Back to GetFilings.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 1-11071
UGI CORPORATION
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2668356
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
UGI CORPORATION
460 North Gulph Road, King of Prussia, PA
(Address of principal executive offices)
19406
(Zip Code)
(610) 337-1000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
At April 30, 2004, there were 50,770,676 shares of UGI Corporation Common
Stock, without par value, outstanding.
UGI CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
PAGES
-----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 2004,
September 30, 2003 and March 31, 2003 1
Condensed Consolidated Statements of Income for the three
and six months ended March 31, 2004 and 2003 2
Condensed Consolidated Statements of Cash Flows for the
six months ended March 31, 2004 and 2003 3
Notes to Condensed Consolidated Financial Statements 4 - 19
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 20 - 33
Item 3. Quantitative and Qualitative Disclosures About Market Risk 33 - 36
Item 4. Controls and Procedures 37
PART II OTHER INFORMATION
Item 1. Legal Proceedings 38
Item 4. Submission of Matters to a Vote of Security Holders 38 - 39
Item 6. Exhibits and Reports on Form 8-K 39 - 40
Signatures 41
-i-
UGI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(Millions of dollars)
March 31, September 30, March 31,
2004 2003 2003
------------ ------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 143.3 $ 142.1 $ 149.2
Short-term investments (at cost, which approximates fair value) 10.0 50.0 45.0
Accounts receivable (less allowances for doubtful accounts of
$28.0, $14.8 and $20.1, respectively) 613.3 199.2 414.8
Accrued utility revenues 24.2 7.4 21.7
Inventories 105.1 136.6 83.3
Deferred income taxes 25.4 23.5 28.9
Prepaid expenses and other current assets 55.6 28.6 40.7
------------ ------------ ------------
Total current assets 976.9 587.4 783.6
Property, plant and equipment, at cost (less accumulated depreciation
and amortization of $852.6, $805.2 and $765.8, respectively) 1,884.8 1,336.8 1,279.3
Goodwill and excess reorganization value 1,171.6 671.5 653.5
Intangible assets (less accumulated amortization of
$19.6, $16.4 and $12.8, respectively) 144.9 34.7 33.8
Utility regulatory assets 62.1 60.3 59.2
Other assets 118.6 90.6 91.1
------------ ------------ ------------
Total assets $ 4,358.9 $ 2,781.3 $ 2,900.5
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 95.8 $ 65.0 $ 123.9
Current maturities of UGI Utilities preferred shares subject to
mandatory redemption, without par value 1.0 - -
AmeriGas Propane bank loans 3.0 - -
UGI Utilities bank loans 42.4 40.7 27.7
Other bank loans 15.9 15.9 9.7
Accounts payable 398.5 202.5 302.7
Other current liabilities 252.6 246.2 256.0
------------ ------------ ------------
Total current liabilities 809.2 570.3 720.0
Long-term debt 1,609.7 1,158.5 1,133.3
Deferred income taxes 392.7 223.1 213.0
UGI Utilities preferred shares subject to
mandatory redemption, without par value 19.0 20.0 -
Other noncurrent liabilities 435.5 105.4 99.2
------------ ------------ ------------
Total liabilities 3,266.1 2,077.3 2,165.5
Commitments and contingencies (note 9)
Minority interests 198.3 134.6 148.1
UGI Utilities preferred shares subject to
mandatory redemption, without par value - - 20.0
Common stockholders' equity:
Common Stock, without par value (authorized - 150,000,000 shares;
issued - 57,298,097, 49,798,097, 49,798,097 shares, respectively) 815.4 582.4 554.2
Retained earnings 172.4 90.9 122.7
Accumulated other comprehensive income 11.4 4.7 10.1
Notes receivable from employees (0.3) (0.4) (2.2)
------------ ------------ ------------
998.9 677.6 684.8
Treasury stock, at cost (104.4) (108.2) (117.9)
------------ ------------ ------------
Total common stockholders' equity 894.5 569.4 566.9
------------ ------------ ------------
Total liabilities and stockholders' equity $ 4,358.9 $ 2,781.3 $ 2,900.5
============ ============ ============
See accompanying notes to condensed consolidated financial statements.
-1-
UGI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(Millions of dollars, except per share amounts)
Three Months Ended Six Months Ended
March 31, March 31,
----------------------- -----------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
Revenues $ 1,316.6 $ 1,135.9 $ 2,210.3 $ 1,875.8
Costs and expenses:
Cost of sales 914.4 754.9 1,511.4 1,208.0
Operating and administrative expenses 183.5 175.4 346.8 330.8
Utility taxes other than income taxes 3.6 3.5 6.7 6.4
Depreciation and amortization 28.4 25.4 55.8 49.6
Other loss (income), net 5.1 (7.7) (0.3) (10.8)
---------- ---------- ---------- ----------
1,135.0 951.5 1,920.4 1,584.0
---------- ---------- ---------- ----------
Operating income 181.6 184.4 289.9 291.8
Income from equity investees 8.4 5.0 12.6 6.9
Loss on extinguishment of debt - (3.0) - (3.0)
Interest expense (26.7) (27.1) (53.4) (55.3)
Minority interests in AmeriGas Partners (55.6) (44.8) (78.3) (65.3)
---------- ---------- ---------- ----------
Income before income taxes and subsidiary preferred
stock dividends 107.7 114.5 170.8 175.1
Income tax expense (40.6) (44.3) (64.9) (67.8)
Dividends on UGI Utilities preferred shares subject to
mandatory redemption - (0.4) - (0.8)
---------- ---------- ---------- ----------
Net income $ 67.1 $ 69.8 $ 105.9 $ 106.5
========== ========== ========== ==========
Earnings per common share:
Basic $ 1.51 $ 1.66 $ 2.43 $ 2.55
========== ========== ========== ==========
Diluted $ 1.48 $ 1.62 $ 2.37 $ 2.49
========== ========== ========== ==========
Average common shares outstanding:
Basic 44.299 41.958 43.566 41.822
========== ========== ========== ==========
Diluted 45.310 42.990 44.625 42.790
========== ========== ========== ==========
Dividends declared per common share $ 0.285 $ 0.285 $ 0.570 $ 0.560
========== ========== ========== ==========
See accompanying notes to condensed consolidated financial statements.
-2-
UGI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(Millions of dollars)
Six Months Ended
March 31,
----------------------------------
2004 2003
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 105.9 $ 106.5
Reconcile to net cash provided by operating activities:
Depreciation and amortization 55.8 49.6
Minority interests in AmeriGas Partners 78.3 65.3
Deferred income taxes, net 3.9 (7.9)
Other, net 10.8 13.8
Net change in:
Accounts receivable and accrued utility revenues (272.9) (282.1)
Inventories 52.9 26.4
Deferred fuel costs 3.4 34.3
Accounts payable 78.2 135.2
Other current assets and liabilities (12.1) 9.8
-------------- --------------
Net cash provided by operating activities 104.2 150.9
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant and equipment (50.2) (51.1)
Net proceeds from disposals of assets 3.9 2.3
Acquisitions of businesses, net of cash acquired (275.7) (13.6)
Short-term investments decrease (increase) 40.0 (45.0)
Other, net 0.1 1.6
-------------- --------------
Net cash used by investing activities (281.9) (105.8)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends on UGI Common Stock (24.4) (23.4)
Distributions on AmeriGas Partners publicly held Common Units (30.6) (27.4)
Issuance of long-term debt - 89.1
Repayment of long-term debt (6.6) (117.0)
AmeriGas Propane bank loans increase (decrease) 3.0 (10.0)
UGI Utilities bank loans increase (decrease) 1.7 (9.5)
Other bank loans (decrease) increase (0.9) 0.1
Issuance of UGI Common Stock 236.6 8.2
-------------- --------------
Net cash provided (used) by financing activities 178.8 (89.9)
-------------- --------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 0.1 (0.3)
-------------- --------------
Cash and cash equivalents increase (decrease) $ 1.2 $ (45.1)
============== ==============
Cash and cash equivalents:
End of period $ 143.3 $ 149.2
Beginning of period 142.1 194.3
-------------- --------------
Increase (decrease) $ 1.2 $ (45.1)
============== ==============
See accompanying notes to condensed consolidated financial statements.
-3-
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Millions of dollars, except per share amounts)
1. BASIS OF PRESENTATION
UGI Corporation ("UGI") is a holding company that owns and operates
natural gas and electric utility, electricity generation, retail propane
distribution, energy marketing and related businesses in the United
States. Through foreign subsidiaries and joint-venture affiliates, UGI
also distributes liquefied petroleum gases ("LPG") in France, Austria, the
Czech Republic, Slovakia and China.
Our natural gas and electric distribution utility businesses are conducted
through our wholly owned subsidiary, UGI Utilities, Inc. ("UGI
Utilities"). UGI Utilities owns and operates a natural gas distribution
utility ("Gas Utility") in parts of eastern and southeastern Pennsylvania
and an electricity distribution utility ("Electric Utility") in
northeastern Pennsylvania. Gas Utility and Electric Utility are subject to
regulation by the Pennsylvania Public Utility Commission ("PUC").
We conduct a national propane distribution business through AmeriGas
Partners, L.P. ("AmeriGas Partners") and its principal operating
subsidiaries AmeriGas Propane, L.P. ("AmeriGas OLP") and AmeriGas OLP's
subsidiary, AmeriGas Eagle Propane, L.P. ("Eagle OLP"). AmeriGas Partners,
AmeriGas OLP and Eagle OLP are Delaware limited partnerships. UGI's wholly
owned second-tier subsidiary AmeriGas Propane, Inc. (the "General
Partner") serves as the general partner of AmeriGas Partners and AmeriGas
OLP. AmeriGas OLP and Eagle OLP (collectively referred to as "the
Operating Partnerships") comprise the largest retail propane distribution
business in the United States serving residential, commercial, industrial,
motor fuel and agricultural customers from locations in 46 states. We
refer to AmeriGas Partners and its subsidiaries together as "the
Partnership" and the General Partner and its subsidiaries, including the
Partnership, as "AmeriGas Propane." At March 31, 2004, the General Partner
and its wholly owned subsidiary Petrolane Incorporated ("Petrolane")
collectively held a 1% general partner interest and a 46.4% limited
partner interest in AmeriGas Partners, and effective 47.9% and 47.8%
ownership interests in AmeriGas OLP and Eagle OLP, respectively. Our
limited partnership interest in AmeriGas Partners comprises 24,525,004
Common Units. The remaining 52.6% interest in AmeriGas Partners comprises
27,848,268 publicly held Common Units representing limited partner
interests.
Our wholly owned subsidiary, UGI Enterprises, Inc. ("Enterprises"),
conducts an energy marketing business primarily in the Eastern region of
the United States through its wholly owned subsidiary, UGI Energy
Services, Inc. ("Energy Services"). Energy Services' wholly owned
subsidiary UGI Development Company ("UGID"), and UGID's subsidiaries and
joint-venture affiliate Hunlock Creek Energy Ventures, own and operate
interests in Pennsylvania-based electricity generation assets. Prior to
their transfer to Energy Services in June 2003, UGID and its subsidiaries
were wholly owned subsidiaries of UGI Utilities. Through other
subsidiaries, Enterprises (1) owns and operates LPG distribution
businesses in France ("Antargaz") and in Austria, the Czech Republic and
Slovakia ("FLAGA"); (2) owns and operates a heating, ventilation,
air-conditioning and refrigeration service business in the Middle Atlantic
states ("HVAC"); and (3) participates in a propane joint-venture business
in China.
-4-
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Millions of dollars, except per share amounts)
Our condensed consolidated financial statements include the accounts of
UGI and its controlled subsidiary companies, which, except for the
Partnership, are majority owned, and are together referred to as "we" or
"the Company." We eliminate all significant intercompany accounts and
transactions when we consolidate. We report the public's limited partner
interests in the Partnership as minority interests. Entities in which we
own 50 percent or less and in which we exercise significant influence over
operating and financial policies are accounted for by the equity method.
The accompanying condensed consolidated financial statements are unaudited
and have been prepared in accordance with the rules and regulations of the
U.S. Securities and Exchange Commission ("SEC"). They include all
adjustments which we consider necessary for a fair statement of the
results for the interim periods presented. Such adjustments consisted only
of normal recurring items unless otherwise disclosed. The September 30,
2003 condensed consolidated balance sheet data was derived from audited
financial statements, but does not include all disclosures required by
accounting principles generally accepted in the United States of America.
These financial statements should be read in conjunction with the
financial statements and related notes included in our Annual Report on
Form 10-K for the year ended September 30, 2003 ("Company's 2003 Annual
Report"). Due to the seasonal nature of our businesses, the results of
operations for interim periods are not necessarily indicative of the
results to be expected for a full year.
EARNINGS PER COMMON SHARE. On January 28, 2003, UGI's Board of Directors
approved a 3-for-2 split of UGI's Common Stock. On April 1, 2003, UGI
issued one additional common share for every two common shares outstanding
to shareholders of record on February 28, 2003. Average shares
outstanding, earnings per share and dividends declared per share for all
periods presented are reflected on a post-split basis.
Basic earnings per share reflect the weighted-average number of common
shares outstanding. Diluted earnings per share include the effects of
dilutive stock options and common stock awards. Shares used in computing
basic and diluted earnings per share are as follows:
Three Months Ended Six Months Ended
March 31, March 31,
------------------ --------------------
2004 2003 2004 2003
------ ------ ------ ------
Denominator (millions of shares):
Average common shares
outstanding for basic computation 44.299 41.958 43.566 41.822
Incremental shares issuable for stock
options and awards 1.011 1.032 1.059 0.968
------ ------ ------ ------
Average common shares outstanding for
diluted computation 45.310 42.990 44.625 42.790
------ ------ ------ ------
STOCK-BASED COMPENSATION. As permitted by Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), we apply the provisions of Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for
-5-
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Millions of dollars, except per share amounts)
Stock Issued to Employees" ("APB 25"), in recording compensation expense
for grants of stock, stock options, and other equity instruments to
employees. We use the intrinsic value method prescribed by APB 25 for our
stock-based employee compensation plans.
We recognized total stock and unit-based compensation expense of $2.4
million and $6.5 million in the three and six months ended March 31, 2004,
respectively, and $4.8 million and $6.6 million in the three and six
months ended March 31, 2003, respectively. If we had determined
stock-based compensation expense under the fair value method prescribed by
SFAS 123, net income and basic and diluted earnings per share for the
three and six months ended March 31, 2004 and 2003 would have been as
follows:
Three Months Ended Six Months Ended
March 31, March 31,
----------------------- -----------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
Net income as reported $ 67.1 $ 69.8 $ 105.9 $ 106.5
Add: Stock and unit-based employee
compensation expense included in
reported net income, net of related tax effects 1.4 2.9 3.9 4.0
Deduct: Total stock and unit-based
employee compensation expense
determined under the fair value method
for all awards, net of related tax effects (1.8) (3.1) (4.4) (4.4)
---------- ---------- ---------- ----------
Pro forma net income $ 66.7 $ 69.6 $ 105.4 $ 106.1
---------- ---------- ---------- ----------
Basic earnings per share:
As reported $ 1.51 $ 1.66 $ 2.43 $ 2.55
Pro forma $ 1.51 $ 1.66 $ 2.42 $ 2.54
Diluted earnings per share:
As reported $ 1.48 $ 1.62 $ 2.37 $ 2.49
Pro forma $ 1.47 $ 1.62 $ 2.36 $ 2.48
---------- ---------- ---------- ----------
COMPREHENSIVE INCOME. The following table presents the components of
comprehensive income for the three and six months ended March 31, 2004 and
2003:
Three Months Ended Six Months Ended
March 31, March 31,
----------------------- -----------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
Net income $ 67.1 $ 69.8 $ 105.9 $ 106.5
Other comprehensive (loss) income (4.2) (1.4) 6.7 3.5
---------- ---------- ---------- ----------
Comprehensive income $ 62.9 $ 68.4 $ 112.6 $ 110.0
---------- ---------- ---------- ----------
Other comprehensive income principally comprises (1) changes in the fair
value of derivative commodity instruments and interest rate protection
agreements qualifying as hedges and (2) foreign currency translation
adjustments, net of reclassifications to net income.
RECLASSIFICATIONS. We have reclassified certain prior-year period balances
to conform to the current-period presentation.
-6-
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Millions of dollars, except per share amounts)
USE OF ESTIMATES. We make estimates and assumptions when preparing
financial statements in conformity with accounting principles generally
accepted in the United States of America. These estimates and assumptions
affect the reported amounts of assets and liabilities, revenues and
expenses, as well as the disclosure of contingent assets and liabilities.
Actual results could differ from these estimates.
UGI UTILITIES PREFERRED SHARES SUBJECT TO MANDATORY REDEMPTION. Beginning
July 1, 2003, the Company accounts for UGI Utilities preferred shares
subject to mandatory redemption in accordance with SFAS No. 150,
"Accounting for Certain Financial Instruments with Characteristics of Both
Liabilities and Equity" ("SFAS 150"). SFAS 150 establishes guidelines on
how an issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. The adoption of SFAS 150
results in the Company presenting UGI Utilities preferred shares subject
to mandatory redemption in the liabilities section of the balance sheet
and reflecting dividends paid on these shares as a component of interest
expense for periods presented after June 30, 2003. Because SFAS 150
specifically prohibits the restatement of financial statements prior to
its adoption, prior period amounts have not been reclassified.
2. COMMON STOCK ACTIVITY
In March 2004, UGI Corporation sold 7.5 million shares of common stock in
an underwritten public offering at a public offering price of $32.10 per
share. The proceeds of the public offering totaling $230.2 million were
used to fund a portion of the purchase price of the remaining ownership
interests in AGZ Holding. During April 2004, the underwriters exercised a
portion of their overallotment option for the purchase of an additional
0.3 million shares.
3. ACQUISITIONS
On March 31, 2004 (the "Closing Date"), UGI, through its subsidiary, UGI
Bordeaux Holding (as assignee of UGI France, Inc. ("UGI France")),
completed its acquisition of the remaining outstanding 80.5% ownership
interests of AGZ Holding, a French corporation and the parent company of
Antargaz, a French corporation and a leading distributor of liquefied
petroleum gases in France, pursuant to the terms of (i) a Share Purchase
Agreement dated as of February 17, 2004, by and among UGI France, UGI, PAI
partners, a French corporation ("PAI"), and certain officers, directors
and managers of AGZ Holding and Antargaz and their affiliates, and (ii)
that certain Medit Joinder Agreement dated February 20, 2004, by and among
UGI France, UGI, Medit Mediterranea GPL, S.r.L., a company incorporated
under the laws of Italy ("Medit"), and PAI. The acquisition of the
remaining interests in AGZ Holding is consistent with our growth
strategies and core competencies.
The purchase price on the Closing Date of 261.8 million euros or $319.2
million (excluding transaction fees and expenses) is subject to
post-closing working capital and net debt adjustments. UGI used $230.2
million of cash proceeds from its public offering of 7.5 million shares of
its common stock in March 2004, and $89.0 million of available cash to
fund the purchase price.
-7-
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Millions of dollars, except per share amounts)
The acquisition of AGZ Holding has been accounted for as a step
acquisition. UGI's initial 19.5% equity investment in AGZ Holding has been
allocated to 19.5% of AGZ Holding's assets and liabilities at March 31,
2004. The amount by which the carrying value of UGI's equity investment
exceeded the aforementioned allocation has been recorded as goodwill. The
purchase price of the remaining 80.5% of AGZ Holding, including
transaction fees and expenses, has been preliminarily allocated to the
assets acquired and liabilities assumed, representing a revaluation of the
portion not already owned by UGI, as follows:
Working capital $ 122.2
Property, plant and equipment 483.5
Goodwill 390.8
Customer relationships (estimated useful life of eleven years) 74.3
Trademark and other intangible assets 18.1
Long-term debt (393.2)
Deferred income taxes (148.0)
Minority interests (11.1)
Other assets and liabilities (212.1)
----------
Total $ 324.5
==========
The Company is currently in the process of completing the review and
determination of the fair value of the portion of AGZ Holding's assets
acquired and liabilities assumed, principally the fair values of property,
plant and equipment and identifiable intangible assets. Accordingly, the
allocation of the purchase price is subject to revision. The assets,
liabilities and equity of AGZ Holding are included in our Condensed
Consolidated Balance Sheet as of March 31, 2004. The operating results of
AGZ Holding will be included in our consolidated results beginning April
1, 2004. The income from our initial 19.5% equity investment is included
in our consolidated results for all periods presented in our Condensed
Consolidated Statements of Income.
The following table presents unaudited pro forma income statement and
basic and diluted per share data for the three and six months ended March
31, 2004 and 2003 as if the acquisition of AGZ Holding had occurred as of
the beginning of those periods:
Three Months Ended Six Months Ended
March 31, March 31,
----------------------- -----------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
Revenues $ 1,569.6 $ 1,421.5 $ 2,639.4 $ 2,371.5
Net income 101.3 97.2 153.1 140.9
Earnings per share:
Basic $ 1.99 $ 1.95 $ 3.02 $ 2.84
Diluted $ 1.96 $ 1.91 $ 2.96 $ 2.79
The pro forma results of operations reflect AGZ Holding's historical
operating results after giving effect to adjustments directly attributable
to the transaction that are expected to have a continuing impact. The pro
forma amounts are not necessarily indicative of the operating
-8-
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Millions of dollars, except per share amounts)
results that would have occurred had the acquisition been completed as of
the dates indicated, nor are they necessarily indicative of future
operating results. The preliminary purchase price allocation was based
upon currently available information and is subject to final adjustments.
Accordingly, the actual adjustments to be recorded in connection with the
final purchase price allocation may differ materially from the preliminary
allocation.
On October 1, 2003, AmeriGas OLP acquired substantially all of the retail
propane distribution assets and business of Horizon Propane LLC ("Horizon
Propane") for total cash consideration of $31.0 million. In December 2003,
AmeriGas OLP paid Horizon Propane a working capital adjustment of $0.1
million in accordance with the Asset Purchase Agreement. During its fiscal
year ended June 30, 2003, Horizon Propane sold over 30 million gallons of
propane from ninety locations in twelve states. In addition, AmeriGas OLP
completed several smaller acquisitions of retail propane businesses and
HVAC acquired a heating, ventilation, air-conditioning and refrigeration
business during the six months ended March 31, 2004. The pro forma effect
of these transactions is not material.
4. SEGMENT INFORMATION
We have organized our business units into five reportable segments
generally based upon products sold, geographic location (domestic or
international) or regulatory environment. Our reportable segments are: (1)
AmeriGas Propane; (2) Gas Utility; (3) Electric Utility; (4) Energy
Services (comprising Energy Services' gas marketing business and UGID's
electricity generation business); and (5) an international propane segment
comprising Antargaz, FLAGA and our international propane equity investment
("International Propane"). As discussed in Note 3, the preliminary
purchase price allocation of AGZ Holding is included in the balance sheet
segment information.
Effective October 1, 2003, we realigned our business units in order to
expand the energy management services available to our customers and
strengthen our focus on power marketing. Under the realignment, the
operating results of UGID have been combined with those of Energy Services
rather than with UGI Utilities' Electric Utility as in prior periods. We
have restated our segment data for the three and six months ended and as
of March 31, 2003 to be consistent with current period presentation.
The accounting policies of the five segments disclosed are the same as
those described in the Significant Accounting Policies note contained in
the Company's 2003 Annual Report. We evaluate AmeriGas Propane's
performance principally based upon the Partnership's earnings before
interest expense, income taxes, depreciation and amortization
("Partnership EBITDA"). Although we use Partnership EBITDA to evaluate
AmeriGas Propane's profitability, it should not be considered as an
alternative to net income (as an indicator of operating performance) or as
an alternative to cash flow (as a measure of liquidity or ability to
service debt obligations) and is not a measure of performance or financial
condition under accounting principles generally accepted in the United
States of America. The Company's definition of Partnership EBITDA may be
different from that used by other companies. We evaluate the performance
of our Gas Utility, Electric Utility, Energy Services and International
Propane segments principally based upon their income before income taxes.
-9-
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Millions of dollars, except per share amounts)
4. SEGMENT INFORMATION (CONTINUED)
Three Months Ended March 31, 2004:
Reportable Segments
---------------------------------------------------------
AmeriGas Gas Electric Energy International Corporate
Total Elims. Propane Utility Utility Services Propane & Other (a)
-------- ------- -------- ------- -------- ---------- ------------- ----------
Revenues $1,316.6 $ (0.7) $ 687.7 $ 243.5 $ 24.7 $ 328.8 $ 18.6 $ 14.0
======== ======= ======== ======= ======== ========== ========== ==========
Cost of sales $ 914.4 $ - $ 405.2 $ 165.0 $ 11.5 $ 315.3 $ 9.3 $ 8.1
======== ======= ======== ======= ======== ========== ========== ==========
Segment profit:
Operating income (loss) $ 181.6 $ - $ 127.2 $ 46.5 $ 6.8 $ 7.5 $ (6.3) $ (0.1)
Income from equity investees 8.4 - 0.7 - - - 7.7 -
Interest expense (26.7) - (21.2) (3.9) (0.5) - (1.0) (0.1)
Minority interests in AmeriGas
Partners (55.6) (55.6)
-------- ------- -------- ------- -------- ---------- ---------- ----------
Income before income taxes $ 107.7 $ - $ 51.1 $ 42.6 $ 6.3 $ 7.5 $ 0.4 $ (0.2)
======== ======= ======== ======= ======== ========== ========== ==========
Depreciation and amortization $ 28.4 $ - $ 19.8 $ 5.1 $ 1.0 $ 1.0 $ 1.2 $ 0.3
Partnership EBITDA (b) $ 146.6
Segment assets (at period end) $4,358.9 $(352.5) $1,594.9 $ 763.2 $ 89.0 $ 217.6 $ 1,635.1 $ 411.6
======== ======= ======== ======= ======== ========== ========== ==========
Investments in equity investees
(at period end) $ 15.1 $ - $ 3.5 $ - $ - $ 8.7 $ 2.9 $ -
======== ======= ======== ======= ======== ========== ========== ==========
Goodwill and excess reorganization
value (at period end) $1,171.6 $ - $ 605.7 $ - $ - $ 2.8 $ 557.9 $ 5.2
======== ======= ======== ======= ======== ========== ========== ==========
Three Months Ended March 31, 2003:
Reportable Segments
---------------------------------------------------------
AmeriGas Gas Electric Energy International Corporate
Total Elims. Propane Utility Utility Services Propane & Other (a)
-------- ------- -------- ------- -------- ---------- ------------- ----------
Revenues $1,135.9 $ (0.6) $ 625.6 $ 239.9 $ 24.7 $ 217.2 $ 18.1 $ 11.0
======== ======= ======== ======= ======== ========== ========== ==========
Cost of sales $ 754.9 $ - $ 360.6 $ 159.0 $ 11.7 $ 207.3 $ 10.3 $ 6.0
======== ====== ======== ======= ======== ========== ========== ==========
Segment profit:
Operating income $ 184.4 $ - $ 115.6 $ 55.1 $ 6.5 $ 5.9 $ 1.3 $ -
Income (loss) from equity investees 5.0 - (0.1) - - - 5.1 -
Loss on extinguishment of debt (3.0) - (3.0) - - - - -
Interest expense (27.1) - (21.8) (3.5) (0.7) - (1.0) (0.1)
Minority interests in AmeriGas - -
Partners (44.8) - (44.8) - -
-------- ------ -------- ------- -------- ---------- ---------- ----------
Income before income taxes $ 114.5 $ - $ 45.9 $ 51.6 $ 5.8 $ 5.9 $ 5.4 $ (0.1)
======== ====== ======== ======= ======== ========== ========== ==========
Depreciation and amortization $ 25.4 $ - $ 18.6 $ 4.6 $ 0.7 $ 0.3 $ 0.9 $ 0.3
Partnership EBITDA (b) $ 129.9
Segment assets (at period end) $2,900.5 $(43.7) $1,580.9 $ 744.9 $ 91.0 $ 168.6 $ 162.1 $ 196.7
======== ====== ======== ======= ======== ========== ========== ==========
Investments in equity investees
(at period end) $ 46.1 $ - $ 3.5 $ - $ - $ 11.4 $ 31.2 $ -
======== ====== ======== ======= ======== ========== ========== ==========
Goodwill and excess reorganization
value (at period end) $ 653.5 $ - $ 590.3 $ - $ - $ - $ 58.7 $ 4.5
======== ====== ======== ======= ======== ========== ========== ==========
(a) Corporate & Other results of operations principally comprise UGI
Enterprises' HVAC operations, net expenses of UGI's captive general liability
insurance company and UGI Corporation's unallocated corporate and general
expenses, and interest income. Corporate & Other assets principally comprise
cash, short-term investments and an intercompany loan.
(b) The following table provides a reconciliation of Partnership EBITDA to
AmeriGas Propane operating income:
Three months ended March 31, 2004 2003
---------------------------- -------------- --------------
Partnership EBITDA $ 146.6 $ 129.9
Depreciation and amortization (i) (19.8) (18.4)
Minority interests (ii) 1.1 1.0
(Income) loss from equity investees (0.7) 0.1
Loss on extinguishment of debt - 3.0
-------------- --------------
Operating income $ 127.2 $ 115.6
============== ==============
(i) Excludes General Partner depreciation and amortization of $0.2 in the three
months ended March 31, 2003.
(ii) Principally represents the General Partner's 1.01% interest in AmeriGas
OLP.
-10-
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Millions of dollars, except per share amounts)
4. SEGMENT INFORMATION (CONTINUED)
Six Months Ended March 31, 2004:
Reportable Segments
---------------------------------------------------------
AmeriGas Gas Electric Energy International Corporate
Total Elims. Propane Utility Utility Services Propane & Other (a)
------- ------- -------- ------- -------- ---------- ------------- ----------
Revenues $2,210.3 $ (1.3) $1,147.9 $ 392.8 $ 46.1 $ 561.7 $ 34.4 $ 28.7
======== ======= ======== ======= ======== ========== ============= ==========
Cost of sales $1,511.4 $ - $ 659.7 $ 260.1 $ 22.0 $ 536.0 $ 16.9 $ 16.7
======== ======= ======== ======= ======== ========== ============= ==========
Segment profit:
Operating income (loss) $ 289.9 $ - $ 192.8 $ 75.9 $ 11.3 $ 13.8 $ (4.5) $ 0.6
Income from equity investees 12.6 - 0.7 - - - 11.9 -
Interest expense (53.4) - (42.3) (8.0) (1.0) - (1.9) (0.2)
Minority interests in
AmeriGas Partners (78.3) - (78.3) - - - - -
-------- ------- -------- ------- -------- ---------- ------------- ----------
Income before income taxes $ 170.8 $ - $ 72.9 $ 67.9 $ 10.3 $ 13.8 $ 5.5 $ 0.4
======== ======= ======== ======= ======== ========== ============= ==========
Depreciation and amortization $ 55.8 $ - $ 39.5 $ 9.7 $ 1.7 $ 2.0 $ 2.3 $ 0.6
Partnership EBITDA (b) $ 231.2
Segment assets (at period end) $4,358.9 $(352.5) $1,594.9 $ 763.2 $ 89.0 $ 217.6 $ 1,635.1 $ 411.6
======== ======= ======== ======= ======== ========== ============= ==========
Investments in equity investees
(at period end) $ 15.1 $ - $ 3.5 $ - $ - $ 8.7 $ 2.9 $ -
======== ======= ======== ======= ======== ========== ============= ==========
Goodwill and excess reorganization
value (at period end) $1,171.6 $ - $ 605.7 $ - $ - $ 2.8 $ 557.9 $ 5.2
======== ======= ======== ======= ======== ========== ============= ==========
Six Months Ended March 31, 2003:
Reportable Segments
---------------------------------------------------------
AmeriGas Gas Electric Energy International Corporate
Total Elims. Propane Utility Utility Services Propane & Other (a)
-------- ------ -------- ------- -------- ---------- ------------- ----------
Revenues $1,875.8 $ (1.2) $1,070.6 $ 385.0 $ 46.2 $ 322.1 $ 32.4 $ 20.7
======== ====== ======== ======= ======== ========== ============= ==========
Cost of sales $1,208.0 $ - $ 604.0 $ 247.4 $ 21.6 $ 305.4 $ 18.6 $ 11.0
======== ====== ======== ======= ======== ========== ============= ==========
Segment profit:
Operating income $ 291.8 $ - $ 179.8 $ 88.6 $ 12.1 $ 9.8 $ 1.6 $ (0.1)
Income from equity investees 6.9 - 0.1 - - - 6.8 -
Loss on extinguishment of debt (3.0) - (3.0) - - - - -
Interest expense (55.3) - (44.5) (7.2) (1.3) - (2.1) (0.2)
Minority interests in AmeriGas
Partners (65.3) - (65.3) - - - - -
-------- ------ -------- ------- -------- ---------- ------------- ----------
Income before income taxes $ 175.1 $ - $ 67.1 $ 81.4 $ 10.8 $ 9.8 $ 6.3 $ (0.3)
======== ====== ======== ======= ======== ========== ============= ==========
Depreciation and amortization $ 49.6 $ - $ 36.1 $ 9.1 $ 1.5 $ 0.6 $ 1.8 $ 0.5
Partnership EBITDA (b) $ 211.2
Segment assets (at period end) $2,900.5 $(43.7) $1,580.9 $ 744.9 $ 91.0 $ 168.6 $ 162.1 $ 196.7
======== ====== ======== ======= ======== ========== ============= ==========
Investments in equity investees
(at period end) $ 46.1 $ - $ 3.5 $ - $ - $ 11.4 $ 31.2 $ -
======== ====== ======== ======= ======== ========== ============= ==========
Goodwill and excess reorganization
value (at period end) $ 653.5 $ - $ 590.3 $ - $ - $ - $ 58.7 $ 4.5
======== ====== ======== ======= ======= ========== ============= ==========
(a) Corporate & Other results of operations principally comprise UGI
Enterprises' HVAC operations, net expenses of UGI's captive general liability
insurance company and UGI Corporation's unallocated corporate and general
expenses, and interest income. Corporate & Other assets principally comprise
cash, short-term investments and an intercompany loan.
(b) The following table provides a reconciliation of Partnership EBITDA to
AmeriGas Propane operating income:
Six months ended March 31, 2004 2003
-------------------------- ------- -------
Partnership EBITDA $ 231.2 $ 211.2
Depreciation and amortization (i) (39.5) (35.9)
Minority interests (ii) 1.8 1.6
Income from equity investees (0.7) (0.1)
Loss on extinguishment of debt - 3.0
------- -------
Operating income $ 192.8 $ 179.8
======= =======
(i) Excludes General Partner depreciation and amortization of $0.2 in
the six months ended March 31, 2003.
(ii) Principally represents the General Partner's 1.01% interest in AmeriGas
OLP.
-11-
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Millions of dollars, except per share amounts)
5. INTANGIBLE ASSETS
The Company's intangible assets comprise the following:
March 31, September 30,
2004 2003
-------------- --------------
Not subject to amortization:
Goodwill $ 1,078.3 $ 578.2
Excess reorganization value 93.3 93.3
-------------- --------------
$ 1,171.6 $ 671.5
-------------- --------------
Other intangible assets:
Customer relationships, noncompete
agreements and other $ 143.2 $ 51.1
Trademark (not subject to amortization) 21.3 -
-------------- --------------
Gross carrying amount 164.5 51.1
-------------- --------------
Accumulated amortization (19.6) (16.4)
-------------- --------------
$ 144.9 $ 34.7
============== ==============
The increase in intangible assets during the six months ended March 31,
2004 principally reflects the acquisitions of AGZ Holding and Horizon
Propane. The allocation of AGZ Holding's purchase price to goodwill,
customer list, trademark and other intangible assets is preliminary and is
subject to revision. Amortization expense of intangible assets was $1.5
million and $3.2 million for the three and six months ended March 31,
2004, respectively and $1.4 million and $2.5 million for the three and six
months ended March 31, 2003, respectively. Our expected aggregate
amortization expense of intangible assets for the next five fiscal years
is as follows: Fiscal 2004 - $10.1 million; Fiscal 2005 - $13.2 million;
Fiscal 2006 - $12.7 million; Fiscal 2007 - $12.0 million; Fiscal 2008 -
$11.7 million.
6. ENERGY SERVICES ACCOUNTS RECEIVABLE SECURITIZATION FACILITY
Energy Services has a $100 million receivables purchase facility
("Receivables Facility") with an issuer of receivables-backed commercial
paper expiring on August 26, 2006, although the Receivables Facility may
terminate prior to such date due to the termination of the commitments of
the Receivables Facility back-up purchasers. Under the Receivables
Facility, Energy Services transfers, on an ongoing basis and without
recourse, its trade accounts receivable to its wholly owned, special
purpose subsidiary, Energy Services Funding Corporation ("ESFC"), which is
consolidated for financial statement purposes. ESFC, in turn, has sold,
and subject to certain conditions, may from time to time sell, an
undivided interest in the receivables to a commercial paper conduit of a
major bank. The maximum level of funding available at any one time from
this facility is $100 million. The proceeds of these sales are less than
the face amount of the accounts receivable sold by an amount that
approximates the purchaser's financing cost of issuing its own
receivables-backed commercial paper. ESFC was created and has been
structured to isolate its assets from creditors of Energy Services and its
affiliates, including UGI. This two-step transaction is accounted for as a
sale of receivables following the provisions of SFAS No. 140, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
-12-
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Millions of dollars, except per share amounts)
Liabilities." Energy Services continues to service, administer and collect
trade receivables on behalf of the commercial paper issuer and ESFC.
During the three and six months ended March 31, 2004 Energy Services sold
trade receivables totaling $325.7 million and $543.0 million,
respectively, to ESFC. During the three months ended March 31, 2004, ESFC
sold an aggregate $129 million of undivided interests in its trade
receivables to the commercial paper conduit. At March 31, 2004, the
outstanding balance of ESFC trade receivables was $90.2 million which
amount is net of $12 million in trade receivables sold to the commercial
paper conduit.
In addition, a major bank has committed to issue up to $50 million of
standby letters of credit, secured by cash or marketable securities ("LC
Facility"). Energy Services expects to fund the collateral requirements
with borrowings under its Receivables Facility. The LC Facility expires on
September 13, 2004.
7. DEFINED BENEFIT PENSION AND OTHER POSTRETIREMENT PLANS
In December 2003, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 132 (revised 2003), "Employers' Disclosures about Pensions and
Other Postretirement Benefits" ("SFAS 132"). As required by SFAS 132, the
Company is providing the following supplemental disclosures regarding its
defined benefit pension plans and its postretirement health and life
insurance plans.
We sponsor a defined benefit pension plan ("UGI Utilities Pension Plan")
for employees of UGI, UGI Utilities, and certain of UGI's other wholly
owned subsidiaries. In addition, we provide postretirement health care
benefits to certain retirees and a limited number of active employees
meeting certain age and service requirements, and postretirement life
insurance benefits to nearly all domestic active and retired employees.
Net periodic expense (income) and other postretirement benefit costs
include the following components:
-13-
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Millions of dollars, except per share amounts)
Other
Pension Benefits Postretirements Benefits
Three Months Ended Three Months Ended
March 31, March 31,
----------------------- -----------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
Service cost $ 1.2 $ 1.1 $ - $ -
Interest cost 3.2 3.2 0.4 0.4
Expected return on assets (4.3) (4.5) (0.1) (0.1)
Amortization of:
Transition (asset) obligation (0.3) (0.4) 0.2 0.2
Prior service cost 0.2 0.2 - -
Actuarial (gain) loss 0.3 0.1 0.1 -
---------- ---------- ---------- ----------
Net benefit cost (income) 0.3 (0.3) 0.6 0.5
Change in regulatory assets
and liabilities - - 0.3 0.3
---------- ---------- ---------- ----------
Net expense (income) $ 0.3 $ (0.3) $ 0.9 $ 0.8
---------- ---------- ---------- ----------
Other
Pension Benefits Postretirements Benefits
Six Months Ended Six Months Ended
March 31, March 31,
----------------------- -----------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
Service cost $ 2.5 $ 2.3 $ 0.1 $ 0.1
Interest cost 6.5 6.5 0.7 0.9
Expected return on assets (8.7) (9.0) (0.2) (0.2)
Amortization of:
Transition (asset) obligation (0.7) (0.8) 0.3 0.5
Prior service cost 0.3 0.3 - -
Actuarial (gain) loss 0.6 0.1 0.1 0.1
---------- ---------- ---------- ----------
Net benefit cost (income) 0.5 (0.6) 1.0 1.4
Change in regulatory assets
and liabilities - - 0.5 0.5
---------- ---------- ---------- ----------
Net expense (income) $ 0.5 $ (0.6) $ 1.5 $ 1.9
---------- ---------- ---------- ----------
UGI Utilities Pension Plan assets are held in trust and consist
principally of equity and fixed income mutual funds. The Company does not
believe it will be required to make any contributions to the UGI Utilities
Pension Plan during the year ended September 30, 2004. Pursuant to orders
previously issued by the PUC, UGI Utilities has established a Voluntary
Employees' Beneficiary Association ("VEBA") trust to fund the UGI
Utilities' postretirement obligations and to pay retiree health care and
life insurance benefits by depositing into the VEBA the annual amount of
postretirement benefits costs determined under SFAS No. 106, "Employers
Accounting for Postretirement Benefits Other Than Pensions." The
difference between the annual amount calculated and the amount included in
UGI Utilities' rates is deferred for future recovery from, or refund to,
ratepayers. UGI Utilities expects to contribute approximately $2.3 million
to the VEBA during the year ended September 30, 2004, subject to the
actuarial impact of the Medicare Prescription Drug Improvement and
Modernization Act of 2003 (as more fully described in Note 10 to Condensed
Consolidated Financial Statements). Through March 31, 2004, UGI Utilities
has made contributions of approximately $1.2 million to the VEBA.
-14-
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Millions of dollars, except per share amounts)
The net benefit cost of our unfunded and non-qualified supplemental
executive retirement plans includes the following components:
Three Months Ended Six Months Ended
March 31, March 31,
--------------------------- ---------------------------
2004 2003 2004 2003
------------ ------------ ------------ ------------
Service cost $ 0.1 $ 0.1 $ 0.2 $ 0.1
Interest cost 0.2 0.1 0.3 0.3
Amortization of:
Transition obligation - - 0.1 0.1
Prior service cost - - - -
Actuarial loss 0.1 0.1 0.2 0.1
------------ ------------ ------------ ------------
Net benefit cost $ 0.4 $ 0.3 $ 0.8 $ 0.6
------------ ------------ ------------ ------------
8. LONG-TERM DEBT
In conjunction with the acquisition of the remaining interests in AGZ
Holding, $452.7 million of long-term debt has been reflected in our
Condensed Consolidated Balance Sheet at March 31, 2004.
In April 2004, AmeriGas OLP repaid $53.8 million of maturing First
Mortgage Notes. In conjunction with this repayment, in April 2004,
AmeriGas Partners issued $28 million face amount of 8.875% Senior Notes
due 2011, at an effective interest rate of 7.18%, and contributed the net
proceeds of $30.1 million to AmeriGas OLP.
On December 3, 2002, AmeriGas Partners issued $88 million face amount of
8.875% Senior Notes due 2011 at an effective interest rate of 8.30%. The
proceeds, net of underwriters' fees, of $89.1 million were used on January
6, 2003 to redeem prior to maturity AmeriGas Partners' $85 million face
amount of 10.125% Senior Notes due 2007 at a redemption price of 102.25%,
plus accrued interest. The Partnership recognized a loss of $3.0 million
in the quarter ended March 31, 2003 related to the redemption premium and
other associated costs and expenses.
9. COMMITMENTS AND CONTINGENCIES
The Partnership has succeeded to certain lease guarantee obligations of
Petrolane relating to Petrolane's divestiture of nonpropane operations
before its 1989 acquisition by QFB Partners. Future lease payments under
these leases total approximately $13 million at March 31, 2004. The leases
expire through 2010 and some of them are currently in default. The
Partnership has succeeded to the indemnity agreement of Petrolane by which
Texas Eastern Corporation ("Texas Eastern"), a prior owner of Petrolane,
agreed to indemnify Petrolane against any liabilities arising out of the
conduct of businesses that do not relate to, and are not a part of, the
propane business, including lease guarantees. In December 1999, Texas
Eastern filed for dissolution under the Delaware General Corporation Law.
In May 2001, Petrolane filed a declaratory judgment action in the Delaware
Chancery Court seeking confirmation of Texas Eastern's indemnification
obligations and judicial supervision of Texas Eastern's dissolution to
ensure that its indemnification obligations to Petrolane are paid or
adequately provided for in accordance with law. Those proceedings are
pending. Pursuant to a Liquidation and Winding Up Agreement dated
September 17, 2002, PanEnergy
-15-
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Millions of dollars, except per share amounts)
Corporation ("PanEnergy"), Texas Eastern's sole stockholder, assumed all
of Texas Eastern's liabilities as of December 20, 2002, to the extent of
the value of Texas Eastern's assets transferred to PanEnergy as of that
date (which was estimated to exceed $94 million), and to the extent that
such liabilities arise within ten years from Texas Eastern's date of
dissolution. Notwithstanding the dissolution proceeding, and based on
Texas Eastern previously having satisfied directly defaulted lease
obligations without the Partnership's having to honor its guarantee, we
believe that the probability that the Partnership will be required to
directly satisfy the lease obligations subject to the indemnification
agreement is remote.
On August 21, 2001, AmeriGas Partners, through AmeriGas OLP, acquired the
propane distribution businesses of Columbia Energy Group (the "2001
Acquisition") pursuant to the terms of a purchase agreement (the "2001
Acquisition Agreement") by and among Columbia Energy Group ("CEG"),
Columbia Propane Corporation ("Columbia Propane"), Columbia Propane, L.P.
("CPLP"), CP Holdings, Inc. ("CPH," and together with Columbia Propane and
CPLP, the "Company Parties"), AmeriGas Partners, AmeriGas OLP and the
General Partner (together with AmeriGas Partners and AmeriGas OLP, the
"Buyer Parties"). As a result of the 2001 Acquisition, AmeriGas OLP
acquired all of the stock of Columbia Propane and CPH and substantially
all of the partnership interests of CPLP. Under the terms of an earlier
acquisition agreement (the "1999 Acquisition Agreement"), the Company
Parties agreed to indemnify the former general partners of National
Propane Partners, L.P. (a predecessor company of the Columbia Propane
businesses) and an affiliate (collectively, "National General Partners")
against certain income tax and other losses that they may sustain as a
result of the 1999 acquisition by CPLP of National Propane Partners, L.P.
(the "1999 Acquisition") or the operation of the business after the 1999
Acquisition ("National Claims"). At March 31, 2004, the potential amount
payable under this indemnity by the Company Parties was approximately $63
million. These indemnity obligations will expire on the date that CPH
acquires the remaining outstanding partnership interest of CPLP, which is
expected to occur on or after July 19, 2009.
Under the terms of the 2001 Acquisition Agreement, CEG agreed to indemnify
the Buyer Parties and the Company Parties against any losses that they
sustain under the 1999 Acquisition Agreement and related agreements
("Losses"), including National Claims, to the extent such claims are based
on acts or omissions of CEG or the Company Parties prior to the 2001
Acquisition. The Buyer Parties agreed to indemnify CEG against Losses,
including National Claims, to the extent such claims are based on acts or
omissions of the Buyer Parties or the Company Parties after the 2001
Acquisition. CEG and the Buyer Parties have agreed to apportion certain
losses resulting from National Claims to the extent such losses result
from the 2001 Acquisition itself.
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
-16-
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Millions of dollars, except per share amounts)
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 three 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 owned or operated
an MGP. There could be, however, significant future costs of an uncertain
amount associated with environmental damage caused by MGPs outside
Pennsylvania that UGI Utilities directly operated, or that were owned or
operated by former subsidiaries of UGI Utilities, if a court were to
conclude that (1) the subsidiary's separate corporate form should be
disregarded or (2) UGI Utilities should be considered to have been an
operator because of its conduct with respect to its subsidiary's MGP.
In April 2003, Citizens Communications Company ("Citizens") served a
complaint naming UGI Utilities as a third-party defendant in a civil
action pending in United States District Court for the District of Maine.
In that action, the plaintiff, City of Bangor, Maine ("City"), sued
Citizens to recover environmental response costs associated with MGP
wastes generated at a plant allegedly operated by Citizens' predecessors
at a site on the Penobscot River. Citizens subsequently joined UGI
Utilities and ten other third party defendants alleging that the
third-party defendants are responsible for an equitable share of costs
Citizens may be required to pay to the City for cleaning up tar deposits
in the Penobscot River. The City believes that it could cost as much as
$50 million to clean up the river. UGI Utilities believes that it has good
defenses to the claim and is defending the suit.
By letter dated July 29, 2003, Atlanta Gas Light Company ("AGL") served
UGI Utilities with a complaint filed in the United States District Court
for the Middle District of Florida in which AGL alleges that UGI Utilities
is responsible for 20% of approximately $8.0 million incurred by AGL in
the investigation and remediation of a former MGP site in St. Augustine,
Florida. UGI Utilities formerly owned stock of the St. Augustine Gas
Company, the owner and operator of the MGP. UGI Utilities believes that it
has good defenses to the claim and is defending the suit.
AGL previously informed UGI Utilities that it was investigating
contamination that appeared to be related to MGP operations at a site
owned by AGL in Savannah, Georgia. A former subsidiary of UGI Utilities'
operated the MGP in the early 1900's. AGL has recently informed UGI
Utilities that it has begun remediation of MGP wastes at the site and
believes that the total cost of remediation could be as high as $55
million. AGL has stated an intention
-17-
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Millions of dollars, except per share amounts)
to make a claim against UGI Utilities for a share of these costs. UGI
Utilities believes that it will have substantial defenses to any action
that may arise out of this site.
On September 20, 2001, Consolidated Edison Company of New York ("ConEd")
filed suit against UGI Utilities in the United States District Court for
the Southern District of New York, seeking contribution from UGI Utilities
for an allocated share of response costs associated with investigating and
assessing gas plant related contamination at former MGP sites in
Westchester County, New York. The complaint alleges that UGI Utilities
"owned and operated" the MGPs prior to 1904. The complaint also seeks a
declaration that UGI Utilities is responsible for an allocated percentage
of future investigative and remedial costs at the sites. ConEd believes
that the cost of remediation for all of the sites could exceed $70
million. In November 2003, the court granted UGI Utilities' motion for
summary judgment in part, dismissing all claims premised on a disregard of
the separate corporate form of UGI Utilities' former subsidiaries and
dismissing claims premised on UGI Utilities' operation of three of the
MGPs under operating leases with ConEd's predecessors. The court reserved
decision on the remaining theory of liability, that UGI Utilities was a
direct operator of the remaining MGPs. In March 2004, the court granted
summary judgment on the remaining claims and dismissed ConEd's complaint.
ConEd has appealed.
Antargaz has filed suit against the French tax authorities in connection
with the assessment of business tax related to the tax treatment of
Antargaz owned tanks at customer locations used to store LPG. Antargaz has
recorded a liability for the business tax relating to tanks for the period
from January 1, 1997 through March 31, 2004 of approximately 25.4 million
euros ($31.2 million). Elf Antar France, now Total France, and Elf
Aquitaine, former owners of Antargaz, agreed to indemnify Antargaz for all
payments which would have been due from Antargaz in respect of the
business tax related to its tanks for the period from January 1, 1997
through December 31, 2000. As of March 31, 2004, the indemnity from the
former owners represents approximately 9.4 million euros ($11.6 million)
of the business tax liability. In March 2004, the local court rendered a
decision against Antargaz which resulted in a 1.7 million euros ($2.1
million) assessment by the tax assessor relating to the business tax at
certain sites in the pending suit. Antargaz paid this assessment and was
fully reimbursed in April 2004 for this assessment pursuant to the
indemnity agreement.
In addition to these matters, there are other pending claims and legal
actions arising in the normal course of our businesses. We cannot predict
with certainty the final results of environmental and other matters.
However, it is reasonably possible that some of them could be resolved
unfavorably to us. Although we currently believe that damages or
settlements, if any, recovered by the plaintiffs in such claims or actions
will not have a material adverse effect on our financial position, damages
or settlements could be material to our operating results or cash flows in
future periods depending on the nature and timing of future developments
with respect to these matters and the amounts of future operating results
and cash flows.
-18-
UGI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Millions of dollars, except per share amounts)
10. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In December 2003, the FASB revised Financial Interpretation No. 46,
"Consolidation of Variable Interest Entities" ("FIN 46"), which was
originally issued in January 2003 and clarifies Accounting Research
Bulletin No. 51, "Consolidated Financial Statements." FIN 46 was effective
immediately for variable interest entities created or obtained after
January 31, 2003. For variable interests created or acquired before
February 1, 2003, FIN 46 is effective for our interim period ended March
31, 2004. If certain conditions are met, FIN 46 requires the primary
beneficiary to consolidate certain variable interest entities. The Company
has not created or obtained any variable interest entities after January
31, 2003. The adoption of FIN 46 did not have a material effect on the
Company's financial position or results of operations.
On December 8, 2003, the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (the "Act") was signed into law. Among other
things, the Act provides for a prescription drug benefit to Medicare
beneficiaries on a voluntary basis beginning in 2006. To encourage
employers to continue to offer retiree prescription drug benefits, the Act
provides for a tax-free subsidy to employers who offer a prescription drug
benefit that is at least actuarially equivalent to the standard benefit
offered under the Act.
The Company provides postretirement health care benefits principally to
certain of UGI Utilities' retirees and a limited number of active
employees meeting certain age and service requirements. These
postretirement benefits include certain retiree prescription drug
benefits. Pursuant to orders previously issued by the PUC, UGI Utilities
has established a VEBA trust to fund UGI Utilities' postretirement benefit
obligations and to pay retiree health care and life insurance benefits by
depositing into the VEBA the annual amount of postretirement benefit costs
determined under SFAS No. 106, "Employers Accounting for Postretirement
Benefits Other than Pensions." The difference between the annual amount
calculated and the amount in UGI Utilities' rates is deferred for future
recovery from, or refund to, ratepayers.
We have elected to defer recognizing the effects of the Act in accounting
for these benefits and in providing disclosures until authoritative
guidance on the accounting for the federal subsidy is issued, in
accordance with FASB Staff Position No. FAS 106-1, "Accounting and
Disclosure Requirements Related to the Medicare Prescription Drug,
Improvement and Modernization Act of 2003" ("FSP 106-1"). Therefore, the
Condensed Consolidated Financial Statements and accompanying footnotes do
not reflect the effects of the Act. Authoritative guidance, when issued,
could require us to change the amount of postretirement benefit costs we
are currently recording. However, under the current ratemaking described
above, any increases or decreases in postretirement benefit costs
resulting from the Act will not affect our reported results. In addition,
because of the limited number of participants in the program and the
current level of postretirement benefits, we do not believe the Act will
have a material effect on the Company's cash flows.
-19-
UGI CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Information contained in this Financial Review and elsewhere in this Quarterly
Report may contain forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. Such statements use forward-looking words such as "believe," "plan,"
"anticipate," "continue," "estimate," "expect," "may," "will," or other similar
words. These statements discuss plans, strategies, events or developments that
we expect or anticipate will or may occur in the future.
A forward-looking statement may include a statement of the assumptions or bases
underlying the forward-looking statement. We believe that we have chosen these
assumptions or bases in good faith and that they are reasonable. However, we
caution you that actual results almost always vary from assumed facts or bases,
and the differences between actual results and assumed facts or bases can be
material, depending on the circumstances. When considering forward-looking
statements, you should keep in mind the following important factors which could
affect our future results and could cause those results to differ materially
from those expressed in our forward-looking statements: (1) adverse weather
conditions resulting in reduced demand; (2) price volatility and availability of
propane, oil, electricity, and natural gas and the capacity to transport them to
our market areas; (3) changes in domestic and foreign laws and regulations,
including safety, tax and accounting matters; (4) competitive pressures from the
same and alternative energy sources; (5) failure to acquire new customers
thereby reducing or limiting any increase in revenues; (6) liability for
environmental claims; (7) customer conservation measures and improvements in
energy efficiency and technology resulting in reduced demand; (8) adverse labor
relations; (9) large customer, counterparty or supplier defaults; (10) liability
for personal injury and property damage arising from explosions and other
catastrophic events, including acts of terrorism, resulting from operating
hazards and risks incidental to generating and distributing electricity and
transporting, storing and distributing natural gas and propane including
liability in excess of insurance coverage; (11) political, regulatory and
economic conditions in the United States and in foreign countries; (12) interest
rate fluctuations and other capital market conditions, including foreign
currency rate fluctuations; (13) reduced distributions from subsidiaries; and
(14) the timing and success of the Company's efforts to develop new business
opportunities.
These factors are not necessarily all of the important factors that could cause
actual results to differ materially from those expressed in any of our
forward-looking statements. Other unknown or unpredictable factors could also
have material adverse effects on future results. We undertake no obligation to
update publicly any forward-looking statement whether as a result of new
information or future events as required by federal securities laws.
ANALYSIS OF RESULTS OF OPERATIONS
The following analyses compare our results of operations for (1) the three
months ended March 31, 2004 ("2004 three-month period") with the three months
ended March 31, 2003 ("2003 three-month period") and (2) the six months ended
March 31, 2004 ("2004 six-month period") with the six months ended March 31,
2003 ("2003 six-month period"). Effective October 1, 2003, our Energy Services
segment includes the operating results of Energy Services' gas marketing
business as well as UGID's electricity generation business. Energy Services'
segment presentation for the 2003 three-month period and 2003 six-month period
have been restated to conform to the current period presentation. Our analyses
of results of operations should be read in conjunction with the segment
information included in Note 4 to the Condensed Consolidated Financial
Statements.
Three Months Ended Six Months Ended
March 31, March 31,
------------------ --------------------
2004 2003 2004 2003
------ ------ ------ ------
(millions of dollars)
Net income (loss):
AmeriGas Propane (a) $ 30.8 $ 27.7 $ 43.7 $ 40.4
Gas Utility 25.6 30.5 40.8 48.1
Electric Utility 3.4 3.3 5.8 6.2
Energy Services (b) 4.3 3.5 8.0 5.8
International Propane 2.9 5.4 7.7 6.6
Corporate & Other 0.1 (0.6) (0.1) (0.6)
------ ------ ------ ------
Total net income $ 67.1 $ 69.8 $105.9 $106.5
------ ------ ------ ------
(a) Amounts are net of minority interests in AmeriGas Partners, L.P.
(b) Effective October 1, 2003, the Energy Services segment includes the
operating results of Energy Services' gas marketing business as well as
UGID's electricity generation business. Energy Services' segment
presentation for the 2003 three- and six-month periods have been restated
to conform to the current period presentation.
Net income of $67.1 million for the 2004 three-month period was lower than
the $69.8 million for the 2003 three-month period as a result of (1) weather
that was warmer than the prior year in all of our operating territories, (2)
increased operating and administrative expense in our Gas Utility, (3) lower
average unit margins from seasonal margin realization in our gas marketing
business, and (4) a loss on settlement of contracts for the forward purchase of
euros in connection with the purchase of the remaining 80.5% ownership interests
that we did not already own in AGZ Holding, the parent company of French LPG
distributor, Antargaz. The negative impact of the forgoing issues was
substantially offset by (1) the increased retail volume in AmeriGas Propane
primarily due to the acquisition in October 2003 of Horizon Propane, (2) the
acquisition by UGID of an additional 4.9% interest in the Conemaugh electricity
generation station, (3) the acquisition by Energy Services of the gas marketing
business of TXU Energy Retail Company, L.P., and (4) an increase in the income
from equity investees, principally Antargaz.
Average diluted shares outstanding were 5.4% higher for the 2004 three-month
quarter reflecting a common share issuance in March 2004 to fund a portion of
the purchase price of AGZ Holding and the dilutive effect of common stock
options.
-20-
UGI CORPORATION AND SUBSIDIARIES
For the 2004 six-month period, net income was lower than the 2003 six-month
period for the reasons stated above as well as weather that was warmer than the
first fiscal quarter of 2003 in our utility businesses.
As we look ahead to the remainder of fiscal 2004, our results of operations will
include the consolidated results of operations of Antargaz beginning April 1,
2004. We are expecting Antargaz to experience a seasonal loss during the spring
and summer months of April through September. UGI expects earnings for the
fiscal year ending September 30, 2004 to be within the range of $2.10 to $2.20
per diluted share which includes the dilutive effect of the 7.8 million shares
issued in connection with the acquisition of AGZ Holding and the seasonal loss
of Antargaz. Certain factors beyond our control could affect our results of
operations, including, but not limited to, changes in commodity prices,
prolonged unfavorable weather conditions, and fluctuations in value of the euro
versus the dollar.
-21-
UGI CORPORATION AND SUBSIDIARIES
2004 THREE-MONTH PERIOD COMPARED WITH 2003 THREE-MONTH PERIOD
Increase
Three months ended March 31, 2004 2003 (Decrease)
- ---------------------------- ------ ------ ------------------
(Millions of dollars)
AMERIGAS PROPANE:
Revenues $687.7 $625.6 $ 62.1 9.9%
Total margin (a) $282.5 $265.0 $ 17.5 6.6%
Partnership EBITDA (b) $146.6 $129.9 $ 16.7 12.9%
Operating income $127.2 $115.6 $ 11.6 10.0%
Retail gallons sold (millions) 403.9 393.4 10.5 2.7%
Degree days - % colder (warmer)
than normal (c) (1.5)% 1.0% - -
GAS UTILITY:
Revenues $243.5 $239.9 $ 3.6 1.5%
Total margin (a) $ 78.5 $ 80.9 $ (2.4) (3.0)%
Operating income $ 46.5 $ 55.1 $ (8.6) (15.6)%
Income before income taxes $ 42.6 $ 51.6 $ (9.0) (17.4)%
System throughput -
billions of cubic feet ("bcf") 31.2 32.4 (1.2) (3.7)%
Degree days - % colder
than normal 2.7% 7.9% - -
ELECTRIC UTILITY (d):
Revenues $ 24.7 $ 24.7 $ - $ -
Total margin (a) $ 11.9 $ 11.7 $ 0.2 1.7%
Operating income $ 6.8 $ 6.5 $ 0.3 4.6%
Income before income taxes $ 6.3 $ 5.8 $ 0.5 8.6%
Distribution sales - millions of
kilowatt hours ("gwh") 282.2 281.1 1.1 0.4%
ENERGY SERVICES (d):
Revenues $328.8 $217.2 $111.6 51.4%
Total margin (a) $ 13.5 $ 9.9 $ 3.6 36.4%
Income before income taxes $ 7.5 $ 5.9 $ 1.6 27.1%
INTERNATIONAL PROPANE:
Revenues $ 18.6 $ 18.1 $ 0.5 2.8%
Total margin (a) $ 9.3 $ 7.8 $ 1.5 19.2%
Operating (loss) income $ (6.3) $ 1.3 $ (7.6) n.m.
Income from equity investees $ 7.7 $ 5.1 $ 2.6 51.0%
Income before income taxes $ 0.4 $ 5.4 $ (5.0) (92.6)%
n.m.- not meaningful
(a) Total margin represents total revenues less total cost of sales and, with
respect to Electric Utility, revenue-related taxes, i.e. Electric Utility
gross receipts taxes, of $1.3 million in each of the three-month periods
ended March 31, 2004 and 2003. For financial statement purposes,
revenue-related taxes are included in "Utility taxes other than income
taxes" on the Condensed Consolidated Statements of Income.
(b) Partnership EBITDA (earnings before interest expense, income taxes and
depreciation and amortization) should not be considered as an alternative
to net income (as an indicator of operating performance) or as an
alternative to cash flow (as a measure of liquidity or ability to service
debt obligations) and is not a measure of performance or financial
condition under accounting principles generally accepted in the United
States of America. Management uses Partnership EBITDA as the primary
measure of segment profitability for the AmeriGas Propane segment (see
Note 4 to the Condensed Consolidated Financial Statements).
-22-
UGI CORPORATION AND SUBSIDIARIES
(c) Deviation from average heating degree days based upon national weather
statistics provided by the National Oceanic and Atmospheric Administration
("NOAA") for 335 airports in the United States, excluding Alaska.
(d) Effective October 1, 2003, we realigned our business units in order to
expand the energy management services available to our customers and
strengthen our focus on power marketing. Under the realignment, the
operating results of UGID's electricity generation business are combined
with Energy Services rather than combined with UGI Utilities' Electric
Utility (see Note 4 to the Condensed Consolidated Financial Statements).
AMERIGAS PROPANE. Weather based upon heating degree days was 1.5% warmer than
normal during the 2004 three-month period compared to weather that was 1.0%
colder than normal in the prior-year three-month period. Retail propane volumes
sold increased 10.5 million gallons in the 2004 three-month period due primarily
to the October 2003 Horizon Propane acquisition partially offset by the
continuing effects of the weakened economy on commercial and industrial
customers. Low margin wholesale volumes increased 16.9 million gallons primarily
reflecting the effects of product cost hedging activities.
Retail propane revenues increased $41.8 million reflecting (1) a $27.6 million
increase due to higher average selling prices and (2) a $14.2 million increase
due to the higher retail volumes sold. Wholesale propane revenues increased
$17.3 million reflecting (1) an $11.2 million increase due to the higher volumes
sold and (2) a $6.1 million increase due to higher average selling prices.
Selling prices in the 2004 three-month period were higher than in the prior-year
three-month period as the industry continues to experience high propane product
costs resulting from, among other things, higher crude oil and natural gas
prices. Total cost of sales increased $44.5 million primarily reflecting the
increase in volumes sold and higher propane product costs.
Total margin increased $17.5 million principally due to higher average retail
propane unit margins and the higher retail volumes sold. The benefits of
derivative hedge instruments and favorable supply arrangements during this
period of escalating product costs and market volatility resulted in the
Partnership recording higher than normal unit margins while maintaining
competitive prices.
Partnership EBITDA increased $16.7 million in the 2004 three-month period
reflecting (1) the previously mentioned increase in total margin, (2) the
absence of a $3.0 million loss on extinguishment of long-term debt that occurred
in the 2003 three-month period, and (3) a $1.6 million increase in other income.
These increases were partially offset by a $5.5 million increase in operating
and administrative expenses principally due to higher employee payroll and
overtime expenses related to the increased volumes associated with the Horizon
Propane acquisition. These increases were partially offset by the beneficial
effects on operating expenses from the management realignment completed in late
Fiscal 2003 which streamlined business processes, eliminated duplication and
reduced overhead expenses. Operating income in the 2004 three-month period
increased less than the increase in Partnership EBITDA due to higher
depreciation and amortization expense associated with recent acquisitions and
the absence of the previously mentioned loss on extinguishment of long-term
debt.
GAS UTILITY. Weather in Gas Utility's service territory during the 2004
three-month period was 2.7% colder than normal compared with weather that was
7.9% colder than normal in the 2003 three-month period. Total distribution
system throughput decreased 1.2 bcf or 3.7% as lower volumes transported for
residential, commercial and industrial delivery service customers and lower
heating-related sales to firm- residential, commercial and industrial ("retail
core-market") customers were partially offset by the volume effects of
year-over-year retail core-market customer growth. The increase in Gas Utility
revenues during the 2004 three-month period reflects greater revenues from
retail core-market customers principally as a result of higher average purchased
gas cost ("PGC") rates partially offset by lower revenues from delivery service
customers and a decrease in revenues from off-system sales. Gas Utility cost of
gas was $165.0 million in the 2004 three-month period compared to $159.0 million
in the 2003
-23-
UGI CORPORATION AND SUBSIDIARIES
three-month period reflecting the previously mentioned higher average PGC rates
partially offset by the effects of the lower retail core-market and off-system
sales.
The decline in Gas Utility total margin reflects a $1.6 million decline in
residential, commercial and industrial delivery service total margin resulting
from lower volumes transported and, to a lesser extent, lower retail core-market
total margin resulting from the decline in retail core-market sales.
Gas Utility operating income declined $8.6 million in the 2004 three-month
period principally reflecting the previously mentioned decline in total margin,
lower other income, and slightly higher operating and administrative expenses.
Other income declined $ 4.9 million due in large part to a $2.7 million decline
in non-tariff service income and costs related to settling a regulatory claim
resulting from the discontinuance of natural gas service to certain customers.
Operating and administrative expenses include, among other things, an increase
in provisions for injuries and damages claims and higher pension costs partially
offset by lower stock-based incentive compensation costs. The decrease in Gas
Utility income before income taxes reflects the previously mentioned decline in
operating income and higher interest expense in the 2004 three-month period as a
result of including dividends paid on preferred shares subject to mandatory
redemption as a component of interest expense in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity"
("SFAS 150").
ELECTRIC UTILITY. Electric Utility's 2004 three-month period kilowatt-hour sales
and revenues were essentially equal with the prior-year period on weather that
was 1.2% warmer than in the prior-year period. Electric Utility's cost of sales
decreased $0.2 million reflecting slightly lower per-unit purchased power costs.
Electric Utility total margin in the 2004 three-month period increased $0.2
million principally as a result of the previously mentioned lower purchased
power costs. Operating income and income before income taxes were higher in the
2004 three-month period principally reflecting the increase in total margin and
lower operating and administrative expenses.
ENERGY SERVICES. The increase in Energy Services revenues in the 2004
three-month period resulted primarily from (1) a more than 35% increase in
natural gas volumes sold due in large part to the March 2003 acquisition of the
northeastern U.S. gas marketing business of TXU Energy Retail Company, L.P., a
subsidiary of TXU Energy (the "TXU Energy Acquisition"), and to a lesser extent
customer growth, and (2) the effects of UGID's June 2003 purchase of an
additional 4.9% (83 megawatt) interest in the Conemaugh electricity generation
station ("Conemaugh"). Notwithstanding the significant increase in natural gas
volumes sold, total margin from Energy Services' gas marketing business
increased only $0.5 million in the 2004 three-month period principally due to
lower average unit margins reflecting a greater proportion of annual fixed-price
customer contracts. Under these contracts, customers pay an average fixed price
for the natural gas they purchase throughout the year. Although the unit margin
and the total margin to be earned over the term of these contracts is fixed,
margin realization is seasonal because gas costs are higher, and unit margins
lower, during the peak heating season months of late fall and winter, while gas
costs are lower, and unit margins higher, during the late spring and summer
months. Total margin from UGID's electricity generation business increased $3.1
million reflecting the additional interest in Conemaugh.
The increase in Energy Services income before income taxes principally reflects
the previously mentioned increase in total margin partially offset by higher
operating expenses resulting from the purchase of the additional interest in
Conemaugh and the TXU Energy Acquisition.
-24-
UGI CORPORATION AND SUBSIDIARIES
INTERNATIONAL PROPANE. FLAGA's revenues increased $0.5 million primarily
reflecting the currency translation effects of a stronger euro and, to a lesser
extent, higher average selling prices partially offset by a 6.5% decline in
volumes sold. Volumes were lower in the 2004 three-month period principally due
to the effects of customer conversion to natural gas in the bulk heating market,
weather that was 3.6% warmer than in the prior-year three-month period and price
competition in the autogas market. The increase in the 2004 three-month period
total margin reflects the translation effects of the stronger euro and higher
base-currency total margin. The $7.6 million decrease in International Propane
operating income reflects (1) a loss of $9.1 million recorded in other income
resulting from the effects of an adverse change in the value of the euro versus
the dollar on the settlement of contracts for the forward purchase of euros used
to fund the AGZ Holding acquisition and (2) a $1.4 million increase in FLAGA
operating income which was substantially the result of higher base-currency
total margin, lower base-currency operating and administrative expenses, and the
translation effects of a stronger euro.
The increase in the 2004 three-month period earnings from our equity investees
is principally the result of higher income from AGZ Holding, the parent company
of Antargaz, reflecting the favorable base-currency results and the effects of a
stronger euro than in the prior-year three-month period. Antargaz' total margin
increased as a result of higher unit-margins on lower volumes sold. In addition,
Antargaz' operating results benefited from lower interest expense.
The decrease in International Propane income before income taxes reflects the
combined increase in FLAGA operating income and in our income from equity
investees offset by the previously mentioned loss on the forward purchase
contracts. International Propane results will include Antargaz' results of
operations on a consolidated basis beginning April 1, 2004.
-25-
UGI CORPORATION AND SUBSIDIARIES
2004 SIX-MONTH PERIOD COMPARED WITH 2003 SIX-MONTH PERIOD
Increase
Six months ended March 31, 2004 2003 (Decrease)
- ---------------------------------- -------- -------- ----------------
(Millions of dollars)
AMERIGAS PROPANE:
Revenues $1,147.9 $1,070.6 $ 77.3 7.2%
Total margin (a) $ 488.2 $ 466.6 $ 21.6 4.6%
Partnership EBITDA $ 231.2 $ 211.2 $ 20.0 9.5%
Operating income $ 192.8 $ 179.8 $ 13.0 7.2%
Retail gallons sold (millions) 708.4 717.6 (9.2) (1.3)%
Degree days - % colder (warmer)
than normal (4.1)% 1.1% - -
GAS UTILITY:
Revenues $ 392.8 $ 385.0 $ 7.8 2.0%
Total margin (a) $ 132.7 $ 137.6 $ (4.9) (3.6)%
Operating income $ 75.9 $ 88.6 $ (12.7) (14.3)%
Income before income taxes $ 67.9 $ 81.4 $ (13.5) (16.6)%
System throughput -
billions of cubic feet ("bcf") 54.5 55.7 (1.2) (2.2)%
Degree days - % colder
than normal 0.0% 7.3% - -
ELECTRIC UTILITY:
Revenues $ 46.1 $ 46.2 $ (0.1) (0.2)%
Total margin (a) $ 21.6 $ 22.0 $ (0.4) (1.8)%
Operating income $ 11.3 $ 12.1 $ (0.8) (6.6)%
Income before income taxes $ 10.3 $ 10.8 $ (0.5) (4.6)%
Distribution sales - millions of
kilowatt hours ("gwh") 525.7 525.5 0.2 -
ENERGY SERVICES:
Revenues $ 561.7 $ 322.1 $ 239.6 74.4%
Total margin (a) $ 25.7 $ 16.7 $ 9.0 53.9%
Income before income taxes $ 13.8 $ 9.8 $ 4.0 40.8%
INTERNATIONAL PROPANE:
Revenues $ 34.4 $ 32.4 $ 2.0 6.2%
Total margin (a) $ 17.5 $ 13.8 $ 3.7 26.8%
Operating income (loss) $ (4.5) $ 1.6 $ (6.1) n.m.
Income from equity investees $ 11.9 $ 6.8 $ 5.1 75.0%
Income before income taxes $ 5.5 $ 6.3 $ (0.8) (12.7)%
n.m. - not meaningful
(a) Total margin represents total revenues less total cost of sales and, with
respect to Electric Utility, revenue-related taxes, i.e. Electric Utility
gross receipts taxes, of $2.5 million in the 2004 six-month period and
$2.6 million in the 2003 six-month period. For financial statement
purposes, revenue-related taxes are included in "Utility taxes other than
income taxes" on the Condensed Consolidated Statements of Income.
AMERIGAS PROPANE. Based upon heating degree day data, temperatures in the 2004
six-month period were 4.1% warmer than normal compared to temperatures that were
1.1% colder than normal in the prior-year six-month period. Notwithstanding
volume growth from acquisitions, retail propane volumes sold decreased 9.2
million gallons in the 2004 six-month period due principally to the effects of
continuing economic weakness on commercial and industrial customer sales volumes
and the warmer weather in the 2004 six-month period. Low margin wholesale
volumes decreased 21.7 million gallons primarily reflecting the effects of
product cost hedging activities.
-26-
UGI CORPORATION AND SUBSIDIARIES
Retail propane revenues increased $67.9 million reflecting a $79.5 million
increase due to higher average selling prices partially offset by an $11.6
million decrease due to the lower retail volumes sold. Wholesale propane
revenues increased $3.8 million as a $16.8 million increase due to higher
average selling prices was partially offset by a $13.0 million decrease due to
the lower volumes sold. Retail and wholesale selling prices were higher during
the 2004 six-month period principally as a result of the continued high propane
product costs within the industry. Other revenues from ancillary sales and
services were $70.5 million in the 2004 six-month period and $64.9 million in
the 2003 six-month period. Although total propane volumes decreased, total cost
of sales increased $55.7 million reflecting the effects of higher propane
product costs.
Total margin increased $21.6 million as a result of (1) recent acquisitions and
higher average retail and wholesale propane unit margins on reduced gallons sold
and (2) a $3.8 million increase in margin from ancillary sales and services.
Notwithstanding the previously mentioned increase in the commodity price of
propane, retail and wholesale propane unit margins were higher than in the 2003
six-month period reflecting the effects of higher average selling prices.
Partnership EBITDA increased $20.0 million in the 2004 six-month period
reflecting (1) the previously mentioned increase in total margin, (2) a $3.7
million increase in other income, and (3) the absence of a $3.0 million loss on
extinguishment of long-term debt in the prior year six-month period. These
increases were partially offset by an $8.3 million increase in operating and
administrative expenses principally due to higher compensation and distribution
expenses resulting from the impact of Horizon Propane and other recent
acquisitions, partially offset by the beneficial effects on operating expenses
from the management realignment completed in late Fiscal 2003. Other income in
the 2004 six-month period includes greater income from finance charges and asset
sales while other income in the prior-year six-month period was reduced by a
$1.0 million charge associated with the adoption of SFAS No. 143, "Accounting
for Asset Retirement Obligations." Operating income in the 2004 six-month period
increased less than the increase in Partnership EBITDA due to higher
depreciation and amortization expense as a result of recent acquisitions and the
absence of the aforementioned loss on extinguishment of long-term debt.
GAS UTILITY. Weather in Gas Utility's service territory during the 2004
six-month period was essentially normal compared with weather that was 7.3%
colder than normal in the 2003 six-month period. Total distribution system
throughput decreased 1.2 bcf or 2.2% as the adverse effects of the warmer
weather on sales to retail core-market customers were partially offset by a
slight increase in sales to residential, commercial and industrial delivery
service customers and the volume effects of year-over-year retail core-market
customer growth. The increase in Gas Utility revenues during the 2004 six-month
period includes a $9.4 million increase in revenues from off-system sales and
slightly higher retail core-market revenues partially offset by lower delivery
service revenues. The slight increase in retail core-market revenues reflects
higher average PGC rates substantially offset by the effects of reduced retail
core-market volumes. Gas Utility cost of gas was $260.1 million in the 2004
six-month period compared to $247.4 million in the 2003 six-month period
reflecting the effects of higher average PGC rates and increased cost of gas
associated with the higher off-system sales partially offset by the effects of
the lower retail core-market volumes sold.
The decline in Gas Utility total margin is principally the result of a $2.9
million decline in retail core-market margin resulting from the lower retail
core-market sales and a $ 2.3 million decline in delivery service and
interruptible retail margin.
Gas Utility operating income declined $12.7 million in the 2004 six-month period
principally reflecting the previously mentioned decline in total margin, lower
other income, and an increase in operating and
-27-
UGI CORPORATION AND SUBSIDIARIES
administrative expenses. Other income declined $4.7 million due in large part
to a $2.6 million decline in non-tariff service income and costs related to
settling a regulatory claim resulting from the discontinuance of natural gas
service to certain customers. Operating and administrative expenses increased
$2.4 million due principally to increases in provisions for injuries and damages
claims and higher compensation and benefits expenses partially offset by lower
distribution system maintenance expenses. The decrease in Gas Utility income
before income taxes reflects the decline in operating income and higher interest
expense in the 2004 six-month period as a result of including dividends paid on
preferred shares subject to mandatory redemption as a component of interest
expense in accordance with SFAS 150.
ELECTRIC UTILITY. Electric Utility's 2004 six-month period kilowatt-hour sales
and revenues were essentially equal with the prior-year period on winter weather
that was warmer. Temperatures in the 2004 six-month period were approximately
5.0% warmer than in the prior-year period. Electric Utility's cost of sales
increased slightly reflecting higher purchased power costs.
Electric Utility total margin in the 2004 six-month period decreased $0.4
million principally as a result of the previously mentioned higher purchased
power costs. Operating income and income before income taxes were lower in the
2004 six-month period principally reflecting the decline in total margin and
slightly higher operating and administrative expenses.
ENERGY SERVICES. The increase in Energy Services revenues in the 2004 six-month
period resulted primarily from (1) a more than 50% increase in natural gas
volumes sold due in large part to the March 2003 TXU Energy Acquisition, and to
a lesser extent customer growth, and (2) the effects of UGID's June 2003
purchase of additional megawatt interests in the Conemaugh electricity
generation station. Total margin from Energy Services' gas marketing business
increased slightly in the 2004 six-month period principally due to higher
volumes sold at lower average unit margins. Energy Services' lower average unit
margins reflect the greater proportion of annual fixed-price customer contracts
compared to the prior-year period. Total margin from UGID's electricity
generation business increased $7.7 million reflecting the additional interest in
Conemaugh.
The increase in Energy Services income before income taxes principally reflects
the previously mentioned increase in total margin partially offset by higher
operating expenses resulting from our purchase of the additional interest in
Conemaugh and the TXU Energy Acquisition.
INTERNATIONAL PROPANE. FLAGA's revenues increased $2.0 million primarily
reflecting the currency translation effects of a stronger euro. Base-currency
revenues decreased as a result of a 3.9% decline in volumes sold during the 2004
six-month period. Volumes were lower in the 2004 six-month period principally
due to the effects of customer conversion to natural gas in the bulk heating
market, weather that was 1.6% warmer than in the prior-year period and price
competition in the autogas market. The increase in the 2004 six-month period
total margin primarily reflects the translation effects of the stronger euro and
to a much lesser extent higher base-currency total margin. The $6.1 million
decline in International Propane operating income reflects a loss of $9.1
million resulting from the settlement of contracts for the forward purchase of
euros used to fund the AGZ Holding acquisition, partially offset by an increase
of $2.9 million in FLAGA's operating income. The increase in FLAGA's operating
income is primarily a result of reduced base-currency operating expenses
partially offset by the effects of a stronger euro.
Income from our equity investees increased $5.1 million in the 2004 six-month
period primarily as a result of higher income from AGZ Holding and, to a lesser
extent, the effects of a stronger euro than in the prior-year six-month period.
Weather that was 6% colder than in the prior-year six-month period coupled with
declines in propane product costs contributed to higher unit margins on lower
volumes. Declines in Antargaz' base-currency operating expenses were partially
offset by the effects of a stronger euro during the 2004 six-month period.
-28-
UGI CORPORATION AND SUBSIDIARIES
The decrease in International Propane income before income taxes reflects the
combined increase in FLAGA operating income and in our income from equity
investees offset by the previously mentioned loss on the forward purchase
contracts. International Propane results will include Antargaz' results of
operations on a consolidated basis beginning April 1, 2004.
FINANCIAL CONDITION
Our cash, cash equivalents and short-term investments totaled $153.3 million at
March 31, 2004 compared with $192.1 million at September 30, 2003. These amounts
include $35.3 million and $116.3 million, respectively, of cash, cash
equivalents and short-term investments held by UGI. The decline in cash, cash
equivalents and short-term investments held by UGI compared to September 30,
2003 is a result of funding a portion of the purchase price of the acquisition
of the remaining ownership interests in AGZ Holding partially offset by
dividends received from subsidiaries. See Note 3 to the Condensed Consolidated
Financial Statements.
The Company's long-term debt outstanding at March 31, 2004 totaled $1,705.5
million (including current maturities of $95.8 million) compared to $1,223.5
million of long-term debt (including current maturities of $65.0 million) at
September 30, 2003. In April 2004, AmeriGas OLP repaid $53.8 million of maturing
First Mortgage Notes. In conjunction with this repayment, AmeriGas Partners
issued $28 million face amount of 8.875% Senior Notes due 2011, at an effective
interest rate of 7.18%, and contributed the net proceeds of $30.1 million to
AmeriGas OLP.
AmeriGas OLP's Credit Agreement expires on October 15, 2006 and consists of (1)
a $100 million Revolving Credit Facility and (2) a $75 million Acquisition
Facility. The Revolving Credit Facility may be used for working capital and
general purposes of AmeriGas OLP. The Acquisition Facility provides AmeriGas OLP
with the ability to borrow up to $75 million to finance the purchase of propane
businesses or propane business assets or, to the extent it is not so used, may
be used for working capital and general purposes. Issued and outstanding letters
of credit under the Revolving Credit Facility, which reduce the amount available
for borrowings, totaled $41.2 million at March 31, 2004. AmeriGas OLP's
short-term borrowing needs are seasonal and are typically greatest during the
fall and winter heating-season months due to the need to fund higher levels of
working capital.
AmeriGas Partners periodically issues debt and equity securities and expects to
continue to do so. It has issued debt securities and common units in
underwritten public offerings in each of the last three fiscal years. Most
recently, it has issued debt securities in April 2004 and common units in June
2003. The Partnership has effective debt and equity shelf registration
statements with the SEC under which it may issue up to an additional (1) 1.4
million AmeriGas Partners Common Units and (2) up to $500 million of debt or
equity securities pursuant to an unallocated shelf registration statement.
UGI Utilities has revolving credit commitments under which it may borrow up to a
total of $110 million. These agreements expire in 2006. At March 31, 2004, UGI
Utilities had $22.4 million in borrowings outstanding under these revolving
credit agreements. In addition, UGI Utilities has an uncommitted arrangement
with a major bank under which it may borrow up to $20 million. At March 31,
2004, there was $20 million outstanding under this agreement which amount
matured and was repaid on April 13, 2004. Amounts outstanding under the
revolving credit agreements and the uncommitted arrangement are classified as
bank loans on the Condensed Consolidated Balance Sheets. UGI Utilities also has
a shelf registration statement with the SEC under which it may issue up to an
additional $40 million of Medium-Term Notes or other debt securities.
-29-
UGI CORPORATION AND SUBSIDIARIES
Energy Services has a $100 million receivables purchase facility ("Receivables
Facility") with an issuer of receivables-backed commercial paper expiring on
August 26, 2006, although the Receivables Facility may terminate prior to such
date due to the termination of the commitments of the Receivables Facility
back-up purchasers. Under the Receivables Facility, Energy Services transfers,
on an ongoing basis and without recourse, its trade accounts receivable to its
wholly owned, special purpose subsidiary, Energy Services Funding Corporation
("ESFC"), which is consolidated for financial statement purposes. ESFC, in turn,
has sold, and subject to certain conditions, may from time to time sell, an
undivided interest in the receivables to a commercial paper conduit of a major
bank. The maximum level of funding available at any one time from this facility
is $100 million. The proceeds of these sales are less than the face amount of
the accounts receivable sold by an amount that approximates the purchaser's
financing cost of issuing its own receivables-backed commercial paper. ESFC was
created and has been structured to isolate its assets from creditors of Energy
Services and its affiliates, including UGI. This two-step transaction is
accounted for as a sale of receivables following the provisions of SFAS No. 140,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities." Energy Services continues to service, administer and collect
trade receivables on behalf of the commercial paper issuer and ESFC. At March
31, 2004, the outstanding balance of ESFC receivables was $90.2 million which
amount is net of $12.0 million in trade receivables sold to the commercial paper
conduit.
In addition, a major bank has committed to Energy Services to issue up to $50
million of standby letters of credit, secured by cash or marketable securities
("LC Facility"). Energy Services expects to fund the collateral requirements
with borrowings under its Receivables Facility. The LC Facility expires on
September 13, 2004.
Antargaz has a variable interest rate Senior Facilities Agreement consisting of
a 202 million euro ($248 million) term loan and a 50 million euro revolver
($61.5 million) which expires June 2008. Our acquisition of the remaining
interests in AGZ Holding constituted a "change of control" and will result in
the acceleration of all amounts borrowed and outstanding within six months of
the consummation of the acquisition unless certain conditions are met. In
addition, Antargaz is not permitted to make any restricted payments under the
Senior Facilities Agreement during such six-month period unless certain
conditions are met. We expect to obtain an amendment of the Senior Facilities
Agreement to provide that our acquisition does not constitute a "change of
control" under the agreement or refinance the facility by October 1, 2004. As of
March 31, 2004 there were no borrowings outstanding under the revolver.
The Senior Facilities Agreement and the Trust Deed, dated July 23, 2002, among
AGZ Finance, a subsidiary of AGZ Holding, as issuer, AGZ Holding, as guarantor,
and the Bank of New York, as trustee, ("Trust Deed") relating to 165 million
euros principal amount of 10% Senior Notes due 2011 restrict the ability of AGZ
Holding to, among other things, incur additional indebtedness, make investments,
incur liens, prepay indebtedness, and effect mergers, consolidations and sales
of assets. Under these agreements, AGZ Holding is generally permitted to make
restricted payments, such as dividends, equal to 50% of consolidated net income,
as defined in each respective agreement, for 1) the immediately preceding fiscal
year, in the case of the Senior Facilities Agreement, and 2) on a cumulative
basis since July 2002, in the case of the Trust Deed, if no event of default
exists or would exist upon payment of such restricted payment.
CASH FLOWS
OPERATING ACTIVITIES. Due to the seasonal nature of the Company's businesses,
cash flows from operating activities are generally strongest during the second
and third fiscal quarters when customers
-30-
UGI CORPORATION AND SUBSIDIARIES
pay for natural gas, propane and electricity consumed during the heating season
months. Conversely, operating cash flows are generally at their lowest levels
during the first and fourth fiscal quarters when the Company's investment in
working capital, principally inventories and accounts receivable, is generally
greatest. The Company's major business units use revolving credit facilities, or
in the case of Energy Services its Receivables Facility, to satisfy their
seasonal operating cash flow needs. Cash flow from operating activities was
$104.2 million in the 2004 six-month period compared to $150.9 million in the
2003 six-month period. The decrease in operating cash flow principally reflects
the lower net overcollections of deferred fuel costs during the 2004 six-month
period and to a lesser extent the settlement of forward currency contracts. Cash
flow from operating activities before changes in operating working capital was
$254.7 million in the 2004 six-month period compared with $227.3 million in the
prior-year six-month period reflecting greater noncash deferred taxes and
minority interests in AmeriGas Partners in the 2004 six-month period. Changes in
operating working capital used $150.5 million in the 2004 six-month period and
$76.4 million in the 2003 six-month period.
INVESTING ACTIVITIES. Investing activity cash flow is principally affected by
capital expenditures and investments in property, plant and equipment, cash paid
for acquisitions of businesses, investments in and distributions from our equity
investees, changes in short-term investments and proceeds from sales of assets.
Cash flow used in investing activities was $281.9 million in the 2004 six-month
period compared to $105.8 million in the prior-year period principally
reflecting $275.7 million spent on the purchase of the remaining ownership
interests in AGZ Holding and Horizon Propane, net of cash acquired. The cash
provided by the decrease in short-term investments was primarily used to fund a
portion of the purchase price of the remaining 80.5% interests in AGZ Holding.
FINANCING ACTIVITIES. Cash flow provided by financing activities was $178.8
million in the 2004 six-month period compared with $89.9 million of cash used in
the prior-year six-month period. Financing activity cash flow changes are
primarily due to issuances and repayments of long-term debt, net borrowings
under revolving credit facilities, dividends and distributions on UGI Common
Stock and AmeriGas Partners Common Units, and proceeds from public offerings of
AmeriGas Partners Common Units and issuances of UGI common stock. In March 2004,
UGI Corporation sold 7.5 million shares of common stock in an underwritten
public offering at a public offering price of $32.10 per share. The proceeds of
the public offering totaling $230.2 million were used to fund a portion of the
purchase price of the remaining ownership interests in AGZ Holding. During April
2004, the underwriters exercised a portion of their overallotment option for the
purchase of an additional 0.3 million shares.
We paid cash dividends on UGI Common Stock of $24.4 million and $23.4 million
during the six months ended March 31, 2004 and 2003, respectively. Also, the
Partnership paid the minimum quarterly distribution of $0.55 (the "MQD") on all
limited partner units during both of the six-month periods ended March 31, 2004
and 2003.
-31-
UGI CORPORATION AND SUBSIDIARIES
PURCHASE OF REMAINING OUTSTANDING OWNERSHIP INTERESTS IN AGZ HOLDING
On March 31, 2004 (the "Closing Date"), UGI, through its subsidiary, UGI
Bordeaux Holdings (as assignee of UGI France, Inc. ("UGI France")), completed
its acquisition of the remaining outstanding 80.5% ownership interests of AGZ
Holding, a French corporation and the parent company of Antargaz, a French
corporation and a leading distributor of liquefied petroleum gases in France,
pursuant to the terms of (i) a Share Purchase Agreement dated as of February 17,
2004, by and among UGI France, UGI, PAI partners, a French corporation ("PAI"),
and certain officers, directors and managers of AGZ Holding and Antargaz and
their affiliates, and (ii) that certain Medit Joinder Agreement dated February
20, 2004, by and among UGI France, UGI, Medit Mediterranea GPL, S.r.L., a
company incorporated under the laws of Italy ("Medit"), and PAI.
The purchase price on the Closing Date of 261.8 million euros or $319.2 million
(excluding transaction fees and expenses) is subject to post-closing working
capital and net debt adjustments. UGI used $230.2 million of cash proceeds from
its public offering of 7.5 million shares of its common stock in March 2004, and
$89.0 million of available cash to pay the purchase price. The purchase price
was negotiated at arms length by UGI with the other owners of AGZ Holding's
issued and outstanding capital stock.
Because the acquisition was completed on March 31, 2004, at the end of the
quarter, the results of operations of Antargaz are not included in our
consolidated results, except to the extent of our 19.5% equity interest in its
net income. However, the preliminary purchase price allocation has been
reflected on our Condensed Consolidated Balance Sheet.
UGI COMMON DIVIDEND INCREASE
On April 27, 2004, UGI's Board of Directors declared a quarterly dividend on UGI
Common Stock of $0.3125 per share payable on July 1, 2004 to shareholders of
record on May 28, 2004. UGI had previously announced its intention to increase
the annual dividend rate to $1.25 per share, or $0.3125 per share on a quarterly
basis, from $1.14 per share, or $0.2850 per share on a quarterly basis,
effective with the regularly scheduled July dividend payment, assuming the
closing of the previously mentioned AGZ Holding acquisition.
UGI UTILITIES PREFERRED SHARES SUBJECT TO MANDATORY REDEMPTION
Beginning July 1, 2003, the Company accounts for UGI Utilities preferred shares
subject to mandatory redemption in accordance with SFAS No. 150, "Accounting for
Certain Financial Instruments with Characteristics of Both Liabilities and
Equity" ("SFAS 150"). SFAS 150 establishes guidelines on how an issuer
classifies and measures certain financial instruments with characteristics of
both liabilities and equity. The adoption of SFAS 150 results in the Company
presenting UGI Utilities preferred shares subject to mandatory redemption in the
liabilities section of the balance sheet and reflecting dividends paid on these
shares as a component of interest expense for periods presented after June 30,
2003. Because SFAS 150 specifically prohibits the restatement of financial
statements prior to its adoption, prior period amounts have not been
reclassified.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
-32-
UGI CORPORATION AND SUBSIDIARIES
In December 2003, the Financial Accounting Standards Board ("FASB") revised
Financial Interpretation No. 46, "Consolidation of Variable Interest Entities"
("FIN 46"), which was originally issued in January 2003 and clarifies Accounting
Research Bulletin No. 51, "Consolidated Financial Statements." FIN 46 was
effective immediately for variable interest entities created or obtained after
January 31, 2003. For variable interests created or acquired before February 1,
2003, FIN 46 is effective for our interim period ended March 31, 2004. If
certain conditions are met, FIN 46 requires the primary beneficiary to
consolidate certain variable interest entities. The Company has not created or
obtained any variable interest entities after January 31, 2003. The adoption of
FIN 46, as revised, did not have a material effect on the Company's financial
position or results of operations.
On December 8, 2003, the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (the "Act") was signed into law. Among other things,
the Act provides for a prescription drug benefit to Medicare beneficiaries on a
voluntary basis beginning in 2006. To encourage employers to continue to offer
retiree prescription drug benefits, the Act provides for a tax-free subsidy to
employers who offer a prescription drug benefit that is at least actuarially
equivalent to the standard benefit offered under the Act.
The Company provides postretirement health care benefits principally to certain
of UGI Utilities' retirees and a limited number of active employees meeting
certain age and service requirements. These postretirement benefits include
certain retiree prescription drug benefits. Pursuant to orders previously issued
by the Pennsylvania Public Utility Commission ("PUC"), UGI Utilities has
established a Voluntary Employees' Beneficiary Association ("VEBA") trust to
fund the UGI Utilities' postretirement benefit obligations and to pay retiree
health care and life insurance benefits by depositing into the VEBA the annual
amount of postretirement benefit costs determined under SFAS No. 106, "Employers
Accounting for Postretirement Benefits Other than Pensions." The difference
between the annual amount calculated and the amount in UGI Utilities' rates is
deferred for future recovery from, or refund to, ratepayers.
We have elected to defer recognizing the effects of the Act in accounting for
these benefits and in providing disclosures until authoritative guidance on the
accounting for the federal subsidy is issued in accordance with FASB Staff
Position No. FAS 106-1, "Accounting and Disclosure Requirements Related to the
Medicare Prescription Drug, Improvement and Modernization Act of 2003" ("FSP
106-1"). Therefore, the condensed consolidated financial statements and
accompanying footnotes do not reflect the effects of the Act. Authoritative
guidance, when issued, could require us to change the amount of postretirement
benefit costs we are currently recording. However, under the current ratemaking
described above, any increases or decreases in postretirement benefit costs
resulting from the Act will not affect our reported results. In addition,
because of the limited number of participants in the program and the current
level of postretirement benefits, we do not believe the Act will have a material
effect on the Company's cash flows.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our primary market risk exposures are (1) market prices for propane, natural gas
and electricity; (2) changes in interest rates; and (3) foreign currency
exchange rates.
The risk associated with fluctuations in the prices the Partnership and our
International Propane operations pay for propane is principally a result of
market forces reflecting changes in supply and demand for propane and other
energy commodities. The Partnership's profitability is sensitive to changes in
propane supply costs, and the Partnership generally attempts to pass on
increases in such costs to customers. The Partnership may not, however, always
be able to pass through product cost
-33-
UGI CORPORATION AND SUBSIDIARIES
increases fully, particularly when product costs rise rapidly. In order to
reduce the volatility of the Partnership's propane market price risk, it uses
contracts for the forward purchase or sale of propane, propane fixed-price
supply agreements, and over-the-counter derivative commodity instruments
including price swap and option contracts. International Propane's profitability
is also sensitive to changes in propane supply costs. FLAGA uses derivative
commodity instruments to reduce market risk associated with a portion of its
propane purchases. Over-the-counter derivative commodity instruments utilized by
the Partnership and FLAGA to hedge forecasted purchases of propane are generally
settled at expiration of the contract. In order to minimize credit risk
associated with its derivative commodity contracts, the Partnership monitors
established credit limits with the contract counterparties. Although we use
derivative financial and commodity instruments to reduce market price risk
associated with forecasted transactions, we do not use derivative financial and
commodity instruments for speculative or trading purposes.
Gas Utility's tariffs contain clauses that permit recovery of substantially all
of the prudently incurred costs of natural gas it sells to its customers. The
recovery clauses provide for a periodic adjustment for the difference between
the total amounts actually collected from customers through PGC rates and the
recoverable costs incurred. Because of this ratemaking mechanism, there is
limited commodity price risk associated with our Gas Utility operations. Gas
Utility uses exchange-traded natural gas call option contracts to reduce
volatility in the cost of gas it purchases for its retail core-market customers.
The cost of these call option contracts, net of associated gains, if any, is
included in Gas Utility's PGC recovery mechanism.
Electric Utility purchases its electric power needs from third-party electricity
suppliers under fixed-price energy and capacity contracts and, to a much lesser
extent, on the spot market. Prices for electricity can be volatile especially
during periods of high demand or tight supply. In accordance with a Provider of
Last Resort ("POLR") settlement approved by the PUC, Electric Utility may
increase its POLR rates up to certain limits through December 31, 2004, and
charge market rates thereafter. Electric Utility's fixed-price contracts with
electricity suppliers mitigate most risks associated with the POLR service rate
limits in effect through December 31, 2004. 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. At March 31, 2004, Electric Utility was a party to an
electricity price swap agreement to reduce the volatility in the cost of a
portion of its anticipated electricity requirements in 2007.
In order to manage market price risk relating to substantially all of Energy
Services' forecasted fixed-price sales of natural gas, Energy Services purchases
exchange-traded natural gas futures contracts or enters into fixed-price supply
arrangements. Exchange-traded natural gas futures contracts are guaranteed by
the New York Mercantile Exchange ("NYMEX") and have nominal credit risk. An
adverse change in market value of these contracts may require daily cash
deposits in margin accounts with brokers. Although Energy Services' fixed-price
supply arrangements mitigate most risks associated with its fixed-price sales
contracts, should any of the natural gas suppliers under these arrangements fail
to perform, increases, if any, in the cost of replacement natural gas would
adversely impact Energy Services' results. In order to reduce this risk of
supplier nonperformance, Energy Services has diversified its purchases across a
number of suppliers.
UGID has entered into fixed-price sales agreements for a portion of the
electricity expected to be generated by its interests in electricity generating
assets. In the event that these generation assets would not be able to produce
all of the electricity needed to supply electricity under these agreements, UGID
-34-
UGI CORPORATION AND SUBSIDIARIES
would be required to purchase such electricity on the spot market or under
contract with other electricity suppliers. Accordingly, increases in the cost of
replacement power could negatively impact the Company's results.
We have both fixed-rate and variable-rate debt. Changes in interest rates impact
the cash flows of variable-rate debt but generally do not impact its fair value.
Conversely, changes in interest rates impact the fair value of fixed-rate debt
but do not impact their cash flows.
Our variable-rate debt includes borrowings under AmeriGas OLP's Credit
Agreement, borrowings under UGI Utilities' revolving credit agreements and the
uncommitted arrangement with a major bank, and a substantial portion of AGZ
Holding's and FLAGA's debt. These debt agreements have interest rates that are
generally indexed to short-term market interest rates. AGZ Holding has
effectively fixed the interest rates on a portion of their variable-rate debt
through the use of interest rate swaps. At March 31, 2004, combined borrowings
outstanding under these agreements, excluding the effectively fixed portion of
AGZ Holding's variable-rate debt, totaled $173.4 million. Our long-term debt is
typically issued at fixed rates of interest based upon market rates for debt
having similar terms and credit ratings. As these long-term debt issues mature,
we may refinance such debt with new debt having interest rates reflecting
then-current market conditions. This debt may have an interest rate that is more
or less than the refinanced debt. In order to reduce interest rate risk
associated with near-term forecasted issuances of fixed-rate debt, from time to
time we enter into interest rate protection agreements.
The following table summarizes the fair values of unsettled market risk
sensitive derivative instruments held at March 31, 2004. Fair values reflect the
estimated amounts that we would receive or pay to terminate the contracts at the
reporting date based upon quoted market prices of comparable contracts at March
31, 2004. The table also includes the changes in fair value that would result if
there were a ten percent adverse change in (1) the market price of propane; (2)
the market price of natural gas; (3) the market price of electricity; and (4)
interest rates on ten-year U.S. treasury notes.
Change in
Fair Value Fair Value
---------- ----------
(Millions of dollars)
March 31, 2004:
Propane commodity price risk $ 2.5 $(3.6)
Natural gas commodity price risk 3.8 (2.6)
Electricity commodity price risk 1.6 (0.9)
Interest rate risk (5.1) (12.0)
Gas Utility's exchange-traded natural gas call option contracts are excluded
from the table above because any associated net gains or losses are included in
Gas Utility's PGC recovery mechanism. Because the Company's derivative
instruments generally qualify as hedges under SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," ("SFAS 133"), we expect that
changes in the fair value of derivative instruments used to manage commodity or
interest rate market risk would be substantially offset by gains or losses on
the associated anticipated transactions.
The primary currency for which the Company has exchange rate risk is the U.S.
dollar versus the euro. The U.S. dollar value of our foreign-denominated assets
and liabilities will fluctuate with changes in the associated foreign currency
exchange rates. With respect to FLAGA, the net effect of changes in foreign
currency exchange rates on their U.S. dollar denominated assets and liabilities
would not be material because FLAGA's U.S. dollar denominated financial
instrument assets and liabilities are not materially different in amount. With
respect to our net investments in FLAGA and Antargaz, a 10% decline in the value
of the euro versus the U.S. dollar would reduce their aggregate net book value
by
-35-
UGI CORPORATION AND SUBSIDIARIES
approximately $40.4 million, which amount would be reflected in other
comprehensive income. In March 2004, the Company entered into a foreign currency
swap agreement to hedge a portion of its net investment in foreign operations.
This foreign currency swap agreement has been designated as a net investment
hedge in a foreign subsidiary and qualifies for hedge accounting. Therefore, any
changes in fair value are recorded in other comprehensive income. Upon
settlement of the foreign currency swap agreement in September 2004, any
realized gain or loss will remain in other comprehensive income until such
foreign operations have been liquidated. As of March 31, 2004, the fair value of
our foreign currency swap was a loss of $0.4 million and an adverse change in
the value of the euro versus the dollar by 10% would result in a $4.9 million
decrease in fair value. From time to time, the Company may use derivative
instruments to hedge additional portions of its net investments in foreign
subsidiaries.
-36-
UGI CORPORATION AND SUBSIDIARIES
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
The Company's management, with the participation of the Company's Chief
Executive Officer and Chief Financial Officer, evaluated the effectiveness
of the Company's disclosure controls and procedures as of the end of the
period covered by this report. Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures as of the end of the period covered by
this report were designed and functioning effectively to provide
reasonable assurance that the information required to be disclosed by the
Company in reports filed under the Securities Exchange Act of 1934, as
amended, is recorded, processed, summarized and reported within the time
periods specified in the SEC's rules and forms. The Company believes that
a controls system, no matter how well designed and operated, cannot
provide absolute assurance that the objectives of the controls system are
met, and no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within a company have been
detected.
(b) Change in Internal Control over Financial Reporting
No change in the Company's internal control over financial reporting
occurred during the Company's most recent fiscal quarter that has
materially affected, or is reasonably likely to materially affect, the
Company's internal control over financial reporting.
As described in Note 3 to the Consolidated Financial Statements included
in this report, on March 31, 2004, the Company acquired the remaining
outstanding 80.5% ownership in AGZ Holding that it did not already own.
The internal control over financial reporting of AGZ Holding and its
subsidiaries is being aligned with that of the Company as part of the
post-acquisition financial integration process.
-37-
UGI CORPORATION AND SUBSIDIARIES
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Consolidated Edison Company of New York v. UGI Utilities, Inc. On
September 20, 2001, Consolidated Edison Company of New York ("ConEd") filed suit
against Utilities 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 MGP sites in Westchester County, New York. The complaint
alleges that Utilities "owned and operated" the MGPs 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 believes that the cost of remediation for all of the sites could exceed
$70 million.
In November 2003, the court granted Utilities' motion for summary judgment
in part, dismissing all claims premised on a disregard of the separate corporate
form of Utilities' former subsidiaries and dismissing claims premised on
Utilities' operation of three of the MGPs under operating leases with ConEd's
predecessors. In March 2004, the court granted summary judgment on the remaining
claims and dismissed ConEd's complaint. ConEd has appealed.
Savannah, Georgia Matter. Atlanta Gas Light Company ("AGL") previously
informed UGI Utilities that it was investigating contamination that appeared to
be related to MGP operations at a site owned by AGL in Savannah, Georgia. A
former subsidiary of UGI Utilities' operated the MGP in the early 1900's. AGL
has recently informed UGI Utilities that it has begun remediation of MGP wastes
at the site and believes that the total cost of remediation could be as high as
$55 million. AGL has stated an intention to make a claim against UGI Utilities
for a share of these costs. UGI Utilities believes that it will have substantial
defenses to any action that may arise out of this site.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On February 24, 2004 the Annual Meeting of Shareholders of UGI was held.
The Shareholders (i) reelected the eight nominees from the existing Board of
Directors to another term, (ii) approved the Company's 2004 Omnibus Equity
Compensation Plan, (iii) ratified the appointment of PricewaterhouseCoopers LLP
as independent certified accountants and (iv) approved the Shareholder Proposal
recommending a change in the Company's bylaws to provide for a shareholder vote
on shareholder rights plans.
The number of votes cast for and withheld from election of each director
nominee is set forth below. There were no abstentions or broker non-votes in the
election of directors.
Director Nominees For Withheld
- ----------------- ---------- --------
James W. Stratton 36,285,444 981,752
Richard C. Gozon 36,373,127 894,069
Stephen D. Ban 36,408,185 859,011
Lon R. Greenberg 36,345,399 921,797
Marvin O. Schlanger 36,651,676 615,520
Thomas F. Donovan 36,620,678 646,518
Anne Pol 36,646,063 621,133
Ernest E. Jones 36,630,691 636,505
-38-
UGI CORPORATION AND SUBSIDIARIES
The number of votes cast for and against, and the number of abstentions
for approval of the Company's 2004 Omnibus Equity Compensation Plan is as
follows: For: 26,073,360; Against: 3,703,471; Abstain: 577,191. There were no
broker non-votes.
The number of votes cast for and against, and the number of abstentions in
the ratification of the appointment of PricewaterhouseCoopers LLP is as follows:
For: 36,893,448; Against: 211,526; Abstain: 162,223. There were no broker
non-votes.
The number of votes cast for and against, and the number of abstentions
for approval of the Shareholder Proposal is as follows: For: 22,127,412;
Against: 7,406,276; Abstain: 820,336. There were 6,913,173 broker non-votes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits:
10.1 Senior Facilities Agreement dated June 26, 2003 as Amended and
Restated July 2, 2003, between AGZ Holding and Antargaz,
Credit Lyonnais, as Mandated Lead Arranger, Facility Agent and
Security Agent, and the Financial Institutions named therein.
10.1(a) Form of Amendment Agreement dated January 15, 2004 to Senior
Facilities Agreement, as Amended and Restated July 2, 2003.
10.2 Pledge of Financial Instruments Account relating to
Financial Instruments held by AGZ Holding in Antargaz, dated
July 7, 2003, between AGZ Holding, as Pledgor, and Credit
Lyonnais, as Security Agent, and the Senior Lenders.
10.3 Pledge of Financial Instruments Accounts relating to
Financial Instruments held by Antargaz in certain subsidiary
companies, dated July 7, 2003, between Antargaz, as Pledgor,
and Credit Lyonnais, as Security Agent, and the Revolving
Lenders.
10.4 Intercreditor Agreement, dated July 7, 2003, between AGZ
Holding, Antargaz, AGZ Finance, the Senior Lenders (as defined
therein), the Investors (as defined therein), and Credit
Lyonnais, as Facility Agent for the Senior Lenders and as
Security Agent.
10.5 Seller's Guarantee dated February 16, 2001 among Elf Antar
France, Elf Aquitaine and AGZ Holding.
31.1 Certification by the Chief Executive Officer relating to the
Registrant's Report on Form 10-Q for the quarter ended March
31, 2004, pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
31.2 Certification by the Chief Financial Officer relating to the
Registrant's Report on Form 10-Q for the quarter ended March
31, 2004, pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
-39-
UGI CORPORATION AND SUBSIDIARIES
*32 Certification by the Chief Executive Officer and the Chief
Financial Officer relating to the Registrant's Report on Form
10-Q for the quarter ended March 31, 2004, pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
(b) The Company filed information in a Current Report on Form 8-K during
the second quarter of fiscal year 2004 and as follows:
ITEM
DATE NUMBER(S) CONTENT
---- --------- -------
March 11, 2004 5, 7 Amended Items 1, 2 and 7 of the
Company's Annual Report on Form
10-K, to disclose in the
Company's audited consolidated
financial statements for the
fiscal year ended September 30,
2003, the realignment of the
Company's segments.
March 18, 2004 5, 7 Announcement of the execution of
an Underwriting Agreement between
the Company and Credit Suisse
First Boston (Europe) Limited, as
Representative of the several
certain underwriters, covering
the issue and sale by the Company
of its Common Stock.
March 31, 2004 2, 7 Report of completion of the
Company's acquisition of the
remaining outstanding ownership
interests of AGZ Holding, the
parent company of Antargaz,
including related historical and
pro forma financial statements.
- ------------------------
* This Exhibit shall not be deemed "filed" for purposes of Section 18 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
otherwise subject to liability under that section, nor shall it be deemed
incorporated by reference in any filing under the Securities Act of 1933,
as amended, or the Exchange Act, except as expressly set forth by specific
reference in such filing.
-40-
UGI CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UGI Corporation
---------------------
(Registrant)
Date: May 17, 2004 By: /s/ Anthony J. Mendicino
-----------------------------------------
Anthony J. Mendicino
Senior Vice President-Finance and
Chief Financial Officer
Date: May 17, 2004 By: /s/ Michael J. Cuzzolina
-----------------------------------------
Michael J. Cuzzolina
Vice President-Accounting and
Financial Control and
Chief Risk Officer
-41-
UGI CORPORATION AND SUBSIDIARIES
EXHIBIT INDEX
10.1 Senior Facilities Agreement dated June 26, 2003 as Amended and Restated
July 2, 2003, between AGZ Holding and Antargaz, Credit Lyonnais, as
Mandated Lead Arranger, Facility Agent and Security Agent, and the
Financial Institutions named therein.
10.1(a) Form of Amendment Agreement dated January 15, 2004 to Senior Facilities
Agreement, as Amended and Restated July 2, 2003.
10. 2 Pledge of Financial Instruments Account relating to Financial
Instruments held by AGZ Holding in Antargaz, dated July 7, 2003, between
AGZ Holding, as Pledgor, and Credit Lyonnais, as Security Agent, and the
Senior Lenders.
10.3 Pledge of Financial Instruments Accounts relating to Financial
Instruments held by Antargaz in certain subsidiary companies, dated July
7, 2003, between Antargaz, as Pledgor, and Credit Lyonnais, as Security
Agent, and the Revolving Lenders.
10.4 Intercreditor Agreement, dated July 7, 2003, between AGZ Holding,
Antargaz, AGZ Finance, the Senior Lenders (as defined therein), the
Investors (as defined therein), and Credit Lyonnais, as Facility Agent for
the Senior Lenders and as Security Agent.
10.5 Seller's Guarantee dated February 16, 2001 among Elf Antar France, Elf
Aquitaine and AGZ Holding.
31.1 Certification by the Chief Executive Officer relating to the Registrant's
Report on Form 10-Q for the quarter ended March 31, 2004, pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification by the Chief Financial Officer relating to the Registrant's
Report on Form 10-Q for the quarter ended March 31, 2004, pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
* 32 Certification by the Chief Executive Officer and the Chief Financial
Officer relating to the Registrant's Report on Form 10-Q for the quarter
ended March 31, 2004, pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
- ------------------------
* This Exhibit shall not be deemed "filed" for purposes of Section 18 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
otherwise subject to liability under that section, nor shall it be deemed
incorporated by reference in any filing under the Securities Act of 1933,
as amended, or the Exchange Act, except as expressly set forth by specific
reference in such filing.