1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 1-1398
UGI UTILITIES, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 23-1174060
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
UGI UTILITIES, INC.
100 Kachel Boulevard, Suite 400
Green Hills Corporate Center, Reading, PA
(Address of principal executive offices)
19607
(Zip Code)
(610) 796-3400
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
At January 31, 2001, there were 26,781,785 shares of UGI Utilities,
Inc. Common Stock, par value $2.25 per share, outstanding, all of which were
held, beneficially and of record, by UGI Corporation.
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UGI UTILITIES, INC.
TABLE OF CONTENTS
PAGES
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of December 31, 2000,
September 30, 2000 and December 31, 1999 1
Condensed Consolidated Statements of Income for the three
and twelve months ended December 31, 2000 and 1999 2
Condensed Consolidated Statements of Cash Flows for the
three and twelve months ended December 31, 2000 and 1999 3
Notes to Condensed Consolidated Financial Statements 4 - 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10 - 15
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
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UGI UTILITIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(Thousands of dollars)
December 31, September 30, December 31,
2000 2000 1999
---- ---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 10,351 $ 15,575 $ 4,218
Accounts receivable (less allowances for doubtful accounts
of $3,142, $2,061 and $1,649, respectively) 70,156 33,341 47,157
Accrued utility revenues 37,277 10,486 24,658
Inventories 28,379 36,934 21,007
Deferred income taxes - 336 1,483
Regulatory assets 18,403 7,195 3,277
Prepaid expenses and other current assets 2,461 3,077 2,022
---------- ---------- ----------
Total current assets 167,027 106,944 103,822
Property, plant and equipment, at cost (less accumulated depreciation
and amortization of $271,811, $287,835 and $275,229, respectively) 569,890 569,970 559,173
Regulatory assets 54,643 55,081 58,313
Other assets 30,560 19,142 17,512
---------- ---------- ----------
Total assets $ 822,120 $ 751,137 $ 738,820
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 15,000 $ 15,000 $ 7,143
Bank loans 102,600 100,400 101,800
Accounts payable 88,089 54,138 38,150
Other current liabilities 45,231 40,793 45,172
---------- ---------- ----------
Total current liabilities 250,920 210,331 192,265
Long-term debt 177,929 157,924 172,909
Deferred income taxes 115,329 114,681 112,404
Other noncurrent liabilities 22,625 23,728 24,252
Commitments and contingencies (note 3)
Redeemable preferred stock 20,000 20,000 20,000
Common stockholder's equity:
Common Stock, $2.25 par value (authorized - 40,000,000 shares;
issued and outstanding - 26,781,785 shares) 60,259 60,259 60,259
Additional paid-in capital 72,559 68,559 68,559
Retained earnings 102,499 95,655 88,172
---------- ---------- ----------
Total common stockholder's equity 235,317 224,473 216,990
---------- ---------- ----------
Total liabilities and stockholders' equity $ 822,120 $ 751,137 $ 738,820
========== ========== ==========
See accompanying notes to consolidated financial statements.
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UGI UTILITIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(Thousands of dollars)
Three Months Ended Twelve Months Ended
December 31, December 31,
----------------------- ------------------------
2000 1999 2000 1999
---- ---- ---- ----
Revenues $166,503 $121,156 $482,289 $429,033
--------- --------- --------- ---------
Costs and expenses:
Gas, fuel and purchased power 103,348 57,433 264,034 207,318
Operating and administrative expenses 23,688 20,273 88,840 87,201
Operating and administrative expenses
- related parties 1,359 561 4,957 4,335
Taxes other than income taxes 2,456 7,197 12,311 25,787
Depreciation and amortization 5,925 5,747 23,790 23,276
Other income, net (3,736) (3,877) (12,519) (7,925)
--------- --------- --------- ---------
133,040 87,334 381,413 339,992
--------- --------- --------- ---------
Operating income 33,463 33,822 100,876 89,041
Interest expense 5,105 4,746 18,712 17,840
--------- --------- --------- ---------
Income before income taxes 28,358 29,076 82,164 71,201
Income taxes 11,263 11,258 32,411 27,548
--------- --------- --------- ---------
Net income 17,095 17,818 49,753 43,653
Dividends on preferred stock 388 388 1,550 1,550
--------- --------- --------- ---------
Net income after dividends on preferred stock $ 16,707 $ 17,430 $ 48,203 $ 42,103
========= ========= ========= =========
See accompanying notes to consolidated financial statements.
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UGI UTILITIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(Thousands of dollars)
Three Months Ended Twelve Months Ended
December 31, December 31,
------------------------ -------------------------
2000 1999 2000 1999
---- ---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 17,095 $ 17,818 $ 49,753 $ 43,653
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 5,925 5,747 23,790 23,276
Deferred income taxes, net 4,420 1,109 6,177 6,062
Other, net 1,017 560 6,805 3,543
--------- --------- --------- ---------
28,457 25,234 86,525 76,534
Net change in:
Accounts receivable and accrued utility revenues (65,965) (39,088) (41,700) (15,678)
Inventories 7,219 7,096 (8,708) 6,009
Deferred fuel costs (11,708) 168 (15,627) (4,888)
Accounts payable 33,951 269 49,939 (5,652)
Other current assets and liabilities 1,642 13,539 (2,604) 7,032
--------- --------- --------- ---------
Net cash provided (used) by operating activities (6,404) 7,218 67,825 63,357
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant and equipment (8,740) (7,997) (37,134) (35,842)
Net costs of property, plant and equipment disposals (30) (78) (790) (771)
Investment in joint venture partnership (6,000) - (6,000) -
--------- --------- --------- ---------
Net cash used by investing activities (14,770) (8,075) (43,924) (36,613)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of dividends (10,250) (20,388) (35,425) (50,550)
Issuance of long-term debt 20,000 - 20,000 -
Repayment of long-term debt - - (7,143) (7,143)
Bank loans increase 2,200 14,400 800 31,600
Capital contribution from UGI 4,000 - 4,000 -
--------- --------- --------- ---------
Net cash provided (used) by financing activities 15,950 (5,988) (17,768) (26,093)
--------- --------- --------- ---------
Cash and cash equivalents increase (decrease) $ (5,224) $ (6,845) $ 6,133 $ 651
========= ========= ========= =========
CASH AND CASH EQUIVALENTS:
End of period $ 10,351 $ 4,218 $ 10,351 $ 4,218
Beginning of period 15,575 11,063 4,218 3,567
--------- --------- --------- ---------
Increase (decrease) $ (5,224) $ (6,845) $ 6,133 $ 651
========= ========= ========= =========
See accompanying notes to consolidated financial statements.
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UGI UTILITIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Thousands of dollars)
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements include
the accounts of UGI Utilities, Inc. ("UGI Utilities") and its wholly
owned subsidiaries (collectively, "the Company" or "we"). We eliminate
all significant intercompany accounts and transactions when we
consolidate. We have reclassified certain prior-period balances to
conform with the current period presentation. UGI Utilities is a wholly
owned subsidiary of UGI Corporation ("UGI") and operates a natural gas
distribution utility ("Gas Utility") in parts of eastern and
southeastern Pennsylvania and an electric distribution utility and
electricity generation business (collectively, "Electric Utility") in
northeastern Pennsylvania.
The accompanying condensed consolidated financial statements are
unaudited and have been prepared in accordance with the rules and
regulations of the U.S. Securities and Exchange Commission. They
include all adjustments which we consider necessary for a fair
statement of the results for the interim periods presented. Such
adjustments consisted only of normal recurring items unless otherwise
disclosed. These financial statements should be read in conjunction
with the financial statements and the related notes included in our
Annual Report on Form 10-K for the year ended September 30, 2000
("Company's 2000 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.
UGI Utilities' comprehensive income as determined under Statement of
Financial Accounting Standards ("SFAS") No. 130 "Reporting
Comprehensive Income" was the same as its net income for all periods
presented.
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UGI UTILITIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Thousands of dollars)
2. SEGMENT INFORMATION
Based upon SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information" ("SFAS 131"), we have determined that the
Company has two reportable segments: (1) Gas Utility and (2) Electric
Utility. The accounting policies of our two reportable segments are the
same as those described in the Significant Accounting Policies note
contained in the Company's 2000 Annual Report. We evaluate each
segment's performance principally based upon its earnings before income
taxes. No single customer represents more than 10% of the total
revenues of either Gas Utility or Electric Utility. Financial
information by business segment follows:
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UGI UTILITIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Thousands of dollars)
2. SEGMENT INFORMATION (continued)
THREE MONTHS ENDED DECEMBER 31, 2000:
Gas Electric
Total Eliminations Utility Utility Other
-------------------------------------------------------------------
Segment revenues $166,503 $ - $146,030 $ 20,473 $ -
==================================================================
Segment profit:
EBITDA $ 39,388 $ - $ 35,560 $ 3,828 $ -
Depreciation and amortization (5,925) - (4,925) (1,000) -
-------------------------------------------------------------------
Operating income 33,463 - 30,635 2,828 -
Interest expense (5,105) - (4,402) (703) -
-------------------------------------------------------------------
Income before income taxes $ 28,358 $ - $ 26,233 $ 2,125 $ -
===================================================================
Segment assets (at period end) $822,120 $ - $719,650 $102,470 $ -
===================================================================
Investment in equity investee $ 10,377 $ - $ - $ 10,377 $ -
===================================================================
THREE MONTHS ENDED DECEMBER 31, 1999:
Gas Electric
Total Eliminations Utility Utility Other
-------------------------------------------------------------------
Segment revenues $121,156 $ - $101,976 $ 19,180 $ -
===================================================================
Segment profit:
EBITDA $ 39,569 $ - $ 32,709 $ 6,860 $ -
Depreciation and amortization (5,747) - (4,847) (900) -
-------------------------------------------------------------------
Operating income 33,822 - 27,862 5,960 -
Interest expense (4,746) - (4,208) (538) -
-------------------------------------------------------------------
Income before income taxes $ 29,076 $ - $ 23,654 $ 5,422 $ -
===================================================================
Segment assets (at period end) $738,820 $ - $641,688 $96,808 $ 324
===================================================================
Investment in equity investee $ - $ - $ - $ - $ -
===================================================================
EBITDA (earnings before interest expense, income taxes, depreciation
and amortization) should not be considered as an alternative to net
income (as an indicator of operating performance) or as an alternative
to cash flow (as a measure of liquidity or ability to service debt
obligations) and is not a measure of performance or financial condition
under generally accepted accounting principles.
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UGI UTILITIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Thousands of dollars)
2. SEGMENT INFORMATION (continued)
TWELVE MONTHS ENDED DECEMBER 31, 2000:
Gas Electric
Total Eliminations Utility Utility Other
---------------------------------------------------------------------
Segment revenues $482,289 $ - $403,095 $ 79,194 $ -
=====================================================================
Segment profit:
EBITDA $124,666 $ - $108,127 $ 16,539 $ -
Depreciation and amortization (23,790) - (19,176) (4,614) -
---------------------------------------------------------------------
Operating income 100,876 - 88,951 11,925 -
Interest expense (18,712) - (16,369) (2,343) -
---------------------------------------------------------------------
Income before income taxes $ 82,164 $ - $ 72,582 $ 9,582 $ -
=====================================================================
Segment assets (at period end) $822,120 $ - $719,650 $102,470 $ -
=====================================================================
Investment in equity investee $ 10,377 $ - $ - $ 10,377 $ -
=====================================================================
TWELVE MONTHS ENDED DECEMBER 31, 1999:
Gas Electric
Total Eliminations Utility Utility Other
-------------------------------------------------------------------
Segment revenues $429,033 $ - $ 353,035 $75,998 $ -
===================================================================
Segment profit:
EBITDA $112,317 $ - $ 93,428 $18,947 $(58)
Depreciation and amortization (23,276) - (19,176) (4,100) -
-------------------------------------------------------------------
Operating income (loss) 89,041 - 74,252 14,847 (58)
Interest expense (17,840) - (15,547) (2,293) -
-------------------------------------------------------------------
Income (loss) before income taxes $ 71,201 $ - $ 58,705 $12,554 $(58)
===================================================================
Segment assets (at period end) $738,820 $ - $ 641,688 $96,808 $324
===================================================================
Investment in equity investee $ - $ - $ - $ - $ -
===================================================================
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UGI UTILITIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Thousands of dollars)
3. COMMITMENTS AND CONTINGENCIES
There have been no significant subsequent developments to the
commitments and contingencies reported in the Company's 2000 Annual
Report.
4. ADOPTION OF SFAS 133
Effective October 1, 2000, the Company adopted the provisions of SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities"
("SFAS 133"). SFAS 133, as amended by SFAS Nos. 137 and 138,
establishes accounting and reporting standards for derivative
instruments and for hedging activities. It requires that all derivative
instruments be recognized as either assets or liabilities and measured
at fair value. The accounting for changes in fair value depends upon
the purpose of the derivative instrument and whether it is designated
and qualifies for hedge accounting.
On occasion we use a managed program of derivative instruments
including natural gas and oil futures contracts to preserve forecasted
gross margin associated with certain of our natural gas customers.
These contracts are generally designated as cash flow hedges. We are
also a party to a number of contracts that have elements of a
derivative instrument. These contracts include, among others, binding
purchase orders, contracts which provide for the delivery of natural
gas, and service contracts that require the counterparty to provide
commodity storage, transportation or capacity service to meet our
normal sales commitments. Although many of these contracts have the
requisite elements of a derivative instrument, we believe these
contracts are not subject to the accounting requirements of SFAS 133
because they provide for the delivery of products or services in
quantities that are expected to be used in the normal course of
operating our business or the value of the contract is directly
associated with the price or value of a service. Other contracts do not
meet the definition of a derivative instrument because they represent
requirements-based commitments. Although the adoption of SFAS 133 did
not materially impact the Company's results of operations or financial
position during the three months ended December 31, 2000, it may impact
future results of operations or financial position depending upon the
extent to which we use derivative instruments and their designation and
effectiveness as hedges of market risk.
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UGI UTILITIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
(Thousands of dollars)
5. FORMATION OF HUNLOCK CREEK ENERGY VENTURES
On December 8, 2000, UGI Development Company, through a subsidiary,
contributed its coal-fired Hunlock Creek generating station
("Hunlock"), certain related assets, and approximately $6,000 in cash,
to Hunlock Creek Energy Ventures ("Energy Ventures"), a general
partnership jointly owned by the Company and a subsidiary of Allegheny
Energy, Inc., ("Allegheny"). Also on December 8, 2000, Allegheny
contributed a newly-constructed, gas-fired combustion turbine generator
to be operated at the Hunlock site. Under the joint-venture agreement,
each partner is entitled to purchase 50% of the output of the joint
venture at cost. The Company's investment in Energy Ventures is being
accounted for under the equity method of accounting. The formation of
the joint venture did not materially impact the Company's results of
operations during the three months ended December 31, 2000.
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UGI UTILITIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
ANALYSIS OF RESULTS OF OPERATIONS
The following analyses compare our results of operations for (1) the three
months ended December 31, 2000 ("2000 three-month period") with the three months
ended December 31, 1999 ("1999 three-month period") and (2) the twelve months
ended December 31, 2000 ("2000 twelve-month period") with the twelve months
ended December 31, 1999 ("1999 twelve-month period"). Our results of operations
should be read in conjunction with the segment information included in Note 2 to
the Condensed Consolidated Financial Statements.
2000 THREE-MONTH PERIOD COMPARED WITH 1999 THREE-MONTH PERIOD
Increase
Three Months Ended December 31, 2000 1999 (Decrease)
- ----------------------------------------------------------------------------------------------------------------
(Millions of dollars)
Gas Utility:
Revenues $146.0 $102.0 $44.0 43.1%
Total margin (a) $ 53.6 $ 47.9 $ 5.7 11.9%
EBITDA (b) $ 35.6 $ 32.7 $ 2.9 8.9%
Operating income $ 30.6 $ 27.9 $ 2.7 9.7%
Natural gas system throughput - bcf 24.2 22.1 2.1 9.5%
Heating degree days - % colder
(warmer) than normal 10.0 (12.2) - -
Electric Utility:
Revenues $ 20.5 $ 19.2 $ 1.3 6.8 %
Total margin (a) $ 8.7 $ 11.0 (2.3) (20.9)%
EBITDA (b) $ 3.8 $ 6.9 (3.1) (44.9)%
Operating income $ 2.8 $ 6.0 (3.2) (53.3)%
Electric sales - gwh 241.8 225.5 16.3 7.2 %
- ----------------------------------------------------------------------------------------------------------------
bcf - billions of cubic feet. gwh - millions of kilowatt hours.
(a) Gas and Electric utilities' total margin represents total revenues less
cost of sales and revenue-related taxes, i.e. gross receipts taxes. For
financial statement purposes, revenue related taxes are included in
"taxes other than income taxes" on the condensed consolidated
statements of income. As of January 1, 2000, the Gas Competition Act,
in conjunction with a companion bill, eliminated the gross receipts tax
on sales of gas.
(b) EBITDA (earnings before interest expense, income taxes, depreciation
and amortization) should not be considered as an alternative to net
income (as an indicator of operating performance) or as an alternative
to cash flow (as a measure of liquidity or ability to service debt
obligations) and is not a measure of performance or financial condition
under generally accepted accounting principles.
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UGI UTILITIES, INC.
GAS UTILITY. Weather in Gas Utility's service territory during the 2000
three-month period was 10.0% colder than normal compared to weather that was
12.2% warmer than normal in the prior year period. The colder weather was a
major factor in a 2.1 bcf (9.5%) increase in total Gas Utility system
throughput.
The $44.0 million increase in Gas Utility revenues reflects the impact of (1)
higher average purchased gas cost ("PGC") rates in effect during the 2000
three-month period and (2) higher sales to firm residential, commercial and
industrial ("core market") customers. The higher PGC rates reflect significantly
higher costs for natural gas in the 2000 three-month period. Gas Utility cost of
gas was $92.4 million in the 2000 three-month period compared to $50.0 million
in the prior-year period reflecting the higher PGC rates and higher sales to
core market customers.
The increase in Gas Utility total margin reflects a $5.3 million increase in
core market margin resulting from the higher core market sales. Margin from
interruptible customers decreased $0.6 million to $5.7 million in the 2000
three-month period reflecting the impact of higher natural gas prices on
interruptible customer unit margins.
Gas Utility EBITDA and operating income increased $2.9 million and $2.7 million,
respectively, reflecting the previously mentioned increase in total margin and
slightly higher other income partially offset by a $3.5 million increase in
operating and administrative expenses. The increase in operating and
administrative expenses principally reflects higher charges for uncollectible
accounts and greater distribution system maintenance expenses.
ELECTRIC UTILITY. The increase in kilowatt-hour sales in the 2000 three-month
period reflects the impact on sales resulting from weather that was 21.5% colder
than the prior year. Electric Utility revenues increased principally as a result
of the higher sales. Electric Utility cost of sales was $10.9 million in the
2000 three-month period, an increase of $3.5 million from the prior year,
reflecting higher per unit purchased power costs and, to a lesser extent, the
higher sales.
Total margin decreased $2.3 million as a result of the higher purchased power
costs. EBITDA and operating income were lower than in the prior-year period
reflecting (1) the decrease in total margin and (2) lower other income.
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UGI UTILITIES, INC.
2000 TWELVE-MONTH PERIOD COMPARED WITH 1999 TWELVE-MONTH PERIOD
Increase
Twelve Months Ended December 31, 2000 1999 (Decrease)
- -------------------------------------------------------------------------------------------------------
(Millions of dollars)
GAS UTILITY:
Revenues $403.1 $353.0 $50.1 14.2%
Total margin $176.5 $165.3 $11.2 6.8%
EBITDA $108.1 $ 93.4 $14.7 15.7%
Operating income $ 89.0 $ 74.3 $14.7 19.8%
Natural gas system throughput - bcf 81.9 77.9 4.0 5.1%
Heating degree days - % warmer
than normal 2.0 11.0 - -
ELECTRIC UTILITY:
Revenues $ 79.2 $ 76.0 $ 3.2 4.2%
Total margin $ 38.2 $ 39.9 $(1.7) (4.3)%
EBITDA $ 16.5 $ 18.9 $(2.4) (12.7)%
Operating income $ 11.9 $ 14.8 $(2.9) (19.6)%
Electric sales - gwh 923.4 902.8 20.6 2.3%
- -------------------------------------------------------------------------------------------------------
GAS UTILITY. Weather in Gas Utility's service territory was 2.0% warmer than
normal in the 2000 twelve-month period and 9.9% colder than in the prior-year
period. The increase in system throughput resulted from higher heating-related
sales to core market customers and higher interruptible delivery service
volumes.
The increase in Gas Utility revenues includes a $41.8 million increase in core
market revenues reflecting higher average PGC rates and higher sales partially
offset by the impact on revenues resulting from the elimination of the gross
receipts tax effective January 1, 2000 pursuant to the Gas Competition Act. Gas
Utility cost of gas was $226.6 million in the 2000 twelve-month period compared
with $174.3 million in the 1999 twelve-month period reflecting higher PGC rates
resulting from increased natural gas prices and greater core market sales.
Gas Utility total margin increased $11.2 million principally reflecting (1) an
$8.1 million increase in core market margin and (2) a $3.2 million increase in
interruptible retail and delivery service margin.
Gas Utility EBITDA and operating income each increased $14.7 million principally
a result of (1) the higher total margin and (2) a $3.9 million increase in other
income. Gas Utility's net operating expenses in the 2000 twelve-month period
were about equal to the prior-year period, notwithstanding an increase in
distribution system maintenance and uncollectible customer account expenses, due
to $4.5 million of income from insurance litigation settlements.
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UGI UTILITIES, INC.
ELECTRIC UTILITY. Electric sales for the 2000 twelve-month period increased 2.3%
on heating-season weather that was colder than in the prior-year period.
Revenues increased as a result of the higher sales as well as an increase in
transmission revenues from wholesale transmission services which were unbundled
as a result of electric customer choice. Cost of sales increased to $37.4
million from $32.9 million reflecting (1) higher per unit purchased power costs
principally during the 2000 three-month period; (2) costs associated with
wholesale transmission services; and (3) the higher 2000 twelve-month period
sales.
Electric Utility total margin decreased $1.7 million as a result of the higher
purchased power costs experienced primarily during the 2000 three-month period.
EBITDA and operating income during the 2000 twelve month period were lower
principally reflecting the lower total margin, a decrease in other income and,
with respect to operating income, higher depreciation charges associated with
electric generation facilities.
FINANCIAL CONDITION AND LIQUIDITY
FINANCIAL CONDITION
The Company's debt outstanding at December 31, 2000 totaled $295.5 million
compared with $273.3 million at September 30, 2000. Included in these amounts
are bank loans of $102.6 million and $100.4 million, respectively. During the
2000 three-month period, the Company issued $20 million of five-year notes under
its Medium-Term Note program. The notes bear interest at a rate of 7.135%. The
proceeds were used for working capital purposes.
At December 31, 2000, the Company had Revolving Credit Agreements providing for
borrowings of up to $122 million through June 2003. In order to assure
sufficient borrowing capacity to fund working capital increases resulting from
significantly higher natural gas costs, we obtained an additional (i) $10
million commitment through March 2001 and (ii) $20 million uncommitted facility.
We believe that our Revolving Credit Facilities as well as these additional
facilities will satisfy our cash needs through the current winter heating season
and for the remainder of fiscal 2001.
CASH FLOWS
The Company's cash flows from operating activities are seasonal and are
generally greatest during the second and third fiscal quarters when customers
pay bills incurred during the heating season and are generally lowest during the
first and fourth fiscal quarters. Accordingly, cash flows from operations for
the three months ended December 31, 2000 are not necessarily indicative of cash
flows to be expected for a full year.
OPERATING ACTIVITIES. Cash used by operating activities was $6.4 million during
the three months ended December 31, 2000. In the prior-year period, cash
provided by operating activities was $7.2 million. The decrease in 2000
three-month period operating cash flow is a result of higher cash requirements
to fund working capital resulting from significantly higher natural gas costs.
Cash flow from operating activities before changes in operating working capital
was $28.5 million in the 2000 three-month period compared with $25.2 million in
the prior-year period.
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UGI UTILITIES, INC.
INVESTING ACTIVITIES. Expenditures for property, plant and equipment were $8.7
million in the 2000 three-month period, slightly higher than in the prior year.
During the 2000 three-month period the Company contributed $6 million in cash to
Hunlock Creek Energy Ventures in addition to its Hunlock Creek generating
station and certain related assets (see "Formation of Hunlock Creek Energy
Ventures" below).
FINANCING ACTIVITIES. During the 2000 and 1999 three-month periods, we paid
dividends of $9.9 million and $20.0 million, respectively, to UGI. During the
2000 three-month period, we issued $20 million of five-year notes under our
Medium-Term Note program and used the proceeds for working capital purposes. As
a result of this use of proceeds, bank loans increased only $2.2 million in the
2000 three-month period notwithstanding a significant increase in operating
working capital.
ADOPTION OF NEW ACCOUNTING STANDARDS
Effective October 1, 2000, the Company adopted the provisions of SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS 133, as
amended by SFAS Nos. 137 and 138, establishes accounting and reporting standards
for derivative instruments and for hedging activities. It requires that all
derivative instruments be recognized as either assets or liabilities and
measured at fair value. The accounting for changes in fair value depends upon
the purpose of the derivative instrument and whether it is designated and
qualifies for hedge accounting.
On occasion we use a managed program of derivative instruments including natural
gas and oil futures contracts to preserve forecasted gross margin associated
with certain of our natural gas customers. These contracts are generally
designated as cash flow hedges. We are also a party to a number of contracts
that have elements of a derivative instrument. These contracts include, among
others, binding purchase orders, contracts which provide for the delivery of
natural gas, and service contracts that require the counterparty to provide
commodity storage, transportation or capacity service to meet our normal sales
commitments. Although many of these contracts have the requisite elements of a
derivative instrument, we believe these contracts are not subject to the
accounting requirements of SFAS 133 because they provide for the delivery of
products or services in quantities that are expected to be used in the normal
course of operating our business or the value of the contract is directly
associated with the price or value of a service. Other contracts do not meet the
definition of a derivative instrument because they represent requirements-based
commitments. Although the adoption of SFAS 133 did not materially impact the
Company's results of operations or financial position during the three months
ended December 31, 2000, it may impact future results of operations or financial
position depending upon the extent to which we use derivative instruments and
their designation and effectiveness as hedges of market risk.
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UGI UTILITIES, INC.
FORMATION OF HUNLOCK CREEK ENERGY VENTURES
On December 8, 2000, UGI Development Company, through a subsidiary, contributed
its coal-fired Hunlock Creek generating station ("Hunlock"), certain related
assets, and approximately $6 million in cash, to Hunlock Creek Energy Ventures
("Energy Ventures"), a general partnership jointly owned by the Company and a
subsidiary of Allegheny Energy, Inc., ("Allegheny"). Also on December 8, 2000,
Allegheny contributed a newly-constructed, gas-fired combustion turbine
generator to be operated at the Hunlock site. Under the joint-venture agreement,
each partner is entitled to purchase 50% of the output of the joint venture at
cost. The Company's investment in Energy Ventures is being accounted for under
the equity method of accounting. The formation of the joint venture did not
materially impact the Company's results of operations during the three months
ended December 31, 2000.
IMPACT OF GAS RESTRUCTURING ORDER
On June 29, 2000, the PUC issued its order ("Gas Restructuring Order") approving
Gas Utility's restructuring plan filed by Gas Utility pursuant to Pennsylvania's
Natural Gas Choice and Competition Act. Among other things, the implementation
of the Gas Restructuring Order resulted in an increase in Gas Utility base rates
effective October 1, 2000. This base rate increase is designed to generate
approximately $16.7 million in additional annual revenues. The Gas Restructuring
Order also provides that effective October 1, 2000, Gas Utility must reduce its
PGC rates by an amount sufficient to result in a total reduction in PGC revenues
of $16.7 million in the first year of the base rate increase. As a result of the
increase in base rates and the PGC refund mechanism described above, Gas
Utility's operating results will be more sensitive to the effects of
heating-season weather beginning in fiscal 2001.
Beginning in fiscal 2002, Gas Utility is required to reduce its PGC rates by an
amount equal to the revenues it receives from customers served under
interruptible rates who do not obtain their own pipeline capacity. As a result,
Gas Utility expects that beginning in fiscal 2002 operating results will be less
sensitive to the market prices of alternative fuels than in prior fiscal years.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes from the information previously reported
under Item 7A of the Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 2000.
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UGI UTILITIES, INC.
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits:
10.1 Service Agreement by and among UGI Development
Company and Hunlock Creek Energy Ventures dated
December 9, 2000
10.2 Service Agreement by and among Allegheny Energy
Supply Company, LLC and Hunlock Creek Energy Ventures
dated December 9, 2000
12.1 Computation of ratio of earnings to fixed charges
12.2 Computation of ratio of earnings to combined fixed
charges and preferred stock dividends
27 Financial Data Schedule
(b) The Company did not file any Current Reports on Form 8-K
during the fiscal quarter ended December 31, 2000.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UGI Utilities, Inc.
-------------------
(Registrant)
Date: February 12, 2001 By:/s/ J.C. Barney
- ------------------------ ----------------------------------------
J. C. Barney, Senior Vice President -
Finance
(Principal Financial Officer)
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EXHIBIT INDEX
Exhibit No. Description
----------- -----------
10.1 Service Agreement by and among UGI Development Company and
Hunlock Creek Energy Ventures dated December 9, 2000.
10.2 Service Agreement by and among Allegheny Energy Supply
Company, LLC and Hunlock Creek Energy Ventures dated December
9, 2000.
12.1 Computation of ratio of earnings to fixed charges
12.2 Computation of ratio of earnings to combined fixed charges and
preferred stock dividends
27 Financial Data Schedule