-----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, BrlhRyJNGQU5d2W+9e4SvEJLoI7RDTKYdtbAvXa/nXb3SGnBUupBfTZV2uzucj4X Doisb1681fgIR9db0buFKQ== 0000893220-98-001357.txt : 19980817 0000893220-98-001357.hdr.sgml : 19980817 ACCESSION NUMBER: 0000893220-98-001357 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: NONE 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: SEC FILE NUMBER: 001-11071 FILM NUMBER: 98687463 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 UGI CORPORATION, FORM 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission file number 1-11071 UGI CORPORATION (Exact name of registrant as specified in its charter) Pennsylvania 23-2668356 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) UGI CORPORATION 460 North Gulph Road, King of Prussia, PA (Address of principal executive offices) 19406 (Zip Code) (610) 337-1000 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No At July 31, 1998, there were 32,911,893 shares of UGI Corporation Common Stock, without par value, outstanding. 2 UGI CORPORATION AND SUBSIDIARIES TABLE OF CONTENTS
PAGES ----- PART I FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets as of June 30, 1998, September 30, 1997 and June 30, 1997 1 Condensed Consolidated Statements of Income for the three, nine and twelve months ended June 30, 1998 and 1997 2 Condensed Consolidated Statements of Cash Flows for the nine and twelve months ended June 30, 1998 and 1997 3 Notes to Condensed Consolidated Financial Statements 4 - 11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 - 30 PART II OTHER INFORMATION Item 1. Legal Proceedings 30 Item 6. Exhibits and Reports on Form 8-K 31 Signatures 32
-i- 3 UGI CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) (Millions of dollars)
June 30, September 30, June 30, 1998 1997 1997 ---- ---- ---- ASSETS Current assets: Cash and cash equivalents $ 42.1 $ 64.0 $ 93.9 Short-term investments, at cost which approximates market value 101.9 65.4 43.2 Accounts receivable (less allowances for doubtful accounts of $12.2, $11.3 and $12.0, respectively) 100.4 110.6 126.1 Accrued utility revenues 6.0 7.7 6.7 Inventories 75.7 95.6 79.7 Deferred income taxes 21.5 20.3 22.3 Prepaid expenses and other current assets 18.7 40.3 13.9 -------- -------- -------- Total current assets 366.3 403.9 385.8 Property, plant and equipment, at cost (less accumulated depreciation and amortization of $450.2, $410.1 and $401.7, respectively) 992.5 987.2 978.7 Intangible assets (less accumulated amortization of $135.3, $116.7 and $110.4, respectively) 636.3 677.9 677.8 Regulatory income tax asset 45.6 44.4 44.0 Other assets 49.2 38.3 36.4 -------- -------- -------- Total assets $2,089.9 $2,151.7 $2,122.7 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt - Propane $ 6.3 $ 6.7 $ 12.2 Current maturities of long-term debt - Utilities 7.1 17.1 17.1 Current maturities of long-term debt - other 0.4 0.4 0.4 Current portion of UGI Utilities redeemable preferred stock -- 3.0 -- Bank loans - Propane 11.0 28.0 -- Bank loans - Utilities 50.7 67.0 43.2 Accounts payable 65.8 103.2 71.3 Other current liabilities 147.6 179.1 171.0 -------- -------- -------- Total current liabilities 288.9 404.5 315.2 Long-term debt - Propane 693.9 684.4 685.0 Long-term debt - Utilities 187.2 152.2 159.3 Long-term debt - other 7.9 8.2 8.3 Deferred income taxes 156.7 152.5 153.7 Other noncurrent liabilities 83.9 75.1 77.9 Commitments and contingencies Minority interest in AmeriGas Partners 259.1 266.5 288.6 UGI Utilities redeemable preferred stock 20.0 32.2 35.2 Common stockholders' equity: Common Stock, without par value (authorized - 100,000,000 shares; issued - 33,198,731 shares) 393.8 393.7 392.7 Retained earnings (accumulated deficit) 6.2 (9.2) 13.6 -------- -------- -------- 400.0 384.5 406.3 Less treasury stock, at cost 7.7 8.4 6.8 -------- -------- -------- Total common stockholders' equity 392.3 376.1 399.5 -------- -------- -------- Total liabilities and stockholders' equity $2,089.9 $2,151.7 $2,122.7 ======== ======== ========
The accompanying notes are an integral part of these financial statements. -1- 4 UGI CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited) (Millions, except per share amounts)
Three Months Ended Nine Months Ended Twelve Months Ended June 30, June 30, June 30, 1998 1997 1998 1997 1998 1997 ---- ---- ---- ---- ---- ---- Revenues: Propane $ 158.2 $ 177.6 $ 767.3 $ 908.9 $ 936.2 $ 1,086.0 Utilities 74.3 88.3 362.1 395.7 427.6 463.7 Energy marketing 22.7 18.2 85.3 85.5 102.8 104.6 --------- --------- ---------- ---------- ---------- ---------- 255.2 284.1 1,214.7 1,390.1 1,466.6 1,654.3 --------- --------- ---------- ---------- ---------- ---------- Costs and expenses: Propane cost of sales 69.7 89.4 379.7 509.9 470.2 611.4 Utilities - gas, fuel and purchased power 35.1 44.2 188.3 207.8 219.5 241.5 Other cost of sales 21.5 17.1 81.3 82.5 98.2 101.2 Operating and administrative expenses 103.0 104.2 329.0 331.3 437.5 441.0 Depreciation and amortization 21.9 21.6 65.4 65.3 86.2 86.9 Miscellaneous income, net (4.6) (5.5) (12.9) (17.1) (18.4) (19.6) --------- --------- ---------- ---------- ---------- ---------- 246.6 271.0 1,030.8 1,179.7 1,293.2 1,462.4 --------- --------- ---------- ---------- ---------- ---------- Operating income 8.6 13.1 183.9 210.4 173.4 191.9 Interest expense (20.7) (20.3) (63.6) (62.8) (83.9) (82.7) Minority interest in AmeriGas Partners 7.0 6.3 (21.8) (30.6) (9.5) (15.5) --------- --------- ---------- ---------- ---------- ---------- Income (loss) before income taxes and subsidiary preferred stock dividends (5.1) (0.9) 98.5 117.0 80.0 93.7 Income tax (expense) benefit 1.6 0.4 (44.6) (52.4) (35.8) (41.0) Dividends on UGI Utilities Series Preferred Stock (0.4) (0.7) (1.8) (2.1) (2.5) (2.8) --------- --------- ---------- ---------- ---------- ---------- Net income (loss) $ (3.9) $ (1.2) $ 52.1 $ 62.5 $ 41.7 $ 49.9 ========= ========= ========== ========== ========== ========== Earnings (loss) per share: Basic $ (0.12) $ (0.04) $ 1.58 $ 1.89 $ 1.27 $ 1.51 ========== ========== ========== ========== ========== ========== Diluted $ (0.12) $ (0.04) $ 1.57 $ 1.88 $ 1.26 $ 1.50 ========== ========== ========== ========== ========== ========== Average common shares outstanding: Basic 33.017 33.031 33.001 33.098 32.976 33.105 ========== ========== ========== ========== ========== ========== Diluted 33.017 33.031 33.176 33.206 33.147 33.216 ========== ========== ========== ========== ========== ========== Dividends declared per share $ 0.365 $ 0.36 $ 1.085 $ 1.07 $ 1.445 $ 1.43 ========== ========== ========== ========== ========== ==========
The accompanying notes are an integral part of these financial statements. -2- 5 UGI CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (Millions of dollars)
Nine Months Ended Twelve Months Ended June 30, June 30, ----------------------- ------------------------- 1998 1997 1998 1997 ---- ---- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 52.1 $ 62.5 $ 41.7 $ 49.9 Reconcile to net cash provided by operating activities: Depreciation and amortization 65.4 65.3 86.2 86.9 Minority interest in AmeriGas Partners 21.8 30.6 9.5 15.5 Deferred income taxes, net 6.8 (2.0) 6.6 6.6 Other, net 5.7 1.1 8.7 (6.6) ------- ------- ------- ------- 151.8 157.5 152.7 152.3 Net change in: Accounts receivable and accrued utility revenues 4.4 (18.4) 16.0 (8.1) Inventories and prepaid propane purchases 41.9 33.9 4.4 4.2 Deferred fuel adjustments 4.9 13.0 (3.5) 1.8 Accounts payable (37.8) (23.4) (5.9) 5.5 Other current assets and liabilities (16.9) 3.1 (9.1) 7.8 ------- ------- ------- ------- Net cash provided by operating activities 148.3 165.7 154.6 163.5 ------- ------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Expenditures for property, plant and equipment (46.4) (47.3) (67.9) (66.5) Net proceeds from disposals of assets 5.3 8.7 11.0 9.7 Acquisitions of businesses, net of cash acquired (6.9) (4.5) (14.0) (23.3) Short-term investments (increase) decrease (36.5) (20.1) (58.7) 2.0 Other, net (4.2) 3.1 (9.5) 3.1 ------- ------- ------- ------- Net cash used by investing activities (88.7) (60.1) (139.1) (75.0) ------- ------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Dividends on Common Stock (35.6) (35.3) (47.5) (47.1) Distributions on Partnership public Common Units (29.2) (29.1) (38.9) (38.7) Issuance of long-term debt 48.0 28.8 48.1 51.8 Repayment of long-term debt (14.5) (21.8) (22.1) (29.5) Propane bank loans increase (decrease) (17.0) (15.0) 4.0 -- UGI Utilities bank loans increase (decrease) (16.3) (7.3) 7.5 33.2 Issuance of Common Stock 7.0 7.2 11.5 10.3 Redemption of UGI Utilities Series Preferred Stock (15.5) -- (15.5) -- Repurchases of Common Stock (8.4) (13.2) (14.4) (15.3) ------- ------- ------- ------- Net cash used by financing activities (81.5) (85.7) (67.3) (35.3) ------- ------- ------- ------- Cash and cash equivalents increase (decrease) $ (21.9) $ 19.9 $ (51.8) $ 53.2 ======= ======= ======= ======= Cash and cash equivalents: End of period $ 42.1 $ 93.9 $ 42.1 $ 93.9 Beginning of period 64.0 74.0 93.9 40.7 ------- ------- ------- ------- Increase (decrease) $ (21.9) $ 19.9 $ (51.8) $ 53.2 ======= ======= ======= =======
During the twelve months ended June 30, 1998 and 1997, UGI Utilities, Inc. paid cash dividends to UGI of $22.6 and $45.4, respectively. During the twelve months ended June 30, 1998 and 1997, AmeriGas, Inc. paid cash dividends to UGI of $50.1 and $48.3, respectively. During those same periods, UGI paid cash dividends to holders of Common Stock of $47.5 and $47.1, respectively. The ability of UGI to declare and pay cash dividends on its Common Stock is dependent upon its cash balances and the receipt of cash dividends from its wholly owned subsidiaries, principally UGI Utilities, Inc. and AmeriGas, Inc. AmeriGas's ability to pay dividends is dependent upon distributions paid by the Partnership. The accompanying notes are an integral part of these financial statements. -3- 6 UGI CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Millions of dollars, except per share amounts) 1. BASIS OF PRESENTATION UGI Corporation (UGI) is a holding company with two principal businesses. UGI's utility business is conducted through a wholly owned subsidiary, UGI Utilities, Inc. (UGI Utilities), which owns and operates a natural gas distribution utility (Gas Utility) in parts of eastern and southeastern Pennsylvania and an electric utility (Electric Utility) in northeastern Pennsylvania (together referred to herein as "Utilities"). UGI conducts a national propane distribution business through AmeriGas Partners, L.P. (AmeriGas Partners) and its operating subsidiary, AmeriGas Propane, L.P. (the "Operating Partnership"), both of which are Delaware limited partnerships. The Operating Partnership is the largest retail propane distributor in the United States serving residential, commercial, industrial, motor fuel and agricultural customers from locations in 45 states, including Alaska and Hawaii. UGI also conducts an energy marketing business through its wholly owned subsidiary, UGI Enterprises, Inc. (UGI Enterprises). At June 30, 1998, UGI, through wholly owned subsidiaries, held an effective 2% general partner interest and a 56.6% limited partnership interest in the Operating Partnership. This limited partner interest is evidenced by common units (Common Units) and subordinated units (Subordinated Units) representing limited partner interests in AmeriGas Partners. The remaining 41.4% effective interest in the Operating Partnership is publicly held. AmeriGas Partners and the Operating Partnership are collectively referred to herein as the Partnership. A second-tier subsidiary of UGI serves as the general partner of AmeriGas Partners and the Operating Partnership. The condensed consolidated financial statements include the accounts of UGI and its majority-owned subsidiaries (collectively, "the Company"). All significant intercompany accounts and transactions have been eliminated in consolidation. The public unitholders' interest in AmeriGas Partners' results of operations and net assets is reflected as minority interest in the condensed consolidated statements of income and balance sheets. Certain prior-period balances have been reclassified to conform with the current period presentation. The accompanying condensed consolidated financial statements are unaudited and have been prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission. They include all adjustments which the Company considers necessary for a fair statement of the results for the interim periods presented. Such adjustments consisted only of normal recurring items unless otherwise disclosed. These financial statements should be read in conjunction with the financial statements and the -4- 7 UGI CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (unaudited) (Millions of dollars, except per share amounts) notes thereto included in the Company's Annual Report on Form 10-K for the year ended September 30, 1997. Due to the seasonal nature of the Company's businesses, the results of operations for interim periods are not necessarily indicative of the results to be expected for a full year. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the reporting period. Actual results could differ from these estimates. -5- 8 UGI CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (unaudited) (Millions of dollars, except per share amounts) 2. SEGMENT INFORMATION Information on revenues, operating income (loss), depreciation and amortization, identifiable assets and certain operating statistics by business segment for the periods presented follows:
Three Months Ended Nine Months Ended Twelve Months Ended June 30, June 30, June 30, ----------------------- ----------------------- ----------------------- 1998 1997 1998 1997 1998 1997 -------- -------- -------- -------- -------- -------- REVENUES Propane $ 158.2 $ 177.6 $ 767.3 $ 908.9 $ 936.2 $1,086.0 Gas utility 57.8 71.7 307.9 340.8 356.2 391.8 Electric utility 16.5 16.6 54.2 54.9 71.4 71.9 Energy marketing 22.7 18.2 85.3 85.5 102.8 104.6 -------- -------- -------- -------- -------- -------- Total $ 255.2 $ 284.1 $1,214.7 $1,390.1 $1,466.6 $1,654.3 ======== ======== ======== ======== ======== ======== OPERATING INCOME (LOSS) Propane $ 0.5 $ 2.0 $ 107.0 $ 128.9 $ 95.2 $ 109.3 Gas utility 7.1 8.0 69.1 75.5 68.4 73.1 Electric utility 2.0 2.2 8.6 8.5 10.8 10.7 Energy marketing 0.5 0.7 1.9 1.8 1.8 1.8 Corporate general and other (1.5) 0.2 (2.7) (4.3) (2.8) (3.0) -------- -------- -------- -------- -------- -------- Total $ 8.6 $ 13.1 $ 183.9 $ 210.4 $ 173.4 $ 191.9 ======== ======== ======== ======== ======== ======== DEPRECIATION AND AMORTIZATION Propane - depreciation $ 9.9 $ 9.6 $ 29.2 $ 28.9 $ 38.9 $ 38.6 Propane - amortization 6.4 6.2 19.5 19.1 26.1 25.5 Gas utility 4.6 4.7 13.6 13.9 16.8 18.3 Electric utility 1.0 1.0 2.9 3.1 4.1 4.1 Corporate general and other -- 0.1 0.2 0.3 0.3 0.4 -------- -------- -------- -------- -------- -------- Total $ 21.9 $ 21.6 $ 65.4 $ 65.3 $ 86.2 $ 86.9 ======== ======== ======== ======== ======== ======== IDENTIFIABLE ASSETS (at period end) Propane $1,240.0 $1,324.4 $1,240.0 $1,324.4 $1,240.0 $1,324.4 Gas utility 593.0 581.8 593.0 581.8 593.0 581.8 Electric utility 95.7 85.6 95.7 85.6 95.7 85.6 Energy marketing 15.4 13.4 15.4 13.4 15.4 13.4 Corporate general and other 145.8 117.5 145.8 117.5 145.8 117.5 -------- -------- -------- -------- -------- -------- Total $2,089.9 $2,122.7 $2,089.9 $2,122.7 $2,089.9 $2,122.7 ======== ======== ======== ======== ======== ======== OPERATING STATISTICS Propane sales - millions of gallons: Retail 135.9 145.4 650.2 664.7 792.9 814.0 Wholesale 29.2 34.5 172.7 176.6 214.7 225.4 Natural gas system throughput - billions of cubic feet 14.5 15.9 63.0 68.4 74.9 81.4 Electric sales - millions of kilowatt hours 197.7 195.0 662.6 667.3 863.8 868.2
-6- 9 UGI CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (unaudited) (Millions of dollars, except per share amounts) 3. ELECTRIC UTILITY RESTRUCTURING ORDER On June 19, 1998, the Pennsylvania Public Utility Commission (PUC) entered its Opinion and Order in Electric Utility's restructuring proceeding (the "Order") pursuant to Pennsylvania's Electricity Generation Customer Choice and Competition Act (Customer Choice Act). The Order essentially adopts the terms included in a comprehensive settlement agreement (the "Settlement Agreement") previously entered into by UGI Utilities and the active parties to the restructuring proceeding, except Pennsylvania Power and Light Company (PP&L). Under the terms of the Order, commencing January 1, 1999 Electric Utility is authorized to recover $32.5 million in stranded costs (on a full revenue requirements basis which includes all income and gross receipts taxes) over a four-year period through a Competitive Transition Charge (CTC) (together with carrying charges on unrecovered balances of 7.94%) and to charge unbundled rates for generation, transmission and distribution services. Stranded costs are electric generation-related costs that traditionally would be recoverable in a regulated environment but may not be recoverable in a competitive electric generation market. Electric Utility's recoverable stranded costs include $8.7 million for the buy-out of a 1993 power purchase agreement with an independent power producer. In June 1998, Electric Utility recorded a liability of $8.7 million for the buy-out of the 1993 power purchase agreement and also recorded a corresponding CTC regulatory asset. In Electric Utility's restructuring proceeding, PP&L claimed certain stranded costs associated with a 1992 power supply agreement for the wholesale sale of power by PP&L to Electric Utility. The PUC denied PP&L's claim in the Order. On July 20, 1998, PP&L appealed the PUC's decision to the Commonwealth Court of Pennsylvania. Under the terms of the Order and in accordance with the Customer Choice Act, Electric Utility's rates for transmission and distribution services are capped through July 1, 2001. In addition, Electric Utility generally may not increase the generation component of prices as long as stranded costs are being recovered through the CTC. For Electric Utility, this generation rate cap is expected to extend through December 31, 2002. All of Electric Utility's customers will be permitted to select an alternative generation supplier as of January 1, 1999. Customers choosing an alternative supplier will on average receive a generation "shopping credit" developed from system-wide generation rates of 3.67 cents per kwh in 1999 and 2000, and 4.3 cents per kwh in 2001 and 2002. The Settlement Agreement gives Electric Utility the right, subject to prior PUC approval, to transfer its electric generation assets to a non-regulated affiliate. The Company's management believes that, upon filing the necessary documents with the PUC, Electric Utility will receive such approval. The Financial Accounting Standards Board's (FASB's) Emerging Issues Task Force (EITF) in 1997 issued its statement 97-4, "Deregulation of the Pricing of Electricity - -7- 10 UGI CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (unaudited) (Millions of dollars, except per share amounts) Issues Related to the Application of FASB Statements 71 and 101." EITF 97-4 concluded that utilities should discontinue application of SFAS 71 "Accounting for the Effects of Certain Types of Regulation" for the generation portion of their business when a restructuring plan is in place and its terms are known. Pursuant to such guidance, in June 1998 Electric Utility discontinued the application of SFAS 71 as it relates to the electric generation portion of its business, which assets comprise less than 5% of UGI Utilities' consolidated assets. The discontinuance of SFAS 71 did not have a material effect on the Company's financial position or results of operations for the three months ended June 30, 1998. 4. UNUSUAL ITEMS In June 1998, the Company revised its estimate of the tax basis of certain assets contributed to the Partnership in conjunction with the Partnership's formation on April 19, 1995. The change in estimate resulted in adjustments to the June 30, 1998 condensed consolidated balance sheet as follows: (1) a $17.9 million decrease in goodwill; (2) a $9.6 million decrease in excess reorganization value; (3) a $20.8 million decrease in accrued income taxes and (4) a $6.7 million increase in deferred income tax benefits. 5. COMMITMENTS AND CONTINGENCIES The Partnership has succeeded to certain lease guarantee obligations of Petrolane Incorporated (Petrolane) relating to Petrolane's divestiture of nonpropane operations prior to its 1989 acquisition by QFB Partners. These leases are currently estimated to aggregate approximately $57 million. The leases expire through 2010, and some of them are currently in default. The Partnership has succeeded to the indemnity agreement of Petrolane by which Texas Eastern Corporation (Texas Eastern), a prior owner of Petrolane, agreed to indemnify Petrolane against any liabilities arising out of the conduct of businesses that do not relate to, and are not a part of, the propane business, including lease guarantees. To date, Texas Eastern has directly satisfied defaulted lease obligations without the Partnership having to honor its guarantee. The Partnership believes the probability that it will be required to directly satisfy such lease obligations is remote. In addition, the Partnership has succeeded to Petrolane's agreement to indemnify Shell Petroleum N.V. (Shell) for various scheduled claims that were pending against Tropigas de Puerto Rico (Tropigas). This indemnification agreement had been entered into by Petrolane in conjunction with Petrolane's sale of the international operations of Tropigas to Shell in 1989. The Partnership also succeeded to Petrolane's right to seek indemnity on these claims first from International Controls Corp., which sold Tropigas to Petrolane, and then from Texas Eastern. To date, neither the Partnership nor Petrolane has paid any sums -8- 11 UGI CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (unaudited) (Millions of dollars, except per share amounts) under this indemnity, but several claims by Shell, including claims related to certain antitrust actions aggregating at least $68 million, remain pending. The Company, along with other companies, has been named as a potentially responsible party (PRP) in several administrative proceedings and private party recovery actions for the cleanup or recovery of costs associated with cleanup of various waste sites, including some Superfund sites. In addition, the Company has identified environmental contamination at several of its properties and has voluntarily undertaken investigation and, as appropriate, remediation of these sites in cooperation with appropriate environmental agencies or private parties. At sites in which a former subsidiary of UGI Utilities operated a manufactured gas plant, UGI Utilities should not have significant liability because UGI Utilities generally is not legally liable for the obligations of its subsidiaries. Under certain circumstances, however, courts have found parent companies liable for environmental damage at sites owned by subsidiary companies when the parent company either (i) itself operated the facility causing the environmental damage or (ii) otherwise so controlled the subsidiary that the subsidiary's separate corporate form should be disregarded. There could be, therefore, significant future costs of an uncertain amount associated with environmental damage caused by manufactured gas plants that UGI Utilities owned or directly operated, or that were owned or operated by former subsidiaries of UGI Utilities, if a court were to conclude that the subsidiary's separate corporate form should be disregarded. In many circumstances where UGI Utilities may be liable, expenditures may not be reasonably quantifiable because of a number of factors, including various costs associated with potential remedial alternatives, the unknown number of other potentially responsible parties involved and their ability to contribute to the costs of investigation and remediation, and changing environmental laws and regulations. The Company's policy is to accrue environmental investigation and cleanup costs when it is probable that a liability exists and the amount or range of amounts can be reasonably estimated. The Company intends to pursue recovery of any incurred costs through all appropriate means, including regulatory relief, although such recovery cannot be assured. Gas Utility is currently permitted to amortize as removal costs site-specific environmental investigation and remediation costs, net of related third-party payments, associated with Pennsylvania sites. Gas Utility will be permitted to include in rates, through future base rate proceedings, a five-year average of such prudently incurred removal costs. In addition to these environmental matters, there are various other pending claims and legal actions arising in the normal course of the Company's businesses. The final results of environmental and other matters cannot be predicted with certainty. However, it is reasonably possible that some of them could be resolved unfavorably to the Company. -9- 12 UGI CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (unaudited) (Millions of dollars, except per share amounts) Management believes, after consultation with counsel, that damages or settlements, if any, recovered by the plaintiffs in such claims or actions will not have a material adverse effect on the Company's financial position but could be material to operating results or cash flows in future periods depending on the nature and timing of future developments with respect to these matters and the amounts of future operating results and cash flows. -10- 13 UGI CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (unaudited) (Millions of dollars, except per share amounts) 5. EARNINGS PER SHARE The Company adopted SFAS No. 128, "Earnings Per Share" (SFAS 128) during the quarter ended December 31, 1997. SFAS 128 establishes standards for computing and presenting earnings per share and simplifies the previous standards for computing earnings per share contained in Accounting Principles Board Opinion No. 15. SFAS 128 requires restatement of all prior-period earnings per share data presented. The following table reflects the reconciliation of the numerators and the denominators of the basic and diluted earnings per share computations for the periods presented:
Three Months Ended Nine Months Ended Twelve Months Ended June 30, June 30, June 30, -------------------- ------------------ ------------------ 1998 1997 1998 1997 1998 1997 ---- ---- ---- ---- ---- ---- Numerator: Net income (loss) (applicable to basic and diluted earnings per share) $ (3.9) $ (1.2) $ 52.1 $ 62.5 $ 41.7 $ 49.9 ======== ======== ======== ======== ======== ======== Denominator (millions of shares): Basic earnings per share 33.017 33.031 33.001 33.098 32.976 33.105 Incremental shares issuable upon exercise of stock options and other stock-based compensation -- -- 0.175 0.108 0.171 0.111 -------- -------- -------- -------- -------- -------- Diluted earnings per share 33.017 33.031 33.176 33.206 33.147 33.216 ======== ======== ======== ======== ======== ======== Basic earnings (loss) per common share $ (0.12) $ (0.04) $ 1.58 $ 1.89 $ 1.27 $ 1.51 ======== ======== ======== ======== ======== ======== Diluted earnings (loss) per common share $ (0.12) $ (0.04) $ 1.57 $ 1.88 $ 1.26 $ 1.50 ======== ======== ======== ======== ======== ========
-11- 14 UGI CORPORATION AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ANALYSIS OF RESULTS OF OPERATIONS The following analyses compare the Company's results of operations for the three months ended June 30, 1998 (1998 three-month period) with the three months ended June 30, 1997 (1997 three-month period); the nine months ended June 30, 1998 (1998 nine-month period) with the nine months ended June 30, 1997 (1997 nine-month period); and the twelve months ended June 30, 1998 (1998 twelve-month period) with the twelve months ended June 30, 1997 (1997 twelve-month period). The Company's results of operations should be read in conjunction with the segment information included in Note 2 to Condensed Consolidated Financial Statements. Due to the seasonality of the Company's businesses, the results of operations for interim periods are not necessarily indicative of results to be expected for a full year. 1998 THREE-MONTH PERIOD COMPARED WITH 1997 THREE-MONTH PERIOD CONSOLIDATED RESULTS
- -------------------------------------------------------------------------------- Increase Three Months Ended June 30, 1998 1997 (Decrease) - -------------------------------------------------------------------------------- (Millions of dollars, except per share) Revenues $255.2 $284.1 $(28.9) (10.2)% Total margin $126.1 $130.0 $ (3.9) (3.0)% Operating income $ 8.6 $ 13.1 $ (4.5) (34.4)% Net loss $ (3.9) $ (1.2) $ 2.7 225.0% Net loss per share - diluted $ (.12) $ (.04) $ .08 200.0% - --------------------------------------------------------------------------------
The Company's net loss in the 1998 three-month period reflects the effects of warmer spring weather on the Partnership's and Gas Utility's results. Net income in the 1997 three-month period benefitted from a $1.4 million after-tax gain from the sale of UTI Energy Corp. (UTI) common stock. PROPANE
- ------------------------------------------------------------------------------- Increase Three Months Ended June 30, 1998 1997 (Decrease) - ------------------------------------------------------------------------------- (Millions of dollars) Retail gallons sold - millions 135.9 145.4 (9.5) (6.5)% Revenues $158.2 $177.6 $(19.4) (10.9)% Total margin $ 88.5 $ 88.2 $ .3 .3% Operating income $ .5 $ 2.0 $ (1.5) (75.0)% EBITDA(a) $ 16.8 $ 17.8 $ (1.0) (5.6)% - -------------------------------------------------------------------------------
-12- 15 UGI CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(CONTINUED) (a) EBITDA (earnings before interest expense, income taxes, depreciation and amortization) should not be considered as an alternative to net income (as an indicator of operating performance) or as an alternative to cash flow (as a measure of liquidity or ability to service debt obligations) and is not a measure of performance or financial condition under generally accepted accounting principles. Retail volumes of propane sold during the 1998 three-month period decreased due in large part to warmer weather in April and May 1998. Based upon degree day information provided by the National Oceanic and Atmospheric Administration (NOAA) for 335 airports in the continental U.S., weather during the 1998 three-month period was approximately 8% warmer than normal and 21% warmer than the same period of 1997. Wholesale volumes of propane sold were 5.3 million gallons (15.4%) lower in the 1998 three-month period also due to the warmer weather and lower purchases by independent retailers. Total revenues from retail propane sales decreased $15.1 million to $128.2 million during the 1998 three-month period reflecting (1) a $9.4 million decrease as a result of the lower volumes sold and (2) a $5.7 million decrease as a result of lower average retail propane selling prices. The lower average retail propane selling prices reflect lower 1998 three-month period propane product costs. Wholesale propane revenues decreased $4.4 million to $12.1 million due to the previously mentioned lower wholesale volumes sold as well as lower average wholesale propane selling prices. Other revenues, principally reflecting terminal and storage revenues and sales of appliances, were essentially unchanged in the 1998 three-month period. Notwithstanding the lower propane volumes sold, total margin increased $.3 million in the 1998 three-month period. Retail unit margins were higher in 1998 as the Partnership benefitted from lower industry-wide propane product costs. The decrease in wholesale volumes did not have a material impact on the change in total margin because wholesale unit margins are typically very small. The decrease in EBITDA during the 1998 three-month period principally resulted from higher operating expenses. Operating expenses of the Partnership in the 1998 three-month period include net benefits of $2.2 million comprising (1) $2.0 million from lower required accruals for property taxes, (2) $1.7 million from lower required accruals for environmental matters and (3) a $1.5 million increase in accrued disability benefits. Excluding these items, operating and administrative expenses increased $3.1 million principally reflecting higher expenses associated with Partnership acquisitions and new business development activities. -13- 16 UGI CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(CONTINUED) UTILITIES
- -------------------------------------------------------------------------------- Increase Three Months Ended June 30, 1998 1997 (Decrease) - -------------------------------------------------------------------------------- (Millions of dollars) GAS UTILITY: Natural gas system throughput - bcf 14.5 15.9 (1.4) (8.8)% Degree days - % colder (warmer) than normal (23.7) 15.9 -- -- Revenues $ 57.8 $ 71.7 $(13.9) (19.4)% Total margin (a) $ 28.9 $ 32.3 $ (3.4) (10.5)% Operating income $ 7.1 $ 8.0 $ (.9) (11.3)% ELECTRIC UTILITY: Electric sales - gwh 197.7 195.0 2.7 1.4% Revenues $ 16.5 $ 16.6 $ (.1) (.6)% Total margin (a) $ 7.5 $ 8.4 $ (.9) (10.7)% Operating income $ 2.0 $ 2.2 $ (.2) (9.1)% - --------------------------------------------------------------------------------
bcf - billions of cubic feet. gwh - millions of kilowatt hours. (a) Gas and Electric utilities' total margin represents total revenues less cost of sales and revenue-related taxes. GAS UTILITY. Weather in the Gas Utility service territory during the 1998 three-month period was 23.7% warmer than normal compared with weather that was 15.9% colder than normal in the prior-year period. Total system throughput decreased 8.8% during the 1998 three-month period principally reflecting the warmer weather's effect on firm-residential, firm-commercial and firm-industrial (collectively, "core market") sales. The $13.9 million decrease in Gas Utility's total revenues during the 1998 three-month period is due principally to (1) a $10.8 million decrease in core market revenues resulting from the lower volumes sold and (2) a $2.3 million decrease from lower off-system sales. Cost of gas sold by the Gas Utility was $26.9 million during the 1998 three-month period, a decrease of $9.8 million from the prior-year period, principally reflecting the decrease in off-system and core market sales. Gas Utility total margin during the 1998 three-month period was $3.4 million lower than in the 1997 three-month period principally reflecting a $3.2 million decrease in total margin from core market customers. Total margin from Gas Utility interruptible customers during the 1998 three-month period was $.6 million lower than the prior-year period, notwithstanding an increase in interruptible throughput, as the price of alternative fuels, principally oil, declined relative to gas -14- 17 UGI CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(CONTINUED) prices, resulting in lower interruptible transportation rates. The decline in core market and interruptible margins was partially offset by slightly higher firm delivery service margins. Although total margin during the three months ended June 30, 1998 decreased $3.4 million, Gas Utility operating income decreased only $.9 million principally as a result of (1) lower costs associated with environmental matters, (2) lower distribution system maintenance expenses, (3) a decrease in general and administrative expenses and (4) slightly higher miscellaneous income. ELECTRIC UTILITY. Electric Utility sales increased 1.4% during the 1998 three-month period. Notwithstanding the higher sales, Electric Utility revenues decreased principally as a result of customers purchasing electricity from other providers under the pilot program. In accordance with the Customer Choice Act, Electric Utility implemented a pilot program effective November 1, 1997 for up to five percent of the peak load of each customer class. For those customers participating in the pilot program, Electric Utility bills only for the distribution of electricity but not for the electricity itself. Electric Utility cost of sales increased $.8 million as a result of higher generation and purchased power costs. As a result of Electric Utility's restructuring Order, its Energy Cost Rate (ECR) was combined with its base rates. Because the sources and costs of Electric Utility's power needs vary from period to period and its generation rates are capped until December 31, 2002, the elimination of the ECR may increase the volatility of Electric Utility's future quarterly results. During the 1998 three-month period, Electric Utility total margin decreased $.9 million from the prior-year period primarily as a result of the previously mentioned increase in generation and purchased power costs. Operating income was $2.0 million during the 1998 three-month period compared with $2.2 million in the same period last year. The decrease reflects the net effects of (1) lower total margin, (2) higher legal expenses associated with the Electric Utility restructuring and (3) higher miscellaneous income. Miscellaneous income was $1.0 million in the 1998 three-month period compared with $.1 million in the 1997 three-month period. The increase in miscellaneous income principally resulted from adjustments to reserves associated with accrued Electric Utility revenues as a result of the restructuring Order. ENERGY MARKETING
- ------------------------------------------------------------------------------- Increase Three Months Ended June 30, 1998 1997 (Decrease) - ------------------------------------------------------------------------------- (Millions of dollars) Revenues $22.7 $18.2 $ 4.5 24.7% Total margin $ 1.2 $ 1.1 $ .1 9.1% Operating income $ .5 $ .7 $ (.2) (28.6)% - -------------------------------------------------------------------------------
-15- 18 UGI CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(CONTINUED) Total revenues from energy marketing in the 1998 three-month period increased as a result of higher average gas prices and higher billed volumes. The increase in billed volumes was due principally to an increase in volume from customers outside Gas Utility's distribution system. Total margin for the 1998 three-month period increased slightly from the 1997 three-month period. Operating income from energy marketing was $.5 million in the 1998 three-month period compared with $.7 million in the prior-year period principally reflecting the impact of higher operating expenses and lower miscellaneous income. CORPORATE GENERAL AND OTHER Operating income (loss) from corporate general and other, net, consisting of expenses incurred by UGI corporate headquarters net of other miscellaneous income, was $(1.5) million in the 1998 three-month period compared with $.2 million in the prior-year period. The 1997 three-month period includes a $2.1 million pre-tax gain from the sale of UTI common stock received in conjunction with the mid-1980's disposition of the Company's oilfield service businesses. INTEREST EXPENSE AND INCOME TAXES Interest expense increased to $20.7 million in the 1998 three-month period from $20.3 million in the prior-year period principally as a result of higher levels of debt outstanding under the Partnership's Revolving Credit and Acquisition facilities. The effective income tax rate on the pre-tax loss for the three months ended June 30, 1998 was 31.4% compared with a rate of 44.4% for the three months ended June 30, 1997. The lower 1998 three-month period tax rate reflects the effect of a slight increase in the estimated annual effective income tax rate applied to year-to-date pre-tax income. 1998 NINE-MONTH PERIOD COMPARED WITH 1997 NINE-MONTH PERIOD CONSOLIDATED RESULTS
- ------------------------------------------------------------------------------- Nine Months Ended June 30, 1998 1997 Decrease - ------------------------------------------------------------------------------- (Millions of dollars, except per share) Revenues $1,214.7 $1,390.1 $(175.4) (12.6)% Total margin $ 551.1 $ 573.8 $ (22.7) (4.0)% Operating income $ 183.9 $ 210.4 $ (26.5) (12.6)% Net income $ 52.1 $ 62.5 $ (10.4) (16.6)% Net income per share - diluted $ 1.57 $ 1.88 $ (.31) (16.5)% - -------------------------------------------------------------------------------
-16- 19 UGI CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(CONTINUED) The decrease in the Company's results in the 1998 nine-month period principally reflects lower Partnership and Gas Utility total margin as a result of warmer heating-season weather, and lower Partnership other income. PROPANE
- ------------------------------------------------------------------------------ Nine Months Ended June 30, 1998 1997 Decrease - ------------------------------------------------------------------------------ (Millions of dollars) Retail gallons sold - millions 650.2 664.7 (14.5) (2.2)% Revenues $767.3 $908.9 $(141.6) (15.6)% Total margin $387.6 $399.0 $ (11.4) (2.9)% Operating income $107.0 $128.9 $ (21.9) (17.0)% EBITDA (a) $155.7 $176.9 $ (21.2) (12.0)% - ------------------------------------------------------------------------------
(a) EBITDA (earnings before interest expense, income taxes, depreciation and amortization) should not be considered as an alternative to net income (as an indicator of operating performance) or as an alternative to cash flow (as a measure of liquidity or ability to service debt obligations) and is not a measure of performance or financial condition under generally accepted accounting principles. Retail volumes of propane sold were slightly lower during the 1998 nine-month period. Based upon degree day information provided by NOAA for 335 airports in the continental U.S., weather during the peak heating-season months November 1997 through March 1998 was 9% warmer than normal and 5% warmer than the prior year. In particular, the period comprising January and February 1998 was the warmest in more than 100 years. Total revenues from retail propane sales decreased $108.9 million to $628.8 million during the 1998 nine-month period reflecting (1) a $92.8 million decrease as a result of lower average retail propane selling prices and (2) a $16.1 million decrease as a result of the lower retail volumes sold. Wholesale propane revenues decreased $29.8 million to $76.8 million due principally to lower 1998 nine-month period selling prices. The lower average retail and wholesale selling prices resulted from significantly lower propane product costs. Other revenues declined $2.9 million to $61.7 million reflecting in large part lower terminal and storage revenues and lower appliance sales revenues. Total margin declined $11.4 million in the 1998 nine-month period principally reflecting the impact of lower retail volumes sold. Although average retail propane unit margins for the 1998 nine-month period were comparable with the prior-year period, the Partnership recorded significantly lower retail unit margins early in the 1998 nine-month period (compared to the same period of the prior year) and higher retail unit margins later in the period. Retail unit margins early -17- 20 UGI CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(CONTINUED) in the prior-year period were higher due to fuel supply and pricing strategies that were especially effective during the unique market conditions (characterized by a rapid increase in propane spot-market prices) that existed at the time. Retail unit margins in the later part of the 1998 nine-month period benefitted from significantly lower propane product costs. The decrease in operating income and EBITDA during the 1998 nine-month period principally reflects (1) the decrease in total margin, (2) lower miscellaneous income and (3) slightly higher operating expenses. Miscellaneous income in the prior-year nine-month period includes (1) $4.7 million of income from the sale of the Partnership's 50% interest in Atlantic Energy, Inc. (Atlantic Energy), (2) higher customer finance charges and (3) higher interest income on short-term investments. Operating expenses of the Partnership increased $2.6 million in the 1998 nine-month period. Operating expenses in the 1998 nine-month period include net benefits of $2.2 million comprising (1) $2.0 million from lower required accruals for property taxes, (2) $1.7 million from lower required accruals for environmental matters and (3) a $1.5 million increase in accrued disability benefits. Excluding these items, operating and administrative expenses of the Partnership increased $4.8 million principally reflecting higher expenses associated with acquisitions and new business development activities. UTILITIES
- -------------------------------------------------------------------------------- Increase Nine Months Ended June 30, 1998 1997 (Decrease) - -------------------------------------------------------------------------------- (Millions of dollars) GAS UTILITY: Natural gas system throughput - bcf 63.0 68.4 (5.4) (7.9)% Degree days - % warmer than normal (15.8) (4.7) -- -- Revenues $ 307.9 $340.8 $ (32.9) (9.7)% Total margin $ 133.8 $145.2 $ (11.4) (7.9)% Operating income $ 69.1 $ 75.5 $ (6.4) (8.5)% ELECTRIC UTILITY: Electric sales - gwh 662.6 667.3 (4.7) (.7)% Revenues $ 54.2 $ 54.9 $ (.7) (1.3)% Total margin $ 25.7 $ 26.6 $ (.9) (3.4)% Operating income $ 8.6 $ 8.5 $ .1 1.2% - --------------------------------------------------------------------------------
GAS UTILITY. Weather in Gas Utility's service territory in the 1998 nine-month period was 15.8% warmer than normal compared with weather that was 4.7% warmer than normal in the prior-year period. Total system throughput decreased 7.9% during the 1998 nine-month period principally reflecting the effect of the warmer heating-season weather on core market sales as well as a -18- 21 UGI CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(CONTINUED) decrease in low-margin interruptible delivery service volumes resulting from the shut-down of a gas-fired cogeneration facility. The decrease in Gas Utility's total revenues reflects a $30.7 million decrease from lower sales to core market customers. Cost of gas sold by Gas Utility decreased $19.7 million to $162.2 million during the 1998 nine-month period principally reflecting the lower sales to core market customers. The decrease in Gas Utility total margin principally reflects (1) a $9.3 million decrease from core market customers resulting from the warmer weather and (2) a $2.4 million decrease from interruptible customers resulting from lower transportation rates due to declining oil prices relative to gas prices. Gas Utility operating income decreased $6.4 million during the 1998 nine-month period principally reflecting the lower total margin partially offset by lower operating expenses and higher miscellaneous income. Operating and administrative expenses during the 1998 nine-month period decreased $3.7 million principally as a result of (1) income from an insurance recovery, (2) a decrease in distribution system maintenance expenses, (3) lower costs associated with environmental matters and (4) lower general and administrative expenses. These decreases were partially offset by an increase in gas supply expenses. ELECTRIC UTILITY. Electric Utility sales decreased during the 1998 nine-month period on weather which was 11.4% warmer than in the 1997 nine-month period. Electric Utility revenues decreased $.7 million reflecting the warmer weather and the effects of Electric Utility's pilot program. Notwithstanding the decrease in sales, cost of sales increased to $26.1 million in the 1998 nine-month period from $25.9 million in the prior-year period. The increase reflects higher purchased power costs and the effect of the inclusion of the former ECR in base rates. Electric Utility total margin was $.9 million lower during the 1998 nine-month period than the prior-year period. However, Electric Utility operating income increased slightly during the nine months ended June 30, 1998 principally as a result of higher miscellaneous income and lower charges for depreciation. Miscellaneous income was $1.1 million in the 1998 nine-month period compared with $.1 million in the 1997 nine-month period. The increase principally resulted from adjustments to reserves associated with accrued Electric Utility revenues as a result of the restructuring Order. -19- 22 UGI CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(CONTINUED) ENERGY MARKETING
- ------------------------------------------------------------------------------ Increase Nine Months Ended June 30, 1998 1997 (Decrease) - ------------------------------------------------------------------------------ (Millions of dollars) Revenues $85.3 $85.5 $ (.2) (.2)% Total margin $ 4.0 $ 3.0 $ 1.0 33.3% Operating income $ 1.9 $ 1.8 $ .1 5.6% - ------------------------------------------------------------------------------
Total revenues from energy marketing in the 1998 nine-month period decreased slightly compared with revenues during the prior-year period principally as a result of lower contractual selling prices. Total margin for the 1998 nine-month period was $1.0 million higher than in the same period last year reflecting higher average unit margins. Unit margins during the nine months ended June 30, 1997 were negatively impacted by a decline in the value of excess pipeline capacity. Operating income from energy marketing was $1.9 million in the 1998 nine-month period compared with $1.8 million in the prior-year period as the higher total margin was substantially offset by higher operating expenses and lower miscellaneous income. CORPORATE GENERAL AND OTHER Operating loss from corporate general and other, net, was $(2.7) million in the 1998 nine-month period compared with $(4.3) million in the 1997 nine-month period. The decrease in operating loss from corporate general and other principally reflects (1) higher interest income on temporary cash investments and (2) lower levels of UGI corporate expenses. INTEREST EXPENSE AND INCOME TAXES Interest expense increased to $63.6 million in the 1998 nine-month period from $62.8 million in the 1997 nine-month period principally as a result of higher levels of debt outstanding under the Partnership's Acquisition Facility. The effective income tax rate on pre-tax income for the nine months ended June 30, 1998 was 45.3% compared with 44.8% for the nine months ended June 30, 1997. -20- 23 UGI CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(CONTINUED) 1998 TWELVE-MONTH PERIOD COMPARED WITH 1997 TWELVE-MONTH PERIOD CONSOLIDATED RESULTS
- ------------------------------------------------------------------------------- Twelve Months Ended June 30, 1998 1997 Decrease - ------------------------------------------------------------------------------- (Millions of dollars, except per share) Revenues $1,466.6 $1,654.3 $(187.7) (11.3)% Total margin $ 662.2 $ 681.8 $ (19.6) (2.9)% Operating income $ 173.4 $ 191.9 $ (18.5) (9.6)% Net income $ 41.7 $ 49.9 $ (8.2) (16.4)% Net income per share - diluted $ 1.26 $ 1.50 $ (.24) (16.0)% - -------------------------------------------------------------------------------
The decrease in the Company's results in the 1998 twelve-month period reflects (1) lower operating income from the Partnership and Gas Utility due in large part to the effects of warmer heating-season weather and (2) a decrease in miscellaneous income of the Partnership. PROPANE
- ---------------------------------------------------------------------------- Twelve Months Ended June 30, 1998 1997 Decrease - ---------------------------------------------------------------------------- (Millions of dollars) Retail gallons sold - millions 792.9 814.0 (21.1) (2.6)% Revenues $ 936.2 $1,086.0 $(149.8) (13.8)% Total margin $ 466.0 $ 474.6 $ (8.6) (1.8)% Operating income $ 95.2 $ 109.3 $ (14.1) (12.9)% EBITDA (a) $ 160.2 $ 173.4 $ (13.2) (7.6)% - ----------------------------------------------------------------------------
(a) EBITDA (earnings before interest expense, income taxes, depreciation and amortization) should not be considered as an alternative to net income (as an indicator of operating performance) or as an alternative to cash flow (as a measure of liquidity or ability to service debt obligations) and is not a measure of performance or financial condition under generally accepted accounting principles. Retail and wholesale volumes of propane sold decreased in the 1998 twelve-month period principally reflecting the effects of warmer heating season temperatures. Based upon degree day information provided by NOAA for 335 airports in the continental U.S., weather during the peak heating season months of November 1997 through March 1998 averaged 9% warmer than normal -21- 24 UGI CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(CONTINUED) and 5% warmer than the prior year. In particular, the period comprising January and February 1998 was the warmest in more than 100 years. Total revenues from retail propane sales declined $112.3 million to $759.3 million reflecting (1) an $89.7 million decrease as a result of lower average retail propane selling prices and (2) a $22.6 million decrease as a result of the lower retail volumes sold. Wholesale propane revenues decreased $34.0 million to $96.2 million reflecting (1) a $27.8 million decrease as a result of lower average selling prices and (2) a $6.2 million decrease as a result of the lower volumes. The higher selling prices in the prior-year period were a result of significantly higher propane spot-market prices. Other revenues decreased $3.5 million to $80.7 million due to lower terminal and storage revenues and lower appliance sales revenues. Total margin in the 1998 twelve-month period was lower than the prior-year period reflecting the impact of the lower propane volumes sold. Total margin from other sales and services during the 1998 twelve-month period was slightly lower than in the prior-year period. EBITDA and operating income declined during the 1998 twelve-month period as a result of (1) the previously mentioned lower total margin and (2) lower miscellaneous income. Miscellaneous income in the 1997 twelve-month period includes $4.7 million of income from the sale of the Partnership's 50% interest in Atlantic Energy. Miscellaneous income in the prior-year period also includes higher interest income and income from sales of fixed assets. Operating expenses of the Partnership were $1.8 million lower during the 1998 twelve-month period principally as a result of (1) lower required self-insurance reserves and costs associated with general and automobile liability and workers' compensation and (2) lower required accruals for environmental and property tax matters. These decreases were partially offset by higher expenses associated with Partnership acquisitions and new business development activities. -22- 25 UGI CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(CONTINUED) UTILITIES
- -------------------------------------------------------------------------------- Increase Twelve Months Ended June 30, 1998 1997 (Decrease) - -------------------------------------------------------------------------------- (Millions of dollars) GAS UTILITY: Natural gas system throughput - bcf 74.9 81.4 (6.5) (8.0)% Degree days - % warmer than normal (15.6) (4.9) - - Revenues $ 356.2 $ 391.8 $(35.6) (9.1)% Total margin $ 157.3 $ 168.8 $(11.5) (6.8)% Operating income $ 68.4 $ 73.1 $ (4.7) (6.4)% ELECTRIC UTILITY: Electric sales - gwh 863.8 868.2 (4.4) (.5)% Revenues $ 71.4 $ 71.9 $ (.5) (.7)% Total margin $ 34.3 $ 35.0 $ (.7) (2.0)% Operating income $ 10.8 $ 10.7 $ .1 .9% - --------------------------------------------------------------------------------
GAS UTILITY. Weather in Gas Utility's service territory in the 1998 twelve-month period was significantly warmer than in the 1997 twelve-month period. Total system throughput declined principally as a result of the effects of the warmer weather on core market sales and a decrease in low-margin interruptible delivery service volumes resulting from the shut-down of a gas-fired cogeneration facility. Gas Utility revenues were $35.6 million lower in the 1998 twelve-month period as a result of (1) a $30.7 million decrease in core market revenues due to the lower volumes sold, (2) a $3.1 million decrease in revenues from off-system sales and (3) lower revenues from interruptible customers. Cost of gas sold was $185.5 million during the 1998 twelve-month period, a decrease of $22.2 million from the same period in 1997, principally reflecting the reduced core market and off-system sales partially offset by the effects of slightly higher average purchased gas cost rates. Gas Utility total margin decreased during the 1998 twelve-month period principally reflecting a $9.7 million decrease in total margin from core market customers and a $2.1 million decrease in total margin from interruptible customers. Gas Utility operating income decreased $4.7 million during the 1998 twelve-month period as the lower total margin was partially offset by (1) a $4.4 million decrease in operating expenses, (2) a $1.3 million decrease in depreciation and amortization and (3) higher miscellaneous income. Operating and administrative expenses decreased principally as a result of (1) income from an insurance recovery and (2) a decrease in distribution system maintenance expenses. -23- 26 UGI CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(CONTINUED) ELECTRIC UTILITY. Electric Utility sales were lower during the twelve months ended June 30, 1998 than in the prior-year period due in part to warmer heating-season weather. Electric Utility revenues were $.5 million lower than the prior-year period principally reflecting the effects of the warmer weather and Electric Utility's pilot program. Notwithstanding the lower sales, Electric Utility cost of sales increased $.2 million to $34.0 million during the 1998 twelve-month period as a result of higher purchased power costs and the effect of the inclusion of the former ECR in base rates in June 1998. Electric Utility total margin decreased $.7 million during the 1998 twelve-month period principally as a result of the lower sales. Operating income during the 1998 twelve-month period was virtually unchanged from the prior-year period as the lower total margin and slightly higher operating expenses were offset by greater miscellaneous income. Miscellaneous income of Electric Utility was $1.1 million in the 1998 twelve-month period compared with $.2 million in the same period last year. The increase principally resulted from adjustments to reserves associated with accrued Electric Utility revenues as a result of the restructuring Order. ENERGY MARKETING
- ------------------------------------------------------------------------------ Increase Twelve Months Ended June 30, 1998 1997 (Decrease) - ------------------------------------------------------------------------------ (Millions of dollars) Revenues $102.8 $104.6 $(1.8) (1.7)% Total margin $ 4.6 $ 3.4 $ 1.2 35.3% Operating income $ 1.8 $ 1.8 $ -- --% - ------------------------------------------------------------------------------
Total revenues from energy marketing in the 1998 twelve-month period decreased $1.8 million compared with revenues during the prior-year period as a result of lower billed volumes partially offset by higher average selling prices. Total margin was higher in the 1998 twelve-month period compared with the 1997 twelve-month period principally due to higher average unit margins. The lower unit margins in the 1997 twelve-month period reflected the warm winter weather's effect on the value of excess pipeline capacity. Operating income during the 1998 twelve-month period was essentially unchanged from the prior-year period as the benefit of the higher total margin in 1998 was offset by an increase in operating expenses and lower miscellaneous income. CORPORATE GENERAL AND OTHER Operating loss from corporate general and other, net, was $(2.8) million in the 1998 twelve-month period compared with $(3.0) million in the 1997 twelve-month period. The decrease in operating loss from corporate general and other principally reflects the net effects of (1) $2.6 million in pre-tax gains from the sale of UTI common stock in the 1998 twelve-month period -24- 27 UGI CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(CONTINUED) compared with $2.1 million of such gains in the prior-year period, (2) higher interest income on temporary cash investments and (3) higher levels of UGI corporate general expenses. Corporate general expenses in the prior-year period were lower reflecting adjustments of incentive accruals recorded in September 1996. INTEREST EXPENSE AND INCOME TAXES Interest expense increased to $83.9 million in the 1998 twelve-month period from $82.7 million in the 1997 twelve-month period principally as a result of higher levels of debt outstanding under the Partnership's Revolving Credit and Acquisition facilities and greater amounts of UGI Utilities long-term debt outstanding. The Company's effective income tax rate in the 1998 twelve-month period was 44.8% compared with 43.8% in the 1997 twelve-month period. The higher rate in 1998 reflects a higher effective income tax rate on propane operations. FINANCIAL CONDITION AND LIQUIDITY FINANCIAL CONDITION The Company's debt outstanding at June 30, 1998 totaled $964.5 million, comparable with the $964.0 million outstanding at September 30, 1997. The Partnership's total debt outstanding at June 30, 1998 was $711.1 million, a decrease of $7.7 million from September 30, 1997, reflecting a $17 million decrease in borrowings under its Revolving Credit Facility and a $3.7 million decrease in other long-term debt partially offset by the issuance of $13 million under the Partnership's Acquisition Facility. UGI Utilities' debt was $245.0 million at June 30, 1998, an increase of $8.7 million from September 30, 1997, reflecting the issuance of an aggregate $35 million of notes under its Series B Medium-Term Note program partially offset by a $16.3 million decrease in borrowings under its revolving credit agreements and $10 million in scheduled long-term debt repayments. In June 1998, the Company revised its estimate of the tax basis of certain assets contributed to the Partnership in conjunction with the Partnership's formation on April 19, 1995. The change in estimate resulted in adjustments to the June 30, 1998 condensed consolidated balance sheet as follows: (1) a $17.9 million decrease in goodwill; (2) a $9.6 million decrease in excess reorganization value; (3) a $20.8 million decrease in accrued income taxes and (4) a $6.7 million increase in deferred income tax benefits. During the nine months ended June 30, 1998, the Partnership declared and paid the MQD on all limited partner units outstanding and the distribution on the general partner interests for the quarters ended March 31, 1998, December 31, 1997 and September 30, 1997. The MQD for the quarter ended June 30, 1998 will be paid on August 18, 1998 to holders of record on August 10, 1998 of all Common and Subordinated units. -25- 28 UGI CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(CONTINUED) The ability of the Partnership to continue to pay the full MQD on all of its units will depend upon a number of factors including the level of Partnership earnings, the cash needs of the Partnership's operations (including cash needed for maintenance and growth capital), and the Partnership's ability to finance externally such cash needs. The Partnership's EBITDA during the 1998 nine-month period was $20.6 million lower than during the 1997 nine-month period. Given the level of EBITDA to date, it is unlikely the Partnership will be able to fund solely from cash generated from operations during fiscal 1998 payment of the full distribution on its Subordinated Units for the remainder of calendar year 1998. While the Company believes the Partnership will have sufficient borrowing capacity to fund all of its cash needs (including amounts for growth capital and the full distribution on the Subordinated Units) during this period, no assurance can be given that the General Partner will elect to utilize its borrowing capacity to fund the full distribution on the Subordinated Units. The Company expects that the Partnership will generate sufficient cash from operations during fiscal 1998 to continue to fund the full distribution on the Partnership's Common Units. Due to the expected receipt of both dividends from UGI Utilities and distributions on the Partnership's Common Units held by the Company, as well as UGI's substantial cash balances, a decision by the Partnership not to pay the full distribution on its Subordinated Units in 1998 will not adversely affect UGI's ability to pay dividends on its Common Stock. CASH FLOWS The Company's consolidated cash and short-term investments totaled $144.0 million at June 30, 1998 compared with $129.4 million at September 30, 1997. These amounts include $119.9 million and $94.8 million, respectively, of cash and short-term investments held by UGI. The Company's cash flows are seasonal and are generally greatest during the second and third fiscal quarters when customers pay bills incurred during the heating season and are typically at their lowest levels during the first and fourth fiscal quarters. Accordingly, cash flows from operations during the nine months ended June 30, 1998 are not necessarily indicative of the cash flows to be expected for a full year. OPERATING ACTIVITIES. Cash flows from operating activities during the nine months ended June 30, 1998 totaled $148.3 million compared with $165.7 million in the comparable prior-year period. Cash flows from operations before changes in operating working capital were $151.8 million in the nine months ended June 30, 1998 compared with $157.5 million in the prior-year period. The decrease principally reflects a reduction in the Partnership's operating cash flows before changes in working capital. Changes in operating working capital during the nine months ended June 30, 1998 required $3.5 million of operating cash flow principally from a $37.8 million decrease in accounts payable and a $16.9 million use of cash from changes in other current assets and liabilities partially offset by a $41.9 million seasonal decrease in inventories and prepaid propane purchases; $4.9 million in purchased gas cost overcollections; and $4.4 million in cash from a decrease in accounts receivable and accrued utility revenues. Changes in operating working capital during the nine months ended June 30, 1997 generated $8.2 million of operating cash flow. -26- 29 UGI CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(CONTINUED) INVESTING ACTIVITIES. Cash expenditures for property, plant and equipment totaled $46.4 million in the nine months ended June 30, 1998 compared with $47.3 million in the same period in 1997. The decrease principally reflects lower Gas Utility capital expenditures partially offset by higher capital expenditures by the Partnership. Proceeds from disposals of assets totaled $5.3 million during the nine months ended June 30, 1998 compared with $8.7 million in the same period last year. The 1997 nine-month period includes proceeds from the sale of the Partnership's interest in Atlantic Energy. During the nine months ended June 30, 1998, the Partnership acquired several propane businesses for $6.9 million in cash. During the nine months ended June 30, 1997, the Partnership made acquisition-related cash payments of $4.5 million. Cash used for other investing activities during the nine months ended June 30, 1998 includes $3.7 million of loans issued to employees in conjunction with the Company's stock ownership policy for executives and key employees. FINANCING ACTIVITIES. During the nine months ended June 30, 1998, the Company paid cash dividends on Common Stock of $35.6 million compared with $35.3 million of cash dividends in the prior-year period. During the nine months ended June 30, 1998 and 1997, the Company issued $7.0 million and $7.2 million, respectively, of its Common Stock in conjunction with dividend reinvestment and employee and executive benefit plans. During the nine months ended June 30, 1998, the Company repurchased $8.4 million of its Common Stock compared with $13.2 million in the same period in the prior year. Also during each of the nine-month periods ended June 30, 1998 and 1997, the Partnership paid the MQD on all limited partner units and the general partner interests. In April 1998, UGI Utilities voluntarily redeemed 120,000 shares of its $8.00 Series Preferred Stock at a redemption price of $102.667 per share and all 7,983 outstanding shares of its $1.80 Series Preferred Stock at a redemption price of $23.50 per share. UGI Utilities used borrowings under its revolving credit agreements to fund such redemptions. During the nine months ended June 30, 1998, the Company issued $48 million of long-term debt. This amount includes $20 million of twenty-year 7.25% notes and $15 million of three-year 6.17% notes issued under UGI Utilities' Series B Medium-Term Note program (the proceeds of which were used to reduce bank loans). It also includes $13 million issued under the Partnership's Acquisition Facility. During the nine months ended June 30, 1998, the Company made $14.5 million of scheduled repayments of its long-term debt including $10 million of UGI Utilities' long-term debt and $3.9 million of the Partnership's long-term debt. In the prior-year nine-month period, the Company made long-term debt repayments of $21.8 million. The Partnership made net repayments of $17 million under its Revolving Credit Facility during the nine months ended June 30, 1998 compared with $15 million of net repayments in the same period in 1997. During the nine months ended June 30, 1998, UGI Utilities made net repayments of $16.3 million under its revolving credit agreements compared with $7.3 million in the prior-year period. -27- 30 UGI CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(CONTINUED) ELECTRIC UTILITY RESTRUCTURING ORDER On June 19, 1998, the PUC entered its Opinion and Order in Electric Utility's restructuring proceeding pursuant to Pennsylvania's Customer Choice Act. Under the terms of the Order, commencing January 1, 1999 Electric Utility is authorized to recover $32.5 million in stranded costs (on a full revenue requirements basis which includes all income and gross receipts taxes) over a four-year period through a CTC (together with carrying charges on unrecovered balances of 7.94%) and to charge unbundled rates for generation, transmission and distribution services. Electric Utility's recoverable stranded costs include $8.7 million for the buy-out of a 1993 power purchase agreement with an independent power producer. In June 1998, Electric Utility recorded a liability of $8.7 million for the buy-out of the 1993 power purchase agreement and also recorded a corresponding CTC regulatory asset. Under the terms of the Order and in accordance with the Customer Choice Act, Electric Utility's rates for transmission and distribution services are capped through July 1, 2001. In addition, Electric Utility generally may not increase the generation component of prices as long as stranded costs are being recovered through the CTC. For Electric Utility, this generation rate cap is expected to extend through December 31, 2002. All of Electric Utility's customers will be permitted to select an alternative generation supplier as of January 1, 1999. Customers choosing an alternative supplier will on average receive a generation "shopping credit" developed from system-wide generation rates of 3.67 cents per kwh in 1999 and 2000, and 4.3 cents per kwh in 2001 and 2002. The Settlement Agreement gives Electric Utility the right, subject to prior PUC approval, to transfer its electric generation assets to a non-regulated affiliate. The Company's management believes that, upon filing the necessary documents with the PUC, Electric Utility will receive such approval. As a result of the Order, in June 1998 Electric Utility discontinued the application of SFAS 71 as it relates to the electric generation portion of its business, which assets comprise less than 5% of UGI Utilities' consolidated assets. The discontinuance of SFAS 71 did not have a material effect on the Company's financial position or results of operations for the three months ended June 30, 1998. The Company continues to evaluate the future financial impact of the Order on Electric Utility's results of operations. Ultimately, Electric Utility's future financial results will depend upon a number of factors including, among others, the number of customers who choose alternative electric generation suppliers and the ability of Electric Utility to produce or purchase electricity at competitive prices for its customers in the future. For a more detailed discussion of the Order, see Note 3 to condensed consolidated financial statements. -28- 31 UGI CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(CONTINUED) PROPOSED GAS UTILITY CUSTOMER CHOICE On March 27, 1997, proposed customer choice legislation was introduced in the Pennsylvania General Assembly that would, among other things, extend the availability of gas transportation service to residential and small commercial customers of local gas distribution companies. It would permit all customers of natural gas distribution utilities to transport their natural gas supplies through the distribution systems of Pennsylvania gas utilities by April 1, 1999 and would also require Pennsylvania gas utilities to exit the merchant function of selling natural gas. Legislative committees have conducted public hearings on the proposed legislation and the Company has provided testimony on such issues as the recovery of costs associated with its existing gas supply assets and the need for standards to assure reliability of future gas supplies. At the request of the Governor of Pennsylvania, in December 1997 a collaborative group of industry stakeholders was convened to attempt to further develop the proposed legislation. To date, this group has failed to reach a consensus. The Company expects the collaborative process to continue, and it will participate and monitor developments, as appropriate. YEAR 2000 MATTERS The Company, in conjunction with outside consultants, has conducted a detailed assessment of its critical computer-based systems in order to evaluate its Year 2000 ("Y2K") exposure. The Y2K issue is a result of computer programs being written using two digits (rather than four) to identify and process a year in a date field. Computer programs having date sensitive software may recognize date fields using "00" as the year 1900 rather than the year 2000, resulting in miscalculations and possible computer-based system failures. The Company has also identified and is contacting major vendors on which it depends for products or services in order to assess their Y2K compliance readiness and, if necessary, to develop appropriate contingency plans. The Company has a number of information system improvement initiatives under way which include the installation of integrated financial system software that is Y2K compliant. In addition, the Company, in conjunction with consultants, has begun modifying its computer-based systems that are not currently Y2K compliant. The Company anticipates that its critical computer-based systems will be Y2K compliant by March 31, 1999. The Company does not expect the costs to modify its computer-based systems, which will be expensed as incurred, will have a material effect on its results of operations or cash flows. However, in the event that the Company or its major suppliers experience disruptions due to Y2K issues, the Company's operations could be adversely affected. ACCOUNTING PRINCIPLES NOT YET ADOPTED In June 1998, the Financial Accounting Standards Boards (FASB) issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133). SFAS 133 -29- 32 UGI CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(CONTINUED) establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities and measure the instruments at fair value. The accounting for changes in fair value of a derivative depends upon the intended use of such derivative. The Company expects to adopt the provisions of SFAS 133 in fiscal 2000. The Company utilizes derivative commodity instruments, including futures contracts, price swap agreements and option contracts, to manage market risk associated primarily with 1) fluctuations in the price of natural gas sold under firm commitments and 2) market risk associated with a portion of its anticipated propane supply requirements. Additionally, the Company, from time to time, utilizes a managed program of derivative instruments including natural gas and oil futures contracts to preserve margin associated with certain of the Company's customer segments, which margin otherwise could be affected by major commodity price movements. The Company's price risk management policy does not permit speculative trading of derivative instruments. To the extent such derivative instruments qualify and are designated as hedges of forecasted transactions, changes in the fair value will generally be reported as a component of other comprehensive income and reclassified into earnings when the forecasted transaction affects earnings. To the extent such derivative qualifies as a hedge of a firm commitment, any gain or loss would generally be recognized in earnings together with the offsetting gain or loss on the hedged item. The impact of the adoption of SFAS 133 on the Company's future financial condition and results of operations will depend upon a number of factors including the extent to which the Company uses derivative instruments and the designation and effectiveness of such derivatives as hedging market risk. PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Foster Wheeler Penn Resources, Inc. v. UGI Utilities, Inc. Civil Action No. 97CV4592. On July 14, 1997, Foster Wheeler Penn Resources, Inc. filed suit against UGI Utilities, Inc. in United States District Court for the Eastern District of Pennsylvania alleging, among other things, that UGI Utilities breached an Agreement for the Sale and Purchase of Net Electrical Energy under which UGI Utilities had agreed to purchase electricity from a generating facility yet to be built by Foster Wheeler. On May 20, 1998, UGI Utilities and Foster Wheeler entered into a settlement agreement whereby UGI Utilities agreed to pay Foster Wheeler $8.7 million, plus interest, in equal quarterly installments over the same four year period as the CTC recovery period -30- 33 UGI CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(CONTINUED) established by the Pennsylvania Public Utility Commission (PUC) in UGI Utilities' electric restructuring proceeding. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Electric Utility Restructuring Order" in Part I of this Report. The settlement agreement was contingent upon an order of the PUC permitting UGI Utilities full recovery of the settlement payments from its customers through the CTC. The PUC entered such an order on June 19, 1998. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) List of Exhibits: 10 UGI Corporation Supplemental Executive Retirement Plan Amended and Restated Effective October 1, 1996 27 Financial Data Schedule (b) The Company did not file any Current Reports on Form 8-K during the fiscal quarter ended June 30, 1998. -31- 34 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: August 12, 1998 By: C .L. Ladner - ---------------------- ----------------------------------------- C. L. Ladner, Senior Vice President - Finance Date: August 12, 1998 By: M. J. Cuzzolina - ---------------------- ----------------------------------------- M. J. Cuzzolina, Vice President - Accounting and Financial Control (Principal Accounting Officer) -32- 35 UGI CORPORATION AND SUBSIDIARIES EXHIBIT INDEX 10 UGI Corporation Supplemental Executive Retirement Plan Amended and Restated Effective October 1, 1996 27 Financial Data Schedule EX-10 2 SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN 1 UGI CORPORATION SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN AMENDED AND RESTATED EFFECTIVE OCTOBER 1, 1996 2 ARTICLE I BACKGROUND AND STATEMENT OF PURPOSE Sec. 1.01 Background. The Senior Executive Retirement Plan for Certain Employees of UGI Corporation and its Subsidiaries and Affiliates (the "Senior Plan") was established effective as of January 1, 1985. Until April 10, 1992, it was maintained by UGI Utilities, Inc. (formerly named, prior to April 10, 1992, UGI Corporation and hereinafter sometimes referred to as "UGI Utilities"). On April 10, 1992, UGI Utilities became a subsidiary of New UGI Corporation which was renamed UGI Corporation ("UGI") on the same date. As of April 10, 1992, UGI assumed sponsorship of the Senior Plan and all obligations of UGI Utilities thereunder, and amended and restated the Senior Plan to reflect the transfer of Senior Plan sponsorship. UGI now wishes to amend the Senior Plan to eliminate participation by employees of AmeriGas Propane, Inc., to re-name the Senior Plan "The UGI Corporation Supplemental Executive Retirement Plan" ("SERP") and to make other changes. Accordingly, pursuant to the authority granted under Section 8.01 of the Senior Plan, it is hereby amended and restated in its entirety as of October 1, 1996. Sec. 1.02 Purpose. The SERP is maintained to provide a fair and competitive level of retirement benefits to certain management and other highly compensated employees who have, by operation of laws and regulations relating to qualified pension benefit plans, experienced a reduction in prospective retirement benefits under the Retirement Income Plan for Employees of UGI Utilities, Inc. (the "Pension Plan") and the UGI Utilities, Inc. Savings Plan and, from the Effective Date through September 30, 1996, the AmeriGas Propane, Inc. Savings Plan, collectively, (the "Savings Plan"). The Pension Plan and the Savings Plan are hereinafter referred to collectively as the "Plans". The benefits under the SERP are designed to compensate the Participants hereunder for the loss of benefits under the Plans where such loss is attributable to (i) the rules under Sections 414(s) and 415 of the Code which prevent the Participant's deferred compensation from being taken into account under the Plans, (ii) the limitations imposed under Section 401(a)(17) of the Code on the amount of the Participant's current (non-deferred) compensation that may be taken into account under the Plans, (iii) the limitations imposed under Section 415 of the Code on the benefits that may be paid to the Participant under the Pension Plan or the contributions that may be made on behalf of the Participant under the Savings Plan (or under a combination of the Plans), (iv) the limitations imposed under Sections 401(k) and 402(g) of the Code on the Participant's ability to make elective deferral contributions under the Savings Plan, (v) the limitations imposed under Section 401(m) of the Code on the ability of UGI and other -1- 3 participating employers to match Participant elective deferrals under the Savings Plan or (vi) any combination of the foregoing. In addition, the benefits under the SERP are also designed to compensate certain terminated employees by taking into account periods of time during which payments are made under the UGI Corporation Senior Executive Severance Pay Plan for purposes of the Plans that would ordinarily be excluded from consideration. To address these purposes, certain employees of UGI and other participating employers will be provided with supplemental benefits to compensate them for the benefits that would have been otherwise payable from the funding vehicles associated with the Plans were it not for the limitations described above. -2- 4 ARTICLE II DEFINITIONS Sec. 2.01 "Annual Bonus Plan" shall mean the UGI Corporation Annual Bonus Plan or the UGI Utilities, Inc. Annual Bonus Plan, as amended from time to time, and any successor plans, and for fiscal years through 1996, the AmeriGas Propane, Inc. Annual Bonus Plan. Sec. 2.02 "Board" shall mean the Board of Directors of UGI. Sec. 2.03 "Category A Participant" shall mean each Employee who participates in the SERP pursuant to the provisions of Section 3.01 hereof. Sec. 2.04 "Category B Participant" shall mean each Employee who is designated a Participant in the SERP pursuant to the provisions of Section 3.02 hereof. Sec. 2.05 "Code" shall mean the Internal Revenue Code of 1986, as amended. Sec. 2.06 "Committee" shall mean the Board, any committee designated by the Board to which the Board delegates its authority and responsibility hereunder, or, if the Board delegates only a portion of its authority and responsibility hereunder to any such committee, then the Board as to its retained authority and responsibility and such committee as to the portion of the authority and responsibility delegated to it by the Board. Sec. 2.07 "Deferred Earnings" shall mean so much of an Employee's compensation payable under the applicable Annual Bonus Plan as would otherwise be taken into account under the Plans, but which is not taken into account under the Plans due to an election by the Employee to have such compensation deferred to and paid in a subsequent year, excluding compensation payable under the applicable Annual Bonus Plan for years beginning prior to the Effective Date. Sec. 2.08 "Effective Date" shall mean January 1, 1985. Sec. 2.09 "Employee" shall mean any person in the employ of UGI or another participating employer other than a person (i) whose terms and -3- 5 conditions of employment are determined through collective bargaining with a third party or (ii) who is characterized as an independent contractor by UGI no matter how characterized by a court or government agency, and 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 UGI for the purposes of this Plan. Sec. 2.10 "Excess Earnings" shall mean that portion of an Employee's compensation from UGI or another participating employer that is not permitted to be taken into account under the Plans by operation of Section 401(a)(17) of the Code or any successor thereto, excluding any such compensation earned when the Employee was not a Participant. Sec. 2.11 "Participant" shall mean any Category A Participant and any Category B Participant. Sec. 2.12 "Pension Plan" shall mean the Retirement Income Plan for Employees of UGI Utilities, Inc., as currently in effect and as it may hereafter be amended, and any plan designated by the Board as a successor thereto. Sec. 2.13 "Pension Plan Earnings" shall mean so much of an Employee's compensation from UGI or another participating employer as is taken into account in determining benefits or contributions under the Pension Plan for the relevant period. Sec. 2.14 "Salary Continuation Period" shall mean the Salary Continuation Period, as defined in Section 2.17 of the UGI Corporation Senior Executive Employee Severance Pay Plan, of a Category B Participant. Sec. 2.15 "Savings Plan" shall mean the UGI Utilities, Inc. Savings Plan and, from the Effective Date through September 30, 1996, the AmeriGas Propane, Inc. Savings Plan, as they may thereafter be amended, and any plans designated by the Board as successors thereto. Sec. 2.16 "SERP" shall mean the UGI Corporation Supplemental Executive Retirement Plan as set forth herein, and as the same may hereafter be amended as well as prior iterations of the Senior Plan if the text so requires. Sec. 2.17 "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 -4- 6 material adverse effect on the business, operations, assets, properties or financial condition of UGI and its subsidiaries and affiliates, taken as a whole. Sec. 2.18 "UGI" shall mean, prior to April 10, 1992, UGI Utilities. From and after April 10, 1992, "UGI" shall mean UGI Corporation (formerly named New UGI Corporation). -5- 7 ARTICLE III PARTICIPATION Sec. 3.01 Category A Participants. Each Employee who is eligible to receive a bonus under the applicable Annual Bonus Plan shall be a Category A Participant. Sec. 3.02 Category B Participants. Each person who was eligible to receive benefits under the UGI Corporation Senior Executive Severance Pay Plan due to termination of employment shall be a Category B Participant. Sec. 3.03 Multiple Participation. Any Employee may be a Category A and/or Category B Participant. -6- 8 ARTICLE IV BENEFITS Sec. 4.01 Category A UGI Retirement Benefit. Each Category A Participant who is entitled to a benefit under the Pension Plan shall receive an annual benefit under the SERP equal to (a) reduced by (b), where: (a) is the annual benefit that would have been produced under the Pension Plan if (i) the Participant's Excess Earnings (without regard to the limitations set forth in Section 401(a)(17) of the Code) and Deferred Earnings had been taken into account and (ii) the limitations set forth in Section 415 of the Code (or its successor) were inoperative; and (b) is the annual benefit that the Participant is entitled to receive under the Pension Plan. Sec. 4.02 Category A Savings Benefit. Each Category A Participant who has contributed the maximum amount permissible under the Savings Plan shall receive a benefit under the SERP equal to the sum of the annual benefits described in clauses (a) and (b), where: (a) is an annual amount equal to the difference between the Participant's annual Employer Matching Contribution under the Savings Plan, and the amount of the Employer Matching Contribution which would have resulted for that year if (i) the Participant's Excess Earnings (without regard to the limitations set forth in Section 401(a)(17) of the Code) and Deferred Earnings had been taken into account, (ii) the limitations set forth in Section 415 of the Code (or its successor) were inoperative, (iii) the limitations set forth in Section 402(g) of the Code (or its successor) were inoperative and (iv) any cutbacks of contributions to the Savings Plans that were required to comply with nondiscrimination tests set forth in Sections 401(k) and/or 401(m) of the Code (or their successors) had not been made, beginning as of the -7- 9 date the Participant became a Category A Participant; and (b) an amount which represents an increase or decrease in the Participant's cumulative benefit described in Section 4.02 (a) as of the end of each Savings Plan Year ("Cumulative Savings Benefit"). The amount of the increase or decrease is equal to the product obtained by multiplying the Participant's Cumulative Savings Benefit by the Participant's individual rate per annum. The individual rate per annum is determined by dividing (X) by (Y), where (X) is the total of all actual gains and losses reported on the Participant's Savings Plan portfolio for the Savings Plan Year, measured on the last day of the Savings Plan Year, and (Y) is the sum of (i) the Participant's beginning balance on the first day of the Savings Plan Year and (ii) all contributions to the Participant's account during the Savings Plan Year. Sec. 4.03 Category B UGI Retirement Benefit. Each Category B Participant who is (or was) a Participant in the Pension Plan shall receive an annual benefit under the SERP in an amount equal to (a) reduced by (b), where: (a) is the annual benefit that the Participant would have received under the Pension Plan if the Salary Continuation Period were taken into account in determining the Participant's Credited Service under the Pension Plan (such benefit to be determined without regard to the limitations set forth in the Code); and (b) is the Participant's annual benefit under the Pension Plan determined without regard to the limitations set forth in the Code. Sec. 4.04 Category B Savings Benefit. Each Category B Participant shall receive a benefit under the SERP in an amount equal to the Participant's Employer Matching Contribution(s) under the Savings Plan which would have been made had the Participant been eligible to participate in the Savings Plan and make Employee Elective Deferral Contributions to the Savings Plan during the Salary Continuation Period equal to the same percentage of his or her annual compensation (determined as of the day of his or her termination of -8- 10 employment) that he or she had designated immediately prior to his or her termination of employment. Sec. 4.05 Benefit Entitlement. A Participant shall not be entitled to receive a benefit under the SERP if he or she is not entitled to receive a benefit under the Pension Plan, or where applicable, the Savings Plan. Sec. 4.06 Divestiture. Each Participant shall be divested of, and shall immediately forfeit, any benefit to which he or she is otherwise entitled under the SERP if the Participant's employment is Terminated for Cause. -9- 11 ARTICLE V FORM AND TIMING OF BENEFIT DISTRIBUTION Sec. 5.01 General Rule for Form of Benefit Distributions. Unless the Participant irrevocably elects otherwise, benefits payable under the SERP shall be paid in the same form, to the same person, as benefits under the Pension Plan; provided, however, that the benefits payable under Sections 4.02 and 4.04 shall be paid in the same form, to the same person, as the benefits under the Savings Plan. If benefits are payable under the Preretirement Survivor Annuity provisions of the Pension Plan, the benefits payable hereunder shall be in the same form (unless the Participant elects otherwise pursuant to Section 5.02); provided, however that if any portion of the Participant's benefit hereunder is payable under the Preretirement Survivor Annuity provisions of the Pension Plan, the Participant's spouse shall be entitled to an additional annual benefit of an amount equal to (i) reduced by (ii) where (i) is the annual Preretirement Survivor Annuity benefit under the Pension Plan determined as if the Participant had been employed by UGI during the Salary Continuation Period and (ii) is the actual annual Preretirement Survivor Annuity benefit under the Pension Plan. Sec. 5.02 Alternate Mode of Benefit Distribution. Any Participant (or a Participant's spouse in the event benefits are payable following the Participant's death) may irrevocably elect to receive (i) payment of benefits under this Plan in a specified form or forms available to the Participant under the Pension Plan or Savings Plan, as applicable; or (ii) an actuarially equivalent single sum payment. Any such election shall be made no later than the date such individual receives, or begins to receive, benefits under the Pension Plan or Savings Plan, as applicable. The Board shall approve, and may from time to time change, the tables, methods and assumptions pursuant to which such actuarial equivalencies may be calculated. Sec. 5.03 Small Benefit Payments. Notwithstanding any other provision of the SERP, if the actuarial equivalent lump sum value of the Participant's benefit, determined as of the date such Participant terminated employment, is less than such amount as the Committee may specify, such benefit (or the remainder of the benefit if benefit payments have commenced in accordance with the provisions of Section 5.01 and the Committee, in its discretion, applies this Section 5.03 to benefits in pay status) may be paid, at the discretion of the Committee, in a single sum payment. -10- 12 Sec. 5.04 Timing of Benefit Distributions. In the event a Participant fails to elect a form of payment under Section 5.02 prior to the beginning of the calendar year in which benefits otherwise become payable hereunder, benefits shall be paid, or commence to be paid, to such Participant in the calendar year following the year in which benefits are otherwise payable hereunder. -11- 13 ARTICLE VI FUNDING OF BENEFITS Sec. 6.01 Source of Funds. UGI'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 UGI or any trust established by UGI to fund such obligations. Sec. 6.02 Participant Contributions. There shall be no contributions made by Participants under the SERP. -12- 14 ARTICLE VII THE COMMITTEE Sec. 7.01 Appointment and Tenure of Committee Members. The Committee shall consist of one or more persons who shall be appointed by and serve at the pleasure of the Board. Any Committee member may resign by delivering his or her written resignation to the Board. Vacancies arising by the death, resignation or removal of a Committee member may be filled by the Board. Sec. 7.02 Meetings; Majority Rule. Any and all acts of the Committee taken at a meeting shall be by a majority of all members of the Committee. The Committee may act by vote taken in a meeting (at which a majority of members shall constitute a quorum). The Committee may also act by unanimous consent in writing without the formality of convening a meeting. Sec. 7.03 Delegation. The Committee may, by majority decision, delegate to each or any one of its number, 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 Committee, even though such person alone may sign any document required by third parties. The Committee shall elect one of its number to serve as Chairperson. The Chairperson shall preside at all meetings of the Committee or shall delegate such responsibility to another Committee member. The Committee shall elect one person to serve as Secretary to the Committee. All third parties may rely on any communication signed by the Secretary, acting as such, as an official communication from the Plan Administrator. Sec. 7.04 Authority and Responsibility of the Committee. The Committee shall have only such authority and responsibilities as are delegated to it by the Board or specifically provided herein. Among those delegable authorities and responsibilities are: (a) maintenance and preservation of records relating to Participants, former Participants, and their beneficiaries; -13- 15 (b) preparation and distribution to Participants of all information and notices required under Federal law or the provisions of the 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 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 Committee Members. The members of the Committee shall serve without compensation for their services as such, but all expenses of the Committee shall be paid or reimbursed by UGI. Sec. 7.06 Committee Discretion. Any discretion, actions, or interpretations to be made under the SERP by the Committee on behalf of UGI or any other participating employer shall be made in its sole capacity, not acting in a fiduciary capacity, need not be uniformly applied to similarly situated individuals, and shall be final, binding, and conclusive on the parties. Sec. 7.07 Indemnification of the Committee. Each member of the Committee shall be indemnified by UGI against costs, expenses and liabilities (other than amounts paid in settlement to which UGI does not consent) reasonably incurred by him or her in connection with any action to which he or she may be a party by reason of his or her service as a member of the Committee, except in relation to matters as to which he or she shall be adjudged in such action to be personally guilty of gross negligence or willful misconduct in the performance of his or her duties. The foregoing right to indemnification shall be in addition to such other rights as the 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 -14- 16 waiver of subrogation. Rights granted hereunder shall be in addition to and not in lieu of any rights to indemnification to which the Committee member may be entitled pursuant to the by-laws of UGI. Service on the Committee shall be deemed in partial fulfillment of the Committee member's function as an employee, officer and/or director of UGI, if he or she serves in that capacity as well as in the role of Committee member. -15- 17 ARTICLE VIII AMENDMENT AND TERMINATION Sec. 8.01 Amendment. The provisions of the SERP may be amended at any time and from time to time by a resolution of the Board for any reason without either the consent of or prior notice to any Participant; 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. Sec. 8.02 Plan Termination. While it is UGI's intention to continue the SERP indefinitely in operation, the right is, nevertheless, reserved to terminate the SERP in whole or in part at any time for any reason without either the consent of or prior notice to any Participant; 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. -16- 18 ARTICLE IX MISCELLANEOUS PROVISIONS Sec. 9.01 Nonalienation of Benefits. None of the payments, benefits or rights of any participant under the 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 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. 9.02 No Contract of Employment. Neither the establishment of the 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 UGI or any other participating employer, and all Participants and other Employees shall remain subject to discharge to the same extent as if the SERP had never been adopted. Sec. 9.03 Severability of Provisions. If any provision of the SERP shall be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions hereof, and the SERP shall be construed and enforced as if such provision had not been included. Sec. 9.04 Heirs, Assigns and Personal Representatives. The SERP shall be binding upon the heirs, executors, administrators, successors and assigns of the parties, including each Participant, present and future. Unless the Committee directs otherwise, UGI shall require any successor or successors (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of UGI, or a division or Affiliate thereof, (i) to acknowledge expressly that this SERP is binding upon and enforceable against such successor in accordance with the terms hereof, (ii) to become jointly and severally obligated with UGI to perform the obligations under this SERP, and (iii) to agree not to amend or terminate the plan for a period of three (3) years after the date of succession without the consent of the affected Participant. -17- 19 Sec. 9.05 Headings and Captions. The headings and captions herein are provided for reference and convenience only, and shall not be considered part of the SERP, and shall not be employed in the construction of the SERP. Sec. 9.06 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. 9.07 Controlling Law. The SERP shall be construed and enforced according to the laws of the Commonwealth of Pennsylvania, exclusive of conflict of law provisions thereof, to the extent not preempted by Federal law, which shall otherwise control. Sec. 9.08 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 UGI, the Board, the Committee and all other parties with respect thereto. Sec. 9.09 Reliance on Data and Consents. UGI, the Board, the Committee, all fiduciaries with respect to the SERP, and all other persons or entities associated with the operation of the SERP, and the provision of benefits thereunder, may reasonably rely on the truth, accuracy and completeness of all data provided by the Participant, including, without limitation, data with respect to age, health and marital status. Furthermore, UGI, the Board, the Committee and all fiduciaries with respect to the SERP may reasonably rely on all consents, elections and designations filed with the SERP or those associated with the operation of the SERP by any Participant, or the representatives of any such person without duty to inquire into the genuineness of any such consent, election or designation. None of the aforementioned persons or entities associated with the operation of the SERP or the benefits provided under the SERP shall have any duty to inquire into any such data, and all may rely on such data being current to the date of reference, it being the duty of the Participants to advise the appropriate parties of any change in such data. Sec. 9.10 Lost Payees. A benefit shall be deemed forfeited if the Board or the 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. -18- 20 IN WITNESS WHEREOF, and as evidence of its adoption of the Plan, the Company has caused the same to be executed by its duly authorized officers and its corporate seal to be affixed hereto as of the lst day of May, 1998. Attest: UGI CORPORATION _________________________ By: __________________________ Brendan P. Bovaird Lon R. Greenberg Corporate Secretary Chairman, President, and Chief Executive Officer -19- EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEET AND INCOME STATEMENT OF UGI CORPORATION AND SUBSIDIARIES AS OF AND FOR THE NINE MONTHS ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS INCLUDED IN UGI CORPORATION'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1998. 0000884614 UGI CORPORATION 1,000 9-MOS SEP-30-1997 OCT-01-1997 JUN-30-1998 42,100 101,900 118,600 12,200 75,700 366,300 1,442,700 450,200 2,089,900 288,900 889,000 20,000 0 393,800 (1,500) 2,089,900 1,214,700 1,214,700 649,300 649,300 0 8,179 63,600 98,500 44,600 52,100 0 0 0 52,100 1.58 1.57
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