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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2002
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 1-1398
UGI UTILITIES, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 23-1174060
State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
UGI UTILITIES, INC.
100 Kachel Boulevard, Suite 400
Green Hills Corporate Center, Reading, PA
(Address of principal executive offices)
19607
(Zip Code)
(610) 796-3400
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No | |
At January 31, 2003, there were 26,781,785 shares of UGI Utilities, Inc.
Common Stock, par value $2.25 per share, outstanding, all of which were held,
beneficially and of record, by UGI Corporation.
UGI UTILITIES, INC.
TABLE OF CONTENTS
PAGES
-----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of December 31, 2002,
September 30, 2002 and December 31, 2001 1
Condensed Consolidated Statements of Income for the three
months ended December 31, 2002 and 2001 2
Condensed Consolidated Statements of Cash Flows for the
three months ended December 31, 2002 and 2001 3
Notes to Condensed Consolidated Financial Statements 4 - 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7 - 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 10 - 11
Item 4. Controls and Procedures 11
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
Certifications 14 - 15
-i-
UGI UTILITIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of dollars)
December 31, September 30, December 31,
2002 2002 2001
------------ ------------- ------------
(unaudited) (unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 8,510 $ 6,090 $ 15,414
Accounts receivable (less allowances for doubtful accounts
of $2,669, $1,972 and $2,363, respectively) 68,471 38,554 52,510
Accrued utility revenues 27,844 8,069 27,293
Inventories 33,832 38,654 41,182
Deferred income taxes 4,792 2,610 8,615
Regulatory assets -- 4,304 --
Income taxes recoverable -- 6,892 --
Prepaid expenses and other current assets 1,623 3,151 1,441
--------- --------- --------
Total current assets 145,072 108,324 146,455
Property, plant and equipment, at cost (less accumulated depreciation
and amortization of $294,948, $290,194 and $281,457, respectively) 596,144 593,141 581,359
Regulatory assets 58,338 57,685 55,940
Other assets 39,134 38,973 35,989
--------- --------- --------
Total assets $ 838,688 $ 798,123 $819,743
========= ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 50,000 $ 76,000 $ 26,000
Bank loans 78,300 37,200 82,100
Accounts payable 67,915 57,499 64,864
Other current liabilities 39,888 45,518 61,399
--------- --------- --------
Total current liabilities 236,103 216,217 234,363
Long-term debt 172,345 172,369 182,451
Deferred income taxes 135,590 131,483 123,367
Deferred investment tax credits 8,286 8,385 8,684
Other noncurrent liabilities 13,312 11,815 11,966
Commitments and contingencies (note 3)
Redeemable preferred stock 20,000 20,000 20,000
Common stockholder's equity:
Common Stock, $2.25 par value (authorized - 40,000,000 shares;
issued and outstanding - 26,781,785 shares) 60,259 60,259 60,259
Additional paid-in capital 73,057 73,057 72,792
Retained earnings 122,309 107,312 105,400
Accumulated other comprehensive income (loss) (2,573) (2,774) 461
--------- --------- --------
Total common stockholder's equity 253,052 237,854 238,912
--------- --------- --------
Total liabilities and stockholders' equity $ 838,688 $ 798,123 $819,743
========= ========= ========
See accompanying notes to consolidated financial statements.
- 1 -
UGI UTILITIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(Thousands of dollars)
Three Months Ended
December 31,
-------------------------
2002 2001
--------- ---------
Revenues $ 168,351 $ 141,481
--------- ---------
Costs and expenses:
Gas, fuel and purchased power 100,444 87,107
Operating and administrative expenses 20,808 20,237
Operating and administrative expenses - related parties 1,890 1,350
Taxes other than income taxes 2,938 2,586
Depreciation and amortization 5,314 5,810
Other income, net (1,873) (3,218)
--------- ---------
129,521 113,872
--------- ---------
Operating income 38,830 27,609
Interest expense 4,335 4,263
--------- ---------
Income before income taxes 34,495 23,346
Income taxes 13,781 9,301
--------- ---------
Net income 20,714 14,045
Dividends on preferred stock 388 388
--------- ---------
Net income after dividends on preferred stock $ 20,326 $ 13,657
========= =========
See accompanying notes to consolidated financial statements.
- 2 -
UGI UTILITIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(Thousands of dollars)
Three Months Ended
December 31,
-----------------------
2002 2001
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 20,714 $ 14,045
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 5,314 5,810
Deferred income taxes, net 453 (1,793)
Other, net 2,340 1,052
Net change in:
Accounts receivable and accrued utility revenues (51,558) (31,012)
Inventories 4,822 6,892
Deferred fuel costs 7,098 6,870
Accounts payable 10,416 (2,592)
Other current assets and liabilities 1,389 3,944
-------- --------
Net cash provided by operating activities 988 3,216
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant and equipment (8,211) (8,087)
Net proceeds (costs) of property, plant and equipment disposals 261 (375)
-------- --------
Net cash used by investing activities (7,950) (8,462)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of dividends (5,718) (11,351)
Repayment of long-term debt (26,000) --
Bank loans increase 41,100 24,300
-------- --------
Net cash provided by financing activities 9,382 12,949
-------- --------
Cash and cash equivalents increase $ 2,420 $ 7,703
======== ========
CASH AND CASH EQUIVALENTS:
End of period $ 8,510 $ 15,414
Beginning of period 6,090 7,711
-------- --------
Increase $ 2,420 $ 7,703
======== ========
See accompanying notes to consolidated financial statements.
- 3 -
UGI UTILITIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Thousands of dollars)
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements include the
accounts of UGI Utilities, Inc. ("UGI Utilities") and its wholly owned
subsidiaries (collectively, "the Company" or "we"). UGI Utilities, Inc.
("UGI Utilities"), a wholly owned subsidiary of UGI Corporation ("UGI"),
owns and operates (1) a natural gas distribution utility ("Gas Utility")
in parts of eastern and southeastern Pennsylvania and (2) an electricity
distribution utility ("Electric Utility") and electricity generation
business (which together with Electric Utility are referred to herein as
"Electric Operations") in northeastern Pennsylvania. The Company's
interests in electric generation assets are owned by our non-utility
subsidiary, UGI Development Company ("UGID"), and its 50%-owned
joint-venture partnership Hunlock Creek Energy Ventures ("Energy
Ventures") which is accounted for under the equity method. Our
consolidated financial statements include the accounts of UGI Utilities
and its majority-owned subsidiaries. We eliminate all significant
intercompany accounts and transactions when we consolidate. UGID has been
granted "Exempt Wholesale Generator" status by the Federal Energy
Regulatory Commission.
The accompanying condensed consolidated financial statements are unaudited
and have been prepared in accordance with the rules and regulations of the
U.S. Securities and Exchange Commission ("SEC"). They include all
adjustments which we consider necessary for a fair statement of the
results for the interim periods presented. Such adjustments consisted only
of normal recurring items unless otherwise disclosed. These financial
statements should be read in conjunction with the financial statements and
the related notes included in our Annual Report on Form 10-K for the year
ended September 30, 2002 ("Company's 2002 Annual Report"). Due to the
seasonal nature of our businesses, the results of operations for interim
periods are not necessarily indicative of the results to be expected for a
full year.
COMPREHENSIVE INCOME. UGI Utilities' comprehensive income was $20,915 and
$14,506 for the three months ended December 31, 2002 and 2001,
respectively. Other comprehensive income of $201 and $461 in the three
months ended December 31, 2002 and 2001, respectively, is the result of
changes in the fair value of derivative instruments qualifying as hedges,
net of reclassifications to net income.
USE OF ESTIMATES. We make estimates and assumptions when preparing
financial statements in conformity with accounting principles generally
accepted in the United States. These estimates and assumptions affect the
reported amounts of assets and liabilities, revenues and expenses, as well
as the disclosure of contingent assets and liabilities. Actual results
could differ from these estimates.
- 4 -
UGI UTILITIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Thousands of dollars)
2. SEGMENT INFORMATION
The Company currently has two reportable segments: (1) Gas Utility and (2)
Electric Operations. The accounting policies of our two reportable
segments are the same as those described in the Significant Accounting
Policies note contained in the Company's 2002 Annual Report. We evaluate
each segment's performance principally based upon its earnings before
income taxes. No single customer represents more than 10% of the total
revenues of either Gas Utility or Electric Operations. There are no
significant intersegment transactions. In addition, all of our reportable
segments' revenues are derived from sources within the United States.
Financial information by reportable segment follows:
THREE MONTHS ENDED DECEMBER 31, 2002:
Gas Electric
Total Utility Operations
-------- -------- ----------
Revenues $168,351 $145,075 $ 23,276
Depreciation and amortization 5,314 4,530 784
Operating income 38,830 33,543 5,287
Interest expense 4,335 3,718 617
Income before income taxes 34,495 29,824 4,671
Total assets (at period end) 838,688 731,125 107,563
THREE MONTHS ENDED DECEMBER 31, 2001:
Gas Electric
Total Utility Operations
-------- -------- ----------
Revenues $141,481 $121,263 $ 20,218
Depreciation and amortization 5,810 4,973 837
Operating income 27,609 24,901 2,708
Interest expense 4,263 3,645 618
Income before income taxes 23,346 21,256 2,090
Total assets (at period end) 819,743 713,432 106,311
- 5 -
UGI UTILITIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Thousands of dollars)
3. COMMITMENTS AND CONTINGENCIES
From the late 1800s through the mid-1900s, UGI Utilities and its former
subsidiaries owned and operated a number of manufactured gas plants
("MGPs") prior to the general availability of natural gas. Some
constituents of coal tars and other residues of the manufactured gas
process are today considered hazardous substances under the Superfund Law
and may be present on the sites of former MGPs. Between 1882 and 1953, UGI
Utilities owned the stock of subsidiary gas companies in Pennsylvania and
elsewhere and also operated the businesses of some gas companies under
agreement. Pursuant to the requirements of the Public Utility Holding
Company Act of 1935, UGI Utilities divested all of its utility operations
other than those which now constitute Gas Utility and Electric Utility.
UGI Utilities does not expect its costs for investigation and remediation
of hazardous substances at Pennsylvania MGP sites to be material to its
results of operations because Gas Utility is currently permitted to
include in rates, through future base rate proceedings, prudently incurred
remediation costs associated with such sites. UGI Utilities has been
notified of several sites outside Pennsylvania on which (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.
Management believes that under applicable law UGI Utilities should not be
liable in those instances in which a former subsidiary operated an MGP.
There could be, however, significant future costs of an uncertain amount
associated with environmental damage caused by MGPs outside Pennsylvania
that UGI Utilities directly operated, or that were owned or operated by
former subsidiaries of UGI Utilities, if a court were to conclude that the
subsidiary's separate corporate form should be disregarded.
In addition to these environmental matters, there are other pending claims
and legal actions arising in the normal course of our businesses. We
cannot predict with certainty the final results of environmental and other
matters. However, it is reasonably possible that some of them could be
resolved unfavorably to us. We believe, after consultation with counsel,
that damages or settlements, if any, recovered by the plaintiffs in such
claims or actions will not have a material adverse effect on our financial
position but could be material to our operating results or cash flows in
future periods depending on the nature and timing of future developments
with respect to these matters and the amounts of future operating results
and cash flows.
- 6 -
UGI UTILITIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
ANALYSIS OF RESULTS OF OPERATIONS
The following analyses compare our results of operations for the three months
ended December 31, 2002 ("2002 three-month period") with the three months ended
December 31, 2001 ("2001 three-month period"). Our analyses of results of
operations should be read in conjunction with the segment information included
in Note 2 to the Condensed Consolidated Financial Statements.
2002 THREE-MONTH PERIOD COMPARED WITH 2001 THREE-MONTH PERIOD
Three Months Ended December 31, 2002 2001 Increase
---- ---- --------
(Dollars in millions)
GAS UTILITY:
Revenues $145.1 $121.3 $ 23.8 19.6%
Total margin (a) $ 56.7 $ 46.0 $ 10.7 23.3%
Operating income $ 33.5 $ 24.9 $ 8.6 34.5%
Natural gas system throughput - bcf 23.3 19.4 3.9 20.1%
Heating degree days - % colder (warmer)
than normal 6.4 (19.2) -- --
ELECTRIC OPERATIONS:
Revenues $ 23.3 $ 20.2 $ 3.1 15.3%
Total margin (a) $ 10.0 $ 7.5 $ 2.5 33.3%
Operating income $ 5.3 $ 2.7 $ 2.6 96.3%
Electric Utility distribution sales - gwh 244.4 227.9 16.5 7.2%
bcf - billions of cubic feet. gwh - millions of kilowatt-hours.
(a) Gas Utility's total margin represents total revenues less cost of sales.
Electric Operation's total margin represents total revenues less cost of
sales and revenue-related taxes, i.e. Electric Utility gross receipts
taxes. For financial statement purposes, revenue-related taxes are
included in "taxes other than income taxes" on the Condensed Consolidated
Statements of Income.
GAS UTILITY. Gas Utility results in the 2002 three-month period benefited from
significantly colder weather. Temperatures in Gas Utility's service territory
during the 2002 three-month period were 6.4% colder than normal compared to
weather that was 19.2% warmer than normal in the prior-year three-month period.
Total system throughput increased 3.9 bcf principally as a result of the colder
weather's effect on sales to firm- residential, commercial and industrial
("core-market") customers and core-market customer growth.
- 7 -
UGI UTILITIES, INC.
Gas Utility revenues increased $23.8 million in the 2002 three-month period
reflecting a $20.1 million increase in core-market and firm delivery service
revenues due to greater volumes sold and delivered. Gas Utility cost of gas
increased $13.1 million principally reflecting the effects of the higher
core-market sales.
The increase in Gas Utility total margin in the 2002 three-month period
principally reflects a $9.9 million increase in total core-market margin
principally as a result of the higher core-market and firm delivery service
volumes. These increases were partially offset by a decline in total margin from
interruptible customers resulting from the flowback of certain interruptible
margin to core-market customers beginning December 1, 2001 pursuant to the June
29, 2000 Gas Restructuring Order ("Gas Restructuring Order"). Interruptible
customers are those customers who have the ability to switch to alternate fuels.
Gas Utility operating income increased $8.6 million principally reflecting the
previously mentioned increase in total margin partially offset by slightly
higher operating and administrative expenses, principally provisions for bad
debts and incentive compensation costs, and a $1.5 million decline in other
income. The decline in other income reflects, among other things, lower interest
income on purchased gas cost undercollections, reduced non-tariff service income
and lower pension income. Depreciation expense declined $0.4 million due to a
change effective April 1, 2002 in the estimated useful lives of Gas Utility's
natural gas distribution assets resulting from an asset life study required by
the Pennsylvania Public Utility Commission.
ELECTRIC OPERATIONS. The increase in Electric Utility's kilowatt-hour sales in
the 2002 three-month period principally reflects the impact of colder weather on
heating-related sales. Temperatures based upon heating degree days in the 2002
three-month period were approximately 9.5% colder than normal compared with
temperatures that were approximately 17.1% warmer than normal in the comparable
prior-year period.
Electric Operations revenues increased $3.1 million reflecting the greater
Electric Utility distribution sales as well as greater sales of electricity by
our electricity generation business to third parties. Prior to September 2002, a
significant amount of the power produced by our electricity generation business
was sold to Electric Utility. Beginning September 2002, Electric Utility began
purchasing substantially all of its power needs under fixed-price energy and
capacity contracts with electricity suppliers, and our electricity generation
business began selling substantially all of its electricity production on the
spot market. Electric Operations cost of sales increased only $0.2 million in
the 2002 three-month period, notwithstanding the more significant increase in
Electric Operations revenues, reflecting lower Electric Utility per-unit
purchased power costs.
Electric Operations total margin increased $2.5 million, and operating income
increased $2.6 million, reflecting the increase in Electric Utility sales and
the margin benefit of lower Electric Utility per-unit purchased power costs.
- 8 -
UGI UTILITIES, INC.
FINANCIAL CONDITION AND LIQUIDITY
FINANCIAL CONDITION
The Company's long-term debt outstanding at December 31, 2002 totaled $222.3
million (including current maturities of $50.0 million) compared with $248.4
million (including current maturities of $76.0 million) at September 30, 2002.
On October 1, 2002, the Company repaid $26 million of maturing long-term debt.
At December 31, 2002, the Company had commitments under revolving credit
agreements providing for borrowings of up to $97 million. These agreements
expire at various dates from June 2003 through June 2005. The Company currently
expects to renew those agreements expiring in June 2003 prior to their maturity.
Borrowings under these agreements totaled $78.3 million at December 31, 2002.
UGI Utilities also has a shelf registration statement with the SEC under which
it may issue up to an additional $85 million of debt securities.
CASH FLOWS
The Company's cash flows from operating activities are seasonal and are
generally greatest during the second and third fiscal quarters when customers
pay bills incurred during the heating season and are generally lowest during the
first and fourth fiscal quarters. Accordingly, cash flows from operations for
the three months ended December 31, 2002 are not necessarily indicative of cash
flows to be expected for a full year.
OPERATING ACTIVITIES. Cash provided by operating activities was $1.0 million
during the three months ended December 31, 2002 compared with $3.2 million in
the prior-year three-month period. Cash flow from operating activities before
changes in operating working capital was $28.8 million in the 2002 three-month
period compared to the $19.1 million in the prior-year three-month period
reflecting the significant increase in 2002 three-month period results. Changes
in operating working capital used $27.8 million of operating cash flow during
the three months ended December 31, 2002 compared with $15.9 million during the
prior-year three-month period principally reflecting the effects of the higher
natural gas volumes sold and higher natural gas commodity prices.
INVESTING ACTIVITIES. Expenditures for property, plant and equipment were $8.2
million in the 2002 three-month period, slightly higher than the $8.1 million
recorded in the prior-year period. The greater proceeds from disposals of
property, plant and equipment in the 2002 three-month period reflect higher
proceeds from the sale of property and lower net plant and equipment removal
costs.
FINANCING ACTIVITIES. During the 2002 and 2001 three-month periods, we paid
dividends of $5.3 million and $11.0 million, respectively, to UGI. We also paid
dividends of $0.4 million on our redeemable preferred stock in both periods.
During the 2002 three-month period, we had net borrowings of $41.1 million under
our revolving credit agreements compared to net borrowings of $24.3 million in
the prior-year period. The greater short-term borrowings in the 2002 three-month
period reflects in large part higher cash required to fund increases in working
capital. In October 2002, we repaid $26 million of maturing Medium-Term Notes.
- 9 -
UGI UTILITIES, INC.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") recently issued Statement of
Financial Accounting Standards ("SFAS") No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" ("SFAS 146"), and FASB
Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN 45").
SFAS 146 addresses accounting for costs associated with exit or disposal
activities and nullifies Emerging Issues Task Force ("EITF") No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity." Generally, SFAS 146 requires that a liability for costs
associated with an exit or disposal activity, including contract termination
costs, employee termination benefits and other associated costs, be recognized
when the liability is incurred. Under EITF No. 94-3, a liability was recognized
at the date an entity committed to an exit plan. SFAS 146 is effective for
disposal activities initiated after December 31, 2002. The initial adoption of
the provisions of SFAS 146 did not affect our financial position or results of
operations.
FIN 45 expands the existing disclosure requirements for guarantees and requires
that companies recognize, at the inception of a guarantee, a liability for the
fair value of the obligation undertaken when issuing the guarantee. The initial
recognition and measurement provisions of FIN 45 are effective for guarantees
issued or modified after December 31, 2002. We do not believe the application of
FIN 45 will have a material effect on our financial position or results of
operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Gas Utility's tariffs contain clauses that permit recovery of substantially all
of the prudently incurred cost of natural gas it sells to its customers. The
recovery clauses provide for a periodic adjustment for the difference between
the total amount actually collected from customers and the recoverable costs
incurred. Because of this ratemaking mechanism, there is limited commodity price
risk associated with our Gas Utility operations.
Prior to September 2002, Electric Utility purchased all of its electric power
needs, in excess of the electric power it obtained from its interests in
electric generating facilities, under power supply arrangements of various
lengths and on the spot market. Beginning September 2002, Electric Utility began
purchasing its power needs from electricity suppliers under fixed-price energy
and capacity contracts and, to a much lesser extent, on the spot market, and our
electricity generation business began selling its electricity production on the
spot market to third parties. Prices for electricity can be volatile especially
during periods of high demand or tight supply. Although the generation component
of Electric Utility's rates is subject to various rate cap provisions, Electric
Utility's fixed-price contracts with electricity marketers mitigate most risks
associated with offering customers a fixed price during the contract periods.
However, should any of the suppliers under these contracts fail to provide
electric power under the terms of the power and capacity contracts, increases,
if any, in the cost of replacement power or capacity would negatively impact
Electric Utility results. In order to reduce this non-performance risk, Electric
Utility has diversified its purchases across several suppliers and entered into
bilateral collateral arrangements with certain of them.
- 10 -
UGI UTILITIES, INC.
Our variable-rate debt includes borrowings under our revolving credit
agreements. These agreements provide for interest rates on borrowings that are
indexed to short-term market interest rates. Our long-term debt is typically
issued at fixed rates of interest based upon market rates for debt having
similar terms and credit ratings. As these long-term debt issues mature, we
expect to refinance such debt with new debt having an interest rate that is more
or less than the refinanced debt.
In order to reduce interest rate risk associated with near-term issuances of
fixed-rate debt, we may enter into interest rate protection agreements. At
December 31, 2002, the fair value of our unsettled interest rate protection
agreement, which has been designated and qualifies as a cash flow hedge, was a
loss of $0.9 million. An adverse change in interest rates on ten-year U.S.
treasury notes of 50 basis points would result in a $1.1 million decrease in the
fair value of this interest rate protection agreement.
ITEM 4. CONTROLS AND PROCEDURES
An evaluation of the effectiveness of the design and operation of the Company's
disclosure controls and procedures was carried out within the 90-day period
prior to the filing of this quarterly report 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.
- 11 -
UGI UTILITIES, INC.
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits:
12.1 Computation of ratio of earnings to fixed charges.
12.2 Computation of ratio of earnings to combined fixed charges and
preferred stock dividends.
99 Certification by the Chief Executive Officer and Chief
Financial Officer relating to the Registrant's Report on Form
10-Q for the quarter ended December 31, 2002.
(b) The Company did not file any Current Reports on Form 8-K during the
fiscal quarter ended December 31, 2002.
- 12 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UGI Utilities, Inc.
(Registrant)
Date: February 13, 2003 By: /s/ J.C. Barney
- ----------------------- ------------------------------
J. C. Barney
Senior Vice President - Finance
(Principal Financial Officer)
- 13 -
CERTIFICATIONS
I, Robert J. Chaney, certify that:
1. I have reviewed this quarterly report on Form 10-Q of UGI Utilities, Inc.;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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
quarterly 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
quarterly 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 quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly 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
6. The registrant's other certifying officer and I have indicated in this
quarterly 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: February 13, 2003
/s/ Robert J. Chaney
-------------------------------------
Robert J. Chaney
President and Chief Executive Officer
- 14 -
I, John C. Barney, certify that:
1. I have reviewed this quarterly report on Form 10-Q of UGI Utilities, Inc.;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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
quarterly 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
quarterly 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 quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly 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 the 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
6. The registrant's other certifying officer and I have indicated in this
quarterly 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: February 13, 2003
/s/ John C. Barney
-------------------------------------
John C. Barney
Senior Vice President - Finance and
Chief Financial Officer
- 15 -
UGI UTILITIES, INC. AND SUBSIDIARIES
EXHIBIT INDEX
12.1 Computation of ratio of earnings to fixed charges
12.2 Computation of ratio of earnings to combined fixed charges and preferred
stock dividends
99 Certification by the Chief Executive Officer and the Chief Financial
Officer relating to the Registrant's Report on Form 10-Q for the quarter
ended December 31, 2002.