three months ended March 31, 2005. (ii) Principally represents the General Partner's 1.01% interest in AmeriGas OLP. -9- UGI CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (unaudited) (Millions of dollars, except per share amounts) 3. SEGMENT INFORMATION (CONTINUED) Six Months Ended March 31, 2005:
Reportable Segments ------------------------------------------------------------- International Propane AmeriGas Gas Electric Energy --------------------- Corporate Total Elims. Propane Utility Utility Services Antargaz Other (a) & Other (b) ---------- -------- --------- ------- ------- -------- -------- -------- ---------- Revenues $ 3,151.3 $ - $ 1,254.5 $ 417.1 $ 47.9 $ 761.2 $ 600.1 $ 42.4 $ 28.1 ========== ======== ========= ======= ======= ======== ======== ======== ========== Cost of sales $ 2,108.4 $ - $ 780.9 $ 283.9 $ 22.9 $ 723.1 $ 256.5 $ 24.4 $ 16.7 ========== ======== ========= ======= ======= ======== ======== ======== ========== Segment profit: Operating income (c) $ 462.7 $ - $ 176.5 $ 76.7 $ 11.9 $ 20.1 $ 171.7 $ 4.7 $ 1.1 Loss from equity investees (1.3) - - - - - (1.3) - - Interest expense (66.8) - (41.2) (8.1) (1.0) - (14.9) (1.6) - Minority interests (73.6) - (72.7) - - - (0.9) - - ---------- -------- --------- ------- ------- -------- -------- -------- ---------- Income before income taxes (c) $ 321.0 $ - $ 62.6 $ 68.6 $ 10.9 $ 20.1 $ 154.6 $ 3.1 $ 1.1 ========== ======== ========= ======= ======= ======== ======== ======== ========== Depreciation and amortization $ 75.3 $ - $ 37.8 $ 10.2 $ 1.5 $ 2.8 $ 19.8 $ 2.6 $ 0.6 Partnership EBITDA (d) $ 221.6 Segment assets (at period end) $ 4,674.4 $ (333.6) $ 1,630.5 $ 802.7 $ 97.3 $ 288.0 $1,574.6 $ 166.2 $ 448.7 ========== ======== ========= ======= ======= ======== ======== ======== ========== Investments in equity investees (at period end) $ 14.3 $ - $ - $ - $ - $ 8.6 $ 3.0 $ 2.7 $ - ========== ======== ========= ======= ======= ======== ======== ======== ========== Goodwill and excess reorganization value (at period end) $ 1,284.6 $ - $ 615.8 $ - $ - $ 4.3 $ 586.2 $ 72.8 $ 5.5 ========== ======== ========= ======= ======= ======== ======== ======== ==========
Six Months Ended March 31, 2004:
Reportable Segments ----------------------------------------------------------- International Propane AmeriGas Gas Electric Energy --------------------- Corporate Total Elims. Propane Utility Utility Services Antargaz Other (a) & Other (b) ---------- -------- --------- ------- ------- -------- --------- --------- ----------- Revenues $ 2,210.3 $ (1.3) $ 1,147.9 $ 392.8 $ 46.1 $ 561.7 $ - $ 34.4 $ 28.7 ========== ======== ========= ======= ======= ======== ========= ========= =========== Cost of sales $ 1,511.4 $ - $ 659.7 $ 260.1 $ 22.0 $ 536.0 $ - $ 16.9 $ 16.7 ========== ======== ========= ======= ======= ======== ========= ========= =========== Segment profit: Operating income (loss) $ 289.9 $ - $ 192.8 $ 75.9 $ 11.3 $ 13.8 $ (9.3) $ 4.8 $ 0.6 Income from equity investees 12.6 - 0.7 - - - 11.9 - - Interest expense (53.4) - (42.3) (8.0) (1.0) - - (1.9) (0.2) Minority interests in AmeriGas Partners (78.3) - (78.3) - - - - - - ---------- -------- --------- ------- ------- -------- --------- --------- ----------- Income before income taxes $ 170.8 $ - $ 72.9 $ 67.9 $ 10.3 $ 13.8 $ 2.6 $ 2.9 $ 0.4 ========== ======== ========= ======= ======= ======== ========= ========= =========== Depreciation and amortization $ 55.8 $ - $ 39.5 $ 9.7 $ 1.7 $ 2.0 $ - $ 2.3 $ 0.6 Partnership EBITDA (d) $ 231.2 Segment assets (at period end) $ 4,369.9 $ (352.5) $ 1,605.9 $ 763.2 $ 89.0 $ 217.6 $ 1,487.7 $ 147.4 $ 411.6 ========== ======== ========= ======= ======= ======== ========= ========= =========== Investments in equity investees (at period end) $ 15.1 $ - $ 3.5 $ - $ - $ 8.7 $ - $ 2.9 $ - ========== ======== ========= ======= ======= ======== ========= ========= =========== Goodwill and excess reorganization value (at period end) $ 1,171.6 $ - $ 605.7 $ - $ - $ 2.8 $ 491.6 $ 66.3 $ 5.2 ========== ======== ========= ======= ======= ======== ========= ========= ===========
(a) International Propane-Other principally comprises FLAGA and our joint-venture business in China. (b) Corporate & Other's results principally comprise UGI Enterprises' HVAC/R operations, net expenses of UGI's captive general liability insurance company and UGI Corporation's unallocated corporate and general expenses and interest income. Corporate & Other's assets principally comprise cash, short-term investments and an intercompany loan. The intercompany interest associated with the intercompany loan is removed in the segment presentation. (c) International Propane-Antargaz' results for the six months ended March 31, 2005 include $19.9 million of operating income and income before income taxes due to the resolution of certain non-income tax contingencies effective as of December 31, 2004 (see Note 8). (d) The following table provides a reconciliation of Partnership EBITDA to AmeriGas Propane operating income:
Six months ended December 31, 2005 2004 - --------------------------------- ------- ------- Partnership EBITDA (i) $ 221.6 $ 231.2 Depreciation and amortization (ii) (37.7) (39.5) Minority interests (iii) 1.7 1.8 Income from equity investees - (0.7) Gain on sale of Atlantic Energy (9.1) - ------- ------- Operating income $ 176.5 $ 192.8 ======= =======
(i) Includes a $9.1 million gain on the sale of Atlantic Energy to Energy Services during the six months ended March 31, 2005. (ii) Excludes General Partner depreciation and amortization of $0.1 million in the six months ended March 31, 2005. (iii) Principally represents the General Partner's 1.01% interest in AmeriGas OLP. -10- UGI CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Millions of dollars, except per share amounts) 4. REDEMPTION OF $7.75 UGI UTILITIES SERIES PREFERRED STOCK On October 1, 2004, UGI Utilities redeemed all 200,000 shares of the $7.75 UGI Utilities Series Preferred Stock at a price of $100 per share together with full cumulative dividends. The redemption of the $7.75 UGI Utilities Series Preferred Stock was funded with proceeds from the October 2004 issuance of $20 million of 6.13% Medium-Term Notes due October 2034. 5. INTANGIBLE ASSETS The Company's intangible assets comprise the following:
March 31, September 30, 2005 2004 --------- ------------ Not subject to amortization: Goodwill $ 1,191.3 $ 1,152.6 Excess reorganization value 93.3 93.3 --------- --------- $ 1,284.6 $ 1,245.9 --------- --------- Other intangible assets: Customer relationships, noncompete agreements and other $ 183.1 $ 169.7 Trademark (not subject to amortization) 44.0 42.2 --------- --------- Gross carrying amount 227.1 211.9 --------- --------- Accumulated amortization (37.8) (27.5) --------- --------- Net carrying amount $ 189.3 $ 184.4 --------- ---------
The increase in intangible assets during the six months ended March 31, 2005 principally reflects the effects of foreign currency translation and business acquisitions. Amortization expense of intangible assets was $4.5 million and $8.8 million for the three and six months ended March 31, 2005, respectively, and $1.5 million and $3.2 million for the three and six months ended March 31, 2004, respectively. Our expected aggregate amortization expense of intangible assets for the next five fiscal years is as follows: Fiscal 2005 - $17.7 million; Fiscal 2006 - $17.3 million; Fiscal 2007 - $16.6 million; Fiscal 2008 - $16.2 million; Fiscal 2009 - $14.9 million. 6. ENERGY SERVICES ACCOUNTS RECEIVABLE SECURITIZATION FACILITY Energy Services has a $150 million receivables purchase facility ("Receivables Facility") with an issuer of receivables-backed commercial paper expiring in August 2007, although the Receivables Facility may terminate prior to such date due to the termination of the commitments of the Receivables Facility's back-up purchasers. Under the Receivables Facility, Energy Services transfers, on an ongoing basis and without recourse, its trade accounts receivable to its wholly owned, special purpose subsidiary, Energy Services Funding Corporation ("ESFC"), which is consolidated for financial statement purposes. ESFC, in turn, has sold, and subject to certain conditions, may from time to time sell, an undivided interest in the receivables to a commercial paper conduit of a major bank. The -11- UGI CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Millions of dollars, except per share amounts) maximum level of funding available at any one time from this facility is $150 million. The proceeds of these sales are less than the face amount of the accounts receivable sold by an amount that approximates the purchaser's financing cost of issuing its own receivables-backed commercial paper. ESFC was created and has been structured to isolate its assets from creditors of Energy Services and its affiliates, including UGI. This two-step transaction is accounted for as a sale of receivables following the provisions of SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." Energy Services continues to service, administer and collect trade receivables on behalf of the commercial paper issuer and ESFC. During the six months ended March 31, 2005, Energy Services sold trade receivables totaling $702.1 million to ESFC. During the six months ended March 31, 2005, ESFC sold an aggregate $260 million of undivided interests in its trade receivables to the commercial paper conduit. At March 31, 2005, the outstanding balance of ESFC trade receivables was $120.3 million which is net of $23 million that was sold to the commercial paper conduit and removed from the balance sheet. In addition, a major bank has committed to issue up to $50 million of standby letters of credit, secured by cash or marketable securities ("LC Facility"). Energy Services expects to fund the collateral requirements with borrowings under its Receivables Facility. The LC Facility expires in April 2006. 7. DEFINED BENEFIT PENSION AND OTHER POSTRETIREMENT PLANS We sponsor a defined benefit pension plan ("UGI Utilities Pension Plan") for employees of UGI, UGI Utilities, and certain of UGI's other wholly owned subsidiaries. In addition, we provide postretirement health care benefits to certain retirees and a limited number of active employees meeting certain age and service requirements, and postretirement life insurance benefits to nearly all domestic active and retired employees. Antargaz provides certain pension and postretirement health care benefits for its employees. -12- UGI CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Millions of dollars, except per share amounts) Net periodic expense (income) and other postretirement benefit costs include the following components:
Other Pension Benefits Postretirement Benefits ---------------- ----------------------- Three Months Ended Three Months Ended March 31, March 31, ------------------ ----------------------- 2005 2004 2005 2004 ------ ----- ----- ----- Service cost $ 1.4 $ 1.2 $ 0.1 $ - Interest cost 3.6 3.2 0.6 0.4 Expected return on assets (4.5) (4.3) (0.1) (0.1) Amortization of: Transition (asset) obligation - (0.3) 0.2 0.2 Prior service cost 0.2 0.2 - - Actuarial loss 0.3 0.3 0.1 0.1 ------ ----- ----- ----- Net benefit cost 1.0 0.3 0.9 0.6 Change in regulatory assets and liabilities - - 0.2 0.3 ------ ----- ----- ----- Net expense $ 1.0 $ 0.3 $ 1.1 $ 0.9 ------ ----- ----- -----
Other Pension Benefits Postretirement Benefits ---------------- ----------------------- Six Months Ended Six Months Ended March 31, March 31, ---------------- ----------------------- 2005 2004 2005 2004 ----- ----- ----- ----- Service cost $ 2.8 $ 2.5 $ 0.2 $ 0.1 Interest cost 7.1 6.5 1.0 0.7 Expected return on assets (9.0) (8.7) (0.2) (0.2) Amortization of: Transition (asset) obligation - (0.7) 0.5 0.3 Prior service cost 0.3 0.3 - - Actuarial loss 0.7 0.6 0.2 0.1 ----- ----- ----- ----- Net benefit cost 1.9 0.5 1.7 1.0 Change in regulatory assets and liabilities - - 0.5 0.5 ----- ----- ----- ----- Net expense $ 1.9 $ 0.5 $ 2.2 $ 1.5 ----- ----- ----- -----
UGI Utilities Pension Plan assets are held in trust and consist principally of equity and fixed income mutual funds. The Company does not believe it will be required to make any contributions to the UGI Utilities Pension Plan during the year ending September 30, 2005. Pursuant to orders previously issued by the PUC, UGI Utilities has established a Voluntary Employees' Beneficiary Association ("VEBA") trust to fund and pay UGI Utilities' postretirement health care and life insurance benefits referred to above by depositing into the VEBA the annual amount of postretirement benefit costs determined under SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." The difference between the annual amount calculated and the amount included in UGI Utilities' rates is deferred for future recovery from, or refund to, ratepayers. UGI Utilities expects to contribute approximately $2.5 million to the VEBA during the year ending September 30, 2005. During the six months ended March 31, 2005, UGI Utilities made contributions of approximately $1.2 million to the VEBA. -13- UGI CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Millions of dollars, except per share amounts) We also sponsor unfunded and non-qualified supplemental executive retirement income plans. We recorded expense for these plans of $0.4 million in both of the three months ended March 31, 2005 and 2004 and $0.9 million and $0.8 million during the six months ended March 31, 2005 and 2004, respectively. 8. COMMITMENTS AND CONTINGENCIES The Partnership has succeeded to certain lease guarantee obligations of Petrolane relating to Petrolane's divestiture of non-propane operations before its 1989 acquisition by QFB Partners. Future lease payments under these leases total approximately $11 million at March 31, 2005. The leases expire through 2010 and some of them are currently in default. The Partnership has succeeded to the indemnity agreement of Petrolane by which Texas Eastern Corporation ("Texas Eastern"), a prior owner of Petrolane, agreed to indemnify Petrolane against any liabilities arising out of the conduct of businesses that do not relate to, and are not a part of, the propane business, including lease guarantees. In December 1999, Texas Eastern filed for dissolution under the Delaware General Corporation Law. PanEnergy Corporation ("PanEnergy"), Texas Eastern's sole stockholder, assumed all of Texas Eastern's liabilities as of December 20, 2002, to the extent of the value of Texas Eastern's assets transferred to PanEnergy as of that date (which was estimated to exceed $94 million), and to the extent that such liabilities arise within ten years from Texas Eastern's date of dissolution. Notwithstanding the dissolution proceeding, and based on Texas Eastern previously having satisfied directly defaulted lease obligations without the Partnership's having to honor its guarantee, we believe that the probability that the Partnership will be required to directly satisfy the lease obligations subject to the indemnification agreement is remote. On August 21, 2001, AmeriGas Partners, through AmeriGas OLP, acquired the propane distribution businesses of Columbia Energy Group (the "2001 Acquisition") pursuant to the terms of a purchase agreement (the "2001 Acquisition Agreement") by and among Columbia Energy Group ("CEG"), Columbia Propane Corporation ("Columbia Propane"), Columbia Propane, L.P. ("CPLP"), CP Holdings, Inc. ("CPH," and together with Columbia Propane and CPLP, the "Company Parties"), AmeriGas Partners, AmeriGas OLP and the General Partner (together with AmeriGas Partners and AmeriGas OLP, the "Buyer Parties"). As a result of the 2001 Acquisition, AmeriGas OLP acquired all of the stock of Columbia Propane and CPH and substantially all of the partnership interests of CPLP. Under the terms of an earlier acquisition agreement (the "1999 Acquisition Agreement"), the Company Parties agreed to indemnify the former general partners of National Propane Partners, L.P. (a predecessor company of the Columbia Propane businesses) and an affiliate (collectively, "National General Partners") against certain income tax and other losses that they may sustain as a result of the 1999 acquisition by CPLP of National Propane Partners, L.P. (the "1999 Acquisition") or the operation of the business after the 1999 Acquisition ("National Claims"). At March 31, 2005, the potential amount payable under this indemnity by the Company Parties was approximately $58 million. These indemnity obligations will expire on the date that CPH acquires the remaining outstanding partnership interest of CPLP, which is expected to occur on or after July 19, 2009. Under the terms of the 2001 Acquisition Agreement, CEG agreed to indemnify the Buyer Parties and the Company Parties against -14- UGI CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Millions of dollars, except per share amounts) any losses that they sustain under the 1999 Acquisition Agreement and related agreements ("Losses"), including National Claims, to the extent such claims are based on acts or omissions of CEG or the Company Parties prior to the 2001 Acquisition. The Buyer Parties agreed to indemnify CEG against Losses, including National Claims, to the extent such claims are based on acts or omissions of the Buyer Parties or the Company Parties after the 2001 Acquisition. CEG and the Buyer Parties have agreed to apportion certain losses resulting from National Claims to the extent such losses result from the 2001 Acquisition itself. Samuel and Brenda Swiger and their son (the "Swigers") sustained personal injuries and property damage as a result of a fire that occurred when propane that leaked from an underground line ignited. In July 1998, the Swigers filed a class action lawsuit against AmeriGas Propane, L.P. (named incorrectly as "UGI/AmeriGas, Inc."), in the Circuit Court of Monongalia County, West Virginia, in which they sought to recover an unspecified amount of compensatory and punitive damages and attorney's fees, for themselves and on behalf of persons in West Virginia for whom the defendants had installed propane gas lines, allegedly resulting from the defendants' failure to install underground propane lines at depths required by applicable safety standards. In 2004, the court granted the plaintiffs' motion to include customers acquired from Columbia Propane in August 2001 as additional potential class members and to amend their complaint to name additional parties consistent with such ruling. In 2003, we settled the individual personal injury and property damage claims of the Swigers. Class counsel has indicated that the class is seeking compensatory damages in excess of $12 million plus punitive damages, civil penalties and attorneys' fees. We believe we have good defenses to the claims of the class members and intend to vigorously defend against the remaining claims in this lawsuit. From the late 1800s through the mid-1900s, UGI Utilities and its former subsidiaries owned and operated a number of manufactured gas plants ("MGPs") prior to the general availability of natural gas. Some constituents of coal tars and other residues of the manufactured gas process are today considered hazardous substances under the Superfund Law and may be present on the sites of former MGPs. Between 1882 and 1953, UGI Utilities owned the stock of subsidiary gas companies in Pennsylvania and elsewhere and also operated the businesses of some gas companies under agreement. Pursuant to the requirements of the Public Utility Holding Company Act of 1935, UGI Utilities divested all of its utility operations other than those which now constitute Gas Utility and Electric Utility. UGI Utilities does not expect its costs for investigation and remediation of hazardous substances at Pennsylvania MGP sites to be material to its results of operations because Gas Utility is currently permitted to include in rates, through future base rate proceedings, prudently incurred remediation costs associated with such sites. UGI Utilities has been notified of several sites outside Pennsylvania on which private parties allege MGPs were formerly owned or operated by it or owned or operated by its former subsidiaries. Such parties are investigating the extent of environmental contamination or performing environmental remediation. UGI Utilities is currently litigating three claims against it relating to out-of-state sites. -15- UGI CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Millions of dollars, except per share amounts) Management believes that under applicable law UGI Utilities should not be liable in those instances in which a former subsidiary owned or operated an MGP. There could be, however, significant future costs of an uncertain amount associated with environmental damage caused by MGPs outside Pennsylvania that UGI Utilities directly operated, or that were owned or operated by former subsidiaries of UGI Utilities, if a court were to conclude that (1) the subsidiary's separate corporate form should be disregarded or (2) UGI Utilities should be considered to have been an operator because of its conduct with respect to its subsidiary's MGP. In April 2003, Citizens Communications Company ("Citizens") served a complaint naming UGI Utilities as a third-party defendant in a civil action pending in United States District Court for the District of Maine. In that action, the plaintiff, City of Bangor, Maine ("City"), sued Citizens to recover environmental response costs associated with MGP wastes generated at a plant allegedly operated by Citizens' predecessors at a site on the Penobscot River. Citizens subsequently joined UGI Utilities and ten other third party defendants alleging that the third-party defendants are responsible for an equitable share of costs Citizens may be required to pay to the City for cleaning up tar deposits in the Penobscot River. The City believes that it could cost as much as $50 million to clean up the river. UGI Utilities believes that it has good defenses to the claim and is defending the suit. By letter dated July 29, 2003, Atlanta Gas Light Company ("AGL") served UGI Utilities with a complaint filed in the United States District Court for the Middle District of Florida in which AGL alleges that UGI Utilities is responsible for 20% of approximately $8 million incurred by AGL in the investigation and remediation of a former MGP site in St. Augustine, Florida. UGI Utilities formerly owned stock of the St. Augustine Gas Company, the owner and operator of the MGP. In March 2005, the court granted UGI Utilities' motion for summary judgment dismissing AGL's complaint. AGL has appealed. AGL has informed UGI Utilities that it has begun remediation of MGP wastes at a site owned by AGL in Savannah, Georgia. A former subsidiary of UGI Utilities operated the MGP in the early 1900s. AGL believes that the total cost of remediation could be as high as $55 million. AGL has not filed suit against UGI Utilities for a share of these costs. UGI Utilities believes that it will have good defenses to any action that may arise out of this site. On September 20, 2001, Consolidated Edison Company of New York ("ConEd") filed suit against UGI Utilities in the United States District Court for the Southern District of New York, seeking contribution from UGI Utilities for an allocated share of response costs associated with investigating and assessing gas plant related contamination at former MGP sites in Westchester County, New York. The complaint alleges that UGI Utilities "owned and operated" the MGPs prior to 1904. The complaint also seeks a declaration that UGI Utilities is responsible for an allocated percentage of future investigative and remedial costs at the sites. ConEd believes that the cost of remediation for all of the sites could exceed $70 million. By orders issued in November 2003 and March 2004, the court granted UGI Utilities' motion for summary judgment and dismissed ConEd's complaint. ConEd has appealed. -16- UGI CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Millions of dollars, except per share amounts) By letter dated June 24, 2004, KeySpan Energy ("KeySpan") informed UGI Utilities that KeySpan has spent $2.3 million and expects to spend another $11 million to clean up an MGP site it owns in Sag Harbor, New York. KeySpan believes that UGI Utilities is responsible for approximately 50% of these costs as a result of UGI Utilities' alleged direct ownership and operation of the plant from 1885 to 1902. UGI Utilities is in the process of reviewing the information provided by KeySpan and is investigating this claim. By letter dated August 5, 2004, Yankee Gas Services Company and Connecticut Light and Power Company, subsidiaries of Northeast Utilities, (together, the "Northeast Companies"), demanded contribution from UGI Utilities for past and future remediation costs related to MGP operations on thirteen sites owned by the Northeast Companies in nine cities in the State of Connecticut. The Northeast Companies allege that UGI Utilities controlled operations of the plants from 1883 to 1941. According to the letter, investigation and remedial costs at the sites to date total approximately $10 million and complete remediation costs for all sites could total $182 million. The Northeast Companies seek an unspecified fair and equitable allocation of these costs to UGI Utilities. UGI Utilities is in the process of reviewing the information provided by Northeast Companies and is investigating this claim. Antargaz filed suit against the French tax authorities in connection with the assessment of non-income tax related to Antargaz owned tanks at customer locations used to store LPG. Elf Antar France, now Total France, and Elf Aquitaine, former owners of Antargaz, agreed to indemnify Antargaz for all payments which would have been due from Antargaz in respect of the tax related to its tanks for the period from January 1, 1997 through December 31, 2000. The indemnity from the former owners amounts to approximately E9.4 million ($12.2 million) of the tax liability and is reflected in "Prepaid and other current assets" in the Condensed Consolidated Balance Sheet at March 31, 2005. Antargaz had recorded a liability for the tax relating to tanks of various customer classes for the period from January 1, 1997 through December 31, 2004 of approximately E29.9 million ($40.6 million). On February 4, 2005, Antargaz received a letter from French authorities which eliminated the requirement for Antargaz to provide taxes on Antargaz owned tanks at certain customer locations. In addition, resolution was reached on tax contingencies relating to a prior year. Therefore, effective December 31, 2004, Antargaz reversed (1) E8.8 million ($12.0 million) resulting from the exemption of tanks at certain customer locations and (2) E5.9 million ($7.9 million) resulting from the resolution reached on a prior year's taxes. The total pre-tax amount of $19.9 million is reflected in "Other income, net" in the Condensed Consolidated Statement of Income for the six month period ended March 31, 2005. The after-tax effect of this reversal resulted in $14.9 million of net income. In addition to these matters, there are other pending claims and legal actions arising in the normal course of our businesses. We cannot predict with certainty the final results of environmental and other matters. However, it is reasonably possible that some of them could be resolved unfavorably to us. Although we currently believe, after consultation with counsel, that damages or settlements, if any, recovered by the plaintiffs in such claims or actions will not have a material adverse effect on our financial position, damages or settlements could be material to our operating results or cash flows in future periods depending on the nature and timing of future developments with respect to these matters and -17- UGI CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Millions of dollars, except per share amounts) the amounts of future operating results and cash flows. At March 31, 2005, the Company's accrued liability for environmental investigation and cleanup costs was not material. 9. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS No. 123 (revised 2004), "Share-Based Payment" ("SFAS 123R"). SFAS 123R replaces SFAS 123 and supersedes APB 25. SFAS 123, as originally issued in 1995, established as preferable a fair-value-based method of accounting for share-based payment transactions with employees. However, SFAS 123 permitted entities the option of continuing to apply the guidance in APB 25, as long as the footnotes to financial statements disclosed what net income would have been had the preferable fair-value-based method been used. SFAS 123R requires that the compensation cost relating to share-based payment transactions be recognized in the financial statements. The cost is required to be measured based on the fair value of the equity or liability instruments issued. SFAS 123R covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans. SFAS 123R is effective with our fiscal year ending September 30, 2006. Under all of the transition methods, unrecognized compensation expense for awards that are not vested on the adoption date will be recognized in the Company's statements of income through the end of the requisite service period. We do not believe that the adoption of SFAS 123R will have a material impact on our results of operations or financial position. Also, see Note 1. In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets - An Amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions" ("SFAS 153"). SFAS 153 eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets in paragraph 21(b) of APB Opinion No. 29, "Accounting for Nonmonetary Transactions," and replaces it with an exception for exchanges that lack commercial substance. SFAS 153 specifies that a nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS 153 is effective for our interim period beginning after June 15, 2005. We do not believe that the adoption of SFAS 153 will have a material effect on our results of operations or financial position. In December 2004, the FASB issued FASB Staff Position 109-1, "Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004" ("FSP 109-1") and FASB Staff Position 109-2, "Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision Within the American Jobs Creation Act of 2004" ("FSP 109-2"). The American Jobs Creations Act provides deductions for qualified domestic production activities and repatriation of foreign earnings. The impact of FSP 109-1 and FSP 109-2 does not have a material effect on our financial position or results of operations. -18- UGI CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Millions of dollars, except per share amounts) 10. SUBSEQUENT EVENT - PARTNERSHIP LONG-TERM DEBT REFINANCING In April 2005, the Partnership repaid $53.8 million of maturing AmeriGas OLP First Mortgage Notes with the proceeds from a $35 million term loan, borrowings under its revolving credit facility and existing cash balances. In May 2005, the Partnership refinanced $373.4 million of its outstanding 8.875% Senior Notes due 2011 through the issuance of $415 million of 7.25% Senior Notes due 2015. In connection with the refinancing, UGI incurred an after-tax loss on early extinguishment of debt of $9.4 million. 11. SUBSEQUENT EVENT - UGI COMMON STOCK SPLIT On April 26, 2005, UGI's Board of Directors approved a 2-for-1 common stock split. The Company will issue one additional common share for every common share outstanding. The new shares will be distributable May 24, 2005 to shareholders of record May 17, 2005. Basic and diluted earnings per share and dividends declared per share for the three and six month periods ended March 31, 2005 and 2004 have been reflected on a pre-split basis. The following table presents pro forma basic and diluted earnings per share to reflect the effect of the 2-for-1 common stock split.
Three Months Ended Six Months Ended March 31, March 31, ------------------ ---------------- 2005 2004 2005 2004 ------ ------ ------ ------ Basic earnings per share: As reported $ 2.26 $ 1.51 $ 3.79 $ 2.43 Pro forma $ 1.13 $ 0.76 $ 1.90 $ 1.22 Diluted earnings per share: As reported $ 2.23 $ 1.48 $ 3.72 $ 2.37 Pro forma $ 1.12 $ 0.74 $ 1.86 $ 1.19
-19- UGI CORPORATION AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS Information contained in this Management's Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this Quarterly Report may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements use forward-looking words such as "believe," "plan," "anticipate," "continue," "estimate," "expect," "may," "will," or other similar words. These statements discuss plans, strategies, events or developments that we expect or anticipate will or may occur in the future. A forward-looking statement may include a statement of the assumptions or bases underlying the forward-looking statement. We believe that we have chosen these assumptions or bases in good faith and that they are reasonable. However, we caution you that actual results almost always vary from assumed facts or bases, and the differences between actual results and assumed facts or bases can be material, depending on the circumstances. When considering forward-looking statements, you should keep in mind the following important factors which could affect our future results and could cause those results to differ materially from those expressed in our forward-looking statements: (1) adverse weather conditions resulting in reduced demand; (2) cost volatility and availability of propane and other liquefied petroleum gases ("LPG"), oil, electricity, coal and natural gas and the capacity to transport product to our market areas; (3) changes in domestic and foreign laws and regulations, including safety, tax and accounting matters; (4) competitive pressures from the same and alternative energy sources; (5) failure to acquire new customers thereby reducing or limiting any increase in revenues; (6) liability for environmental claims; (7) customer conservation measures and improvements in energy efficiency and technology resulting in reduced demand; (8) adverse labor relations; (9) large customer, counterparty or supplier defaults; (10) liability in excess of insurance coverage for personal injury and property damage arising from explosions and other catastrophic events, including acts of terrorism, resulting from operating hazards and risks incidental to generating and distributing electricity and transporting, storing and distributing natural gas, propane and LPG; (11) political, regulatory and economic conditions in the United States and in foreign countries; (12) interest rate fluctuations and other capital market conditions, including foreign currency rate fluctuations; (13) reduced distributions from subsidiaries; and (14) the timing and success of the Company's efforts to develop new business opportunities. These factors are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors could also have material adverse effects on future results. We undertake no obligation to update publicly any forward-looking statement whether as a result of new information or future events except as required by federal securities laws. -20- UGI CORPORATION AND SUBSIDIARIES ANALYSIS OF RESULTS OF OPERATIONS The following analyses compare our results of operations for (1) the three months ended March 31, 2005 ("2005 three-month period") with the three months ended March 31, 2004 ("2004 three-month period") and (2) the six months ended March 31, 2005 ("2005 six-month period") with the six months ended March 31, 2004 ("2004 six-month period"). Our analyses of results of operations should be read in conjunction with the segment information included in Note 3 to the Condensed Consolidated Financial Statements. EXECUTIVE OVERVIEW Our improved performance is substantially the result of our 100% ownership of Antargaz effective with our March 2004 acquisition of the remaining 80.5% ownership interests in AGZ Holding ("Antargaz Acquisition"). Net income increased approximately 75% in the 2005 three-month period compared to the 2004 three-month period. Of the $50.2 million increase in net income, Antargaz operations accounted for nearly 90% of the increase with the remainder of our improved results shared across our major operating units, with the exception of AmeriGas Propane. AmeriGas Propane's performance reflects the effects of what we believe is customer conservation due to high energy prices coupled with the effects of warmer than normal winter weather. The increase in net income attributed to Antargaz reflects unusually high LPG margin per gallon primarily resulting from lower LPG product costs and a prior-period loss of $9.1 million on the settlement of contracts for the forward purchase of euros used to fund the Antargaz Acquisition. Weather across our European and regulated utility service areas was colder than normal during the 2005 three-month period. For the 2005 six-month period, net income increased by approximately $90 million which is primarily attributed to the effects of our 100% ownership of Antargaz in the 2005 six-month period. Antargaz' results include $14.9 million in net income ($0.28 per diluted share) resulting from the resolution of certain non-income tax contingencies and continued high LPG margin per gallon. Antargaz' margins are expected to return to a more normal level later this fiscal year. Weather across our regulated utility service areas was also colder than normal during the 2005 six-month period whereas AmeriGas Propane, Antargaz and FLAGA experienced warmer than normal weather or approximately normal weather. Our consolidated results for the remainder of fiscal 2005 will include a loss on early extinguishment of AmeriGas Propane's debt in the amount of approximately $9.4 million after tax or $0.18 per diluted share due to the May 3, 2005 refinancing of $373.4 million of its 8.875% Senior Notes due 2011 with $415 million of 7.25% Senior Notes due 2015.
Three Months Ended Six Months Ended March 31, March 31, --------------------- -------------------- 2005 2004 2005 2004 ------- ------ ------- ------- Net income (loss): (millions of dollars) AmeriGas Propane (a) $ 27.0 $ 30.8 $ 37.4 $ 43.7 International Propane 47.0 2.9 94.2 7.7 Gas Utility 26.7 25.6 41.2 40.8 Electric Utility 3.9 3.4 6.4 5.8 Energy Services 8.3 4.3 11.9 8.0 Corporate & Other 4.4 0.1 4.4 (0.1) ------- ------ ------- ------- Total net income $ 117.3 $ 67.1 $ 195.5 $ 105.9 ------- ------ ------- -------
(a) Amounts are net of minority interests in AmeriGas Partners, L.P. -21- UGI CORPORATION AND SUBSIDIARIES 2005 THREE-MONTH PERIOD COMPARED WITH 2004 THREE-MONTH PERIOD
Increase Three months ended March 31, 2005 2004 (Decrease) - ----------------------------------- ------- ------- ------------------ (Millions of dollars) AMERIGAS PROPANE: Revenues $ 698.3 $ 687.7 $ 10.6 1.5% Total margin (a) $ 268.5 $ 282.5 $ (14.0) (5.0)% Partnership EBITDA (b) $ 135.2 $ 146.6 $ (11.4) (7.8)% Operating income $ 117.9 $ 127.2 $ (9.3) (7.3)% Retail gallons sold (millions) 378.8 403.9 (25.1) (6.2)% Degree days - % warmer than normal (c) (4.9)% (1.5)% - - INTERNATIONAL PROPANE: Revenues $ 363.6 $ 18.6 $ 345.0 N.M. Total margin (a) $ 204.7 $ 9.3 $ 195.4 N.M. Operating income (loss) $ 99.0 $ (6.3) $ 105.3 N.M. (Loss) income from equity investees $ (0.6) $ 7.7 $ (8.3) N.M. Income before income taxes $ 89.8 $ 0.4 $ 89.4 N.M. GAS UTILITY: Revenues $ 255.9 $ 243.5 $ 12.4 5.1% Total margin (a) $ 78.6 $ 78.5 $ 0.1 0.1% Operating income $ 48.6 $ 46.5 $ 2.1 4.5% Income before income taxes $ 44.6 $ 42.6 $ 2.0 4.7% System throughput - billions of cubic feet ("bcf") 31.0 31.2 (0.2) (0.6)% Degree days - % colder than normal 5.7% 2.7% - - ELECTRIC UTILITY: Revenues $ 25.6 $ 24.7 $ 0.9 3.6% Total margin (a) $ 12.3 $ 11.9 $ 0.4 3.4% Operating income $ 7.2 $ 6.8 $ 0.4 5.9% Income before income taxes $ 6.7 $ 6.3 $ 0.4 6.3% Distribution sales - millions of kilowatt hours ("gwh") 282.1 282.2 (0.1) 0.0% ENERGY SERVICES: Revenues $ 432.2 $ 328.8 $ 103.4 31.4% Total margin (a) $ 22.3 $ 13.5 $ 8.8 65.2% Operating income $ 14.0 $ 7.5 $ 6.5 86.7% Income before income taxes $ 14.0 $ 7.5 $ 6.5 86.7%
N.M. - not meaningful (a) Total margin represents total revenues less total cost of sales and, with respect to Electric Utility, revenue-related taxes, i.e. Electric Utility gross receipts taxes, of $1.4 million and $1.3 million in three-month periods ended March 31, 2005 and 2004, respectively. For financial statement purposes, revenue-related taxes are included in "Utility taxes other than income taxes" on the Condensed Consolidated Statements of Income. (b) Partnership EBITDA (earnings before interest expense, income taxes and depreciation and amortization) should not be considered as an alternative to net income (as an indicator of operating performance) or as an alternative to cash flow -22- UGI CORPORATION AND SUBSIDIARIES (as a measure of liquidity or ability to service debt obligations) and is not a measure of performance or financial condition under accounting principles generally accepted in the United States of America. Management uses Partnership EBITDA as the primary measure of segment profitability for the AmeriGas Propane segment (see Note 3 to the Condensed Consolidated Financial Statements). (c) Deviation from average heating degree days based upon national weather statistics provided by the National Oceanic and Atmospheric Administration ("NOAA") for 335 airports in the United States, excluding Alaska. AMERIGAS PROPANE. Based upon national heating degree day data, temperatures were 4.9% warmer than normal during the 2005 three-month period compared to temperatures that were 1.5% warmer than normal during the 2004 three-month period. Retail propane volumes sold decreased 6.2% due to the combination of warmer than normal winter weather and the negative effects of customer conservation resulting from record-high propane prices. Retail propane revenues increased $36.8 million reflecting a $72.5 million increase due to higher average selling prices partially offset by a $35.7 million decrease due to the lower retail volumes sold. Wholesale propane revenues decreased $27.4 million reflecting a $37.8 million decrease due to lower volumes sold partially offset by a $10.4 million increase resulting from higher average selling prices. The higher average retail and wholesale selling prices per gallon reflect the continuance of significantly higher propane product costs principally resulting from higher crude oil prices. The average wholesale cost per gallon at Mont Belvieu, one of the major propane supply points in the United States, was approximately 17% greater than the average cost per gallon during the 2004 three-month period. Notwithstanding the lower propane volumes sold, total cost of sales increased $24.6 million primarily reflecting the increase in propane product costs. Total margin decreased $14.0 million compared to the 2004 three-month period due to the lower retail volumes sold partially offset by slightly higher average retail propane margins per gallon and higher margin from ancillary sales and services. Partnership EBITDA during the 2005 three-month period was $135.2 million compared to $146.6 million during the 2004 three-month period. The $11.4 million decline in Partnership EBITDA reflects the aforementioned decrease in total margin partially offset by lower operating and administrative expenses. In conjunction with the Partnership's warm weather action plans, operating and administrative expenses decreased $2.3 million reflecting lower employee compensation and benefit costs and vehicle repair expenses partially offset by higher vehicle fuel and vehicle lease expenses. Operating income decreased less than the decrease in Partnership EBITDA due to slightly lower depreciation expense. INTERNATIONAL PROPANE. International Propane's results of operations in the 2005 three-month period significantly increased compared to the 2004 three-month period due to the March 31, 2004 Antargaz Acquisition. Antargaz' revenues, margin and operating income during the 2005 three-month period were $341.4 million, $194.9 million and $96.0 million, respectively. Antargaz sold approximately 127 million gallons of LPG while experiencing weather that was 3.8% colder than normal during the 2005 three-month period compared to approximately 123 million gallons while experiencing weather that was essentially normal during the 2004 three-month period. International Propane revenues increased $345.0 million reflecting revenues from Antargaz and a $3.6 million increase in FLAGA's revenues. The increase in FLAGA's revenues is attributed to higher LPG prices, a 9% increase in LPG volumes sold while experiencing weather that was colder than normal and colder than the corresponding prior-year period and to a lesser extent the currency translation effects of a stronger euro. In the French LPG market, Antargaz is able to sustain higher margins per gallon of LPG during periods of declining product costs and conversely, experiences lower margins per gallon of LPG during periods of rising product costs. Antargaz continued to benefit from unusually high unit margins during the 2005 three-month period primarily reflecting declines in LPG product costs. Aside from Antargaz' contribution to -23- UGI CORPORATION AND SUBSIDIARIES total margin in the 2005 three-month period, FLAGA's increase in total margin reflects the translation effects of the stronger euro. Due to higher LPG costs and competition, FLAGA's average LPG margins per gallon declined compared to the 2004 three-month period. The $105.3 million increase in International Propane operating income primarily reflects Antargaz' operating income for the 2005 three-month period and a prior-period loss of $9.1 million on the settlement of contracts for the forward purchase of euros used to fund the Antargaz Acquisition. Income from equity investees declined in the 2005 three-month period due to the absence of equity income from our 19.5% equity investment in AGZ Holding as a result of the Antargaz Acquisition. The increase in International Propane income before income taxes reflects Antargaz' operating income and the previously mentioned prior-period loss on the forward purchase contracts partially offset by higher interest expense resulting from the Antargaz Acquisition. GAS UTILITY. Weather in Gas Utility's service territory based upon heating degree days was 5.7% colder than normal during the 2005 three-month period compared with weather that was 2.7% colder than normal in the 2004 three-month period. Notwithstanding the colder weather and year-over-year growth in the number of our customers, total distribution system throughput decreased slightly as lower sales to firm- residential, commercial and industrial ("retail core-market") customers due in part to the effects of price-induced customer conservation, and lower volumes transported for firm delivery service customers, were partially offset by increased volumes transported for interruptible delivery service customers. The $12.4 million increase in Gas Utility revenues during the 2005 three-month period reflects $21.0 million greater revenues from retail core-market customers principally as a result of higher average purchased gas cost ("PGC") rates partially offset by a decrease in revenues from low-margin off-system sales. The higher PGC rates reflect higher 2005 three-month period natural gas costs. Gas Utility's cost of gas was $177.3 million in the 2005 three-month period compared to $165.0 million in the 2004 three-month period reflecting the previously mentioned higher average PGC rates partially offset by the effects of lower off-system sales. Gas Utility total margin in the 2005 three-month period was comparable with the prior-year period. Gas Utility operating income increased to $48.6 million in the 2005 three-month period from $46.5 million in the 2004 three-month period principally reflecting higher other income. Other income increased $2.1 million due in large part to the absence of costs recorded in the prior-year period related to settling a regulatory claim resulting from the discontinuance of natural gas service to certain customers. Total operating and administrative expenses were comparable with the prior year reflecting in large part lower required provisions for injuries and damages claims partially offset principally by higher uncollectible accounts expense. The increase in Gas Utility income before income taxes reflects the previously mentioned increase in operating income and the effects of slightly higher interest expense. ELECTRIC UTILITY. Electric Utility's 2005 three-month period kilowatt-hour sales were essentially equal with the prior-year period on weather that was comparable to the prior-year period. Electric Utility's increased revenues reflect an increase in its Provider of Last Resort ("POLR") electric generation rates effective January 1, 2005. Electric Utility's cost of sales increased $0.5 million as a result of higher per-unit purchased power costs. Electric Utility total margin in the 2005 three-month period increased by $0.4 million reflecting the previously mentioned higher POLR rates slightly offset by the effects of increased per-unit purchased power costs. Operating income and income before income taxes were higher in the 2005 three-month period principally reflecting the increase in total margin. -24- UGI CORPORATION AND SUBSIDIARIES ENERGY SERVICES. Energy Services revenues in the 2005 three-month period increased (1) approximately $75 million resulting from increased natural gas prices and to a lesser extent a 7% increase in natural gas volumes sold by Energy Services' gas marketing business and (2) approximately $28 million in revenues generated by Atlantic Energy Inc. ("Atlantic Energy"), which was acquired by Energy Services in November 2004. Atlantic Energy, the owner of a 20 million gallon propane storage terminal located in Chesapeake, Virginia, was purchased through two separate transactions with ConocoPhillips Company and AmeriGas Propane. See Note 2 to Condensed Consolidated Financial Statements for additional information regarding the acquisition. Total margin increased $8.8 million in the 2005 three-month period compared to the prior-year three-month period. The increase in total margin is attributed to (1) higher average natural gas unit margins than in the prior-year period due to fewer annual fixed-price customer contracts and more shorter-termed, seasonal fixed-price contracts in the current period, (2) the acquisition of Atlantic Energy, and to a lesser extent, (3) higher income from winter storage services. Under the annual fixed-price customer contracts, customers pay an average fixed price for the natural gas they purchase throughout the year. Although the total margin to be earned over the terms of these contracts remains unchanged, margin realization is seasonal because gas costs are usually higher, and unit margins lower, during the peak heating season months of late fall and winter, while gas costs are usually lower, and unit margins higher, during the late spring and summer months. The increase in Energy Services income before income taxes principally reflects the previously mentioned increase in total margin partially offset by higher operating expenses primarily resulting from additional expenses associated with Atlantic Energy's operations and higher depreciation and amortization expense. -25- UGI CORPORATION AND SUBSIDIARIES 2005 SIX-MONTH PERIOD COMPARED WITH 2004 SIX-MONTH PERIOD
Increase Six months ended March 31, 2005 2004 (Decrease) - -------------------------- -------- -------- ---------------- (Millions of dollars) AMERIGAS PROPANE: Revenues $1,254.5 $1,147.9 $ 106.6 9.3% Total margin (a) $ 473.6 $ 488.2 $ (14.6) (3.0)% Partnership EBITDA $ 221.6 $ 231.2 $ (9.6) (4.2)% Operating income $ 176.5 $ 192.8 $ (16.3) (8.5)% Retail gallons sold (millions) 675.6 708.4 (32.8) (4.6)% Degree days - % warmer than normal (6.2)% (4.1)% - - INTERNATIONAL PROPANE: Revenues $ 642.5 $ 34.4 $ 608.1 N.M. Total margin (a) $ 361.6 $ 17.5 $ 344.1 N.M. Operating income (loss) $ 176.4 $ (4.5) $ 180.9 N.M. (Loss) income from equity investees $ (1.3) $ 11.9 $ (13.2) N.M. Income before income taxes $ 157.7 $ 5.5 $ 152.2 N.M. GAS UTILITY: Revenues $ 417.1 $ 392.8 $ 24.3 6.2% Total margin (a) $ 133.2 $ 132.7 $ 0.5 0.4% Operating income $ 76.7 $ 75.9 $ 0.8 1.1% Income before income taxes $ 68.6 $ 67.9 $ 0.7 1.0% System throughput - billions of cubic feet ("bcf") 53.9 54.5 (0.6) (1.1)% Degree days - % colder than normal 3.6% 0.0% - - ELECTRIC UTILITY: Revenues $ 47.9 $ 46.1 $ 1.8 3.9% Total margin (a) $ 22.3 $ 21.6 $ 0.7 3.2% Operating income $ 11.9 $ 11.3 $ 0.6 5.3% Income before income taxes $ 10.9 $ 10.3 $ 0.6 5.8% Distribution sales - millions of kilowatt hours ("gwh") 531.2 525.7 5.5 1.0% ENERGY SERVICES: Revenues $ 761.2 $ 561.7 $ 199.5 35.5% Total margin (a) $ 38.1 $ 25.7 $ 12.4 48.2% Operating income $ 20.1 $ 13.8 $ 6.3 45.7% Income before income taxes $ 20.1 $ 13.8 $ 6.3 45.7%
N.M. - not meaningful (a) Total margin represents total revenues less total cost of sales and, with respect to Electric Utility, revenue-related taxes, i.e. Electric Utility gross receipts taxes, of $2.7 million in the 2005 six-month period and $2.5 million in the 2004 six-month period. For financial statement purposes, revenue-related taxes are included in "Utility taxes other than income taxes" on the Condensed Consolidated Statements of Income. AMERIGAS PROPANE. Temperatures during the 2005 six-month period were 6.2% warmer than normal compared to temperatures that were 4.1% warmer than normal during the 2004 six-month period. Retail propane volumes sold decreased nearly 5% principally due to the warmer than normal winter weather and the negative effects of customer conservation driven by higher propane selling prices. -26- UGI CORPORATION AND SUBSIDIARIES Retail propane revenues increased $112.2 million reflecting a $157.3 million increase due to higher average selling prices partially offset by a $45.1 million decrease due to the lower retail volumes sold. Wholesale propane revenues decreased $8.5 million reflecting a $29.6 million decrease due to lower volumes sold partially offset by a $21.1 million increase due to higher average selling prices. The higher average retail and wholesale selling prices per gallon reflect significantly higher propane product costs principally resulting from higher crude oil prices. The average wholesale cost per gallon of propane at Mont Belvieu was approximately 31% greater than the average cost per gallon during the 2004 six-month period. Total cost of sales increased $121.2 million reflecting the higher propane product costs. Total margin decreased $14.6 million principally due to the lower retail volumes sold partially offset by slightly higher average retail propane margins per gallon and higher margin from ancillary sales and services. Notwithstanding a $9.1 million pre-tax gain recognized on the Partnership's sale of its 50% ownership interest in Atlantic Energy, Partnership EBITDA during the 2005 six-month period decreased $9.6 million compared to the 2004 six-month period as a result of the aforementioned decrease in total margin and a $4.6 million increase in operating and administrative expenses. The increase in operating and administrative expenses principally resulted from higher vehicle fuel costs, vehicle lease expense, general insurance and uncollectible accounts expense. These increases were partially offset principally by lower employee compensation and benefit costs and lower vehicle repairs and maintenance expenses. Operating income decreased more than the decrease in Partnership EBITDA principally reflecting the elimination of the gain on the sale of the Partnership's ownership interest in Atlantic Energy to Energy Services. INTERNATIONAL PROPANE. International Propane results of operations in the 2005 six-month period significantly increased compared to the 2004 six-month period as a result of the Antargaz Acquisition. Antargaz' revenues, margin and operating income during the 2005 six-month period were $600.1 million, $343.6 million and $171.7 million, respectively, which includes $19.9 million in operating income resulting from the resolution of certain non-income tax contingencies. Antargaz sold approximately 230 million gallons of LPG during the 2005 six-month period compared to approximately 220 million gallons during the 2004 six-month period. Weather in the 2005 six-month period was approximately normal and slightly colder than the prior-year period. Antargaz was able to sustain higher than expected margins during the 2005 six-month period. The increase in International Propane revenues reflects revenues from Antargaz and, despite FLAGA's slightly warmer than normal weather, an $8.0 million increase in FLAGA's revenues. The increase in FLAGA's revenues is primarily attributed to a 10% increase in LPG volumes sold and higher LPG prices and, to a lesser extent, the currency translation effects of a stronger euro. The increase in total margin is a result of margin generated from Antargaz' operations and an increase FLAGA's total margin reflecting the translation effects of the stronger euro which was partially offset by decreased average LPG margins per gallon. The $180.9 million increase in International Propane operating income primarily reflects Antargaz' operating income for the 2005 six-month period. International Propane operating income benefited from Antargaz' reversal of $19.9 million in non-income tax reserves due to resolution of certain contingencies. See Antargaz Tax Matter section below. In addition, the increase in operating income includes a prior-period loss of $9.1 million on the settlement of contracts for the forward purchase of euros used to fund the Antargaz Acquisition. Income from equity investees declined in the 2005 six-month period due to the absence of equity income from our 19.5% equity investment in AGZ Holding as a result of the Antargaz Acquisition and to a lesser extent Antargaz' equity investee losses. The increase in International Propane income before income taxes reflects Antargaz' operating income and the previously mentioned prior-period loss on the forward purchase contracts partially offset by -27- UGI CORPORATION AND SUBSIDIARIES higher interest expense associated with the Antargaz Acquisition and the decrease in equity investee income. GAS UTILITY. Weather in Gas Utility's service territory during the 2005 six-month period was 3.6% colder than normal compared with weather that was essentially normal in the 2004 six-month period. Notwithstanding the colder weather and year-over-year customer growth, total distribution system throughput decreased 0.6 bcf or 1.1% as persistently high natural gas prices resulted in price-induced customer conservation primarily in our retail core-market. The increase in Gas Utility revenues during the 2005 six-month period includes a $45.3 million increase in retail core-market revenues partially offset by a decrease in revenues from low-margin off-system sales. The increase in retail core-market revenues reflects higher average PGC rates. Gas Utility's cost of gas was $283.9 million in the 2005 six-month period compared to $260.1 million in the 2004 six-month period reflecting the effects of the higher average PGC rates partially offset by the effects of the lower off-system sales. The $0.5 million increase in Gas Utility total margin reflects greater margin generated from slightly higher interruptible delivery service volumes and slightly higher average delivery service margin partially offset by lower retail core-market margin resulting from the previously mentioned decline in retail core-market volumes. Gas Utility operating income increased $0.8 million in the 2005 six-month period principally reflecting the $0.5 million increase in total margin and higher other income partially offset by increased operating and administrative expenses. Other income increased $2.2 million due in large part to the absence of costs recorded in the prior-year period related to settling a regulatory claim resulting from the discontinuance of natural gas service to certain customers. Operating and administrative expenses increased $1.4 million in the 2005 six-month period principally reflecting greater uncollectible accounts expense and the absence of environmental insurance settlements received in the prior-year period partially offset by lower required provisions for injuries and damages claims. The increase in Gas Utility income before income taxes principally reflects the increase in operating income and the effects of slightly higher interest expense. ELECTRIC UTILITY. Electric Utility's 2005 six-month period kilowatt-hour sales were slightly higher than the prior-year period on weather that was comparable to the prior year. The increase in Electric Utility revenues reflect higher POLR rates. Electric Utility's cost of sales increased approximately 4% reflecting higher per-unit purchased power costs. Electric Utility total margin in the 2005 six-month period increased $0.7 million principally as a result of the previously mentioned increase in POLR rates and slight increase in kilowatt-hour sales partially offset by the higher purchased power costs. Operating income and income before income taxes were higher in the 2005 six-month period principally reflecting the increase in total margin. ENERGY SERVICES. The increase in Energy Services revenues in the 2005 six-month period resulted primarily from (1) increased natural gas prices and to a lesser extent an approximate 6% growth in natural gas volumes sold and (2) approximately $45 million of revenues generated by Atlantic Energy. Total margin from Energy Services' gas marketing business increased by $8.0 million in the 2005 six-month period principally due to higher average unit margins. The remainder of the increase in total margin is attributed to the purchase of Atlantic Energy. Energy Services' higher average unit margins reflect the lower proportion of annual fixed-price customer contracts and more seasonal fixed-price customer contracts compared to the prior-year period. -28- UGI CORPORATION AND SUBSIDIARIES The increase in Energy Services income before income taxes principally reflects the previously mentioned increase in total margin partially offset by higher operating and administrative expenses and higher depreciation and amortization. The higher operating and administrative expenses were primarily a result of higher uncollectible accounts expense and operating and administrative expenses associated with Atlantic Energy since its acquisition in November 2004. FINANCIAL CONDITION Our cash, cash equivalents and short-term investments totaled $226.6 million at March 31, 2005 compared with $199.6 million at September 30, 2004. These amounts include $111.0 million and $114.6 million, respectively, of cash, cash equivalents and short-term investments available to UGI. The Company's long-term debt outstanding at March 31, 2005 totaled $1,692.5 million (including current maturities of $172.2 million) compared to $1,670.1 million of long-term debt (including current maturities of $122.8 million) at September 30, 2004. In April 2005, the Partnership repaid $53.8 million of maturing AmeriGas OLP First Mortgage Notes with the proceeds from a $35 million term loan, borrowings under its revolving credit facility and existing cash balances. In May 2005, the Partnership refinanced $373.4 million of its outstanding 8.875% Senior Notes due 2011 through the issuance of $415 million of 7.25% Senior Notes due 2015. In connection with the refinancing, UGI incurred an after-tax loss on early extinguishment of debt totaling $9.4 million. In addition, UGI Utilities expects to refinance $20 million of its Medium-Term Notes due in May 2005 with the issuance of $20 million of Medium-Term Notes under the existing shelf registration statement. UGI Utilities expects to refinance the $50 million of Medium-Term Notes due in December 2005. AmeriGas OLP's Credit Agreement expires on October 15, 2008 and consists of (1) a $100 million Revolving Credit Facility and (2) a $75 million Acquisition Facility. The Revolving Credit Facility may be used for working capital and general purposes of AmeriGas OLP. The Acquisition Facility provides AmeriGas OLP with the ability to borrow up to $75 million to finance the purchase of propane businesses or propane business assets or, to the extent it is not so used, may be used for working capital and general purposes, subject to restrictions in the AmeriGas Partners Senior Notes indentures. At March 31, 2005, there were $12 million of borrowings under the Credit Agreement which are classified as bank loans on the Condensed Consolidated Balance Sheets. Issued and outstanding letters of credit under the Revolving Credit Facility, which reduce the amount available for borrowings, totaled $54.4 million at March 31, 2005. AmeriGas OLP's short-term borrowing needs are seasonal and are typically greatest during the fall and winter heating-season months due to the need to fund higher levels of working capital. AmeriGas Partners periodically issues debt and equity securities and expects to continue issuing securities in the future. It has issued debt securities and common units in underwritten public offerings in each of the last three fiscal years. Most recently, it has issued debt securities through a private placement in May 2005 and common units in May 2004 in an underwritten public offering. The Partnership has effective debt and equity shelf registration statements with the SEC under which it may issue up to an additional (1) 1.4 million AmeriGas Partners Common Units and (2) up to $446.2 million of debt or equity securities pursuant to an unallocated shelf registration statement. Antargaz has a variable interest rate Senior Facilities Agreement consisting of a euro-denominated term loan and a E50 million revolver which expires June 2008. At March 31, 2005, there were no borrowings outstanding under the revolver. -29- UGI CORPORATION AND SUBSIDIARIES UGI Utilities has revolving credit commitments under which it may borrow up to a total of $110 million. These agreements expire in June 2007. At March 31, 2005, UGI Utilities had $39.2 million in borrowings outstanding under these revolving credit agreements. Short-term borrowings, including borrowings under revolving credit agreements are classified as bank loans on the Condensed Consolidated Balance Sheets. UGI Utilities also has a shelf registration statement with the SEC under which it may issue up to an additional $20 million of Medium-Term Notes or other debt securities. Energy Services has a $150 million receivables purchase facility ("Receivables Facility") with an issuer of receivables-backed commercial paper expiring in August 2007, although the Receivables Facility may terminate prior to such date due to the termination of the commitments of the Receivables Facility back-up purchasers. Under the Receivables Facility, Energy Services transfers, on an ongoing basis and without recourse, its trade accounts receivable to its wholly owned, special purpose subsidiary, Energy Services Funding Corporation ("ESFC"), which is consolidated for financial statement purposes. ESFC, in turn, has sold, and subject to certain conditions, may from time to time sell, an undivided interest in the receivables to a commercial paper conduit of a major bank. The maximum level of funding available at any one time from this facility is $150 million. The proceeds of these sales are less than the face amount of the accounts receivable sold by an amount that approximates the purchaser's financing cost of issuing its own receivables-backed commercial paper. ESFC was created and has been structured to isolate its assets from creditors of Energy Services and its affiliates, including UGI. This two-step transaction is accounted for as a sale of receivables following the provisions of SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." Energy Services continues to service, administer and collect trade receivables on behalf of the commercial paper issuer and ESFC. At March 31, 2005, the outstanding balance of ESFC receivables was $120.3 million which amount is net of $23 million in trade receivables sold to the commercial paper conduit. In addition, a major bank has committed to Energy Services to issue up to $50 million of standby letters of credit, secured by cash or marketable securities ("LC Facility"). At March 31, 2005, there were no letters of credit outstanding. Energy Services expects to fund the collateral requirements with borrowings under its Receivables Facility. The LC Facility expires April 2006. CASH FLOWS OPERATING ACTIVITIES. Due to the seasonal nature of the Company's businesses, cash flows from operating activities are generally strongest during the second and third fiscal quarters when customers pay for natural gas, propane and other LPG and electricity consumed during the heating season months. Conversely, operating cash flows are generally at their lowest levels during the first and fourth fiscal quarters when the Company's investment in working capital, principally accounts receivable and/or inventories, is generally greatest. AmeriGas Propane and UGI Utilities use revolving credit facilities and Energy Services uses its Receivables Facility to satisfy their seasonal operating cash flow needs. Antargaz has historically been successful funding its operating cash flow needs without the use of its revolver. Cash flow from operating activities was $188.5 million in the 2005 six-month period compared to $104.2 million in the 2004 six-month period. The increase in operating cash flow principally reflects our improved results, primarily reflecting the effects of the Antargaz Acquisition. Cash flow from operating activities before changes in operating working capital was $367.7 million in the 2005 six-month period compared with $254.7 million in the prior-year six-month period. Changes in operating working capital used $179.2 million in the 2005 six-month period and $150.5 million in the 2004 six-month period. -30- UGI CORPORATION AND SUBSIDIARIES INVESTING ACTIVITIES. Investing activity cash flow is principally affected by capital expenditures and investments in property, plant and equipment, cash paid for acquisitions of businesses, changes in short-term investments and proceeds from sales of assets. Cash flow used in investing activities was $105.3 million in the 2005 six-month period compared to $281.9 million in the prior-year period principally reflecting the prior-year purchase of the remaining ownership interests in AGZ Holding and AmeriGas Propane's acquisition of Horizon Propane, net of cash acquired. FINANCING ACTIVITIES. Cash flow used by financing activities was $71.9 million in the 2005 six-month period compared with $178.8 million of cash provided in the prior-year six-month period. Financing activity cash flow changes are primarily due to issuances and repayments of long-term debt, net borrowings under revolving credit facilities, dividends and distributions on UGI Common Stock and AmeriGas Partners Common Units, and proceeds from public offerings of AmeriGas Partners Common Units and issuances of UGI common stock. The prior-period cash flows from financing activities reflects the issuance of 7.8 million shares of UGI Common Stock sold in an underwritten public offering to fund the Antargaz Acquisition. On October 1, 2004, UGI Utilities redeemed all 200,000 shares of $7.75 Series Preferred Stock at a price of $100 per share together with full cumulative dividends. The redemption of the $7.75 Series Preferred Stock was funded with proceeds from the October 2004 issuance of $20 million of 6.13% Medium-Term Notes due 2034. We paid cash dividends on UGI Common Stock of $32.2 million and $24.4 million during the six months ended March 31, 2005 and 2004, respectively. Also, the Partnership paid the minimum quarterly distribution of $0.55 (the "MQD") on all limited partner units during both of the six-month periods ended March 31, 2005 and 2004. On April 26, 2005, the Partnership declared an increase in their regular quarterly distribution to $0.56 per limited partnership unit ($2.24 on an annual basis). The quarterly distribution of $0.56 for the quarter ended March 31, 2005 will be paid on May 18, 2005 to holders of record on May 10, 2005. UGI COMMON STOCK SPLIT AND DIVIDEND INCREASE On April 26, 2005, UGI's Board of Directors approved a 2-for-1 common stock split. The Company will issue one additional common share for every common share outstanding. The new shares will be distributable May 24, 2005 to shareholders of record May 17, 2005. Basic and diluted earnings per share and dividends declared per share for the three and six month periods ended March 31, 2005 and 2004 have been reflected on a pre-split basis. Also, on April 26, 2005, UGI's Board of Directors approved an increase in the quarterly dividend rate on UGI Common Stock to $0.3375 on a pre-split basis ($0.16875 per share after the common stock split), or $1.35 per pre-split common share ($0.675 per share after the common stock split) on an annual basis. The new quarterly dividend is effective with the dividend payable on July 1, 2005 to shareholders of record on June 15, 2005. ANTARGAZ TAX MATTER Antargaz filed suit against the French tax authorities in connection with the assessment of non-income tax related to Antargaz owned tanks at customer locations used to store LPG. Elf Antar France, now Total France, and Elf Aquitaine, former owners of Antargaz, agreed to indemnify Antargaz for all payments which would have been due from Antargaz in respect of the tax related to its tanks for the period from January 1, 1997 through December 31, 2000. The indemnity from the former owners amounts to approximately E9.4 million ($12.2 million) of the tax liability and is reflected in "Prepaid and other current assets" in the Condensed Consolidated Balance Sheet at March 31, 2005. Antargaz had recorded a liability for the tax relating to tanks of various customer classes for the period from January 1, 1997 through December 31, 2004 of approximately E29.9 million ($40.6 million). On -31- UGI CORPORATION AND SUBSIDIARIES February 4, 2005, Antargaz received a letter from French authorities which eliminated the requirement for Antargaz to provide taxes on Antargaz owned tanks at certain customer locations. In addition, resolution was reached on tax contingencies relating to a prior year. Therefore, effective December 31, 2004, Antargaz reversed (1) E8.8 million ($12.0 million) resulting from the exemption of tanks at certain customer locations and (2) E5.9 million ($7.9 million) resulting from the resolution reached on a prior year's taxes. The total pre-tax amount of $19.9 million is reflected in "Other income, net" in the Condensed Consolidated Statement of Income for the six month period ended March 31, 2005. The after-tax effect of this reversal resulted in $14.9 million of net income. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In December 2004, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 123 (revised 2004), "Share-Based Payment" ("SFAS 123R"). SFAS 123R replaces SFAS 123 and supersedes Accounting Principles Board ("APB") Opinion No 25, "Accounting for Stock Issued to Employees" ("APB 25"). SFAS 123, as originally issued in 1995, established as preferable a fair-value-based method of accounting for share-based payment transactions with employees. However, SFAS 123 permitted entities the option of continuing to apply the guidance in APB 25, as long as the footnotes to financial statements disclosed what net income would have been had the preferable fair-value-based method been used. SFAS 123R requires that the compensation cost relating to share-based payment transactions be recognized in the financial statements. The cost is required to be measured based on the fair value of the equity or liability instruments issued. SFAS 123R covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. SFAS 123R is effective with our fiscal year ending September 30, 2006. Under all of the transition methods, unrecognized compensation expense for awards that are not vested on the adoption date will be recognized in the Company's statements of income through the end of the requisite service period. We do not believe that the adoption of SFAS 123R will have a material impact on our results of operations or financial position. Also, see Note 1 to Condensed Consolidated Financial Statements. In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets - - An Amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions" ("SFAS 153"). SFAS 153 eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets in paragraph 21(b) of APB Opinion No. 29, "Accounting for Nonmonetary Transactions," and replaces it with an exception for exchanges that lack commercial substance. SFAS 153 specifies that a nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS 153 is effective for our interim period beginning after June 15, 2005. We do not believe that the adoption of SFAS 153 will have a material effect on our results of operations or financial position. In December 2004, the FASB issued FASB Staff Position 109-1, "Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004" ("FSP 109-1") and FASB Staff Position 109-2, "Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision Within the American Jobs Creation Act of 2004" ("FSP 109-2"). The American Jobs Creations Act provides deductions for qualified domestic production activities and repatriation of foreign earnings. The impact of FSP 109-1 and FSP 109-2 does not have a material effect on the Company's financial position or results of operations. -32- UGI CORPORATION AND SUBSIDIARIES ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our primary market risk exposures are (1) market prices for propane and other LPG, natural gas and electricity; (2) changes in interest rates; and (3) foreign currency exchange rates. The risk associated with fluctuations in the prices the Partnership and our International Propane operations pay for propane and other LPG is principally a result of market forces reflecting changes in supply and demand for propane and other energy commodities. The Partnership's profitability is sensitive to changes in propane supply costs, and the Partnership generally attempts to pass on increases in such costs to customers. The Partnership may not, however, always be able to pass through product cost increases fully, particularly when product costs rise rapidly. In order to reduce the volatility of the Partnership's propane market price risk, it uses contracts for the forward purchase or sale of propane, propane fixed-price supply agreements, and over-the-counter derivative commodity instruments including price swap and option contracts. International Propane's profitability is sensitive to changes in LPG supply costs and International Propane generally passes on increases in such costs to customers. International Propane may not, however, always be able to pass through product cost increases fully or on a timely basis, particularly when product costs rise rapidly. In order to reduce the long-term volatility of Antargaz' LPG market price risk, Antargaz hedges a portion of its future U.S. dollar denominated LPG product purchases through the use of forward foreign exchange contracts. Antargaz may also enter into other contracts, similar to those used by the Partnership to reduce the volatility in the cost of LPG it purchases. FLAGA may use derivative commodity instruments to reduce market risk associated with a portion of its propane purchases. Over-the-counter derivative commodity instruments utilized by the Partnership to hedge forecasted purchases of propane are generally settled at expiration of the contract. In order to minimize credit risk associated with its derivative commodity contracts, the Partnership monitors established credit limits with the contract counterparties. Although we use derivative financial and commodity instruments to reduce market price risk associated with forecasted transactions, we do not use derivative financial and commodity instruments for speculative or trading purposes. Gas Utility's tariffs contain clauses that permit recovery of substantially all of the prudently incurred costs of natural gas it sells to its customers. The recovery clauses provide for a periodic adjustment for the difference between the total amounts actually collected from customers through PGC rates and the recoverable costs incurred. Because of this ratemaking mechanism, there is limited commodity price risk associated with our Gas Utility operations. Gas Utility uses exchange-traded natural gas call option contracts to reduce volatility in the cost of gas it purchases for its retail core-market customers. The cost of these call option contracts, net of any associated gains, is included in Gas Utility's PGC recovery mechanism. The risks associated with fluctuations in prices the Electric Utility pays for its electric power needs are principally a result of market forces reflecting changes in supply and demand for electricity and other energy commodities. Electric Utility purchases its electric power needs from electricity suppliers under fixed-price energy and capacity contracts and, to a much lesser extent, on the spot market. In accordance with Provider of Last Resort ("POLR") settlements approved by the PUC, Electric Utility may increase its POLR rates up to certain limits through December 31, 2006. In accordance with these settlements, effective January 1, 2005, Electric Utility increased its POLR generation rates for all metered customers 4.5% of total rates in effect on December 31, 2004. In addition, the POLR settlements permit Electric Utility to increase its POLR generation rates effective January 1, 2006 for all metered customers up to 7.5% of total rates in effect at December 31, 2004. Currently, Electric Utility's fixed-price contracts with electric suppliers mitigate most risks associated with the POLR service rate limits in effect through December 31, 2006. However, should any of the suppliers under these contracts -33- UGI CORPORATION AND SUBSIDIARIES fail to provide electric power under the terms of the power and capacity contracts, any increases in the cost of replacement power or capacity would negatively impact Electric Utility results. In order to reduce this non-performance risk, Electric Utility has diversified its purchases across several suppliers and entered into bilateral collateral arrangements with certain of them. Electric Utility has and may enter into electric price swap agreements to reduce the volatility in the cost of a portion of its anticipated electricity requirements. In order to manage market price risk relating to substantially all of Energy Services' fixed-price sales contracts for natural gas, Energy Services purchases exchange-traded natural gas futures contracts or enters into fixed-price supply arrangements. Exchange-traded natural gas futures contracts are guaranteed by the New York Mercantile Exchange ("NYMEX") and have nominal credit risk. An adverse change in market value of these contracts may require daily cash deposits in margin accounts with brokers. Although Energy Services' fixed-price supply arrangements mitigate most risks associated with its fixed-price sales contracts, should any of the natural gas suppliers under these arrangements fail to perform, increases, if any, in the cost of replacement natural gas would adversely impact Energy Services' results. In order to reduce this risk of supplier nonperformance, Energy Services has diversified its purchases across a number of suppliers. UGID has entered into fixed-price sales agreements for a portion of the electricity expected to be generated by its interests in electricity generating assets. In the event that these generation assets would not be able to produce all of the electricity needed to supply electricity under these agreements, UGID would be required to purchase such electricity on the spot market or under contract with other electricity suppliers. Accordingly, increases in the cost of replacement power could negatively impact the Company's results. We have both fixed-rate and variable-rate debt. Changes in interest rates impact the cash flows of variable-rate debt but generally do not impact its fair value. Conversely, changes in interest rates impact the fair value of fixed-rate debt but do not impact their cash flows. Our variable-rate debt includes borrowings under AmeriGas OLP's Credit Agreement, borrowings under UGI Utilities' revolving credit agreements and a substantial portion of Antargaz' and FLAGA's debt. These debt agreements have interest rates that are generally indexed to short-term market interest rates. At March 31, 2005, combined borrowings outstanding under these agreements totaled $374.3 million. Antargaz has effectively fixed the interest rate on a portion of its variable rate debt through June 2005 through the use of interest rate swaps. Our long-term debt is typically issued at fixed rates of interest based upon market rates for debt having similar terms and credit ratings. As these long-term debt issues mature, we may refinance such debt with new debt having interest rates reflecting then-current market conditions. This debt may have an interest rate that is more or less than the refinanced debt. In order to reduce interest rate risk associated with near-term forecasted issuances of fixed-rate debt, from time to time we enter into interest rate protection agreements. The following table summarizes the fair values of unsettled market risk sensitive derivative instruments held at March 31, 2005. Fair values reflect the estimated amounts that we would receive or pay to terminate the contracts at the reporting date based upon quoted market prices of comparable contracts at March 31, 2005. The table also includes the changes in fair value that would result if there were a ten percent adverse change in (1) the market price of propane; (2) the market price of natural gas; (3) the market price of electricity; (4) interest rates on ten-year U.S. treasury notes and; (5) value of the euro versus the U.S. dollar. -34- UGI CORPORATION AND SUBSIDIARIES
Change in Fair Value Fair Value ---------- ---------- (Millions of dollars) March 31, 2005: Propane commodity price risk $ 1.2 $ (1.1) Natural gas commodity price risk (0.2) (3.4) Electricity commodity price risk 3.5 (1.1) Interest rate risk (3.6) (6.2) Foreign currency exchange rate risk (1.8) (11.4)
Gas Utility's exchange-traded natural gas call option contracts are excluded from the table above because any associated net gains are included in Gas Utility's PGC recovery mechanism. Because our derivative instruments generally qualify as hedges under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," ("SFAS 133"), we expect that changes in the fair value of derivative instruments used to manage commodity or interest rate market risk would be substantially offset by gains or losses on the associated anticipated transactions. Our primary exchange rate risk is associated with the U.S. dollar versus the euro. The U.S. dollar value of our foreign-denominated assets and liabilities will fluctuate with changes in the associated foreign currency exchange rates. We use derivative instruments to hedge portions of our net investments in foreign subsidiaries ("net investment hedges"). Realized gains or losses remain in other comprehensive income until such foreign operations are liquidated. At March 31, 2005, the fair value of unsettled net investment hedges was a loss of $2.4 million, which is included in the foreign currency exchange rate risk in the table above. With respect to our net investments in FLAGA and Antargaz, a 10% decline in the value of the euro versus the U.S. dollar, excluding the effects of any net investment hedges, would reduce their aggregate net book value by approximately $45.8 million, which amount would be reflected in other comprehensive income. -35- UGI CORPORATION AND SUBSIDIARIES ITEM 4. CONTROLS AND PROCEDURES (a) Evaluation of Disclosure Controls and Procedures The Company's management, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company's disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures as of the end of the period covered by this report were designed and functioning effectively to provide reasonable assurance that the information required to be disclosed by the Company in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. The Company believes that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. (b) Change in Internal Control over Financial Reporting No change in the Company's internal control over financial reporting occurred during the Company's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. -36- UGI CORPORATION AND SUBSIDIARIES PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Atlanta Gas Light Company v. UGI Utilities, Inc. By letter dated July 29, 2003, Atlanta Gas Light Company ("AGL") served UGI Utilities with a complaint filed in the United States District Court for the Middle District of Florida in which AGL alleges that UGI Utilities is responsible for 20% of approximately $8 million incurred by AGL in the investigation and remediation of a former MGP site in St. Augustine, Florida. UGI Utilities formerly owned stock of the St. Augustine Gas Company, the owner and operator of the MGP. In March 2005, the court granted UGI Utilities' motion for summary judgment and dismissed AGL's complaint. AGL has appealed. South Coast Air Quality Management District Matter. On February 21, 2005, AmeriGas Propane, L.P. ("AmeriGas OLP"), a principal operating subsidiary of AmeriGas Partners, L.P. ("AmeriGas Partners"), received notice from the South Coast (of California) Air Quality Management District ("SCAQMD") that it intended to seek civil penalties totaling $0.1 million for five violations of air emissions regulations at AmeriGas OLP's LPG terminal in San Pedro, California. After an inspection of the San Pedro terminal by SCAQMD on April 15, 2005, AmeriGas Partners expects SCAQMD to issue additional notices of violation of regulations related to the installation of emission reduction equipment at the facility that may involve monetary penalties of $0.1 million or more. AmeriGas Partners is working with SCAQMD to assure that the facility is in compliance with applicable regulations and we believe that the resolution of this matter will not have a material effect on our results of operations or financial condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On February 23, 2005, the Annual Meeting of Shareholders of UGI was held. The Shareholders (i) reelected the eight nominees from the existing Board of Directors to another term, and (ii) ratified the appointment of PricewaterhouseCoopers LLP as independent public accountants. The number of votes cast for and withheld from election of each director nominee is set forth below. There were no abstentions or broker non-votes in the election of directors.
DIRECTOR NOMINEES FOR WITHHELD - ----------------- --- -------- James W. Stratton 45,375,439 1,186,390 Richard C. Gozon 45,896,548 665,281 Stephen D. Ban 46,046,606 515,223 Lon R. Greenberg 46,025,052 536,777 Marvin O. Schlanger 46,137,092 424,737 Thomas F. Donovan 46,108,517 453,312 Anne Pol 46,145,611 416,218 Ernest E. Jones 46,166,519 395,310
The number of votes cast for and against, and the number of abstentions in the ratification of the appointment of PricewaterhouseCoopers LLP is as follows: For: 46,109,635; Against: 318,118; Abstain: 134,075. There were no broker non-votes. -37- UGI CORPORATION AND SUBSIDIARIES ITEM 6. EXHIBITS 10.1 AmeriGas Propane, Inc. Supplemental Executive Retirement Plan Amended and Restated as of March 1, 2005. 10.2 Form of Confidentiality and Post-Employment Activities Agreement between AmeriGas and Robert H. Knauss. 31.1 Certification by the Chief Executive Officer relating to the Registrant's Report on Form 10-Q for the quarter ended March 31, 2005, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification by the Chief Financial Officer relating to the Registrant's Report on Form 10-Q for the quarter ended March 31, 2005, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32 Certification by the Chief Executive Officer and the Chief Financial Officer relating to the Registrant's Report on Form 10-Q for the quarter ended March 31, 2005, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. -38- UGI CORPORATION AND SUBSIDIARIES SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. UGI Corporation ---------------- (Registrant) Date: May 6, 2005 By: /s/ Anthony J. Mendicino ---------------------------------- Anthony J. Mendicino Senior Vice President-Finance and Chief Financial Officer Date: May 6, 2005 By: /s/ Michael J. Cuzzolina --------------------------------- Michael J. Cuzzolina Vice President-Accounting and Financial Control and Chief Risk Officer -39- UGI CORPORATION AND SUBSIDIARIES EXHIBIT INDEX 10.1 AmeriGas Propane, Inc. Supplemental Executive Retirement Plan Amended and Restated as of March 1, 2005. 10.2 Form of Confidentiality and Post-Employment Activities Agreement between AmeriGas and Robert H. Knauss. 31.1 Certification by the Chief Executive Officer relating to the Registrant's Report on Form 10-Q for the quarter ended March 31, 2005, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification by the Chief Financial Officer relating to the Registrant's Report on Form 10-Q for the quarter ended March 31, 2005, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32 Certification by the Chief Executive Officer and the Chief Financial Officer relating to the Registrant's Report on Form 10-Q for the quarter ended March 31, 2005, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. EX-10.1 2 w08749exv10w1.txt AMERIGAS PROPANE, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN EXHIBIT 10.1 AMERIGAS PROPANE, INC. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN (amended and restated as of March 1, 2005) TABLE OF CONTENTS PAGE ---- Article I Statement of Purpose................................ 2 Article II Definitions......................................... 2 Article III Participation and Vesting........................... 4 Article IV Benefits............................................ 4 Article V Form and Timing of Benefit Distribution............. 5 Article VI Funding of Benefits................................. 5 Article VII The Committees...................................... 6 Article VIII Amendment and Termination........................... 7 Article IX Claims Procedures................................... 8 Article X Miscellaneous Provisions............................ 9 i ARTICLE I STATEMENT OF PURPOSE Sec. 1.01 PURPOSE. The purpose of the AGP SERP is to provide a fair and competitive level of retirement benefits to certain management and other highly compensated employees and thereby to attract and retain the highest quality executives to the General Partner of AmeriGas Partners, L.P. and AmeriGas Propane, L.P. In addition, the benefits under the AGP SERP are also designed to compensate certain terminated employees by taking into account in determining their pension benefits periods of time during which payments are made under the AmeriGas Propane, Inc. Executive Severance Pay Plan. To address these purposes, certain Employees of AmeriGas Propane, Inc. (those designated as "Participants") will be provided with supplemental retirement benefits. This amendment and restatement of the AGP SERP shall be effective as of March 1, 2005. It is intended that benefits that are earned and vested under the AGP SERP as of December 31, 2004 shall be considered "grandfathered" benefits for purposes of section 409A of the Internal Revenue Code. ARTICLE I DEFINITIONS Sec. 2.01 "Administrative Committee" shall mean the administrative committee designated pursuant to Article VII of the AGP SERP to administer the AGP SERP in accordance with its terms. Sec. 2.02 "Affiliate" shall have the meaning ascribed to such term in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended. Sec. 2.03 "AGP" shall mean AmeriGas Propane, Inc. Sec. 2.04 "AGP 401(k) Plan" shall mean the AmeriGas Propane, Inc. 401(k) Savings Plan. Sec. 2.05 "AGP SERP" shall mean the AmeriGas Propane, Inc. Supplemental Executive Retirement Plan as set forth herein and as the same may be hereafter amended. Sec. 2.06 "Board" shall mean the Board of Directors of AGP. Sec. 2.07 "Compensation/Pension Committee" shall mean the Compensation/Pension Committee of the Board or such other committee designated by the Board of AGP to perform certain functions with respect to the AGP SERP. Sec. 2.08 "Compensation" shall mean actual base salary earned plus the amount of annual bonus payable under the applicable bonus or severance plan in each plan year (October 1 - September 30), including Deferred Compensation, whether or not paid in that plan year. Compensation shall be prorated for all partial fiscal years during which the Employee is a Participant. Sec. 2.09 "Deferred Compensation" shall mean the amount of an Employee's compensation payable under the applicable annual bonus plan as would otherwise be payable to a Participant except for an election by the Employee to have such compensation deferred to and paid in a subsequent year, excluding compensation payable under the applicable bonus plan for years beginning prior to the Effective Date. Sec. 2.10 "Effective Date" shall mean October 1, 1996. Sec. 2.11 "Employee" shall mean any person in the employ of AGP or any successor employer other than a person (i) whose terms and conditions of employment are determined through collective bargaining with a third party or (ii) who is characterized as an independent contractor by AGP, no matter how characterized by a court or government agency. No retroactive characterization of an individual's status for any other purpose shall make an individual an "Employee" for purposes hereof unless specifically determined otherwise by AGP for the purposes of this AGP SERP. Sec. 2.12 "Employment Commencement Date" shall mean the first day on which a Participant became an employee of AGP, any Subsidiary or Affiliate of AGP, or any entity whose business or assets have been acquired by AGP, its Subsidiary or Affiliate or by any predecessor of such entities. If any interruption of employment occurred after the date described in the preceding sentence, the "Reemployment Commencement Date" shall be the first day on which the Participant became an employee as described in the preceding sentence after the most recent such interruption of the employment relationship between the Employee and AGP or any of its Subsidiaries or Affiliates, unless the Administrative Committee determines otherwise. Sec. 2.13 "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. Sec. 2.14 "Grandfathered Benefits" shall mean those benefits that are earned and vested under the AGP SERP as of December 31, 2004 and that are not subject to the requirements of section 409A of the Internal Revenue Code. Sec. 2.15 "Internal Revenue Code" shall mean the Internal Revenue Code of 1986, as amended. Sec. 2.16 "Key Employee" shall mean (i) an officer of AGP or its Affiliates having annual compensation greater than $130,000 (as adjusted for inflation pursuant to section 416(i) of the Internal Revenue Code, and limited to 50 employees), (ii) a five percent owner of AGP and its Affiliates, or (iii) a one percent owner of AGP and its Affiliates who has annual compensation from AGP and its Affiliates greater than $150,000, as determined by the Administrative Committee in a manner consistent with the regulations issued under section 409A of the Internal Revenue Code. Sec. 2.17 "Participant" shall mean an Employee of AGP who is compensated on a salaried basis at grade level 36 or higher or such other level as the Compensation/Pension Committee may designate. 3 Sec. 2.18 "Subsidiary" shall mean any corporation in which AGP, directly or indirectly, owns at least a fifty percent (50%) interest or an unincorporated entity of which AGP, directly or indirectly, owns at least fifty percent (50%) of the profits or capital interests. Sec. 2.19 "Termination for Cause" shall mean termination of employment by reason of misappropriation of funds, habitual insobriety, substance abuse, conviction of a crime involving moral turpitude, or gross negligence in the performance of duties, which gross negligence has had a material gross adverse effect on the business, operations, assets, properties or financial condition of AGP, AmeriGas Partners, L.P., AmeriGas Propane, L.P., or their Subsidiaries and Affiliates, taken as a whole. ARTICLE III PARTICIPATION AND VESTING Sec. 3.01 VESTING. Benefits under this AGP SERP shall vest on the fifth anniversary of a Participant's Employment Commencement Date, unless the Compensation/Pension Committee determines that a Participant's benefits should vest, in whole or in part, sooner. ARTICLE IV BENEFITS Sec. 4.01 AMOUNT. AGP shall establish for each Participant an account to which shall be credited annually an amount equal to 5% of the Participant's maximum recognizable compensation under section 401(a)(17) of the Internal Revenue Code and 10% of the Participant's Compensation, if any, in excess of such maximum recognizable compensation. In addition, effective for amounts forfeited in 2005 and subsequent years, in the event that any portion of the employer matching contribution allocated to a Participant under the AGP 401(k) Plan with respect to a prior plan year is forfeited to satisfy the nondiscrimination requirements of section 401(k), 401(m) or 401(a)(4) of the Internal Revenue Code, AGP shall credit to the Participant's account under the AGP SERP, in the year in which the forfeiture occurs, an amount that is equal to the forfeited employer matching contributions, adjusted for earnings and losses as provided under the AGP 401(k) Plan to the date forfeited. Sec. 4.02 TIMING OF CREDITS. Amounts shall first be credited to a Participant's account as of September 30, 1997, and annually thereafter as soon as benefits can be calculated. Sec. 4.03 BENEFIT INTEREST. Amounts credited to a Participant's account shall accrue interest from the effective date as of which they are so credited until the date they are paid to the Participant. Such interest shall be credited annually on the opening balance of a Participant's account as of each September 30 after 1997. The rate of interest shall be equal to the total year-to-date rate of return on the trust portfolio for the Retirement Income Plan for Employees of UGI Utilities, Inc. (the "RIP"), except that the rate of interest in any fiscal year may not exceed the rate of return assumed in determining the annual cost of the RIP for that year plus one percent or be less than zero. The Administrative Committee shall make appropriate adjustments to interest credited with respect to any amounts that are credited to the AGP SERP during the year pursuant 4 to Section 4.01 and with respect to Participants who receive a distribution from the Plan during the year. Sec. 4.04 DIVESTITURE. Each Participant shall be divested of, and shall immediately forfeit, any benefit to which the Participant is otherwise entitled under the AGP SERP if the Participant's employment is Terminated for Cause. ARTICLE V FORM AND TIMING OF BENEFIT DISTRIBUTION Sec. 5.01 FORM OF BENEFIT DISTRIBUTIONS. Benefits payable under the AGP SERP shall be paid in a lump sum to the Participant, the Participant's designated beneficiary, or the Participant's estate. Sec. 5.02 TIMING OF BENEFIT DISTRIBUTIONS. Except as otherwise required by Section 5.03 below, benefits payable under the AGP SERP shall be paid as soon as practicable after a Participant's retirement or termination for a reason other than Termination for Cause; in no event shall such payment be made later than the later of (i) 90 days after a Participant's retirement or termination for a reason other than Termination for Cause, or (ii) December 31 of the year in which such retirement or termination occurs. Sec. 5.03 KEY EMPLOYEES. If required by section 409A of the Internal Revenue Code, and applicable regulations or other guidance, any benefit payable under the AGP SERP that is not a Grandfathered Benefit and that is payable to a Key Employee may not be paid before the date that is six months after the date of the Key Employee's retirement or other termination of employment. ARTICLE VI FUNDING OF BENEFITS Sec. 6.01 SOURCE OF FUNDS. The Board may, but shall not be required to, authorize the establishment of a funding vehicle for the benefits described herein. In any event, AGP's obligation hereunder shall constitute a general, unsecured obligation, payable solely out of its general assets, and no Participant shall have any right to any specific assets of AGP or any such vehicle. Sec. 6.02 PARTICIPANT CONTRIBUTIONS. There shall be no contributions made by Participants under the AGP SERP. ARTICLE VII THE COMMITTEES Sec. 7.01 APPOINTMENT AND TENURE OF ADMINISTRATIVE COMMITTEE MEMBERS. The Administrative Committee shall consist of one or more persons who shall be appointed by and serve at the pleasure of the Compensation/Pension 5 Committee. Any Administrative Committee member may resign by delivering his or her written resignation to the Compensation/Pension Committee. Vacancies arising by the death, resignation or removal of an Administrative Committee member may be filled by the Compensation/Pension Committee. Sec. 7.02 MEETINGS; MAJORITY RULE. Any and all acts of the Administrative Committee taken at a meeting shall be by a majority of all members of the Administrative Committee. The Administrative Committee may act by vote taken in a meeting (at which a majority of members shall constitute a quorum). The Administrative Committee may also act by unanimous consent in writing without the formality of convening a meeting. Sec. 7.03 DELEGATION. The Administrative Committee may, by majority decision, delegate to each or any one of its members, authority to sign any documents on its behalf, or to perform ministerial acts, but no person to whom such authority is delegated shall perform any act involving the exercise of any discretion without first obtaining the concurrence of a majority of the members of the Administrative Committee, even though such person alone may sign any document required by third parties. The Administrative Committee shall elect one of its number to serve as Chairperson. The Chairperson shall preside at all meetings of the Administrative Committee or shall delegate such responsibility to another Administrative Committee member. The Administrative Committee shall elect one person to serve as Secretary to the Administrative Committee. All third parties may rely on any communication signed by the Secretary, acting as such, as an official communication from the Administrative Committee. Sec. 7.04 AUTHORITY AND RESPONSIBILITY OF THE ADMINISTRATIVE COMMITTEE. The Administrative Committee shall have only such authority and responsibilities as are delegated to it by the Compensation/Pension Committee or specifically under this AGP SERP. Among those delegable authorities and responsibilities are: (a) maintenance and preservation of records relating to Participants, former Participants, and their beneficiaries; (b) preparation and distribution to Participants of all information and notices required under federal law or the provisions of the AGP SERP; (c) preparation and filing of all governmental reports and other information required under law to be filed or published; (d) construction of the provisions of the AGP SERP, to correct defects therein and to supply omissions thereto; (e) engagement of assistants and professional advisers; (f) arrangement for bonding, if required by law; and (g) promulgation of procedures for determination of claims for benefits. Sec. 7.05 COMPENSATION OF ADMINISTRATIVE COMMITTEE MEMBERS. The members of the Administrative Committee shall serve without compensation for their services as such, but all expenses of the Administrative Committee shall be paid or reimbursed by AGP. 6 Sec. 7.06 COMMITTEE DISCRETION. Any discretion, actions or interpretations to be made under the AGP SERP by the Administrative Committee or by the Compensation/Pension Committee on behalf of AGP shall be made in its sole discretion, not acting in a fiduciary capacity, need not be uniformly applied to similarly situated individuals, and shall be final, binding and conclusive upon the parties. Sec. 7.07 INDEMNIFICATION OF THE COMMITTEES. Each member of the Administrative Committee and each member of the Compensation/Pension Committee shall be indemnified by AGP against costs, expenses and liabilities (other than amounts paid in settlement to which AGP does not consent) reasonably incurred by the member in connection with any action to which the member may be a party by reason of the member's service on the applicable Committee, except in relation to matters as to which the member shall be adjudged in such action to be personally guilty of gross negligence or willful misconduct in the performance of the member's duties. The foregoing right to indemnification shall be in addition to such other rights as the Administrative Committee member or the Compensation/Pension Committee member may enjoy as a matter of law or by reason of insurance coverage of any kind, but shall not extend to costs, expenses and/or liabilities otherwise covered by insurance or that would be so covered by any insurance then in force if such insurance contained a waiver of subrogation. Rights granted hereunder shall be in addition to and not in lieu of any rights to indemnification to which the Administrative Committee member or the Compensation/Pension Committee member may be entitled pursuant to the by-laws of AGP. Service on the Administrative Committee or the Compensation/Pension Committee shall be deemed in partial fulfillment of the applicable Committee member's function as an employee, officer, or director of AGP, if the Committee member also serves in that capacity. ARTICLE VIII AMENDMENT AND TERMINATION Sec. 8.01 AMENDMENT. The provisions of the AGP SERP may be amended at any time and from time to time by a resolution of the Board; provided, however, that no such amendment shall serve to reduce the benefit that has accrued on behalf of a Participant as of the effective date of the amendment, and, provided further, however, that the Compensation/Pension Committee may make such amendments as are necessary to keep the AGP SERP in compliance with applicable law and minor amendments which do not materially affect the rights of the Participants or significantly increase the cost to AGP, AmeriGas Partners, L.P. or AmeriGas Propane, L.P. Sec. 8.02 AGP SERP TERMINATION. While it is AGP's intention to continue the AGP SERP indefinitely in operation, the right is, nevertheless, reserved to terminate the AGP SERP in whole or in part at any time; provided, however, that no such termination shall serve to reduce the benefit that has accrued on behalf of a Participant as of the effective date of the termination. 7 ARTICLE IX CLAIMS PROCEDURES Sec. 9.01 CLAIM. Any person or entity claiming a benefit, requesting an interpretation or ruling under the AGP SERP (hereinafter referred to as "claimant"), or requesting information under the AGP SERP shall present the request in writing to the Administrative Committee, which shall respond in writing or electronically. The notice advising of the denial shall be furnished to the claimant within 90 days of receipt of the benefit claim by the Administrative Committee, unless special circumstances require an extension of time to process the claim. If an extension is required, the Administrative Committee shall provide notice of the extension prior to the termination of the 90 day period. In no event may the extension exceed a total of 180 days from the date of the original receipt of the claim. Sec. 9.02 DENIAL OF CLAIM. If the claim or request is denied, the written or electronic notice of denial shall state: (a) The reason(s) for denial; (b) Reference to the specific AGP SERP provisions on which the denial is based; (c) A description of any additional material or information required and an explanation of why it is necessary; and (d) An explanation of the AGP SERP's claims review procedures and the time limits applicable to such procedures, including the right to bring a civil action under section 502(a) of ERISA. Sec. 9.03 FINAL DECISION. The decision on review shall normally be made within 60 days after the Administrative Committee's receipt of claimant's claim or request. If an extension of time is required for a hearing or other special circumstances, the claimant shall be notified and the time limit shall be 120 days. The decision shall be in writing or in electronic form and shall: (a) State the specific reason(s) for the denial; (b) Reference the relevant AGP SERP provisions; (c) State that the claimant is entitled to receive, upon request and free of charge, and have reasonable access to and copies of all documents, records and other information relevant to the claim for benefits; and (d) State that the claimant may bring an action under section 502(a) of ERISA. All decisions on review shall be final and bind all parties concerned. Sec. 9.04 REVIEW OF CLAIM. Any claimant whose claim or request is denied or who has not received a response within 60 days may request a review by notice given in writing or 8 electronic form to the Administrative Committee. Such request must be made within 60 days after receipt by the claimant of the written or electronic notice of denial, or in the event the claimant has not received a response, 60 days after receipt by the Administrative Committee of the claimant's claim or request. The claim or request shall be reviewed by the Administrative Committee which may, but shall not be required to, grant the claimant a hearing. On review, the claimant may have representation, examine pertinent documents, and submit issues and comments in writing. ARTICLE X MISCELLANEOUS PROVISIONS Sec. 10.01 NONALIENATION OF BENEFITS. None of the payments, benefits or rights of any Participant under the AGP SERP shall be subject to any claim of any creditor, and, in particular, to the fullest extent permitted by law, all such payments, benefits and rights shall be free from attachment, garnishment, trustee's process, or any other legal or equitable process available to any creditor of such Participant. No Participant shall have the right to alienate, anticipate commute, pledge, encumber or assign any of the benefits or payments which he or she may expect to receive, contingently or otherwise, under the AGP SERP, except any right to designate a beneficiary or beneficiaries in connection with any form of benefit payment providing benefits after the Participant's death. Sec. 10.02 NO CONTRACT OF EMPLOYMENT. Neither the establishment of the AGP SERP, nor any modification thereof, nor the creation of any fund, trust or account, nor the payment of any benefits shall be construed as giving any Participant or Employee, or any person whomsoever, the right to be retained in the service of AGP, and all Participants and other Employees shall remain subject to discharge to the same extent as if the AGP SERP had never been adopted. Sec. 10.03 SEVERABILITY OF PROVISIONS. If any provision of the AGP SERP shall be held invalid or unenforceable, such validity or unenforceability shall not affect any other provisions hereof, and the AGP SERP shall be construed and enforced as if such provision had not been included. Sec. 10.04 HEIRS, ASSIGNS AND PERSONAL REPRESENTATIVES. The AGP SERP shall be binding upon the heirs, executors, administrators, successors and assigns of the parties, including each Participant, present and future. Sec. 10.05 HEADINGS AND CAPTIONS. The headings and captions herein are provided for reference and convenience only, shall not be considered part of the AGP SERP, and shall not be employed in the construction of the AGP SERP. Sec. 10.06 GENDER AND NUMBER. Except where otherwise clearly indicated by context, the masculine and the neuter shall include the feminine and the neuter, the singular shall include the plural, and vice-versa. Sec. 10.07 CONTROLLING LAW. The AGP SERP shall be construed and enforced according to the laws of the Commonwealth of Pennsylvania to the extent not preempted by federal law, which shall otherwise control, and exclusive of any Pennsylvania choice of law provisions. 9 Sec. 10.08 PAYMENTS TO MINORS, ETC. Any benefit payable to or for the benefit of a minor, an incompetent person or other person incapable of receipting therefor shall be deemed paid when paid to such person's guardian or to the party providing or reasonably appearing to provide for the care of such person, and such payment shall fully discharge AGP, the Board, the Administrative Committee, the Compensation/Pension Committee and all other parties with respect thereto. Sec. 10.09 LOST PAYEES. A benefit (including accrued interest) shall be deemed forfeited if the Board or the Administrative Committee is unable to locate a Participant to whom payment is due; provided, however, that such benefit shall be reinstated if a claim is made by the proper payee for the forfeited benefit. Sec. 10.10 SECTION 409A. The AGP SERP is intended to comply with the applicable requirements of section 409A of the Internal Revenue Code, and shall be administered in accordance with section 409A to the extent section 409A applies to the AGP SERP. Notwithstanding anything in the AGP SERP to the contrary, with respect to benefits that are not Grandfathered Benefits, distributions may only be made under the AGP SERP upon an event and in a manner permitted by section 409A. To the extent that any provision of the AGP SERP would cause a conflict with the requirements of section 409A of the Internal Revenue Code, or would cause the administration of the AGP SERP to fail to satisfy the requirements of section 409A, such provision shall be deemed null and void to the extent permitted by applicable law. IN WITNESS WHEREOF, and as evidence of its adoption of the AGP SERP, AGP has caused the same to be executed by its duly authorized officer and its corporate seal to be affixed hereto as of the 1st day of March 2005. Attest: AMERIGAS PROPANE, INC. ___________________________________ By: _________________________________ Robert H. Knauss Eugene V.N. Bissell Secretary President and Chief Executive Officer Date: March 15, 2005 10 EX-10.2 3 w08749exv10w2.txt FORM OF CONFIDENTIALITY & POST-EMPLOYMENT ACTIVITIES AGREEMENT FORM OF CONFIDENTIALITY AND POST-EMPLOYMIENT ACTIVITIES AGREEMENT A. I, _______________, the undersigned employee, have been hired/promoted into the newly created position of ______________________________ of AmeriGas Propane, Inc., a Pennsylvania corporation, which is the general partner of AmeriGas Partners, L.P. As such, I will be responsible for ___________________ of AmeriGas Partners, L.P., and its subsidiaries, partnerships and affiliates (collectively "AmeriGas") throughout the United States. During the course of my employment, I understand that AmeriGas will put me in a position of trust and confidence by placing me in charge of _____________________ throughout the United States and by disclosing to me, as well as having me develop Confidential Information about its business and B. I am also a member of AmeriGas's Senior Management Team. As a member of AmeriGas's Senior Management Team, I routinely participate in important strategic reporting and planning meetings where highly Confidential Information and plans are disclosed, discussed and developed by the senior officers and managers of AmeriGas. C. Accordingly, in consideration for my employment in this __________________________ position and the compensation and employee benefits that I will receive for serving in such a position, I agree to the terms of this Confidentiality and Post-Employment Activities Agreement as follows: 1. Recitals. The recitals contained in the lettered paragraphs above are hereby incorporated and made a part of this Agreement. 2. Definitions. a. The term "Confidential Information" includes, but is not limited to, information, whether in tangible form or otherwise, concerning business and marketing plans; past, present and prospective customer identities, lists, credit information and gas usage patterns; pricing and marketing policies and practices; financial information; acquisition and strategic plans; and other operating policies and practices. b. The term "Territory" refers to each of the 50 states of the United States and such U.S. territories and foreign nations in which Americas distributes propane or otherwise sells goods or services during the one year period preceding the termination of my employment. 3. Confidential Information and AmeriGas Property. a. I will protect the Confidential Information of AmeriGas and its predecessors and affiliates from disclosure and will not divulge it during or after my employment to any other person or entity not associated with AmeriGas. b. All reports, manuals, memoranda, computer disks and tapes and other materials made available to me by AmeriGas during the performance of my duties are the property of AmeriGas, and I will use all such property exclusively for AmeriGas's benefit and will return it, including copies, to AmeriGas at the termination of my employment. 4. Prohibited Post-Employment Activities. For a period of two years after the termination of my employment with AmeriGas for any reason: a. I will not directly or indirectly solicit or service the business of any AmeriGas customer within my Territory. b. Except as provided in paragraphs 4(c) and 4(d) below, I will not directly or indirectly: (i) own or operate; (ii) acquire an equity or partnership interest or a controlling interest of any other kind in; (iii) accept employment from; or (iv) serve as a director, officer, partner, consultant, or advisor of or to, any business that distributes propane in my Territory or that sells goods or provides services that compete with goods sold or services provided by AmeriGas in my Territory as of the date of the termination of my employment without first obtaining the written consent of the President of 2 AmeriGas Propane, Inc. Notwithstanding anything to the contrary herein, in the event that my employment is terminated by AmeriGas based upon my failure to meet the performance or financial objectives established for my position and AmeriGas, in its sole discretion, determines that such failure on my part was not deliberate, the term of enforcement for this Noncompete Provision shall be calculated in the following manner: for every twenty (20) days of severance payment that I receive, the term of enforcement for this Noncompete Provision shall equal one (1) calendar month; provided, however, that in no event will the term of enforcement for the Noncompete Provision be less than six (6) months. It is further understood and agreed that the Noncompete Provision will not prevent me from accepting employment with a business that distributes alternative energy (i.e., electricity, natural gas or fuel oil) or that sells goods or provides services in the alternative energy market. c. Nothing in paragraph 4(b) above shall prohibit me from passively investing in a publicly held business that competes with AmeriGas provided my investment is less than 1 % of the outstanding stock or market value of the business and I do not otherwise violate paragraph 3 of this Agreement. d. Nothing in paragraph 4(b) above shall prohibit me from accepting employment with a business that competes with AmeriGas in my Territory provided that I can demonstrate through clear and convincing evidence that: (i) my compensation is not based either directly or indirectly on the business operations, sales or financial performance of the competing business within my Territory, (ii) my responsibilities do not include the performance or oversight of any sales or business activities of the competing business within my Territory, and (iii) my duties with the competing business will not otherwise result in a breach of paragraph 3 of this Agreement. e. I will not, nor will I induce any other person or entity to employ, or offer employment, in a competing business, to any employee of AmeriGas over whom I had direct or 3 indirect supervisory responsibility or with whom I worked, or who was employed by AmeriGas within my Territory during the two-year period prior to the termination of my employment. Furthermore, I shall not induce or attempt to induce any employee to terminate his or her employment with AmeriGas. 5. Remedies. a. I understand that if I violate this Agreement, AmeriGas will suffer irreparable harm; therefore, in addition to any other remedies available to it, AmeriGas will be entitled to seek and obtain injunctive or equitable relief, including orders prohibiting violations of this Agreement. b. In any legal proceeding in which AmeriGas obtains injunctive or equitable relief or damages against me arising out of my violation of this Agreement, AmeriGas shall be entitled to recover from me its reasonable attorneys' fees and costs. c. The failure by AmeriGas to insist on my compliance with this Agreement or to enforce it in any particular circumstance will not constitute a waiver by AmeriGas of its rights to seek relief for any other or subsequent breach of this Agreement. 6. Additional Provisions. a. This Agreement shall continue to be in full force and effect without reexecution in the event that: (i) I am employed by AmeriGas in another position or transferred to another territory; (ii) I take a leave of absence; or (iii) there are periods between active employment during which I do not perform services for AmeriGas. b. This Agreement was, and shall be deemed to have been, made in the State of Pennsylvania. It shall be governed by the laws of the State of Pennsylvania without regard to that State's choice of law provisions. 4 c. The Court of Common Pleas of Montgomery County and the Federal District Court for the Eastern District of Pennsylvania (hereafter the designated courts) shall have exclusive jurisdiction over disputes arising out of or relating to this Agreement except: (i) if I or AmeriGas desire to add a necessary party to the action over whom the designated courts would not have personal jurisdiction; or (ii) it is necessary for me or AmeriGas to file an action or motion in another jurisdiction in order to enforce any judgment or relief obtained from the designated courts. Accordingly, both AmeriGas and I agree to submit to the jurisdiction and venue of the designated courts arid, subject to the above stated exceptions, each of us agrees to waive any right to contest personal jurisdiction and venue before such courts or to seek to transfer or otherwise object to or challenge the forums designated herein. d. I will disclose the existence of this Agreement to all of my prospective and actual employers. I authorize AmeriGas to disclose the existence of this Agreement and to provide a copy of this Agreement to any prospective and actual employer. e. I have read and understood this Agreement, believe it to be reasonable, and am signing it voluntarily. I acknowledge that my obligations under this Agreement will not impose an unreasonable economic hardship on me. I further recognize that this Agreement may be enforced against me by a court of law or equity. I also understand that the execution of this Agreement is a requirement of my employment with AmeriGas and that AmeriGas will expect me to adhere strictly to the terms of this Agreement. f. The provisions of this Confidentiality and Post-Employment Activities Agreement constitute the entire Agreement between myself and AmeriGas regarding AmeriGas's Confidential Information and my post-employment obligations, which Agreement cannot be varied except by a writing signed by me and the President of AmeriGas Propane, Inc. Notwithstanding the foregoing, the provisions of this Agreement are in addition to, and not a limitation or substitution of, 5 nor do they supersede the provisions of the "Agreement and Understanding" booklet or AmeriGas's Human Resources Policies. g. I hereby consent to AmeriGas's assignment of this Agreement to any entity that acquires through purchase, merger or otherwise, the assets or stock of, or any interest in, AmeriGas Propane or AmeriGas Partners, L.P., and its subsidiaries, partnerships and affiliates. h. If any provision of this Agreement shall be determined to be invalid or unenforceable to any extent, the parties to this Agreement authorize the court to modify it to the extent necessary to make the provision enforceable. If any provision of this Agreement shall be determined to be invalid or unenforceable to any extent, such invalidity shall not impair the operation of or affect the remaining provisions hereof. Dated this ____ day of ____________ 1996. _______________ __________________ Witness Name AmeriGas Propane, Inc., in its own right and as general partner of AmeriGas Partners, L.P. and their respective subsidiaries, partnerships and affiliates By: _______________________________ ____________________________ Witness Name 6 EX-31.1 4 w08749exv31w1.txt CERTIFICATION BY CHIEF EXECUTIVE OFFICER EXHIBIT 31.1 CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Lon R. Greenberg, certify that: 1. I have reviewed this interim report on Form 10-Q of UGI Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors: (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 6, 2005 /s/ Lon R. Greenberg --------------------------- Lon R. Greenberg Chairman and Chief Executive Officer of UGI Corporation EX-31.2 5 w08749exv31w2.txt CERTIFICATION BY CHIEF FINANCIAL OFFICER EXHIBIT 31.2 CERTIFICATION BY THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Anthony J. Mendicino, certify that: 1. I have reviewed this interim report on Form 10-Q of UGI Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors: (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and EXHIBIT 31.2 (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 6, 2005 /s/ Anthony J. Mendicino ----------------------------------- Anthony J. Mendicino Senior Vice President - Finance and Chief Financial Officer of UGI Corporation EX-32 6 w08749exv32.txt CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER & CHIEF FINANCIAL OFFICER EXHIBIT 32 CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER RELATING TO A PERIODIC REPORT CONTAINING FINANCIAL STATEMENTS I, Lon R. Greenberg, Chief Executive Officer, and I, Anthony J. Mendicino, Chief Financial Officer, of UGI Corporation, a Pennsylvania corporation (the "Company"), hereby certify that to our knowledge: (1) The Company's periodic report on Form 10-Q for the period ended March 31, 2005 (the "Form 10-Q") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended; and (2) The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company. * * * CHIEF EXECUTIVE OFFICER CHIEF FINANCIAL OFFICER /s/ Lon R. Greenberg /s/ Anthony J. Mendicino - ------------------------------------ -------------------------- Lon R. Greenberg Anthony J. Mendicino Date: May 6, 2005 Date: May 6, 2005 -----END PRIVACY-ENHANCED MESSAGE-----