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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 2002
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 OFFICES) (ZIP CODE)
(610) 337-1000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF CLASS NAME OF EACH EXCHANGE
ON WHICH REGISTERED
Common Stock, without par value New York Stock Exchange, Inc.
Philadelphia Stock Exchange, Inc.
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS) AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES |X| NO | |.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. | |
The aggregate market value of UGI Corporation Common Stock held by nonaffiliates
of the registrant on November 29, 2002 was $999,593,248.
At November 29, 2002 there were 27,723,257 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, 2002 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 25, 2003 are incorporated
by reference into Part III of this Form 10-K.
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes |X| No | |
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TABLE OF CONTENTS
PAGE
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PART I: BUSINESS....................................................................... 2
Items 1 And 2. Business and Properties........................................................ 2
AmeriGas Propane Business...................................................... 3
Utility and Electric Operations................................................ 11
UGI Enterprises, Inc........................................................... 20
- Domestic Businesses .................................................. 20
- International Businesses ............................................. 21
Item 3. Legal Proceedings.............................................................. 24
Item 4. Submission of Matters to a Vote of Security Holders............................ 26
PART II: SECURITIES AND FINANCIAL INFORMATION........................................... 26
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.......... 26
Item 6. Selected Financial Data........................................................ 28
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations..................................................................... 29
Item 7a. Quantitative and Qualitative Disclosures About Market Risk..................... 29
Item 8. Financial Statements and Supplementary Data.................................... 29
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure .......................................................... 29
PART III: UGI MANAGEMENT AND SECURITY HOLDERS............................................ 30
Item 10. Directors and Executive Officers of Registrant................................. 31
Item 11. Executive Compensation......................................................... 31
(i)
PAGE
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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters............................................................ 31
Item 13. Certain Relationships and Related Transactions................................. 31
Item 14. Controls and Procedures........................................................ 34
PART IV: ADDITIONAL EXHIBITS, SCHEDULES AND REPORTS..................................... 34
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............... 34
Signatures..................................................................... 44
Certifications................................................................. 46
Index to Financial Statements and Financial Statement Schedules................ F-2
(ii)
PART I: BUSINESS
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
UGI Corporation is a distributor and marketer of energy products and
services. We have two primary business lines: we are a domestic and
international distributor of propane, and we are also a provider of natural gas,
electricity and related services through regulated distribution utilities as
well as through unregulated electric generation, commodity marketing and heating
and cooling installation and service businesses.
We conduct our domestic propane distribution business through AmeriGas
Partners, L.P., ("AmeriGas Partners" or the "Partnership"), which is the
nation's largest retail propane distributor. AmeriGas Partners conducts its
business through its direct and indirect subsidiaries, AmeriGas Propane, L.P.
("AmeriGas OLP") and AmeriGas Eagle Propane, L.P. ("Eagle OLP," and together
with AmeriGas OLP, the "Operating Partnership"). Eagle OLP has a less-than-one
percent minority limited partner. The Partnership's sole general partner is our
subsidiary, AmeriGas Propane, Inc. ("AmeriGas Propane" or the "General
Partner"). The common units of AmeriGas Partners represent limited partner
interests in a Delaware limited partnership. Common Units trade on the New York
Stock Exchange under the symbol "APU." We have a majority ownership interest in
the Partnership; the remaining interest is publicly held. See Note 1 to the
Company's Consolidated Financial Statements.
Our subsidiary UGI Utilities, Inc. ("UGI Utilities," or "Utilities") owns
and operates a natural gas distribution utility ("Gas Utility") and an electric
distribution utility ("Electric Utility") in eastern Pennsylvania. Utilities is
the successor to a business founded in 1882. It serves approximately 286,000
natural gas customers and approximately 61,500 electric customers. In response
to state deregulation legislation, effective October 1, 1999, Utilities'
transferred its electric generation assets to a non-utility subsidiary, UGI
Development Company ("UGID"). UGID contributed certain electric generation
assets to a non-utility generation joint venture with a subsidiary of Allegheny
Energy, Inc. in December 2000. Utilities' interests in electricity generating
facilities, together with Electric Utility, are referred to herein as "Electric
Operations."
UGI Enterprises, Inc. ("Enterprises") conducts domestic and international
energy-related businesses through subsidiaries. UGI Energy Services, Inc.
markets natural gas, oil and electricity in the Mid-Atlantic region under the
trade name GASMARK(R). UGI HVAC Enterprises, Inc. operates a heating and cooling
installation and service business in the Mid-Atlantic region. Enterprises
conducts its international propane distribution business through wholly-owned
subsidiaries and joint ventures. It owns FLAGA GmbH, the largest retail propane
distributor in Austria and one of the largest suppliers in the Czech Republic
and Slovakia. In March 2001, Enterprises acquired an approximate 20% interest in
Elf Antargaz, S.A. ("Antargaz"), one of the largest distributors of propane in
France. Enterprises also participates in a propane distribution joint venture in
China. We expect Enterprises to continue to evaluate and develop new related and
complementary business opportunities for us.
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UGI was incorporated in Pennsylvania in 1991. UGI Corporation is not
subject to regulation by the Pennsylvania Public Utility Commission ("PUC"). It
is also exempt from registration as a holding company and not otherwise subject
to the Public Utility Holding Company Act of 1935, except for Section 9(a)(2),
which regulates the acquisition of voting securities of an electric or gas
utility company. Our executive offices are located at 460 North Gulph Road, King
of Prussia, Pennsylvania 19406, and our telephone number is (610) 337-1000. In
this report, the terms "Company" and "UGI," as well as the terms "our," "we,"
and "its," are sometimes used as abbreviated references to UGI Corporation or,
collectively, UGI Corporation and its consolidated subsidiaries. Similarly, the
terms "AmeriGas Partners" and the "Partnership" are sometimes used as
abbreviated references to AmeriGas Partners, L.P. or, collectively, AmeriGas
Partners, L.P. and its subsidiaries, including the Operating Partnership.
BUSINESS STRATEGY
In July 1999, following a comprehensive study, we announced our intention
to refocus our strategic direction on growing our existing natural gas, electric
and propane businesses while seeking additional related and complementary growth
opportunities. We are employing our core competencies from our existing
businesses, as well as using our national scope, extensive asset base and access
to customers, to accelerate growth in related and complementary businesses, both
domestic and international.
AMERIGAS PROPANE BUSINESS
Our domestic propane distribution business is conducted through AmeriGas
Partners. Upon completion of the Columbia Propane acquisition described below,
we became the largest retail propane distributor in the United States, based on
retail volume. The Partnership operates from approximately 650 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 majority interest in
the income or loss of the Partnership, due to the publicly-owned limited partner
interest. See Note 1 to the Company's Consolidated Financial Statements.
On August 21, 2001, AmeriGas OLP acquired the propane distribution
businesses of Columbia Energy Group. These businesses were conducted through
Columbia Propane Corporation and its approximate 99% owned subsidiary, Columbia
Propane, L.P. Prior to the acquisition, Columbia Propane, based in Richmond,
Virginia, was the seventh largest retail propane marketer in the United States,
selling approximately 308 million gallons annually from 186 locations in 29
states. Following the acquisition, Columbia Propane, L.P. changed its name to
AmeriGas Eagle Propane, L.P. and Columbia Propane Corporation changed its name
to AmeriGas Eagle Propane, Inc. Both entities do business under the trade name
AmeriGas(R). During fiscal year 2002, the Partnership completed the integration
of the Columbia district locations, which included consolidating 90 Columbia
locations with AmeriGas districts. AmeriGas OLP and the General Partner own more
than 99% of Eagle OLP and an unaffiliated third party retains the remaining
interest. See Note 2 to the Company's Consolidated Financial Statements.
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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.
PRODUCTS, SERVICES AND MARKETING
As of September 30, 2002, the Partnership distributed propane to
approximately 1.2 million customers from approximately 650 district locations in
46 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 79%
of the Partnership's fiscal year 2002 sales (based on gallons sold) were to
retail accounts and approximately 21% were to wholesale customers. Sales to
residential customers in fiscal 2002 represented approximately 41% of retail
gallons sold; industrial/commercial customers 38%; motor fuel customers 13%; and
agricultural customers 8%. Residential customers represented 52% of the
Partnership's total propane margin. No single customer accounts for 5% or more
of the Partnership's consolidated revenues.
In the residential market, which includes both conventional and
manufactured housing, propane is used primarily for home heating, water heating
and cooking purposes. Commercial users, which include motels, hotels,
restaurants and retail stores, generally use propane for the same purposes as
residential customers. The Partnership continues to expand its PPX(R) program.
At September 30, 2002, PPX(R) was available at approximately 15,600 retail
locations throughout the country. 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
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over-the-road vehicles, forklifts and stationary engines. Agricultural uses
include tobacco curing, chicken brooding and crop drying. In its wholesale
operations, the Partnership principally sells propane to large industrial
end-users and other propane distributors.
The PPX Prefilled Propane Xchange program ("PPX(R)") enables consumers to
exchange their empty 20-pound propane grill cylinders for filled cylinders at
various retail locations such as home centers and grocery and convenience
stores. During fiscal year 2002, the Partnership introduced PPX(R) Plus. PPX(R)
Plus cylinders are equipped with a special overfill protection device ("OPD")
required by the National Fire Protection Association ("NFPA"). Sales of our
PPX(R) Plus grill cylinders to retailers are included in the
commercial/industrial market.
Retail deliveries of propane are usually made to customers by means of
bobtail and rack trucks. Propane is pumped from the bobtail truck, which
generally holds 2,400 to 3,000 gallons of propane, into a stationary storage
tank on the customer's premises. The Partnership owns most of these storage
tanks and leases them to its customers. The capacity of these tanks ranges from
approximately 100 gallons to approximately 1,200 gallons.
The Partnership also delivers propane to retail customers in portable
cylinders with capacities of 4 to 24 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.
PROPANE SUPPLY AND STORAGE
The Partnership has over 200 domestic and international sources of supply,
including the spot market. Supplies of propane from the Partnership's sources
historically have been readily available. During the year ended September 30,
2002, over 90% of the Partnership's propane supply was purchased under supply
agreements with terms of 1 to 3 years. Approximately 80% of the volume purchased
under those agreements was from 10 suppliers, including Dynegy Midstream
Services (approximately 21%); Enterprise Products Operating LP and its affiliate
Canadian Enterprises Gas Products Ltd. (approximately 20%); and BP Products
North America Inc. and its affiliate BP Marketing Inc. (approximately 15%). The
availability of propane supply is dependent upon, among other things, the
severity of winter weather and the price and availability of competing fuels
such as natural gas and crude oil. Although no assurance can be given that
supplies of propane will be readily available in the future, management
currently expects to be able to secure adequate supplies during fiscal year
2003. If supply from major sources were interrupted, however, the cost of
procuring replacement supplies and transporting those supplies from alternative
locations might be materially higher and, at least on a short-term basis,
margins could be affected. Aside from Dynegy, Enterprise Products and BP, no
single supplier provided more than 10% of the Partnership's total propane supply
in fiscal year 2002. 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's supply contracts are generally made under one- or
two-year agreements subject to annual review. During fiscal year 2002, 90% of
those contracts provided for pricing
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based upon posted prices at the time of delivery or index formulas based on the
the current prices established at major storage points such as Mont Belvieu,
Texas, or Conway, Kansas. In addition, some agreements provided maximum and
minimum seasonal purchase volume guidelines. The percentage of contract
purchases, and the amount of supply contracted for at fixed prices, will vary
from year to year as determined by the General Partner. The Partnership uses a
number of interstate pipelines, as well as railroad tank cars, delivery trucks
and barges, to transport propane from suppliers to storage and distribution
facilities. The Partnership stores propane at facilities in Arizona,
Pennsylvania, Virginia and several other states.
Because the Partnership's profitability is sensitive to changes in
wholesale propane costs, the Partnership generally seeks to pass on increases in
the cost of propane to customers. There is no assurance, however, that the
Partnership will always be able to pass on product cost increases fully,
particularly when product costs rise rapidly. Product cost increases can be
triggered by periods of severe cold weather, supply interruptions, or other
unforeseen events. The General Partner has adopted supply acquisition and
product price risk management practices to reduce the effect of price volatility
on product costs. These practices currently include the use of summer storage,
forward purchases and derivative commodity instruments such as options and
propane price swaps. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Market Risk Disclosures."
The following graph shows the average prices of propane on the propane
spot market during the last six fiscal years at Mont Belvieu, Texas and Conway,
Kansas, two major storage areas.
AVERAGE PROPANE SPOT MARKET PRICES
Mont Belvieu Conway
Oct-96 51.57 51.53
Dec-96 61.04 84.29
Feb-97 38.71 39.02
Apr-97 34.88 35.26
Jun-97 34.43 35.86
Aug-97 37.03 36.53
Oct-97 39.83 37.32
Dec-97 33.57 31.36
Feb-98 29.79 28.32
Apr-98 29.06 29.47
Jun-98 24.42 24.84
Aug-98 24.12 23.87
Oct-98 25.72 24.57
Dec-98 20.89 18.72
Feb-99 22.43 20.58
Apr-99 28.26 27.58
Jun-99 30.95 28.68
Aug-99 40.51 37.56
Oct-99 45.46 43.39
Dec-99 42.83 35.10
Feb-00 59.72 47.26
Apr-00 46.88 43.64
Jun-00 55.47 56.22
Aug-00 58.54 63.52
Oct-00 61.82 64.05
Dec-00 77.63 79.75
Feb-01 59.39 63.03
Apr-01 54.37 60.26
Jun-01 43.17 47.70
Aug-01 41.54 45.71
Oct-01 39.48 44.19
Dec-01 30.43 30.34
Feb-02 31.20 27.92
Apr-02 41.52 40.07
Jun-02 37.51 35.25
Aug-02 41.49 41.53
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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. Fuel
oil is also a major competitor of propane and is generally less expensive than
propane. Operating efficiencies and other factors such as air quality and
environmental advantages, however, generally make propane competitive with fuel
oil as a heating source. Furnaces and appliances that burn propane will not
operate on fuel oil, and vice versa, and, therefore, a conversion from one fuel
to the other requires the installation of new equipment. Propane serves as an
alternative to natural gas in rural and suburban areas where natural gas is
unavailable or portability of product is required. Natural gas is generally a
less expensive source of energy than propane, although in areas where natural
gas is available, propane is used for certain industrial and commercial
applications and as a standby fuel during interruptions in natural gas service.
The gradual expansion of the nation's natural gas distribution systems has
resulted in the availability of natural gas in some areas that previously
depended upon propane. However, natural gas pipelines are not present in many
regions of the country where propane is sold for heating and cooking purposes.
The retail propane industry is mature, with only modest growth in total
demand for the product foreseen. Given this limited growth, we expect that
year-to-year industry volumes will be principally affected by weather patterns.
Therefore, the Partnership's ability to grow within the industry is dependent on
its ability to acquire other retail distributors and to achieve internal growth,
which includes expansion of the PPX(R) program (through which consumers can
exchange an empty propane grill cylinder for a filled one) and national accounts
program (through which the Partnership encourages large, multi-location propane
users to enter into a supply agreement with it rather than with many small
suppliers), as well as the success of its sales and marketing programs designed
to attract and retain customers. The failure of the Partnership to retain and
grow its customer base would have an adverse effect on its results.
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. The ability to compete effectively
depends on providing customer service, maintaining competitive retail prices and
controlling operating expenses.
Based on the most recent annual survey by the American Petroleum
Institute, the 2001 domestic retail market for propane (annual sales for other
than chemical uses) was approximately 11.4 billion gallons and, based on LP-GAS
magazine rankings, 2001 sales volume of the ten largest propane companies
(including AmeriGas Partners) represented approximately 38% of
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domestic retail sales. Management believes the Partnership's 2002 retail volume
represents approximately 10% of the domestic retail market.
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, 2002, the Partnership owned approximately 84% 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 owns a 600,000 barrel
refrigerated, above-ground storage facility located on leased property 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 leased to several refiners for the storage of butane. In Virginia,
the Partnership has a 50% indirect equity interest in a 476,000 barrel
refrigerated, above-ground import terminal.
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, 2002, the
Partnership operated a transportation fleet with the following assets:
QUANTITY & EQUIPMENT TYPE % OWNED % LEASED
478 Trailers 70 30
162 Tractors 42 58
160 Railroad tank cars 0 100
3,192 Bobtail trucks 32 68
555 Rack trucks 33 67
2,505 Service and delivery trucks 34 66
Other assets owned at September 30, 2002 included approximately 1.3 million
stationary storage tanks with typical capacities of 100 to 1,000 gallons and
approximately 1.8 million portable propane cylinders with typical capacities of
4 to 100 gallons. The Partnership also owned approximately 8,800 large volume
tanks which are used for its own storage requirements. AmeriGas OLP has debt
secured by liens and mortgages on its real and personal property. AmeriGas OLP
owns approximately 67% of the Partnership's property, plant and equipment.
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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 related trade and service marks.
The General Partner owns all right, title and interest in the "America's Propane
Company" and "PPX Prefilled Propane Xchange" trade names and related service
marks. The Partnership has an exclusive (except for use by UGI, AmeriGas, Inc.
and the General Partner), royalty-free license to use these names and trade and
service marks. UGI and the General Partner each have the option to terminate its
respective license agreement (on 12 months prior notice in the case of UGI),
without penalty, if the General Partner is removed as general partner of the
Partnership other than for cause. If the General Partner ceases to serve as the
general partner of the Partnership for cause, the General Partner has the option
to terminate its license agreement upon payment of a fee equal to the fair
market value of the licensed trade names. UGI has a similar termination option,
however, UGI must provide 12 months prior notice in addition to paying the fee.
SEASONALITY
Because many customers use propane for heating purposes, the Partnership's
retail sales volume is seasonal, with approximately 57% of the Partnership's
fiscal year 2002 retail sales volume and approximately 78% of its earnings
before interest expense, income taxes, depreciation and amortization occurring
during the five-month peak heating season from November through March. As a
result of this seasonality, sales are concentrated in the Partnership's first
and second fiscal quarters (October 1 through March 31). Cash receipts are
greatest during the second and third fiscal quarters when customers pay for
propane purchased during the winter heating season.
Sales volume for the Partnership traditionally fluctuates from
year-to-year in response to variations in weather, prices, competition, customer
mix and other factors, such as conservation efforts and general economic
conditions. For historical information on national weather statistics, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
GOVERNMENT REGULATION
The Partnership is subject to various federal, state and local
environmental, safety and transportation laws and regulations governing the
storage, distribution and transportation of propane. These laws include, among
others, the Resource Conservation and Recovery Act, the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA" or, the
"Superfund Law"), the Clean Air Act, the Occupational Safety and Health Act, the
Emergency Planning and Community Right to Know Act, the Clean Water Act and
comparable state statutes. CERCLA imposes joint and several liability on certain
classes of persons considered to have contributed to the release or threatened
release of a "hazardous substance" into the environment without regard to fault
or the legality of the original conduct. Propane is not a hazardous substance
within the meaning of federal and state environmental laws. However, the
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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, NFPA 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. Effective April
1, 2002, NFPA Pamphlet No. 58 requires portable propane cylinders to be equipped
with OPD. Although NFPA 58 has not yet been adopted in all states, the
Partnership complies with the OPD requirements throughout the United States. 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"). The
Natural Gas Safety Act of 1968 required the DOT to develop and enforce minimum
safety regulations for the transportation of gases by pipeline. The DOT's
pipeline safety code applies to, among other things, a propane gas system which
supplies 10 or more customers from a single source and a propane gas system any
portion of which is located in a public place. The code requires operators of
all gas systems to provide training and written instructions for employees,
establish written procedures to minimize the hazards resulting from gas pipeline
emergencies, and keep records of inspections and testing.
EMPLOYEES
The Partnership does not directly employ any persons responsible for
managing or operating the Partnership. The General Partner provides these
services and is reimbursed for its direct and indirect costs and expenses,
including all compensation and benefit costs. At September 30, 2002, the General
Partner had approximately 6,300 employees, including approximately 300 temporary
and part-time employees, working on behalf of the Partnership. 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.
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UTILITY AND ELECTRIC 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").
Utilities also owns interests in electricity generating facilities in
Pennsylvania, which, together with Electric Utility, are referred to herein as
"Electric Operations." All of these businesses are described below.
GAS UTILITY
NATURAL GAS CHOICE AND COMPETITION ACT
On June 22, 1999, Pennsylvania's Natural Gas Choice and Competition Act
("Gas Competition Act") was signed into law. The purpose of the Gas Competition
Act was to provide all natural gas consumers in Pennsylvania with the ability to
purchase their gas supplies from the supplier of their choice. Under the Gas
Competition Act, local distribution companies ("LDCs") like Gas Utility may
continue to sell gas to customers, and such sales of gas, as well as
distribution services provided by LDCs, continue to be subject to price
regulation by the PUC.
Generally, Pennsylvania LDCs will serve as the supplier of last resort for
all residential and small commercial and industrial customers unless the PUC
approves another supplier of last resort. The Gas Competition Act requires
energy marketers seeking to serve customers of LDCs to accept assignment of a
portion of the LDC's interstate pipeline capacity and storage contracts at
contract rates, thus avoiding the creation of stranded costs.
On October 1, 1999, Gas Utility filed its restructuring plan with the PUC
pursuant to the Gas Competition Act. On June 29, 2000, the PUC entered its order
("Gas Restructuring Order") approving Gas Utility's restructuring plan
substantially as filed. Gas Utility designed its restructuring plan to ensure
reliability of gas supply deliveries to Gas Utility on behalf of residential and
small commercial and industrial customers. In addition, the plan changed Gas
Utility's base rates for firm customers. It also changed the calculation of
purchased gas cost rates. See "Utility Regulation and Rates."
Since October 1, 2000, all of Gas Utility's customers have had the option
to purchase their gas supplies from an alternative gas supplier. Large
commercial and industrial customers of Gas Utility have been able to purchase
their gas from other suppliers since 1982. During fiscal year 2002, two
third-party suppliers qualified to serve residential or small commercial and
industrial customers in Gas Utility's service territory. Together, they are
serving approximately 2,400 customers. Management believes none of the Gas
Competition Act, the Gas Restructuring Order, or commodity sales to core-market
customers by third party suppliers will have a material adverse impact on the
Company's financial condition or results of operations.
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SERVICE AREA; REVENUE ANALYSIS
Gas Utility distributes natural gas to approximately 286,000 customers in
portions of 14 eastern and southeastern Pennsylvania counties through its
distribution system of approximately 4,700 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.
System throughput (the total volume of gas sold to or transported for
customers within Gas Utility's distribution system) for the 2002 fiscal year was
approximately 70.5 billion cubic feet ("bcf"). System sales of gas accounted for
approximately 41% of system throughput, while gas transported for residential,
commercial and industrial customers (who bought their gas from others) accounted
for approximately 59% of system throughput. Based on industry data for 2000,
residential customers account for approximately 31% of total system throughput
by LDCs in the United States. By contrast, for the 2002 fiscal year, Gas
Utility's residential customers represented 24% 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, and storage and
transportation service contracts. These arrangements enable Gas Utility to
purchase gas from Gulf Coast, Mid-Continent, Appalachian and Canadian sources.
For the transportation and storage function, Utilities has agreements with a
number of pipeline companies, including Texas Eastern Transmission Corporation,
Columbia Gas Transmission Corporation and Transcontinental Gas Pipeline
Corporation.
GAS SUPPLY CONTRACTS
During fiscal year 2002, Gas Utility purchased approximately 28 bcf of
natural gas for sale to customers. Approximately 90% of the volumes purchased
were supplied under agreements with six major suppliers. The remaining 10% of
gas purchased was supplied by over 30 producers and marketers. Gas supply
contracts are generally no longer than one year.
In fiscal year 2002, as a result of changing market conditions following
the bankruptcy of Enron Corp., a number of suppliers that Utilities formerly did
business with exited the wholesale trading market. This development did not
significantly impact Utilities' ability to secure gas supplies.
SEASONAL VARIATION
Because many of its customers use gas for heating purposes, Gas Utility's
sales are seasonal. Approximately 57% of fiscal year 2002 throughput and
approximately 68% of earnings before interest expense, income taxes,
depreciation and amortization occurred during the winter season from November
through March.
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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. Fuel oil dealers
compete for customers in all categories, including 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 gas distribution services. Under the Gas Competition Act, retail
customers may purchase their natural gas from a supplier other than Gas Utility.
Commercial and industrial customers in Gas Utility's service territory have been
able to do this since 1982. As of October 2002, two marketers have qualified to
serve residential and small commercial and industrial customers. Together they
serve approximately 2,400 customers. Gas Utility provides transportation
services for residential and small commercial and industrial customers who
purchase natural gas from others.
Many of Gas Utility's commercial and industrial customers 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 profitability from these customers,
therefore, is affected by the difference, or "spread," between the customers'
delivered cost of gas and the customers' delivered alternate fuel cost. See
"Utility Regulation and Rates - Gas Utility Rates." Commercial and industrial
customers representing 17% of total system throughput 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 this group are served under transportation
contracts having three- to twenty-year terms. Included in these two groups are
Utilities' ten largest customers in terms of annual volume. All of these
customers have contracts with Utilities, eight of which extend into fiscal year
2004. No single customer represents, or is anticipated to represent, more than
5% of the total revenues of Gas Utility.
OUTLOOK FOR GAS SERVICE AND SUPPLY
Gas Utility anticipates having adequate pipeline capacity and sources of
supply available to it to meet the full requirements of all firm customers on
its system through fiscal year 2003. 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.
During fiscal year 2002, Gas Utility supplied transportation service to
two major cogeneration installations and three electric generation facilities.
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
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firm and interruptible service. In the residential market sector, Gas Utility
connected approximately 9,200 residential heating customers during fiscal year
2002, which represented a record annual increase. Of those new customers, new
home construction accounted for over 7,100 heating customers. Customers
converting from other energy sources, primarily oil and electric, 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 number of new
commercial and industrial customers was over 1,100.
Utilities continues to monitor and participate extensively in rulemaking
and individual rate and tariff proceedings before the Federal Energy Regulatory
Commission ("FERC") affecting the rates and the terms and conditions under which
Gas Utility transports and stores natural gas. Among these proceedings are those
arising out of certain FERC orders and/or pipeline filings which relate to (i)
the pricing of pipeline services in a competitive energy marketplace; (ii) the
flexibility of the terms and conditions of pipeline service tariffs and
contracts; and (iii) pipelines' requests to increase their base rates, or change
the terms and conditions of their storage and transportation services.
Gas Utility's objective in negotiations with interstate pipeline and
natural gas suppliers, and in litigation before regulatory agencies, is to
assure availability of supply, transportation and storage alternatives to serve
market requirements at the lowest cost possible, taking into account the need
for security of supply. Consistent with that objective, Gas Utility negotiates
the terms of firm transportation capacity on all pipelines serving Gas Utility,
arranges for appropriate storage and peak-shaving resources, negotiates with
producers for competitively priced gas purchases and aggressively participates
in regulatory proceedings related to transportation rights and costs of service.
ELECTRIC OPERATIONS
ELECTRICITY GENERATION CUSTOMER CHOICE AND COMPETITION ACT
On January 1, 1997, Pennsylvania's Electricity Generation Customer Choice
and Competition Act ("ECC Act") became effective. The ECC Act permits all
Pennsylvania retail electric customers to choose their electric generation
supplier. Pursuant to the Act, all electric utilities were required to file
restructuring plans with the PUC which, among other things, included unbundled
prices for electric generation, transmission and distribution and a competitive
transition charge (CTC) for the recovery of "stranded costs" which would be paid
by all customers receiving distribution service. Stranded costs generally are
electric generation-related costs that traditionally would be recoverable in a
regulated environment but may not be recoverable in a competitive electric
generation market. Under the ECC Act, Electric Utility 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 collected a CTC from commercial and industrial
customers until September 2002 and expects to collect from all other
distribution customers until May 2003. Under the ECC Act,
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Electric Utility is obligated to provide energy at the capped rates to customers
who do not choose alternate suppliers. Electric Utility will continue to be the
only regulated electric utility having the right, granted by the PUC or by law,
to distribute electric energy in its service territory.
On June 19, 1998, the PUC entered its Opinion and Order (the
"Restructuring Order") in Electric Utility's restructuring proceeding under the
ECC Act. The Electric Restructuring Order authorized Electric Utility to recover
from its customers approximately $32.5 million in stranded costs (on a full
revenue requirements basis, which includes all income and gross receipts taxes)
over a four-year period which commenced January 1, 1999 through a CTC, together
with carrying charges on unrecovered balances of 7.94%.
The PUC approved a settlement establishing rules for Electric Utility
Provider of Last Resort ("POLR") service on March 28, 2002, and a separate
settlement that modified these rules on June 13, 2002 (collectively, the "POLR
Settlement") under which Electric Utility terminated stranded cost recovery
through its CTC from commercial and industrial ("C&I") customers on July 31,
2002, and from residential customers on October 31, 2002, and is no longer
subject to the statutory rate caps as of August 1, 2002 for C&I customers and as
of November 1, 2002 for residential customers. Charges for generation service
will (1) initially be set at a level equal to the rates paid by Electric Utility
customers for POLR service under the statutory rate caps; (2) may be raised at
certain designated times up to certain specified caps through December 2004; and
(3) may be set at market rates thereafter. Electric Utility may also offer
multiple year POLR contracts to its customers. The POLR Settlement provides for
annual shopping periods during which customers may elect to remain on POLR
service or choose an alternate supplier. Customers who do not select an
alternate supplier will be obligated to remain on POLR service until the next
shopping period. Residential customers who return to POLR service at a time
other than during the annual shopping period must remain on POLR service until
the date of the second open shopping period after returning. C&I customers who
return to POLR service at a time other than during the annual shopping period
must remain on POLR service until the next open shopping period, and may, in
certain circumstances, be subject to generation rate surcharges.
SERVICE AREA; SALES ANALYSIS
Electric Utility supplies electric service to approximately 61,500
customers in portions of Luzerne and Wyoming Counties in northeastern
Pennsylvania through a system consisting of approximately 2,100 miles of
transmission and distribution lines and 14 transmission substations. For fiscal
year 2002, about 52% of sales volume came from residential customers, 36% from
commercial customers and 12% from industrial customers. Electricity transported
for customers who purchased their power from others pursuant to the ECC Act
represented approximately 1% of fiscal year 2002 sales volume.
SOURCES OF SUPPLY
Effective October 1, 1999, Utilities transferred its electric generation
assets to its non-utility subsidiary, UGI Development Company ("UGID"). These
generation assets consisted
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principally of Utilities' Hunlock generating station ("Hunlock Station"),
located near Kingston, Pennsylvania and its 1.11% interest in the Conemaugh
generating station ("Conemaugh Station"), located near Johnstown, Pennsylvania.
Effective December 8, 2000, UGID entered into a partnership ("Energy Ventures")
with a subsidiary of Allegheny Energy, Inc. for the purpose of owning and
operating electric generation facilities. UGID contributed Hunlock Station, coal
inventory and $6 million to the partnership and Allegheny contributed a 44
megawatt gas combustion electric generator. UGID has the right to purchase half
the output of Energy Ventures' generation at cost. During fiscal year 2002,
Electric Utility purchased approximately 28% of its energy requirements from
UGID. Effective October 1, 2002, Electric Utility has generation supply
contracts in place for substantially all of its expected on-peak energy
requirements through fiscal year 2004. UGID plans to market the electric
generation it controls to third parties.
Electric Utility distributes both electricity that it purchases from
others (including UGID) and electricity that customers purchase from other
suppliers. At September 30, 2002, alternate suppliers served customers
representing less than 1% of system load. Electric Utility expects to continue
to provide energy to the great majority of its distribution customers for the
foreseeable future.
ENVIRONMENTAL FACTORS
Energy Ventures' operation of Hunlock Station complies with the air
quality standards of the Pennsylvania Department of Environmental Resources
("DER") with respect to stack emissions. Under the Federal Water Pollution
Control Act, UGID has a permit from the DER to discharge water from Hunlock
Station into the North Branch of the Susquehanna River. The Federal Clean Air
Act Amendments of 1990 (the "Clean Air Act Amendments") impose emissions
limitations for certain compounds, including sulfur dioxide and nitrous oxides.
Both the Conemaugh Station and the Hunlock Station are in material compliance
with these emission standards.
SEASONALITY
Sales and distribution of electricity for residential heating purposes
accounted for approximately 19% of the total sales of Electric Utility during
fiscal year 2002. Electricity competes with natural gas, oil, propane and other
heating fuels in this use. Approximately 51% of volume occurred during the six
coldest months of fiscal year 2002 (November through April), demonstrating
modest seasonality favoring winter due to the use of electricity for residential
heating purposes.
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UTILITY REGULATION AND RATES
PENNSYLVANIA PUBLIC UTILITY COMMISSION JURISDICTION
Utilities' gas and electric utility operations, which exclude electric
generation, are subject to regulation by the PUC as to rates, terms and
conditions of service, accounting matters, issuance of securities, contracts and
other arrangements with affiliated entities, and various other matters. As noted
earlier, effective October 1, 1999, Utilities contributed its electric
generation assets to UGID. UGID has FERC authority to sell power at market-based
rates. Generally, UGID is not subject to regulation by the PUC.
FERC ORDERS 888 AND 889
In April 1996, FERC issued Orders No. 888 and 889, which established rules
for the use of electric transmission facilities for wholesale transactions. FERC
has also asserted jurisdiction over the transmission component of electric
retail choice transactions. In compliance with these orders, the PJM
Interconnection, LLC ("PJM"), of which Utilities is a member, has filed an open
access transmission tariff with the FERC establishing transmission rates and
procedures for transmission within the PJM control area. Under the PJM tariff
and associated agreements, Electric Utility is entitled to receive certain
revenues when its transmission facilities are used by third parties.
GAS UTILITY RATES
The Gas Restructuring Order included an increase in firm, core-market base
rates, effective October 1, 2000. The increase, calculated in accordance with
the Gas Competition Act, was designed to generate approximately $16.7 million in
additional annual revenues. The Order also provided that Gas Utility reduce its
purchased gas cost rates by an annualized amount of $16.7 million for the first
14 months following the base rate increase.
Effective December 1, 2001, Gas Utility was required to reduce its
purchased gas cost rates to core market customers by an amount equal to the
margin it receives from customers served under interruptible rates to the extent
they use capacity contracted for by Gas Utility for core-market customers. As a
result of these changes in its regulated rates, since December 1, 2001, Gas
Utility's operating results have been more sensitive to heating season weather
and less sensitive to the market prices of alternative fuel than in the past.
BASE RATES
As stated above, Gas Utility's current base rates went into effect October
1, 2000 pursuant to The Gas Restructuring Order. See Note 4 to the Company's
Consolidated Financial Statements.
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PURCHASED GAS COST RATES
Gas Utility's gas service tariff contains Purchased Gas Cost ("PGC") rates
which provide for annual increases or decreases in the rate per thousand cubic
feet ("mcf") which Gas Utility charges for natural gas sold by it, to reflect
Utilities' projected cost of purchased gas. PGC rates may also be adjusted
quarterly, or monthly, to reflect purchased gas costs. Each proposed annual PGC
rate is required to be filed with the PUC six months prior to its effective
date. During this period the PUC holds hearings to determine whether the
proposed rate reflects a least-cost fuel procurement policy consistent with the
obligation to provide safe, adequate and reliable service. After completion of
these hearings, the PUC issues an order permitting the collection of gas costs
at levels which meet that standard. The PGC mechanism also provides for an
annual reconciliation. Utilities has two PGC rates. PGC (1) is applicable to
small, firm, core-market customers consisting of the residential and small
commercial and industrial classes; PGC (2) is applicable to firm, contractual,
high-load factor customers served on three separate rates. In addition,
residential customers maintaining a high load factor may qualify for the PGC (2)
rate. As described above, the Gas Restructuring Order provided for ongoing
adjustments to Gas Utilities' PGC rates, commencing December 1, 2001, to reflect
margins, if any, from interruptible rate customers who do not obtain their own
pipeline capacity.
ELECTRIC UTILITY RATES
Electric Utility's rates for electric generation are frozen through
approximately July 2003 for commercial and industrial customers and
approximately May 2004 for residential customers. After these dates and through
December 2004, Electric Utility can increase generation rates by up to 5% of the
total rate for distribution, transmission and generation. See "Electricity
Generation Customer Choice and Competition Act." The ECC Act obligates Electric
Utility to act as "provider of last resort" to customers who do not choose
alternate generation suppliers.
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.
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.
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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
Operations - Environmental Factors."
EMPLOYEES
At September 30, 2002, Utilities and its subsidiaries had approximately
1,100 employees.
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UGI ENTERPRISES, INC.
UGI Enterprises, Inc. is a wholly owned subsidiary of UGI that was formed
in 1994. Through its subsidiaries, Enterprises develops energy-related
businesses for us in the United States and abroad as described below.
DOMESTIC BUSINESSES
NATURAL GAS AND ELECTRICITY MARKETING
UGI Energy Services, Inc. ("Energy Services"), conducts a non-utility
energy marketing business under the trade names GASMARK(R) and POWERMARK(R)
("GASMARK"). GASMARK(R) sells natural gas directly to approximately 3,600
commercial and industrial customers in Pennsylvania, New Jersey, Delaware,
Maryland, Virginia, Ohio and the District of Columbia through the transportation
systems of 20 utility systems. Energy Services also sells fuel oil and has the
ability to sell electricity to commercial and industrial customers in
Pennsylvania. During fiscal year 2001, GASMARK(R) significantly increased its
size by acquiring the gas marketing operations of PG Energy, a unit of Southern
Union Corp., and Conectiv Energy. These acquisitions added approximately 900
customers to GASMARK(R)'s customer base and increased its natural gas sales
volume over 50%.
The gas marketing business is a high revenue, low margin business. A
majority of GASMARK's commodity sales are made under fixed price agreements. We
manage supply cost volatility related to these agreements by entering into
exchange-traded natural gas futures contracts and fixed-price supply
arrangements. Exchange-traded natural gas futures contracts are guaranteed by
the New York Mercantile Exchange ("NYMEX") and have nominal credit risk. GASMARK
also bears the risk for balancing and delivering natural gas to its customers
under various pipelines and LDC tariffs. Failure to meet these guidelines can
result in additional expense in the form of penalties, which can be substantial
in relation to GASMARK's results of operations.
Credit is another risk factor in the commodity marketing business. GASMARK
bears the risks of customer defaults and supplier non-performance on commodity
and pipeline capacity contracts. GASMARK seeks to mitigate risk of supplier
defaults by diversifying its supply and pipeline transportation purchases across
a number of suppliers. GASMARK also requires credit support from customers in
higher-risk transactions. This credit support can take the form of prepayments,
bonds and letters of credit. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations-Market Risk Disclosures."
In fiscal year 2002, Energy Services acquired a liquefied natural gas
liquefaction, storage and vaporization facility in Temple, Pennsylvania and
propane storage and propane-air mixing stations in Bethlehem, Reading and
Steelton, Pennsylvania. These plants were formerly owned by Utilities. Utilities
has a call on a majority of the winter capacity of these facilities through
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March 2004 at a PUC-approved formula price. Energy Services is able to make
opportunistic off-peak sales of LNG from these facilities at market prices.
HVAC SERVICE
UGI HVAC Enterprises, Inc. ("HVAC") was acquired by Enterprises in
September 2000. Together with its subsidiary, McHugh Service Company, HVAC
conducts a heating, ventilation and air-conditioning service business serving
portions of Utilities' gas service area and adjacent market areas, including the
City of Philadelphia and portions of northern Delaware. It serves more than
70,000 customers in residential, commercial and new construction markets. During
fiscal year 2002, HVAC generated approximately $36 million in revenues and
employed over 300 people.
RETAIL HEARTH PRODUCTS
Enterprises opened its first Hearth USA(TM) retail store in September
1999. The store was the nation's first large-scale retailer of hearth, grill and
spa products together with installation services. In September 2001, after
evaluating prospects for Hearth USA(TM) in light of the weak retail environment
and the amount of capital required to expand beyond the pilot phrase, we
committed to close the two Hearth USA(TM) stores and cease all operations by the
end of October 2001. See Note 16 to the Company's Consolidated Financial
Statements.
INTERNATIONAL BUSINESSES
FLAGA GMBH
In September 1999, subsidiaries of Enterprises acquired all of the stock
of Flaga GmbH, a privately-held company founded in 1947. FLAGA distributes
propane, butane and propane/butane mix ("LPG") in Austria, the Czech Republic
and Slovakia for residential, commercial, industrial and autogas applications.
During fiscal year 2002, FLAGA distributed approximately 36 million gallons of
LPG. FLAGA operates from 6 distribution locations in Austria, 1 in the Czech
Republic and 2 in Slovakia. In addition, FLAGA has 7 sales offices in the Czech
Republic. As of September 30, 2002, FLAGA had a total of 350 employees of which
165 were located in Austria, 152 in the Czech Republic and 33 in Slovakia.
FLAGA has the largest propane distribution market position in Austria with
an estimated 35% market share, serving residential, commercial and industrial
customers. The retail propane industry in Austria is mature, with only modest
growth in propane demand foreseen. Historically, residential customers generally
commit to prepaid long-term tank rental agreements. Competition for new customer
installations is based on the terms and conditions of tank leases as well as on
product prices. Much of FLAGA's Austrian cylinder business is conducted through
approximately 600 neighborhood resellers with whom FLAGA has long business
relationships. FLAGA competes with other propane marketers and with other
sources of energy, principally natural gas and wood.
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The Czech market for LPG, which currently represents about 32% of FLAGA's
total volume, is growing approximately 4% to 6% per year. FLAGA entered the
Czech market in 1994 when it purchased a portion of the formerly state-run LPG
company from the Czech government as part of its privatization plan. FLAGA's
main facility in the Czech Republic is its bulk storage and cylinder filling and
repair plant in Hustopece, located in the southeast quadrant of the Czech
Republic. FLAGA estimates its market share in the Czech Republic at
approximately 15%, ranking it third in the country.
The Slovak market for LPG has been growing significantly in the area of
autogas sales volume in the last two years. FLAGA estimates that its share of
the LPG market in Slovakia ranks it third in the country.
CHINAGAS PARTNERS
During 1998, Enterprises formed ChinaGas Partners, L.P. ("ChinaGas") with
affiliates of Energy Transportation Group, Inc. 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 operated an integrated LPG business, including an import
terminal and distribution business, serving the provinces along the lower and
middle reaches of the Yangtze River. By acquiring local distributors and
integrating them with existing operations we are adding retail sales to the Port
Company's operations. 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%. On August 1, 2002,
shareholders of the Port Company agreed to split the company into two separate
companies, subject to government approval: a terminal company owned completely
by China National Chemical Supply & Sales Corporation and a retail distribution
company owned by ChinaGas. Upon receipt of government approval, Enterprises'
ownership interest in the distribution business will be 50%.
ANTARGAZ
In March 2001, UGI France, Inc., together with Paribas Affaires
Industrielles ("PAI") and Medit Mediterranea GPL, S.r.l. ("Medit"), acquired the
stock and certain related assets of Antargaz, one of the largest distributors of
LPG in France. We acquired an approximate 20% interest, PAI an approximate 68%
interest, Medit an approximate 10% interest and certain members of Antargaz
management, the remaining interest. PAI is a leading private equity fund manager
in Europe with strong management and financial skills and Medit is a supplier of
logistics services to the LPG industry in Europe, primarily Italy. During fiscal
year 2002, Antargaz sold approximately 358 million gallons of LPG. Due, in part,
to our membership on the Board of Directors of Antargaz, we believe we have
significant influence over the company's operating and financial policies.
Antargaz has an approximate 25% market share in France. The French LPG
market is characterized by modest growth, about 1% per year, and stable market
conditions. Antargaz
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serves nearly one million customers using a logistical system that includes ten
major import/storage facilities, 30 bulk storage depots and 16 cylinder filling
plants. Antargaz's customer base consists of residential, commercial,
agricultural and motor fuel accounts which use LPG for space heating, cooking,
water heating, process heat and transportation.
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
2002, 2001 and 2000 fiscal years appears in Note 21 to the Consolidated
Financial Statements contained in our 2002 Annual Report to Shareholders and is
incorporated in this Report by reference.
EMPLOYEES
At September 30, 2002, UGI and its subsidiaries had approximately 8,200
employees.
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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
In the late 1800s through the mid-1900s, UGI Utilities and its former
subsidiaries owned and operated a number of manufactured gas plants ("MGPs")
prior to the general availability of natural gas. Some constituents of coal tars
and other residues of the manufactured gas process are today considered
hazardous substances under the Superfund Law and may be present on the sites of
former MGPs. Between 1882 and 1953, UGI Utilities owned the stock of subsidiary
gas companies in Pennsylvania and elsewhere and also operated the business of
some gas companies under agreement. Pursuant to the requirements of the Public
Utility Holding Company Act of 1935, by 1953, UGI Utilities had divested all of
its utility operations other than those which now constitute Gas Utility and
Electric Utility.
UGI Utilities does not expect its costs for investigation and remediation
of hazardous substances at Pennsylvania MGP sites to be material to its results
of operations because UGI Utilities is currently permitted to include in rates,
through future base rate proceedings, prudently incurred remediation costs
associated with such sites. UGI Utilities has been notified of several sites
outside Pennsylvania on which (1) MGPs were formerly operated by it or owned or
operated by its former subsidiaries and (2) either environmental agencies or
private parties are investigating the extent of environmental contamination or
performing environmental remediation. UGI Utilities is currently litigating two
claims against it relating to out-of-state sites.
Fishbein Family Partnership v. PPG Industries, Inc., et al. In July 1993,
Public Service Electric and Gas Company ("PSE&G") joined Utilities as a
third-party defendant in a civil action 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 case principally involved claims by the Fishbein
Family Partnership against PPG Industries, Inc. for damages associated with
chemical contamination unrelated to gas plant operations. In November 2001, the
parties agreed voluntarily to dismiss all claims by and against PSE&G without
prejudice. All claims against Utilities have been dismissed, although they could
be re-instituted in the future.
Consolidated Edison Company of New York v. UGI Utilities, Inc. On
September 20, 2001, Consolidated Edison Company of New York ("ConEd") filed suit
against UGI Utilities, Inc. in the United States District Court for the Southern
District of New York, seeking contribution from Utilities for an allocated share
of response costs associated with investigating and assessing gas plant related
contamination at former manufactured gas plant sites in eleven
-24-
communities in Westchester County, New York. The complaint alleges that
Utilities "owned and operated" the plants prior to 1904. The complaint also
seeks a declaration that Utilities is responsible for an allocated percentage of
future investigative and remedial costs at the sites. ConEd has stated that the
cost of remediation at two of the sites, Tarrytown and White Plains, could
exceed $20 million and $10 million respectively. ConEd has not provided specific
estimates of costs at the remainder of the sites and Utilities has no other
information on which to base estimates. Utilities continues to investigate its
involvement at these sites and is defending the claim.
EnergyNorth Natural Gas, Inc. v. UGI Utilities, Inc. By letter dated
October 26, 2000, EnergyNorth Natural Gas, Inc. ("EnergyNorth") notified
Utilities that it had filed suit in the United States District Court for the
District of New Hampshire, seeking contribution from Utilities for response and
remediation costs associated with contamination on the site of a former MGP
allegedly operated by former subsidiaries of Utilities. EnergyNorth has not
stated the amount of the costs and has provided no information on which
Utilities could make an estimate. Utilities is actively defending the suit.
Management believes that under applicable law UGI Utilities should not be
liable in those instances in which a former subsidiary operated a MGP. There
could be, however, significant future costs of an uncertain amount associated
with environmental damage caused by MGPs outside Pennsylvania that UGI Utilities
directly operated, or that were owned or operated by former subsidiaries of UGI
Utilities, if a court were to conclude that the subsidiary's separate corporate
form should be disregarded.
RELATED MATTER
UGI Utilities, Inc. v. Insurance Co. of North America, et. al. On February
11, 1999, UGI Utilities, Inc. filed suit in the Court of Common Pleas of
Montgomery County, Pennsylvania against more than fifty insurance companies,
including Associated Electric and Gas Insurance Services, Ltd. (AEGIS). The
complaint alleges that the defendants breached contracts of insurance by failing
to indemnify Utilities for certain environmental costs. To date, Utilities has
recovered a significant portion of its claims through settlements with most of
the defendants, including AEGIS. The court has not yet set a date for trial of
the claims against the remaining defendants.
-25-
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the last
fiscal quarter of fiscal year 2002.
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:
2002 FISCAL YEAR HIGH LOW
4th Quarter $36.760 $25.670
3rd Quarter 33.210 29.400
2nd Quarter 31.490 27.090
1st Quarter 31.530 26.690
2001 FISCAL YEAR HIGH LOW
4th Quarter $29.480 $25.120
3rd Quarter 27.900 24.200
2nd Quarter 25.375 22.500
1st Quarter 26.312 21.375
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DIVIDENDS
Quarterly dividends on our Common Stock were paid in the 2002 and 2001
fiscal years as follows:
2002 FISCAL YEAR AMOUNT
4th Quarter $0.4125
3rd Quarter 0.4000
2nd Quarter 0.4000
1st Quarter 0.4000
2001 FISCAL YEAR AMOUNT
4th Quarter $0.4000
3rd Quarter 0.3875
2nd Quarter 0.3875
1st Quarter 0.3875
HOLDERS
On December 13, 2002, UGI had 10,054 holders of record of Common Stock.
-27-
ITEM 6. SELECTED FINANCIAL DATA (a)
Year Ended
September 30,
--------------------------------------------------------------
2002 2001 2000 1999 1998
---------- --------- ---------- ---------- ----------
(Millions of dollars, except per share amounts)
FOR THE PERIOD:
INCOME STATEMENT DATA:
Revenues $ 2,213.7 $ 2,468.1 $ 1,761.7 $ 1,383.6 $ 1,439.7
========== ========== ========== ========== ==========
Income before accounting changes $ 75.5 $ 52.0 $ 44.7 $ 55.7 $ 40.3
Cumulative effect of accounting changes (b) - 4.5 - - -
---------- --------- ---------- ---------- ----------
Net income (c) $ 75.5 $ 56.5 $ 44.7 $ 55.7 $ 40.3
========== ========== ========== ========== ==========
Earnings per common share - basic
Income before accounting changes $ 2.74 $ 1.91 $ 1.64 $ 1.74 $ 1.22
Cumulative effect of accouting changes, net - 0.17 - - -
---------- --------- ---------- ---------- ----------
Net income - basic $ 2.74 $ 2.08 $ 1.64 $ 1.74 $ 1.22
========== ========== ========== ========== ==========
Earnings per common share - diluted
Income before accounting changes $ 2.70 $ 1.90 $ 1.64 $ 1.74 $ 1.22
Cumulative effect of accouting changes, net - 0.16 - - -
---------- --------- ---------- ---------- ----------
Net income - diluted (c) (d) $ 2.70 $ 2.06 $ 1.64 $ 1.74 $ 1.22
========== ========== ========== ========== ==========
Cash dividends declared per common share $ 1.625 $ 1.575 $ 1.525 $ 1.47 $ 1.45
========== ========== ========== ========== ==========
AT PERIOD END:
BALANCE SHEET DATA:
Total assets $ 2,614.4 $ 2,550.2 $ 2,275.8 $ 2,140.5 $ 2,074.6
========== ========== ========== ========== ==========
Capitalization:
Debt:
Bank loans - AmeriGas Propane $ 10.0 $ - $ 30.0 $ 22.0 $ 10.0
Bank loans - UGI Utilities 37.2 57.8 100.4 87.4 68.4
Bank loans - other 8.6 10.0 4.3 11.6 -
Long-term debt (including current maturities):
AmeriGas Propane 945.8 1,005.9 857.2 744.7 709.0
UGI Utilities 248.4 208.4 172.9 180.0 187.2
Other 81.5 80.9 85.5 91.6 8.2
---------- ---------- ---------- ---------- ----------
Total debt 1,331.5 1,363.0 1,250.3 1,137.3 982.8
---------- ---------- ---------- ---------- ----------
Minority interests in AmeriGas Partners 276.0 246.2 177.1 209.9 236.5
UGI Utilities preferred stock subject
to mandatory redemption 20.0 20.0 20.0 20.0 20.0
Common stockholders' equity 317.3 255.6 247.2 249.2 367.1
---------- ---------- ---------- ---------- ----------
Total capitalization $ 1,944.8 $ 1,884.8 $ 1,694.6 $ 1,616.4 $ 1,606.4
========== ========== ========== ========== ==========
RATIO OF CAPITALIZATION:
Total debt 68.5% 72.3% 73.8% 70.4% 61.2%
Minority interest 14.2% 13.1% 10.5% 13.0% 14.7%
UGI Utilities preferred stock 1.0% 1.1% 1.2% 1.2% 1.2%
Common stockholders' equity 16.3% 13.5% 14.5% 15.4% 22.9%
---------- ---------- ---------- ---------- ----------
100.0% 100.0% 100.0% 100.0% 100.0%
========== ========== ========== ========== ==========
(a) Arthur Andersen LLP audited our consolidated financial statements for 2001,
2000, 1999 and 1998. See Item 15 - Notice Regarding Arthur Andersen LLP.
(b) Includes cumulative effect of accounting changes associated with (1) the
Partnership's changes in accounting for tank fee revenue and tank
installation costs and (2) the Company's adoption of Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and
Hedging Activities" (see Notes 1 and 3 to Consolidated Financial
Statements).
(c) Pro forma net income and diluted earnings per share after applying
retroactively the Partnership's changes in accounting for tank
installation costs and tank fee revenue are as follows: 2000-$44.6 and
$1.64; 1999-$55.9 and $1.75; 1998-$39.7 and $1.20, respectively.
(d) SFAS No. 142, "Goodwill and Other Intangible Assets," was adopted effective
October 1, 2001. Net income and net income per diluted share adjusted to
reflect the impact of SFAS No. 142 as if it had been adopted at the
beginning of the periods presented are as follows: 2001-$70.5 and
$2.58; 2000-$59.4 and $2.18; 1999-$68.9 and $2.15; 1998-$53.9 and $1.63,
respectively.
-28-
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 25 of
UGI's 2002 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 22 and 23 of the
UGI 2002 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
During fiscal year 2002, UGI engaged a new independent auditor,
PricewaterhouseCoopers LLP. The information required by Item 9 is incorporated
in this Report by reference to UGI's Current Report on Form 8-K dated May 21,
2002.
-29-
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,
2003:
-30-
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 Compensation of Directors
Item 12. Security Ownership of Securities Ownership of
Certain Beneficial Certain Beneficial Owners
Owners and Management Securities Ownership of Management
and Related Stockholder Matters
EQUITY COMPENSATION PLANS
The following table sets forth information as of the end of the Company's
2002 fiscal year with respect to compensation plans under which equity
securities of the Company are authorized for issuance.
NUMBER OF SECURITIES
REMAINING AVAILABLE
NUMBER OF SECURITIES TO BE WEIGHTED AVERAGE FOR FUTURE ISSUANCE
ISSUED UPON EXERCISE EXERCISE PRICE OF UNDER EQUITY COMPENSATION
OF OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, PLANS (EXCLUDING SECURITIES
WARRANTS AND RIGHTS WARRANTS AND RIGHTS REFLECTED IN COLUMN (A))
PLAN CATEGORY (A) (B) (C)
------------- -------------------------- -------------------- ---------------------------
Equity compensation plans 1,662,290 (1) $ 23.57 491,836
approved by security 512,650 (2) $ 0 34,810 (3)
holders
Equity compensation plans
not approved by security 224,220 (4) $ 24.96 463,000
holders 2,800 (5) $ 0 0
--------- --------- -------
Total 2,401,960 $ 23.74 989,646
========= ========= =======
(1) These plans include the 1992 and 1997 Stock Option and Dividend
Equivalent Plans; the 1992 Directors' Stock Plan; the 2000
Directors' Stock Option Plan; and the 2000 Stock Incentive Plan.
(2) Includes units under the 1997 Directors' Equity Plan and phantom
shares of performance-contingent restricted stock under the 2000
Stock Incentive Plan.
(3) Units under the 1997 Directors' Equity Plan.
(4) Includes the 1992 and 2002 Non-Qualified Stock Option Plans.
(5) Individual one-time bonus awards of phantom restricted stock.
-31-
Item 13. Certain Relationships Compensation of Executive Officers -
and Related Transactions. Stock Ownership Policy and
Indebtedness of Management 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 52 Chairman, Director, President
and Chief Executive Officer
Eugene V.N. Bissell 49 President and Chief Executive
Officer, AmeriGas Propane, Inc.
Robert J. Chaney 60 President and Chief Executive
Officer, UGI Utilities, Inc.
Brendan P. Bovaird 54 Vice President and General Counsel
Bradley C. Hall 49 Vice President - New Business Development
Anthony J. Mendicino 54 Senior Vice President - Finance
and Chief Financial Officer
All officers are elected for a one-year term at the organizational
meetings of the respective Boards of Directors held each year.
There are no family relationships between any of the officers or between
any of the officers and any of the directors.
Lon R. Greenberg
Mr. Greenberg was elected Chairman of UGI effective August 1, 1996, having
been elected Chief Executive Officer effective August 1, 1995. He was elected
Director and President of UGI and a Director of UGI Utilities in July 1994. He
was elected a Director of AmeriGas Propane, Inc. in 1994 and has been Chairman
since 1996. He also served as President and Chief Executive Officer of AmeriGas
Propane (1996 to 2000). Mr. Greenberg was Senior Vice President - Legal and
Corporate Development (1989 to 1994), and also served as Vice President - Legal
and Corporate Development (1987 to 1989). Previously, he was Vice President -
Legal
-32-
(1984 to 1987), General Counsel (1983 to 1994) and Secretary (1982 to 1988). He
joined the Company in 1980 as Corporate Development Counsel.
Eugene V.N. Bissell
Mr. Bissell is President and Chief Executive Officer of AmeriGas Propane,
Inc. (since July 2000), having served as Senior Vice President - Sales and
Marketing (1999 to 2000) and Vice President - Sales and Operations (1995 to
1999). Previously, he was Vice President - Distributors and Fabrication, BOC
Gases (industrial gases) (1995), having been Vice President - National Sales
(1993 to 1995) and Regional Vice President Southern Region for Distributor and
Cylinder Gases Division, BOC Gases (1989 to 1993). From 1981 to 1987, Mr.
Bissell held various positions with the Company and its subsidiaries, including
Director, Corporate Development. Mr. Bissell is currently Chairman and a member
of the Board of Directors of the National Propane Gas Association, the national
trade association of the propane industry.
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) of UGI Utilities, Inc..
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 UGI Utilities, Inc.
Anthony J. Mendicino
Mr. Mendicino was promoted to Senior Vice President - Finance and Chief
Financial Officer effective December 2002. He previously served as Vice
President - Finance and Chief Financial Officer (September 1998 to December
2002). Mr. Mendicino 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
-33-
service company. From 1981 to 1987 Mr. Mendicino held various positions with
UGI, including Treasurer from 1984 to 1987.
ITEM 14. CONTROLS AND PROCEDURES
An evaluation of the effectiveness of the design and operation of the
Company's disclosure controls and procedures as of December 20, 2002 was carried
out by the Company under the supervision and with the participation of the
Company's management, including the Chief Executive Officer and Chief Financial
Officer. Based on that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that the Company's disclosure controls and
procedures have been designed and are being operated in a manner that provides
reasonable assurance that the information required to be disclosed by the
Company in reports filed under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms. A controls system, no matter how well designed and
operated, cannot provide absolute assurance that the objectives of the controls
system are met, and no evaluation of controls can provide absolute assurance
that all control issues and instances of fraud, if any, within a company have
been detected. Subsequent to the date of the most recent evaluation of the
Company's internal controls, there were no significant changes in the Company's
internal controls or in other factors that could significantly affect the
internal controls, including any corrective actions with regard to significant
deficiencies and material weaknesses.
PART IV: ADDITIONAL EXHIBITS, SCHEDULES AND REPORTS
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) DOCUMENTS FILED AS PART OF THIS REPORT:
(1) and (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.
NOTICE REGARDING ARTHUR ANDERSEN LLP
Arthur Andersen LLP audited our consolidated financial statements
for the three years in the period ended September 30, 2001 and
issued a report thereon dated November 16, 2001. Arthur Andersen LLP
has not reissued
-34-
their report or consented to the incorporation by reference of such
report into the Company's prospectuses for the offer and sale of
common stock. On June 15, 2002, Arthur Andersen LLP was convicted of
obstruction of justice by a federal jury in Houston, Texas in
connection with Arthur Andersen LLP's work for Enron Corp. On
September 15, 2002, a federal judge upheld this conviction. Arthur
Andersen LLP ceased its audit practice before the SEC on August 31,
2002. Effective May 21, 2002, we terminated the engagement of Arthur
Andersen LLP as our independent accountants and engaged
PricewaterhouseCoopers LLP to serve as our independent accountants
for the fiscal year ending September 30, 2002. Because of the
circumstances currently affecting Arthur Andersen LLP, as a
practical matter it may not be able to satisfy any claims arising
from the provision of auditing services to us, including claims
available to security holders under federal and state securities
laws.
(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):
INCORPORATION BY REFERENCE
--------------------------
EXHIBIT NO. EXHIBIT REGISTRANT FILING EXHIBIT
----------- ------- ---------- ------ -------
3.1 (Second) Amended and Restated Articles of UGI Amendment No. 1 on 3.(3)(a)
Incorporation of the Company Form 8 to Form 8-B
(4/10/92)
*3.2 Bylaws of UGI as in effect since September 24,
2002
4 Instruments defining the rights of security
holders, including indentures. (The Company
agrees to furnish to the Commission upon
request a copy of any instrument defining the
rights of holders of long-term debt not
required to be filed pursuant to Item
601(b)(4) of Regulation S-K)
4.1 Rights Agreement, as amended as of August 18, UGI Registration 4.3
2000, between the Company and Mellon Bank, Statement No.
N.A., successor to Mellon Bank (East) N.A., as
Rights Agent, and Assumption Agreement dated 333-49080
April 7, 1992
-35-
INCORPORATION BY REFERENCE
--------------------------
EXHIBIT NO. EXHIBIT REGISTRANT FILING EXHIBIT
----------- ------- ---------- ------ -------
4.2 The description of the Company's Common Stock UGI Form 8-B/A (4/17/96) 3.(4)
contained in the Company's registration
statement filed under the Securities Exchange
Act of 1934, as amended
4.3 UGI's (Second) Amended and Restated Articles
of Incorporation and Bylaws referred to in 3.1
and 3.2 above
4.4 Note Agreement dated as of April 12, 1995 AmeriGas Form 10-Q (3/31/95) 10.8
among The Prudential Insurance Company of Partners, L.P.
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, 1997 AmeriGas Form 10-K (9/30/97) 4.5
to Note Agreement dated as of April 12, 1995 Partners, L.P.
("1995 Note Agreement")
4.6 Second Amendment dated as of September 15, AmeriGas Form 10-K (9/30/98) 4.6
1998 to 1995 Note Agreement Partners, L.P.
4.7 Third Amendment dated as of March 23, 1999 to AmeriGas Form 10-Q (3/31/99) 10.2
1995 Note Agreement Partners, L.P.
4.8 Fourth Amendment dated as of March 16, 2000 to AmeriGas Form 10-Q (6/30/00) 10.2
1995 Note Agreement Partners, L.P.
4.9 Fifth Amendment dated as of August 1, 2001 to AmeriGas Form 10-K (9/30/01) 4.8
1995 Note Agreement Partners, L.P.
4.9(a) Second Amended and Restated Agreement of AmeriGas Form 8-K (9/30/00) 1
Limited Partnership of AmeriGas Partners, L.P. Partners, L.P.
4.10 Amended and Restated Agreement of Limited AmeriGas Form 10-K (9/30/01) 3.8
Partnership of AmeriGas Eagle Propane, L.P. Partners, L.P.
dated July 19, 1999
10.1 Service Agreement (Rate FSS) dated as of UGI Form 10-K (9/30/95) 10.5
November 1, 1989 between Utilities and
Columbia, as modified pursuant to the orders
of the Federal Energy Regulatory Commission at
Docket No. RS92-5-000 reported at Columbia Gas
Transmission Corp., 64 FERC Paragraph 61,060 (1993),
order on rehearing, 64 FERC Paragraph 61,365 (1993)
-36-
INCORPORATION BY REFERENCE
--------------------------
EXHIBIT NO. EXHIBIT REGISTRANT FILING EXHIBIT
----------- ------- ---------- ------ -------
10.2 Service Agreement (Rate FTS) dated June 1, Utilities Form 10-K (12/31/90) (10)o.
1987 between Utilities and Columbia, as
modified by Supplement No. 1 dated October 1,
1988; Supplement No. 2 dated November 1, 1989;
Supplement No. 3 dated November 1, 1990;
Supplement No. 4 dated November 1, 1990; and
Supplement No. 5 dated January 1, 1991, as
further modified pursuant to the orders of the
Federal Energy Regulatory Commission at Docket
No. RS92-5-000 reported at Columbia Gas
Transmission Corp., 64 FERC Paragraph 61,060 (1993),
order on rehearing, 64 FERC Paragraph 61,365 (1993)
10.3 Transportation Service Agreement (Rate FTS-1) Utilities Form 10-K (12/31/90) (10)p.
dated November 1, 1989 between Utilities and
Columbia Gulf Transmission Company, as
modified pursuant to the orders of the Federal
Energy Regulatory Commission in Docket No.
RP93-6-000 reported at Columbia Gulf
Transmission Co., 64 FERC Paragraph 61,060 (1993),
order on rehearing, 64 FERC Paragraph 61,365 (1993)
10.4 Amended and Restated Sublease Agreement dated UGI Form 10-K (9/30/94) 10.35
April 1, 1988 between Southwest Salt Co. and
AP Propane, Inc. (the "Southwest Salt Co.
Agreement")
10.5 Letter dated July 8, 1998 pursuant to Article UGI Form 10-K (9/30/99) 10.5
1, Section 1.2 of the Southwest Salt Co.
Agreement re: option to renew for period of
June 1, 2000 to May 31, 2005 and related
extension notice
10.6** UGI Corporation Directors Deferred UGI Form 10-K (9/30/00) 10.6
Compensation Plan Amended and Restated as of
January 1, 2000
10.7** UGI Corporation 1992 Stock Option and Dividend UGI Form 10-Q (6/30/92) (10)ee
Equivalent Plan, as amended May 19, 1992
10.8** UGI Corporation Annual Bonus Plan dated March UGI Form 10-Q (6/30/96) 10.4
8, 1996
10.9** UGI Corporation Directors' Equity Compensation UGI Form 10-K (9/30/00) 10.9
Plan Amended and Restated as of January 1, 2000
10.10** UGI Corporation 1997 Stock Option and Dividend UGI Form 10-Q (3/31/97) 10.2
Equivalent Plan
-37-
INCORPORATION BY REFERENCE
--------------------------
EXHIBIT NO. EXHIBIT REGISTRANT FILING EXHIBIT
----------- ------- ---------- ------ -------
10.11** UGI Corporation 1992 Directors' Stock Plan UGI Form 10-Q (6/30/92) (10)ff
10.12** UGI Corporation Senior Executive Employee UGI Form 10-K (9/30/97) 10.12
Severance Pay Plan effective January 1, 1997
10.13** UGI Corporation 2000 Directors' Stock Option UGI Form 10-K (9/30/99) 10.13
Plan
10.14** UGI Corporation 2000 Stock Incentive Plan UGI Form 10-Q (6/30/00) 10.1
10.15** 1997 Stock Purchase Loan Plan UGI Form 10-K (9/30/97) 10.16
10.16** UGI Corporation Supplemental Executive UGI Form 10-Q (6/30/98) 10
Retirement Plan Amended and Restated effective
October 1, 1996
10.17** [Intentionally omitted]
10.18 Second Amended and Restated Credit Agreement AmeriGas Form 10-K 10.1
dated as of August 21, 2002 among AmeriGas Partners, L.P. (9/30/02)
Propane, L.P., AmeriGas Propane, Inc.,
Petrolane Incorporated, Bank of America, N.A.,
as Agent, Issuing Bank and Swing Line Bank,
and certain banks.
10.19 Power Sales Agreement between UGI Utilities, Utilities Form 10-K 10.23
Inc. and UGI Development Company dated as of (9/30/01)
November 30, 2001
10.20 [Intentionally omitted]
10.21 [Intentionally omitted]
10.22 [Intentionally omitted]
10.23 Intercreditor and Agency Agreement dated as of AmeriGas Form 10-Q (3/31/95) 10.2
April 19, 1995 among AmeriGas Propane, Inc., Partners, L.P.
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.
10.23(a) First Amendment dated as of July 31, 2001 to AmeriGas Form 10-K (9/30/01) 10.8
Intercreditor and Agency Agreement dated as of Partners, L.P.
April 19, 1995
10.24 General Security Agreement dated as of April AmeriGas Form 10-Q (3/31/95) 10.3
19, 1995 among AmeriGas Propane, L.P., Bank of Partners, L.P.
America National Trust and Savings Association
and Mellon Bank, N.A.
-38-
INCORPORATION BY REFERENCE
--------------------------
EXHIBIT NO. EXHIBIT REGISTRANT FILING EXHIBIT
----------- ------- ---------- ------ -------
10.24(a) First Amendment dated as of July 31, 2001 to AmeriGas Form 10-K (9/30/01) 10.10
General Security Agreement dated as of April Partners, L.P.
19, 1995
10.25 Subsidiary Security Agreement dated as of AmeriGas Form 10-Q (3/31/95) 10.4
April 19, 1995 among AmeriGas Propane, L.P., Partners, L.P.
Bank of America National Trust and Savings
Association as Collateral Agent and Mellon
Bank, N.A. as Cash Collateral Agent
10.25(a) First Amendment dated as of July 31, 2001 to AmeriGas Form 10-K (9/30/01) 10.12
Subsidiary Security Agreement dated as of Partners, L.P.
April 19, 1995
10.26 Restricted Subsidiary Guarantee dated as of AmeriGas Form 10-Q (3/31/95) 10.5
April 19, 1995 by AmeriGas Propane, L.P. for Partners, L.P.
the benefit of Bank of America National Trust
and Savings Association, as Collateral Agent
10.27 Trademark License Agreement dated April 19, AmeriGas Form 10-Q (3/31/95) 10.6
1995 among UGI Corporation, AmeriGas, Inc., Partners, L.P.
AmeriGas Propane, Inc., AmeriGas Partners,
L.P. and AmeriGas Propane, L.P.
10.28 Trademark License Agreement, dated April 19, AmeriGas Form 10-Q (3/31/95) 10.7
1995 among AmeriGas Propane, Inc., AmeriGas Partners, L.P.
Partners, L.P. and AmeriGas Propane, L.P.
10.29 Stock Purchase Agreement dated May 27, 1989, Petrolane Registration 10.16(a)
as amended and restated July 31, 1989, between Incorporated/ Statement No.
Texas Eastern Corporation and QFB Partners AmeriGas, Inc. 33-69450
10.30 Pledge Agreement dated September 1999 between UGI Form 10-K (9/30/99) 10.28
Eastfield International Holdings, Inc. and
Reiffeisen Zentralbank Osterreich
Aktiengesellschaft ("RZB")
10.31 Pledge Agreement dated September 1999 between UGI Form 10-K (9/30/99) 10.29
EuroGas Holdings, Inc. and RZB
10.32 Form of Guarantee Agreement dated September UGI Form 10-K (9/30/99) 10.30
1999 between UGI Corporation and RZB relating
to loan amount of EURO 74 million
10.33 Form of Guarantee Agreement dated September UGI Form 10-K (9/30/00) 10.33
2000 between UGI Corporation and RZB relating
to loan amount of EURO 14.9 million
-39-
INCORPORATION BY REFERENCE
--------------------------
EXHIBIT NO. EXHIBIT REGISTRANT FILING EXHIBIT
----------- ------- ---------- ------ -------
10.34 Form of Guarantee Agreement dated September UGI Form 10-K (9/30/00) 10.34
2000 between UGI Corporation and RZB relating
to loan amount of EURO 9 million
10.34(a) Amendments dated October 11, 2001 to September UGI Form 10-K 10.34(a)
1999 Guarantee Agreements between UGI (9/30/02)
Corporation and RZB
10.35** Description of Change of Control arrangements UGI Form 10-K (9/30/99) 10.33
for Messrs. Greenberg, Bovaird and Mendicino
10.36** Description of Change of Control arrangement UGI Form 10-K (9/30/99) 10.34
for Mr. Chaney
10.37** Description of Change of Control arrangement AmeriGas Form 10-K (9/30/99) 10.31
for Mr. Bissell Partners, L.P.
*10.38** 2002 Non-Qualified Stock Option Plan
10.39** 1992 Non-Qualified Stock Option Plan, as UGI Form 10-K (9/30/00) 10.39
amended
10.40 Service Agreement for comprehensive delivery UGI Form 10-K (9/30/00) 10.40
service (Rate CDS) dated February 23, 1998
between UGI Utilities, Inc. and Texas Eastern
Transmission Corporation
10.41 Service Agreement for comprehensive delivery UGI Form 10-K (9/30/00) 10.41
service (Rate CDS) dated February 23, 1999
between UGI Utilities, Inc. and Texas Eastern
Transmission Corporation
10.42 Purchase Agreement dated January 30, 2001 and AmeriGas Form 8-K 10.1
Amended and Restated on August 7, 2001 by and Partners, L.P.
among Columbia Energy Group, Columbia Propane (8/8/01)
Corporation, Columbia Propane, L.P., CP
Holdings, Inc., AmeriGas Propane, L.P.,
AmeriGas Partners, L.P., and AmeriGas Propane,
Inc.
10.43 Partnership Agreement of Hunlock Creek Energy Utilities Form 10-K (9/30/01) 10.24
Ventures dated December 8, 2001 by and between
UGI Hunlock Development Company and Allegheny
Energy Supply Hunlock Creek LLC
-40-
INCORPORATION BY REFERENCE
--------------------------
EXHIBIT NO. EXHIBIT REGISTRANT FILING EXHIBIT
----------- ------- ---------- ------ -------
10.44 Agreement by Petrolane Incorporated and Petrolane Form 10-K (9/23/94) 10.13
certain of its subsidiaries party thereto Incorporated
("Subsidiaries") for the Sale of the
Subsidiaries' Inventory and Assets to the
Goodyear Tire & Rubber Company and D.C.H.,
Inc., as Purchaser, dated as of December 18,
1985
10.45 Purchase Agreement by and among Columbia National Propane Form 8-K (4/19/99) 10.5
Propane, L.P., CP Holdings, Inc., Columbia Partners, L.P.
Propane Corporation, National Propane
Partners, L.P., National Propane Corporation,
National Propane SPG, Inc., and Triarc
Companies, Inc. dated as of April 5, 1999
10.46 Capital Contribution Agreement dated as of AmeriGas Form 8-K (8/21/01) 10.2
August 21, 2001 by and between Columbia Partners, L.P.
Propane, L.P. and AmeriGas Propane, L.P.
acknowledged and agreed to by CP Holdings, Inc.
10.47 Promissory Note by National Propane L.P., a AmeriGas Form 10-K (9/30/01) 10.39
Delaware limited partnership in favor of Partners, L.P.
Columbia Propane Corporation dated July 19,
1999
10.48 Loan Agreement dated July 19, 1999, between AmeriGas Form 10-K (9/30/01) 10.40
National Propane, L.P. and Columbia Propane Partners, L.P.
Corporation
10.49 First Amendment dated August 21, 2001 to Loan AmeriGas Form 10-K (9/30/01) 10.41
Agreement dated July 19, 1999 between National Partners, L.P.
Propane, L.P. and Columbia Propane Corporation
10.50 Columbia Energy Group Payment Guaranty dated AmeriGas Form 10-K (9/30/01) 10.42
April 5, 1999 Partners, L.P.
10.51 Keep Well Agreement by and between AmeriGas AmeriGas Form 10-K (9/30/01) 10.46
Propane, L.P. and Columbia Propane Corporation Partners, L.P.
dated August 21, 2001
10.52 Management Services Agreement effective as of AmeriGas Form 10-K (9/30/01) 10.47
August 21, 2001 between AmeriGas Propane, Inc. Partners, L.P.
and AmeriGas Eagle Holdings, Inc., the general
partner of AmeriGas Eagle Propane, L.P.
10.53 Storage Transportation Service Agreement (Rate Utilities Form 10-K 10.25
Schedule SST) between Utilities and Columbia (9/30/02)
dated November 1, 1993, as modified pursuant
to orders of the Federal Energy Regulatory
Commission
-41-
INCORPORATION BY REFERENCE
--------------------------
EXHIBIT NO. EXHIBIT REGISTRANT FILING EXHIBIT
----------- ------- ---------- ------ -------
10.54 No-Notice Transportation Service Agreement Utilities Form 10-K 10.26
(Rate Schedule NTS) between Utilities and (9/30/02)
Columbia dated November 1, 1993, as modified
pursuant to orders of the Federal Energy
Regulatory Commission
10.55 No-Notice Transportation Service Agreement Utilities Form 10-K
(Rate Schedule CDS) between Utilities and (9/30/02) 10.27
Texas Eastern Transmission dated February 23,
1999, as modified pursuant to various orders
of the Federal Energy Regulatory Commission
10.56 No-Notice Transportation Service Agreement Utilities Form 10-K 10.28
(Rate Schedule CDS) between Utilities and (9/30/02)
Texas Eastern Transmission dated October 31,
2000, as modified pursuant to various orders
of the Federal Energy Regulatory Commission
10.57 Firm Transportation Service Agreement (Rate Utilities Form 10-K 10.29
Schedule FT-1) between Utilities and Texas (9/30/02)
Eastern Transmission dated June 15, 1999, as
modified pursuant to various orders of the
Federal Energy Regulatory Commission
10.58 Firm Transportation Service Agreement (Rate Utilities Form 10-K 10.30
Schedule FT-1) between Utilities and Texas (9/30/02)
Eastern Transmission dated October 31, 2000,
as modified pursuant to various orders of the
Federal Energy Regulatory Commission
10.59 Firm Transportation Service Agreement (Rate Utilities Form 10-K 10.31
Schedule FT) between Utilities and (9/30/02)
Transcontinental Gas Pipe Line dated October
1, 1996, as modified pursuant to various
orders of the Federal Energy Regulatory
Commission
*13 Pages 13 through 51 of the 2002 Annual Report
to Shareholders
18 Letter of Arthur Andersen LLP regarding change AmeriGas Form 10-Q 18
in accounting principles Partners, L.P. (12/31/00)
*21 Subsidiaries of the Registrant
*23 Consent of PricewaterhouseCoopers LLP
*99 Certification by the Chief Executive Officer
and the Chief Financial Officer relating to
the Registrant's Report on Form 10-K for the
fiscal year ended September 30, 2002.
* Filed herewith.
-42-
** As required by Item 14(a)(3), this exhibit is identified as a
compensatory plan or arrangement.
(B) REPORTS ON FORM 8-K:
The Company filed the following Current Reports on Form 8-K during the
fourth quarter of fiscal year 2002:
Date Item Number(s) Content
---- -------------- -------
08/14/02 9 Regulation FD - Officers' Sworn Statements
Pursuant to Section 21(a)(1) of the Securities
Exchange Act of 1934
-43-
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 17, 2002 By: Anthony J. Mendicino
-----------------------------
Anthony J. Mendicino
Senior 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 17, 2002, 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 Senior 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
-44-
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below on December 17, 2002, by the following persons on
behalf of the Registrant in the capacities indicated.
SIGNATURE TITLE
- --------- -----
Richard C. Gozon Director
- ---------------------------
Richard C. Gozon
Ernest E. Jones Director
- ---------------------------
Ernest E. Jones
Anne Pol Director
- ---------------------------
Anne Pol
Marvin O. Schlanger Director
- ---------------------------
Marvin O. Schlanger
James W. Stratton Director
- ---------------------------
James W. Stratton
-45-
CERTIFICATIONS
I, Lon R. Greenberg, certify that:
1. I have reviewed this annual report on Form 10-K of UGI Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this annual
report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors:
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
-46-
6. The registrant's other certifying officer and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: December 20, 2002
/s/ Lon R. Greenberg
---------------------------
Lon R. Greenberg
Chairman, President and
Chief Executive Officer of
UGI Corporation
-47-
I, Anthony J. Mendicino, certify that:
1. I have reviewed this annual report on Form 10-K of UGI Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this annual
report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors:
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
-48-
6. The registrant's other certifying officer and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: December 20, 2002
/s/ Anthony J. Mendicino
---------------------------
Anthony J. Mendicino
Senior Vice President - Finance
and Chief Financial Officer of
UGI Corporation
-49-
UGI CORPORATION AND SUBSIDIARIES
FINANCIAL INFORMATION
FOR INCLUSION IN ANNUAL REPORT ON FORM 10-K
YEAR ENDED SEPTEMBER 30, 2002
F-1
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 PricewaterhouseCoopers LLP
dated November 15, 2002 (except for Note 18 as to which the date is December 16,
2002) and Arthur Andersen LLP dated November 16, 2001, listed in the following
index, are included in UGI's 2002 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 2002 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 Accountants:
On Consolidated Financial Statements Exhibit 13 26
On Financial Statement Schedules F-4 to F-5
Financial Statements:
Consolidated Balance Sheets, September 30,
2002 and 2001 Exhibit 13 28 to 29
For the years ended September 30, 2002,
2001 and 2000:
Consolidated Statements of Income Exhibit 13 27
Consolidated Statements of Cash Flows Exhibit 13 30
Consolidated Statements of Stockholders'
Equity Exhibit 13 31
Index F-2
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 Exhibit 13 32 to 51
Supplementary Data (unaudited):
Quarterly Data for the years ended
September 30, 2002 and 2001 Exhibit 13 50
Financial Statement Schedules:
For the years ended September 30, 2002,
2001 and 2000:
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
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
UGI Corporation:
In our opinion, the consolidated financial statements, as of and for the year
ended September 30, 2002, listed in the index appearing under Item 15a(1) and
(2) present fairly, in all material respects, the financial position of UGI
Corporation and its subsidiaries at September 30, 2002, and the results of their
operations and their cash flows for the year ended September 30, 2002 in
conformity with accounting principles generally accepted in the United States of
America. In addition, in our opinion, the financial statement schedules listed,
as of and for the year ended September 30, 2002, in the index appearing under
Item 15a(1) and (2) present fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements. These financial statements and financial statement
schedules are the responsibility of the Company's management; our responsibility
is to express an opinion on these financial statements and financial statement
schedules based on our audit. We conducted our audit of these statements in
accordance with auditing standards generally accepted in the United States of
America, which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion. The consolidated financial
statements of UGI Corporation and its subsidiaries as of September 30, 2001, and
for each of the two years in the period ended September 30, 2001, were audited
by other independent accountants who have ceased operations. Those independent
accountants expressed an unqualified opinion on those financial statements in
their report dated November 16, 2001.
As discussed in Note 1 to the consolidated financial statements, the Company
adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets, in fiscal 2002.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
November 15, 2002, except for Note 18 as to which the date is December 16, 2002
F-4
THIS REPORT IS A COPY OF THE PREVIOUSLY ISSUED ACCOUNTANT'S REPORT OF ARTHUR
ANDERSEN LLP AND HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of UGI Corporation:
We have audited, in accordance with auditing standards generally accepted in the
United States, the consolidated financial statements included in UGI
Corporation's annual report to shareholders for the year ended September 30,
2001, incorporated by reference in this Form 10-K, and have issued our report
thereon dated November 16, 2001. Our report on the financial statements includes
an explanatory paragraph with respect to the changes in the method of accounting
for tank installation costs and nonrefundable tank fees and the adoption of SFAS
No. 133 as discussed in Notes 1 and 3 to the financial statements. Our audits
were made for the purpose of forming an opinion on those basic consolidated
financial statements taken as a whole. The schedules listed in the Index on
pages F-2 and F-3 are the responsibility of UGI Corporation's management and are
presented for purposes of complying with the Securities and Exchange
Commission's rules and are not part of the basic financial statements. These
schedules have been subjected to the auditing procedures applied in the audits
of the basic financial statements and, in our opinion, fairly state in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Philadelphia, Pennsylvania
November 16, 2001
F-5
UGI CORPORATION AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY)
BALANCE SHEETS
(Millions of dollars)
September 30,
2002 2001
------------ -----------
ASSETS
Current assets:
Cash and cash equivalents $ 0.2 $ 0.6
Accounts and notes receivable 2.2 14.4
Deferred income taxes 0.2 0.2
Prepaid expenses and other current assets 0.3 0.4
------------ -----------
Total current assets 2.9 15.6
Investments in subsidiaries 388.4 300.8
Other assets 4.5 2.6
------------ -----------
Total assets $ 395.8 $ 319.0
============ ===========
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Current liabilities:
Accounts and notes payable $ 10.2 $ 10.3
Accrued liabilities 3.8 1.2
------------ -----------
Total current liabilities 14.0 11.5
Noncurrent liabilities 64.0 51.4
Commitments and contingencies
Common stockholders' equity:
Common Stock, without par value (authorized - 100,000,000 shares;
issued - 33,198,731 shares) 396.6 395.0
Retained earnings 39.7 9.0
Accumulated other comprehensive income (loss) 6.6 (13.5)
------------ -----------
442.9 390.5
Less treasury stock, at cost (125.1) (134.4)
------------ -----------
Total common stockholders' equity 317.8 256.1
------------ -----------
Total liabilities and common stockholders' equity $ 395.8 $ 319.0
============ ===========
Commitments and Contingencies:
In addition to the guarantees of FLAGA debt described in Note 5 to
Consolidated Financial Statements, UGI Corporation has agreed to indemnify the
issuer of $25.7 of surety bonds issued on behalf of certain UGI subsidiaries.
UGI Corporation is also authorized to guarantee up to $100 of supplier
obligations of UGI Energy Services, Inc., of which $26.9 of such obligations
were outstanding as of September 30, 2002.
S-1
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,
--------------------------------------
2002 2001 2000
--------- --------- ---------
Revenues $ - $ - $ -
Costs and expenses:
Operating and administrative expenses 13.6 10.8 8.1
Other income, net (12.4) (9.7) (8.4)
--------- --------- ---------
1.2 1.1 (0.3)
--------- --------- ---------
Operating income (loss) (1.2) (1.1) 0.3
Interest expense on intercompany debt (1.3) (2.4) (2.0)
--------- --------- ---------
Loss before income taxes (2.5) (3.5) (1.7)
Income tax benefit (0.9) (0.7) (1.1)
--------- --------- ---------
Loss before equity in income
of unconsolidated subsidiaries (1.6) (2.8) (0.6)
Equity in income before accounting changes
of unconsolidated subsidiaries 77.1 54.8 45.3
--------- --------- ---------
Income before equity in accounting changes
of unconsolidated subsidiaries 75.5 52.0 44.7
Equity in accounting changes
of unconsolidated subsidiaries - 4.5 -
--------- --------- ---------
Net income $ 75.5 $ 56.5 $ 44.7
========= ========= =========
Earnings per common share:
Basic:
Income before accounting changes $ 2.74 $ 1.91 $ 1.64
Cumulative effect of accounting changes, net - 0.17 -
--------- --------- ---------
Net income $ 2.74 $ 2.08 $ 1.64
========= ========= =========
Diluted:
Income before accounting changes $ 2.70 $ 1.90 $ 1.64
Cumulative effect of accounting changes, net - 0.16 -
--------- --------- ---------
Net income $ 2.70 $ 2.06 $ 1.64
========= ========= =========
Average common shares outstanding (millions):
Basic 27.550 27.163 27.219
========= ========= =========
Diluted 27.938 27.373 27.255
========= ========= =========
S-2
UGI CORPORATION AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY)
STATEMENTS OF CASH FLOWS
(Millions of dollars)
Year Ended
September 30,
---------------------------------------------
2002 2001 2000
----------- ----------- -----------
NET CASH PROVIDED BY OPERATING
ACTIVITIES (a) $ 113.9 $ 108.3 $ 95.5
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in unconsolidated subsidiaries (101.5) (49.2) (95.8)
Net repayments (advances) to unconsolidated subsidiary 13.0 (13.0) -
----------- ----------- -----------
Net cash used by investing activities (88.5) (62.2) (95.8)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of dividends on Common Stock (44.8) (53.2) (41.2)
Issuance of intercompany long-term debt 8.0 - 47.5
Issuance of Common Stock 11.0 7.6 3.8
Repurchases of Common Stock - (1.0) (9.1)
----------- ----------- -----------
Net cash used by financing activities (25.8) (46.6) 1.0
----------- ----------- -----------
Cash and cash equivalents increase (decrease) $ (0.4) $ (0.5) $ 0.7
=========== =========== ===========
Cash and cash equivalents:
End of period $ 0.2 $ 0.6 $ 1.1
Beginning of period 0.6 1.1 0.4
----------- ----------- -----------
Increase (decrease) $ (0.4) $ (0.5) $ 0.7
=========== =========== ===========
(a) Includes dividends received from unconsolidated subsidiaries of
$111.7, $110.4 and $96.2, respectively, for the years ended
September 30, 2002, 2001 and 2000.
S-3
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, 2002
Reserves deducted from assets in
the consolidated balance sheet:
Allowance for doubtful accounts $ 15.6 $ 14.2 $ (18.0)(1) $ 11.8
========== ==========
Allowance for amortization of deferred
financing costs - AmeriGas Propane $ 10.9 $ 2.7 $ - $ 13.6
========== ==========
Allowance for amortization of
other deferred costs - AmeriGas Propane $ 1.1 $ - $ (1.1)(2) $ -
========== ==========
Other reserves:
Self-insured property and casualty liability $ 37.4 $ 19.0 $ (15.6)(3) $ 42.7
========== ==========
1.9 (2)
Insured property and casualty liability $ 1.5 $ - $ 2.0 (2) $ 3.5
========== ==========
Environmental, litigation and other $ 11.7 $ 3.7 $ (2.6)(3) $ 13.9
========== ==========
1.1 (2)
YEAR ENDED SEPTEMBER 30, 2001
Reserves deducted from assets in
the consolidated balance sheet:
Allowance for doubtful accounts $ 9.3 $ 18.3 $ (11.7)(1) $ 15.6
========== ==========
(0.3)(2)
Allowance for amortization of deferred
financing costs - AmeriGas Propane $ 8.8 $ 2.1 $ - $ 10.9
========== ===========
Allowance for amortization of
other deferred costs - AmeriGas Propane $ 1.0 $ 0.1 $ - $ 1.1
========== ===========
Other reserves:
Self-insured property and casualty liability $ 36.3 $ 15.8 $ (15.2)(3) $ 37.4
========== ===========
0.5 (2)
Insured property and casualty liability $ 2.1 $ (0.6) $ - $ 1.5
========== ===========
Environmental, litigation and other $ 12.0 $ 1.9 $ (2.6)(3) $ 11.7
========== ===========
0.4 (2)
S-4
UGI CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (CONTINUED)
(Millions of dollars)
YEAR ENDED SEPTEMBER 30, 2000
Reserves deducted from assets in
the consolidated balance sheet:
Allowance for doubtful accounts $ 8.0 $ 10.0 $ (8.9)(1) $ 9.3
========== ===========
0.2 (2)
Allowance for amortization of deferred
financing costs - AmeriGas Propane $ 7.1 $ 1.7 $ - $ 8.8
========== ===========
Allowance for amortization of
other deferred costs - AmeriGas Propane $ 2.1 $ 0.4 $ (1.5)(2) $ 1.0
========== ===========
Other reserves:
Self-insured property and casualty liability $ 37.5 $ 13.4 $ (14.7)(3) $ 36.3
========== ===========
0.1 (2)
Insured property and casualty liability $ 5.1 $ (3.0) $ 2.1
========== ===========
Environmental, litigation and other $ 13.7 0.7 $ (2.4)(3) $ 12.0
========== ===========
(1) Uncollectible accounts written off, net of recoveries.
(2) Other adjustments.
(3) Payments, net.
S-5
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
3.2 Bylaws of UGI as in effect since September 24, 2002.
10.38 2002 Non-Qualified Stock Option Plan
13 Pages 13 to 51 of the 2002 Annual Report to Shareholders
21 Subsidiaries of the Registrant
23 Consent of PricewaterhouseCoopers LLP
99 Certification by the Chief Executive Officer and Chief
Financial Officer
-50-