UGI Corp. 10-Q Summary: Quarter Ended March 31, 1999
Business Context and Reporting Period
This is a Quarterly Report (Form 10-Q) for UGI Corporation, a holding company with three principal businesses: a national propane distribution business (AmeriGas Partners), a regulated natural gas and electric utility business (UGI Utilities), and an energy marketing business. The report covers the three and six months ended March 31, 1999, and compares them to the same periods in 1998.
Key Financial Metrics
| Metric | Three Months Ended Mar 31, 1999 | Six Months Ended Mar 31, 1999 | Twelve Months Ended Mar 31, 1999 |
|---|---|---|---|
| Total Revenues | $499.2 million | $872.9 million | $1,353.1 million |
| Net Income | $37.5 million | $55.5 million | $39.8 million |
| Earnings Per Share (Diluted) | $1.14 | $1.69 | $1.21 |
| Operating Income | $114.0 million | $175.5 million | $170.4 million |
| EBITDA | $136.6 million | $219.8 million | $259.0 million |
| Cash from Operations (6 mo) | $93.8 million | ||
| Total Debt Outstanding | $992.8 million (as of Mar 31, 1999) | ||
| Cash & Short-term Investments | $149.9 million (as of Mar 31, 1999) |
Material Changes vs. Prior Period
- Propane Segment: For the three months ended March 31, 1999, revenues decreased slightly ($304.9M vs $306.2M) due to lower average selling prices, though volumes increased due to colder weather relative to the prior year. Total margin increased 10.5% to $176.1 million, and operating income rose 21.5% to $72.3 million.
- Utilities Segment: Gas utility revenues increased 10.8% to $147.6 million for the quarter, driven by higher volumes from core market customers. Electric utility revenues increased 5.2% to $20.1 million. Combined utility operating income increased significantly.
- Energy Marketing: Revenues declined 10.7% to $26.6 million for the quarter due to lower average gas prices, resulting in a decrease in operating income.
- Corporate Expenses: Net corporate expenses increased to $3.1 million for the quarter (from $1.4 million) primarily due to costs associated with the proposed merger with Unisource Worldwide, Inc.
Guidance, Outlook, Risks, and Unusual Items
- Proposed Merger: On March 1, 1999, UGI announced a definitive stock-for-stock merger agreement with Unisource Worldwide, Inc. In connection with this, UGI intends to sell its utility subsidiary (UGI Utilities), reduce its annual dividend to $0.75 per share (from $1.46), and repurchase up to 6.6 million shares of common stock. The transaction is pending shareholder and regulatory approvals.
- Competitive Bid: On May 10, 1999, Unisource received an unsolicited cash proposal from Georgia-Pacific Corporation, and discussions regarding this proposal have begun. The status of the UGI merger remains pending.
- Regulatory Risks: Proposed Pennsylvania legislation (Competition Bills) aims to extend natural gas customer choice to all customers by November 1999. UGI supports this if accompanied by the repeal of the gross receipts tax on natural gas service.
- Year 2000 (Y2K): UGI reports that critical IT and non-IT systems for AmeriGas and Gas Utility are compliant. The Electric Utility's SCADA system is scheduled for replacement by July 31, 1999. Contingency plans are in place for third-party vendor failures.
- Environmental Contingencies: UGI is involved in various environmental proceedings, including Superfund sites and manufactured gas plant (MGP) liabilities. While management believes damages will not materially affect financial position, costs could be material to future operating results.
Investor Verification Checklist
- Merger Status: Verify the current status of the Unisource merger given the unsolicited Georgia-Pacific bid announced in May 1999.
- Dividend Reduction: Confirm the implementation of the proposed dividend cut from $1.46 to $0.75 annually and the timeline for the sale of UGI Utilities.
- Debt Structure: Review the impact of the $70 million Series D First Mortgage Notes issuance and the repayment of the Acquisition Facility on future interest obligations.
- Regulatory Environment: Monitor the progress of Pennsylvania's natural gas customer choice legislation and its potential impact on UGI Utilities' revenue model.
- Y2K Compliance: Confirm the successful replacement of the Electric Utility's SCADA system by the July 31, 1999 deadline.