-----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, CdEd4PUJP1l5SNkSVsRQQ8DbdYkQOye2DZQPdJR6Q2d+d6BjN80uVDGo9Tl9SbEC bSIDzytGs6yLGelUDIOzVA== 0000893220-99-001395.txt : 19991224 0000893220-99-001395.hdr.sgml : 19991224 ACCESSION NUMBER: 0000893220-99-001395 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991223 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-K405 SEC ACT: SEC FILE NUMBER: 001-11071 FILM NUMBER: 99779903 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-K405 1 FORM 10-K 405 UGI CORPORATION 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------- FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1999 Commission file number 1-11071 UGI CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) Pennsylvania 23-2668356 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 460 North Gulph Road, King of Prussia, PA 19406 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (610) 337-1000 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE TITLE OF CLASS ON WHICH REGISTERED Common Stock, without par value New York Stock Exchange, Inc. Philadelphia Stock Exchange, Inc.
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS) AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO . INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. [X] The aggregate market value of UGI Corporation Common Stock held by nonaffiliates of the registrant on December 1, 1999 was $544,095,354. At December 1, 1999 there were 27,330,251 shares of UGI Corporation Common Stock issued and outstanding. DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Annual Report to Shareholders for the year ended September 30, 1999 are incorporated by reference into Parts I and II of this Form 10-K. Portions of the Proxy Statement for the Annual Meeting of Shareholders to be held on February 29, 2000 are incorporated by reference into Part III of this Form 10-K. ================================================================================ 2 TABLE OF CONTENTS
PART I BUSINESS PAGE Items 1 and 2 Business and Properties.................................................. 1 AmeriGas Propane Business................................................ 2 Utility Operations....................................................... 10 UGI Enterprises, Inc..................................................... 19 Item 3 Legal Proceedings........................................................ 21 Item 4 Submission of Matters to a Vote of Security Holders......................................................... 24 PART II SECURITIES AND FINANCIAL INFORMATION Item 5 Market for Registrant's Common Equity and Related Stockholder Matters.......................................... 24 Item 6 Selected Financial Data.................................................. 26 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations............................ 27 Item 7A Quantitative and Qualitative Disclosures About Market Risk............... 27 Item 8 Financial Statements and Supplementary Data.............................. 27 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure....................... 27 PART III UGI MANAGEMENT AND SECURITY HOLDERS Item 10 Directors and Executive Officers of the Registrant....................... 28 Item 11 Executive Compensation................................................... 28 Item 12 Security Ownership of Certain Beneficial Owners and Management.................................................... 28 Item 13 Certain Relationships and Related Transactions........................... 28 PART IV ADDITIONAL EXHIBITS, SCHEDULES AND REPORTS Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K.................................................. 31 Signatures............................................................... 37 Index to Financial Statements and Financial Statement Schedules............................................ F-2
(i) 3 PART I: BUSINESS ITEMS 1 AND 2. BUSINESS AND PROPERTIES UGI Corporation is a holding company that operates propane distribution, gas and electric utility, energy marketing and related businesses through subsidiaries. Our majority-owned subsidiary, AmeriGas Partners, L.P., a Delaware limited partnership ("AmeriGas Partners" or the "Partnership"), conducts the nation's largest retail propane distribution business through its 98.99% owned subsidiary AmeriGas Propane, L.P. (the "Operating Partnership"). We have been in the retail propane distribution business for over 40 years, operating through various subsidiaries. The Partnership's sole general partner is our subsidiary, AmeriGas Propane, Inc. ("AmeriGas Propane" or the "General Partner"). The common units of AmeriGas Partners, which represent limited partner interests, are traded on the New York Stock Exchange under the symbol "APU." We have a 58.4% combined ownership interest in the Partnership and the Operating Partnership. The remaining interest is publicly held. Our subsidiary UGI Utilities, Inc. ("Utilities") owns and operates a natural gas distribution utility and an electric distribution utility in eastern Pennsylvania. Effective October 1, 1999, Utilities' electric generation assets were transferred to its non-utility subsidiary, UGI Development Company ("UGID"). Utilities is the successor to a business founded in 1882. It serves 265,000 natural gas customers and 61,000 electric customers. Our subsidiary UGI Enterprises, Inc. ("Enterprises") conducts domestic and international businesses through subsidiaries. The domestic businesses include retail gas and electric marketing, and a supercenter retailer of quality hearth, spa and grill products, Hearth USA(TM). In September 1999, Enterprises acquired FLAGA Beteiligungs Aktiengesellschaft, the largest retail propane distributor in Austria. Enterprises also has two international energy-related joint ventures. We expect Enterprises to continue to evaluate and develop new related and complementary business opportunities for us. UGI was incorporated in Pennsylvania in 1991. UGI is not subject to regulation by the Pennsylvania Public Utility Commission ("PUC"). It is also exempt from registration as a holding company and not otherwise subject to the Public Utility Holding Company Act of 1935, except for Section 9(a)(2), which regulates the acquisition of voting securities of an electric or gas utility company. Our executive offices are located at 460 North Gulph Road, King of Prussia, Pennsylvania 19406, and our telephone number is (610) 337-1000. In this report, the terms "Company" and "UGI," as well as the terms "our," "we," and "its," are sometimes used as abbreviated references to UGI Corporation or, collectively, UGI Corporation and its consolidated subsidiaries. Similarly, the terms "AmeriGas Partners" and the "Partnership" are sometimes used as abbreviated references to AmeriGas Partners, L.P. or, collectively, AmeriGas Partners, L.P. and its subsidiaries, including the Operating Partnership. -1- 4 BUSINESS STRATEGY In July 1999, following a comprehensive study, we announced our intention to refocus our strategic direction on growing our existing natural gas, electric and propane businesses while seeking additional related and complementary growth opportunities. We plan to employ our core competencies from our existing businesses, as well as use our national scope, extensive asset base and access to customers, to accelerate growth in related and complementary businesses, both domestic and international. We expect to achieve compound annual earnings per share growth of 6% to 10% over the next five years and we have set a 20% earnings contribution target for our new businesses over the same period. During September 1999, we announced the acquisition of FLAGA Beteiligungs Aktiengesellschaft ("FLAGA") by Enterprises. FLAGA is the largest retail propane distributor in Austria and one of the largest distributors in the Czech Republic. On September 10, 1999, Hearth USA(TM) held its grand opening in Rockville, Maryland. Hearth USA(TM) is the first retail supercenter for quality hearth, spa and grill products. Our domestic propane distribution business is conducted through AmeriGas Partners. The Partnership is the largest retail propane distributor in the United States, based on fiscal year 1999 retail volume of 783 million gallons. The Partnership operates from approximately 600 district locations in 46 states. AmeriGas Propane manages the Partnership. Although our consolidated financial statements include 100% of the Partnership's revenues, assets and liabilities, our net income reflects only our 58.4% share in the income or loss of the Partnership, due to the publicly-owned limited partner interest. AMERIGAS PROPANE BUSINESS GENERAL INDUSTRY INFORMATION Propane is separated from crude oil during the refining process and also extracted from natural gas or oil wellhead gas at processing plants. Propane is normally transported and stored in a liquid state under moderate pressure or refrigeration for economy and ease of handling in shipping and distribution. When the pressure is released or the temperature is increased, it is usable as a flammable gas. Propane is colorless and odorless; an odorant is added to allow its detection. Propane is clean burning, producing negligible amounts of pollutants when properly consumed. The primary customers for propane are residential, commercial, agricultural, motor fuel and industrial users to whom natural gas is not readily available. Propane is typically more expensive than natural gas, competitive with fuel oil when operating efficiencies are taken into account and, in most areas, cheaper than electricity on an equivalent energy basis. Several states have adopted or are considering proposals that would substantially deregulate the generation portion of the electric utility industry and thereby permit retail electric customers to choose their electric supplier. While proponents of electric utility deregulation believe that competition will ultimately reduce the cost of electricity, we are unable to predict the extent to which the price of electricity may drop. Therefore, -2- 5 we cannot predict the ultimate impact that electric utility deregulation may have on propane's existing competitive price advantage over electricity. PRODUCTS, SERVICES AND MARKETING As of September 30, 1999, the Partnership distributed propane to approximately 969,000 customers from approximately 600 district locations in 46 states. The Partnership's operations are located primarily in the Northeast, Southeast, Great Lakes and West Coast regions of the United States. The Partnership also sells, installs and services propane appliances, including heating systems. In certain markets, the Partnership also installs and services propane fuel systems for motor vehicles. Typically, district locations are found in suburban and rural areas where natural gas is not available. Districts generally consist of an office, appliance showroom, warehouse and service facilities, with one or more 18,000 to 30,000 gallon storage tanks on the premises. As part of its overall transportation and distribution infrastructure, the Partnership operates as an interstate carrier in 48 states throughout the United States. It is also licensed as a carrier in Canada. The Partnership sells propane primarily to five markets: residential, commercial/industrial, motor fuel, agricultural and wholesale. Approximately 80% of the Partnership's 1999 fiscal year sales (based on gallons sold) were to retail accounts (33% to residential customers, 29% to industrial/commercial customers, 11% to motor fuel customers and 7% to agricultural customers), and approximately 20% were to wholesale customers. Sales to residential customers in fiscal 1999 represented approximately 41% of retail gallons sold and 50% of the Partnership's total propane margin. No single customer accounts for 1% or more of the Partnership's consolidated revenues. In the residential market, which includes both conventional and mobile homes, propane is used primarily for home heating, water heating and cooking purposes. Commercial users, which include motels, hotels, restaurants and retail stores, generally use propane for the same purposes as residential customers. Our PPX Prefilled Propane Xchange(R) program ("PPX(R)") enables consumers to exchange their empty 20-pound propane barbecue grill cylinders at various retail locations such as home centers and convenience stores. Sales of PPX(R) cylinders to retailers are included in the commercial/industrial market. Industrial customers use propane to fire furnaces, as a cutting gas and in other process applications. Other industrial customers are large-scale heating accounts and local gas utility customers who use propane as a supplemental fuel to meet peak load deliverability requirements. As a motor fuel, propane is burned in internal combustion engines that power over-the-road vehicles, forklifts and stationary engines. Agricultural uses include tobacco curing and crop drying. Retail deliveries of propane are usually made to customers by means of bobtail and rack trucks. Propane is pumped from the bobtail truck, which generally holds 2,400 to 3,000 gallons of propane, into a stationary storage tank on the customer's premises. The Partnership owns most of these storage tanks and leases them to its customers. The capacity of these tanks ranges from approximately 100 gallons to approximately 1,200 gallons. The Partnership also delivers propane to retail customers in portable cylinders with capacities of 5 to 30 gallons. Some of these deliveries are made to the customer's location, where empty cylinders are either picked up for replenishment or filled in place. The Partnership continues -3- 6 to expand its PPX(R) program. PPX(R) is availabLe at approximately 6,000 retail locations throughout the country. In its wholesale operations, the Partnership principally sells propane to large industrial end-users and other propane distributors. PROPANE SUPPLY AND STORAGE Supplies of propane from the Partnership's sources historically have been readily available. During the year ended September 30, 1999, the Partnership purchased over 65% of its propane from 10 suppliers, including the Shell Oil companies (approximately 16%), Dynegy (approximately 15%), and the Amoco companies (approximately 14%). Management believes that if supplies from these sources were interrupted, the Partnership would be able to secure adequate propane supplies from other sources without a material disruption of its operations; however, the cost of procuring replacement supplies might be materially higher and, at least on a short-term basis, margins could be affected. Aside from Shell, Dynegy and Amoco, no single supplier provided more than 10% of the Partnership's total propane supply in fiscal year 1999. In certain market areas, however, some suppliers provide 70% to 80% of the Partnership's requirements. Disruptions in supply in these areas could also have an adverse impact on the Partnership's margins. The Partnership has over 200 sources of supply, and it also makes purchases on the spot market. The Partnership purchases its propane supplies from domestic and international suppliers. Over 80% of propane purchases by the Partnership in the 1999 fiscal year were on a contractual basis under one- or two-year agreements subject to annual review. More than 70% of the supply contracts provide for pricing based upon posted prices at the time of delivery or the current prices established at major storage points such as Mont Belvieu, Texas, or Conway, Kansas. In addition, some agreements provide maximum and minimum seasonal purchase volume guidelines. The percentage of contract purchases, and the amount of supply contracted for at fixed prices, will vary from year to year as determined by the General Partner. The Partnership uses a number of interstate pipelines, as well as railroad tank cars, delivery trucks and barges, to transport propane from suppliers to storage and distribution facilities. The Partnership stores propane at facilities in Arizona, Rhode Island, Utah and several other locations. Because the Partnership's profitability is sensitive to changes in wholesale propane costs, the Partnership generally seeks to pass on increases in the cost of propane to customers. There is no assurance, however, that the Partnership will always be able to pass on product cost increases fully, particularly when product costs rise rapidly. In fiscal year 1997, when the Mont Belvieu price per gallon of propane more than doubled between April 1, 1996 ($.34625) and December 16, 1996 ($.75), the Partnership was able to maintain its profitability through the use of risk management techniques designed to control product costs, and by passing product cost increases through to end users. The Partnership expects to be able to secure adequate product supply for its customers during fiscal year 2000. Periods of severe cold weather, supply interruptions, or other unforeseen events, however, could result in rapid increases in product cost. The General Partner has adopted supply acquisition and product price risk management practices to reduce the effect of price volatility on product costs. These practices currently include the use of summer storage, prepaid contracts for future product delivery and derivative commodity instruments such as options and -4- 7 propane price swaps. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Market Risk Disclosures." The following graph shows the average prices of propane on the propane spot market during the last five fiscal years at Mont Belvieu, Texas and Conway, Kansas, two major storage areas. AVERAGE PROPANE SPOT MARKET PRICES (CENTS PER GALLON)
Mont Belvieu Conway Oct-94 $0.32.5952 $0.29.5298 Nov-94 $0.34.6063 $0.30.6938 Dec-94 $0.33.4345 $0.30.1607 Jan-95 $0.32.8338 $0.29.551 Feb-95 $0.31.8687 $0.28.9253 Mar-95 $0.32.8372 $0.30.0111 Apr-95 $0.32.3126 $0.30.0406 May-95 $0.32.7534 $0.31.2293 Jun-95 $0.31.842 $0.31.4955 Jul-95 $0.30.8108 $0.31.3834 Aug-95 $0.31.3433 $0.33.1724 Sep-95 $0.31.3608 $0.32.4765 Oct-95 $0.30.946 $0.32.7784 Nov-95 $0.30.9531 $0.32.7406 Dec-95 $0.35.3219 $0.38.1719 Jan-96 $0.36 $0.36.2415 Feb-96 $0.40.8563 $0.37.7688 Mar-96 $0.37.2292 $0.36.0119 Apr-96 $0.35.5744 $0.34.1071 May-96 $0.34.9233 $0.34.4773 Jun-96 $0.34.925 $0.36.3531 Jul-96 $0.35.6339 $0.37.2679 Aug-96 $0.38.4403 $0.37.9773 Sep-96 $0.47.0156 $0.44.7844 Oct-96 $0.51.5734 $0.51.5272 Nov-96 $0.58.0493 $0.63.4112 Dec-96 $0.61.0446 $0.84.2917 Jan-97 $0.47.4545 $0.63.392 Feb-97 $0.38.7105 $0.39.0197 Mar-97 $0.38.5 $0.37.2563 Apr-97 $0.34.875 $0.35.2614 May-97 $0.35.3095 $0.36.4762 Jun-97 $0.34.4286 $0.35.8631 Jul-97 $0.34.9063 $0.34.6278 Aug-97 $0.37.0268 $0.36.5268 Sep-97 $0.38.6786 $0.37.9524 Oct-97 $0.39.8261 $0.37.3207 Nov-97 $0.35.9479 $0.35.0035 Dec-97 $0.33.571 $0.31.3636 Jan-98 $0.30.0656 $0.28.2063 Feb-98 $0.29.7862 $0.28.3237 Mar-98 $0.27.3892 $0.27.8381 Apr-98 $0.29.0565 $0.29.4702 May-98 $0.27.4188 $0.27.8231 Jun-98 $0.24.4205 $0.24.8409 Jul-98 $0.24.5398 $0.24.5483 Aug-98 $0.24.1161 $0.23.8661 Sep-98 $0.24.8304 $0.24.0417 Oct-98 $0.25.7188 $0.24.5682 Nov-98 $0.24.7862 $0.23.2007 Dec-98 $0.20.8949 $0.18.7188 Jan-99 $0.21.7467 $0.19.6086 Feb-99 $0.22.4342 $0.20.5822 Mar-99 $0.24.1005 $0.23.4022 Apr-99 $0.28.2619 $0.27.5774 May-99 $0.28.3063 $0.26.8813 Jun-99 $0.30.9517 $0.28.679 Jul-99 $0.37.2619 $0.34.622 Aug-99 $0.40.5085 $0.37.5597 Sep-99 $0.43.1786 $0.42.4048
COMPETITION Propane competes with other sources of energy, some of which are less costly for equivalent energy value. Propane distributors compete for customers against suppliers of electricity, fuel oil and natural gas, principally on the basis of price, service, availability and portability. Electricity is a major competitor of propane, but propane generally enjoys a competitive price advantage over electricity for space heating, water heating and cooking. As previously stated, we are unable to predict the ultimate impact that the deregulation of electric generation may have on propane's current competitive price advantage. Since the 1970s, many new homes have been built to use electrical heating systems and appliances. Fuel oil is also a major competitor of propane and is generally less expensive than propane. Operating efficiencies and other factors such as air quality and environmental advantages, however, generally make propane competitive with fuel oil as a heating source. Furnaces and appliances that burn propane will not operate on fuel oil, and vice versa, and, therefore, a conversion from one fuel to the other requires the installation of new equipment. Propane serves as an alternative to natural gas in rural and suburban areas where natural gas is unavailable or portability of product is required. Natural gas is generally a less expensive source of energy than propane, although in areas where natural gas is available, propane is used for certain industrial and commercial applications and as a standby fuel during interruptions in natural -5- 8 gas service. The gradual expansion of the nation's natural gas distribution systems has resulted in the availability of natural gas in some areas that previously depended upon propane. However, natural gas pipelines are not present in many regions of the country where propane is sold for heating and cooking purposes. The domestic propane retail distribution business is highly competitive. The Partnership competes in this business with other large propane marketers, including other full-service marketers, and thousands of small independent operators. In recent years, some rural electric cooperatives and fuel oil distributors have expanded their businesses to include propane distribution and the Partnership competes with them as well. Based on the most recent annual survey by the American Petroleum Institute, the 1997 domestic retail market for propane (annual sales for other than chemical uses) was approximately 10.3 billion gallons and, based on LP-GAS magazine rankings, 1998 sales volume of the ten largest propane companies (including AmeriGas Partners) represented approximately 40% of domestic retail sales. Management believes the Partnership's 1999 retail volume represents approximately 8% of the domestic retail market. The ability to compete effectively depends on supplying customer service, maintaining competitive retail prices and controlling operating expenses. Competition can intensify in response to a variety of factors, including significantly warmer-than-normal weather, higher prices resulting from extraordinary increases in the cost of propane, and recessionary economic factors. The Partnership may experience greater than normal customer losses in certain years when competitive conditions reflect any of these factors. In the motor fuel market, propane competes with gasoline and diesel fuel. When gasoline prices are high relative to propane, propane competes effectively. Wholesale propane distribution is a highly competitive, low margin business. Propane sales to other retail distributors and large-volume, direct-shipment industrial end users are price sensitive and frequently involve a competitive bidding process. PROPERTIES As of September 30, 1999, the Partnership owned approximately 81% of its district locations. In addition, the Partnership subleases three one-million barrel underground storage caverns in Arizona to store propane and butane for itself and third parties. The Partnership also leases a 600,000 barrel refrigerated, above-ground storage facility in California, which could be used in connection with waterborne imports or exports of propane or butane. The California facility, which the Partnership operates, is currently subleased to several refiners for the storage of butane. In Rhode Island, the Partnership leases storage with a 400,000 barrel capacity. The transportation of propane requires specialized equipment. The trucks and railroad tank cars utilized for this purpose carry specialized steel tanks that maintain the propane in a liquefied state. As of September 30, 1999, the Partnership operated a fleet of approximately 150 transport trucks, 40% of which are leased. It owned approximately 315 transport trailers and leased over 400 railroad tank cars. In addition, the Partnership fleet included over 2,400 bobtail and rack trucks, and approximately 1,800 other delivery and service vehicles. Approximately 41% of these vehicles were owned. Other assets owned at September 30, 1999 included more than one million stationary -6- 9 storage tanks with typical capacities of 100 to 1,000 gallons and over 1.1 million portable propane cylinders with typical capacities of 5 to 100 gallons. The Partnership also owned more than 2,400 large volume tanks which are used for its own storage requirements. Most of the Partnership's debt is secured by liens and mortgages on the Partnership's real and personal property. TRADE NAMES, TRADE AND SERVICE MARKS The Partnership markets propane principally under the "AmeriGas(R)," "America's Propane Company(R)" and "PPX Prefilled Propane Xchange(R)" trade names and related service marks. UGI owns, directly or indirectly, all the right, title and interest in the "AmeriGas" and "Petrolane(R)" trade names and related trade and service marks. ThE General Partner owns all right, title and interest in the "America's Propane Company" and "PPX Prefilled Propane Xchange" trade names and related service marks. The Partnership has an exclusive (except for use by UGI, AmeriGas, Inc. and the General Partner), royalty-free license to use these names and trade and service marks. UGI, Petrolane Incorporated and the General Partner each has the option to terminate its respective license agreement on 12 months prior notice (immediately in the case of the General Partner), without penalty, if the General Partner is removed as general partner of the Partnership other than for cause. If the General Partner ceases to serve as the general partner of the Partnership for cause, Petrolane and the General Partner each has the option to terminate its license agreement upon payment of a fee equal to the fair market value of the licensed trade names. UGI has a similar termination option, however, UGI must provide 12 months prior notice in addition to paying the fee. The General Partner has discontinued widespread use of the "Petrolane" trade name and conducts Partnership operations almost exclusively under the "AmeriGas," "America's Propane Company" and "PPX Prefilled Propane Xchange" trade names and related service marks. SEASONALITY Because many customers use propane for heating purposes, the Partnership's retail sales volume is seasonal, with approximately 56% of the Partnership's fiscal year 1999 retail sales volume and approximately 83% of its earnings before interest expense, income taxes, depreciation and amortization occurring during the five-month peak heating season from November through March. As a result of this seasonality, sales are concentrated in the Partnership's first and second fiscal quarters (October 1 through March 31). Cash receipts are greatest during the second and third fiscal quarters when customers pay for propane purchased during the winter heating season. Sales volume for the Partnership traditionally fluctuates from year-to-year in response to variations in weather, prices, competition, customer mix and other factors, such as conservation efforts and general economic conditions. For historical information on national weather statistics, see "Management's Discussion and Analysis of Financial Condition and Results of Operations." GOVERNMENT REGULATION The Partnership is subject to various federal, state and local environmental, safety and transportation laws and regulations governing the storage, distribution and transportation of -7- 10 propane. These laws include, among others, the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA" or, the "Superfund Law"), the Clean Air Act, the Occupational Safety and Health Act, the Emergency Planning and Community Right to Know Act, the Clean Water Act and comparable state statutes. CERCLA imposes joint and several liability on certain classes of persons considered to have contributed to the release or threatened release of a "hazardous substance" into the environment without regard to fault or the legality of the original conduct. Propane is not a hazardous substance within the meaning of federal and state environmental laws. However, the Partnership owns and operates real property where such hazardous substances may exist. See Notes 1 and 13 to the Company's Consolidated Financial Statements. All states in which the Partnership operates have adopted fire safety codes that regulate the storage and distribution of propane. In some states these laws are administered by state agencies, and in others they are administered on a municipal level. The Partnership conducts training programs to help ensure that its operations are in compliance with applicable governmental regulations. With respect to general operations, National Fire Protection Association Pamphlets No. 54 and No. 58, which establish a set of rules and procedures governing the safe handling of propane, or comparable regulations, have been adopted as the industry standard in a majority of the states in which the Partnership operates. The Partnership maintains various permits under environmental laws that are necessary to operate certain of its facilities, some of which may be material to the operations of the Partnership. Management believes that the procedures currently in effect at all of its facilities for the handling, storage and distribution of propane are consistent with industry standards and are in compliance in all material respects with applicable environmental, health and safety laws. With respect to the transportation of propane by truck, the Partnership is subject to regulations promulgated under the Federal Motor Carrier Safety Act. These regulations cover the transportation of hazardous materials and are administered by the United States Department of Transportation ("DOT"). During 1999, the Research and Special Programs Administration ("RSPA"), a division of the DOT, issued new regulations applicable to cargo tanks used to transport propane and procedures for loading propane on and off cargo tanks. Specific provisions include, among other things, revised attendance requirements for unloading propane and new requirements for emergency discharge control equipment, such as remote control devices that enable the driver to stop the unloading process at a distance from the vehicle and passive systems that will shut down loading and unloading without human intervention. The Partnership is in compliance with the new regulations and is evaluating the equipment that is being developed to comply with the passive systems requirements that will become effective in July 2001. The Natural Gas Safety Act of 1968 required the DOT to develop and enforce minimum safety regulations for the transportation of gases by pipeline. The DOT's pipeline safety code applies to, among other things, a propane gas system which supplies 10 or more customers from a single source and a propane gas system any portion of which is located in a public place. The code requires operators of all gas systems to provide training and written instructions for employees, establish written procedures to minimize the hazards resulting from gas pipeline emergencies, and keep records of inspections and testing. -8- 11 EMPLOYEES The Partnership does not directly employ any persons responsible for managing or operating the Partnership. The General Partner provides these services and is reimbursed for its direct and indirect costs and expenses, including all compensation and benefit costs. At September 30, 1999, the General Partner had 5,026 employees, including 277 temporary and part-time employees. UGI also performs certain financial and administrative services for the General Partner on behalf of the Partnership and is reimbursed by the Partnership for its direct and indirect costs and expenses. -9- 12 UTILITY OPERATIONS Our utility business is conducted by UGI Utilities, Inc. a wholly owned subsidiary. Utilities operates its business through two divisions, the gas division ("Gas Utility") and the electric division ("Electric Utility"). The business conducted by each of these divisions is described below. GAS UTILITY SERVICE AREA; REVENUE ANALYSIS Gas Utility distributes natural gas to approximately 265,000 customers in portions of 14 eastern and southeastern Pennsylvania counties through its distribution system of approximately 4,400 miles of gas mains. The service area consists of approximately 3,000 square miles and includes the cities of Allentown, Bethlehem, Easton, Harrisburg, Hazleton, Lancaster, Lebanon and Reading, Pennsylvania. Located in Gas Utility's service area are major production centers for basic industries such as specialty metals, aluminum and glass. For the fiscal years ended September 30, 1999, 1998 and 1997, revenues of Gas Utility accounted for approximately 25%, 24%, and 24%, respectively, of our total consolidated revenues. System throughput (the total volume of gas sold to or transported for customers within Gas Utility's distribution system) for the 1999 fiscal year was approximately 76.1 billion cubic feet ("bcf"). System sales of gas accounted for approximately 40% of system throughput, while gas transported for commercial and industrial customers (who bought their gas from others) accounted for approximately 60% of system throughput. Based on industry data for 1998, residential customers account for approximately 35% of total system throughput by local gas distribution companies in the United States. By contrast, for the 1999 fiscal year, Gas Utility's residential customers represented 23% of its total system throughput. SOURCES OF SUPPLY AND PIPELINE CAPACITY Gas Utility meets its service requirements by utilizing a diverse mix of natural gas purchase contracts with producers and marketers, storage and transportation services from pipeline companies, and its own propane-air and liquefied natural gas peak-shaving facilities. Purchases of natural gas in the spot market are also made to reduce costs and manage storage inventory levels. These arrangements enable Gas Utility to purchase gas from Gulf Coast, Mid-Continent, Appalachian and Canadian sources. For the transportation and storage function, Utilities has agreements with a number of pipeline companies, including Texas Eastern Transmission Corporation, Columbia Gas Transmission Corporation and Transcontinental Gas Pipeline Corporation. -10- 13 GAS SUPPLY CONTRACTS During the 1999 fiscal year, Gas Utility purchased approximately 32.5 bcf of natural gas for sale to customers. Approximately 30.2 bcf or 93% of the volumes purchased were supplied under agreements with six major suppliers of natural gas. The remaining 2.3 bcf or 7% of gas purchased was supplied by producers and marketers under other arrangements, including multi-month agreements at spot prices. In fiscal year 2000, Gas Utility expects to obtain necessary gas supplies under contracts no longer than 12 months in duration. See "Natural Gas Choice and Competition Act." SEASONAL VARIATION Because many of its customers use gas for heating purposes, Gas Utility's sales are seasonal, with approximately 58% of fiscal year 1999 throughput and approximately 74% of earnings before interest expense, income taxes, depreciation and amortization occurring during the winter season from November through March. COMPETITION Natural gas is a fuel that competes with electricity and oil, and to a lesser extent, with propane and coal. Competition among these fuels is primarily a function of their comparative price and the relative cost and efficiency of fuel utilization equipment. Electric utilities in Gas Utility's service area are seeking new load, primarily in the new construction market. Competition with fuel oil dealers is focused on industrial customers. Gas Utility responds to this competition with marketing efforts designed to retain and grow its customer base. In substantially all of its service territory, Gas Utility is the only regulated gas distribution utility having the right, granted by the PUC or by law, to provide transportation services. While unregulated gas marketers have been selling gas to commercial and industrial customers in Gas Utility's service territory for over 14 years, Gas Utility provides transportation services for those sales. Pennsylvania has enacted legislation which requires a customer choice option for retail purchasers of natural gas. See "Natural Gas Choice and Competition Act." Commercial and industrial customers representing approximately 42% of Gas Utility's transportation system throughput (22% of transportation revenues) have the ability to switch to an alternate fuel at any time and, therefore, are served on an interruptible basis under rates which are competitively priced with respect to their alternate fuel. Gas Utility's margins from these customers, therefore, are affected by the difference, or "spread," between the customers' delivered cost of gas and the customers' delivered alternate fuel cost. In addition, other customers representing 31% of transportation system throughput (19% of transportation revenues) have locations which afford them the option, although none has exercised it, of seeking transportation service directly from interstate pipelines, thereby bypassing Gas Utility. The majority of customers in the latter group are served under transportation contracts having three- to ten-year terms. Included in these two groups are Utilities' ten largest customers in terms of annual volume. All of these customers have contracts with Utilities, seven of which extend into fiscal year 2002. No single customer represents, or is anticipated to represent, more than 1% of the total revenues of Gas Utility. -11- 14 OUTLOOK FOR GAS SERVICE AND SUPPLY Gas Utility anticipates having adequate pipeline capacity and sources of supply available to it to meet the full requirements of all firm customers on its system through fiscal year 2000. Supply mix is diversified, market priced, and delivered pursuant to a number of long- and short-term firm transportation and storage arrangements, including transportation contracts held by some of Utilities' larger customers. Gas Utility also operates propane air and liquefied natural gas facilities to meet winter peak service requirements. During the 1999 fiscal year, Gas Utility supplied transportation service to three major cogeneration installations and two utility generation sites. Gas Utility continues to pursue opportunities to supply natural gas to electric generation projects located in its service territory. Gas Utility also continues to seek new residential, commercial and industrial customers for both firm and interruptible service. In the residential market sector, Gas Utility connected 7,130 additional residential heating customers during the 1999 fiscal year, a modest increase from the previous year. Of those new customers, new home construction accounted for a record 5,692 heating customers, an increase of approximately 16% from the prior year. Customers converting from other energy sources, primarily oil, and existing non-heating gas customers who have added gas heating systems to replace other energy sources, accounted for the balance of the additions. The total number of new commercial and industrial customers was 1,174. Utilities continues to monitor and participate extensively in third-party proceedings before the Federal Energy Regulatory Commission ("FERC") affecting the rates and the terms and conditions under which Gas Utility transports and stores natural gas. Among these proceedings are those arising out of certain FERC orders and/or pipeline filings which relate to (i) the relative pricing of pipeline services in a competitive energy marketplace; (ii) the flexibility of the terms and conditions of pipeline service contracts; and (iii) pipelines' requests to increase their base rates, or change the terms and conditions of their storage and transportation services. Gas Utility's objective in negotiations with interstate pipeline and natural gas suppliers, and in litigation before regulatory agencies, is to assure availability of supply, transportation and storage alternatives to serve market requirements at the lowest cost possible, taking into account the need for security of supply. Consistent with that objective, Gas Utility negotiates the terms of firm transportation capacity on all pipelines serving Gas Utility, arranges for appropriate storage and peak-shaving resources, negotiates with producers for competitively priced gas purchases and aggressively participates in regulatory proceedings related to transportation rights, costs of service and gas costs. NATURAL GAS CHOICE AND COMPETITION ACT Since December 1982, Gas Utility has provided transportation service for commercial and industrial customers who purchase their gas from others. As noted earlier, this unbundled service accounted for approximately 60% of Gas Utility's system throughput in fiscal year 1999. -12- 15 In June 1999, Governor Ridge signed into law the Natural Gas Choice and Competition Act ("Gas Competition Act") which requires local natural gas distribution companies to extend the availability of gas transportation service to residential and small commercial customers by July 1, 2000 pursuant to a PUC-approved plan. Gas Utility submitted its plan to the PUC on October 1, 1999. We expect the PUC to act on the plan in the spring of 2000. Gas Utility designed its plan to ensure reliability of gas supply deliveries to Gas Utility on behalf of residential and small commercial customers. The plan also provides for recovery of costs associated with Gas Utility's existing pipeline capacity and gas supply contracts. If the plan is approved substantially as filed, we do not expect that the Gas Competition Act will have a material adverse impact on our financial condition or results of operations. See Note 3 to the Consolidated Financial Statements included in the Company's 1999 Annual Report and incorporated by reference in this Report. ELECTRIC UTILITY ELECTRICITY GENERATION CUSTOMER CHOICE AND COMPETITION ACT On January 1, 1997, Pennsylvania's Electricity Generation Customer Choice and Competition Act ("Electricity Customer Choice Act") became effective. The Electricity Customer Choice Act permits all Pennsylvania retail electric customers to choose their electric generation supplier. Pursuant to the Act, all electric utilities were required to file restructuring plans with the PUC which, among other things, included unbundled prices for electric generation, transmission and distribution and a competitive transition charge (CTC) for the recovery of "stranded costs" which would be paid by all customers receiving distribution service. Stranded costs generally are electric generation-related costs that traditionally would be recoverable in a regulated environment but may not be recoverable in a competitive electric generation market. Under the Electricity Customer Choice Act, Electric Utility's rates for transmission and distribution services provided through June 30, 2001 are capped at levels in effect on January 1, 1997. In addition, Electric Utility generally may not increase prices for electric generation as long as stranded costs are being recovered through the CTC. In accordance with the restructuring proceedings discussed below, Utilities expects to collect a CTC from all distribution customers until December 31, 2002. Electric Utility will continue to be the only regulated electric utility having the right, granted by the PUC or by law, to distribute electric energy in its service territory. On June 19, 1998, the PUC entered its Opinion and Order (the "Restructuring Order") in Electric Utility's restructuring proceeding under the Electricity Customer Choice Act. The Restructuring Order authorized Electric Utility to recover from its customers approximately $32.5 million in stranded costs (on a full revenue requirements basis, which includes all income and gross receipts taxes) over a four-year period commencing January 1, 1999 through a CTC, together with carrying charges on unrecovered balances of 7.94%. Electric Utility's recoverable stranded costs include approximately $8.7 million for the termination of a 1993 power purchase agreement with Foster Wheeler Penn Resources, Inc., an independent power producer. Since January 1, 1999, all of Electric Utility's customers have been permitted to select an alternative electric generation supplier. Customers choosing another supplier currently receive an average generation "shopping credit" (developed from system-wide generation rates) of 3.67 cents per kilowatt hour ("kwh"), which will -13- 16 remain in effect through December 31, 2000. The shopping credit will increase to 4.3 cents per kwh in calendar years 2001 and 2002. As noted above, Electric Utility's power generation rates are capped until December 31, 2002. Because Electric Utility has discontinued regulatory accounting, which permitted it to adjust customer charges to reflect changes in Electric Utility's power costs, quarterly results have been, and future results are likely to be, more volatile, due in large part to seasonal variations in such costs. Results will also be affected by the number of customers who choose to purchase their power from other suppliers during any given time period. During fiscal 1999, Utilities received PUC approval to transfer its electric generation assets to a non-utility subsidiary. These electric generation assets, consisting principally of Utilities' Hunlock generating station and its 1.11% interest in the Conemaugh generating station, were transferred effective October 1, 1999 to UGID, a wholly-owned subsidiary of Utilities. UGID has been granted "Exempt Wholesale Generator" status by FERC. SERVICE AREA; REVENUE ANALYSIS Electric Utility supplies electric service to approximately 61,000 customers in portions of Luzerne and Wyoming Counties in northeastern Pennsylvania through a system consisting of approximately 2,100 miles of transmission and distribution lines and 14 transmission substations. For the 1999 fiscal year, about 52% of sales volume came from residential customers, 35% from commercial customers and 13% from industrial customers. Electricity transported for customers who purchased their power from others pursuant to the Electricity Customer Choice Act represented approximately 5% of this sales volume. For the 1999, 1998 and 1997 fiscal years, revenues of Electric Utility accounted for approximately 5%, 5%, and 4%, respectively, of our total consolidated revenues. SOURCES OF SUPPLY Electric Utility distributes both electricity that it purchases from others (including UGID) and, since November 1, 1997, electricity that customers purchase from other suppliers. Through UGID, Utilities owns and operates the Hunlock generating station located near Kingston, Pennsylvania ("Hunlock Station"); it also has a 1.11% ownership interest in the Conemaugh generating station located near Johnstown, Pennsylvania ("Conemaugh Station"), which is operated by another utility. These two coal-fired stations can generate up to 69 megawatts of electric power for Electric Utility and provided approximately 50% of its energy requirements during the 1999 fiscal year. Effective August 1, 1999, Utilities and PP&L terminated their 1992 power supply agreement and entered into a new agreement. Through December 2000, PP&L will supply approximately 30% of Electric Utility's energy requirements and, through February 2001, PP&L will supply all of Electric Utility's capacity requirements in excess of its capacity from other sources. Electric Utility expects to enter into short-term contracts to meet the balance of its energy needs. -14- 17 UGID is evaluating the potential of the Hunlock Station site, and currently expects to operate the Hunlock plant through the next few years. Decisions regarding the operation of Hunlock Station will be highly dependent on market prices for power. ENVIRONMENTAL FACTORS The operation of Hunlock Station complies with the air quality standards of the Pennsylvania Department of Environmental Resources ("DER") with respect to stack emissions. Under the Federal Water Pollution Control Act, Utilities has a permit from the DER to discharge water from Hunlock Station into the North Branch of the Susquehanna River. The Federal Clean Air Act Amendments of 1990 (the "Clean Air Act Amendments") impose emissions limitations for certain compounds, including sulfur dioxide and nitrous oxides. Both the Conemaugh Station and the Hunlock Station are in material compliance with these emission standards. More stringent regulation of nitrous oxide emissions at both Hunlock and Conemaugh Stations may be required due to the actions of the Northeast Ozone Transport Commission. The Commission was created by the Clean Air Act Amendments to provide a plan to reduce ground level ozone in the Northeast to a level acceptable to the U.S. Environmental Protection Agency. Future actions of the Commission may cause the DER to modify its regulations for nitrous oxides and thereby affect the compliance plans of Hunlock and Conemaugh Stations. SEASONALITY Sales and distribution of electricity for residential heating purposes accounted for approximately 20% of the total sales of Electric Utility during the 1999 fiscal year. Electricity competes with natural gas, oil, propane and other heating fuels in this use. Approximately 53% of volume occurred during the six coldest months of the 1999 fiscal year (November through April), demonstrating modest seasonality favoring winter due to the use of electricity for residential heating purposes. -15- 18 UTILITY REGULATION AND RATES PENNSYLVANIA PUBLIC UTILITY COMMISSION JURISDICTION Utilities' gas and electric utility operations, which exclude electric generation, are subject to regulation by the PUC as to rates, terms and conditions of service, accounting matters, issuance of securities, contracts and other arrangements with affiliated entities, and various other matters. As noted earlier, effective October 1, 1999 Utilities transferred its electric generation assets to UGID. UGID has FERC authority to sell power at market-based rates. Generally, UGID is not subject to regulation by the PUC. FERC ORDERS 888 AND 889 In April 1996, FERC issued Orders No. 888 and 889 which established rules for the use of electric transmission facilities for wholesale transactions. FERC has also asserted jurisdiction over the transmission component of electric retail choice transactions. In compliance with these orders, the PJM Interconnection, LLC ("PJM"), of which Utilities is a member, has filed an open access transmission tariff with the FERC establishing transmission rates and procedures for transmission within the PJM control area. Under the PJM tariff and associated agreements, Electric Utility is entitled to receive certain revenues when its transmission facilities are used by third parties. PURCHASED GAS COST RATES Gas Utility's gas service tariff contains Purchased Gas Cost ("PGC") rates which provide for annual increases or decreases in the rate per thousand cubic feet ("mcf") which Gas Utility charges for natural gas sold by it, to reflect Utilities' projected cost of purchased gas. PGC rates may also be adjusted quarterly, or monthly, to reflect purchased gas costs. Each proposed PGC rate is required to be filed with the PUC six months prior to its effective date. During this period the PUC holds hearings to determine whether the proposed rate reflects a least-cost fuel procurement policy consistent with the obligation to provide safe, adequate and reliable service. After completion of these hearings, the PUC issues an order permitting the collection of gas costs at levels which meet that standard. The PGC mechanism also provides for an annual reconciliation. Utilities has two PGC rates. PGC (1) is applicable to small, firm, core market customers consisting of the residential and small commercial and industrial classes; PGC (2) is applicable to firm, contractual, high-load factor customers served on three separate rates. In addition, residential customers maintaining a high load factor may qualify for the PGC (2) rate. ENERGY COST RATES In accordance with provisions of the Electricity Customer Choice Act, the PUC approved Electric Utility's application to roll its energy cost rate ("ECR") into its base rates effective as of May 2, 1997, at a combined level not to exceed the rate cap established as of January 1, 1997. Before January 1, 1997, the ECR permitted Electric Utility to adjust customer charges to reflect annual changes in the cost of purchased power, fuel, interchange power and the cost of transmitting power purchased from external sources. Electric Utility may no longer adjust customer charges to reflect changes in such costs. -16- 19 BASE RATES Gas Utility's current base rates have been in effect since August 31, 1995. Rates for total non-gas charges to retail customers are currently capped through December 31, 2000 pursuant to the Gas Competition Act. Electric Utility's current base rates have been in effect since July 19, 1996 and are capped through June 2001 pursuant to the Electricity Customer Choice Act. See Note 3 to the Consolidated Financial Statements included in the Company's 1999 Annual Report and incorporated by reference in this Report. STATE TAX SURCHARGE CLAUSES Utilities' gas and electric service tariffs contain state tax surcharge clauses. The surcharges are recomputed whenever any of the tax rates included in their calculation are changed. These clauses protect Utilities from the effect of increases in most of the Pennsylvania taxes to which it is subject, however, any increase in Electric Utility's state tax surcharge is generally subject to the rate caps discussed above. UTILITY FRANCHISES Utilities holds certificates of public convenience issued by the PUC and certain "grandfather rights" predating the adoption of the Pennsylvania Public Utility Code and its predecessor statutes which it believes are adequate to authorize it to carry on its business in substantially all the territory to which it now renders gas and electric service. Under applicable Pennsylvania law, Utilities also has certain rights of eminent domain as well as the right to maintain its facilities in streets and highways in its territories. OTHER GOVERNMENT REGULATION In addition to regulation by the PUC, the gas and electric utility operations of Utilities are subject to various federal, state and local laws governing environmental matters, occupational health and safety, pipeline safety and other matters. Certain of Utilities' activities involving the interstate movement of natural gas, the transmission of electricity, transactions with non-utility generators of electricity, like UGID, and other matters, are also subject to the jurisdiction of FERC. Utilities is subject to the requirements of the federal Resource Conservation and Recovery Act, CERCLA and comparable state statutes with respect to the release of hazardous substances on property owned or operated by Utilities. See ITEM 3. "LEGAL PROCEEDINGS - Environmental Matters-Manufactured Gas Plants." The electric generation activities of Utilities are also subject to the Clean Air Act Amendments, the Federal Water Pollution Control Act and comparable state statutes and regulations. See "UTILITY OPERATIONS - Electric Utility Environmental Factors." -17- 20 EMPLOYEES At September 30, 1999, Utilities and its subsidiaries had 1,138 employees. -18- 21 UGI ENTERPRISES, INC. UGI Enterprises, Inc. is a wholly owned subsidiary of UGI that was formed in 1994. Through its subsidiaries, Enterprises is developing the domestic and international businesses described below. INTERNATIONAL PROPANE DISTRIBUTION In September 1999, subsidiaries of Enterprises acquired all of the stock of Flaga, a privately-held company founded in 1947. Flaga is the largest retail propane distributor in Austria and a leading distributor in the Czech Republic. FLAGA operates from 7 distribution locations in Austria, 8 in the Czech Republic and 2 in Slovakia. Flaga markets over 40 million gallons of propane annually and has revenues of approximately $50 million. Its assets totaled $138 million at September 30, 1999. NATURAL GAS AND ELECTRICITY MARKETING In 1995, the gas marketing business previously conducted by a subsidiary of Utilities was transferred to UGI Energy Services, Inc. ("Energy Services"), a wholly owned subsidiary of Enterprises. Energy Services conducts this business under the trade name GASMARK(R). GASMARK(R) sells natural gas directly to more than 1,100 commercial and industrial customers in the Mid-Atlantic region through the transportation systems of 15 utility systems. Energy Services also sells electricity to over 500 commercial and industrial customers in Pennsylvania. Another Enterprises subsidiary, UGI Power Supply, Inc., has FERC authority to engage in wholesale electric power sales. RETAIL HEARTH PRODUCTS In September 1999, Enterprises opened the first Hearth USA(TM) retail store in Rockville, Maryland. HeartH USA(TM) is the nation's first large-scale retailer to offer a wide selection of hearth, grill and spa products together with installation services. Another store is scheduled to open in the Mid-Atlantic region early in 2000. Enterprises expects to evaluate the Hearth retail concept further prior to scheduling openings in other markets. INTERNATIONAL ENERGY-RELATED JOINT VENTURES During 1996, Enterprises formed a partnership with affiliates of Energy Transportation Group, Inc. ("ETG") and North American World Trade, Ltd. to develop, build and operate a liquefied petroleum gas ("LPG") import project in Romania. ETG has extensive experience in the transportation of liquefied natural gas, and North American World Trade, Ltd. is a consulting firm with Romanian expertise. The joint venture is known as Black Sea LPG Romania, S.A. Enterprises has funded the initial development of the joint venture through its subsidiary, UGI Romania, Inc. The Romanian partners in this venture are Regia Autonoma a Gazelor Naturale "Romgaz" Medias, the Romanian national gas utility; Regia Autonoma de Electricitate "Renel", the Romanian national electric utility; and Rompetrol, S.A., a privately-held energy services company. The economic climate in Romania in recent years has slowed project development. -19- 22 During 1998, Enterprises formed ChinaGas Partners, L.P. ("ChinaGas") with affiliates of ETG to develop, build and operate LPG projects in the People's Republic of China. On October 28, 1998, ChinaGas and its wholly owned subsidiary together acquired 50% of the shares of an existing Chinese company known as the Nantong Huayang LPG Port Co., Ltd. ("Port Company") which operates an integrated LPG business, including an import terminal and distribution business, serving the provinces along the lower and middle reaches of the Yangtze River. The other shareholders in the Port Company are China National Chemical Supply & Sales Corporation and two of its affiliates. Our effective ownership interest in the Port Company is 25%. BUSINESS SEGMENT INFORMATION The table stating the amounts of revenues, operating income (loss) and identifiable assets attributable to each of UGI's business segments for the 1999, 1998 and 1997 fiscal years appears in Note 17 to the Consolidated Financial Statements contained in our 1999 Annual Report and is incorporated in this Report by reference. EMPLOYEES At September 30, 1999, UGI and its subsidiaries had 6,720 employees. -20- 23 ITEM 3. LEGAL PROCEEDINGS With the exception of the matters set forth below, no material legal proceedings are pending involving UGI, any of its subsidiaries or any of their properties, and no such proceedings are known to be contemplated by governmental authorities. ENVIRONMENTAL MATTERS - MANUFACTURED GAS PLANTS Prior to the general availability of natural gas, in the 1800s through the mid-1900s, manufactured gas was a chief source of gas for lighting and heating nationwide. The process involved heating certain combustibles such as coal, oil and coke in a low-oxygen atmosphere. Methods of production included coal carbonization, carbureted water gas and catalytic cracking. These methods were employed at many different sites throughout the country. The residue from gas manufacturing, including coal tar, was typically stored on site, burned in the gas plant, or sold for commercial use. Some constituents of coal tars produced from the manufactured gas process are today considered hazardous substances under the Superfund Law. The gas distribution business has been one of Utilities' principal lines of business since its inception in 1882. One of the ways Utilities initially expanded its business in its early years was by entering into agreements with other gas companies to operate their businesses. After 1888, the principal means by which Utilities expanded its gas business was to acquire all or a portion of the stock of companies engaged in this business. Utilities also provided management and administrative services to some of these companies. Utilities grew rapidly by means of stock acquisitions and became one of the largest public utility holding companies in the country. Pursuant to the requirements of the Public Utility Holding Company Act of 1935, Utilities divested all of its utility operations other than those which now constitute the Gas Utility and the Electric Utility. The manufactured gas process was once used by Utilities in connection with providing gas service to its customers. In addition, virtually all of the gas companies that Utilities operated or to which it provided services, or in which Utilities held stock, utilized a manufactured gas process. Utilities has been notified of several sites outside Pennsylvania on which (i) gas plants were formerly operated by it or owned or operated by its former subsidiaries and (ii) either environmental agencies or private parties are investigating the extent of environmental contamination and the necessity of environmental remediation. Utilities is currently litigating a claim against it relating to an out-of-state site. If Utilities were found liable as a "responsible party" as defined in the Superfund Law (or comparable state statutes) with respect to this site, it would have joint and several liability with other responsible parties for the full amount of the cleanup costs. A "responsible party" under that statute includes (i) the current owner of the affected property and (ii) each owner or operator of a facility during the time when hazardous substances were released on the property. Management believes that Utilities should not have significant liability in those instances in which a former subsidiary operated a manufactured gas plant because Utilities generally is not legally liable for the obligations of its subsidiaries. Under certain circumstances, however, a court could find a parent company liable for environmental damage caused by a subsidiary company -21- 24 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 Utilities owned or directly operated, or that were owned or operated by former subsidiaries of Utilities, if a court were to conclude that the subsidiary's separate corporate form should be disregarded. Utilities believes that there are approximately 40 manufactured gas plant sites in Pennsylvania where either (i) Utilities formerly operated the plant or (ii) Utilities owns or at one time owned the site. Most of the sites are no longer owned by Utilities and the gas plants formerly operated at these 40 sites have all been out of operation since at least the early 1950s. Utilities or other parties are currently conducting investigative or remedial activities at nine of the 40 sites. Based on the 1995 settlement agreement with the PUC relating to Gas Utilities' 1995 base rate increase filing, rate relief will be permitted for certain remediation expenditures on environmentally contaminated sites located in Pennsylvania. Because of this, Utilities does not expect its costs for Pennsylvania sites to be material to its results of operations. The following is a short description of the status of certain matters involving Utilities related to manufactured gas plants located in other states. See also Notes 1 and 13 to the Company's Consolidated Financial Statements. OUT OF STATE GAS PLANT SITES 1. Halladay Street, Jersey City, New Jersey. By letter dated April 12, 1993, Public Service Electric and Gas Company ("PSE&G") informed Utilities that PSE&G had been named as a defendant in a civil action pending in the United States District Court for the District of New Jersey, seeking damages as a result of contamination relating to the former manufactured gas plant operations at Halladay Street in Jersey City, New Jersey. The Halladay Street gas plant operated from approximately 1884 until 1950. PSE&G asserted that Utilities is liable for that portion of the costs associated with operations of the plant between 1886 and 1899. PPG Industries, Inc. has also been named as a defendant in the action for costs associated with chemical contamination at the site unrelated to gas plant operations. In July 1993, PSE&G served Utilities with a complaint naming Utilities as a third-party defendant in this civil action. PSE&G subsequently amended the complaint to allege additional theories of liability for the period from 1899 to 1940. To date, that action has focused on the chemical contamination allegedly associated with PPG Industries' activities and there have been no developments concerning liability for gas plant related contamination. Investigations of the site conducted to date are insufficient to establish the extent of environmental remediation necessary, if any. Hence, Utilities is unable to estimate the total cost of cleanup associated with manufactured gas plant wastes at this site. 2. Savannah, Georgia. On March 2, 1992, Atlanta Gas Light Company ("AGL") informed Utilities that it was investigating contamination that appears to be related to manufactured gas plant operations at a site owned by AGL in Savannah, Georgia. AGL believes that Utilities may be liable for investigative and remedial costs as a result of having operated the gas plant through a subsidiary company in the early 1900s. AGL has stated its intention to bring suit against Utilities. AGL -22- 25 estimates that total costs to remediate the site may exceed $5 million. Management believes that Utilities has substantial defenses to any action that may arise out of the activities of its former subsidiary at this site. RELATED MATTER 1. UGI Utilities, Inc. v. Insurance Co. of North America, et. al. On February 11, 1999, UGI Utilities, Inc. filed suit in the Court of Common Pleas of Montgomery County, Pennsylvania against more than fifty insurance companies, including Insurance Services, Ltd. (AEGIS). The complaint alleges that the defendants breached contracts of insurance by failing to indemnify Utilities for certain environmental costs. The suit seeks to recover more than $11 million in costs incurred by Utilities at various manufactured gas plant sites. The case is in the preliminary discovery and pleadings stage. -23- 26 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of security holders during the last fiscal quarter of the 1999 fiscal year. EXECUTIVE OFFICERS Information regarding our executive officers is included in Part III of this Report and is incorporated in Part I by reference. PART II: SECURITIES AND FINANCIAL INFORMATION ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS MARKET INFORMATION Our Common Stock is traded on the New York and Philadelphia stock exchanges under the symbol "UGI". The following table sets forth the high and low sales prices for the Common Stock on the New York Stock Exchange Composite Transactions tape as reported in The Wall Street Journal for each full quarterly period within the two most recent fiscal years:
1999 FISCAL YEAR HIGH LOW 4th Quarter $24.688 $19.750 3rd Quarter 21.000 16.563 2nd Quarter 24.375 15.000 1st Quarter 25.750 21.625
1998 FISCAL YEAR HIGH LOW 4th Quarter $25.813 $20.500 3rd Quarter 28.750 23.750 2nd Quarter 29.750 27.000 1st Quarter 30.125 25.125
-24- 27 DIVIDENDS Quarterly dividends on our Common Stock were paid in the 1999 and 1998 fiscal years as follows:
1999 FISCAL YEAR AMOUNT 4th Quarter $.365 3rd Quarter .365 2nd Quarter .365 1st Quarter .365
1998 FISCAL YEAR AMOUNT 4th Quarter $.365 3rd Quarter .360 2nd Quarter .360 1st Quarter .360
HOLDERS On December 1, 1999, UGI had 11,711 holders of record of Common Stock. -25- 28 ITEM 6. SELECTED FINANCIAL DATA
(Millions of dollars, except per share amounts) Year Ended September 30, --------------------------------------------------------------------- 1999 1998 1997 1996 1995 --------- --------- --------- --------- --------- (Millions of dollars, except per share amounts) FOR THE PERIOD: INCOME STATEMENT DATA: Revenues $ 1,383.6 $ 1,439.7 $ 1,642.0 $ 1,557.6 $ 877.6 ========= ========= ========= ========= ========= Income before extraordinary loss and change in accounting $ 55.7 $ 40.3 $ 52.1 $ 39.5 $ 7.9 Extraordinary loss - debt restructuring -- -- -- -- (13.2) Change in accounting for postemployment benefits -- -- -- -- (3.1) --------- --------- --------- --------- --------- Net income (loss) $ 55.7 $ 40.3 $ 52.1 $ 39.5 $ (8.4) ========= ========= ========= ========= ========= DILUTED EARNINGS PER SHARE:(a) Earnings before extraordinary loss and change in accounting $ 1.74 $ 1.22 $ 1.57 $ 1.19 $ 0.24 Extraordinary loss - debt restructuring -- -- -- -- (0.40) Change in accounting for postemployment benefits -- -- -- -- (0.10) --------- --------- --------- --------- --------- Net earnings (loss) $ 1.74 $ 1.22 $ 1.57 $ 1.19 $ (0.26) ========= ========= ========= ========= ========= Cash dividends declared $ 1.47 $ 1.45 $ 1.43 $ 1.41 $ 1.39 ========= ========= ========= ========= ========= AT PERIOD END: BALANCE SHEET DATA: Total assets $ 2,135.9 $ 2,074.6 $ 2,151.7 $ 2,133.0 $ 2,152.3 ========= ========= ========= ========= ========= Capitalization: Debt: Bank loans - AmeriGas Propane $ 22.0 $ 10.0 $ 28.0 $ 15.0 $ -- Bank loans - UGI Utilities 87.4 68.4 67.0 50.5 42.0 Bank loans - other 11.6 -- -- -- -- Long-term debt (including current maturities): AmeriGas Propane 744.7 709.0 691.1 692.5 658.5 UGI Utilities 180.0 187.2 169.3 174.8 206.3 Other 91.6 8.2 8.6 9.0 9.3 --------- --------- --------- --------- --------- Total debt 1,137.3 982.8 964.0 941.8 916.1 ========= ========= ========= ========= ========= Minority interest in AmeriGas Partners 209.9 236.5 266.5 284.4 318.9 UGI Utilities preferred stock subject to mandatory redemption 20.0 20.0 35.2 35.2 35.2 Common stockholders' equity 249.2 367.1 376.1 377.6 380.5 --------- --------- --------- --------- --------- Total capitalization $ 1,616.4 $ 1,606.4 $ 1,641.8 $ 1,639.0 $ 1,650.7 ========= ========= ========= ========= ========= RATIO OF CAPITALIZATION: Total debt 70.4% 61.2% 58.7% 57.5% 55.5% Minority interest 13.0% 14.7% 16.3% 17.4% 19.3% UGI Utilities preferred stock 1.2% 1.2% 2.1% 2.1% 2.1% Common stockholders' equity 15.4% 22.9% 22.9% 23.0% 23.1% --------- --------- --------- --------- --------- 100.0% 100.0% 100.0% 100.0% 100.0% ========= ========= ========= ========= =========
(a) Basic earnings per share was $1.58 in 1997. For all other periods presented, basic earnings (loss) per share was the same as diluted earnings (loss) per share. -26- 29 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's Discussion and Analysis of Financial Condition and Results of Operations, entitled "Financial Review" and contained on pages 13 through 21 of UGI's 1999 Annual Report to Shareholders, is incorporated in this report by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. "Quantitative and Qualitative Disclosures About Market Risk" are contained in Management's Discussion and Analysis of Financial Condition and Results of Operations under the caption "Market Risk Disclosures" on pages 20 and 21 of the UGI 1999 Annual Report to Shareholders and are incorporated in this Report by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Financial Statements and Financial Statement Schedules referred to in the Index contained on pages F-2 and F-3 of this Report are incorporated in this Report by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. -27- 30 PART III: UGI MANAGEMENT AND SECURITY HOLDERS ITEMS 10 THROUGH 13. In accordance with General Instruction G(3), and except as set forth below, the information required by Items 10, 11, 12 and 13 is incorporated in this Report by reference to the following portions of UGI's Proxy Statement, which will be filed with the Securities and Exchange Commission by January 28, 2000:
CAPTIONS OF PROXY STATEMENT INFORMATION INCORPORATED BY REFERENCE ----------- ------------------------- Item 10. Directors and Executive Election of Directors - Nominees Officers of Registrant. Item 11. Executive Compensation. Compensation of Executive Officers Compensation of Directors Item 12. Security Ownership of Securities Ownership of Management Certain Beneficial Owners and Management. Item 13. Certain Relationships Compensation of Executive Officers - and Related Transactions. Stock Ownership Policy and Indebtedness of Management
The information concerning the Company's executive officers required by Item 10 is set forth below. EXECUTIVE OFFICERS
NAME AGE POSITION ---- --- -------- Lon R. Greenberg 49 Chairman, Director, President and Chief Executive Officer Brendan P. Bovaird 51 Vice President and General Counsel Bradley C. Hall 46 Vice President - New Business Development Anthony J. Mendicino 51 Vice President - Finance and Chief Financial Officer Robert J. Chaney 57 President and Chief Executive Officer, UGI Utilities, Inc.
-28- 31 All officers are elected for a one-year term at the organizational meetings of the respective Boards of Directors held each year. There are no family relationships between any of the officers or between any of the officers and any of the directors. Lon R. Greenberg - ---------------- Mr. Greenberg was elected Chairman of UGI effective August 1, 1996, having been elected Chief Executive Officer effective August 1, 1995. He was elected Director and President of UGI and a Director of UGI Utilities in July 1994. Mr. Greenberg was Senior Vice President - Legal and Corporate Development (1989 to 1994), and also served as Vice President - Legal and Corporate Development (1987 to 1989). Previously, he was Vice President Legal (1984 to 1987), General Counsel (1983 to 1994) and Secretary (1982 to 1988). He joined the Company in 1980 as Corporate Development Counsel. Mr. Greenberg is also a director on the Mellon PSFS Advisory Board. Brendan P. Bovaird - ------------------ Mr. Bovaird is Vice President and General Counsel of UGI (since April 1995). He is also Vice President and General Counsel of UGI Utilities, Inc., and AmeriGas Propane, Inc. (since April 1995). Mr. Bovaird previously served as Division Counsel and Member of the Executive and Operations Committees of Wyeth-Ayerst International Inc. (1992 to 1995) and Senior Vice President, General Counsel and Secretary of Orion Pictures Corporation (1990 to 1991). Bradley C. Hall - --------------- Mr. Hall was elected Vice President - New Business Development on October 25, 1994, having been Vice President - Marketing and Rates, UGI Utilities, Inc. Gas Division. He also serves as President of UGI Enterprises, Inc. (since 1994). He joined the Company in 1982 and held various positions in Gas Utility. Anthony J. Mendicino - -------------------- Mr. Mendicino was elected Vice President - Finance and Chief Financial Officer on September 8, 1998. He previously served as President and Chief Operating Officer (July 1997 to June 1998) and as Senior Vice President (January 1997 to June 1997) of Eastwind Group, Inc., a holding company formed to acquire and consolidate middle-market manufacturing businesses. Mr. Mendicino was Senior Vice President and Chief Financial Officer and a director (1987 to 1996) of UTI Energy Corp., a diversified oil field service company. From 1981 to 1987 Mr. Mendicino held various positions with UGI, including Treasurer from 1984 to 1987. -29- 32 Robert J. Chaney - ---------------- Mr. Chaney is President and Chief Executive Officer of UGI Utilities, Inc., (since March 1999). He previously served as Executive Vice President (1998 to 1999), Vice President and General Manager - Gas Utility Division (1991 to 1998) and Vice President - Rates and Energy Utilization - Gas Utility Division (1981 to 1991). -30- 33 PART IV: ADDITIONAL EXHIBITS, SCHEDULES AND REPORTS ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) DOCUMENTS FILED AS PART OF THIS REPORT: (1), (2) The financial statements and financial statement schedules incorporated by reference or included in this report are listed in the accompanying Index to Financial Statements and Financial Statement Schedules set forth on pages F-2 through F-3 of this report, which is incorporated herein by reference. (3) LIST OF EXHIBITS: The exhibits filed as part of this report are as follows (exhibits incorporated by reference are set forth with the name of the registrant, the type of report and registration number or last date of the period for which it was filed, and the exhibit number in such filing): -31- 34 INCORPORATION BY REFERENCE
EXHIBIT NO. EXHIBIT REGISTRANT FILING EXHIBIT ----------- ------- ---------- ------ ------- 3.1 (Second) Amended and Restated Articles of UGI Amendment No. 1 3.(3)(a) Incorporation of the Company on Form 8 to Form 8-B (4/10/92) 3.2 Bylaws of UGI as in effect since October UGI Form 10-K 3.2 27, 1998 (9/30/98) 4 Instruments defining the rights of security holders, including indentures. (The Company agrees to furnish to the Commission upon request a copy of any instrument defining the rights of holders of long-term debt not required to be filed pursuant to Item 601(b)(4) of Regulation S-K) 4.1 Rights Agreement, as amended as of April UGI Form 8-K 4.1 17, 1996, between the Company and Mellon Bank, (4/17/96) N.A., successor to Mellon Bank (East) N.A., as Rights Agent, and Assumption Agreement dated April 7, 1992 4.2 The description of the Company's Common UGI Form 8-B/A 3.(4) Stock contained in the Company's (4/17/96) registration statement filed under the Securities Exchange Act of 1934, as amended 4.3 UGI's (Second) Amended and Restated Articles of Incorporation and Bylaws referred to in 3.1 and 3.2 above 4.4 Note Agreement dated as of April 12, 1995 AmeriGas Form 10-Q 10.8 among The Prudential Insurance Company of Partners, L.P. (3/31/95) America, Metropolitan Life Insurance Company, and certain other institutional investors and AmeriGas Propane, L.P., New AmeriGas Propane, Inc. and Petrolane Incorporated 4.5 First Amendment dated as of September 12, AmeriGas Form 10-K 4.5 1997 to Note Agreement dated as of April Partners, L.P. (9/30/97) 12, 1995 4.6 Second Amendment dated as of September 15, AmeriGas Form 10-K 4.6 1998 to Note Agreement dated as of April Partners, L.P. (9/30/98) 12, 1995
-32- 35 INCORPORATION BY REFERENCE
EXHIBIT NO. EXHIBIT REGISTRANT FILING EXHIBIT ----------- ------- ---------- ------ ------- 4.7 Third Amendment dated as of March 23, 1999 AmeriGas Form 10-Q 10.2 to Note Agreement dated as of April 12, 1995 Partners, L.P. (3/31/99) 4.8 Note Agreement dated as of March 15, 1999 AmeriGas Form 10-Q 10.3 among AmeriGas Propane, L.P., AmeriGas Partners, L.P. (3/31/99) Propane, Inc. and certain institutional investors 10.1 Service Agreement (Rate FSS) dated as of UGI Form 10-K 10.5 November 1, 1989 between Utilities and (9/30/95) Columbia, as modified pursuant to the orders of the Federal Energy Regulatory Commission at Docket No. RS92-5-000 reported at Columbia Gas Transmission Corp., 64 FERC Section 61,060 (1993), order on rehearing, 64 FERC Section 61,365 (1993) 10.2 Service Agreement (Rate FTS) dated June 1, Utilities Form 10-K (10)o. 1987 between Utilities and Columbia, as (12/31/90) modified by Supplement No. 1 dated October 1, 1988; Supplement No. 2 dated November 1, 1989; Supplement No. 3 dated November 1, 1990; Supplement No. 4 dated November 1, 1990; and Supplement No. 5 dated January 1, 1991, as further modified pursuant to the orders of the Federal Energy Regulatory Commission at Docket No. RS92-5-000 reported at Columbia Gas Transmission Corp., 64 FERC Section 61,060 (1993), order on rehearing, 64 FERC Section 61,365 (1993) 10.3 Transportation Service Agreement (Rate Utilities Form 10-K (10)p. FTS-1) dated November 1, 1989 between (12/31/90) Utilities and Columbia Gulf Transmission Company, as modified pursuant to the orders of the Federal Energy Regulatory Commission in Docket No. RP93-6-000 reported at Columbia Gulf Transmission Co., 64 FERC Section 61,060 (1993), order on rehearing, 64 FERC Section 61,365 (1993) 10.4 Amended and Restated Sublease Agreement UGI Form 10-K 10.35 dated April 1, 1988 between Southwest Salt (9/30/94) Co. and AP Propane, Inc. (the "Southwest Salt Co. Agreement") *10.5 Letter dated July 8, 1998 pursuant to Article 1, Section 1.2 of the Southwest Salt Co. Agreement re: option to renew for period of June 1, 2000 to May 31, 2005 and related extension notice
-33- 36 INCORPORATION BY REFERENCE
EXHIBIT NO. EXHIBIT REGISTRANT FILING EXHIBIT ----------- ------- ---------- ------ ------- 10.6** UGI Corporation Directors Deferred UGI Form 10-K 10.39 Compensation Plan dated August 26, 1993 (9/30/94) 10.7** UGI Corporation 1992 Stock Option and UGI Form 10-Q (10)ee Dividend Equivalent Plan, as amended May (6/30/92) 19, 1992 10.8** UGI Corporation Annual Bonus Plan dated UGI Form 10-Q 10.4 March 8, 1996 (6/30/96) 10.9** UGI Corporation Directors' Equity UGI Form 10-Q 10.1 Compensation Plan (3/31/97) 10.10** UGI Corporation 1997 Stock Option and UGI Form 10-Q 10.2 Dividend Equivalent Plan (3/31/97) 10.11** UGI Corporation 1992 Directors' Stock Plan UGI Form 10-Q (10)ff (6/30/92) 10.12** UGI Corporation Senior Executive Employee UGI Form 10-K 10.12 Severance Pay Plan effective January 1, 1997 (9/30/97) *10.13** UGI Corporation 2000 Directors' Stock Option Plan *10.14** UGI Corporation 2000 Stock Incentive Plan 10.15** 1997 Stock Purchase Loan Plan UGI Form 10-K 10.16 (9/30/97) 10.16** UGI Corporation Supplemental Executive UGI Form 10-Q 10 Retirement Plan Amended and Restated (6/30/98) effective October 1, 1996 10.17** Summary of Terms of UGI Corporation 1999 UGI Form 10-Q 10 Restricted Stock Awards (6/30/99) 10.18 Amended and Restated Credit Agreement dated AmeriGas Form 10-K 10.1 as of September 15, 1997 among AmeriGas Partners, L.P. (9/30/97) Propane, L.P., AmeriGas Propane, Inc., Petrolane Incorporated, Bank of America National Trust and Savings Association, as Agent, First Union National Bank, as Syndication Agent and certain banks 10.19 First Amendment dated as of September 15, AmeriGas Form 10-K 10.2 1998 to Amended and Restated Credit Partners, L.P. (9/30/98) Agreement 10.20 Second Amendment dated as of March 25, 1999 AmeriGas Form 10-Q 10.1 to Amended and Restated Credit Agreement Partners, L.P. (3/31/99)
-34- 37 INCORPORATION BY REFERENCE
EXHIBIT NO. EXHIBIT REGISTRANT FILING EXHIBIT ----------- ------- ---------- ------ ------- 10.21 Intercreditor and Agency Agreement dated as AmeriGas Form 10-Q 10.2 of April 19, 1995 among AmeriGas Propane, Partners, L.P. (3/31/95) Inc., Petrolane Incorporated, AmeriGas Propane, L.P., Bank of America National Trust and Savings Association ("Bank of America") as Agent, Mellon Bank, N.A. as Cash Collateral Sub-Agent, Bank of America as Collateral Agent and certain creditors of AmeriGas Propane, L.P. 10.22 General Security Agreement dated as of AmeriGas Form 10-Q 10.3 April 19, 1995 among AmeriGas Propane, Partners, L.P. (3/31/95) L.P., Bank of America National Trust and Savings Association and Mellon Bank, N.A. 10.23 Subsidiary Security Agreement dated as of AmeriGas Form 10-Q 10.4 April 19, 1995 among AmeriGas Propane, Partners, L.P. (3/31/95) L.P., Bank of America National Trust and Savings Association as Collateral Agent and Mellon Bank, N.A. as Cash Collateral Agent 10.24 Restricted Subsidiary Guarantee dated as of AmeriGas Form 10-Q 10.5 April 19, 1995 by AmeriGas Propane, L.P. Partners, L.P. (3/31/95) for the benefit of Bank of America National Trust and Savings Association, as Collateral Agent 10.25 Trademark License Agreement dated April 19, AmeriGas Form 10-Q 10.6 1995 among UGI Corporation, AmeriGas, Inc., Partners, L.P. (3/31/95) AmeriGas Propane, Inc., AmeriGas Partners, L.P. and AmeriGas Propane, L.P. 10.26 Trademark License Agreement, dated April AmeriGas Form 10-Q 10.7 19, 1995 among AmeriGas Propane, Inc., Partners, L.P. (3/31/95) AmeriGas Partners, L.P. and AmeriGas Propane, L.P. 10.27 Agreement dated as of May 1, 1996 between AmeriGas Form 10-K 10.2 TE Products Pipeline Company, L.P. and Partners, L.P. (9/30/97) AmeriGas Propane, L.P. *10.28 Pledge Agreement dated September 1999 between Eastfield International Holdings, Inc. and Reiffeisen Zentralbank Osterreich Aktiengesellschaft ("RZB") *10.29 Pledge Agreement dated September 1999 between EuroGas Holdings, Inc. and RZB *10.30 Form of Guarantee Agreement dated September 1999 between UGI Corporation and RZB relating to loan amount of EURO 74 million
-35- 38 INCORPORATION BY REFERENCE
EXHIBIT NO. EXHIBIT REGISTRANT FILING EXHIBIT ----------- ------- ---------- ------ ------- *10.31 Form of Guarantee Agreement dated September 1999 between UGI Corporation and RZB relating to loan amount of EURO 16 million *10.32 Form of Guarantee Agreement dated September 1999 between UGI Corporation and RZB relating to loan amount of EURO 15 million *10.33** Description of Change of Control arrangements for Messrs. Greenberg, Bovaird, Cuzzolina, Hall and Mendicino *10.34** Description of Change of Control arrangement for Mr. Chaney *13.1 Pages 13 through 43 of 1999 Annual Report to Shareholders *21 Subsidiaries of the Registrant *23.1 Consent of Arthur Andersen LLP re: Financial Statements of UGI Corporation *27 Financial Data Schedule
* Filed herewith. ** As required by Item 14(a)(3), this exhibit is identified as a compensatory plan or arrangement. (b) Reports on Form 8-K: During the last quarter of the 1999 fiscal year, the Company filed the following Current Reports on Form 8-K: Date of Report Item Numbers Included - -------------- --------------------- 7/28/99 5 and 7 - News release regarding dividend increase, stock repurchase and strategic initiatives 8/2/99 5 and 7 - News release regarding commencement of self-tender offer 9/7/99 5 and 7 - News release regarding final results of self-tender offer 9/21/99 5 and 7 - News release regarding acquisition of FLAGA Beteiligungs Aktiengesellschaft in Austria -36- 39 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. UGI CORPORATION Date: December 14, 1999 By: Anthony J. Mendicino ----------------------------------- Anthony J. Mendicino Vice President - Finance and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below on December 14, 1999, by the following persons on behalf of the Registrant in the capacities indicated. SIGNATURE TITLE - --------- ----- Lon R. Greenberg Chairman, President - --------------------- and Chief Executive Officer Lon R. Greenberg (Principal Executive Officer) and Director Anthony J. Mendicino Vice President - Finance - --------------------- and Chief Financial Officer Anthony J. Mendicino (Principal Financial Officer and Principal Accounting Officer) Stephen D. Ban Director - --------------------- Stephen D. Ban Thomas F. Donovan Director - --------------------- Thomas F. Donovan -37- 40 Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below on December 14, 1999, by the following persons on behalf of the Registrant in the capacities indicated. SIGNATURE TITLE - --------- ----- Richard C. Gozon Director - --------------------- Richard C. Gozon Director - --------------------- Anne Pol Marvin O. Schlanger Director - --------------------- Marvin O. Schlanger James W. Stratton Director - --------------------- James W. Stratton David I. J. Wang Director - --------------------- David I. J. Wang -38- 41 UGI CORPORATION AND SUBSIDIARIES FINANCIAL INFORMATION FOR INCLUSION IN ANNUAL REPORT ON FORM 10-K YEAR ENDED SEPTEMBER 30, 1999 F-1 42 UGI CORPORATION AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES The consolidated financial statements and supplementary data of UGI Corporation and subsidiaries, together with the report thereon of Arthur Andersen LLP dated November 12, 1999, listed in the following index, are included in UGI's 1999 Annual Report to Shareholders and are incorporated in this Form 10-K Annual Report by reference. With the exception of the pages listed in this index and information incorporated in Items 1, 2, 5, 7 and 8, the 1999 Annual Report to Shareholders is not to be deemed filed as part of this Report.
Reference --------------------------------- Annual Report to Form 10-K Shareholders (page) (page) ------ ------ Reports of Independent Public Accountants: On Consolidated Financial Statements 22 On Financial Statement Schedules F-4 Financial Statements: Consolidated Balance Sheets, September 30, 1999 and 1998 24 to 25 For the years ended September 30, 1999, 1998 and 1997: Consolidated Statements of Income 23 Consolidated Statements of Cash Flows 26 Consolidated Statements of Stockholders' Equity 27
F-2 43 UGI CORPORATION AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES (CONTINUED)
Reference --------------------------------- Annual Report to Form 10-K Shareholders (page) (page) ------ ------ Notes to Consolidated Financial Statements 28 to 43 Supplementary Data (unaudited): Quarterly Data for the years ended September 30, 1999 and 1998 42 Financial Statement Schedules: For the years ended September 30, 1999, 1998 and 1997: I - Condensed Financial Information of Registrant (Parent Company) S-1 to S-3 II - Valuation and Qualifying Accounts S-4 to S-5
Annual Reports on Form 10-K/A Annual Reports on Form 10-K/A for the UGI Utilities, Inc. and AmeriGas Propane, Inc. savings plans will be filed by amendment within the time period specified by Rule 15d-21(b). We have omitted all other financial statement schedules because the required information is either (1) not present; (2) not present in amounts sufficient to require submission of the schedule; or (3) the information required is included elsewhere in the financial statements or related notes. F-3 44 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of UGI Corporation: We have audited, in accordance with generally accepted auditing standards, the consolidated financial statements included in UGI Corporation's annual report to shareholders for the year ended September 30, 1999, incorporated by reference in this Form 10-K, and have issued our report thereon dated November 12, 1999. Our audits were made for the purpose of forming an opinion on those consolidated financial statements taken as a whole. The schedules listed in the Index on pages F-2 and F-3 are the responsibility of UGI Corporation's management and are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Chicago, Illinois November 12, 1999 F-4 45 UGI CORPORATION AND SUBSIDIARIES SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY) BALANCE SHEETS (Millions of dollars)
September 30, ASSETS 1999 1998 - ------ --------------- -------------- Current assets: Cash and cash equivalents $ 0.4 $ 15.2 Accounts receivable 0.1 0.5 Deferred income taxes 0.2 0.2 Prepaid expenses and other current assets 0.3 0.5 --------------- -------------- Total current assets 1.0 16.4 Investments in subsidiaries 271.3 375.1 Other assets 2.2 2.1 --------------- -------------- Total assets $ 274.5 $ 393.6 =============== ============== LIABILITIES AND COMMON STOCKHOLDERS' EQUITY - ----------------------------------------------- Current liabilities: Accounts and notes payable $ 11.1 $ 10.3 Accrued liabilities 10.7 13.1 --------------- -------------- Total current liabilities 21.8 23.4 Noncurrent liabilities 3.5 3.2 Common stockholders' equity: Common Stock, without par value (authorized - 100,000,000 shares; issued - 33,198,731 shares) 394.8 394.3 Accumulated deficit (8.2) (17.7) Accumulated other comprehensive income 0.5 - Unearned compensation - restricted stock (1.7) - --------------- -------------- 385.4 376.6 Less treasury stock, at cost (136.2) (9.6) --------------- -------------- Total common stockholders' equity 249.2 367.0 --------------- -------------- Total liabilities and common stockholders' equity $ 274.5 $ 393.6 =============== ==============
S-1 46 UGI CORPORATION AND SUBSIDIARIES SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY) STATEMENTS OF INCOME (Millions of dollars, except per share amounts)
Year Ended September 30, -------------------------------------- 1999 1998 1997 ---------- ---------- ---------- Revenues $ - $ - $ - Costs and expenses: Operating and administrative expenses 10.4 10.7 12.2 Other income, net (10.5) (10.4) (14.8) ---------- ---------- ---------- (0.1) 0.3 (2.6) ---------- ---------- ---------- Operating income (loss) 0.1 (0.3) 2.6 ---------- ---------- ---------- Income (loss) before income taxes 0.1 (0.3) 2.6 Income tax expense (benefit) 0.3 (0.1) 1.1 ---------- ---------- ---------- Income (loss) before equity in income of unconsolidated subsidiaries (0.2) (0.2) 1.5 Equity in income of unconsolidated subsidiaries 55.9 40.5 50.6 ---------- ---------- ---------- Net income $ 55.7 $ 40.3 $ 52.1 ========== ========== ========== Earnings per common share: Basic $ 1.74 $ 1.22 $ 1.58 ========== ========== ========== Diluted $ 1.74 $ 1.22 $ 1.57 ========== ========== ========== Average common shares outstanding (millions): Basic 31.954 32.971 33.049 ========== ========== ========== Diluted 32.016 33.123 33.132 ========== ========== ==========
S-2 47 UGI CORPORATION AND SUBSIDIARIES SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY) STATEMENTS OF CASH FLOWS (Millions of dollars)
Year Ended September 30, ------------------------------------------------- 1999 1998 1997 ------------- ------------- ------------- NET CASH PROVIDED BY OPERATING ACTIVITIES (a) $ 178.0 $ 77.8 $ 77.5 CASH FLOWS FROM INVESTING ACTIVITIES: Investments in unconsolidated subsidiaries (16.5) (34.8) (74.6) Other - 2.5 20.6 ------------- ------------- ------------- Net cash used by investing activities (16.5) (32.3) (54.0) CASH FLOWS FROM FINANCING ACTIVITIES: Payment of dividends on Common Stock (47.9) (47.6) (47.2) Issuance of Common Stock 4.7 8.5 11.7 Repurchases of Common Stock (133.1) (11.3) (19.2) ------------- ------------- ------------- Net cash used by financing activities (176.3) (50.4) (54.7) ------------- ------------- ------------- Cash and cash equivalents decrease $ (14.8) $ (4.9) $ (31.2) ============= ============= ============= Cash and cash equivalents: End of period $ 0.4 $ 15.2 $ 20.1 Beginning of period 15.2 20.1 51.3 ------------- ------------- ------------- Decrease $ (14.8) $ (4.9) $ (31.2) ============= ============= =============
(a) Includes dividends received from unconsolidated subsidiaries of $176.7, $77.6 and $75.8, respectively, for the years ended September 30, 1999, 1998 and 1997. S-3 48 UGI CORPORATION AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (Millions of dollars)
Charged Balance at (credited) Balance at beginning to costs and end of of year expenses Other year ----------- ---------- ----------- ------------ YEAR ENDED SEPTEMBER 30, 1999 Reserves deducted from assets in the consolidated balance sheet: Allowance for doubtful accounts $ 7.9 $ 7.8 $ (7.9)(1) $ 8.0 =========== ============ 0.2 (2) Allowance for amortization of deferred financing costs - AmeriGas Propane $ 5.4 $ 1.7 $ - $ 7.1 =========== ============ Allowance for amortization of other deferred costs - AmeriGas Propane $ 4.6 $ 1.0 $ (3.5)(3) $ 2.1 =========== ============ Other reserves: Self-insured property and casualty liability $ 48.5 $ 12.9 $ (22.9)(4) $ 38.7 =========== ============ 0.2 (3) Insured property and casualty liability $ 4.3 $ 0.8 $ 5.1 =========== ============ Environmental, litigation and other $ 13.9 $ (1.5)(4) $ 12.5 =========== ============ $ 0.1 (3) YEAR ENDED SEPTEMBER 30, 1998 Reserves deducted from assets in the consolidated balance sheet: Allowance for doubtful accounts $ 11.3 $ 8.4 $ (11.8)(1) $ 7.9 =========== ============ Allowance for amortization of deferred financing costs - AmeriGas Propane $ 3.8 $ 1.6 $ - $ 5.4 =========== ============ Allowance for amortization of other deferred costs - AmeriGas Propane $ 3.9 $ 0.7 $ - $ 4.6 =========== ============ Other reserves: Self-insured property and casualty liability $ 48.5 $ 11.7 $ (11.7)(4) $ 48.5 =========== ============ Insured property and casualty liability $ 1.8 $ 2.9 $ (0.4)(4) $ 4.3 =========== ============ Environmental, litigation and other $ 22.6 $ (4.0) $ (4.7)(4) $ 13.9 =========== ============
S-4 49 UGI CORPORATION AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (CONTINUED) (Millions of dollars)
Charged Balance at (credited) Balance at beginning to costs and end of of year expenses Other year ----------- ---------- ----------- ------------ YEAR ENDED SEPTEMBER 30, 1997 Reserves deducted from assets in the consolidated balance sheet: Allowance for doubtful accounts $ 10.6 $ 11.3 $ (10.6)(1) $ 11.3 =========== ============ Allowance for amortization of deferred financing costs - AmeriGas Propane $ 2.2 $ 1.6 $ - $ 3.8 =========== ============ Allowance for amortization of other deferred costs - AmeriGas Propane $ 2.8 $ 1.1 $ - $ 3.9 =========== ============ Other reserves: Self-insured property and casualty liability $ 47.7 $ 11.3 $ (10.5)(4) $ 48.5 =========== ============ Insured property and casualty liability $ 19.0 $ 3.3 $ (20.5)(4) $ 1.8 =========== ============ Environmental, litigation and other $ 16.1 $ 7.6 $ (1.1)(4) $ 22.6 =========== ============
(1) Uncollectible accounts written off, net of recoveries. (2) Acquisitions of businesses. (3) Other adjustments. (4) Payments, net. S-5 50 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION - ----------- ----------- 10.5 Letter dated July 8, 1998 pursuant to Article 1, Section 1.2 of the Southwest Salt Co. Agreement re: option to renew for period of June 1, 2000 to May 31, 2005 and related extension notice 10.13 UGI Corporation 2000 Directors' Stock Option Plan 10.14 UGI Corporation 2000 Stock Incentive Plan 10.28 Pledge Agreement dated September 1999 between Eastfield International Holdings, Inc. and Reiffeisen Zentralbank Osterreich Aktiengesellschaft ("RZB") 10.29 Pledge Agreement dated September 1999 between EuroGas Holdings, Inc. and RZB 10.30 Form of Guarantee Agreement dated September 1999 between UGI Corporation and RZB relating to loan amount of EURO 74 million 10.31 Form of Guarantee Agreement dated September 1999 between UGI Corporation and RZB relating to loan amount of EURO 16 million 10.32 Form of Guarantee Agreement dated September 1999 between UGI Corporation and RZB relating to loan amount of EURO 15 million 10.33 Description of Change of Control arrangements for Messrs. Greenberg, Bovaird, Cuzzolina, Hall and Mendicino 10.34 Description of Change of Control arrangements for Mr. Chaney 13.1 Pages 13 to 43 of the 1999 Annual Report 21 Subsidiaries of the Registrant 23.1 Consent of Arthur Andersen LLP re: Financial Statements of UGI Corporation 27 Financial Data Schedule
EX-10.5 2 LETTER DATED JULY 8, 1998 PURSUANT TO ARTICLE 1 1 EXHIBIT 10.5 July 8, 1998 Via Certified Mail; Return Receipt Requested SOUTHWEST SALT COMPANY c/o Morton International, Inc. Morton Salt Division 100 N. Riverside Drive Chicago, IL 60606 ATTENTION: Legal Department Re: Amended and Restated Sublease Agreement dated April 1, 1988, including all amendments thereto Dear Sir or Madam: Pursuant to Article 1, Section 1.2, of the above captioned Sublease Agreement, AmeriGas Propane, L.P. hereby exercises its option to renew the Sublease Agreement for an additional five (5) year term beginning June 1, 2000 and ending on May 31, 2005. All other terms and conditions of the Sublease Agreement, as amended, will remain in full force and effect throughout the extended term. Southwest Salt is required, within fifteen (15) days of receipt of this notice, to exercise its option under the Lease Agreement (as defined in the Sublease Agreement) and to give AmeriGas Propane a copy of the extension notice. Please see that a copy of the extension notice is sent to my attention at the address designated in Article 7, Section 7.1, of the Sublease Agreement. Should you have any questions regarding this notice, please contact me or Jim Lahey, our director of logistics. I can be reached by telephone at (610) 337-1000, extension 3324, and Mr. Lahey can be reached at (281) 552-4022. Very truly yours, Lynn S. Quinn Senior Paralegal /lsq cc: J.Berry, Accounts Pay. - VF G. Harbuska, Mgr. - Bumstead Terminal J. Lahey, Director - S & T Houston G. Regan, VP - Purchasing & Transportation E. Spott, Counsel Mr. Geron Turnquest Southwest Salt 1300 W. Glendale Avenue Glendale, AZ 85307 2 August 16, 1994 CERTIFIED MAIL, RETURN RECEIPT REQUESTED Roach & Baker 7033 North Dysart Road Glendale, Arizona 85307 Dear Messrs. Roach and Baker: On August 9, 1994 Morton Salt received AmeriGas' written notice exercising its renewal option under the April 1, 1988 Sublease Agreement between our companies (see attached). Please consider this letter to be Morton Salt's formal notice, as required by Paragraph 1.2 of the Sublease, that we are exercising the option under Paragraph 17 of the Amended and Restated Lease of April 1, 1988, to extend the Lease for an initial ten-year period, until May 31, 2005. If you have any questions about this extension, please do not hesitate to call me at the number below. Very truly yours, G.L. Decker V.P. Production & Engineering (312) 807-2672 Enclosure GLD/emb cc: Mack E. Tarwater Don Flemmons - AmeriGas Mary E. Doohan EX-10.13 3 UGI CORP. 2000 DIRECTORS' STOCK OPTION PLAN 1 EXHIBIT 10.13 UGI CORPORATION 2000 DIRECTORS' STOCK OPTION PLAN 1. PURPOSE AND DESIGN The purpose of this Plan is to (1) encourage ownership of Company Stock by non-employee directors and thereby align such directors' interests more closely with the interests of shareholders of the Company, and (2) assist the Company in securing and retaining highly qualified persons to serve as non-employee directors, in which position they may contribute materially to the long-term growth and profitability of the Company, by affording them an opportunity to acquire Stock. 2. DEFINITIONS Whenever used in this Plan, the following terms will have the respective meanings set forth below: 2.01 "Board" means the Company"s Board of Directors as constituted from time to time. 2.02 "Change of Control" means a change of control as defined in a change of control agreement between the Company and certain of its employees. 2.03 "Committee" means the Compensation and Management Development Committee of the Board or its successor. 2.04 "Company" means UGI Corporation, a Pennsylvania corporation and any successor thereto. 2.05 "Date of Grant" means the effective date of an Option grant; provided, however, that no retroactive grants will be made. 2.06 "Fair Market Value" of Stock means the average of the highest and lowest sales prices thereof on the New York Stock Exchange on the day on which Fair Market Value is being determined, as reported on the Composite Tape for transactions on the New York Stock Exchange. In the event that the New York Stock Exchange does not express sales prices in decimal form, the average will be rounded to the next highest one-eighth of a point (.125). Notwithstanding the foregoing, in the case of a cashless exercise pursuant to Section 7.4(iii), the Fair Market Value will be the actual sale price of the shares issued upon exercise of the Option. In the event that there are no Stock transactions on the New York Stock Exchange on such day, the Fair Market Value will be determined as of the immediately preceding day on which there were Stock transactions on that exchange. 1 2 2.07 "Option" means the right to purchase Stock pursuant to the relevant provisions of this Plan at the Option Price for a specified period of time, not to exceed ten years from the Date of Grant, which period of time will be subject to earlier termination prior to exercise in accordance with Section 7.3(b) of this Plan. 2.08 "Option Price" means an amount per share of Stock purchasable under an Option designated by the Committee on the Date of Grant of an Option to be payable upon exercise of such Option. The Option Price will not be less than 100% of the Fair Market Value of the Stock determined on the Date of Grant. 2.09 "Participant" means a non-employee director who is eligible to receive, and is granted, Options under the Plan. 2.10 "Plan" means this 2000 Directors' Stock Option Plan. 2.11 "Stock" means the Common Stock of the Company or such other securities of the Company as may be substituted for Stock or such other securities pursuant to Section 10. 2.12 "Subsidiary" means any corporation or partnership, at least 20% of the outstanding voting stock, voting power or partnership interest of which is owned respectively, directly or indirectly, by the Company. 3. NUMBER AND SOURCE OF SHARES AVAILABLE FOR OPTIONS -- MAXIMUM ALLOTMENT The number of shares of Stock which may be made the subject of Options under this Plan at any one time may not exceed 200,000 in the aggregate, including shares acquired by Participants through exercise of Options under this Plan. The number of shares of Stock which may be the subject of grants of Options to any one individual in a calendar year will not exceed 10,000. The foregoing limits will be subject to the adjustment provisions of Section 10 below. If any Option expires or terminates for any reason without having been exercised in full, the unpurchased shares subject to the Option will again be available for the purposes of the Plan. Shares which are the subject of Options may be previously issued and outstanding shares of the Stock reacquired by the Company and held in its treasury, or may be authorized but unissued shares of Stock, or may be a combination of both. 4. DURATION OF THE PLAN The Plan will remain in effect until all Stock subject to it has been purchased pursuant to the exercise of Options or all such Options have terminated without exercise. Notwithstanding the foregoing, no Option may be granted after December 31, 2009. 2 3 5. DETERMINATION OF GRANTS - ADMINISTRATION OF PLAN 5.1 Determination of Grants. The Company, after consultation with outside compensation consultants, shall make recommendations to the Committee as to the grants to be made under the Plan. Subject to the express provisions of the Plan, the Committee will have the authority to determine the non-employee directors to whom, and the time or times at which, Options will be granted, the number of shares to be subject to each Option, the Option Price to be paid for the shares upon the exercise of each Option, and the period within which each Option may be exercised. Grants made by the Committee will be subject to the approval of the Board. 5.2 Administration of Plan. The Plan will be administered by the Committee. Subject to the express provisions of the Plan, the Committee will also have authority to construe and interpret the Plan, to prescribe, amend and rescind rules and regulations relating to it, and to make all other determinations (including factual determinations) necessary or advisable for the orderly administration of the Plan. All ministerial functions, in addition to those specifically delegated elsewhere in the Plan, shall be performed by a committee comprised of Company employees ("Administrative Committee") appointed by the Committee. 6. ELIGIBILITY Each director of the Company who, on any date on which an Option is to be granted (as specified in Section 7 of the Plan), is not an employee of the Company or any parent or Subsidiary of the Company or an employee who has retired under the Company's or any such parent's or Subsidiary's retirement income or pension plan, will be eligible to receive Options under the Plan. The foregoing notwithstanding, no director who is serving on the Board as a result of a nomination or appointment pursuant to the terms of any debt instrument, preferred stock, underwriting agreement, or other contract entered into by the Company will be eligible to participate in the Plan. No person other than those specified in this Section 6 will participate in the Plan. 7. OPTIONS 7.1 Grant of Options. Subject to the provisions of Sections 2.08 and 3: (i) Options may be granted to Participants under substantially equal terms at any time and from time to time as may be determined by the Committee, and (ii) subject to approval of the Board, the Committee will have discretion in determining the Options to be granted, the number of shares of Stock to be subject to each Option, the Option Price to be paid for the shares upon the exercise of each Option, the period within which each Option may be exercised and the vesting schedule associated with the Option. 7.2 Option Agreement. As determined by the Committee on the Date of Grant, each Option will be evidenced by a stock option agreement that will, among other things, specify 3 4 the Date of Grant, the Option Price, the duration of the Option, the number of shares of Stock to which the Option pertains and the Option's vesting schedule. 7.3 Exercise and Vesting. (a) Except as otherwise specified by the Committee in the stock option agreement, an Option will be fully and immediately exercisable on the Date of Grant. Notwithstanding the foregoing, in the event that any such Options are not by their terms immediately exercisable, the Committee may accelerate the exercisability of any or all outstanding Options at any time for any reason. No Option will be exercisable on or after the tenth anniversary of the Date of Grant. (b) Except as otherwise specified by the Committee, each Option, to the extent that it has not previously been exercised, will terminate when the Participant holding such Option (while living) ceases to be a non-employee director of the Company. However, if a Participant holding an Option ceases to be a non-employee director by reason of (i) retirement, (ii) disability, or (iii) death, the Option held by any such Participant will be fully and immediately exercisable (to the extent not otherwise exercisable by its terms) and will thereafter become exercisable pursuant to the following: (i) Retirement. If a Participant ceases to serve as a director of the Company on account of retirement, the Option theretofore granted to such Participant may be exercised at any time prior to the earlier of the expiration date of the Option or the expiration of the 36 month period following the Participant"s retirement. Retirement means cessation of service as a director of the Company after (1) attaining age 65 with five or more years of service with the Company, or (2) ten or more years of service with the Company. (iii) Disability. If a Participant is determined to be "disabled" (as defined under the Company"s long-term disability plan), the Option theretofore granted to such Participant may be exercised at any time prior to the earlier of the expiration date of the Option or the expiration of the 36 month period following the Participant"s retirement. (iv) Death. In the event of the death of a Participant while serving as a director of the Company, the Option theretofore granted to such Participant may be exercised at any time prior to the earlier of the expiration date of the Option or the expiration of the 12 month period following the Participant"s death. Such Option may be exercised by the estate of the Participant, by any person to whom the Participant may have bequeathed the Option, any person the Participant may have designated to exercise the same under the Participant's last will, or by the Participant's personal representatives if the Participant has died intestate. (c) If a Participant ceases serving as a director and, immediately thereafter, is employed by the Company or any Subsidiary, then, solely for purposes of Section 7.3(b) of the Plan, such Participant will not be deemed to have ceased service as a director at that time, 4 5 and his or her continued employment by the Company or any Subsidiary will be deemed to be continued service as a director; provided, however, that such former director will not be eligible for additional grants of Options under the Plan. 7.4 Payment. The Option Price upon exercise of any Option will be payable to the Company in full (i) in cash or its equivalent, (ii) by tendering shares of previously acquired Stock already beneficially owned by the Participant for more than one year and having a Fair Market Value at the time of exercise equal to the total Option Price, (iii) by payment through a broker in accordance with procedures permitted by Regulation T of the Federal Reserve Board, (iv) by such other method as the Committee may approve, or (v) by a combination of (i), (ii), (iii) and/or (iv). The cash proceeds from such payment will be added to the general funds of the Company and will be used for its general corporate purposes. 7.5 Written Notice. A Participant wishing to exercise an Option must give written notice to the Company in the form and manner prescribed by the Administrative Committee, indicating the date of award, the number of shares as to which the Option is being exercised, and such other information as may be required by the Administrative Committee. Full payment for the shares pursuant to the Option must be received by the close of business on the day the Option is exercised. Except as provided in Section 7.3(b), no Option may be exercised at any time unless the Participant is then a non-employee director of the Company. 7.6 Issuance of Stock. As soon as practicable after the receipt of written notice and payment, the Company will, without stock transfer taxes to the Participant or to any other person entitled to exercise an Option pursuant to this Plan, deliver to, or credit electronically on behalf of, the Participant, the Participant's designee or such other person the requisite number of shares of Stock. 7.7 Privileges of a Shareholder. A Participant or any other person entitled to exercise an Option under this Plan will have no rights as a shareholder with respect to any Stock covered by the Option until the due exercise of the Option and issuance of such Stock. 7.8 Partial Exercise. An Option granted under this Plan may be exercised as to any lesser number of shares than the full amount for which it could be exercised. Such a partial exercise of an Option will not affect the right to exercise the Option from time to time in accordance with this Plan as to the remaining shares subject to the Option. 8. NON-TRANSFERABILITY OF OPTIONS No Option granted under the Plan will be transferable otherwise than by will or the laws of descent and distribution, and an Option may be exercised, during the lifetime of the Participant, only by the Participant. 5 6 9. CONSEQUENCES OF A CHANGE OF CONTROL 9.1 Notice and Acceleration. Upon a Change of Control, unless the Committee determines otherwise, (i) the Company will provide each Participant with outstanding grants written notice of such Change of Control, and (ii) all outstanding Options will automatically accelerate and become fully exercisable. 9.2 Assumption of Grants. Upon a Change of Control where the Company is not the surviving corporation (or survives only as a subsidiary of another corporation), unless the Committee determines otherwise, all outstanding Options that are not exercised will be assumed by, or replaced with comparable options or rights by, the surviving corporation (or a parent of the surviving corporation). 9.3 Other Alternatives. Notwithstanding the foregoing, subject to Section 9.4 below, in the event of a Change of Control, the Committee may take any of the following actions with respect to any or all outstanding Options: the Committee may (i) require that Participants surrender their outstanding Options in exchange for a payment by the Company, in cash or Stock, as determined by the Committee, in an amount equal to the amount by which the then Fair Market Value of the shares of Stock subject to the Participant's unexercised Options exceeds the Option Price of the Options, as applicable, or (ii) after giving Participants an opportunity to exercise their outstanding Options, terminate any or all unexercised Options at such time as the Committee deems appropriate. Such surrender or termination will take place as of the date of the Change of Control or such other date as the Committee may specify. 9.3 Committee. The Committee making the determinations under this Section 9 following a Change of Control must be comprised of the same members as those on the Committee immediately before the Change of Control. If the Committee members do not meet this requirement, the automatic provisions of Sections 9.1 and 9.2 will apply, and the Committee will not have discretion to vary them. 9.4 Limitations. Notwithstanding anything in the Plan to the contrary, in the event of a Change of Control, the Committee will not have the right to take any actions described in the Plan (including without limitation actions described in this Section 9) that would make the Change of Control ineligible for pooling of interests accounting treatment or that would make the Change of Control ineligible for desired tax treatment if, in the absence of such right, the Change of Control would qualify for such treatment and the Company intends to use such treatment with respect to the Change of Control. 10. ADJUSTMENT OF NUMBER AND PRICE OF SHARES, ETC. Notwithstanding anything to the contrary in this Plan, in the event any recapitalization, reorganization, merger, consolidation, spin-off, combination, repurchase, exchange of shares or other securities of the Company, stock split or reverse split, extraordinary dividend, 6 7 liquidation, dissolution, significant corporate transaction (whether relating to assets or stock) involving the Company, or other extraordinary transaction or event affects Stock such that an adjustment is determined by the Committee to be appropriate in order to prevent dilution or enlargement of Participants' rights under the Plan, then the Committee may, in a manner that is equitable, adjust (i) the number or kind of shares of Stock to be subject to Options thereafter granted under the Plan, (ii) the number and kind of shares of Stock issuable upon exercise of outstanding Options, and (iii) the Option Price per share thereof, provided that the number of shares subject to any Option will always be a whole number. Any such determination of adjustments by the Committee will be conclusive for all purposes of the Plan and of each Option, whether a stock option agreement with respect to a particular Option has been theretofore or is thereafter executed. 11. LIMITATION OF RIGHTS Nothing contained in this Plan will be construed to give a non-employee director any right to a grant hereunder except as may be authorized in the discretion of the Committee. A grant under this Plan will not constitute, nor be evidence of, any agreement or understanding, expressed or implied, that a Participant has any right to serve as a director of the Company. 12. AMENDMENT OR TERMINATION OF PLAN Subject to Board approval, the Committee may at any time, and from time to time, alter, amend, suspend or terminate this Plan without the consent of the Company's shareholders or Participants, except that any such alteration, amendment, suspension or termination will be subject to the approval of the Company's shareholders within one year after such Committee and Board action if such shareholder approval is required by any federal or state law or regulation or the rules of any stock exchange or automated quotation system on which the Stock is then listed or quoted, or if the Committee in its discretion determines that obtaining such shareholder approval is for any reason advisable. No termination or amendment of this Plan may, without the consent of the Participant to whom any Option has previously been granted, adversely affect the rights of such Participant under such Option. Notwithstanding the foregoing, the Administrative Committee may make minor amendments to this Plan which do not materially affect the rights of Participants or significantly increase the cost to the Company. 7 8 13. GOVERNMENTAL APPROVAL Each Option will be subject to the requirement that if at any time the listing, registration or qualification of the shares covered thereby upon any securities exchange, or under any state or federal law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of or in connection with the granting of such Option or the purchase of shares thereunder, no such Option may be exercised in whole or in part unless and until such listing, registration, qualification, consent or approval has been effected or obtained free of any conditions not acceptable to the Board. 14. EFFECTIVE DATE OF PLAN AND SHAREHOLDER APPROVAL This Plan will become effective as of January 1, 2000, subject to ratification by the Company's shareholders prior to March 31, 2000. 15. SUCCESSORS This Plan will be binding upon and inure to the benefit of the Company, its successors and assigns and the Participant and his heirs, executors, administrators and legal representatives. 16. GOVERNING LAW The validity, construction, interpretation and effect of the Plan and option agreements issued under the Plan will be governed exclusively by and determined in accordance with the law of the Commonwealth of Pennsylvania. 8 EX-10.14 4 UGI CORPORATION 2000 STOCK INCENTIVE PLAN 1 EXHIBIT 10.14 UGI CORPORATION 2000 STOCK INCENTIVE PLAN 1. PURPOSE AND DESIGN The purpose of this Plan is to assist the Company in securing and retaining key corporate executives of outstanding ability, who are in a position to significantly participate in the development and implementation of the Company's strategic plans and thereby contribute materially to the long-term growth, development and profitability of the Company, by affording them an opportunity to purchase its Stock under options or an opportunity to acquire stock by the achievement of specific performance goals. The Plan is designed to align directly long-term executive compensation with tangible, direct and identifiable benefits realized by the Company's shareholders. 2. DEFINITIONS Whenever used in this Plan, the following terms will have the respective meanings set forth below: 2.01 "Board" means UGI"s Board of Directors as constituted from time to time. 2.02 "Change of Control" means a change of control as defined in a change of control agreement between a Participant's respective employer and certain of its employees. 2.03 "Committee" means the Compensation and Management Development Committee of the Board or its successor. 2.04 "Company" means UGI Corporation, a Pennsylvania corporation, any successor thereto and any Subsidiary. 2.05 "Comparison Group" means the group determined by the Committee (no later than ninety (90) days after the commencement of a Performance Period) consisting of the Company and such other companies deemed by the Committee (in its sole discretion) to be reasonably comparable to the Company. 2.06 "Date of Grant" means the effective date of an Option grant; provided, however, that no retroactive grants will be made. 2.07 "Dividend Equivalent" means an amount determined by multiplying the number of shares of Stock subject to an Option granted in conjunction with the Dividend Equivalent (whether or not the Option is ever exercised with respect to any or all shares of Stock subject thereto), subject to any adjustment under Section 13, by the per-share cash 1 2 dividend, or the per-share fair market value (as determined by the Committee) of any dividend in consideration other than cash, paid by the Company on its Stock on a dividend payment date that falls within the relevant Performance Period. 2.08 "Employee" means a regular full-time salaried employee (including officers and directors who are also employees) of the Company. 2.09 "Fair Market Value" of Stock means the average of the highest and lowest sales prices thereof on the New York Stock Exchange on the day on which Fair Market Value is being determined, as reported on the Composite Tape for transactions on the New York Stock Exchange. In the event that the New York Stock Exchange does not express sales prices in decimal form, the average will be rounded to the next highest one-eighth of a point (.125). Notwithstanding the foregoing, in the case of a cashless exercise pursuant to Section 7.4(iv), the Fair Market Value will be the actual sale price of the shares issued upon exercise of the Option. In the event that there are no Stock transactions on the New York Stock Exchange on such day, the Fair Market Value will be determined as of the immediately preceding day on which there were Stock transactions on that exchange. 2.10 "Option" means the right to purchase Stock pursuant to the relevant provisions of this Plan at the Option Price for a specified period of time, not to exceed ten years from the Date of Grant, which period of time will be subject to earlier termination prior to exercise in accordance with Section 7.3(b) of this Plan. 2.11 "Option Price" means an amount per share of Stock purchasable under an Option designated by the Committee on the Date of Grant of an Option to be payable upon exercise of such Option. The Option Price will not be less than 100% of the Fair Market Value of the Stock determined on the Date of Grant. 2.12 "Participant" means an Employee designated by the Committee to participate in the Plan. 2.13 "Performance Goal" means the objective goal or goals that must be met in order for Dividend Equivalents to be paid and restrictions on Restricted Stock to lapse. All Performance Goals must meet the requirements of Section 10. 2.14 "Performance Period" means the performance period during which performance will be measured for Performance Goals. Performance Periods must meet the requirements of Section 10. 2.15 "Plan" means this 2000 Stock Incentive Plan. 2.16 "Restricted Stock" means shares of Stock that are subject to restrictions which lapse upon the achievement of Performance Goals within the relevant Performance Period. 2 3 2.17 "Stock" means the Common Stock of UGI or such other securities of UGI as may be substituted for Stock or such other securities pursuant to Section 13. 2.18 "Subsidiary" means any corporation or partnership, at least 20% of the outstanding voting stock, voting power or partnership interest of which is owned respectively, directly or indirectly, by the Company. 2.19 "Termination without Cause" means termination for the convenience of the Company for any reason other than (i) misappropriation of funds, (ii) habitual insobriety or substance abuse, (iii) conviction of a crime involving moral turpitude, or (iv) gross negligence in the performance of duties, which gross negligence has had a material adverse effect on the business, operations, assets, properties or financial condition of the Company. The Committee will have the sole discretion to determine whether a significant reduction in the duties and responsibilities of a Participant will constitute a Termination without Cause. 2.20 "UGI" means UGI Corporation, a Pennsylvania corporation or any successor thereto. 3. MAXIMUM NUMBER OF SHARES AVAILABLE FOR OPTIONS AND RESTRICTED STOCK GRANTS The number of shares of Stock which may be made the subject of Options and the number of shares of Restricted Stock that may be granted under this Plan may not exceed 1,100,000 in the aggregate, subject, however, to the adjustment provisions of Section 13 below, and provided that the maximum number of Restricted Shares issued hereunder is 500,000. With regard to grants to any one individual in a calendar year: (i) the number of shares of Restricted Stock that may be issued will not exceed 100,000, and (ii) the number of shares of Restricted Stock together with the number of shares of Stock which may be the subject of grants of Options will not exceed 500,000. If any Option expires or terminates for any reason without having been exercised in full or if Restricted Stock is forfeited, the unpurchased shares subject to the Option or the forfeited shares of Restricted Stock will again be available for the purposes of the Plan. Shares of Restricted Stock and shares which are the subject of Options may be previously issued and outstanding shares of Stock reacquired by the Company and held in its treasury, or may be authorized but unissued shares of Stock, or may be a combination of both. 4. DURATION OF THE PLAN The Plan will remain in effect until all Stock subject to it has been transferred to Participants or all Options have terminated or been exercised and all shares of Restricted Stock have been vested or forfeited. Notwithstanding the foregoing, Options and Restricted Stock may not be granted after December 31, 2009. 3 4 5. ADMINISTRATION The Plan will be administered by the Committee. Subject to the express provisions of the Plan, the Committee will have authority, in its complete discretion, to determine the Employees to whom, and the time or times at which grants will be made. In making such determinations, the Committee may take into account the nature of the services rendered by an Employee, the present and potential contributions of the Employee to the Company's success and such other factors as the Committee in its discretion deems relevant. Awards under a particular Section of the Plan need not be uniform as among Participants. Subject to the express provisions of the Plan, the Committee will also have authority to construe and interpret the Plan, to prescribe, amend and rescind rules and regulations relating to it, to determine the terms and provisions of the respective stock option agreements required by Section 7.2 of the Plan and the terms and provisions of the restrictions relating to Restricted Stock (none of which need be identical), and to make all other determinations (including factual determinations) necessary or advisable for the orderly administration of the Plan. All ministerial functions, in addition to those specifically delegated elsewhere in the Plan, shall be performed by a committee comprised of Company employees ("Administrative Committee") appointed by the Committee. 6. ELIGIBILITY Grants hereunder may be made only to Employees (including directors who are also Employees of the Company) who, in the sole judgment of the Committee, are individuals who are in a position to significantly participate in the development and implementation of the Company's strategic plans and thereby contribute materially to the continued growth and development of the Company and to its future financial success. 7. OPTIONS 7.1 Grant of Options. Subject to the provisions of Sections 2.11 and 3: (i) Options may be granted to Participants at any time and from time to time as may be determined by the Committee; and (ii) the Committee will have complete discretion in determining the Options to be granted, the number of shares of Stock to be subject to each Option, the Option Price to be paid for the shares upon the exercise of each Option, the period within which each Option may be exercised, the vesting schedule associated with the Option, and whether the Option will include Dividend Equivalents. 7.2 Option Agreement. As determined by the Committee on the Date of Grant, each Option will be evidenced by a stock option agreement that will, among other things, specify the Date of Grant, the Option Price, the duration of the Option, the number of shares of Stock to which the Option pertains, the Option's vesting schedule, and whether the Option will include Dividend Equivalents. 4 5 7.3 Exercise and Vesting. (a) Except as otherwise specified by the Committee in the stock option agreement, the Option shall become exercisable in equal one-third (1/3) installments on the first, second and third anniversaries of the Date of Grant. Notwithstanding the foregoing, in the event that any such Options are not by their terms immediately exercisable, the Committee may accelerate the exercisability of any or all outstanding Options at any time for any reason. No Option will be exercisable on or after the tenth anniversary of the Date of Grant. (b) Except as otherwise specified by the Committee, in the event that a Participant holding an Option ceases to be an Employee, the Options held by such Participant will terminate on the date such Participant ceases to be an Employee. The Committee will have authority to determine whether an authorized leave of absence or absence on military or governmental service will constitute a termination of employment for the purposes of this Plan. However, if a Participant holding an Option ceases to be an Employee by reason of (i) Termination without Cause, (ii) retirement, (iii) disability, or (iv) death, the Option held by any such Participant will thereafter become exercisable pursuant to the following: (i) Termination Without Cause. If a Participant terminates employment on account of a Termination without Cause, the Option held by such Participant will thereafter be exercisable only with respect to that number of shares of Stock with respect to which it is already exercisable on the date such Participant ceases to be an Employee; and such Option will terminate upon the earlier of the expiration date of the Option or the expiration of the 13 month period commencing on the date such Participant ceases to be an Employee. (ii) Retirement. If a Participant terminates employment on account of a retirement under the Company's retirement plan applicable to that Participant, the Option held by such Participant will thereafter become exercisable as if such Participant had remained employed by the Company for 36 months after the date of such retirement; and such Option will terminate upon the earlier of the expiration date of the Option or the expiration of such 36 month period. Retirement for Employees of Amerigas Propane, Inc. ("API") means termination of employment with API after attaining age 55 with ten or more years of service with API and its affiliates. (iii) Disability. If a Participant is determined to be "disabled" (as defined under the Company"s long-term disability plan), the Option held by such Participant will thereafter become exercisable as if such Participant had remained employed by the Company for 36 months after the date of such disability; and such Option will terminate upon the earlier of the expiration date of the Option or the expiration of such 36 month period. (iv) Death. In the event of the death of a Participant while employed by the Company, the Option theretofore granted to such Participant will be fully and immediately exercisable (to the extent not otherwise exercisable by its terms) at any time prior to the earlier 5 6 of the expiration date of the Option or the expiration of the 12 month period following the Participant"s death. Death of a Participant after such Participant has ceased to be employed by the Company will not affect the otherwise applicable period for exercise of the Option determined pursuant to Sections 7.3(b)(i), 7.3(b)(ii) or 7.3(b)(iii). Such Option may be exercised by the estate of the Participant, by any person to whom the Participant may have bequeathed the Option, any person the Participant may have designated to exercise the same under the Participant's last will, or by the Participant's personal representatives if the Participant has died intestate. (c) Notwithstanding anything contained in this Section 7.3, with respect to the number of shares of Stock subject to an Option with respect to which such Option is or is to become exercisable, no Option, to the extent that it has not previously been exercised, will be exercisable after it has terminated, including without limitation, after any termination of such Option pursuant to Section 7.3(b) hereof. 7.4 Payment. The Option Price upon exercise of any Option will be payable to the Company in full (i) in cash or its equivalent, (ii) by tendering shares of previously acquired Stock already beneficially owned by the Participant for more than one year and having a Fair Market Value at the time of exercise equal to the total Option Price, (iii) by applying Dividend Equivalents payable to the Participant in accordance with Section 8 of the Plan in an amount equal to the total Option Price, (iv) by payment through a broker in accordance with procedures permitted by Regulation T of the Federal Reserve Board, (v) by such other method as the Committee may approve, or (vi) by a combination of (i), (ii), (iii), (iv) and/or (v). The cash proceeds from such payment will be added to the general funds of the Company and will be used for its general corporate purposes. 7.5 Written Notice. A Participant wishing to exercise an Option must give written notice to the Company in the form and manner prescribed by the Administrative Committee, indicating the date of award, the number of shares as to which the Option is being exercised, and such other information as may be required by the Administrative Committee. Full payment for the shares pursuant to the Option must be received by the close of business on the day the Option is exercised. Except as provided in Section 7.3(b), no Option may be exercised at any time unless the Participant is then an Employee of the Company. 7.6 Issuance of Stock. As soon as practicable after the receipt of written notice and payment, the Company will, without stock transfer taxes to the Participant or to any other person entitled to exercise an Option pursuant to this Plan, deliver to, or credit electronically on behalf of, the Participant, the Participant's designee or such other person the requisite number of shares of Stock. 7.7 Privileges of a Shareholder. A Participant or any other person entitled to exercise an Option under this Plan will have no rights as a shareholder with respect to any Stock covered by the Option until the due exercise of the Option and issuance of such Stock. 6 7 7.8 Partial Exercise. An Option granted under this Plan may be exercised as to any lesser number of shares than the full amount for which it could be exercised. Such a partial exercise of an Option will not affect the right to exercise the Option from time to time in accordance with this Plan as to the remaining shares subject to the Option. 8. DIVIDEND EQUIVALENTS 8.1 Amount of Dividend Equivalents Credited. If the Committee so specifies, as of the Date of Grant in the stock option agreement, from the Date of Grant of an Option to a Participant (or, in the case of an Option granted after the date of commencement of a Performance Period to a new Participant or to a Participant with changed responsibilities, in which event, from such date not earlier than the date of commencement of the Performance Period as is designated by the Committee) until the earlier of (i) the end of the applicable Performance Period or (ii) the date of disability, death or termination of employment for any reason (including retirement), of a Participant, the Company will keep records for such Participant ("Account") and will credit on each payment date for the payment of a dividend made by UGI on its Stock an amount equal to the Dividend Equivalent associated with such Option. Notwithstanding the foregoing, a Participant may not accrue during any calendar year Dividend Equivalents in excess of $1,000,000. Except as set forth in Section 8.5 below, no interest will be credited to any such Account. 8.2 Payment of Credited Dividend Equivalents. Payment of Dividend Equivalents will be made only upon the determination by the Committee that the Performance Goals associated with such Dividend Equivalents have been achieved as prescribed in accordance with Section 10. 8.3 Timing of Payment of Dividend Equivalents. (a) Except as otherwise determined by the Committee, in the event of the (i) termination of an Option prior to exercise pursuant to Section 7.3(b) hereof, or (ii) acceleration of the exercise date of an Option pursuant to Section 7.3(a) hereof, in either case prior to the end of the applicable Performance Period, no payments of Dividend Equivalents associated with any Option will be made (A) prior to the end of the applicable Performance Period and (B) to any Participant whose employment by the Company terminates prior to the end of the applicable Performance Period for any reason other than retirement under the Company's retirement plan, death, disability or Termination without Cause. As soon as practicable after the end of such Performance Period, the Committee will certify and announce the results for each Performance Period prior to any payment of Dividend Equivalents and unless a Participant will have made an election under Section 8.6 to defer receipt of any portion of such amount, a Participant will receive the aggregate amount of Dividend Equivalents payable to that Participant in the form specified by the Committee. 7 8 (b) Notwithstanding anything to the contrary in this Section 8.3, unless a payment of Dividend Equivalents associated with an Option is being made upon full exercise or termination of such Option, no Dividend Equivalents will be paid (either at the end of the applicable Performance Period or on a date such Dividend Equivalents are scheduled to be paid pursuant to a deferral election) if the average Fair Market Value of Stock for a period of thirty (30) consecutive business days immediately preceding the end of the applicable Performance Period or the date such deferred payment is scheduled to be made (as the case may be) is less than the exercise price of the Option to which such Dividend Equivalents were associated, and such payment will instead be made at the earlier of (i) such time as the average Fair Market Value of Stock over a period of ninety (90) consecutive business days thereafter exceeds the exercise price of such Option, or (ii) the termination or expiration date of such Option. 8.4 Form of Payment for Dividend Equivalents. The Committee will have the sole discretion to determine whether the Company's obligation in respect of payment of Dividend Equivalents will be paid solely in credits to be applied toward payment of the Option Price, solely in cash or partly in such credits and partly in cash. 8.5 Interest on Dividend Equivalents. From a date which is thirty (30) days after the end of the applicable Performance Period until the date that all Dividend Equivalents associated with such Option and payable to a Participant are paid to such Participant, the Account maintained by the Company in its books and records with respect to such Dividend Equivalents will be credited with interest at a market rate determined by the Administrative Committee. The interest rate will be no higher than the prime interest rate as quoted in the Wall Street Journal on the last day of the month preceding the end of the Performance Period, or the preceding business day if the last day of the month is not a business day. 8.6 Deferral of Dividend Equivalents. A Participant will have the right to defer receipt of any Dividend Equivalent payments associated with an Option if the Participant elects to do so on or prior to December 31 of the year preceding the beginning of the last full year of the applicable Performance Period (or such other time as the Administrative Committee will determine is appropriate to make such deferral effective under the applicable requirements of federal tax laws). The terms and conditions of any such deferral (including the period of time thereof) will be subject to approval by the Administrative Committee and all deferrals will be made on a form provided a Participant for this purpose. 9. RESTRICTED STOCK 9.1 Grant of Restricted Stock. Subject to the provisions of Section 3, shares of Restricted Stock may be granted to Participants at any time and from time to time as may be determined by the Committee. Shares issued or transferred pursuant to Restricted Stock awards may be issued or transferred for consideration or for no consideration, and will be subject to Performance Goals meeting the requirements of Section 10. 8 9 9.2 Requirement of Employment or Service. If the Participant ceases to be employed by, or provide service to, the Company before the specified conditions are met, the Restricted Stock award will terminate as to all shares covered by the grant as to which the restrictions have not lapsed, and those shares of Stock must be immediately returned to the Company. However, if a Participant holding Restricted Stock ceases to be an Employee by reason of (i) retirement, (ii) disability, or (iii) death, the restrictions on Restricted Stock held by any such Participant will lapse pursuant to the following: (a) Retirement. If a Participant terminates employment on account of a retirement under the Company's retirement plan applicable to that Participant, the restrictions on such Participant's Restricted Stock will lapse with regard to any Performance Period that ends within 36 months after the date of such retirement; provided that the Performance Goals associated with such Performance Period are achieved within that 36 month period. Retirement for Employees of API means termination of employment with API after attaining age 55 with ten or more years of service with API and its affiliates. (b) Disability. If a Participant is determined to be "disabled" (as defined under the Company's long-term disability plan), the restrictions on such Participant's Restricted Stock will lapse with regard to any Performance Period that ends within 36 months after the date of such disability; provided that the Performance Goals associated with such Performance Period are achieved within that 36 month period. (c) Death. In the event of the death of a Participant while employed by the Company, the restrictions on such Participant's Restricted Stock will lapse at the end of the Performance Period associated with such Restricted Stock upon the achievement of the related Performance Goals. (d) Committee Discretion. The Committee may, however, provide for the complete or partial lapse of restrictions upon a termination on account of retirement or disability. 9.3 Restrictions on Transfer and Legend on Stock Certificate. Until the Performance Goals are met, a Participant may not sell, assign, transfer, pledge or otherwise dispose of the shares of Restricted Stock. Each certificate for a share of a Restricted Stock will contain a legend giving appropriate notice of the restrictions in the grant. The Participant will be entitled to have the legend removed from the stock certificate covering the shares subject to restrictions when all restrictions on such shares have lapsed. The Administrative Committee may determine that the Company will not issue certificates for Restricted Stock until all restrictions on such shares have lapsed, or that the Company will retain possession of certificates for shares of Restricted Stock until all restrictions on such shares have lapsed. 9 10 9.4 Privileges of a Shareholder. (a) Unless the Committee determines otherwise, during the Performance Period, a Participant issued certificates under Section 9.3 will have the right to vote shares of Restricted Stock and to receive any dividends or other distributions paid on such shares, subject to any restrictions deemed appropriate by the Committee. (b) Unless the Committee determines otherwise, an account will be established for a Participant who is not issued certificates under Section 9.3 to which will be credited dividends and other distributions attributable to the Restricted Stock grant. Such account will bear interest at a rate determined under Section 8.5 of the Plan. 9.5 Form of Payment for Restricted Stock. The Committee will have the sole discretion to determine whether the Company's obligation in respect of payment of Restricted Stock awards for a Participant who is not issued certificates under Section 9.3 will be paid in Stock, solely in cash or partly in Stock and partly in cash. 10. REQUIREMENTS FOR PERFORMANCE GOALS AND PERFORMANCE PERIODS 10.1 Designation as Qualified Performance-Based Compensation. Grants of Restricted Stock and Dividend Equivalents on Options will qualify as "qualified performance-based compensation" under Section 162(m) of the Internal Revenue Code ("Code"), including the requirement that the achievement of the goals be substantially uncertain at the time they are established and that the goals be established in such a way that a third party with knowledge of the relevant facts could determine whether and to what extent the Performance Goals have been met. The Committee will not have discretion to increase the amount of compensation that is payable upon achievement of the designated Performance Goals, but may, in its sole discretion, reduce the amount of compensation that is payable upon achievement of the designated Performance Goals. 10.2 Requirements for Performance Goals. When Restricted Stock and Dividend Equivalents are granted, the Committee will establish in writing Performance Goals either before the beginning of the Performance Period or during a period ending no later than the earlier of (i) 90 days after the beginning of the Performance Period or (ii) the date on which 25% of the Performance Period has been completed, or such other date as may be required or permitted under applicable regulations under Section 162(m) of the Code. The Performance Goal must specify (A) the objective Performance Goal(s) that must be met in order for restrictions on the Restricted Stock to lapse or the Dividend Equivalents to be paid, (B) the Performance Period during which the Performance Goals must be met, (C) the maximum amounts that may be paid if the Performance Goals are met, and (D) any other conditions that the Committee deems appropriate and consistent with the Plan and the requirements of Section 162(m) of the Code for qualified performance based compensation. 10 11 10.3 Criteria Used for Performance Goals. The Committee will use objectively determinable Performance Goals based on one or more of the following criteria: stock price, earnings per share, net earnings, operating earnings, return on assets, shareholder return, return on equity, growth in assets, unit volume, sales, cash flow, market share, relative performance to a Comparison Group, or strategic business criteria consisting of one or more objectives based on meeting specified revenue goals, market penetration goals, geographic business expansion goals, cost targets or goals relating to acquisitions or divestitures. The Performance Goals may relate to the Participant's business unit or the performance of the Company and its subsidiaries as a whole, or any combination of the foregoing. Performance Goals need not be uniform as among Participants. 10.4 Announcement of Grants. The Committee will certify and announce the results for each Performance Period to all Participants as promptly as practicable following the completion of the Performance Period. If and to the extent that the Committee does not certify that the Performance Goals have been met, the applicable grants of Restricted Stock or Dividend Equivalents for the Performance Period will be forfeited. 11. NON-TRANSFERABILITY OF OPTIONS No Option, Restricted Stock, rights to Dividend Equivalents or other rights granted under the Plan will be transferable otherwise than by will or the laws of descent and distribution, and an Option may be exercised, during the lifetime of the Participant, only by the Participant. 12. CONSEQUENCES OF A CHANGE OF CONTROL 12.1 Notice and Acceleration. Upon a Change of Control, unless the Committee determines otherwise, (i) the Company will provide each Participant with outstanding grants written notice of such Change of Control, (ii) all outstanding Options will automatically accelerate and become fully exercisable, (iii) the restrictions and conditions on all outstanding Restricted Stock grants will immediately lapse, and (iv) Dividend Equivalents will become payable in cash in such amounts as the Committee may determine. 12.2 Assumption of Grants. Upon a Change of Control where the Company is not the surviving corporation (or survives only as a subsidiary of another corporation), unless the Committee determines otherwise, all outstanding Options that are not exercised will be assumed by, or replaced with comparable options or rights by, the surviving corporation (or a parent of the surviving corporation), and other outstanding grants will be converted to similar grants of the surviving corporation (or a parent of the surviving corporation). 12.3 Other Alternatives. Notwithstanding the foregoing, subject to Section 12.4 below, in the event of a Change of Control, the Committee may take any of the following actions with respect to any or all outstanding Options: the Committee may (i) require that Participants 11 12 surrender their outstanding Options in exchange for a payment by the Company, in cash or Stock as determined by the Committee, in an amount equal to the amount by which the then Fair Market Value of the shares of Stock subject to the Participant's unexercised Options exceeds the Option Price of the Options, as applicable, or (ii) after giving Participants an opportunity to exercise their outstanding Options, terminate any or all unexercised Options at such time as the Committee deems appropriate. Such surrender, termination or settlement will take place as of the date of the Change of Control or such other date as the Committee may specify. 12.3 Committee. The Committee making the determinations under this Section 12 following a Change of Control must be comprised of the same members as those on the Committee immediately before the Change of Control. If the Committee members do not meet this requirement, the automatic provisions of Sections 12.1 and 12.2 will apply, and the Committee will not have discretion to vary them. 12.4 Limitations. Notwithstanding anything in the Plan to the contrary, in the event of a Change of Control, the Committee will not have the right to take any actions described in the Plan (including without limitation actions described in this Section 12) that would make the Change of Control ineligible for pooling of interests accounting treatment or that would make the Change of Control ineligible for desired tax treatment if, in the absence of such right, the Change of Control would qualify for such treatment and the Company intends to use such treatment with respect to the Change of Control. 13. ADJUSTMENT OF NUMBER AND PRICE OF SHARES, ETC. Notwithstanding anything to the contrary in this Plan, in the event any recapitalization, reorganization, merger, consolidation, spin-off, combination, repurchase, exchange of shares or other securities of UGI, stock split or reverse split, extraordinary dividend, liquidation, dissolution, significant corporate transaction (whether relating to assets or stock) involving UGI, or other extraordinary transaction or event affects Stock such that an adjustment is determined by the Committee to be appropriate in order to prevent dilution or enlargement of Participants' rights under the Plan, then the Committee may, in a manner that is equitable, adjust (i) any or all of the number or kind of shares of Stock reserved for issuance under the Plan, (ii) the maximum number of shares of Stock which may be the subject of grants to any one individual in any calendar year, (iii) the number or kind of shares of Stock to be subject to grants of Restricted Stock and Options thereafter granted under the Plan, (iv) the number and kind of shares of Stock issuable upon exercise of outstanding Options, (v) the Option Price per share thereof, (vi) the number of shares of Restricted Stock, (vii) the terms and conditions applicable to Restricted Stock, and/or (viii) the terms and conditions applicable to Dividend Equivalents, provided that the number of Restricted Shares and the number of shares subject to any Option will always be a whole number. Any such determination of adjustments by the Committee will be conclusive for all purposes of the Plan and of Restricted Shares and of each Option, whether a stock option agreement with respect to a particular Option has been theretofore or is thereafter executed. 12 13 14. LIMITATION OF RIGHTS Nothing contained in this Plan will be construed to give an Employee any right to a grant hereunder except as may be authorized in the discretion of the Committee. A grant under this Plan will not constitute or be evidence of any agreement or understanding, expressed or implied, that the Company will employ a Participant for any specified period of time, in any specific position or at any particular rate of remuneration. 15. AMENDMENT OR TERMINATION OF PLAN Subject to Board approval, the Committee may at any time, and from time to time, alter, amend, suspend or terminate this Plan without the consent of the Company's shareholders or Participants, except that any such alteration, amendment, suspension or termination will be subject to the approval of the Company's shareholders within one year after such Committee and Board action if such shareholder approval is required by any federal or state law or regulation or the rules of any stock exchange or automated quotation system on which the Stock is then listed or quoted, or if the Committee in its discretion determines that obtaining such shareholder approval is for any reason advisable. No termination or amendment of this Plan may, without the consent of the Participant to whom any Option or Restricted Share has previously been granted, adversely affect the rights of such Participant under such Option or Restricted Share, including the Dividend Equivalents associated with such Option. Notwithstanding the foregoing, the Administrative Committee may make minor amendments to this Plan which do not materially affect the rights of Participants or significantly increase the cost to the Company. 16. TAX WITHHOLDING Upon the lapse of restrictions on Restricted Stock or Dividend Equivalents or upon exercise of any Option under this Plan, the Company will require the recipient of the Stock to remit to the Company an amount sufficient to satisfy federal, state and local withholding tax requirements. However, to the extent authorized by rules and regulations of the Administrative Committee, the Company may withhold or receive Stock and make cash payments in respect thereof in satisfaction of a recipient's tax obligations in an amount that does not exceed the recipient's minimum applicable withholding tax obligations. In the event the Company receives Stock in satisfaction of a recipient's minimum applicable withholding tax obligations, the Stock must have been held by the recipient for more than six months. 13 14 17. GOVERNMENTAL APPROVAL Each share of Restricted Stock and each Option will be subject to the requirement that if at any time the listing, registration or qualification of the shares covered thereby upon any securities exchange, or under any state or federal law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of or in connection with the granting of such Restricted Share or Option or the purchase of shares thereunder, no such Option may be exercised in whole or in part unless and until such listing, registration, qualification, consent or approval has been effected or obtained free of any conditions not acceptable to the Board. 18. EFFECTIVE DATE OF PLAN AND SHAREHOLDER APPROVAL 18.1 Effective Date. This Plan will become effective as of January 1, 2000, subject to ratification by the Company's shareholders prior to March 31, 2000. 18.2 Shareholder Approval for "Qualified Performance-Based Compensation." This Plan must be reapproved by the shareholders of UGI no later than the first shareholders meeting that occurs in the fifth year following the year in which the shareholders previously approved the provisions of Section 10, if required by section 162(m) of the Code or the regulations thereunder. 19. SUCCESSORS This Plan will be binding upon and inure to the benefit of the Company, its successors and assigns and the Participant and his heirs, executors, administrators and legal representatives. 20. GOVERNING LAW The validity, construction, interpretation and effect of the Plan and option agreements issued under the Plan will be governed exclusively by and determined in accordance with the law of the Commonwealth of Pennsylvania. 14 EX-10.28 5 PLEDGE AGREEMENT DATED SEPT 1999 BETWEEN EASTFIELD 1 EXHIBIT 10.28 PLEDGE AGREEMENT Eastfield Beteiligungsgesellschaft m.b.H., Seilergasse 16, A-1010 Vienna, Austrian ("Eastfield") and EuroGas Holdings, Inc., a Delaware corporation ("EuroGas") (together the "Pledgors") and Raiffeisen Zentralbank Osterreich Aktiengesellschaft, Am Stadtpark 9, A-1030 Vienna, Austria (the ("Pledgee") hereby enter into the following Pledge Agreement (the "Agreement"): ARTICLE I GENERAL 1.1 Eastfield intends to hold 99% and EuroGas 1% of the shares in FLAGA Beteiligungs Aktiengesellschaft, a stock corporation with its corporate seat in Leobendorf, Austria, registered with the Commercial Register of Korneuburg under the file number FN 59338 m (hereinafter referred to as the "Company") pursuant to the Share Purchase Agreement set forth in Section 1.4 yet to be executed. 1.2 Eastfield as well as FLAGA Beteiligungs Aktiengesellschaft, as borrowers, have extended offers to conclude three loan agreements (the "Facility Agreements") to Pledgee as creditor in the amounts of EURO 74,000,000 (seventy-four million EURO), EURO 16,000,000 (sixteen million EURO) and EURO 15,000,000 (fifteen million EURO), respectively. Such offers have not been accepted by Pledgee and the Facility Agreements thus have not been concluded to date. 1.3 UGI Corporation has entered into guarantee agreements with Pledgee within the meaning of Section 1357 of the Austrian Civil Code (the "Guarantee Agreements"). 1.4 This Pledge Agreement shall only enter into force in the event that the Pledgee has disbursed the Loan amount duly drawn pursuant to Loan Offer (A) made by Eastfield. 2 ARTICLE II PLEDGE OF CORPORATE SHARES AND ASSOCIATED RIGHTS 2.1 In order to secure the full and punctual fulfillment of the payment and other obligations of the borrowers under the Facility Agreements, the Pledgors hereby pledge to the Pledgee all of their shares in the Company (hereinafter referred to as "Pledged Corporate Shares"). 2.2 The Pledgors herewith pledge to the Pledgee in addition to the Pledged Corporate Shares any and all profits that are due to them as shareholders of the Company and which fall due after the occurrence of the Event of Default (hereinafter referred to as "Pledged Rights to Distributed Profits"), exercisable when an Event of Default as specified in the Facility Agreements (hereinafter referred to as "Event of Default") shall have occurred and be continuing. 2.3 In addition to the pledges under Sections 2.1 and 2.2 the Pledgors herewith pledge to the Pledgee their rights and claims towards the Company arising from a claim for payment of the liquidation quota, repayment of share capital or claims arising from a sale or other disposition with respect to the Pledged Corporate Shares or any part thereof (e.g., a claim for payment of the purchase price); such rights and claims shall be collectively referred to as "Pledged Rights of Substitution". 2.4 To secure perfection of the pledge granted by the Pledgors, the latter shall notify the Company of the pledge of the Pledged Corporate Shares, of the Pledged Rights of Substitution and the Pledged Rights to Distributed Profits without delay. The Pledgors shall also make and maintain an entry into their books regarding such pledges in their description of shareholders. In addition, upon request of the Pledgee, the Pledgors shall take any other steps necessary or expedient to secure the perfection of the pledge. In particular, the Pledgors shall deliver the shares to the Pledgee immediately after the Closing, with the Pledgors properly endorsing the shares with the endorsement clause "verpfandet an Raiffeisen Zentralbank Osterreich Aktiengesellschaft". The Pledgee shall hold and maintain the Pledged Corporate Shares in a separate depositary ("Sonderverwahrung") established by the Pledgee in the name of Eastfield at its main office in Vienna at a cost to the Pledgor of ATS 100,000 per annum, payable in arrears so that the first payment is due on September 21, 2000. EuroGas hereby agrees -2- 3 that its shares may be held in such depositary. The Pledgee shall fulfill its obligations set forth in the Depositary Act ("Depotgesetz") and shall in particular maintain such Pledged Corporate Shares in such depositary separate from any other shares or other items. The Pledgee shall not be entitled to pass on to a third party subject to the terms of this Agreement the Pledge Corporate Shares or its depositary obligations or allow anyone access to such depositary. In addition, the Pledgee shall not have any rights with respect to the Pledged Corporate Shares except as explicitly provided for herein. For the purposes of clarification, the parties acknowledge and agree that the Pledgee shall not be entitled to exercise any voting rights with respect to the Pledged Corporate Shares. In the event the Pledgors require confirmation that they own the Pledged Corporate Shares in order to exercise voting or other rights, the Pledgee shall provide such confirmation in a timely manner to the Pledgors upon request. 2.5 Until full payment under the Facility Agreements the Pledgors are obligated to arrange that payments on account of (i) Pledged Rights of Substitution or (ii) in case of an Event of Default on account of Pledged Rights to Distributed Profits, are made directly to the Pledgee and the Pledgee shall be entitled to keep such monies insofar as they do not exceed the amounts under the Facility Agreements which are currently outstanding and which may become outstanding in the future. Any surplus remaining shall be released to the Pledgors without delay. The Pledgee shall hold in trust the amounts so retained prior to their release. With respect to any amounts received by the Pledgors under (i) or (ii) above, the Pledgors shall hold such amounts in trust for, and release such amounts to the Pledgee without delay. 2.6 Irrespective of the pledge of the Pledged Corporate Shares and subject to the terms of this Agreement, the Pledgors shall not be restricted in any way whatsoever in exercising the rights enjoyed by them as shareholders of the Company and attaching to the Pledged Corporate Shares. ARTICLE III ENFORCEMENT OF THE PLEDGE 3.1 The Pledgors herewith grant their express consent that in case of an Event of Default under the Facility Agreements which has not been cured pursuant to the provisions of curing Events of Default under such Facility Agreements, the Pledgee shall be entitled to -3- 4 enforce the Pledged Corporate Shares without writ, judgment or any other court action, in a public auction (hereinafter referred to as "Public Auction") or in a private sale, be it with or without the assistance of a court (hereinafter referred to as "Private Sale"), applying the provision No. 14 (fourteen) of Article VIII of the 4th (fourth) "EVHGB" (Ordinance on the Introduction of the German Commercial Code in Austria) mutatis mutandis. Such an enforcement of the pledge is conditional on the Pledgee having requested the Pledgors in writing to settle the due portions of the amounts owing within 7 (seven) days as from service of the written request, and in such a request the Pledgee shall advise the Pledgors that a Public Auction or Private Sale will take place if these outstanding amounts are not settled within the said period of time. The Public Auction or the Private Sale may take place only after the aforementioned term has elapsed without payment in full of the outstanding amounts. Furthermore, any Private Sale or Public Auction shall only be made upon prior assessment of the Pledged Corporate Shares pursuant to the provisions set forth below. The request by Pledgee set forth in this paragraph shall be in writing and shall be delivered by registered mail, by express mail service or by personal delivery to the address of Pledgors (to the attention of the managing directors) given in this Agreement or at such other address as Pledgors may have notified to Pledgee in writing. Each notice sent by registered mail or by express mail service shall be deemed duly received by the Pledgors on the fifth calendar day after the date of its dispatch by Pledgee, provided that Pledgee has, on the day of such dispatch, either dispatched by registered mail or by express mail service, or delivered by personal delivery, a copy of the same notice to the law firm Bruckhaus Westrick Heller Lober in Vienna, Austria, to the attention of Dr. Georg Bahn or Dr. Paul Luiki. 3.2 If the contracting parties fail to reach an agreement on the value of the Pledged Corporate Shares within 14 (fourteen) days after the expiration of the period mentioned in Section 3.1 above, the said value shall be determined by an independent Austrian certified public accountant. If the Pledgors and the Pledgee fail to reach agreement on who the independent Austrian certified public accountant is to be who shall act as an expert ("Schiedsmann") within 30 (thirty) days after the expiration of the aforementioned 14-day period, such independent certified public accountant shall be appointed by the President of the Vienna Bar Association upon the request of either contracting party. The assessment of the Pledged Corporate Shares shall be made by such certified public accountant in accordance with the Rules and Guidelines No. 74 of the Special Committee for Business Management and Organization of the Institute for Business Management, Tax Law and Organization at the Chamber of Certified Public Accountants, Vienna -4- 5 ("Fachgutachten Nr. 74 des Fachsenats fur Betriebswirtschaft und Organisation des Institutes fur Betriebswirtschaft, Steuerrecht und Organisation bei der Kammer der Wirtschaftstreuhander, Wien") as amended from time to time, or failing such in accordance with any appropriate substitute rules and guidelines. 3.3 As soon as the value of the Pledged Corporate Shares has been determined, the Pledgee shall inform the Pledgors of the terms and conditions, the place, the date and the time of the Public Auction or the Private Sale and shall give its instructions therefor. Between receipt of such letter of information and the date of the Public Auction or the Private Sale there must elapse a period of at least 4 (four) weeks. Neither in a Public Auction nor in a Private Sale may the Pledged Corporate Shares be transferred at a price which is more than 20% (twenty percent) below the value determined by the parties or the expert. Each party to the Facility Agreements, including the Pledgee, is entitled to purchase the Pledged Corporate Shares in a Public Auction or in a Private Sale. The Private Sale shall be made with the diligence customary for banks and by safeguarding the Pledgors's interests to the greatest extent possible. ARTICLE IV GUARANTEE AGREEMENT Notwithstanding any provision herein to the contrary, the Pledgee shall not be entitled to enforce the pledge under this Agreement if and as long as UGI Corporation is in compliance with the Guarantee Agreement. UGI Corporation is deemed to duly comply with the provisions of the Guarantee Agreement, provided that UGI Corporation duly fulfills all present and future payment or other obligations under the Guarantee Agreement, and provided further that everything guaranteed by UGI Corporation pursuant to clause 4 of the Guarantee Agreement is and remains true and accurate. ARTICLE V REPRESENTATIONS AND WARRANTIES/COVENANTS The Pledgors hereby represent, warrant and covenant to the Pledgee that the following shall hold true after the Closing: -5- 6 5.1 Until completion of the merger contemplated by Section 9.1(h) of loan offer A, the Pledgors are and shall remain the legal and beneficial owner of all the shares, and, except for the security interest granted to the Pledgee herein, the Pledgors have, and will at all times during the term hereof have good and transferable title to all and every part of the shares, free and clear of any security interests, lien, pledge, encumbrance, option, claim or conditional sale contract, lease or other title retention agreement. 5.2 During the term hereof and following the occurrence of an Event of Default as specified in the Facility Agreements, the Pledgors shall notify immediately the Pledgee upon becoming aware of any event which may materially effect the rights of the Pledgee hereunder. 5.3 During the term hereof and following the occurrence of an Event of Default which has not been cured as specified in the Facility Agreements and immediately upon written request from the Pledgee, the Pledgors shall give to Pledgee all necessary declarations, authorizations and other documents or take all other actions in order to enable Pledgee, either in its own name or for and on behalf of the Pledgee, to promptly execute any of the security interests contained herein. ARTICLE VI CONTINUING AND INDEPENDENT SECURITY 6.1 This security shall be in addition to and shall be independent of every other security which the Pledgee at any time holds in respect of any or all of the obligations under the Facility Agreements. 6.2 This security shall constitute and be a continuing security, notwithstanding any settlement of accounts and, in particular but without limitation, shall not be considered satisfied by any intermediate payment or satisfaction of any of the obligations under the Facility Agreements in part, and shall continue in full force and effect until such time as all of the principal and interest under the Facility Agreements and all other amounts payable by the Pledgee under the Facility Agreements have been paid in full, whereupon this agreement shall be terminated in accordance with Article 7. -6- 7 ARTICLE VII TERMINATION This agreement shall continue in full force and effect until any or all of the Facility Agreements terminates and the Pledgee has duly received all amounts payable to it under the Facility Agreements, at which time this agreement shall terminate and cease to be of any effect. ARTICLE VIII FINAL PROVISIONS 8.1 Any and all notices in connection with this Agreement shall be made by registered letter and in accordance with the provisions of the Facility Agreements, except as otherwise set forth herein. 8.2 If any provision hereof is or becomes invalid or unenforceable, the validity or enforceability of the other provisions of this Agreement shall not be affected thereby. The invalid or unenforceable provision shall be replaced by a valid and enforceable provision which comes as close as possible to the original purpose of this Agreement. 8.3 In addition to the terms of this Agreement the General Business Conditions of the Austrian Credit Institutions ("GBC") shall apply subject to the last sentence of this clause 8.3. The Pledgors hereby confirm that they has taken notice of the GBC and agree thereto, except that Points 23, 24, 25, 26, 27 and 36 of the GBC shall not apply if and as long as UGI Corporation duly complies with the terms of the Guarantee Agreements. 8.4 The Pledgors shall bear and pay to the Pledgee all reasonable out of pocket costs and expenses of whatever nature incurred by the Pledgee after the conclusion of this Agreement in connection with the implementation of this Agreement including, without limitation, costs and expenses arising in connection with the preservation or enforcement of the Bank's rights under this Agreement (e.g., duties arising under the Austrian Duties Act). 8.5 Any notice or communication under or in connection with this Agreement shall be in writing and shall be delivered by mail, fax or courier to the addresses given in this -7- 8 Agreement or at such other address as the recipient may have notified to the other party in writing. 8.6 This Pledge Agreement shall be governed by Austrian law. Irrespective of the place of jurisdiction agreed upon in the Facility Agreements, the Pledgee shall be entitled, at its sole discretion, to assert claims arising out of this Agreement also before any Austrian court having subject-matter jurisdiction at the seat of the Company. This Agreement has been executed, concluded and delivered on September 21, 1999 in Bratislava, Slovakia. - ---------------------------------- --------------------------------- Raiffeisen Zentralbank Eastfield International Holdings, Inc. Osterreich Aktiengesellschaft ---------------------------------- EuroGas Holdings, Inc. The Company hereby acknowledges that it has knowledge of the content of this Agreement and the pledges stipulated herein. - ---------------------------------------- Eastfield Beteiligungsgesellschaft m.b.H. -8- EX-10.29 6 PLEDGE AGREEMENT DATED SEPT 1999 BETWEEN EUROGAS 1 EXHIBIT 10.29 PLEDGE AGREEMENT Eastfield International Holdings, Inc., Box 858, Valley Forge, PA 19482, USA (the "Pledgor") and Raiffeisen Zentralbank Osterreich Aktiengesellschaft, Am Stadtpark 9, A-1030 Vienna, Austria (the ("Pledgee") hereby enter into the following Pledge Agreement (the "Agreement"): ARTICLE I GENERAL 1.1 Pledgor holds 100% of the share interest in Eastfield Beteiligungsgesellschaft m.b.H., a limited liability company, with its corporate seat in Vienna, Austria, registered with the Commercial Register of Vienna, under the file number 185471 b (hereinafter referred to as "Company"). 1.2 The Company as well as FLAGA Beteiligungs Aktiengesellschaft, as borrowers, have extended offers to conclude three loan agreements (the "Facility Agreements") to Pledgee as creditor in the amounts of EURO 74,000,000 (seventy-four million EURO), EURO 16,000,000 (sixteen million EURO) and EURO 15,000,000 (fifteen million EURO), respectively. Such offers have not been accepted by Pledgee and the Facility Agreements thus have not been concluded to date. 1.3 UGI Corporation has entered into guarantee agreements with Pledgee within the meaning of Section 1357 of the Austrian Civil Code (the "Guarantee Agreements"). 1.4 This Pledge Agreement shall only enter into force in the event that the Pledgee has disbursed the Loan amount duly drawn pursuant to Loan Offer (A) made by Eastfield Beteiligungsgesellschaft m.b.H. 2 ARTICLE II PLEDGE OF A CORPORATE SHARE AND ASSOCIATED RIGHTS 2.1 In order to secure the full and punctual fulfillment of the payment and other obligations of the borrowers under the Facility Agreements, the Pledgor hereby pledges to the Pledgee its entire corporate share in the Company (hereinafter referred to as "Pledged Corporate Share"). 2.2 The Pledgor herewith pledges to the Pledgee in addition to the Pledged Corporate Share any and all profits that are due to it as a shareholder of the Company and which fall due after the occurrence of the Event of Default (hereinafter referred to as "Pledged Rights to Distributed Profits"), exercisable when an Event of Default as specified in the Facility Agreements (hereinafter referred to as "Event of Default") shall have occurred and be continuing. 2.3 In addition to the pledges under Sections 2.1 and 2.2 the Pledgor herewith pledges to the Pledgee its rights and claims towards the Company arising from a claim for payment of the liquidation quota, repayment of share capital or claims arising from a sale or other disposition with respect to the Pledged Corporate Share or any part thereof (e.g., a claim for payment of the purchase price); such rights and claims shall be collectively referred to as "Pledged Rights of Substitution". 2.4 To secure perfection of the pledge granted by the Pledgor, the latter shall notify the Company of the pledge of the Pledged Corporate Share, of the Pledged Rights of Substitution and the Pledged Rights to Distributed Profits without delay. The Pledgor shall also make and maintain an entry into its books regarding such pledges in its description of shareholders. In addition, upon request of the Pledgee, the Pledgor shall take any other steps necessary or expedient to secure the perfection of the pledge. 2.5 Until full payment under the Facility Agreements the Pledgor is obligated to arrange that payments on account of (i) Pledged Rights of Substitution or (ii) in case of an Event of Default on account of Pledged Rights to Distributed Profits, are made directly to the Pledgee and the Pledgee shall be entitled to keep such monies insofar as they do not exceed the amounts under the Facility Agreements which are currently outstanding and which may become outstanding in the future. Any surplus remaining shall be released to -2- 3 the Pledgor without delay. The Pledgee shall hold in trust the amounts so retained prior to their release. With respect to any amounts received by the Pledgor under (i) or (ii) above, the Pledgor shall hold such amounts in trust for, and release such amounts to the Pledgee without delay. 2.6 Irrespective of the pledge of the Pledged Corporate Share and subject to the terms of this Agreement, the Pledgor shall not be restricted in any way whatsoever in exercising the rights enjoyed by it as shareholder of the Company and attaching to the Pledged Corporate Share. ARTICLE III ENFORCEMENT OF THE PLEDGE 3.1 The Pledgor herewith grants its express consent that in case of an Event of Default under the Facility Agreements which has not been cured pursuant to the provisions of curing Events of Default under such Facility Agreements, the Pledgee shall be entitled to enforce the Pledged Corporate Share without writ, judgment or any other court action, in a public auction (hereinafter referred to as "Public Auction") or in a private sale, be it with or without the assistance of a court (hereinafter referred to as "Private Sale"), applying the provision No. 14 (fourteen) of Article VIII of the 4th (fourth) "EVHGB" (Ordinance on the Introduction of the German Commercial Code in Austria) mutatis mutandis. Such an enforcement of the pledge is conditional on the Pledgee having requested the Pledgor in writing to settle the due portions of the amounts owing within 7 (seven) days as from service of the written request, and in such a request the Pledgee shall advise the Pledgor that a Public Auction or Private Sale will take place if these outstanding amounts are not settled within the said period of time. The Public Auction or the Private Sale may take place only after the aforementioned term has elapsed without payment in full of the outstanding amounts. Furthermore, any Private Sale or Public Auction shall only be made upon prior assessment of the Pledged Corporate Share pursuant to the provisions set forth below. The request by Pledgee set forth in this paragraph shall be in writing and shall be delivered by registered mail, by express mail service or by personal delivery to the address of Pledgor (to the attention of the managing director) given in this Agreement or at such other address as the Pledgor may have notified to Pledgee in writing. Each notice sent by registered mail or by express mail service shall be deemed duly received by Pledgor on the fifth calendar day after the date of its dispatch by Pledgee, provided that Pledgee has, on -3- 4 the day of such dispatch, either dispatched by registered mail or by express mail service, or delivered by personal delivery, a copy of the same notice to the law firm Bruckhaus Westrick Heller Lober in Vienna, Austria, to the attention of Dr. Georg Bahn or Dr. Paul Luiki. 3.2 If the contracting parties fail to reach an agreement on the value of the Pledged Corporate Share within 14 (fourteen) days after the expiration of the period mentioned in Section 3.1 above, the said value shall be determined by an independent Austrian certified public accountant. If the Pledgor and the Pledgee fail to reach agreement on who the independent Austrian certified public accountant is to be who shall act as an expert ("Schiedsmann") within 30 (thirty) days after the expiration of the aforementioned 14-day period, such independent certified public accountant shall be appointed by the President of the Vienna Bar Association upon the request of either contracting party. The assessment of the Pledged Corporate Share shall be made by such certified public accountant in accordance with the Rules and Guidelines No. 74 of the Special Committee for Business Management and Organization of the Institute for Business Management, Tax Law and Organization at the Chamber of Certified Public Accountants, Vienna ("Fachgutachten Nr. 74 des Fachsenats fur Betriebswirtschaft und Organisation des Institutes fur Betriebswirtschaft, Steuerrecht und Organisation bei der Kammer der Wirtschaftstreuhander, Wien") as amended from time to time, or failing such in accordance with any appropriate substitute rules and guidelines. 3.3 As soon as the value of the Pledged Corporate Share has been determined, the Pledgee shall inform the Pledgor of the terms and conditions, the place, the date and the time of the Public Auction or the Private Sale and shall give its instructions therefor. Between receipt of such letter of information and the date of the Public Auction or the Private Sale there must elapse a period of at least 4 (four) weeks. Neither in a Public Auction nor in a Private Sale may the Pledged Corporate Share be transferred at a price which is more than 20% (twenty percent) below the value determined by the parties or the expert. Each party to the Facility Agreements, including the Pledgee, is entitled to purchase the Pledged Corporate Share in a Public Auction or in a Private Sale. The Private Sale shall be made with the diligence customary for banks and by safeguarding the Pledgor's interests to the greatest extent possible. -4- 5 ARTICLE IV GUARANTEE AGREEMENT Notwithstanding any provision herein to the contrary, the Pledgee shall not be entitled to enforce the pledge under this Agreement if and as long as UGI Corporation duly complies with the Guarantee Agreement. UGI Corporation is deemed to duly comply with the provisions of the Guarantee Agreement, provided that UGI Corporation duly fulfills all present and future payment or other obligations under the Guarantee Agreement, and provided further that everything guaranteed by UGI Corporation pursuant to clause 4 of the Guarantee Agreement is and remains true and accurate. ARTICLE V REPRESENTATIONS AND WARRANTIES/COVENANTS The Pledgor hereby represents, warrants and covenants to the Pledgee that the following shall hold true: 5.1 The Pledgor is and shall remain the legal and beneficial owner of all the shares, and, except for the security interest granted to the Pledgee herein, the Pledgor has, and will at all times during the term hereof have good and transferable title to all and every part of the shares, free and clear of any security interests, lien, pledge, encumbrance, option, claim or conditional sale contract, lease or other title retention agreement. 5.2 During the term hereof and following the occurrence of an Event of Default as specified in the Facility Agreements, the Pledgor shall notify immediately the Pledgee upon becoming aware of any event which may materially effect the rights of the Pledgee hereunder. 5.3 During the term hereof and following the occurrence of an Event of Default which has not been cured as specified in the Facility Agreements and immediately upon written request from the Pledgee, the Pledgor shall give to Pledgee all necessary declarations, authorizations and other documents or take all other actions in order to enable Pledgee, either in its own name or for and on behalf of the Pledgee, to promptly execute any of the security interests contained herein. -5- 6 ARTICLE VI CONTINUING AND INDEPENDENT SECURITY 6.1 This security shall be in addition to and shall be independent of every other security which the Pledgee at any time holds in respect of any or all of the obligations under the Facility Agreements. 6.2 This security shall constitute and be a continuing security, notwithstanding any settlement of accounts and, in particular but without limitation, shall not be considered satisfied by any intermediate payment or satisfaction of any of the obligations under the Facility Agreements in part, and shall continue in full force and effect until such time as all of the principal and interest under the Facility Agreements and all other amounts payable by the Pledgee under the Facility Agreements have been paid in full, whereupon this agreement shall be terminated in accordance with Article 7. ARTICLE VII TERMINATION This agreement shall continue in full force and effect until any or all of the Facility Agreements terminates and the Pledgee has duly received all amounts payable to it under the Facility Agreements, at which time this agreement shall terminate and cease to be of any effect. ARTICLE VIII FINAL PROVISIONS 8.1 Any and all notices in connection with this Agreement shall be made by registered letter and in accordance with the provisions of the Facility Agreements, except as otherwise set forth herein. 8.2 If any provision hereof is or becomes invalid or unenforceable, the validity or enforceability of the other provisions of this Agreement shall not be affected thereby. The invalid or unenforceable provision shall be replaced by a valid and enforceable provision which comes as close as possible to the original purpose of this Agreement. -6- 7 8.3 In addition to the terms of this Agreement the General Business Conditions of the Austrian Credit Institutions ("GBC") shall apply subject to the last sentence of this clause 8.3. The Pledgor hereby confirms that it has taken notice of the GBC and agrees thereto, except that Points 23, 24, 25, 26, 27 and 36 of the GBC shall not apply if and as long as UGI Corporation duly complies with the terms of the Guarantee Agreements. 8.4 The Pledgor shall bear and pay to the Pledgee all reasonable out of pocket costs and expenses of whatever nature incurred by the Pledgee after the conclusion of this Agreement in connection with the implementation of this Agreement including, without limitation, costs and expenses arising in connection with the preservation or enforcement of the Bank's rights under this Agreement (e.g., duties arising under the Austrian Duties Act). 8.5 Any notice or communication under or in connection with this Agreement shall be in writing and shall be delivered by mail, fax or courier to the addresses given in this Agreement or at such other address as the recipient may have notified to the other party in writing. 8.6 This Pledge Agreement shall be governed by Austrian law. Irrespective of the place of jurisdiction agreed upon in the Facility Agreements, the Pledgee shall be entitled, at its sole discretion, to assert claims arising out of this Agreement also before any Austrian court having subject-matter jurisdiction at the seat of the Company." This Agreement has been executed, concluded and delivered on September 21, 1999 in Bratislava, Slovakia. --------------------------------- -------------------------------------- Raiffeisen Zentralbank Osterreich Eastfield International Holdings, Inc. Aktiengesellschaft The Company hereby acknowledges that it has knowledge of the content of this Agreement and the pledges stipulated herein. - ----------------------------------------- Eastfield Beteiligungsgesellschaft m.b.H. -7- EX-10.30 7 FORM OF GUARANTEE AGREEMENT RELATING TO EURO 74 M 1 EXHIBIT 10.30 GUARANTEE AGREEMENT (A) concluded by UGI Corporation, 460 North Gulph Road, King of Prussia, PA 19406, USA, fax number 001-610-992-3258 ("UGI") as guarantor and Raiffeisen Zentralbank Osterreich Aktiengesellschaft, Am Stadtpark 9, 1030 Vienna, Austria, fax number ++43-1-71707-1086 ("RZB") as beneficiary. WHEREAS Eastfield Beteiligungsgesellschaft mbH, Seilergasse 16, 1010 Vienna, Austria (the "Borrower"), intends to extend to RZB on 21 September 1999 a written offer (the "Offer") to conclude a Loan Agreement (A) in the amount of EURO 74,000,000.00 (the "Loan Agreement") as attached to this Guarantee Agreement as Annex I; WHEREAS the Offer has not been extended, and the Loan Agreement has not been concluded to date; WHEREAS the Offer provides that UGI guarantees the payment of all amounts payable by the Borrower under or in connection with the Loan Agreement when due; WHEREAS UGI is willing to issue, and RZB is willing to accept such guarantee subject to the terms of this Guarantee Agreement; NOW, THEREFORE, it is hereby agreed as follows: 1. UGI hereby confirms that it has taken notice of all terms of the Offer. 2. UGI hereby irrevocably agrees that the Loan Agreement be concluded in accordance with the terms of the Offer. 3. As a guarantor according to Section 1357 of the Austrian Civil Code ("Burge und Zahler" gemass Section 1357 ABGB), UGI hereby irrevocably guarantees in favor of RZB that the Borrower will duly fulfill all its present and future obligations under or in connection with the Loan Agreement including, without limitation, all obligations to repay principal, to pay interest and fees and, further, all payment obligations to RZB in the event that the Loan Agreement or any part thereof is or becomes invalid for any reason whatsoever (collectively the "Secured Obligations"). Whenever, RZB does not receive full payment in respect of any of the Secured Obligations when due, UGI shall make such payment(s) under this Guarantee Agreement within 15 (fifteen) calendar days from receipt of a respective payment request by 2 RZB. Such payment request shall be in writing and shall be delivered by registered mail, by express mail service or by personal delivery to the address of UGI (to the attention of the Corporate Secretary) given in this Guarantee Agreement or at such other address UGI may have notified to RZB in writing. Each payment request sent by registered mail or by express mail service shall be deemed duly received by UGI on the fifth calendar day after the date of its dispatch by RZB, provided that RZB has, on the clay of such dispatch either dispatched by registered mail or by express mail service, or delivered by personal delivery, a copy of the same payment request to the law firm Bruckhaus Westrick Heller Lober in Vienna, Austria, to the attention of DDr. Georg Bohn or Dr. Paul Luiki. 4. In addition, UGI hereby irrevocably covenants, undertakes and, further, guarantees in favor of RZB according to Section 880a second case of the Austrian Civil Code ("Erfalgsgarantie" gemass Section 880a zweiter Fall ABGB) as follows: As at the date of the signing of this Guarantee Agreement, the rating by Standard & Poor's and Moody's mentioned in clause 4.(k) is A- (A minus) in respect of Standard & Poor's and A3 in respect of Moody's (hereinafter referred to as "A minus" rating); From the signing of this Guarantee Agreement until the date on which the Loan Agreement is terminated and RZB has duly received payment in respect of all Secured Obligations, (a) UGI is a corporation duly organized and validly existing under the laws of any State of the USA; and (b) UGI has corporate power to enter into this Guarantee Agreement and to perform its obligations hereunder, and all necessary actions required to authorize its execution of this Agreement and its performance of its obligations hereunder have been duly taken; and (c) no government or other consents or exemptions are required to be obtained by UGI with respect to this Guarantee Agreement in order to give it validity, priority or make it enforceable or, if any such consents or exemptions are required to be obtained in order to give it validity, priority or make it enforceable, they have been or will be obtained in a timely manner, and such consents or exemptions are or will be in full force and effect, and all terms and conditions of any such consents or exemptions are and will be fully complied with in order to give it validity, priority or make it enforceable; and (d) in order to give it validity, priority or make it enforceable, (x) this Guarantee Agreement is not required to be registered by, or sent to, any court or other authority, and (xx) no registration dues, taxes or similar charges are required to be paid in relation to this Guarantee Agreement; and (e) UGI's obligations under this Guarantee Agreement are legal, valid and binding and enforceable in accordance with their terms; such obligations will rank at least pari passu with all its other obligations, except obligations to creditors having preference as a matter of mandatory law; and -2- 3 (f) UGI's execution and delivery of this Guarantee Agreement and the exercise of its right and performance of its obligations hereunder do not: (x) conflict with any agreement or obligation to which UGI is a party or which is binding upon it or any of its assets; or (xx) conflict with UGI's constitutive documents and internal rules and regulations; or (xxx) conflict with any law, regulation, judicial order or the like; to an extent or in a manner having a material adverse effect on UGI; and (g) UGI is not in breach or in default under any agreement to which it is a party or which is binding an it (or any of its assets) to an extent or in a manner which might have a material adverse effect on it; and (h) to the Best of UGI's knowledge, all information supplied by UGI to RZB in connection with this Guarantee Agreement and the Loan Agreement is true, complete and accurate in all material respects (this provision, however, does not apply in respect of financial or other projections provided to RZB); and (i) UGI Utilities, Inc., a company duly organized and validly existing under the laws of Pennsylvania, USA ("Utilities") is a company duly organized and validly existing under the laws of any State of the USA; and (j) Utilities is a company fully and directly owned and controlled by UGI; and (k) Utilities has and continues to have a rating by two rating agencies, namely Standard & Poor's and Moody's or, in the event that Standard & Poor's and/or Moody's no longer exist, any equivalent rating agency or rating agencies; and (l) in the event that both Standard & Poor's and Moody's (or, if Standard & Poor's and/or Moody's no longer exist, other rating agency or rating agencies according to clause 4.(k)) decrease the rating of Utilities below A- (A minus), UGI shall grant RZB an additional security for the Secured Obligations either in form of a pledge over a cash deposit held with RZB in the amount of USD 20 million (United States Dollar twenty million) or in form of a letter of credit (abstract bank guarantee under Austrian law) in the amount of USD 20 million (United States Dollar twenty million) issued by a bank with a rating of at least A- (A minus); such pledge over a cash deposit shall be established in a legal, valid and binding manner within one month, and such letter of credit shall be issued in a legal, valid and binding manner within 45 calendar days, from the day on which UGI is informed about such decrease of rating. In the event additional security is granted as set forth in this clause 4.(1), UGI is deemed to be in compliance with this clause 4.0). In addition, if any of the aforementioned agencies thereafter increases the rating of Utilities to at least A- (A minus), RZB shall be obligated to release the additional security as obtained under clause A.(1), and UGI shall be deemed to be in compliance with this clause 4.(0); this clause 4.(1) cannot result in RZB -3- 4 receiving an additional security in excess of USD 20 million under Guarantee Agreements (A), (B) and (C) collectively; and (m) the Borrower is a company duly organized and validly existing under the laws of Austria with its corporate seat and headquarters in Austria; and (n) the Borrower is a company fully owned and controlled, either directly or indirectly, by UGI; and (o) the Borrower is not insolvent in terms of the Austrian Insolvency Codes (Ausgleichs- und Konkursordnung) until and including 31 December 2000; and (p) UGI shall deliver to RZB copies of its audited accounts within six months after the end of the financial period for which they have been prepared in addition, UGI shall deliver to RZB quarterly reports on its financial situation and the current rating of Utilities, and (q) UGI shall immediately inform RZB in writing about any decrease of the rating of Utilities by Standard & Poor's or Moody's or any other rating agency. 5. All payments made or to be made by UGI under this Guarantee Agreement shall be effected in the same currency, in which the respective Secured Obligations are denominated, by transfer to any account indicated in the respective payment request of RZB free from and clear of, and without any deduction for or on account of any present or future taxes, imposts, levies, duties, charges, fees, withholdings or other deductions of any kind or nature whatsoever. Should any payments by UGI under this Guarantee Agreement be subject to any deductions whatsoever, UGI shall pay additional amounts equal to all amounts deducted with the effect that RZB receives all amounts it would have received if no deductions were made. 6. If, as a result of a payment made by UGI under clause 5., RZB will receive or be granted a credit against or remission for or deduction or relief from or in respect of any tax payable by it, which is both identifiable and quantifiable by RZB without requiring it to expend a material amount of time or incur a material cost in so identifying or quantifying (any of the foregoing, to the extent so identifiable and quantifiable, being referred to as a "Saving"), RZB shall, to the extent it can do so without prejudice to the retention of the relevant Saving and subject to UGI's obligation to repay promptly on demand by RZB the amount to RZB if the relevant Saving is subsequently disallowed or cancelled, reimburse UGI promptly after receipt of such Saving by RZB with such amount. 7. Any costs and expenses, taxes and duties arising in connection with this Guarantee Agreement -including, without limitation, any duties under the Austrian Duties Act (oGebG) - shall in any event be borne and paid by UGI. 8. This Guarantee Agreement shall immediately enter into full force and effect. It shall expire when the Loan Agreement is terminated and all Secured Obligations are duly fulfilled. -4- 5 9. UGI shall not acquire any rights or claims in connection with the Loan Agreement, nor shall UGI claim or accept payment or security in respect of its obligations arising from, or any payments) made under this Guarantee Agreement, until the Loan Agreement -is terminated and RZB has duly received payment in respect of all Secured Obligations. 10. As regards the rights of RZB under clause 12.1 of the Loan Agreement (collectively the "Rights"), the following shall apply: (a) Subject to the provisions in clause 10.(b) and 10.(c), RZB shall not exercise the Rights, provided that and as long as UGI duly complies with the provisions of this Guarantee Agreement. Under the terms of this Guarantee Agreement, UGI is deemed to duly comply with the provisions of this Guarantee Agreement, provided that UGI duly fulfills all present and future payment or other obligations under this Guarantee Agreement, and provided further that everything guaranteed by UGI pursuant to clause 4 is and remains true and correct. (b) In the event that both Standard & Poor's and Moody's (or, if Standard & Poor's and/or Moody's no longer exist, other rating agency or rating agencies according to clause 4.(k)) decrease the rating of Utilities by one notch from A- (A minus) to BBB+ (triple B plus) in respect of Standard & Poor's and Baa 1 in respect of Moody's (hereinafter referred to as "BBB+" rating), and RZB does not receive an additional security according to clause 4.(1), RZB shall be entitled to exercise the Rights even if UGI duly complies with the provisions of this Guarantee Agreement. For the purpose of clarification, in the event defined in the first sentence of this clause 10.(b), and subject to clause 10.(c), RZB shall not be entitled to exercise the Rights, if it has received additional securities in accordance with clause 4.(1) and UGI duly complies with all other provisions of this Guarantee Agreement, in which event the Borrower shall no longer be in default under clause 12.1(e) or clause 12.3 of the Loan Agreement. In addition, if any of the aforementioned agencies thereafter increases the rating of Utilities to at least A(A minus), RZB shall be obligated to release the additional security as obtained under clause 4.(1) without delay, and the Borrower shall no longer be in default under clause 12.1 (e) or clause 12.3 of the Loan Agreement. (c) In the event that both Standard & Poor's and Moodys (or, if Standard & Poor's and/or Moody's no longer exist, other rating agency or rating agencies according to clause 4.(k)) decrease the rating of Utilities below BBB+ (triple B plus), RZB shall be entitled to exercise the Rights even if RZB receives an additional security according to clause 4.(l) and/or UGI duly complies with all other provisions of this Guarantee Agreement. 11. Upon request of UGI, the parties hereto shall enter into negotiations for a reduction of the amounts secured under this Guarantee Agreement and/or for the elimination of the requirement of a minimum rating of Utilities, subject to the amounts outstanding under the Loan Agreement, the overall credit standing of the Borrower and the equity ratio of the Borrower. 12. This Guarantee Agreement is governed by and construed in accordance with the substantive law of Austria. -5- 6 13. Should any disputes arise In connection with this Guarantee Agreement (hereinafter referred to as the Disputes") - including, without limitation, Disputes regarding the existence or validity of this Guarantee Agreement or any part hereof, and Disputes arising in the event that this Guarantee Agreement or any part hereof is or becomes inexistent or invalid - the following shall apply: 13.1. All Disputes shall be finally settled under the Rules of Arbitration and Conciliation of the International Arbitral Centre of the Austrian Federal Economic Chamber (Vienna Rules) by one or more arbitrators appointed in accordance with such Rules. The arbitral proceeding shall take place, and the arbitral award shall be rendered in Vienna, Austria. The language of arbitration shall be English. 13.2. Notwithstanding the arbitration clause in clause 13.1., RZB shall also be entitled to instigate any legal proceedings regarding Disputes in the Commercial Court of Vienna, Austria (Handelsgericht Wien), or in any other court - in Austria, in the United States of America or in any third country - that has or may have or accepts jurisdiction (either by virtue of any law or legal regulation, or by virtue of any agreement, or on any other grounds). 13.3. In any arbitral or court proceeding, the substantive law of Austria shall be applicable. 14. This Guarantee Agreement has been executed, concluded and delivered on 21 September 1999 in Bratislava, Slovakia. _________________________________ ____________________________________ UGI Corporation Raiffeisen Zentralbank Osterreich Aktiengesellschaft I Annex (Form of Offer) -6- EX-10.31 8 FORM OF GUARANTEE AGREEMENT RELATING TO EURO 16 M 1 EXHIBIT 10.31 GUARANTEE AGREEMENT (B) concluded by UGI Corporation, 460 North Gulph Road, King of Prussia, PA 19406, USA, fax number 001-610-992-3258 ("UGI") as guarantor and Raiffeisen Zentralbank Osterreich Aktiengesellschaft, Am Stadtpark 9, 1030 Vienna, Austria, fax number ++43-1-71707-1086 ("RZB") as beneficiary. WHEREAS FLAGA Beteiligungs Aktiengesellschaft, An der Bundesstra(ss)e 6, 2100 Leobendorf, Austria (the "Borrower"), intends to extend to RZB on 21 September 1999 a written offer (the "Offer") to conclude a Loan Agreement (B) in the amount of EURO 16,000,000.00 (the "Loan Agreement") as attached to this Guarantee Agreement as Annex 1; WHEREAS the Offer has not been extended, and the Loan Agreement has not been concluded to date; WHEREAS the Offer provides that UGI guarantees the payment of all amounts payable by the Borrower under or in connection with the Loan Agreement when due; WHEREAS UGI is willing to issue, and RZB is willing to accept such guarantee subject to the terms of this Guarantee Agreement; NOW, THEREFORE, it is hereby agreed as follows: 1. UGI hereby confirms that it has taken notice of all terms of the Offer. 2. UGI hereby irrevocably agrees that the Loan Agreement be concluded in accordance with the terms of the Offer. 3. As a guarantor according to Section 1357 of the Austrian Civil Code ("Burge und Zahler" gema(ss) Section 1357 ABGB), UGI hereby irrevocably guarantees in favor of RZB that the Borrower will duly fulfill all its present and future obligations under or in connection with the Loan Agreement including, without limitation, all obligations to repay principal, to pay interest and fees and, further, all payment obligations to RZB in the event that the Loan Agreement or any part thereof is or becomes invalid for any reason whatsoever (collectively the "Secured Obligations"). Whenever RZB does not receive full payment in respect of any of the Secured Obligations when due, UGI shall make such payment(s) under this Guarantee Agreement within 15 (fifteen) calendar days from receipt of a respective payment request by -6- 2 RZB. Such payment request shall be in writing and shall be delivered by registered mail, by express mail service or by personal delivery to the address of UGI (to the attention of the Corporate Secretary) given in this Guarantee Agreement or at such other address UGI may have notified to RZB in writing. Each payment request sent by registered mail or by express mail service shall be deemed duly received by UGI on the fifth calendar day after the date of its dispatch by RZB, provided that RZB has, on the day of such dispatch, either dispatched by registered mail or by express mail service, or delivered by personal delivery, a copy of the same payment request to the law firm Bruckhaus Westrick Heller Lober in Vienna, Austria, to the attention of DDr. Georg Bahn or Dr. Paul Luiki. 4. In addition, UGI hereby irrevocably covenants, undertakes and, further, guarantees in favor of RZB according to Section 880a second case of the Austrian Civil Code ("Erfolgsgarantie" gema(ss) Section 880a zweiter Fall ABGB) as follows: As at the date of the signing of this Guarantee Agreement, the rating by Standard & Poor's and Moody's mentioned in clause 4.(k) is A- (A minus) in respect of Standard & Poor's and A3 in respect of Moody's (hereinafter referred to as "A minus" rating);. From the signing of this Guarantee Agreement until the date on which the Loan Agreement is terminated and RZB has duly received payment in respect of all Secured Obligations, (a) UGI is a corporation duly organized and validly existing under the laws of any State of the USA; and (b) UGI has corporate power to enter into this Guarantee Agreement and to perform its obligations hereunder, and all necessary actions required to authorize its execution of this Agreement and its performance of its obligations hereunder have been duly taken; and (c) no government or other consents or exemptions are required to be obtained by UGI with respect to this Guarantee Agreement in order to give it validity, priority or make it enforceable or, if any such consents or exemptions are required to be obtained in order to give it validity, priority or make it enforceable, they have been or will be obtained in a timely manner, and such consents or exemptions are or will be in full force and effect, and all terms and conditions of any such consents or exemptions are and will be fully complied with in order to give it validity, priority or make it enforceable; and (d) in order to give it validity, priority or make it enforceable, (x) this Guarantee Agreement is not required to be registered by, or sent to, any court or other authority, and (xx) no registration dues, taxes or similar charges are required to be paid in relation to this Guarantee Agreement; and (e) UGI's obligations under this Guarantee Agreement are legal, valid and binding and enforceable in accordance with their terms; such obligations will rank at least pari passu with all its other obligations, except obligations to creditors having preference as a matter of mandatory law; and -2- 3 (f) UGI's execution and delivery of this Guarantee Agreement and the exercise of its rights and performance of its obligations hereunder do not: (x) conflict with any agreement or obligation to which UGI is a party or which is binding upon it or any of its assets; or (xx) conflict with UGI's constitutive documents and internal rules and regulations; or (xxx) conflict with any law, regulation, judicial order or the like; to an extent or in a manner having a material adverse effect on UGI; and (g) UGI is not in breach or in default under any agreement to which it is a party or which is binding an it (or any of its assets) to an extent or in a manner which might have a material adverse effect on it; and (h) to the best of UGI's knowledge, all information supplied by UGI to RZB in connection with this Guarantee Agreement and the Loan Agreement is true, complete and accurate in all material respects (this provision, however, does not apply in respect of financial or other projections provided to RZB); and (i) UGI Utilities, Inc., a company duly organized and validly existing under laws of Pennsylvania, USA ("Utilities") is a company duly organized and validly existing under the laws of any State of the USA; and (j) Utilities is a company fully and directly owned and controlled by UGI, and (k) Utilities has and continues to have a rating by two rating agencies, namely Standard & Poor's and Moody's or, in the event that Standard & Poor's and/or Moody's no longer exist, any equivalent rating agency or rating agencies; and (l) in the event that both Standard & Poor's and Moody's (or, if Standard & Poor's and/or Moody's no longer exist, other rating agency or rating agencies according to clause 4.(k)) decrease the rating of Utilities below A- (A minus), UGI shall grant RZB an additional security for the Secured Obligations either in form of a pledge over a cash deposit held with RZB in the amount of USD 20 million (United States Dollar twenty million) or in form of a letter of credit (abstract bank guarantee under Austrian law) in the amount of USD 20 million (United States Dollar twenty million) issued by a bank with a rating of at least A- (A minus); such pledge over a cash deposit shall be established in a legal, valid and binding manner within one month, and such letter of credit shall be issued in a legal, valid and binding manner within 45 calendar days, from the day on which UGI is informed about such decrease of rating. In the event additional security is granted as set forth in this clause 4.(l), UGI is deemed to be in compliance with this clause 4.(l). In addition, if any of the aforementioned agencies thereafter increases the rating of Utilities to at least A- (A minus), RZB shall be obligated to release the additional security as obtained under clause 4.(l), and UGI shall be deemed to be in compliance with this clause 4.(l); this clause 4.(1) cannot result in RZB receiving an additional security in excess of USD 20 million under Guarantee Agreements (A), (B) and (C) collectively; and -3- 4 (m) the Borrower is a company duly organized and validly existing under the laws of Austria with its corporate seat and headquarters in Austria; and (n) the Borrower is a company fully owned and controlled, either directly or indirectly, by UGI; and (o) the Borrower is not insolvent in terms of the Austrian Insolvency Codes (Ausgleichs- und Konkursordnung) until and including 31 December 2000; and (p) UGI shall deliver to RZB copies of its audited accounts within six months after the end of the financial period for which they have been prepared; in addition, UGI shall deliver to RZB quarterly reports on its financial situation and the current rating of Utilities; and (q) UGI shall immediately inform RZB in writing about any decrease of the rating of Utilities by Standard & Poor's or Moody's or any other rating agency. 5. All payments made or to be made by UGI under this Guarantee Agreement shall be effected in the same currency, in which the respective Secured Obligations are denominated, by transfer to any account indicated in the respective payment request of RZB free from and clear of, and without any deduction for or on account of any present or future taxes, imposts, levies, duties, charges, fees, withholdings or other deductions of any kind or nature whatsoever. Should any payments by UGI under this Guarantee Agreement be subject to any deductions whatsoever, UGI shall pay additional amounts equal to all amounts deducted with the effect that RZB receives all amounts it would have received if no deductions were made. 6. If, as a result of a payment made by UGI under clause 5., RZB will receive or be granted a credit against or remission for or deduction or relief from or in respect of any tax payable by it, which is both identifiable and quantifiable by RZB without requiring it to expend a material amount of time or incur a material cost in so identifying or quantifying (any of the foregoing, to the extent so identifiable and quantifiable, being referred to as a "Saying"), RZB shall, to the extent it can do so without prejudice to the retention of the relevant Saving and subject to UGI's obligation to repay promptly on demand by RZB the amount to RZB if the relevant Saving is subsequently disallowed or cancelled, reimburse UGI promptly after receipt of such Saying by RZB with such amount. 7. Any costs and expenses, taxes and duties arising in connection with this Guarantee Agreement -including, without limitation, any duties under the Austrian Duties Act (oGebG) - shall in any event be borne and paid by UGI. 8. This Guarantee Agreement shall immediately enter into full force and effect. It shall expire when the Loan Agreement is terminated and all Secured Obligations are duly fulfilled. 9. UGI shall not acquire any rights or claims in connection with the Loan Agreement, nor shall UGI claim or accept payment or security in respect of its obligations arising from, or any payment(s) made under this Guarantee Agreement, until the Loan Agreement is terminated and RZB has duly received payment in respect of all Secured Obligations. -4- 5 10. As regards the rights of RZB under clause 12.1 of the Loan Agreement (collectively the "Rights"), the following shall apply: (a) Subject to the provisions in clause 10.(b) and 10.(c), RZB shall not exercise the Rights, provided that and as long as UGI duly complies with the provisions of this Guarantee Agreement. Under the terms of this Guarantee Agreement, UGI is deemed to duly comply with the provisions of this Guarantee Agreement, provided that UGI duly fulfills all present and future payment or other obligations under this Guarantee Agreement, and provided further that everything guaranteed by UGI pursuant to clause 4 is and remains true and correct. (b) In the event that both Standard & Poor's and Moody's (or, if Standard & Poor's and/or Moody's no longer exist, other rating agency or rating agencies according to clause 4.(k)) decrease the rating of Utilities by one notch from A- (A minus) to BBB+ (triple B plus) in respect of Standard & Poor's and Baa 1 in respect of Moody's (hereinafter referred to as "BBB+" rating), and RZB does not receive an additional security according to clause 4.(1), RZB shall be entitled to exercise the Rights even if UGI duly complies with the provisions of this Guarantee Agreement. For the purpose of clarification, in the event defined in the first sentence of this clause 10.(b), and subject to clause 10.(c), RZB shall not be entitled to exercise the Rights, if it has received additional securities in accordance with clause 4.(1) and UGI duly complies with all other provisions of this Guarantee Agreement, in which event the Borrower shall no longer be in default under clause 12.1(e) or clause 12.3 of the Loan Agreement. In addition, if any of the aforementioned agencies thereafter increases the rating of Utilities to at least A(A minus), RZB shall be obligated to release the additional security as obtained under clause 4.(1) without delay, and the Borrower shall no longer be in default under clause 12.1(e) or clause 12.3 of the Loan Agreement. (c) in the event that both Standard & Poor's and Moody's (or, if Standard & Poor's and/or Moody's no longer exist, other rating agency or rating agencies according to clause 4.(k)) decrease the rating of Utilities below BBB+ (triple B plus), RZB shall be entitled to exercise the Rights even if RZB receives an additional security according to clause 4.(1) and/or UGI duly complies with all other provisions of this Guarantee Agreement. 11. Upon request of UGI, the parties hereto shall enter into negotiations for a reduction of the amounts secured under this Guarantee Agreement and/or for the elimination of the requirement of a minimum rating of Utilities, subject to the amounts outstanding under the Loan Agreement, the overall credit standing of the Borrower and the equity ratio of the Borrower. 12. This Guarantee Agreement is governed by and construed in accordance with the substantive law of Austria. -5- 6 13. Should any disputes arise in connection with this Guarantee Agreement (hereinafter referred to as the "Disputes") -including, without limitation, Disputes regarding the existence or validity of this Guarantee Agreement or any part hereof, and Disputes arising in the event that this Guarantee Agreement or any part hereof is or becomes inexistent or invalid - the following shall apply: 13.1. All Disputes shall be finally settled under the Rules of Arbitration and Conciliation of the International Arbitral Centre of the Austrian Federal Economic Chamber (Vienna Rules) by one or more arbitrators appointed in accordance with such Rules. The arbitral proceeding shall take place, and the arbitral award shall be rendered in Vienna, Austria. The language of arbitration shall be English. 13.2. Notwithstanding the arbitration clause in clause 13.1., RZB shall also be entitled to instigate any legal proceedings regarding Disputes in the Commercial Court of Vienna, Austria (Handelsgericht Wien), or in any other court - in Austria, in the United States of America or in any third country - that has or may have or accepts jurisdiction (either by virtue of any law or legal regulation, or by virtue of any agreement, or on any other grounds). 13.3. In any arbitral or court proceeding, the substantive law of Austria shall be applicable. 14. This Guarantee Agreement has been executed, concluded and delivered on 21 September 1999 in Bratislava, Slovakia. - ------------------------ ------------------------------------------ UGI Corporation Raiffeisen Zentralbank Osterreich Aktiengesellschaft 1 Annex (form of Offer) -6- EX-10.32 9 FORM OF GUARANTEE AGREEMENT RELATING TO EURO 15 M 1 EXHIBIT 10.32 GUARANTEE AGREEMENT (C) concluded by UG1 Corporation, 460 North Gulph Road, King of Prussia, PA 19406, USA, fax number 001-610-992-3258 ("UGI") as guarantor and Raiffeisen Zentralbank Osterreich Aktiengesellschaft, Am Stadtpark 9, 1030 Vienna, Austria, fax number ++43-1-71707-1086 ("RZB") as beneficiary. WHEREAS FLAGA Beteiligungs Aktiengesellschaft, An der Bundesstrabe 6, 2100 Leobendorf, Austria (the "Borrower"), intends to extend to RZB on 21 September 1999 a written offer (the. "Offer") to conclude a Loan Agreement (C) in the amount of EURO 15,000,000.00 (the "Loan Agreement') as attached to this Guarantee Agreement as Annex 1; WHEREAS the Offer has not been extended, and the Loan Agreement has not been concluded to date; WHEREAS the Offer provides that UGI guarantees the payment of all amounts payable by the Borrower under or in connection with the Loan Agreement when due; WHEREAS UGI is willing to issue, and RZB is willing to accept such guarantee subject to the terms of this Guarantee Agreement, NOW, THEREFORE, it is hereby agreed as follows: 1. UGI hereby confirms that it has taken notice of all terms of the Offer. 2. UGI hereby irrevocably agrees that the Loan Agreement be concluded in accordance with the terms of the Offer. 3. As a guarantor according to Section 1357 of the Austrian Civil Code ("Burge und Zahler" gemass Section 1357 ABGB), UGI hereby irrevocably guarantees in favor of RZB that the Borrower will duly fulfill all its present and future obligations under or in connection with the Loan Agreement including, without limitation, all obligations to repay principal, to pay interest and fees and, further, all payment obligations to RZB in the event that the Loan Agreement or any part thereof is or becomes invalid for any reason whatsoever (collectively the "Secured Obligations"). Whenever RZB does not receive full payment in respect of any of the Secured Obligations when due, UGI shall make such payment(s) under this Guarantee Agreement within 15 (fifteen) calendar days from receipt of a respective payment request by RZB. Such payment request shall be in writing and shall be delivered by registered mail, by 2 express mail service or by personal delivery to the address of UGI (to the attention of the Corporate Secretary) given in this Guarantee Agreement or at such other address UGI may have notified to RZB in writing. Each payment request sent by registered mail or by express mail service shall be deemed duly received by UGI on the fifth calendar day after the date of its dispatch by RZB, provided that RZB has, on the day of such dispatch, either dispatched by registered mail or by express mail service, or delivered by personal delivery, a copy of the same payment request to the lawfirm Bruckhaus Westrick Heller Lober in Vienna, Austria, to the attention of DDr. Georg Bohn or Dr. Paul Luiki. 4. In addition, UGI hereby irrevocably covenants, undertakes and, further, guarantees in favor of RZB according to Section 880a second case of the Austrian Civil Code ("Erfolgsgarantie" gema(ss) Section 880a zweiter Fall ABGB) as follows: As at the date of the signing of this Guarantee Agreement, the rating by Standard & Poor's and Moody's mentioned in clause 4.(k) is A- (A minus) in respect of Standard & Poor's and A3 in respect of Moody's (hereinafter referred to as "A minus" rating). From the signing of this Guarantee Agreement until the date an which the Loan Agreement is terminated and RZB has duly received payment in respect of all Secured Obligations, (a) UGI is a corporation duly organized and validly existing under the laws of any State of the USA; and (b) UGI has corporate power to enter into this Guarantee Agreement and to perform its obligations hereunder, and all necessary actions required to authorize its execution of this Agreement and its performance of its obligations hereunder have been duly taken; and (c) no government or other consents or exemptions are required to be obtained by UGI with respect to this Guarantee Agreement in order to give it validity, priority or make it enforceable or, if any such consents or exemptions are required to be obtained in order to give it validity, priority or make it enforceable, they have been or will be obtained in a timely manner, and such consents or exemptions are or will be in full force and effect, and all terms and conditions of any such consents or exemptions are and will be fully complied with in order to give it validity, priority or make it enforceable; and (d) in order to give it validity, priority or make it enforceable, (x) this Guarantee Agreement is not required to be registered by, or sent to, any court or other authority, and (xx) no registration dues, taxes or similar charges are required to be paid in relation to this Guarantee Agreement; and (e) UGI's obligations under this Guarantee Agreement are legal, valid and binding and enforceable in accordance with their terms; such obligations will rank at least pari passu with all its other obligations, except obligations to creditors having preference as a matter of mandatory law; and -2- 3 (f) UGI's execution and delivery of this Guarantee Agreement and the exercise of its rights and performance of its obligations hereunder do not: (x) conflict with any agreement or obligation to which UGI is a party or which is binding upon it or any of its assets; or (xx) conflict with UGI's constitutive documents and internal rules and regulations; or (xxx) conflict with any law, regulation, judicial order or the like; to an extent or in a manner having a material adverse effect on UGI; and (g) UGI is not in breach or in default under any agreement to which it is a party or which is binding on it (or any of its assets) to an extent or in a manner which might have a material adverse effect on it; and (h) to the best of UGI's knowledge, all information supplied by UGI to RZB in connection with this Guarantee Agreement and the Loan Agreement is true, complete and accurate in all material respects (this provision, however, does not apply in respect of financial or other projections provided to RZB); and (i) UGI Utilities, Inc., a company duly organized and validly existing under laws of Pennsylvania, USA ("Utilities") is a company duly organized and validly existing under the laws of any State of the USA; and (j) Utilities is a company fully and directly owned and controlled by UGI; and (k) Utilities has and continues to have a rating by two rating agencies, namely Standard & Poor's and Moody's or, in the event that Standard & Poor's and/or Moody's no longer exist, any equivalent rating agency or rating agencies; and (l) in the event that both Standard & Poor's and Moody's (or, if Standard & Poor's and/or Moody's no longer exist, other rating agency or rating agencies according to clause 4.(k)) decrease the rating of Utilities below A- (A minus), UGI shall grant RZB an additional security for the Secured Obligations either in form of a pledge over a cash deposit held with RZB in the amount of USD 20 million (United States Dollar twenty million) or in form of a letter of credit (abstract bank guarantee under Austrian law) in the amount of USD 20 million (United States Dollar twentymillion) issued by a bank with a rating of at least A- (A minus); such pledge over a cash deposit shall be established in a legal, valid and binding manner within one month, and such letter of credit shall be issued in a legal, valid and binding manner within 45 calendar days, from the day on which UGI is informed about such decrease of rating. In the event additional security is granted as set forth in this clause 4.(1), UGI is deemed to be in compliance with this clause 4.(1). In addition, if any of the aforementioned agencies thereafter increases the rating of Utilities to at least A- (A minus), RZB shall be obligated to release the additional security as obtained under clause 4.(l), and UGI shall be deemed to be in compliance with this clause 4.(1); this clause 4.(1) cannot result in RZB receiving an additional security in excess of USD 20 million under Guarantee Agreements (A), (B) and (C) collectively; and (m)the Borrower is a company duly organized and validly existing under the laws of Austria with its corporate seat and headquarters in Austria; and -3- 4 (n) the Borrower is a company fully owned and controlled, either directly or indirectly, by UGI; and (o) the Borrower is not insolvent in terms of the Austrian Insolvency Codes (Ausgleichs- und Konkursordnung) until and including 31 December 2000; and (p) UGI shall deliver to RZB copies of its audited accounts within six months after the end of the financial period for which they have been prepared; in addition, UGI shall deliver to RZB quarterly reports on its financial situation and the current rating of Utilities; and (q) UGI shall immediately inform RZB in writing about any decrease of the rating of Utilities by Standard & Poor's or Moody's or any other rating agency. 5. All payments made or to be made by UGI under this Guarantee Agreement shall be effected in the same currency, in which the respective Secured Obligations are denominated, by transfer to any account indicated in the respective payment request of RZB free from and clear of, and without any deduction for or on account of any present or future taxes, imposts, levies, duties, charges, fees, withholdings or other deductions of any kind or nature whatsoever. Should any payments by UGI under this Guarantee Agreement be subject to any deductions whatsoever, UGI shall pay additional amounts equal to all amounts deducted with the effect that RZB receives all amounts it would have received if no deductions were made. 6. If, as a result of a payment made by UGI under clause 5., RZB will receive or be granted a credit against or remission for or deduction or relief from or in respect of any tax payable by it, which is both identifiable and quantifiable by RZB without requiring it to expend a material amount of time or incur a material cost in so identifying or quantifying (any of the foregoing, to the extent so identifiable and quantifiable, being referred to as a "Saving"), RZS shall, to the extent it can do so without prejudice to the retention of the relevant Saving and subject to UGI's obligation to repay promptly on demand by RZB the amount to RZB if the relevant Saving is subsequently disallowed or cancelled, reimburse UGI promptly after receipt of such Saving by RZB with such amount. 7. Any costs and expenses, taxes and duties arising in connection with this Guarantee Agreement -including, without limitation, any duties under the Austrian Duties Act (oGebG) - shall in any event be borne and paid by UGI. 8. This Guarantee Agreement shall immediately enter into full force and effect. It shall expire when the Loan Agreement is terminated and all Secured Obligations are duly fulfilled. 9. UGI shall not acquire any rights or claims in connection with the Loan Agreement, nor shall UGI claim or accept payment or security in respect of its obligations arising from, or any payment(s) made under this Guarantee Agreement, until the Loan Agreement is terminated and RZB has duly received payment in respect of all Secured Obligations. -4- 5 10. As regards the rights of RZB under clause 12.1 of the Loan Agreement (collectively the "Rights"), the following shall apply: (a) Subject to the provisions in clause 10.(b) and 10.(c), RZB shall not exercise the Rights, provided that and as long as UGI duly complies with the provisions of this Guarantee Agreement. Under the terms of this Guarantee Agreement, UGI is deemed to duly comply with the provisions of this Guarantee Agreement, provided that UGI duly fulfills all present and future payment or other obligations under this Guarantee Agreement, and provided further that everything guaranteed by UGI pursuant to clause 4 is and remains true and correct. (b) In the event that both Standard & Poor's and Moody's (or, if Standard & Poor's and/or Moody's no longer exist, other rating agency or rating agencies according to clause 4.(k)) decrease the rating of Utilities by one notch from A- (A minus) to BBB+ (triple B plus) in respect of Standard & Poor's and Baa l in respect of Moody's (hereinafter referred to as "BBB+" rating), and RZB does not receive an additional security according to clause 4.(1), RZB shall be entitled to exercise the Rights even if UGI duly complies with the provisions of this Guarantee Agreement. For the purpose of clarification, in the event defined in the first sentence of this clause 10.(b), and subject to clause 10.(c), RZB shall not be entitled to exercise the Rights, if it has received additional securities in accordance with clause 4.(l) and UGI duly complies with all other provisions of this Guarantee Agreement, in which event the Borrower shall no longer be in default under clause 12.1(e) or clause 12.3 of the Loan Agreement. In addition, if any of the aforementioned agencies thereafter increases the rating of Utilities to at least A- (A minus), RZB shall be obligated to release the additional security as obtained under clause 4.(l) without delay, and the Borrower shall no longer be in default under clause 12.1 (e) or clause 12.3 of the Loan Agreement. (c) In the event that both Standard & Poor's and Moody's (or, if Standard & Poor's and/or Moody's no longer exist, other rating agency or rating agencies according to clause 4(k)) decrease the rating of Utilities below BBB+ (triple B plus), RZB shall be entitled to exercise the Rights even if RZB receives an additional security according to clause 4.(1) and/or UGI duly complies with all other provisions of this Guarantee Agreement. 11. Upon request of UGI, the parties hereto shall enter into negotiations for a reduction of the amounts secured under this Guarantee Agreement and/or for the elimination of the requirement of a minimum rating of Utilities, subject to the amounts outstanding under the Loan Agreement, the overall credit standing of the Borrower and the equity ratio of the Borrower. 12. This Guarantee Agreement is governed by and construed in accordance with the substantive law of Austria. 13. Should any disputes arise in connection with this Guarantee Agreement (hereinafter referred to as the "Disputes") - including, without limitation, Disputes regarding the existence or validity of this Guarantee Agreement or any part hereof, and Disputes arising in the event -5- 6 that this Guarantee Agreement or any part hereof is or becomes inexistent or invalid - the following shall apply: 13.1. All Disputes shall be finally settled under the Rules of Arbitration and Conciliation of the International Arbitral Centre of the Austrian Federal Economic Chamber (Vienna Rules) by one or more arbitrators appointed in accordance with such Rules. The proceeding shall take place, and the arbitral award shall be rendered in Vienna, Austria. The language of arbitration shall be English. 13.2. Notwithstanding the arbitration clause in clause 13.1., RZB shall also be entitled to instigate any legal proceedings regarding Disputes in the Commercial Court of Vienna, Austria (Handelsgericht Wien), or in any other court - in Austria, in the United States of America or in any third country - that has or may have or accepts jurisdiction (either by virtue of any law or legal regulation, or by virtue of any agreement, or on any other grounds). 13.3. In any arbitral or court proceeding, the substantive law of Austria shall be applicable. 14. This Guarantee Agreement has been executed, concluded and delivered on 21 September 1999 in Bratislava, Slovakia. - ------------------------ ------------------------------------------ UGI Corporation Raiffeisen Zentralbank Osterrich Aktiengesellshaft 1 Annex (form of Offer) -6- EX-10.33 10 DESCRIPTION OF CHANGE OF CONTROL MESSRS. GREENBERG 1 EXHIBIT 10.33 DESCRIPTION OF CHANGE OF CONTROL ARRANGEMENTS FOR UGI CORPORATION CHANGE OF CONTROL ARRANGEMENTS Named Executives Employed by UGI Corporation. Messrs. Greenberg and Bovaird each have an agreement with UGI Corporation (the "Agreement") which provides certain benefits in the event of a change of control of UGI. The Agreements operate independently of the UGI Severance Plan, continue through July 2004, and are automatically extended in one-year increments thereafter unless, prior to a change of control, UGI terminates an Agreement. In the absence of a change of control, each Agreement will terminate when, for any reason, the executive terminates his employment with UGI or its subsidiaries. A change of control is generally deemed to occur if: (i) any person (other than the executive, his affiliates and associates, UGI or any of its subsidiaries, any employee benefit plan of UGI or any of its subsidiaries, or any person or entity organized, appointed, or established by UGI or its subsidiaries for or pursuant to the terms of any such employee benefit plan), together with all affiliates and associates of such person, acquires securities representing 20% or more of either (x) the then outstanding shares of common stock of UGI or (y) the combined voting power of UGI's then outstanding voting securities; (ii) individuals who at the beginning of any 24-month period constitute the Board of Directors (the "Incumbent Board") and any new director whose election by the Board, or nomination for election by UGI's shareholders, was approved by a vote of at least a majority of the Incumbent Board, cease for any reason to constitute a majority thereof; (iii) UGI is reorganized, merged or consolidated with or into, or sells all or substantially all of its assets to, another corporation in a transaction in which former shareholders of UGI do not own more than 50% of the outstanding common stock and the combined voting power, respectively, of the then outstanding voting securities of the surviving or acquiring corporation after the transaction; or (iv) UGI is liquidated or dissolved. Upon a change of control, the Agreement provides for an immediate cash payment equal to the market value of any pending target award under UGI's long-term compensation plan. Severance benefits are payable under the Agreements if there is a termination of the executive's employment without cause at any time within three years after a change of control. In addition, following a change of control, the executive may elect to terminate his or her employment without loss of severance benefits in certain specified contingencies, including termination of officer status; a significant adverse change in authority, duties, responsibilities or compensation; the failure of UGI to comply with and satisfy any of the terms of the Agreement; or a substantial relocation or excessive travel requirements. An executive who is terminated with rights to severance compensation under an Agreement will be entitled to receive an amount equal to 1.0 or 1.5 (2.5 in the case of Mr. Greenberg) times his average total cash remuneration for the preceding five calendar years. If the severance compensation payable under the Agreement, either alone or together with other payments to an executive, would constitute "excess parachute payments," as defined in Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), the executive will also receive an amount to satisfy the executive's additional tax burden. EX-10.34 11 DESCRIPTION OF CHANGE OF CONTROL, MR. CHANEY 1 EXHIBIT 10.34 DESCRIPTION OF CHANGE OF CONTROL ARRANGEMENTS FOR UGI UTILITIES, INC. CHANGE OF CONTROL ARRANGEMENTS Named Executives Employed by UGI Utilities, Inc.. Messrs. Chaney, Barney and Dingman each have an agreement with UGI Utilities (the "Agreement") which provides certain benefits in the event of a change of control of Utilities or of UGI. The Agreements operate independently of the UGI Severance Plan, continue through July 2004, and are automatically extended in one-year increments thereafter unless, prior to a change of control, the Company terminates an Agreement. In the absence of a change of control, each Agreement will terminate when, for any reason, the executive terminates his employment with Utilities or its subsidiaries. A change of control is generally deemed to occur if a change of control of UGI, as defined above, occurs or if: (i) UGI and its subsidiaries fail to own more than fifty percent of the combined voting power of the Company's then outstanding voting securities, (ii) the Company is reorganized, merged or consolidated with or into, or sells all or substantially all of its assets to, another corporation in a transaction in which former shareholders of the Company do not own more than 50% of the outstanding common stock and the combined voting power, respectively, of the then outstanding voting securities of the surviving or acquiring corporation after the transaction, or (iii) the Company is liquidated or dissolved. Upon a change of control, the Agreement provides for an immediate cash payment equal to the market value of any pending target award under Utilities' long-term compensation plan. Severance benefits are payable under the Agreements if there is a termination of the executive's employment without cause at any time within three years after a change of control. In addition, following a change of control, the executive may elect to terminate his or her employment without loss of severance benefits in certain specified contingencies, including termination of officer status; a significant adverse change in authority, duties, responsibilities or compensation; the failure of the Company to comply with and satisfy any of the terms of the Agreement; or a substantial relocation or excessive travel requirements. An executive who is terminated with rights to severance compensation under an Agreement will be entitled to receive an amount equal to 1.0 or 1.5 times his average total cash remuneration for the preceding five calendar years. If the severance compensation payable under the Agreement, either alone or together with other payments to an executive, would constitute "excess parachute payments," as defined in Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), the executive will also receive an amount to satisfy the executive's additional tax burden. EX-13.1 12 PAGES 13 TO 43 OF THE 1999 ANNUAL REPORT 1 FINANCIAL REVIEW [Photo of Anthony J. Mendicino] Anthony J. Mendicino Vice President - Finance and Chief Financial Officer INTRODUCTION The following discussion of our operating results, financial condition and sources and uses of cash should be read in conjunction with our Consolidated Financial Statements and Notes to Consolidated Financial Statements located on pages 23-43 of this Annual Report. BUSINESS OVERVIEW Our domestic propane business is conducted through AmeriGas Partners, L.P. ("AmeriGas Partners") and its operating subsidiary, AmeriGas Propane, L.P. (the "Operating Partnership"). We refer to AmeriGas Partners and the Operating Partnership together as "the Partnership," and the Partnership and its general partner AmeriGas Propane, Inc. (a wholly owned subsidiary of UGI, the "General Partner") as "AmeriGas Propane." At September 30, 1999, we held an effective 58.4% equity interest in the Operating Partnership comprising Common Units and Subordinated Units of AmeriGas Partners and our general partner interests. UGI Utilities, Inc. ("UGI Utilities") operates a natural gas distribution utility ("Gas Utility") in parts of eastern and southeastern Pennsylvania and an electric utility ("Electric Utility") in northeastern Pennsylvania. Gas Utility and Electric Utility are together referred to as "Utilities." UGI Enterprises, Inc. ("Enterprises"), our "new business" arm, conducts an energy marketing business through its subsidiary UGI Energy Services, Inc. ("Energy Services"). Energy Services sells, markets, and manages the delivery of natural gas and electricity directly to commercial and industrial customers, including customers of Gas Utility. Through other subsidiaries, Enterprises operates a recently acquired propane distribution business with locations in Austria, the Czech Republic and Slovakia; operates a newly formed retail hearth products business, currently operating in the Middle Atlantic region of the U.S.; and participates in international propane joint-venture projects. RESULTS OF OPERATIONS 1999 COMPARED WITH 1998 CONSOLIDATED RESULTS
Variance- Favorable 1999 1998 (Unfavorable) -------------------- -------------------- --------------------- Diluted Diluted Net Earnings Diluted Net Earnings Income (Loss) Net Earnings Income (Loss) (Loss) Per Share Income Per Share (Loss) Per Share ============================================================================================ (Millions of dollars, except per share) AmeriGas Propane . $ 4.5 $ 0.14 $ 1.9 $ 0.06 $ 2.6 $ 0.08 Utilities ........ 37.4 1.17 33.0 1.00 4.4 0.17 Energy Services .. 1.5 0.05 1.1 0.03 0.4 0.02 Corporate ........ 3.5 0.11 3.9 0.12 (0.4) (0.01) Other ............ (4.1) (0.13) 0.4 0.01 (4.5) (0.14) Merger termination fee, net(1) ... 12.9 0.40 -- -- 12.9 0.40 - ------------------------------------------------------------------------------------------- Total ............ $ 55.7 $ 1.74 $ 40.3 $ 1.22 $ 15.4 $ 0.52 - -------------------------------------------------------------------------------------------
(1)Represents after-tax merger termination fee income, net of related expenses, associated with the Company's terminated Merger Agreement with Unisource Worldwide, Inc. See Note 8 to Consolidated Financial Statements. Our consolidated net income in 1999 increased $15.4 million when compared to 1998. The improvement was due to one-time net merger termination fee income of $12.9 million and higher net income from UGI Utilities and AmeriGas Partners, offset in part by costs associated with Enterprises' new business activities. AMERIGAS PROPANE
Increase Year Ended September 30, 1999 1998 (Decrease) ==================================================================== (Millions of dollars) Retail gallons sold -- millions............. 783.2 785.3 (2.1) (0.3)% Degree days -- % warmer than normal(a)....... 9.9% 8.7% - - Revenues............... $872.5 $914.4 $(41.9) (4.6)% Total margin........... $481.7 $470.6 $ 11.1 2.4% EBITDA(b).............. $158.8 $153.3 $ 5.5 3.6% Operating income....... $ 92.5 $ 87.9 $ 4.6 5.2% - --------------------------------------------------------------------
(a)Based upon national weather statistics provided by the National Oceanic and Atmospheric Administration ("NOAA") for 335 airports in the continental U.S. (b)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. Temperatures during the heating season have a significant impact on our propane retail sales volumes because many of our customers use propane for heating purposes. For the second year in a row, significantly warmer than normal weather impacted the Partnership's results. Based upon national weather data, temperatures in 1999 were 9.9% warmer than normal and 1.3% warmer than in 1998. Retail volumes of propane sold were slightly lower in 1999 primarily as a result of a 7.3 million decline in agricultural gallons as a dry autumn reduced demand for crop drying. Partially offsetting the decrease in agricultural gallons were higher motor fuel sales, increased gallons sold through our PPX Prefilled Propane Xchange(R) program, and, notwithstanding the warmer weather, higher sales to residential customers. During 1999, we targeted for growth the higher-margin residential heating customer market which resulted in residential volume growth despite the warmer weather. Total revenues from retail propane sales declined $36.3 million in 1999 due primarily to lower average selling prices. The lower average selling prices resulted from lower propane product costs. Wholesale propane revenues declined $13.2 million reflecting (1) a $6.9 million decrease as a result of lower average wholesale prices and (2) a $6.3 million decrease as a result of lower wholesale volumes sold. Nonpropane revenues increased $7.6 million in 1999 reflecting higher appliance and cylinder sales, increased terminal and hauling revenues, and greater customer fee revenues. Cost of sales declined $53.0 million primarily as a result of lower propane product costs. Total margin increased $11.1 million in 1999 due to (1) slightly higher average retail unit margin per gallon, (2) greater total margin from our PPX Prefilled Propane Xchange(R) program, and (3) an increase in total margin from appliance sales, customer fees and hauling and terminal revenue. UGI Corporation 1999 Annual Report 13 2 FINANCIAL REVIEW, CONTINUED EBITDA and operating income were higher in 1999 as a result of (1) the higher total margin and (2) higher other income. These increases were partially offset by an increase in operating expenses. Other income, net, in the prior year included a $4.0 million loss from two interest rate protection agreements entered into to reduce interest rate exposure associated with an anticipated debt refinancing. When we postponed the refinancing due to volatility in the corporate debt markets, we recorded a loss on these interest rate agreements. Operating expenses of the Partnership were $329.6 million in 1999 compared with $320.2 million in 1998. Operating expenses in 1998 are net of (1) $2.7 million of income from lower required accruals for environmental matters and (2) $2.0 million of income from lower required accruals for property taxes. Excluding the impact of these items in the prior year, operating expenses of the Partnership increased $4.7 million in 1999 principally due to expenses associated with new business initiatives. Continued attention to controlling our operating expenses resulted in our total base business expenses, which exclude expenses associated with new business initiatives, remaining essentially unchanged. UTILITIES
Increase Year Ended September 30, 1999 1998 (Decrease) ===================================================================== (Millions of dollars) GAS UTILITY: System throughput -- bcf 76.1 74.9 1.2 1.6% Degree days -- % warmer than normal............ 12.8% 16.3% - - Revenues................ $345.6 $350.2 $(4.6) (1.3)% Total margin............ $160.6 $157.2 $ 3.4 2.2% EBITDA.................. $ 87.0 $ 83.0 $ 4.0 4.8% Operating income........ $ 68.0 $ 64.8 $ 3.2 4.9% ELECTRIC UTILITY: Sales -- gwh............ 900.4 876.4 24.0 2.7% Revenues................ $ 75.0 $ 72.1 $ 2.9 4.0% Total margin............ $ 38.6 $ 34.0 $ 4.6 13.5% EBITDA.................. $ 16.7 $ 13.6 $ 3.1 22.8% Operating income........ $ 12.7 $ 9.7 $ 3.0 30.9% - ---------------------------------------------------------------------
bcf - billions of cubic feet. gwh - millions of kilowatt hours. Total margin represents revenues less cost of sales and revenue-related taxes. GAS UTILITY. Weather in Gas Utility's service territory was 12.8% warmer than normal in 1999 but 4.2% colder than in 1998. Total system throughput increased 1.6% as a result of the slightly colder weather as well as an increase in total customers. The decrease in Gas Utility revenues in 1999 is principally due to several of our core market industrial customers switching from retail to delivery service. Under retail service, we bill our customers for the transportation of gas through our distribution system as well as the cost of the gas, for which we get dollar-for-dollar recovery. Under delivery service, we bill customers for the transportation of the gas but not for the gas itself. Our revenues from customers who switch to delivery service are therefore lower, but there is little impact on our total margin. Partially offsetting the decline in revenues from our core market industrial customers was an increase in revenues from sales to our core market residential and commercial customers. Gas Utility cost of gas was $172.0 million in 1999, a decrease of $7.6 million from 1998, reflecting the impact of core market industrial customers switching to delivery service. The increase in Gas Utility total margin in 1999 includes a $3.6 million increase from sales to our core market residential and commercial customers. Total margin from interruptible customers (who have the ability to switch to alternate fuels, principally oil) was slightly lower in 1999. The decline in total margin from our interruptible customers reflects lower interruptible rates due to a decline in the spread between oil and natural gas prices during most of 1999. Gas Utility operating income was higher in 1999 reflecting the increase in total margin and higher other income partially offset by slightly higher operating and administrative expenses and increased charges for depreciation. Operating expenses in the prior year are net of $1.6 million of income from an insurance recovery. Excluding the impact of the insurance recovery in 1998, total Gas Utility operating and administrative expenses in 1999 were essentially unchanged. ELECTRIC UTILITY. The increase in 1999 sales of electricity reflects slightly colder heating season weather and warmer weather during the summer air conditioning season. Electric Utility revenues increased $2.9 million in 1999 principally as a result of the higher sales. Although Electric Utility's Restructuring Order filed pursuant to Pennsylvania's Electricity Generation Customer Choice and Competition Act ("Electricity Customer Choice Act") gives all of our customers the ability to choose their electricity generation supplier effective January 1, 1999, only approximately 5% of our sales during 1999 represented electricity we distributed for alternate suppliers. Notwithstanding the increase in Electric Utility sales in 1999, cost of sales decreased $1.8 million to $33.2 million. The impact of the higher 1999 sales on purchased power costs was more than offset by (1) the benefit of a power supply agreement settlement and (2) lower average purchased power costs. Electric Utility's total margin increased $4.6 million as a result of (1) the power supply agreement settlement, (2) lower average purchased power costs, and (3) the higher sales. EBITDA and operating income were also higher as the greater total margin was partially offset by higher maintenance costs associated with our generation assets, higher customer service and information expenses, and lower other income. ENERGY SERVICES Total revenues from energy marketing in 1999 declined $12.6 million as a result of lower average gas prices and, to a lesser extent, a decrease in billed volumes. Total margin increased $1.3 million reflecting higher average margins from gas marketing and greater income from power marketing and other services. EBITDA and operating income increased $0.6 million in 1999 as a result of the higher margin offset by slightly higher operating expenses. CORPORATE AND OTHER The decrease in net income from other operations in 1999 resulted from start-up costs associated with Enterprises' retail hearth UGI Corporation 1999 Annual Report 14 3 products business and due diligence expenses associated with international propane business opportunities. Other net income in 1998 included $0.8 million from the sale of UTI Energy Corp. common stock. Corporate net income in 1999 and 1998 primarily comprises interest income on short-term investments. 1998 COMPARED WITH 1997 CONSOLIDATED RESULTS
Variance- Favorable 1998 1997 (Unfavorable) ------------------- ------------------- --------------------- Diluted Diluted Diluted Net Earnings Net Earnings Net Earnings Income Per Share Income Per Share Income Per Share ========================================================================================== (Millions of dollars, except per share) AmeriGas Propane $ 1.9 $ 0.06 $ 10.9 $ 0.33 $ (9.0) $ (0.27) Utilities ...... 33.0 1.00 35.9 1.08 (2.9) (0.08) Energy Services 1.1 0.03 1.0 0.03 0.1 -- Corporate ...... 3.9 0.12 2.2 0.07 1.7 0.05 Other .......... 0.4 0.01 2.1 0.06 (1.7) (0.05) - ------------------------------------------------------------------------------------------ Total .......... $ 40.3 $ 1.22 $ 52.1 $ 1.57 $ (11.8) $ (0.35) ==========================================================================================
Our consolidated results were lower in 1998 mainly due to (1) the impact of warmer heating-season weather on Gas Utility's and the Partnership's results and (2) lower other income of the Partnership. AMERIGAS PROPANE
Year Ended September 30, 1998 1997 Decrease ============================================================================= (Millions of dollars) Retail gallons sold -- millions............. 785.3 807.4 (22.1) (2.7)% Degree days -- % warmer than normal.......... 8.7% 1.2% - - Revenues............... $914.4 $1,077.8 $(163.4) (15.2)% Total margin........... $470.6 $ 477.4 $ (6.8) (1.4)% EBITDA................. $153.3 $ 174.8 $ (21.5) (12.3)% Operating income....... $ 87.9 $ 110.5 $ (22.6) (20.5)% - -----------------------------------------------------------------------------
Retail and wholesale volumes sold in 1998 were lower due to warmer heating-season weather. Weather in 1998 was 8.7% warmer than normal compared to weather that was 1.2% warmer than normal in 1997. In particular, the critical heating-season period of January and February 1998 was the warmest in more than 100 years. Total revenues from our retail propane sales were $746.1 million in 1998, a decrease of $122.1 million from 1997. The decrease includes $98.3 million from a reduction in average selling prices and $23.8 million from the lower retail volumes sold. Our wholesale propane revenues in 1998 decreased $37.5 million to $88.5 million due to lower 1998 selling prices and lower volumes. The lower average retail and wholesale selling prices were due to significantly lower propane product costs. Other revenues were $79.8 million in 1998, a decrease of $3.8 million, due in large part to reduced terminal and storage revenues and lower appliance sales revenues. Propane cost of sales declined in 1998 as a result of the lower volumes sold and lower propane product costs. Total margin declined $6.8 million in 1998 due to the lower retail volumes sold. The decline in 1998 total margin resulting from the lower sales was partially offset by slightly higher average retail unit margin. The higher average unit margin in 1998 principally resulted from the lower propane product costs. The decrease in 1998 operating income and EBITDA reflects (1) lower other income, (2) a decrease in total propane margin, and (3) slightly higher operating expenses. Other income, net, in 1998 includes a $4.0 million loss from two interest rate protection agreements entered into to reduce interest rate exposure associated with an anticipated refinancing of the Operating Partnership's Acquisition Facility in late 1998. Other income in 1997 includes (1) $4.7 million from the sale of the Partnership's 50% interest in Atlantic Energy, Inc., a storage terminal facility in Chesapeake, Virginia, (2) higher customer finance charges, and (3) higher interest income. Operating expenses of the Partnership were $320.2 million in 1998 compared to $316.4 million in 1997. Operating expenses in 1998 include the benefit of (1) $2.7 million from lower required accruals for environmental matters and (2) $2.0 million from lower required accruals for property taxes. Excluding these items, operating expenses of the Partnership in 1998 were $8.5 million higher, an increase of 2.7%, primarily due to incremental expenses associated with (1) acquisitions and (2) new business activities including start-up locations and our PPX Prefilled Propane Xchange(R) program. Excluding the impact of these new business activities, our base business total expenses were essentially unchanged. UTILITIES
Increase Year Ended September 30, 1998 1997 (Decrease) ============================================================================== (Millions of dollars) GAS UTILITY: System throughput -- bcf 74.9 80.2 (5.3) (6.6)% Degree days -- % warmer than normal............ 16.3% 4.8% - - Revenues................ $350.2 $389.1 $(38.9) (10.0)% Total margin............ $157.2 $168.7 $(11.5) (6.8)% EBITDA.................. $ 83.0 $ 87.2 $ (4.2) (4.8)% Operating income........ $ 64.8 $ 70.1 $ (5.3) (7.6)% ELECTRIC UTILITY: Sales -- gwh............ 876.4 868.5 7.9 0.9% Revenues................ $ 72.1 $ 72.1 $ - - % Total margin............ $ 34.0 $ 35.2 $ (1.2) (3.4)% EBITDA.................. $ 13.6 $ 14.1 $ (0.5) (3.5)% Operating income........ $ 9.7 $ 9.8 $ (0.1) (1.0)% - ------------------------------------------------------------------------------
GAS UTILITY. Weather in Gas Utility's service territory was 16.3% warmer than normal in 1998 compared with weather that was 4.8% warmer than normal in 1997. Our total system throughput decreased 6.6% in 1998 primarily because the warmer weather resulted in a 5.1 bcf reduction (14.5%) in sales to our core market customers. UGI Corporation 1999 Annual Report 15 4 FINANCIAL REVIEW, CONTINUED The decrease in Gas Utility's revenues in 1998 was primarily due to the lower volumes sold to our core market customers. Our cost of gas sold decreased $25.5 million to $179.6 million in 1998 also reflecting the lower sales to core market customers. The decrease in Gas Utility's total margin includes (1) a $9.9 million decrease in margin from our core market customers and (2) a $2.7 million decrease in margin from our interruptible customers. Interruptible margin in 1998 was impacted by lower interruptible transportation rates. Gas Utility reduced its rates to alternate-fuel interruptible customers in order to remain competitive with declining oil prices. Gas Utility EBITDA decreased $4.2 million in 1998 reflecting the lower total margin partially offset by lower operating expenses and higher other income. Gas Utility's operating expenses during 1998 decreased $5.9 million principally as a result of (1) $1.6 million of income from an insurance recovery, (2) a $2.1 million decrease in distribution system maintenance expenses, (3) lower charges relating to environmental matters, and (4) lower allocated UGI corporate expenses. Operating income was lower in 1998 reflecting the previously mentioned lower EBITDA and a $1.0 million increase in depreciation charges. ELECTRIC UTILITY. Pennsylvania's Electricity Customer Choice Act and the associated Restructuring Order issued by the Pennsylvania Public Utility Commission ("PUC") in June 1998 (see "Customer Choice Legislation" on page 19) did not have a significant effect on Electric Utility's 1998 results. Total electric sales were higher in 1998 reflecting the warmer summer weather's effect on air conditioning use and an increase in the number of customers. Electric Utility revenues in 1998 were equal to 1997 reflecting higher total sales offset by the effects of our Electricity Customer Choice Act pilot program. Because pilot program participants buy their electricity from others, we record revenues for distributing the electricity over our wires but we do not record revenues related to the electricity itself. Our cost of sales increased to $35.0 million in 1998 from $33.8 million in 1997. The increase was due to slightly higher costs to generate electricity and higher purchased power costs. In accordance with the June 1998 Restructuring Order, our rates reflect a fixed amount for electric generation costs. As a result, we no longer defer for future recovery the difference between our actual costs of electricity and the amount of such costs included in our rates. Electric Utility's total margin decreased $1.2 million in 1998 due to higher generation and purchased power costs. The decreases in EBITDA and operating income reflects the net effects of (1) lower total margin, (2) legal expenses associated with Restructuring Order activities, and (3) higher other income. ENERGY SERVICES Although volumes sold were slightly higher in 1998, revenues were equal with 1997 due to lower average selling prices. Total margin in 1998 was $1.1 million higher primarily because the prior year's margins were negatively impacted by a decline in the value of pipeline capacity caused by the warmer-than-normal weather. EBITDA and operating income were $0.3 million higher than in 1997 reflecting the increase in total margin partially offset by lower other income and higher operating expenses. CORPORATE AND OTHER Other net income in 1998 was lower than 1997 because the prior year included higher net income from sales of UTI Energy Corp. common stock. Corporate net income in 1998 includes higher interest income from short-term investments. FINANCIAL CONDITION AND LIQUIDITY CORPORATE STRATEGIC INITIATIVES On July 28, 1999, we announced a number of strategic and financial initiatives to increase shareholder value and position the Company for future growth. Among the initiatives were (1) an increase in the annual dividend rate to $1.50 a share from $1.46 a share, (2) the repurchase of up to 4.5 million shares of UGI Common Stock through a modified "Dutch auction" tender offer at a price no greater than $26 a share and no less than $23 a share to be financed with existing cash and short-term investment balances, and (3) a focus on growing UGI's existing propane and utility businesses and related and complementary businesses. Based upon the results of the tender offer, in September 1999, we repurchased 4.5 million shares of Common Stock at a price of $24.25 a share. In furtherance of our announced strategy to invest in related and complementary businesses, on September 21, 1999, we acquired all of the outstanding stock of FLAGA Beteiligungs Aktiengesellschaft ("FLAGA"), the largest retail propane distributor in Austria, for net cash consideration of $73.7 million and the assumption of $18 million of debt. The cash purchase price was financed through the issuance of EURO denominated debt. FLAGA, with annual revenues in excess of $50 million, also distributes propane in the Czech Republic and Slovakia. Because we deemed the acquisition date to be September 30, 1999 for accounting purposes, FLAGA did not impact our 1999 results of operations. Assuming a return to normal weather, we expect FLAGA's results will be accretive to UGI's earnings in fiscal 2000. CAPITALIZATION AND LIQUIDITY Our cash and short-term investments totaled $55.6 million at September 30, 1999, compared with $148.4 million at September 30, 1998. Included in these amounts are $23.3 million and $120.5 million, respectively, of cash and short-term investments held by UGI. The significant decrease in cash and short-term investments held by UGI was a result of the repurchase in 1999 of 5.9 million shares of UGI Common Stock, including 4.5 million shares pursuant to our Dutch auction tender offer. The primary sources of UGI's cash and short-term investments are the cash dividends it receives from its principal operating subsidiaries, AmeriGas, Inc. and UGI Utilities. AmeriGas, Inc.'s ability to pay dividends to UGI is dependent upon the receipt of distributions on the Common and Subordinated units of the Partnership that we own. During 1999, 1998 and 1997, AmeriGas, Inc. and UGI Utilities paid cash dividends to UGI as follows:
Year Ended September 30, 1999 1998 1997 ======================================================================== (Millions of dollars) AmeriGas.......................... $47.6 $55.2 $51.7 UGI Utilities..................... 29.0 22.6 24.1 - ------------------------------------------------------------------------ Total dividends to UGI............ $76.6 $77.8 $75.8 - ------------------------------------------------------------------------
UGI Corporation 1999 Annual Report 16 5 AMERIGAS PARTNERS. The Operating Partnership's primary cash sources since its formation in 1995 have been (1) cash generated by operations, (2) borrowings under its Bank Credit Agreement, and (3) the issuance of $70 million of long-term debt in 1999. The Operating Partnership's Bank Credit Agreement consists of (1) a $100 million Revolving Credit Facility and (2) a $75 million Acquisition Facility. The Revolving Credit Facility may be used for (1) working capital, (2) capital expenditures, and (3) interest and distribution payments. Revolving Credit Facility loans were $22 million at September 30, 1999 and $10 million at September 30, 1998. The Operating Partnership's borrowing needs are seasonal, and are typically greatest during the fall and early winter months due to higher working capital needs. The Operating Partnership may borrow under its Acquisition Facility to finance the purchase of propane businesses or propane business assets. The Acquisition Facility operates like a revolving facility until September 15, 2000. At that time, the total amount outstanding will convert to a quarterly amortizing four-year term loan. Loans outstanding under the Acquisition Facility at September 30, 1999 were $23 million, but the Operating Partnership had the ability to borrow an additional $47 million based upon eligible propane business and asset expenditures through that date. The Operating Partnership also has a credit agreement with the General Partner to borrow up to $20 million on an unsecured, subordinated basis, to fund (1) working capital, (2) capital expenditures, and (3) interest and distribution payments. UGI has agreed to contribute up to $20 million to AmeriGas Propane, Inc. to fund such borrowings. The Partnership must maintain certain financial ratios in order to borrow under the Bank Credit Agreement including a minimum interest coverage ratio and a maximum debt to EBITDA ratio. The Partnership's ratios calculated as of September 30, 1999 permit it to borrow up to the maximum amount available. For a more detailed discussion of the Partnership's credit facilities, see Note 4 to Consolidated Financial Statements. The Partnership's management believes that cash flow from operations and Bank Credit Agreement borrowings will be sufficient to satisfy its liquidity needs in fiscal 2000. UGI UTILITIES. UGI Utilities' primary cash sources have been (1) cash generated by operations, (2) borrowings under its revolving credit agreements, and (3) debt issued under its Medium-Term Note program. Under its Medium-Term Note program, UGI Utilities can issue up to an additional $52 million of unsecured debt through June 17, 2000. UGI Utilities may borrow up to $117 million under its revolving credit agreements. Borrowings under these agreements totaled $87.4 million at September 30, 1999 and $68.4 million at September 30, 1998. The revolving credit agreements contain financial covenants including interest coverage ratios and minimum tangible net worth. At September 30, 1999, UGI Utilities could borrow up to the maximum amount available under its revolving credit agreements. Management believes that UGI Utilities' cash flow from operations and borrowings under its Medium-Term Note program and bank credit facilities will satisfy UGI Utilities' cash needs in fiscal 2000. For a more detailed discussion of UGI Utilities' debt and credit facilities, see Note 4 to Consolidated Financial Statements. FLAGA. FLAGA has loan commitments from a foreign bank for the refinancing of existing debt as well as for working capital and other purposes. Management believes that cash flow from operations, as well as borrowings under these loan commitments, will satisfy FLAGA's cash needs in fiscal 2000. Debt issued under these agreements, as well as the $77 million EURO denominated note issued for the acquisition of FLAGA, are subject to guarantees of UGI. For a more detailed discussion, see Note 4 to Consolidated Financial Statements. CASH FLOWS OPERATING ACTIVITIES. Although 1999 net income was higher than in 1998, cash flow from operating activities decreased $36.6 million. The decrease is primarily a result of lower cash from changes in the Partnership's working capital. During 1999, changes in consolidated operating working capital required $28.4 million of cash while changes in operating working capital in 1998 provided $26.5 million of cash. Operating cash flows in 1999 include after-tax proceeds from the Unisource Worldwide, Inc. merger termination fee. Cash flow from operations before changes in operating working capital was higher in 1999 reflecting the merger termination fee proceeds as well as increases in AmeriGas Partners' and UGI Utilities' operating results. INVESTING ACTIVITIES. We spent $70.2 million for property, plant and equipment in 1999 compared with $69.2 million in 1998. Net cash paid for acquisitions, including our purchase of FLAGA, totaled $77.6 million in 1999. In 1998, acquisitions of propane businesses used $8.1 million of cash. Our short-term investments decreased $66.7 million in 1999 reflecting short-term investment proceeds needed for the repurchase of UGI Common Stock. FINANCING ACTIVITIES. We paid cash dividends on our Common Stock of $47.9 million in 1999 compared to $47.6 million in 1998. The Partnership paid distributions to its public unitholders totaling $39 million in 1999 and 1998, and the full minimum quarterly distribution of $0.55 ("MQD") on all units we hold. Our long-term debt borrowings in 1999 include EURO borrowings of approximately $77 million for the purchase of FLAGA and $70 million borrowed by the Operating Partnership to reduce Bank Credit Agreement borrowings. In 1999, we spent $133.1 million (including transaction costs) for the repurchase of UGI Common Stock. DIVIDENDS AND DISTRIBUTIONS In July 1999, our board of directors increased the annual dividend rate to $1.50 a share from $1.46. Dividends declared in 1999 totaled $45.8. At September 30, 1999, our 58.4% effective interest in the Partnership consisted of (1) 14.3 million Common Units, (2) 9.9 million Subordinated Units, and (3) a 2% general partner interest. The remaining 41.6% effective interest consists of 17.8 million publicly held Common Units. Approximately 45 days after the end of each fiscal quarter, the Partnership distributes all of its Available Cash (as defined in the Amended and Restated Agreement of Limited Partnership, the "Partnership Agreement") UGI Corporation 1999 Annual Report 17 6 FINANCIAL REVIEW, CONTINUED relating to such fiscal quarter. Common Unitholders receive the MQD, plus any arrearages, before a distribution of Available Cash can be made on the Subordinated Units. Since its formation in 1995, the Partnership has paid the MQD on all limited partner units outstanding. The amount of Available Cash needed annually to pay the MQD on all units and the general partner interests is approximately $94 million. A reasonable proxy for the amount of cash available for distribution that is generated by the Partnership can be calculated by subtracting (1) cash interest expense and (2) capital expenditures needed to maintain operating capacity, from the Partnership's EBITDA. Distributable cash flow as calculated for 1999, 1998 and 1997 is as follows:
Year Ended September 30, 1999 1998 1997 ====================================================================== (Millions of dollars) EBITDA.......................... $157.5 $151.1 $172.4 Cash interest expense (a)....... (68.3) (67.6) (66.8) Maintenance capital expenditures (10.5) (10.3) (7.9) - ---------------------------------------------------------------------- Distributable cash flow......... $ 78.7 $ 73.2 $ 97.7 - ----------------------------------------------------------------------
(a) Interest expense adjusted for noncash items. Although distributable cash flow is a reasonable estimate of the amount of cash generated by the Partnership, it does not reflect changes in working capital which can significantly affect cash available for distribution and it is not a measure of performance or financial condition under generally accepted accounting principles. Although the levels of distributable cash flow in 1999 and 1998 were less than the full MQD, borrowings in 1999 and cash generated from changes in working capital in 1998 were more than sufficient to permit the Partnership to pay the full MQD. The ability of the Partnership to pay the MQD on all units depends upon a number of factors. These factors include (1) the level of Partnership earnings, (2) the cash needs of the Partnership's operations (including cash needed for maintaining and increasing operating capacity), (3) changes in operating working capital, and (4) the Partnership's ability to borrow under its Bank Credit Agreement and refinance maturing debt. Some of these factors are affected by conditions beyond our control including weather, competition in markets we serve, and the cost of propane. CONVERSION OF SUBORDINATED UNITS The Partnership Agreement provides that a total of 4,945,537 of its Subordinated Units may convert into Common Units on the first day after the distribution record date for any quarter ending on or after March 31, 1998, and an additional 4,945,537 Subordinated Units may convert on the first day after the distribution record date for any quarter ending on or after March 31, 1999, if as of such quarterly dates certain historical and projected cash generation-based requirements are met. Because the required cash generation-based objectives were achieved as of March 31, 1999, a total of 9,891,074 Subordinated Units held by the Company were converted to Common Units on May 18, 1999. The remaining 9,891,072 Subordinated Units we hold are eligible to convert to Common Units on the first day after the record date for any quarter ending on or after March 31, 2000 in respect of which certain historical cash generation-based requirements are met, as defined in the Partnership Agreement. The ability of the Partnership to attain these requirements will depend upon a number of factors including highly seasonal operating results, changes in working capital, asset sales and the Partnership's ability to borrow and refinance maturing debt. Based upon projections assuming normal weather, it is reasonably possible that the remaining 9,871,072 Subordinated Units could convert to Common Units during fiscal 2000. CAPITAL EXPENDITURES In the following table, we present capital expenditures (which include expenditures for capital leases but exclude acquisitions) by business segment for 1999, 1998 and 1997. We also provide amounts we expect to spend in fiscal 2000. We expect to finance a substantial portion of fiscal 2000 capital expenditures from cash generated by operations and the remainder from borrowings under our credit facilities.
Year Ended September 30, 2000 1999 1998 1997 ======================================================================= (Millions of dollars) (estimate) AmeriGas Propane........ $37.4 $34.6 $31.9 $27.0 Gas Utility............. 36.6 31.9 32.0 36.7 Electric Utility........ 6.1 4.5 5.2 5.0 FLAGA................... 3.9 - - - Other................... 5.0 2.7 0.1 0.1 - ----------------------------------------------------------------------- Total................... $89.0 $73.7 $69.2 $68.8 - -----------------------------------------------------------------------
YEAR 2000 MATTERS The Year 2000 ("Y2K") issue is a result of computer programs being written using two digits (rather than four) to identify and process a year in a date field. Computer programs, computer-controlled systems and equipment with embedded software may recognize date fields using "00" as the year 1900 rather than the year 2000. If uncorrected, miscalculations and possible computer-based system failures could result which might disrupt business operations. We are designating the following information as our "Year 2000 Readiness Disclosure." Recognizing the potential business consequences of the Y2K issue, we conducted a detailed assessment of our critical, date-sensitive, computer-based systems to identify those systems that were not Y2K compliant and developed programs to modify those systems that were not otherwise scheduled for replacement prior to the year 2000. Our Y2K compliance efforts focused on our ability to continue to perform three critical operating functions: (1) obtain products to sell, (2) provide service to our customers, and (3) bill customers and pay our vendors and employees. Those systems that we assessed included (1) our information technology ("IT") systems such as computer hardware and software we use in the operation of our businesses and (2) our non-IT systems that contain embedded systems with potentially date-sensitive components such as micro-controllers contained in various equipment and facilities. Among these systems are our customer information and data systems; our financial systems including UGI Corporation 1999 Annual Report 18 7 payroll and our propane fuel accounting, supply and transportation system; and our Gas Utility and Electric Utility distribution control systems. In order to identify and modify those systems that we determined were not Y2K compliant, we used internal resources as well as outside consultants and vendor representatives. In addition to assessing, identifying and modifying our own systems, we developed and implemented a program to attempt to determine the Y2K compliance status of third parties, including our key suppliers and vendors, and certain of our customers. AmeriGas Partners has successfully modified or replaced all of its critical IT and non-IT systems that were not Y2K compliant. Gas Utility and Electric Utility have successfully modified and tested all of their critical IT and non-IT systems that were not Y2K compliant including Electric Utility's System Control and Data Acquisition system. As previously mentioned, in addition to assuring our IT and non-IT systems are Y2K compliant, we developed and implemented a program to assess the readiness of our key suppliers and third-party providers, including suppliers of interstate transportation capacity, natural gas producers and electricity interchange providers. Although none of our products or services are of themselves date sensitive, as a diversified energy distribution company with operations throughout the United States, we are dependent upon other companies whose IT and non-IT systems may not be Y2K compliant. We have completed our program to contact and inquire of the readiness of these key suppliers and vendors. We have evaluated the responses received from our critical vendors and suppliers, and to the extent we were not satisfied with the responses, or have determined that the responses indicate a lack of Y2K readiness, we have developed contingency plans. The major elements of these contingency plans are based upon the use of manual back-up systems, additional staffing, and alternative supply sources. These contingency plans attempt to mitigate the potential impact of Y2K noncompliance by our key suppliers and vendors. However, these plans cannot assure that business disruptions that may be caused by key suppliers or third-party providers will not have a material adverse impact on our operations. Gas Utility, Electric Utility and AmeriGas Partners have completed their business contingency plans. Since late 1997, FLAGA has been involved in assessing and remediating its business critical IT and non-IT systems. FLAGA has modified or replaced, as necessary, system critical software and hardware components determined to be Y2K noncompliant or has received certification from vendors that software or hardware components are Y2K compliant. In November 1999, FLAGA successfully tested its modified critical IT systems. In addition to these remediation and testing procedures, the management of FLAGA has also inquired of the readiness of key suppliers and developed contingent operating procedures and supply plans. In addition, there are other Y2K risks which are beyond our control, any of which could have a material adverse impact on our operations. Such risks include, but are not limited to, the failure of utility and telecommunications companies to provide service and the failure of financial institutions to process transactions. Expenses associated with our Y2K efforts during the last three years totaled approximately $3.0 million. CUSTOMER CHOICE LEGISLATION GAS UTILITY. On June 22, 1999, Pennsylvania's Natural Gas Choice and Competition Act ("Gas Competition Act") was signed into law. The Gas Competition Act expands choice of gas suppliers to residential and small commercial customers. Under the Gas Competition Act, all Pennsylvania natural gas consumers will have the right to choose their natural gas commodity supplier no later than July 1, 2000. Gas distribution services provided by local gas distribution companies ("LDCs") will remain subject to rate regulation. The Gas Competition Act requires energy marketers seeking to serve customers of LDCs to accept assignment of a portion of the LDC's interstate pipeline capacity and storage contracts at contract rates, thus avoiding the creation of stranded costs. On October 1, 1999, Gas Utility filed its restructuring plan with the PUC pursuant to the Gas Competition Act. If such plan is approved substantially as filed, the Company does not believe the Gas Competition Act will have a material adverse impact on its financial condition or results of operations. For a more detailed description of the Gas Competition Act, see Note 3 to Consolidated Financial Statements. ELECTRIC UTILITY. On June 19, 1998, the PUC entered its Opinion and Order ("Restructuring Order") in Electric Utility's restructuring proceeding pursuant to Pennsylvania's Electricity Customer Choice Act. The Act required all Pennsylvania electric utilities to "unbundle" rates for generation, transmission and distribution services and allow competitors to sell electricity to our customers. Under the terms of the Restructuring Order, Electric Utility's unbundled rates for transmission and distribution services are capped through July 1, 2001. Electric Utility is authorized to recover through a Competitive Transition Charge ("CTC") $32.5 million of "stranded costs" over the four-year period commencing January 1, 1999. In addition, Electric Utility generally may not increase the generation component of prices as long as stranded costs are being recovered. Since January 1, 1999, all of Electric Utility's customers have been permitted to select an alternative generation supplier. The Restructuring Order also gives Electric Utility the right, subject to prior PUC approval, to transfer its electric generation assets to a nonregulated affiliate. Electric Utility exercised such right in October 1999 by transferring such assets to its wholly owned subsidiary, UGI Development Company. These generation assets supply power exclusively to Electric Utility. Because Electric Utility's rates for electric generation are capped during the period stranded costs are being recovered, and transmission and distribution rates are capped through July 1, 2001, Electric Utility's profitability during these periods is highly dependent upon its costs to purchase and generate power and its ability to control operating and administrative expenses. In addition, because we discontinued regulatory accounting treatment for our electric power costs, Electric Utility's quarterly results have been, and future results are likely to be, more volatile due in large part to seasonal variations in power costs. For a more detailed description of the Restructuring Order, see Note 3 to Consolidated Financial Statements. UGI Corporation 1999 Annual Report 19 8 FINANCIAL REVIEW, CONTINUED MANUFACTURED GAS PLANTS The gas distribution business has been one of UGI Utilities' main businesses since it began in 1882. Prior to the construction of major natural gas pipelines in the 1950s, gas used for lighting and heating was produced at manufactured gas plants ("MGPs") from processes involving coal, coke or oil. Some constituents of coal tars produced from this process are today considered hazardous substances under the Superfund Law and may be located at these sites. At sites where a former subsidiary of UGI Utilities operated an MGP, we believe that UGI Utilities should not have significant liability because UGI Utilities generally is not legally liable for the obligations of its subsidiaries. Under certain circumstances, however, a court could find a parent company liable for environmental damage at sites owned by a subsidiary company when the parent company either (1) itself operated the facility causing the environmental damage or (2) otherwise so controlled the subsidiary that the subsidiary's separate corporate form should be disregarded. There could be, therefore, significant future costs of an uncertain amount associated with environmental damage caused by MGPs that UGI Utilities owned or directly operated, or that were owned or operated by former subsidiaries of UGI Utilities, if a court were to conclude that the subsidiary's separate corporate form should be disregarded. UGI Utilities has filed suit against more than fifty insurance companies alleging that the defendants breached contracts of insurance by failing to indemnify UGI Utilities for certain environmental costs. The suit seeks to recover more than $11 million in costs incurred by UGI Utilities at various MGPs. The parties to the suit are in the early stages of exchanging information. We believe, after consultation with counsel, that future costs of investigation and remediation, if any, will not have a material adverse effect on our financial position but could be material to our operating results and cash flows depending upon the nature and timing of future developments and the amounts of future operating results and cash flows. For a further discussion of environmental matters, see Notes 1 and 13 to Consolidated Financial Statements. MARKET RISK DISCLOSURES Our primary market risk exposures are market prices for propane, natural gas and electricity, and changes in interest rates. Price risk associated with fluctuations in the prices the Partnership pays for propane and Energy Services pays for natural gas is principally a result of market forces reflecting changes in supply and demand. The Partnership's profitability is sensitive to changes in propane supply costs, and the Partnership generally seeks to pass on increases in such costs to customers. There is no assurance, however, that the Partnership will be able to do so. In order to manage a portion of our propane market price risk, we use contracts for the forward purchase of propane, propane fixed-price supply agreements, and derivative commodity instruments such as price swap and option contracts. In order to manage market price risk relating to substantially all of Energy Services' firm commitments to sell natural gas, we purchase exchange-traded natural gas futures contracts. In addition, we occasionally utilize a managed program of derivative instruments including natural gas and oil futures contracts to preserve gross margin associated with certain of our natural gas customers. Although we use derivative financial and commodity instruments to reduce market price risk associated with firm commitments or forecasted transactions, we do not use derivative financial and commodity instruments for speculative or trading purposes. Although Gas Utility is also subject to changes in the price of natural gas, the current regulatory framework allows Gas Utility to recover prudently incurred gas costs from its customers. In addition, the Gas Competition Act permits LDCs to recover prudently incurred costs of gas sold to customers. Because of this ratemaking mechanism, there is limited commodity price risk associated with our Gas Utility operations. Electric Utility purchases electricity it does not otherwise produce, representing approximately 50% of its electric power needs, under power supply arrangements of varying length terms with other producers and, to a lesser extent, on the spot market. Spot market prices for electricity and, to a lesser extent, monthly market-based contracts can be volatile, especially during periods of high demand. Because Electric Utility's generation rates are capped during the period that it is recovering stranded costs under its Restructuring Order, any increases in costs to purchase power will negatively impact Electric Utility's results. We have market risk exposure from changes in interest rates on borrowings under the Operating Partnership's Bank Credit Agreement and UGI Utilities' revolving credit agreements. These agreements have interest rates on borrowings that are indexed to short-term market interest rates. At September 30, 1999 and 1998, combined borrowings outstanding under these facilities totaled $132.4 million and $138.4 million, respectively. Based upon average borrowings under these agreements during 1999 and 1998, an increase in short-term interest rates of 100 basis points (1%) would have increased interest expense by $1.2 million and $1.0 million, respectively. We also use long-term debt as a source of capital. This debt is typically issued at fixed rates of interest based upon market rates for debt having similar terms and credit ratings. As these long-term debt issues mature, we may refinance such debt with new debt having interest rates reflecting then-current market conditions. This debt may have an interest rate that is more or less than the refinanced debt. On occasion, we enter into interest rate protection agreements to reduce interest rate risk associated with a forecasted issuance of debt. We do not currently use derivative instruments to hedge foreign currency exposure associated with our international propane operations, principally FLAGA. As a result, the U.S. dollar value of foreign denominated assets and liabilities will fluctuate with changes in the associated foreign currency exchange rates. Our net exposure to changes in foreign currency exchange rates has been significantly limited, however, because our net investment in FLAGA, our principal international propane operation, was financed with EURO denominated debt. The following table summarizes the fair values of market risk sensitive instruments we held at September 30, 1999 and 1998. It also includes the changes in fair value that would result if there were an adverse change in (1) the market price of propane of 10 cents a gallon, (2) the market price of natural gas of 50 cents a dekatherm, (3) interest rates on ten-year U.S. treasury notes of 100 basis points, and (4) the market price of oil of 10 cents a gallon: UGI Corporation 1999 Annual Report 20 9
Change in Fair Value Fair Value ======================================================================== (Millions of dollars) September 30, 1999 Propane commodity price risk.......... $ 2.9 $(2.5) Natural gas commodity price risk...... 2.6 (5.2) Interest rate risk.................... 3.2 (3.8) Oil commodity price risk.............. (0.2) (0.5) September 30, 1998: Propane commodity price risk.......... $(0.6) $(4.8) Natural gas commodity price risk...... 0.2 (5.8) Interest rate risk.................... (2.4) (4.7) - ------------------------------------------------------------------------
We expect that any losses from market risk sensitive instruments used to manage commodity or interest rate market risk would be substantially offset by gains on the associated underlying transactions. ACCOUNTING PRINCIPLES NOT YET ADOPTED In March 1998, the American Institute of Certified Public Accountants issued Statement of Position No. 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 requires companies to capitalize the cost of computer software developed or obtained for internal use once certain criteria have been met. We will adopt SOP 98-1 in fiscal 2000. We do not expect the adoption of SOP 98-1 will have a material effect on our financial position or results of operations. In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 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 derivative instruments as either assets or liabilities and measure them at fair value. The accounting for changes in fair value depends upon the purpose of the derivative instrument and whether it is designated and qualifies for hedge accounting. To the extent derivative instruments qualify and are designated as hedges of forecasted transactions, changes in fair value will generally be reported as a component of other comprehensive income and be reclassified into net income when the forecasted transaction affects earnings. To the extent such derivative instrument qualifies as a hedge of a firm commitment, any gain or loss would generally be recognized in earnings when the firm commitment affects earnings. In June 1999, the FASB deferred the effective date of SFAS 133 to fiscal years beginning after June 15, 2000. Accordingly, we will adopt SFAS 133 in fiscal 2001. The impact of SFAS 133 will depend upon the extent to which we use derivative instruments and their designation and effectiveness as hedges of market risk. IMPACT OF INFLATION Inflation impacts our U.S. and international propane operations in the prices we pay for operating and administrative services and, to some extent, propane gas. Competitive pressures in propane markets may limit our ability to recover fully propane product cost increases. Inflation also impacts our gas and electric utility operations primarily in the prices we pay for labor, materials and services. Because Electric Utility's base rates are currently capped and Gas Utility's base rates can be adjusted only through general rate filings with the PUC, increased costs, absent timely rate relief, can have a significant impact on their results. Under current tariffs, Gas Utility is permitted, after PUC review, to recover certain costs of purchased gas, fuel and power which comprise a substantial portion of Gas Utility's costs and expenses. We attempt to limit the effects of inflation on our results of operations through cost control efforts, productivity improvements and, as permitted by the PUC, timely rate relief. FORWARD-LOOKING STATEMENTS Information contained in this Financial Review and elsewhere in this Annual Report with respect to expected financial results and future events is forward-looking, based on our estimates and assumptions and subject to risks and uncertainties. For those statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. The following important factors could affect our future results and could cause those results to differ materially from those expressed in our forward-looking statements: (1) adverse weather conditions resulting in reduced demand, (2) price volatility and availability of propane, oil, electricity, and natural gas and the capacity to transport to market areas, (3) changes in laws and regulations, including safety, tax and accounting matters, (4) competitive pressures from the same and alternative energy sources, (5) liability for environmental claims, (6) improvements in energy efficiency and technology resulting in reduced demand, (7) labor relations, (8) large customer defaults, (9) operating hazards and risks incidental to generating and distributing electricity and transporting, storing and distributing natural gas and propane including the risk of explosions and fires resulting in personal injury and property damage, (10) regional economic conditions, (11) the success of the Company and its suppliers in achieving Year 2000 compliance, (12) political, regulatory and economic conditions in foreign countries, (13) interest rate fluctuations and other capital market conditions, including foreign currency rate fluctuations, (14) reduced distributions from subsidiaries, and (15) the timing and success of the Company's efforts to develop new business opportunities. These factors are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors could also have material adverse effects on future results. We undertake no obligation to update publicly any forward-looking statement whether as a result of new information or future events. UGI Corporation 1999 Annual Report 21 10 REPORT OF MANAGEMENT The Company's consolidated financial statements and other financial information contained in this Annual Report are prepared by management, which is responsible for their fairness, integrity and objectivity. The consolidated financial statements and related information were prepared in accordance with generally accepted accounting principles and include amounts that are based on management's best judgments and estimates. The Company maintains a system of internal controls. Management believes the system provides reasonable assurance that assets are safeguarded and that transactions are executed in accordance with management's authorization and are properly recorded to permit the preparation of reliable financial information. There are limits in all systems of internal control, based on the recognition that the cost of the system should not exceed the benefits to be derived. We believe that the Company's internal control system is cost effective and provides reasonable assurance that material errors or irregularities will be prevented or detected within a timely period. The internal control system and compliance therewith are monitored by the Company's internal audit staff. The Audit Committee of the Board of Directors is composed of two members, neither of whom is an employee of the Company. This Committee is responsible for reviewing the adequacy of corporate financial reporting and accounting systems and controls, for overseeing the external and internal auditing functions and for recommending to the Board of Directors the independent public accountants to conduct the annual audit of the Company's consolidated financial statements. The Committee maintains direct channels of communication between the Board of Directors and both the independent public accountants and internal auditors. The independent public accountants, who are appointed by the Board of Directors and ratified by the shareholders, perform certain procedures, including an evaluation of internal controls to the extent required by generally accepted auditing standards, in order to express an opinion on the consolidated financial statements and to obtain reasonable assurance that such financial statements are free of material misstatement. /s/Lon R. Greenberg /s/Anthony J. Mendicino - ------------------------- ------------------------- Lon R. Greenberg Anthony J. Mendicino Chief Executive Officer Chief Financial Officer REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of UGI Corporation We have audited the accompanying consolidated balance sheets of UGI Corporation and subsidiaries as of September 30, 1999 and 1998, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended September 30, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of UGI Corporation and subsidiaries as of September 30, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 1999, in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP - ----------------------- Chicago, Illinois November 12, 1999 UGI Corporation 1999 Annual Report 22 11 CONSOLIDATED STATEMENTS OF INCOME (MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
Year Ended September 30, ---------------------------------------- 1999 1998 1997 - -------------------------------------------------------------------------------------------------------------------------- REVENUES (note 1) AmeriGas Propane ......................................................... $ 872.5 $ 914.4 $ 1,077.8 UGI Utilities ............................................................ 420.6 422.3 461.2 Energy Services and other ................................................ 90.5 103.0 103.0 - -------------------------------------------------------------------------------------------------------------------------- 1,383.6 1,439.7 1,642.0 - -------------------------------------------------------------------------------------------------------------------------- COSTS AND EXPENSES AmeriGas Propane cost of sales ........................................... 390.8 443.8 600.4 UGI Utilities -- gas, fuel and purchased power (note 1) .................. 205.2 214.6 239.0 Energy Services and other cost of sales .................................. 84.4 98.3 99.4 Operating and administrative expenses .................................... 454.4 437.7 439.8 Depreciation and amortization (note 1) ................................... 89.7 87.8 86.1 Other income, net (note 15) .............................................. (16.8) (12.7) (22.6) - -------------------------------------------------------------------------------------------------------------------------- 1,207.7 1,269.5 1,442.1 - -------------------------------------------------------------------------------------------------------------------------- OPERATING INCOME ......................................................... 175.9 170.2 199.9 Merger fee income and expenses, net (note 8) ............................. 19.9 -- -- Interest expense ......................................................... (84.6) (84.4) (83.1) Minority interest in AmeriGas Partners (note 1) .......................... (10.7) (8.9) (18.3) - -------------------------------------------------------------------------------------------------------------------------- INCOME BEFORE INCOME TAXES AND SUBSIDIARY PREFERRED STOCK DIVIDENDS ............................................. 100.5 76.9 98.5 Income taxes (notes 1 and 5) ............................................. (43.2) (34.4) (43.6) Dividends on UGI Utilities Series Preferred Stock ........................ (1.6) (2.2) (2.8) - -------------------------------------------------------------------------------------------------------------------------- NET INCOME ............................................................... $ 55.7 $ 40.3 $ 52.1 - -------------------------------------------------------------------------------------------------------------------------- EARNINGS PER COMMON SHARE Basic .................................................................... $ 1.74 $ 1.22 $ 1.58 Diluted .................................................................. $ 1.74 $ 1.22 $ 1.57 AVERAGE COMMON SHARES OUTSTANDING (MILLIONS) Basic .................................................................... 31.954 32.971 33.049 Diluted .................................................................. 32.016 33.123 33.132 ==========================================================================================================================
The accompanying notes are an integral part of these financial statements UGI Corporation 1999 Annual Report 23 12 CONSOLIDATED BALANCE SHEETS (MILLIONS OF DOLLARS)
September 30, ------------------- ASSETS 1999 1998 - -------------------------------------------------------------------------------------------- CURRENT ASSETS Cash and cash equivalents (note 1) ............................ $ 40.5 $ 66.6 Short-term investments, at cost which approximates market value 15.1 81.8 Accounts receivable (less allowances for doubtful accounts of $8.0 and $7.9, respectively) .......... 102.9 81.8 Accrued utility revenues (note 1) ............................. 6.9 6.7 Inventories (notes 1 and 7) ................................... 87.1 77.9 Deferred income taxes (notes 1 and 5) ......................... 13.7 14.7 Prepaid expenses and other current assets ..................... 24.7 21.1 - -------------------------------------------------------------------------------------------- Total current assets ....................................... 290.9 350.6 - -------------------------------------------------------------------------------------------- PROPERTY, PLANT AND EQUIPMENT (note 1) AmeriGas Propane .............................................. 680.7 655.8 UGI Utilities ................................................. 826.8 797.5 Other ......................................................... 91.5 11.2 - -------------------------------------------------------------------------------------------- 1,599.0 1,464.5 Accumulated depreciation and amortization ..................... (514.9) (465.5) - -------------------------------------------------------------------------------------------- Net property, plant and equipment .......................... 1,084.1 999.0 - -------------------------------------------------------------------------------------------- OTHER ASSETS Intangible assets (less accumulated amortization of $165.9 and $141.5, respectively) (note 1) ............... 653.1 630.7 Utility regulatory assets (notes 1, 3 and 5) .................. 61.1 59.3 Other assets (note 1) ......................................... 46.7 35.0 - -------------------------------------------------------------------------------------------- Total assets ............................................... $ 2,135.9 $ 2,074.6 ============================================================================================
The accompanying notes are an integral part of these financial statements. UGI Corporation 1999 Annual Report 24 13 LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, ------------- 1999 1998 - ---------------------------------------------------------------------------------------------- CURRENT LIABILITIES Current maturities of long-term debt (note 4) .................... $ 26.7 $ 13.6 Operating Partnership bank loans (note 4) ........................ 22.0 10.0 UGI Utilities bank loans (note 4) ................................ 87.4 68.4 Other bank loans (note 4) ........................................ 11.6 -- Accounts payable ................................................. 100.6 80.1 Employee compensation and benefits accrued ....................... 34.4 29.5 Dividends and interest accrued ................................... 44.1 44.7 Income taxes accrued ............................................. 0.6 0.3 Refunds and deposits ............................................. 35.6 30.7 Other current liabilities ........................................ 39.3 44.5 - ---------------------------------------------------------------------------------------------- Total current liabilities ..................................... 402.3 321.8 - ---------------------------------------------------------------------------------------------- DEBT AND OTHER LIABILITIES Long-term debt (note 4) .......................................... 989.6 890.8 Deferred income taxes (notes 1 and 5) ............................ 174.3 154.4 Deferred investment tax credits (notes 1 and 5) .................. 9.6 10.0 Other noncurrent liabilities ..................................... 81.0 74.0 Commitments and contingencies (note 13) - ---------------------------------------------------------------------------------------------- MINORITY INTEREST Minority interest in AmeriGas Partners (note 1) .................. 209.9 236.5 - ---------------------------------------------------------------------------------------------- PREFERRED AND PREFERENCE STOCK UGI Utilities Series Preferred Stock Subject to Mandatory Redemption, without par value (note 9) .............. 20.0 20.0 Preference Stock, without par value (note 11) (authorized -- 5,000,000 shares) .............................. -- -- - ---------------------------------------------------------------------------------------------- COMMON STOCKHOLDERS' EQUITY Common Stock, without par value (notes 10 and 11) (authorized -- 100,000,000 shares; issued -- 33,198,731 shares) 394.8 394.3 Accumulated deficit .............................................. (8.2) (17.7) Accumulated other comprehensive income ........................... 0.5 -- Unearned compensation -- restricted stock ........................ (1.7) -- - ---------------------------------------------------------------------------------------------- 385.4 376.6 Treasury stock, at cost (note 10) ................................ (136.2) (9.5) - ---------------------------------------------------------------------------------------------- Total common stockholders' equity ............................. 249.2 367.1 - ---------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity .................... $2,135.9 $2,074.6 ==============================================================================================
UGI Corporation 1999 Annual Report 25 14 CONSOLIDATED STATEMENTS OF CASH FLOWS (MILLIONS OF DOLLARS)
Year Ended September 30, ------------------------ 1999 1998 1997 ================================================================================================================ CASH FLOWS FROM OPERATING ACTIVITIES Net income ............................................................... $ 55.7 $ 40.3 $ 52.1 Reconcile to net cash provided by operating activities: Depreciation and amortization ....................................... 89.7 87.8 86.1 Minority interest in AmeriGas Partners .............................. 10.7 8.9 18.3 Deferred income taxes, net .......................................... 7.7 10.1 (2.2) Other, net .......................................................... 6.5 4.9 4.1 - ---------------------------------------------------------------------------------------------------------------- 170.3 152.0 158.4 Net change in: Receivables and accrued utility revenues .......................... (24.5) 22.0 (6.8) Inventories and prepaid propane purchases ......................... (5.0) 39.0 (3.6) Deferred fuel costs ............................................... (5.1) (5.8) 2.8 Accounts payable .................................................. 17.4 (23.5) 8.5 Other current assets and liabilities .............................. (11.2) (5.2) 12.7 - ---------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities ........................... 141.9 178.5 172.0 - ---------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Expenditures for property, plant and equipment ........................... (70.2) (69.2) (68.8) Acquisitions of businesses, net of cash acquired ......................... (77.6) (8.1) (11.6) Short-term investments (increase) decrease ............................... 66.7 (16.4) (42.3) Net proceeds from disposals of assets .................................... 4.9 7.9 14.4 Investments in joint venture partnerships ................................ (4.9) (2.0) -- Other, net ............................................................... (5.4) (2.3) (2.2) - ---------------------------------------------------------------------------------------------------------------- Net cash used by investing activities ............................... (86.5) (90.1) (110.5) - ---------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Dividends on Common Stock ................................................ (47.9) (47.6) (47.2) Distributions on Partnership public Common Units ......................... (39.0) (39.0) (38.8) Issuance of long-term debt ............................................... 173.7 58.0 28.9 Repayment of long-term debt .............................................. (70.9) (22.3) (29.4) AmeriGas Propane bank loans increase (decrease) .......................... 12.0 (18.0) 6.0 UGI Utilities bank loans increase ........................................ 19.0 1.4 16.5 Issuance of Common Stock ................................................. 4.7 8.5 11.7 Repurchases of Common Stock .............................................. (133.1) (11.3) (19.2) Redemption of UGI Utilities Series Preferred Stock ....................... -- (15.5) -- - ---------------------------------------------------------------------------------------------------------------- Net cash used by financing activities ............................... (81.5) (85.8) (71.5) - ---------------------------------------------------------------------------------------------------------------- Cash and cash equivalents increase (decrease) ............................ $ (26.1) $ 2.6 $ (10.0) ================================================================================================================ CASH AND CASH EQUIVALENTS End of period ............................................................ $ 40.5 $ 66.6 $ 64.0 Beginning of period ...................................................... 66.6 64.0 74.0 - ---------------------------------------------------------------------------------------------------------------- Increase (decrease) ................................................. $ (26.1) $ 2.6 $ (10.0) ================================================================================================================
The accompanying notes are an integral part of these financial statements. UGI Corporation 1999 Annual Report 26 15 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
Accumulated Unearned Other Compensation- Common Accumulated Comprehensive Restricted Treasury Stock Deficit Income Stock Stock Total ====================================================================================================================== BALANCE SEPTEMBER 30, 1996 ............. $ 391.9 $(12.8) $ -- $ -- $ (1.5) $ 377.6 Net income ............................. 52.1 52.1 Cash dividends on Common Stock ($1.43 per share) ................... (47.3) (47.3) Common Stock issued (note 10): Employee and director plans ......... 0.7 (1.2) 9.2 8.7 Dividend reinvestment plan .......... 3.1 3.1 Stock-based compensation expense ....... 1.1 1.1 Common Stock repurchased (note 10) ..... (19.2) (19.2) - ---------------------------------------------------------------------------------------------------------------------- BALANCE SEPTEMBER 30, 1997 ............. 393.7 (9.2) -- -- (8.4) 376.1 Net income ............................. 40.3 40.3 Cash dividends on Common Stock ($1.45 per share) ................... (47.8) (47.8) Common Stock issued (note 10): Employee and director plans ......... 0.5 (0.7) 6.3 6.1 Dividend reinvestment plan .......... 2.8 2.8 Acquisition ......................... 0.1 1.1 1.2 Redemption of UGI Utilities Series Preferred Stock ..................... (0.3) (0.3) Common Stock repurchased (note 10) ..... (11.3) (11.3) - ---------------------------------------------------------------------------------------------------------------------- BALANCE SEPTEMBER 30, 1998 ............. 394.3 (17.7) -- (9.5) 367.1 Net income ............................. 55.7 55.7 Net unrealized gains on available for sale securities ................. 0.5 0.5 ----- --- ------ Comprehensive income (note 1) .......... 55.7 0.5 56.2 Cash dividends on Common Stock ($1.47 per share) ................... (45.8) (45.8) Common Stock issued (note 10): Employee and director plans ......... 0.4 (0.1) 3.4 3.7 Dividend reinvestment plan .......... 0.1 (0.3) 3.0 2.8 Common Stock repurchased (note 10) ..... (133.1) (133.1) Issuance of restricted stock awards .... (2.1) (2.1) Amortization of unearned compensation -- restricted stock awards ............. 0.4 0.4 - ----------------------------------------------------------------------------------------------------------------------- BALANCE SEPTEMBER 30, 1999 ............. $ 394.8 $ (8.2) $ 0.5 $ (1.7) $(136.2) $ 249.2 =======================================================================================================================
The accompanying notes are an integral part of these financial statements UGI Corporation 1999 Annual Report 27 16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS AND WHERE INDICATED OTHERWISE) NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES .............. 28 NOTE 2. ACQUISITIONS .................................................. 31 NOTE 3. UTILITY REGULATORY MATTERS .................................... 31 NOTE 4. DEBT .......................................................... 33 NOTE 5. INCOME TAXES .................................................. 35 NOTE 6. EMPLOYEE RETIREMENT PLANS ..................................... 35 NOTE 7. INVENTORIES ................................................... 36 NOTE 8. TERMINATED MERGER - UNISOURCE WORLDWIDE, INC .................. 37 NOTE 9. SERIES PREFERRED STOCK ........................................ 37 NOTE 10. COMMON STOCK AND INCENTIVE STOCK AWARD PLANS .................. 37 NOTE 11. PREFERENCE STOCK PURCHASE RIGHTS .............................. 39 NOTE 12. PARTNERSHIP DISTRIBUTIONS ..................................... 39 NOTE 13. COMMITMENTS AND CONTINGENCIES ................................. 40 NOTE 14. FINANCIAL INSTRUMENTS ......................................... 41 NOTE 15. OTHER INCOME, NET ............................................. 42 NOTE 16. QUARTERLY DATA (UNAUDITED) .................................... 42 NOTE 17. SEGMENT INFORMATION ........................................... 42
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION. UGI Corporation ("UGI") is a holding company with three primary businesses. Our utility business is conducted through a wholly owned subsidiary, UGI Utilities, Inc. ("UGI Utilities"). UGI Utilities owns and operates a natural gas distribution utility ("Gas Utility") in parts of eastern and southeastern Pennsylvania and an electric utility ("Electric Utility") in northeastern Pennsylvania (together we refer to them as "Utilities"). We conduct a national propane distribution business through AmeriGas Partners, L.P. ("AmeriGas Partners") and its operating subsidiary, AmeriGas Propane, L.P. (the "Operating Partnership"), both of which are Delaware limited partnerships. Our wholly owned second-tier subsidiary, AmeriGas Propane, Inc. (the "General Partner"), serves as the general partner of AmeriGas Partners and the Operating Partnership. At September 30, 1999, the General Partner and its wholly owned subsidiary Petrolane Incorporated ("Petrolane") held an effective 2% general partner interest and a 56.4% limited partner interest in the Operating Partnership. We refer to AmeriGas Partners and the Operating Partnership together as "the Partnership," and the General Partner and its subsidiaries, including the Partnership, as "AmeriGas Propane." 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 46 states, including Alaska and Hawaii. At September 30, 1999, our limited partner interest in AmeriGas Partners consists of 14,283,932 Common Units and 9,891,072 Subordinated Units. The remaining 41.6% effective interest in the Partnership comprises 17,794,361 publicly held Common Units representing limited partner interests. AmeriGas Partners and the Operating Partnership have no employees. Employees of the General Partner conduct, direct and manage the activities of the Partnership. The General Partner does not receive management fees or other compensation in connection with managing the Partnership, but is reimbursed for direct and indirect expenses incurred on behalf of the Partnership, including all General Partner employee compensation costs and a portion of UGI employee compensation and administrative costs. Although the Partnership's operating income represents a significant portion of our consolidated operating income, the Partnership's impact on our consolidated net income is considerably less due to (1) the Partnership's significant minority interest, (2) higher relative interest charges, and (3) a higher effective income tax rate associated with the Partnership's pre-tax income. Our wholly owned subsidiary, UGI Enterprises, Inc. ("Enterprises"), conducts an energy marketing business through its wholly owned subsidiary, UGI Energy Services, Inc. ("Energy Services"). Through other subsidiaries, Enterprises (1) owns and operates a propane distribution business in Austria, the Czech Republic and Slovakia (see Note 2), (2) owns and operates a newly formed retail hearth products business in the Middle Atlantic region of the U.S., and (3) participates in propane joint-venture projects in Romania and China. UGI is exempt from registration as a holding company and is not otherwise subject to regulation under the Public Utility Holding Company Act of 1935 except for acquisitions under Section 9(a)(2). UGI is not subject to regulation by the Pennsylvania Public Utility Commission ("PUC"). CONSOLIDATION PRINCIPLES. Our consolidated financial statements include the accounts of UGI and its majority-owned subsidiaries. We eliminate all significant intercompany accounts and transactions when we consolidate. We report the public unitholders' interest in AmeriGas Partners as minority interest in the consolidated financial statements. The Company's investments in international propane joint-venture projects are accounted for by the equity method. Such investments did not materially impact the Company's results of operations for the periods presented. RECLASSIFICATIONS. We have reclassified certain prior-period balances to conform with the current period presentation. USE OF ESTIMATES. We make estimates and assumptions when preparing financial statements in conformity with generally accepted accounting principles. These estimates and assumptions affect the reported amounts of assets and liabilities, revenues and expenses, as well as the disclosure of contingent assets and liabilities. Actual results could differ from these estimates. REGULATED UTILITY OPERATIONS. Gas Utility and Electric Utility are subject to regulation by the PUC. We account for their regulated operations in accordance with Statement of Financial Accounting Standards ("SFAS") No. 71, "Accounting for the Effects of Certain Types of Regulation" ("SFAS 71"). Generally, SFAS 71 requires that financial statements of a regulated enterprise reflect the actions of regulators, where appropriate. Under SFAS 71, regulated enterprises defer costs and credits on the balance sheet as regulatory assets and liabilities when it is probable that those costs and credits will be allowed in the ratesetting process in a period different from the period in which they would have been reflected in income by an unregulated enterprise. These regulatory assets and liabilities are then reflected in the income statement in the UGI Corporation 1999 Annual Report 28 17 period in which the same amounts are included in rates. If a separable portion of Utilities' business no longer meets the provisions of SFAS 71, we may be required to write off certain regulatory assets unless some form of transition cost recovery is established by the appropriate regulatory body which would meet the requirements under generally accepted accounting principles for continued accounting as regulatory assets during such recovery period. We continually monitor the regulatory and competitive environments to determine that regulatory assets are probable of recovery. In June 1998, the PUC approved Electric Utility's restructuring plan which we submitted pursuant to Pennsylvania's Electricity Customer Choice Act (see Note 3). In accordance with the Financial Accounting Standards Board's ("FASB's") Emerging Issues Task Force ("EITF") Statement 97-4, "Deregulation of the Pricing of Electricity -- Issues Related to the Application of FASB Statements 71 and 101" ("EITF 97-4"), we discontinued the application of SFAS 71 as it relates to the electric generation portion of Electric Utility's business in June 1998. The discontinuance of SFAS 71 did not have a material effect on our financial position or results of operations. On October 1, 1999, Gas Utility filed its restructuring plan with the PUC pursuant to the Gas Competition Act (see Note 3). We believe that, based upon the provisions of the Gas Competition Act and the restructuring plan, Gas Utility's regulatory assets continue to satisfy the criteria of SFAS 71. DERIVATIVE INSTRUMENTS. We use derivative instruments, including futures contracts, price swap agreements and option contracts, to hedge exposure to market risk associated with (1) fluctuations in the prices of natural gas Energy Services sells under firm commitments and (2) fluctuations in propane prices associated with a portion of our anticipated propane purchases. On occasion we enter into interest rate protection agreements to reduce interest rate risk associated with anticipated issuances of debt. In addition, we occasionally utilize a managed program of derivative instruments including natural gas and oil futures contracts to preserve gross margin associated with certain of the Company's natural gas customers, which margin otherwise could be affected by major energy commodity price movements. We defer gains or losses on futures contracts associated with natural gas sold under firm commitments and record them in cost of sales when the associated transactions affect earnings. We recognize gains or losses on derivative instruments associated with forecasted purchases of propane or issuances of debt when such transactions affect earnings. If it is probable that the original forecasted transaction will not occur, we immediately recognize in earnings any gain or loss on the related derivative instrument. If such derivative instrument is terminated early for other economic reasons, we defer any gain or loss as of the termination date until such time as the forecasted transaction affects earnings. CONSOLIDATED STATEMENTS OF CASH FLOWS. We define cash equivalents as all highly liquid investments with maturities of three months or less when purchased. We record cash equivalents at cost plus accrued interest, which approximates market value. We paid interest totaling $84.6 million in 1999, $83.5 million in 1998, and $85.3 million in 1997. We paid income taxes totaling $36.2 million in 1999, $29.8 million in 1998, and $32.0 million in 1997. REVENUE RECOGNITION. We recognize revenues from the sale of propane principally as product is shipped or delivered to customers. We record Utilities' revenues for service provided to the end of each month. We reflect Utilities' rate increases or decreases in revenues from effective dates permitted by the PUC. Energy Services records revenues when product is delivered to customers. INVENTORIES AND PREPAID PROPANE PURCHASES. Our inventories are stated at the lower of cost or market. We determine cost principally on an average or first-in, first-out ("FIFO") method except for appliances for which we use the specific identification method. The Partnership enters into contracts with certain suppliers requiring it to prepay all or a portion of the purchase price of a fixed volume of propane for future delivery. These prepayments are included in prepaid expenses and other current assets in the Consolidated Balance Sheets. INCOME TAXES. AmeriGas Partners and the Operating Partnership are not directly subject to federal and state income taxes. Instead, their taxable income or loss is allocated to the individual partners. We record income taxes on our share of (1) the Partnership's current taxable income or loss and (2) the difference between the book and tax basis of the Partnership's assets and liabilities. The Operating Partnership does, however, have subsidiaries which operate in corporate form and are subject to federal and state income taxes. UGI Utilities records deferred income taxes in the Consolidated Statements of Income resulting from the use of accelerated depreciation methods. These deferred income taxes are based upon amounts recognized for ratemaking purposes. UGI Utilities also records a deferred tax liability for tax benefits that are flowed through to ratepayers when temporary differences originate and establishes a corresponding regulatory income tax asset for the probable increase in future revenues that will result when the temporary differences reverse. We are amortizing deferred investment tax credits related to UGI Utilities' plant additions over the service lives of the related property. UGI Utilities reduces its deferred income tax liability for the future tax benefits that will occur when the deferred investment tax credits, which are not taxable, are amortized. We also reduce the regulatory income tax asset for the probable reduction in future revenues that will result when such deferred investment tax credits amortize. EARNINGS PER COMMON SHARE. Basic earnings per share are based on the weighted-average number of common shares outstanding. Diluted earnings per share include the effects of stock options and awards. In the following table, we present the shares used in computing basic and diluted earnings per share for 1999, 1998 and 1997: UGI Corporation 1999 Annual Report 29 18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS AND WHERE INDICATED OTHERWISE)
1999 1998 1997 ========================================================================================= Denominator (millions of shares): Average common shares outstanding for basic computation ...... 31.954 32.971 33.049 Incremental shares issuable for stock options and awards ..................... .062 .152 .083 - ----------------------------------------------------------------------------------------- Average common shares outstanding for diluted computation ..... 32.016 33.123 33.132 - -----------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT AND RELATED DEPRECIATION. We record property, plant and equipment at cost. The amounts we assign to property, plant and equipment of businesses we acquire are based upon estimated fair value at date of acquisition. When we retire Utilities' plant, we charge its original cost and the net cost of its removal to accumulated depreciation for financial accounting purposes. When we retire or dispose of other plant and equipment, we remove from the accounts the cost and accumulated depreciation and include in income any gains or losses. We record depreciation expense for Utilities' plant on a straight-line method over the estimated average remaining lives of the various classes of its depreciable property. Depreciation expense as a percentage of the related average depreciable base for Gas Utility was 2.7% in 1999, 1998, and 1997. Depreciation expense as a percentage of the related average depreciable base for Electric Utility was 3.2% in 1999 and 1998, and 3.6% in 1997. We compute depreciation expense on plant and equipment associated with our propane operations using the straight-line method over estimated service lives generally ranging from 15 to 40 years for buildings and improvements; 7 to 30 years for storage and customer tanks and cylinders; and 5 to 10 years for vehicles, equipment and office furniture and fixtures. Depreciation expense was $63.6 million in 1999, $61.4 million in 1998, and $59.4 million in 1997. INTANGIBLE ASSETS. Intangible assets comprise the following at September 30:
1999 1998 ========================================================================= Goodwill (less accumulated amortization of $109.8 million and $94.7 million, respectively) ....... $ 538.4 $ 508.9 Excess reorganization value (less accumulated amortization of $52.3 million and $44.4 million, respectively) 109.2 117.1 Other (less accumulated amortization of $3.8 million and $2.4 million, respectively) .......................... 5.5 4.7 - ------------------------------------------------------------------------- Total intangible assets ................. $ 653.1 $ 630.7 - -------------------------------------------------------------------------
We amortize goodwill resulting from business combinations accounted for as purchases on a straight-line basis over 40 years. We amortize excess reorganization value (resulting from Petrolane's July 15, 1993 reorganization under Chapter 11 of the U.S. Bankruptcy Code) on a straight-line basis over 20 years. We amortize other intangible assets over the estimated periods of benefit which do not exceed ten years. Amortization expense of intangible assets was $24.3 million in 1999, $24.9 million in 1998, and $24.5 million in 1997. We evaluate the impairment of long-lived assets, including intangibles, whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. We evaluate recoverability based upon undiscounted future cash flows expected to be generated by such assets. STOCK-BASED COMPENSATION. As permitted by SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), we apply the provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") in recording compensation expense for grants of stock, stock options, and other equity instruments to employees. We disclose certain pro forma net income and earnings per share data as if the fair value provisions of SFAS 123 had been applied (see Note 10). OTHER ASSETS. Included in other assets are net deferred debt issuance costs of $10.9 million at September 30, 1999 and $12.2 million at September 30, 1998. We are amortizing these costs over the term of the related debt. COMPUTER SOFTWARE COSTS. We include in property, plant and equipment external and incremental internal costs associated with computer software we develop for use in our businesses. We begin capitalizing these costs when the preliminary stage of the computer software project is completed. We amortize these costs on a straight-line basis over a period of three to seven years once the installed software is ready for its intended use. DEFERRED FUEL COSTS. Gas Utility's tariffs contain clauses which permit recovery of certain gas costs in excess of the level of such costs included in base rates. The clauses provide for a periodic adjustment for the difference between the total amount collected from customers under each clause and the recoverable costs incurred. We defer the difference between amounts recognized in revenues and the applicable gas costs incurred until they are subsequently billed or refunded to customers. Prior to January 1, 1997, Electric Utility's rates were subject to an Energy Cost Rate ("ECR") designed to recover or refund the difference between the actual fuel and purchased power costs and the amount included in base rates. In accordance with the provisions of the Electricity Customer Choice Act, the rates Electric Utility can charge its customers, including amounts pertaining to the recovery of fuel and purchased power costs, are subject to rate caps effective January 1, 1997. We expect the generation rate cap to extend through December 31, 2002 (see Note 3). ENVIRONMENTAL LIABILITIES. We 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. Our estimated liability for environmental contamination is reduced to reflect anticipated participation of other responsible parties but is not reduced for possible recovery from insurance carriers. We do not discount to present value the costs of future expenditures for environmental liabilities. We intend to pursue recovery of any incurred costs through all appropriate means, including regulatory relief. Gas Utility is permitted to amortize as removal costs site-specific environmental UGI Corporation 1999 Annual Report 30 19 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. FOREIGN CURRENCY TRANSLATION. Financial statements of international subsidiaries are translated into U.S. dollars using the exchange rate at each balance sheet date for assets and liabilities and a weighted-average exchange rate for each period for revenues and expenses. Where the local currency is the functional currency, translation adjustments are recorded in accumulated other comprehensive income. Where the local currency is not the functional currency, translation adjustments are recorded in net income. Foreign currency translation did not have a significant impact on the Company's financial position or results of operations for the periods presented. COMPREHENSIVE INCOME. We adopted SFAS No. 130, "Reporting Comprehensive Income" ("SFAS 130"), in 1999. SFAS 130 establishes standards for reporting and displaying comprehensive income, comprising net income and other nonowner changes in equity, in financial statements. In 1998 and 1997, comprehensive income was the same as net income. Comprehensive income in 1999 includes unrealized gains on available for sale securities, net of $0.3 million of income taxes. ACCOUNTING PRINCIPLES NOT YET ADOPTED. In March 1998, the American Institute of Certified Public Accountants issued Statement of Position No. 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 requires companies to capitalize the cost of computer software developed or obtained for internal use once certain criteria have been met. We will adopt SOP 98-1 in fiscal 2000. We do not expect the adoption of SOP 98-1 will have a material effect on our financial position or results of operations. In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 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 derivative instruments as either assets or liabilities and measure them at fair value. The accounting for changes in fair value depends upon the purpose of the derivative instrument and whether it is designated and qualifies for hedge accounting. To the extent derivative instruments qualify and are designated as hedges of forecasted transactions, changes in fair value will generally be reported as a component of other comprehensive income and be reclassified into net income when the forecasted transaction affects earnings. To the extent such derivative instrument qualifies as a hedge of a firm commitment, any gain or loss would generally be recognized in earnings when the firm commitment affects earnings. In June 1999, the FASB deferred the effective date of SFAS 133 to fiscal years beginning after June 15, 2000. Accordingly, we will adopt SFAS 133 in fiscal 2001. The impact of SFAS 133 will depend upon the extent to which we use derivative instruments and their designation and effectiveness as hedges of market risk. 2. ACQUISITIONS On September 21, 1999, Enterprises, through subsidiaries, acquired all of the outstanding stock of FLAGA Beteiligungs Aktiengesellschaft ("FLAGA") for net cash consideration of $73.7 million and the assumption of approximately $18 million of debt. The cash purchase price was financed through the issuance of EURO denominated debt. FLAGA, with annual revenues of approximately $50 million, is the largest retail propane distributor in Austria and one of the largest retail distributors of propane in the Czech Republic and Slovakia. The acquisition of FLAGA has been accounted for using the purchase method of accounting. The purchase price has been preliminarily allocated to the net assets acquired based upon their estimated fair values. The excess of the purchase price over the amount preliminarily allocated to the value of the net assets acquired of $42.9 million has been accounted for as goodwill in the Consolidated Balance Sheet at September 30, 1999. For accounting convenience only, September 30, 1999 was deemed to be the acquisition date. Accordingly, the acquisition of FLAGA did not impact the Company's 1999 results of operations. The unaudited pro forma revenues, net income and diluted earnings per share of the Company for 1999 as if the acquisition of FLAGA had occurred as of October 1, 1998 are $1,434.0 million, $52.3 million, and $1.63, respectively. The pro forma results of operations give effect to FLAGA's historical operating results in accordance with U.S. generally accepted accounting principles and adjustments for interest expense, goodwill amortization and depreciation expense, and income taxes, but do not adjust for normal weather conditions and anticipated operating efficiencies. In management's opinion, the unaudited pro forma results are not indicative of the actual results that would have occurred had the acquisition of FLAGA occurred as of October 1, 1998, or of future operating results under the ownership and management of the Company. In addition to the acquisition of FLAGA, during 1999 the Company paid $4.9 million for a 25% equity interest in a propane distribution business in Nantong, China, which is being accounted for on the equity method of accounting. During 1999, 1998 and 1997, the Partnership acquired several retail propane distribution businesses for net cash consideration of $3.9 million, $8.1 million, and $11.6 million, respectively. 3. UTILITY REGULATORY MATTERS ELECTRIC UTILITY RESTRUCTURING ORDER. On June 19, 1998, the PUC entered its Opinion and Order (the "Restructuring Order") in Electric Utility's restructuring proceeding pursuant to Pennsylvania's Electricity Generation Customer Choice and Competition Act ("Electricity Customer Choice Act"). Under the terms of the Restructuring 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 UGI Corporation 1999 Annual Report 31 20 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS AND WHERE INDICATED OTHERWISE) 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. Under the terms of the Restructuring Order and in accordance with the Electricity 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. This generation rate cap is expected to extend through December 31, 2002. Since January 1, 1999, all of Electric Utility's customers have been permitted to select an alternative generation supplier. Customers choosing an alternative supplier receive a "shopping credit." The Restructuring Order gives Electric Utility the right, subject to prior PUC approval, to transfer its electric generation assets to a nonregulated affiliate. On October 1, 1999, Electric Utility transferred its electric generation assets to its wholly owned nonregulated subsidiary, UGI Development Company. 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 15% of Electric Utility's total assets. The discontinuance of SFAS 71 did not have a material effect on our financial position or results of operations. NATURAL GAS COMPETITION ACT. On June 22, 1999, Pennsylvania's Natural Gas Choice and Competition Act ("Gas Competition Act") was signed into law. The purpose of the Gas Competition Act is to provide all natural gas consumers in Pennsylvania with the ability to purchase their gas supplies from the supplier of their choice by July 1, 2000. Under the Gas Competition Act, local gas distribution companies ("LDCs") may continue to sell gas to customers, and such sales of gas, as well as distribution services provided by LDCs, continue to be subject to price regulation by the PUC. The Gas Competition Act, in conjunction with a companion bill, eliminates the gross receipts tax (currently 5%) on sales of gas commencing January 1, 2000. Generally, LDCs will serve as the supplier of last resort for all residential and small commercial and industrial customers unless the PUC approves another supplier of last resort. Natural gas distribution companies are required to make restructuring filings pursuant to a schedule determined by the PUC. In such restructuring filings, LDCs may request permission to capitalize and amortize most costs resulting from the implementation of the Gas Competition Act over appropriate periods. Certain other costs incurred before June 30, 2002 may be deferred for possible future recovery. Notwithstanding the ultimate treatment of such costs resulting from the implementation of the Gas Competition Act, LDCs are generally precluded from increasing rates for the recovery of costs, other than gas costs, until January 1, 2001. The Gas Competition Act requires energy marketers seeking to serve customers of LDCs to accept assignment of a portion of the LDC's interstate pipeline capacity and storage contracts (as well as contracts for Pennsylvania gas supplies) at contract rates, thus avoiding the creation of stranded costs. After July 1, 2002, a natural gas supplier may petition the PUC to avoid such contract release or assignment. The PUC, however, may only grant the petition if certain findings are made and the LDC fully recovers the cost of contracts. On October 1, 1999, Gas Utility filed its restructuring plan with the PUC pursuant to the Gas Competition Act. If such plan is approved substantially as filed, the Company does not believe the Gas Competition Act will have a material adverse impact on its financial condition or results of operations. REGULATORY ASSETS AND LIABILITIES. The following regulatory assets and liabilities are included in our accompanying balance sheets at September 30:
1999 1998 ============================================================== Regulatory assets: Income taxes recoverable .... $ 46.9 $ 46.5 Power agreement buy-out ..... 6.8 8.7 Other postretirement benefits 3.1 3.3 Deferred fuel costs ......... 3.4 -- Deferred environmental costs 0.9 0.8 - -------------------------------------------------------------- Total regulatory assets ...... $ 61.1 $ 59.3 - -------------------------------------------------------------- Regulatory liabilities: Refundable state taxes ...... $ 1.0 $ 2.0 Deferred fuel costs ......... -- 1.7 Other postretirement benefits 2.8 1.4 - -------------------------------------------------------------- Total regulatory liabilities . $ 3.8 $ 5.1 - --------------------------------------------------------------
UGI Corporation 1999 Annual Report 32 21 4. DEBT Long-term debt comprises the following at September 30:
1999 1998 ================================================================================ AmeriGas Propane: AmeriGas Partners Senior Notes, 10.125%, due April 2007 .................. $ 100.0 $ 100.0 Operating Partnership First Mortgage Notes: Series A, 9.34%-11.71%, due April 2000 through April 2009 (including unamortized premium of $12.1 and $13.5, respectively, calculated at an 8.91% effective rate) ................ 220.1 221.5 Series B, 10.07%, due April 2001 through April 2005 (including unamortized premium of $8.0 and $9.8, respectively, calculated at an 8.74% effective rate) ................ 208.0 209.8 Series C, 8.83%, due April 2003 through April 2010 ...................... 110.0 110.0 Series D, 7.11%, due March 2009 (including unamortized premium of $2.9 calculated at a 6.52% effective rate) ... 72.9 - Operating Partnership Acquisition Facility 23.0 60.0 Other ..................................... 10.7 7.7 - -------------------------------------------------------------------------------- Total AmeriGas Propane ...................... 744.7 709.0 - -------------------------------------------------------------------------------- UGI Utilities: Medium-Term Notes: 7.25% Notes, due November 2017 ........... 20.0 20.0 7.17% Notes, due June 2007 .............. 20.0 20.0 6.17% Notes, due March 2001 .............. 15.0 15.0 7.37% Notes, due October 2015 ............ 22.0 22.0 6.73% Notes, due October 2002 ............ 26.0 26.0 6.62% Notes, due May 2005 ................ 20.0 20.0 6.50% Senior Notes, due August 2003 (less unamortized discount of $0.1) ...... 49.9 49.9 9.71% Notes, due through September 2000 in annual installments of $7.1 ...... 7.1 14.3 - -------------------------------------------------------------------------------- Total UGI Utilities ......................... 180.0 187.2 - -------------------------------------------------------------------------------- Other: FLAGA: EURO note, due September 2001 through September 2006 .................. 77.0 - Austrian shilling debt, 4.0% - 5.75%, due December 1999 through January 2003 ...... 6.8 - 7.83% Senior Secured Notes, due through March 2008 ....................... 7.8 8.2 - -------------------------------------------------------------------------------- Total long-term debt ........................ 1,016.3 904.4 Less current maturities ..................... (26.7) (13.6) - -------------------------------------------------------------------------------- Total long-term debt due after one year ..... $ 989.6 $ 890.8 - --------------------------------------------------------------------------------
Long-term debt due in fiscal years 2000 to 2004 follows:
2000 2001 2002 2003 2004 ========================================================================================= AmeriGas Propane .. $ 17.4 $ 69.6 $ 71.7 $ 65.5 $ 61.1 UGI Utilities 7.1 15.0 -- 76.0 -- Other ....... 2.2 7.4 12.6 11.8 11.0 - ----------------------------------------------------------------------------------------- Total ....... $ 26.7 $ 92.0 $ 84.3 $ 153.3 $ 72.1 - -----------------------------------------------------------------------------------------
AMERIGAS PROPANE AMERIGAS PARTNERS SENIOR NOTES. The 10.125% Senior Notes of AmeriGas Partners are not redeemable prior to April 15, 2000. Thereafter, AmeriGas Partners has the option to redeem the Senior Notes, in whole or in part. A redemption premium applies until April 15, 2004. In addition, AmeriGas Partners may, under certain circumstances following the disposition of assets or a change of control, be required to offer to prepay the Senior Notes. OPERATING PARTNERSHIP FIRST MORTGAGE NOTES. The Operating Partnership's First Mortgage Notes are collateralized by substantially all of its assets. The General Partner and its wholly owned subsidiary Petrolane are co-obligors of the Series A, B, and C First Mortgage Notes, and the General Partner is co-obligor of the Series D First Mortgage Notes. The Operating Partnership may prepay the First Mortgage Notes, in whole or in part. These prepayments include a make whole premium. Following the disposition of assets or a change of control, the Operating Partnership may be required to offer to prepay the First Mortgage Notes, in whole or in part. OPERATING PARTNERSHIP BANK CREDIT AGREEMENT. The Operating Partnership's Bank Credit Agreement consists of a Revolving Credit Facility and an Acquisition Facility. The Operating Partnership's obligations under the Bank Credit Agreement are collateralized by substantially all of its assets. The General Partner and Petrolane are co-obligors of amounts outstanding under the Bank Credit Agreement. Under the Revolving Credit Facility, the Operating Partnership may borrow up to $100 million (including a $35 million sublimit for letters of credit) subject to restrictions in the 10.125% Senior Notes of AmeriGas Partners (see "Restrictive Covenants" below). The Revolving Credit Facility expires September 15, 2002, but may be extended for additional one-year periods with the consent of the participating banks representing at least 80% of the commitments thereunder. The Revolving Credit Facility permits the Operating Partnership to borrow at various prevailing interest rates, including the Base Rate, defined as the higher of the Federal Funds Rate plus 0.50% or the agent bank's reference rate (8.25% at September 30, 1999), or at two-week, one-, two-, three-, or six-month offshore interbank offering rates ("IBOR"), plus a margin. The margin on IBOR borrowings (which ranges from 0.20% to 1.00%) and the Revolving Credit Facility commitment fee rate are dependent upon the Operating Partnership's ratio of funded debt to earnings before interest expense, income taxes, depreciation and amortization ("EBITDA"), each as defined in the Bank Credit Agreement. The Operating Partnership had borrowings under the Revolving Credit Facility totaling $22 million at September 30, 1999 UGI Corporation 1999 Annual Report 33 22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS AND WHERE INDICATED OTHERWISE) and $10 million at September 30, 1998, which we classify as bank loans. The weighted-average interest rates on the bank loans outstanding were 6.26% as of September 30, 1999 and 6.22% as of September 30, 1998. Issued outstanding letters of credit under the Revolving Credit Facility totaled $5.9 million at September 30, 1999 and $0.5 million at September 30, 1998. The Acquisition Facility provides the Operating Partnership with the ability to borrow up to $75 million to finance the purchase of propane businesses or propane business assets. The Acquisition Facility operates as a revolving facility through September 15, 2000, at which time it converts to a quarterly amortizing four-year term loan. The Acquisition Facility permits the Operating Partnership to borrow at the Base Rate or at two-week, one-, two-, three-, or six-month IBOR, plus a margin. The margin on IBOR borrowings and the Acquisition Facility commitment fee rate are dependent upon the Operating Partnership's ratio of funded debt to EBITDA, as defined. The weighted-average interest rates on Acquisition Facility loans outstanding were 6.02% as of September 30, 1999 and 6.18% as of September 30, 1998. In addition to the $23 million outstanding under the Acquisition Facility at September 30, 1999, the Operating Partnership had the ability to borrow an additional $47 million based upon eligible propane business and asset expenditures through that date. GENERAL PARTNER FACILITY. The Operating Partnership also has a revolving credit agreement with the General Partner under which it may borrow up to $20 million to fund working capital, capital expenditures, and interest and distribution payments. This agreement is coterminous with, and generally comparable to, the Operating Partnership's Revolving Credit Facility except that borrowings under the General Partner Facility are unsecured and subordinated to all senior debt of the Partnership. Interest rates on borrowings are based upon one-month IBOR. Commitment fees are determined in the same manner as fees under the Revolving Credit Facility. UGI has agreed to contribute up to $20 million to the General Partner to fund such borrowings. RESTRICTIVE COVENANTS. The 10.125% Senior Notes of AmeriGas Partners restrict the ability of the Partnership to, among other things, incur additional indebtedness, incur liens, issue preferred interests, prepay subordinated indebtedness, and effect mergers, consolidations and sales of assets. Under the Senior Notes Indenture, AmeriGas Partners is generally permitted to make cash distributions equal to available cash, as defined, as of the end of the immediately preceding quarter, if certain conditions are met. These conditions include: 1. no event of default exists or would exist upon making such distributions and 2. the Partnership's consolidated fixed charge coverage ratio, as defined, is greater than 1.75-to-1. If the ratio in item 2 above is less than or equal to 1.75-to-1, the Partnership may make cash distributions in a total amount not to exceed $24 million less the total amount of distributions made during the immediately preceding 16 fiscal quarters. At September 30, 1999, such ratio was 2.34-to-1. The Bank Credit Agreement and the First Mortgage Notes restrict the incurrence of additional indebtedness and also restrict certain liens, guarantees, loans and advances, payments, mergers, consolidations, sales of assets and other transactions. They also require the ratio of total indebtedness, as defined, to EBITDA, as defined (calculated on a rolling four-quarter basis or eight-quarter basis divided by two), to be less than or equal to 5.25-to-1. In addition, the Bank Credit Agreement requires that the Operating Partnership maintain a ratio of EBITDA to interest expense, as defined, of at least 2.25-to-1 on a rolling four-quarter basis. Generally, as long as no default exists or would result, the Operating Partnership is permitted to make cash distributions not more frequently than quarterly in an amount not to exceed available cash, as defined, for the immediately preceding calendar quarter. UGI UTILITIES REVOLVING CREDIT AGREEMENTS. At September 30, 1999, UGI Utilities had revolving credit agreements with four banks providing for borrowings of up to $97 million through June 2001 and an additional $20 million through September 2000. UGI Utilities may borrow at various prevailing interest rates, including LIBOR. UGI Utilities pays quarterly commitment fees on these credit lines. UGI Utilities had borrowings under these agreements totaling $87.4 million at September 30, 1999 and $68.4 million at September 30, 1998, which we classify as bank loans. The weighted-average interest rates on bank loans were 5.9% at September 30, 1999 and 1998. RESTRICTIVE COVENANTS. Certain of UGI Utilities' debt agreements restrict the incurrence of additional debt, require consolidated tangible net worth of at least $125 million, and restrict the amount of payments for investments, redemptions of capital stock, prepayments of subordinated indebtedness and dividends. OTHER The EURO note bears interest at a rate of 1.25% over one- to twelve-month EURIBOR rates (as chosen by the Company from time to time). The effective interest rate on the EURO note at September 30, 1999 was 5.00%. On or after September 30, 2003, the Company may prepay the EURO note, in whole or in part. Prior to March 11, 2005, such prepayments shall be at a premium. Borrowings under FLAGA's Swiss franc denominated existing bank loans at September 30, 1999 totaled $11.6 million. These loans bear interest at rates of 1.50% to 2.00%. Concurrent with the acquisition, FLAGA obtained EURO loan commitments from a foreign bank in the form of (1) a 16 million EURO special purpose facility and (2) a 15 million EURO working capital facility. Borrowings under the FLAGA special purpose facility can be used to repay certain debt obligations of FLAGA existing at the acquisition date and for general business purposes. The working capital facility expires September 21, 2000, but may be extended for an additional three-year period with the bank's consent. Borrowings under the FLAGA special purpose facility and the UGI Corporation 1999 Annual Report 34 23 working capital facility bear interest at market rates. There were no borrowings under these commitments at September 30, 1999. The FLAGA EURO note, special purpose facility and the working capital facility are subject to guarantees of UGI. In addition, under certain conditions regarding changes in the credit rating of UGI Utilities' long-term debt, the lending bank may require UGI to grant additional security or may accelerate repayment of the debt prior to its scheduled maturity. 5. INCOME TAXES The provisions for income taxes consist of the following:
1999 1998 1997 ================================================================================ Current: Federal .................... $ 29.2 $ 19.6 $ 36.7 State ...................... 6.3 4.7 9.1 - -------------------------------------------------------------------------------- 35.5 24.3 45.8 Deferred ..................... 8.1 10.5 (1.8) Investment credit amortization (0.4) (0.4) (0.4) - -------------------------------------------------------------------------------- Total income tax expense ..... $ 43.2 $ 34.4 $ 43.6 - --------------------------------------------------------------------------------
A reconciliation from the statutory federal tax rate to our effective tax rate is as follows:
1999 1998 1997 ================================================================================ Statutory federal tax rate ..... 35.0% 35.0% 35.0% Difference in tax rate due to: State income taxes, net of federal benefit ............. 5.2 6.1 6.1 Nondeductible amortization of goodwill ................. 4.6 6.2 4.9 Other, net ..................... (1.8) (2.6) (1.7) - -------------------------------------------------------------------------------- Effective tax rate ............. 43.0% 44.7% 44.3% - --------------------------------------------------------------------------------
Deferred tax liabilities (assets) comprise the following at September 30:
1999 1998 ================================================================================ Excess book basis over tax basis of property, plant and equipment .......................... $ 177.0 $ 162.3 Regulatory assets .............................. 25.3 24.6 Other .......................................... 10.1 7.4 - -------------------------------------------------------------------------------- Gross deferred tax liabilities ................. 212.4 194.3 - -------------------------------------------------------------------------------- Self-insured property and casualty liability ... (8.6) (11.0) Employee-related benefits ...................... (12.3) (11.6) Premium on long-term debt ...................... (5.2) (5.3) Deferred investment tax credits ................ (4.0) (4.1) Power purchase agreement liability ............. (3.2) (3.6) Environmental accrual .......................... (1.8) (2.2) Allowance for doubtful accounts ................ (2.5) (2.4) Other .......................................... (16.2) (14.4) - -------------------------------------------------------------------------------- Gross deferred tax assets ...................... (53.8) (54.6) - -------------------------------------------------------------------------------- Deferred tax assets valuation allowance ........ 2.0 - - -------------------------------------------------------------------------------- Net deferred tax liabilities ................... $ 160.6 $ 139.7 - --------------------------------------------------------------------------------
UGI Utilities had recorded deferred tax liabilities of approximately $31.4 million as of September 30, 1999 and $31.3 million as of September 30, 1998 pertaining to utility temporary differences, principally a result of accelerated tax depreciation, the tax benefits of which previously were or will be flowed through to ratepayers. These deferred tax liabilities have been reduced by deferred tax assets of $4.0 million at September 30, 1999 and $4.1 million at September 30, 1998, pertaining to utility deferred investment tax credits. UGI Utilities had recorded a regulatory income tax asset related to these net deferred taxes of $46.9 million as of September 30, 1999 and $46.5 million as of September 30, 1998. This regulatory income tax asset represents future revenues expected to be recovered through the ratemaking process. We will recognize this regulatory income tax asset in deferred tax expense as the corresponding temporary differences reverse and additional income taxes are incurred. The amount of federal operating loss carryforwards which were generated by a subsidiary prior to its acquisition totaled $1.7 million at September 30, 1999. These operating loss carryforwards expire through the year 2010. The use of preacquisition operating loss carryforwards is subject to Internal Revenue Code limitations. We do not believe these limitations will affect our ability to utilize these carryforwards prior to their expiration. The amount of foreign operating loss carryforwards which were generated by FLAGA prior to its acquisition totaled approximately $11 million at September 30, 1999. Approximately $3.0 million of these operating loss carryforwards expire through 2005. The remaining $8.0 million have no expiration date. The tax benefit of these foreign operating loss carryforwards of $3.6 million has been reduced by a valuation allowance of $1.8 million due to the uncertainty of realizing certain of these operating loss carryforwards. 6. EMPLOYEE RETIREMENT PLANS DEFINED BENEFIT PENSION AND OTHER POSTRETIREMENT PLANS We sponsor a defined benefit pension plan ("UGI Utilities Pension Plan") for employees of UGI, UGI Utilities, and certain of UGI's other wholly owned subsidiaries. In addition, we provide postretirement health care benefits to certain retirees and a limited number of active employees meeting certain age and service requirements, and postretirement life insurance benefits to nearly all active and retired employees. The following provides a reconciliation of benefit obligations, plan assets, and funded status of the plans as of September 30: UGI Corporation 1999 Annual Report 35 24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS AND WHERE INDICATED OTHERWISE)
Other Pension Postretirement Benefits Benefits ------------------------- ------------------------- 1999 1998 1999 1998 ========================================================================================================== CHANGE IN BENEFIT OBLIGATIONS: Benefit obligations -- beginning of year ............... $ 164.8 $ 149.1 $ 16.9 $ 25.7 Service cost ..................... 3.8 3.4 0.1 0.1 Interest cost .................... 11.2 10.9 1.2 1.2 Actuarial (gain) loss ............ (21.4) 9.8 (0.2) (8.8) Benefits paid .................... (8.9) (8.4) (1.2) (1.3) - ---------------------------------------------------------------------------------------------------------- Benefit obligations -- end of year $ 149.5 $ 164.8 $ 16.8 $ 16.9 - ---------------------------------------------------------------------------------------------------------- CHANGE IN PLAN ASSETS: Fair value of plan assets -- beginning of year ............... $ 183.3 $ 189.5 $ 4.9 $ 3.5 Actual return on plan assets ..... 27.7 2.2 0.2 0.2 Employer contributions ........... -- -- 1.0 2.5 Benefits paid .................... (8.9) (8.4) (1.2) (1.3) - ---------------------------------------------------------------------------------------------------------- Fair value of plan assets -- end of year ..................... $ 202.1 $ 183.3 $ 4.9 $ 4.9 - ---------------------------------------------------------------------------------------------------------- Funded status of the plans ......... $ 52.6 $ 18.5 $ (11.9) $ (12.0) Unrecognized net actuarial gain .... (36.8) (3.9) (5.8) (6.0) Unrecognized prior service cost .... 4.7 5.3 -- -- Unrecognized net transition (asset) obligation ............... (7.9) (9.5) 11.4 12.3 - ---------------------------------------------------------------------------------------------------------- Prepaid (accrued) benefit cost -- end of year .............. $ 12.6 $ 10.4 $ (6.3) $ (5.7) - ---------------------------------------------------------------------------------------------------------- ASSUMPTIONS AS OF SEPTEMBER 30: Discount rate ...................... 7.8% 6.9% 7.8% 6.9% Expected return on plan assets ..... 9.5 9.5 6.0 6.0 Rate of increase in salary levels .. 4.5 4.5 4.5 4.5 - ----------------------------------------------------------------------------------------------------------
Net periodic pension income and other postretirement benefit costs include the following components:
Other Pension Benefits Postretirement Benefits ------------------------------------------- --------------------------------------- 1999 1998 1997 1999 1998 1997 ========================================================================================================================== Service cost .......... $ 3.8 $ 3.4 $ 2.8 $ 0.1 $ 0.1 $ 0.1 Interest cost ......... 11.2 10.9 10.6 1.2 1.2 1.9 Expected return on assets ........... (16.3) (15.2) (13.5) (0.2) (0.2) (0.1) Amortization of: Transition (asset) obligation ......... (1.6) (1.6) (1.6) 0.9 0.9 1.3 Prior service cost .. 0.6 0.6 0.6 -- -- -- Actuarial (gain) loss -- -- -- (0.2) (0.3) (0.1) - -------------------------------------------------------------------------------------------------------------------------- Net postretirement cost (income) ....... (2.3) (1.9) (1.1) 1.8 1.7 3.1 Change in regulatory assets & liabilities -- -- -- 1.7 1.9 0.5 - -------------------------------------------------------------------------------------------------------------------------- Net expense (income) ............ $ (2.3) $ (1.9) $ (1.1) $ 3.5 $ 3.6 $ 3.6 - --------------------------------------------------------------------------------------------------------------------------
Pursuant to orders issued by the PUC, UGI Utilities has established a Voluntary Employee Benefit Trust ("VEBA") to pay retiree health care and life insurance benefits and to fund the UGI Utilities' postretirement benefit liability. UGI Utilities is required to fund its postretirement benefit obligations by depositing into the VEBA the annual amount of postretirement benefits costs determined under SFAS 106, "Employers Accounting for Postretirement Benefits Other Than Pensions." The difference between such amounts and amounts included in UGI Utilities' rates is deferred for future recovery from, or refund to, ratepayers. VEBA investments consist principally of money market funds. The assumed health care cost trend rates at September 30, 1999 and 1998 were 6.0%, decreasing to 5.5% in fiscal 2008. A one percentage point change in the assumed health care cost trend rate would change the 1999 postretirement benefit cost and obligation as follows:
1% 1% INCREASE DECREASE =============================================================== Effect on total service and interest costs ........... $0.1 $(0.1) Effect on postretirement benefit obligation ....... $2.1 $(1.9) - ---------------------------------------------------------------
We also sponsor unfunded retirement benefit plans for certain key employees. At September 30, 1999 and 1998, the projected benefit obligations of these plans were not material. We recorded expense for these plans of $1.6 million in 1999, $2.4 million in 1998, and $1.6 million in 1997. DEFINED CONTRIBUTION PLANS We sponsor a 401(k) savings plan for eligible employees of UGI, UGI Utilities, and certain of UGI's other wholly owned subsidiaries ("UGI Utilities Savings Plan"). Generally, participants in the UGI Utilities Savings Plan may contribute a portion of their compensation on a before-tax and after-tax basis. We may, at our discretion, match a portion of participants' contributions. We also sponsor a 401(k) savings plan for eligible employees of the General Partner ("AmeriGas Propane Savings Plan"). Participants in the AmeriGas Propane Savings Plan may contribute a portion of their compensation on a before-tax basis. We match employee contributions on a dollar-for-dollar basis up to 5% of eligible compensation. The cost of benefits under the savings plans totaled $4.8 million in 1999, $5.1 million in 1998, and $5.8 million in 1997. 7. INVENTORIES Inventories comprise the following at September 30:
1999 1998 ============================================================= Propane gas .................. $ 38.1 $ 34.8 Utility fuel and gases ....... 24.5 24.5 Materials, supplies and other 19.4 14.2 Appliances for sale .......... 5.1 4.4 - ------------------------------------------------------------- Total inventories ............ $ 87.1 $ 77.9 - -------------------------------------------------------------
UGI Corporation 1999 Annual Report 36 25 8. TERMINATED MERGER -- UNISOURCE WORLDWIDE, INC. On May 25, 1999, the Company announced that Unisource Worldwide, Inc. ("Unisource") had entered into a merger agreement with Georgia-Pacific Corp. ("GP") and that it would allow Unisource to terminate the previously announced Agreement and Plan of Merger (the "Merger Agreement") among Unisource, UGI and Vulcan Acquisition Corp. (a wholly owned subsidiary of UGI) which would have provided for the merger of the Company and Unisource. Because the board of directors of Unisource decided to enter into a merger agreement with GP, Unisource was required to pay the Company a $25 million merger termination fee pursuant to the terms of the Merger Agreement. The Company received the termination fee on May 28, 1999. The fee, net of related merger expenses, is classified as merger fee income and expenses, net, in the 1999 Consolidated Statement of Income. 9. SERIES PREFERRED STOCK The UGI Series Preferred Stock, including both series subject to and series not subject to mandatory redemption, has 5,000,000 shares authorized for issuance. We had no shares of UGI Series Preferred Stock outstanding at September 30, 1999 or 1998. UGI Utilities Series Preferred Stock, including both series subject to and series not subject to mandatory redemption, has 2,000,000 shares authorized for issuance. The holders of shares of UGI Utilities Series Preferred Stock have the right to elect a majority of UGI Utilities' Board of Directors (without cumulative voting) if dividend payments on any series are in arrears in an amount equal to four quarterly dividends. This election right continues until the arrearage has been cured. We have paid cash dividends at the specified annual rates on all outstanding UGI Utilities Series Preferred Stock. At September 30, 1999 and 1998, UGI Utilities had outstanding 200,000 shares of $7.75 Series cumulative preferred stock. UGI Utilities is required to establish a sinking fund to redeem on October 1 in each year, commencing October 1, 2004, 10,000 shares of its $7.75 Series at a price of $100 per share. The $7.75 Series is redeemable, in whole or in part, at the option of UGI Utilities on or after October 1, 2004, at a price of $100 per share. All outstanding shares of $7.75 Series Preferred Stock are subject to mandatory redemption on October 1, 2009, at a price of $100 per share. 10. COMMON STOCK AND INCENTIVE STOCK AWARD PLANS In conjunction with the Company's proposed merger with Unisource, our board of directors authorized the repurchase on the open market of up to 6.6 million shares of Common Stock. Pursuant to such authorization and prior to the termination of the Merger Agreement, during 1999 we repurchased 1.4 million shares of Common Stock for $23.2 million. On July 28, 1999, we announced several strategic and financial initiatives including a modified "Dutch auction" tender offer to acquire up to 4.5 million shares of Common Stock at a price between $23 and $26 per share. Based upon such tender offer, on September 7, 1999, we repurchased 4.5 million shares of Common Stock for $109.1 million, or $24.25 per share. The repurchased shares are held in treasury. Common Stock share activity for 1997, 1998, and 1999 follows:
ISSUED TREASURY OUTSTANDING ========================================================================================== Balance September 30, 1996 .. 33,198,731 (62,506) 33,136,225 Issued: Employee and director plans -- 396,378 396,378 Dividend reinvestment plan -- 130,313 130,313 Reacquired .................. -- (800,900) (800,900) - ----------------------------------------------------------------------------------------- Balance September 30, 1997 .. 33,198,731 (336,715) 32,862,016 Issued: Employee and director plans -- 243,915 243,915 Dividend reinvestment plan -- 108,353 108,353 Acquisitions .............. -- 42,078 42,078 Reacquired .................. -- (433,100) (433,100) - ----------------------------------------------------------------------------------------- Balance September 30, 1998 .. 33,198,731 (375,469) 32,823,262 Issued: Employee and director plans -- 175,040 175,040 Dividend reinvestment plan -- 136,587 136,587 Reacquired .................. -- (5,864,496) (5,864,496) - ----------------------------------------------------------------------------------------- Balance September 30, 1999 .. 33,198,731 (5,928,338) 27,270,393 - -----------------------------------------------------------------------------------------
STOCK OPTION PLANS 1997 STOCK OPTION AND DIVIDEND EQUIVALENT PLAN ("1997 SODEP"). Under the 1997 SODEP, we may grant options to acquire a total of 1,500,000 shares of Common Stock to key employees. Generally, all options under the 1997 SODEP are fully vested and immediately exercisable on the date of grant. Options can be exercised no later than ten years from the date of grant. The exercise price for options granted under the 1997 SODEP may not be less than the fair market value of the Common Stock on the date of grant. Generally, the 1997 SODEP provides for the crediting of dividend equivalents to optionees' accounts during a specified period. The actual payment amount of dividend equivalents is dependent upon total shareholder return relative to that of a peer group of companies during the three-year period ending December 31, 1999. During 1999, an option award to acquire 225,000 shares of Common Stock was granted under the 1997 SODEP. This option grant, which vests ratably over a four-year period, does not provide for the crediting of dividend equivalents. 1992 NON-QUALIFIED STOCK OPTION PLAN ("1992 NON-QUALIFIED PLAN"). Under the 1992 Non-Qualified Plan, as amended, we may grant options to acquire a total of 500,000 shares of Common Stock to key employees who do not participate in the 1997 SODEP. The exercise price for options granted is the fair market value of the Common Stock on the date of grant. Generally, options granted on or after December 31, 1996 are fully vested and immediately exercisable. For options granted prior to December 31, 1996, one-fifth vest and are exercisable for each full year of service completed after the date of grant. Options can be exercised no later than ten years from the date of grant. STOCK OPTION ACTIVITY. Stock option transactions under all of our plans for 1997, 1998, and 1999 follow: UGI Corporation 1999 Annual Report 37 26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS AND WHERE INDICATED OTHERWISE)
SHARES AVERAGE OPTION PRICE ================================================================== Shares under option -- September 30, 1996 ... 877,301 $20.307 - ------------------------------------------------------------------ Granted ................ 653,750 22.686 Exercised .............. (348,050) 20.131 Forfeited .............. (8,000) 21.422 - ------------------------------------------------------------------ Shares under option -- September 30, 1997 ... 1,175,001 21.670 - ------------------------------------------------------------------ Granted ................ 54,583 22.469 Exercised .............. (198,121) 20.650 Forfeited .............. (1,708) 23.962 - ------------------------------------------------------------------ Shares under option -- September 30, 1998 ... 1,029,755 21.905 - ------------------------------------------------------------------ Granted ................ 231,806 20.406 Exercised .............. (27,250) 21.978 Forfeited .............. (18,750) 21.152 - ------------------------------------------------------------------ Shares under option -- September 30, 1999 ... 1,215,561 21.632 - ------------------------------------------------------------------ Options exercisable 1997 1,140,958 21.432 Options exercisable 1998 1,014,755 21.921 Options exercisable 1999 984,061 21.725 - ------------------------------------------------------------------
For options outstanding as of September 30, 1999, the exercise prices range from $18.625 to $26.25. The weighted-average remaining contractual life of these options is 6.6 years. At September 30, 1999, 851,186 shares of Common Stock were available for future option grants under all of our stock option plans. OTHER STOCK-BASED COMPENSATION PLANS AND AWARDS 1997 AMERIGAS PROPANE, INC. LONG-TERM INCENTIVE PLAN ("1997 PROPANE PLAN"). Under the 1997 Propane Plan, the General Partner could grant to key employees the right to receive a total of 500,000 AmeriGas Partners Common Units, or cash generally equivalent to the fair market value of such Common Units, on the payment date. In addition, the 1997 Propane Plan provided for the crediting of Partnership distribution equivalents to participants' accounts. Under the terms of the 1997 Propane Plan, the actual number of Common Units awarded (or their cash equivalent), and the amount of the distribution equivalent, depended upon when the requirements for early conversion of Subordinated Units were met. Because the cash generation-based requirements were achieved at March 31, 1999, a total of 81,226 Common Units were issued, and $1.1 million in cash was paid, in May 1999 to 1997 Propane Plan participants. 1997 UGI CORPORATION DIRECTORS' EQUITY COMPENSATION PLAN ("1997 DIRECTORS' PLAN"). The 1997 Directors' Plan provides for annual awards to each of our nonemployee Board of Directors of (1) 630 Units, each representing an interest equivalent to one share of Common Stock, and (2) Common Stock in lieu of cash for a portion of their annual retainer fee. Participants may also elect to receive any portion of their meeting fees and the cash portion of their annual retainer in the form of Units. The 1997 Directors' Plan provides for the crediting of dividend equivalents to Unit-holders' accounts, which amounts are converted to Units at the end of each calendar year based upon the fair market value of Common Stock on that date. All Units and dividend equivalents are fully vested when credited to a Director's account. Generally, Units will be converted to shares of Common Stock upon retirement or termination of service. We awarded 9,137 Units in 1999, 7,043 Units in 1998, and 7,225 Units in 1997 under the 1997 Directors' Plan relating to annual awards and deferred compensation. At September 30, 1999 and 1998, there were 41,277 and 36,749 Units outstanding, respectively. RESTRICTED STOCK AWARDS. In June 1999, we awarded 103,000 shares of UGI restricted stock to key executives. These restricted stock awards vest four years from date of issuance but may vest as early as two years from the date of award if certain Common Stock performance goals are met. Recipients are not required to provide consideration to the Company other than rendering service. Recipients have the right to vote the shares and to receive dividends during the restriction period. FAIR VALUE INFORMATION The per share weighted-average fair value of stock options granted under our option plans was $2.58 in 1999, $1.98 in 1998 and $2.96 in 1997. These amounts were determined using the Black-Scholes option pricing model, which values options based on the stock price at the grant date, the expected life of the option, the estimated volatility of the stock, expected dividend payments, and the risk-free interest rate over the expected life of the option. The assumptions we used for option grants during 1999, 1998 and 1997 are as follows:
1999 1998 1997 ===================================================================== Expected life of option 6 years 6 years 6 years Expected volatility ... 19.3% 16.2% 16.6% Expected dividend yield 6.2% 6.0% 6.5% Risk-free interest rate 5.9% 4.6% 6.0% - ---------------------------------------------------------------------
We use the intrinsic value method prescribed by APB 25 for our stock-based employee compensation plans. We recognized, under the provisions of APB 25, total stock-based compensation expense of $1.9 million in 1999, $1.0 million in 1998 and $3.6 million in 1997. If we had determined compensation expense under the fair value method prescribed by SFAS 123, net income and diluted earnings per share for 1999, 1998 and 1997 would have been as follows:
1999 1998 1997 ============================================================================= Net earnings: As reported ............. $ 55.7 $ 40.3 $ 52.1 Pro forma ............... 55.3 40.2 51.7 Diluted earnings per share: As reported ............. $ 1.74 $ 1.22 $ 1.57 Pro forma ............... 1.73 1.21 1.56 - -----------------------------------------------------------------------------
UGI Corporation 1999 Annual Report 38 27 STOCK OWNERSHIP POLICY Effective October 1, 1997, we implemented a stock ownership policy ("Stock Ownership Policy") for executives and key employees. Under the terms of the Stock Ownership Policy, executives and certain key employees are required to own UGI Common Stock having a fair value equal to 40% to 450% of their base salaries. Participants have from three months to three years to comply with the Stock Ownership Policy. We offer full recourse, interest-bearing loans to employees in order to assist them in meeting the ownership requirements. Each loan may not exceed ten years and is collateralized by the Common Stock purchased. At September 30, 1999 and 1998, loans outstanding totaled $4.1 million and $3.7 million, respectively. 11. PREFERENCE STOCK PURCHASE RIGHTS Holders of our Common Stock own one-half of one right (as described below) for each outstanding share of Common Stock. Each right entitles the holder to purchase one one-hundredth of a share of First Series Preference Stock, without par value, at an exercise price of $120 per one one-hundredth of a share or, under the circumstances summarized below, to purchase the common stock described in the following paragraph. The rights are exercisable only if a person or group, other than certain underwriters: 1. acquires 20% or more of our Common Stock ("Acquiring Person") or 2. announces or commences a tender offer for 30% or more of our Common Stock. We are entitled to redeem the rights at five cents per right at any time before the earlier of: 1. the expiration of the rights in April 2006 or 2. ten days after a person or group has acquired 20% of our Common Stock if a majority of continuing Directors concur and, in certain circumstances, thereafter. Each holder of a right, other than an Acquiring Person, is entitled to purchase, at the exercise price of the right, Common Stock having a market value of twice the exercise price of the right if: 1. an Acquiring Person merges with UGI or engages in certain other transactions with us or 2. a person acquires 40% or more of our Common Stock. In addition, if, after we (or an Acquiring Person) publicly announce that an Acquiring Person has become such, UGI engages in a merger or other business combination transaction in which: 1. we are not the surviving corporation, or 2. we are the surviving corporation, but our Common Stock is changed or exchanged, or 3. 50% or more of our assets or earning power is sold or transferred, then each holder of a right is entitled to purchase, at the exercise price of the right, common stock of the acquiring company having a market value of twice the exercise price of the right. The rights have no voting or dividend rights and, until exercisable, have no dilutive effect on our earnings. 12. PARTNERSHIP DISTRIBUTIONS The Partnership makes distributions to its partners approximately 45 days after the end of each fiscal quarter in a total amount equal to its Available Cash for such quarter. Available Cash generally means: 1. all cash on hand at the end of such quarter, 2. plus all additional cash on hand as of the date of determination resulting from borrowings after the end of such quarter, 3. less the amount of cash reserves established by the General Partner in its reasonable discretion. The General Partner may establish reserves for the proper conduct of the Partnership's business and for distributions during the next four quarters. In addition, certain of the Partnership's debt agreements require reserves be established for the payment of debt principal and interest. Distributions of Available Cash will generally be made 98% to the Common and Subordinated unitholders and 2% to the General Partner. The Partnership may pay an incentive distribution if Available Cash exceeds the Minimum Quarterly Distribution of $0.55 ("MQD") on all units. If there is sufficient Available Cash, the holders of Common Units have the right to receive the MQD, plus any arrearages, before the distribution of Available Cash to holders of Subordinated Units. Common Units will not accrue arrearages for any quarter after the Subordination Period (as defined below), and Subordinated Units will not accrue arrearages for any quarter. The Amended and Restated Agreement of Limited Partnership of AmeriGas Partners ("Partnership Agreement") provides that 4,945,537 Subordinated Units may convert into Common Units on the first day after the distribution record date for any quarter ending on or after March 31, 1998, and an additional 4,945,537 Subordinated Units may convert on the first day after the distribution record date for any quarter ending on or after March 31, 1999, if as of such quarterly dates certain historical and projected cash generation-based requirements are met. Because the required cash generation-based objectives were achieved as of March 31, 1999, a total of 9,891,074 Subordinated Units held by the General Partner and its wholly owned subsidiary, Petrolane, were converted into Common Units on May 18, 1999. The remaining outstanding 9,891,072 Subordinated Units, all of which are held by the General Partner, are eligible to convert to Common Units on the first day after the record date for any quarter ending on or after March 31, 2000 in respect of which: 1. distributions of Available Cash from Operating Surplus (as defined in the Partnership Agreement) equal or exceed the MQD on each of the outstanding Common and Subordinated units for each of the four consecutive nonoverlapping four-quarter periods immediately preceding such date, 2. the Adjusted Operating Surplus (as defined in the Partnership Agreement) generated during both (i) each of the two immediately preceding nonoverlapping four-quarter periods and (ii) the immediately preceding sixteen-quarter period, UGI Corporation 1999 Annual Report 39 28 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS AND WHERE INDICATED OTHERWISE) equals or exceeds the MQD on each of the Common and Subordinated units outstanding during those periods, and 3. there are no arrearages on the Common Units. The ability of the Partnership to attain the cash-based performance and distribution requirements will depend upon a number of factors including highly seasonal operating results, changes in working capital, asset sales and debt refinancings. Based upon projected results assuming normal weather, it is reasonably possible that the remaining 9,871,072 Subordinated Units could convert to Common Units during fiscal 2000. 13. COMMITMENTS AND CONTINGENCIES We lease various buildings and transportation, data processing, and office equipment under operating leases. Certain of our leases contain renewal and purchase options and also contain escalation clauses. Our aggregate rental expense for such leases was $35.3 million in 1999, $33.5 million in 1998, and $27.8 million in 1997. Minimum future payments under operating leases that have initial or remaining noncancelable terms in excess of one year are as follows:
AFTER 2000 2001 2002 2003 2004 2004 ======================================================================================================= AmeriGas Propane ......... $ 24.5 $ 20.7 $ 16.1 $ 12.4 $ 8.8 $ 20.4 UGI Utilities...... 4.1 3.6 3.2 2.1 1.3 1.9 Other ............. 2.2 2.6 2.5 2.5 2.6 13.6 - -------------------------------------------------------------------------------------------------------- Total ............. $ 30.8 $ 26.9 $ 21.8 $ 17.0 $ 12.7 $ 35.9 - -------------------------------------------------------------------------------------------------------
Gas Utility has gas supply agreements with producers and marketers that expire at various dates through 2000. Gas Utility also has agreements for firm pipeline transportation and storage capacity which Gas Utility may terminate at various dates through 2015. In addition, Gas Utility has short-term gas supply agreements which permit it to purchase certain of its gas supply needs on a firm or interruptible basis at spot market prices. Prior to August 1, 1999, Pennsylvania Power & Light Company ("PP&L"), pursuant to a 1992 power supply agreement for bundled energy and capacity, supplied all of Electric Utility's electric power requirements above that provided by other sources. As part of a settlement of all disputes concerning the 1992 power supply agreement, Electric Utility and PP&L entered into a new power supply agreement under which, from August 1, 1999 through February 28, 2001, PP&L will supply all of Electric Utility's capacity requirements in excess of its capacity resources acquired from other sources, and from January 1, 2000 through December 31, 2000 will supply 32 megawatts of energy in each hour of the day. The energy purchased from PP&L will replace a fixed price power supply agreement with the Montgomery County (Maryland) Resource Recovery Facility, which contract expires on December 31, 1999. In high usage months, Electric Utility meets its additional electric power needs, above those provided by these contracts and its own generation facilities, through monthly market-based contracts and through spot purchases at market prices as delivered. The Partnership enters into contracts to purchase propane and Energy Services enters into contracts to purchase natural gas to meet a portion of their supply requirements. Generally, such contracts have terms of less than one year and call for payment based on either fixed prices or market prices at date of delivery. The Partnership has succeeded to certain lease guarantee obligations of Petrolane relating to Petrolane's divestiture of nonpropane operations before its 1989 acquisition by QFB Partners. Future lease payments under these leases total approximately $43 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's having to honor its guarantee. The Partnership believes the probability that it will be required to directly satisfy such lease obligations is remote. In addition, the Partnership has succeeded to Petrolane's agreement to indemnify Shell Petroleum N.V. ("Shell") for various scheduled claims that were pending against Tropigas de Puerto Rico ("Tropigas"). Petrolane had entered into this indemnification agreement in conjunction with its sale of the international operations of Tropigas to Shell in 1989. The Partnership also succeeded to Petrolane's right to seek indemnity on these claims first from International Controls Corp., which sold Tropigas to Petrolane, and then from Texas Eastern. To date, neither the Partnership nor Petrolane has paid any sums under this indemnity, but several claims by Shell, including claims related to certain antitrust actions, aggregate at least $68 million. One of the antitrust cases which is the subject of the indemnity, Pressure Vessels of Puerto Rico, et al. v. Empire Gas, et al. has been dismissed by the trial court. The grounds for the dismissal are that the Public Service Commission of Puerto Rico has exclusive jurisdiction over the claims asserted against the defendants which are public service companies under the laws of Puerto Rico. Our inquiries have failed to uncover any information that an appeal has been filed or that any complaint has been filed with the Public Service Commission. The remaining antitrust suit, Puerto Rico Fuels, is pending before the Puerto Rico Supreme Court. We, along with other companies, have been named as a potentially responsible party ("PRP") in several administrative proceedings and private party recovery actions for the cleanup or recovery of costs associated with cleanup of various waste sites, including some Superfund sites. In addition, we have identified environmental contamination at several of our properties and have voluntarily undertaken investigation and, as appropriate, remediation of these sites in cooperation with appropriate environmental agencies or private parties. UGI Corporation 1999 Annual Report 40 29 The gas distribution business has been one of UGI Utilities' main businesses since it began in 1882. Prior to the construction of major natural gas pipelines in the 1950s, gas used for lighting and heating was produced at manufactured gas plants ("MGPs") from processes involving coal, coke or oil. Some constituents of coal tars produced from this process are today considered hazardous substances under the Superfund Law and may be located at these sites. At sites where a former subsidiary of UGI Utilities operated an MGP, we believe that UGI Utilities should not have significant liability because UGI Utilities generally is not legally liable for the obligations of its subsidiaries. Under certain circumstances, however, a court could find a parent company liable for environmental damage at sites owned by a subsidiary company when the parent company either (1) itself operated the facility causing the environmental damage or (2) otherwise so controlled the subsidiary that the subsidiary's separate corporate form should be disregarded. There could be, therefore, significant future costs of an uncertain amount associated with environmental damage caused by MGPs that UGI Utilities owned or directly operated, or that were owned or operated by former subsidiaries of UGI Utilities, if a court were to conclude that the subsidiary's separate corporate form should be disregarded. In many circumstances where UGI Utilities may be liable, we may not be able to reasonably quantify expenditures because of a number of factors. These factors include the various costs associated with potential remedial alternatives, the unknown number of other potentially responsible parties involved and their ability to contribute to the costs of investigation and remediation, and changing environmental laws and regulations. UGI Utilities has filed suit against more than fifty insurance companies alleging that the defendants breached contracts of insurance by failing to indemnify UGI Utilities for certain environmental costs. The suit seeks to recover more than $11 million in costs incurred by UGI Utilities at various MGPs. The parties to the suit are in the early stages of exchanging information. In addition to these matters, there are other pending claims and legal actions arising in the normal course of our businesses. We cannot predict with certainty the final results of environmental and other matters. However, it is reasonably possible that some of them could be resolved unfavorably to us. Management believes, after consultation with counsel, that damages or settlements, if any, recovered by the plaintiffs in such claims or actions will not have a material adverse effect on our financial position but could be material to our operating results or cash flows in future periods depending on the nature and timing of future developments with respect to these matters and the amounts of future operating results and cash flows. 14. FINANCIAL INSTRUMENTS The carrying amounts of financial instruments included in current assets and current liabilities (excluding current maturities of long-term debt) approximate their fair values because of their short-term nature. The carrying amounts and estimated fair values of our long-term debt and UGI Utilities Series Preferred Stock at September 30 are as follows:
CARRYING ESTIMATED AMOUNT FAIR VALUE ===================================================================== 1999: Long-term debt: AmeriGas Propane .................. $744.7 $761.3 UGI Utilities ..................... 180.0 174.8 Other ............................. 91.6 91.1 UGI Utilities Series Preferred Stock 20.0 20.9 1998: Long-term debt: AmeriGas Propane .................. $709.0 $772.0 UGIUtilities ...................... 187.2 193.0 Other ............................. 8.2 9.1 UGI Utilities Series Preferred Stock 20.0 24.0 - ---------------------------------------------------------------------
We estimate the fair value of long-term debt by using current market prices and by discounting future cash flows using rates available for similar type debt. The estimated fair value of UGI Utilities Series Preferred Stock is based on the fair value of redeemable preferred stock with similar credit ratings and redemption features. We have financial instruments such as short-term investments and trade accounts receivable which could expose us to concentrations of credit risk. We limit our credit risk from short-term investments by investing only in investment-grade commercial paper and in U.S. Government securities. The credit risk from trade accounts receivable is limited because we have a large customer base which extends across many different U.S. markets. At September 30, 1999 and 1998, we had no significant concentrations of credit risk. At September 30, 1999 and 1998, the Partnership was a party to an interest rate protection agreement covering $50 million of long-term debt to be issued in fiscal 2001. The counterparty to this agreement is a large financial institution. To the extent this agreement continues to qualify as a hedge of the forecasted transaction, any gains or losses on the agreement will be included in the basis of the long-term debt issued which will adjust the effective interest rate. The estimated fair value of this agreement was $3.2 million at September 30, 1999 and $(2.4) million at September 30, 1998. At September 30, 1999 and 1998, Energy Services held exchange traded natural gas futures contracts with total notional amounts of $26.6 million and $28.6 million, respectively. Net deferred gains on such contracts totaled $2.6 million at September 30, 1999 and $0.2 million at September 30, 1998. At September 30, 1999, Energy Services also held exchange traded heating oil futures and option contracts with a total notional amount of $6.5 million and an estimated fair value of $(0.2) million. UGI Corporation 1999 Annual Report 41 30 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS AND WHERE INDICATED OTHERWISE) At September 30, 1999 and 1998, the Partnership was a party to propane price swap and option agreements with private counterparties with total notional amounts of $12.9 million and $13.0 million, respectively. Agreements outstanding at September 30, 1999 mature through March 2000. The estimated fair values of these swap and option agreements were $2.9 million and $(0.6) million at September 30, 1999 and 1998, respectively. In addition, at September 30, 1998, the Partnership held zero-cost collars for propane having a total notional ceiling amount of $11.8 million and a total notional floor amount of $9.3 million. The estimated fair value of these agreements was not material. 15. OTHER INCOME, NET Other income, net, comprises the following:
1999 1998 1997 ===================================================================================== Interest income ................... $ (7.2) $ (6.9) $ (6.3) Loss on Partnership's interest rate protection agreements .......... -- 4.0 -- Gain on sales of investments ...... -- (2.3) (8.2) Gain on sales of fixed assets ..... (2.2) (2.0) (1.1) Other ............................. (7.4) (5.5) (7.0) - ------------------------------------------------------------------------------------- Total other income, net ........... $ (16.8) $ (12.7) $ (22.6) - -------------------------------------------------------------------------------------
16. QUARTERLY DATA (UNAUDITED)
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, 1998 1997 1999(a) 1998 1999(b) 1998 1999 1998(c) ================================================================================================================================= Revenues ................... $ 373.7 $ 471.2 $ 499.2 $ 488.3 $ 259.3 $ 255.2 $ 251.4 $ 225.0 Operating income (loss) .... 61.5 77.6 115.6 97.7 9.4 8.6 (10.6) (13.7) Net income (loss) .......... 18.0 24.8 37.5 31.2 11.4 (3.9) (11.2) (11.8) Net income (loss) per share: Basic .................... 0.55 0.75 1.15 0.95 0.36 (0.12) (0.37) (0.36) Diluted .................. 0.55 0.75 1.14 0.94 0.36 (0.12) (0.37) (0.36) - ---------------------------------------------------------------------------------------------------------------------------------
The quarterly data above includes all adjustments (consisting only of normal recurring adjustments with the exception of those indicated below) which we consider necessary for a fair presentation. Our quarterly results fluctuate because of the seasonal nature of our businesses. (a) Includes merger expenses of $1.6 million which decreased net income by $1.1 million or $0.03 per share. (b) Includes merger termination fee income of $25 million, less $3.5 million of merger related expenses, which increased net income by $14.0 million or $0.44 per share. (c) Includes loss from the Partnership's interest rate protection agreements which increased operating loss by $4.0 million and net loss by $1.4 million or $0.04 per share. 17. SEGMENT INFORMATION We adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131") in 1999. SFAS 131 establishes standards for reporting information about operating segments as well as related disclosures about products and services, geographic areas, and major customers. In determining our reportable segments under the provisions of SFAS 131, we examined the way we organize our businesses for making operating decisions and assessing business performance. Based upon the guidance provided by SFAS 131, we have determined that the Company has four principal operating segments: (1) a domestic propane business which distributes propane and related equipment and supplies principally to retail customers from locations in 46 states, (2) a natural gas utility operating in eastern Pennsylvania, (3) an electric utility which generates and distributes electricity to customers in two northeastern Pennsylvania counties, and (4) an energy marketing business principally involved in arranging the supply and transportation of natural gas and electricity to customers located primarily in the Middle Atlantic states. The adoption of SFAS 131 did not change the reportable segments we disclose. However, certain of our reportable segments' operating results now include billed UGI Corporate overhead expenses. Although the Electricity Customer Choice Act unbundled prices for electric generation, transmission and distribution services, we currently manage and evaluate our electric generation, transmission and distribution operations on a combined basis. Accordingly, they have been combined for segment reporting purposes. The accounting policies of the four segments are the same as those described in Note 1 to Consolidated Financial Statements. We evaluate our domestic propane segment's performance principally based on its EBITDA. Although we use EBITDA to evaluate segment performance, it should not be considered as an alternative to net income (as an indicator of operating performance) or as an alternative to cash flow (as a measure of liquidity or ability to service debt obligations) and is not a measure of performance or financial condition under generally accepted accounting principles. We evaluate the performance of Gas Utility, Electric Utility, and Energy Services principally based upon earnings before income taxes. No single customer represents more than 5% of consolidated revenues. In addition, virtually all of our reportable segments' revenues are derived from sources within the U.S., and virtually all of our reportable segments' long-lived assets, other than the assets of FLAGA, are located in the U.S. Financial information by business segment follows: UGI Corporation 1999 Annual Report 42 31
REPORTABLE SEGMENTS ------------------------------------------------- CORPORATE AND AMERIGAS GAS ELECTRIC ENERGY TOTAL ELIMINATIONS PROPANE UTILITY UTILITY SERVICES OTHER =================================================================================================================================== 1999 Revenues .................. $1,383.6 $ (2.3) $ 872.5 $ 345.6 $ 75.0 $ 90.4 $ 2.4 EBITDA .................... $ 265.6 $ 5.5 $ 158.8 $ 87.0 $ 16.7 $ 2.7 $ (5.1) Depreciation and amortization ............. (89.7) -- (66.3) (19.0) (4.0) (0.1) (0.3) - ----------------------------------------------------------------------------------------------------------------------------------- Operating income (loss) ... 175.9 5.5 92.5 68.0 12.7 2.6 (5.4) Merger fee income, net .... 19.9 19.9 -- -- -- -- -- Interest expense .......... (84.6) -- (66.5) (15.2) (2.3) -- (0.6) Minority interest ......... (10.7) -- (10.7) -- -- -- -- - ----------------------------------------------------------------------------------------------------------------------------------- Income (loss) before income taxes ............. $ 100.5 $ 25.4 $ 15.3 $ 52.8 $ 10.4 $ 2.6 $ (6.0) Total assets .............. $2,135.9 $ 15.5 $1,221.9 $ 616.1 $ 95.0 $ 17.4 $ 170.0(a) Capital expenditures ...... $ 73.7(b) $ -- $ 34.6(b) $ 31.9 $ 4.5 $ 0.2 $ 2.5 Investments in foreign equity investees ................ $ 6.3 $ -- $ -- $ -- $ -- $ -- $ 6.3 =================================================================================================================================== 1998 Revenues .................. $1,439.7 $ (3.0) $ 914.4 $ 350.2 $ 72.1 $ 103.0 $ 3.0 EBITDA .................... $ 258.0 $ 6.0 $ 153.3 $ 83.0 $ 13.6 $ 2.1 $ -- Depreciation and amortization ........... (87.8) (0.1) (65.4) (18.2) (3.9) (0.1) (0.1) - ----------------------------------------------------------------------------------------------------------------------------------- Operating income (loss) ... 170.2 5.9 87.9 64.8 9.7 2.0 (0.1) Interest expense .......... (84.4) -- (66.1) (15.3) (2.3) -- (0.7) Minority interest ......... (8.9) -- (8.9) -- -- -- -- - ----------------------------------------------------------------------------------------------------------------------------------- Income (loss) before income taxes ............. $ 76.9 $ 5.9 $ 12.9 $ 49.5 $ 7.4 $ 2.0 $ (0.8) Total assets .............. $2,074.6 $ 104.8 $1,238.2 $ 594.4 $ 95.6 $ 14.3 $ 27.3 Capital expenditures ...... $ 69.2 $ -- $ 31.9 $ 32.0 $ 5.2 $ 0.1 $ -- Investments in foreign equity investees ................ $ 2.1 $ -- $ -- $ -- $ -- $ -- $ 2.1 =================================================================================================================================== 1997 Revenues .................. $1,642.0 $ (3.5) $1,077.8 $ 389.1 $ 72.1 $ 103.0 $ 3.5 EBITDA .................... $ 286.0 $ 3.7 $ 174.8 $ 87.2 $ 14.1 $ 1.8 $ 4.4 Depreciation and amortization ........... (86.1) (0.1) (64.3) (17.1) (4.3) (0.1) (0.2) - ----------------------------------------------------------------------------------------------------------------------------------- Operating income .......... 199.9 3.6 110.5 70.1 9.8 1.7 4.2 Interest expense .......... (83.1) -- (65.7) (14.0) (2.7) -- (0.7) Minority interest ......... (18.3) -- (18.3) -- -- -- -- - ----------------------------------------------------------------------------------------------------------------------------------- Income before income taxes ............. $ 98.5 $ 3.6 $ 26.5 $ 56.1 $ 7.1 $ 1.7 $ 3.5 Total assets .............. $2,151.7 $ 81.2 $1,345.6 $ 594.3 $ 86.2 $ 16.3 $ 28.1 Capital expenditures ...... $ 68.8 $ -- $ 27.0 $ 36.7 $ 5.0 $ 0.1 $ -- Investments in foreign equity investees ................ $ 0.7 $ -- $ -- $ -- $ -- $ -- $ 0.7 ===================================================================================================================================
(a) Includes assets of $135.7 million relating to FLAGA. Because the acquisition of FLAGA for accounting purposes was deemed to have occurred on September 30, 1999, it did not impact the Company's 1999 results of operations. (b) Includes capital leases of $3.5 million. UGI Corporation 1999 Annual Report 43 EX-21 13 SUBSIDIARIES OF THE REGISTRANT 1 Exhibit 21 UGI CORPORATION SUBSIDIARIES
STATE OF SUBSIDIARY OWNERSHIP INCORPORATION - ---------- --------- ------------- AMERIGAS, INC. 100% PA FOUR FLAGS DRILLING COMPANY, INC. 100% PA Four Flags Holding Company 100% DE AMERIGAS PROPANE, INC.* 100% PA AmeriGas Partners, L.P. (1) DE AmeriGas Finance Corp. 100% DE AmeriGas Propane L.P. 98.9899% DE AmeriGas Propane Parts & Service, Inc. 100% PA Petrolane Offshore Limited 100% BERMUDA AmeriGas Technology Group, Inc. 100% PA Petrolane Incorporated 100% PA ASHTOLA PRODUCTION COMPANY 100% PA UGI ETHANOL DEVELOPMENT CORPORATION 100% PA NORTHFIELD HOLDING COMPANY 100% DE UGI ENTERPRISES, INC. 100% PA CFN ENTERPRISES, INC. 100% DE CF Networks LLC 60% DE EASTFIELD INTERNATIONAL HOLDINGS, INC. 100% DE Eastfield Beteiligungsgesellschaft m.b.H 100% AUSTRIA Flaga Beteiligungs Aktiengesellschaft 99% AUSTRIA Flaga Energieversorgung GmbH 100% GERMANY Flaga Flussiggas Vertriebsgesellschaft m.b.H. 100% AUSTRIA Flaga Plyn, spol. s r.o. 100% CZECH REPUBLIC Flaga Slovplyn, spol. s r.o. 100% SLOVAKIA Flaga Tech Trade Gesellschaft m.b.H. 100% AUSTRIA Osterreichische Flussiggas-Gesellschaft m.b.H. 40% AUSTRIA T.S.G. Transport - und Speditionsgesellschaft m.b.H. 50% AUSTRIA G.T.P. Gas Trans Praha spol. s r.o. 60% CZECH REPUBLIC Gastrans-Erfurt-Gesellschaft m.b.H. 90% GERMANY EUROGAS HOLDINGS, INC. 100% DE UGI ENERGY SERVICES, INC. 100% PA Energy Services Holding Company 100% DE UGI POWER SUPPLY, INC. 100% PA UGI INTERNATIONAL ENTERPRISES, INC. 100% PA UGI BLACK SEA ENTERPRISES, INC. 100% PA UGI INTERNATIONAL (ROMANIA), INC. 100% PA UGI ROMANIA, INC. 100% PA UGI INTERNATIONAL (CHINA), INC. 100% DE UGI CHINA, INC. 100% DE China Gas Partners, L.P. (2) DE Nantong LPG Company, LLC 100% DE UGI SOUTHWEST CHINA DEVELOPMENT COMPANY 100% DE HEARTH USA, INC. 100% DE UGI PROPERTIES, INC. 100% PA UGI UTILITIES, INC 100% PA UGI DEVELOPMENT COMPANY 100% PA UGID Holding Company 100% DE UNITED VALLEY INSURANCE COMPANY 100% VT VULCAN ACQUISITION CORP. 100% DE
Page 1 2 UGI CORPORATION SUBSIDIARIES (1) AmeriGas Propane Inc. and its subsidiary, Petrolane Incorporated, hold a combined 58.6% interest in AmeriGas Partners, L.P., and its subsidiary AmeriGas Propane, L.P (2) General partner interest held by UGI International (China), Inc.; limited partner interest held by UGI China, Inc. Page 2 EX-23.1 14 CONSENT OF ARTHUR ANDERSEN LLP 1 Exhibit (23.1) CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports dated November 12, 1999, on the consolidated financial statements and financial statement schedules of UGI Corporation and subsidiaries included (or incorporated by reference) in UGI Corporation's Annual Report on Form 10-K for the fiscal year ended September 30, 1999, into UGI Corporation's previously filed S-8 Registration Statement No. 33-47319; Form S-3 Registration Statement No. 33-78776; and Form S-8 Registration Statement Nos. 33-61722, 333-22305 and 333-37093. Arthur Andersen LLP Chicago, Illinois December 21, 1999 EX-27 15 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AND INCOME STATEMENT OF UGI CORPORATION AND SUBSIDIARIES AS OF AND FOR THE YEAR ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS INCLUDED IN UGI CORPORATION'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED SEPTEMBER 30, 1999. 0000884614 UGI CORPORATION 1,000 12-MOS SEP-01-1999 OCT-01-1998 SEP-30-1999 40,500 15,100 110,900 8,000 87,100 290,900 1,599,000 514,900 2,135,900 402,300 989,600 20,000 0 394,800 (145,600) 2,135,900 1,383,600 1,383,600 680,400 680,400 0 7,800 84,600 100,500 43,200 55,700 0 0 0 55,700 1.74 1.74
-----END PRIVACY-ENHANCED MESSAGE-----