ITEM 3. LEGAL PROCEEDINGS
With the exception of the matters set forth below, no material legal proceedings are pending involving UGI, any of its subsidiaries or any of their properties, and no such proceedings are known to be contemplated by governmental authorities.
ENVIRONMENTAL MATTERS - MANUFACTURED GAS PLANTS
Prior to the general availability of natural gas, in the 1800s through the mid-1900s, manufactured gas was a chief source of gas for lighting and heating nationwide. The process involved heating certain combustibles such as coal, oil and coke in a low-oxygen atmosphere. Methods of production included coal carbonization, carbureted water gas and catalytic cracking. These methods were employed at many different sites throughout the country. The residue from gas manufacturing, including coal tar, was typically stored on site, burned in the gas plant, or sold for commercial use. Some constituents of coal tars produced from the manufactured gas process are today considered hazardous substances under the Superfund Law.
The gas distribution business has been one of Utilities' principal lines of business since its inception in 1882. One of the ways Utilities initially expanded its business in its early years was by entering into agreements with other gas companies to operate their businesses. After 1888, the principal means by which Utilities expanded its gas business was to acquire all or a portion of the stock of companies engaged in this business. Utilities also provided management and administrative services to some of these companies. Utilities grew rapidly by means of stock acquisitions and became one of the largest public utility holding companies in the country. Pursuant to the requirements of the Public Utility Holding Company Act of 1935, Utilities divested all of its utility operations other than those which now constitute the Gas Utility and the Electric Utility.
The manufactured gas process was once used by Utilities in connection with providing gas service to its customers. In addition, virtually all of the gas companies that Utilities operated or to which it provided services, or in which Utilities held stock, utilized a manufactured gas process. Utilities has been notified of several sites outside Pennsylvania on which (i) gas plants were formerly operated by it or owned or operated by its former subsidiaries and (ii) either environmental agencies or private parties are investigating the extent of environmental contamination and the necessity of environmental remediation. Utilities is currently litigating two claims against it relating to out-of-state sites. If Utilities were found liable as a "responsible party" as defined in the Superfund Law (or comparable state statutes) with respect to any of these sites, it would have joint and several liability with other responsible parties for the full amount of the cleanup costs. A "responsible party" under that statute includes (i) the current owner of the affected property and (ii) each owner or operator of a facility during the time when hazardous substances were released on the property.
Management believes that Utilities should not have significant liability in those instances in which a former subsidiary operated a manufactured gas plant because Utilities generally is not legally liable for the obligations of its subsidiaries. Under certain circumstances, however, courts have found parent companies liable for environmental damage caused by subsidiary companies when the parent company exercised such substantial control over the subsidiary that the court concluded that the parent company either (i) itself operated the facility causing the environmental damage or (ii) otherwise so controlled the subsidiary that the subsidiary's separate corporate form should be disregarded. There could be, therefore, significant future costs of an uncertain amount associated with environmental damage caused by manufactured gas plants that Utilities owned or
directly operated, or that were owned or operated by former subsidiaries of Utilities, if a court were to conclude that the level of control exercised by Utilities over the subsidiary satisfies the standard described above.
Utilities believes that there are approximately 40 manufactured gas plant sites in Pennsylvania where either (i) Utilities formerly operated the plant or (ii) Utilities owns or at one time owned the site. Most of the sites are no longer owned by Utilities and the gas plants formerly operated at these 40 sites have all been out of operation since at least the early 1950s. Two of the sites, located in Palmyra and Lebanon, Pennsylvania, respectively, are discussed below. Based on the 1995 settlement agreement with the PUC relating to Gas Utilities' 1995 base rate increase filing, rate relief will be permitted for certain remediation expenditures on environmentally contaminated sites located in Pennsylvania.
The following is a short description of the status of certain matters involving Utilities related to manufactured gas plants located in Pennsylvania and in other states. See also Note 12 to the Company's Consolidated Financial Statements which appears on pages 36 and 37 of its 1996 Annual Report to Shareholders.
A. PENNSYLVANIA GAS PLANT SITES
1. Palmyra. On May 5, 1993, Petroleum Heat and Power Company ("Petroleum") informed Utilities that Utilities may be responsible for contamination at property owned by Petroleum in Palmyra, Pennsylvania. Utilities is the corporate successor to a company that operated a manufactured gas plant on this site from approximately 1910 to 1928. Petroleum operates a fuel oil dealership at the site and removed a number of underground gasoline storage tanks, some of which were found to be leaking. In the course of remediating the gasoline contamination, Petroleum's consultant discovered creosote or coal tar contamination in one of the groundwater monitoring wells to a depth of approximately twenty feet. Utilities and Petroleum have jointly conducted and shared the cost of additional investigation which suggests that the coal tar-like contaminants are contained in a small area of the site and that they have not entered the groundwater. Utilities and Petroleum have completed investigation of the site, have removed contaminated soils and expect the DER to approve a recommendation that the parties take no further action.
2. Lebanon. In October 1990, Utilities notified the DER of the discovery of coal tar at a site formerly operated by a predecessor company of Utilities as a gas plant in Lebanon, Pennsylvania. This material was discovered during the excavation of the foundation of a new service building that Utilities was constructing on the site. Utilities subsequently removed and disposed of coal tar contaminated soil to the extent practicable. Utilities has continued to monitor groundwater wells on and adjacent to the site. Some of these wells have produced petroleum hydrocarbon contaminated water consistent with leaking underground gasoline tanks. Properties to the east and south of Utilities' property have histories of such leaking tanks. The latest communication from the DER concludes that the predominant contamination at the site is related to the leaking gasoline storage tanks.
B. OUT OF STATE GAS PLANT SITES
1. Halladay Street, Jersey City, New Jersey. By letter dated April 12, 1993, Public Service Electric and Gas Company ("PSE&G") informed Utilities that PSE&G had been named as a defendant in a civil action pending in the United States District Court of the District of New Jersey, seeking damages as a result of contamination relating to the former manufactured gas plant operations at Halladay Street in Jersey City, New Jersey. The Halladay Street gas plant operated from approximately 1884 until 1950. PSE&G asserted that Utilities is liable for that portion of the costs associated with operations of the plant between 1886 and 1899. PPG Industries, Inc. has also been named as a defendant in the action for costs associated with chemical contamination at the site unrelated to gas plant operations. In July 1993, PSE&G served Utilities with a complaint naming Utilities as a third-party defendant in this civil action. PSE&G subsequently amended the complaint to allege additional theories of liability for the period from 1899 to 1940. That action is continuing. Management is currently investigating Utilities' involvement in operations of the site and evaluating its defenses. Investigations of the site conducted to date are insufficient to establish the extent of environmental remediation necessary, if any. Hence, Utilities is unable to estimate the total cost of cleanup associated with manufactured gas plant wastes at this site.
2. Burlington, Vermont. By letter dated November 24, 1992, the EPA notified Utilities of potential liability with respect to contamination at the Pine Street Canal Superfund Site, Burlington, Vermont. The EPA has also identified eighteen other "potentially responsible parties." The site is the location of a former manufactured gas plant owned and operated by Burlington Gas Light Company ("BGLC") and Burlington Light and Power Company ("BLPC"). The EPA contends that Utilities is potentially liable because it assumed the liabilities of American Gas Company of New Jersey, a one-time parent of BGLC and BLPC. In 1985, the EPA removed approximately 15,000 tons of coal tar contaminated material from a portion of the site. From 1986 through 1992, the EPA conducted investigations and developed potential remedial actions at the site. The results of EPA's investigations show that coal gasification wastes, particularly polynuclear aromatic hydrocarbons and coal tar, are present in surface and subsurface soils as well as groundwater. The contamination also extends to wetlands adjacent to the site.
In November 1992, the EPA proposed a cleanup of the site that, among other actions, would consist of on-site containment, dredging and excavation, dewatering and consolidation of contaminated soils, treatment of groundwater and restoration of wetlands. The estimated cost of the proposed plan would have been approximately $50 million. In May 1993, after reviewing extensive public comment concerning the proposed plan of remediation, the EPA withdrew the proposed plan and announced that it would work with community groups, potentially responsible parties and others to develop an alternative plan. Management is unable to estimate the cost of any alternative plan of remediation, but it does not expect such cost to exceed the estimated cost of the original proposed plan. Utilities has responded to the EPA letter and denied liability for any contamination caused by the former operator of the gas plant. Management believes that Utilities has substantial defenses to any claim that may be made for investigative or remedial costs because, among other things, the plant was operated by a subsidiary of a predecessor company.
3. Savannah, Georgia. On March 2, 1992, Atlanta Gas Light Company ("AGL") informed Utilities that it was investigating contamination that appears to be related to manufactured gas plant operations at a site owned by AGL in Savannah, Georgia. AGL believes that Utilities may be liable for investigative and remedial costs as a result of having operated the gas plant through a subsidiary company in the early 1900s. AGL has stated its intention to bring suit against Utilities. AGL estimates that total costs to remediate the site may exceed $5 million. Management believes that Utilities has substantial defenses to any action that may arise out of the activities of its former subsidiary at this site.
4. Concord, New Hampshire. By letter dated October 18, 1993, EnergyNorth Natural Gas, Inc. ("EnergyNorth") informed Utilities that the New Hampshire Department of Environmental Services ("NHDES") has alleged that there is environmental contamination on property in Concord, N.H., where a manufactured gas plant was once located. EnergyNorth requested that Utilities, as a former operator of the plant, participate in investigation of the site. Because this gas plant appears to have been operated almost exclusively by former subsidiary companies of Utilities, Utilities declined to participate. On September 17, 1995 EnergyNorth filed suit against Utilities alone in federal District Court in New Hampshire, seeking Utilities' allocable share of response costs associated with remediating gas plant related contamination at that site. The complaint alleges that EnergyNorth has spent $3.5 million to remove contaminants from a gas holder at the site and will be required to spend an unknown amount in the future. As a result of investigations of gas plant related contamination in a nearby pond completed in 1996, EnergyNorth has recommended to NHDES a remedial plan that would cost approximately $4 million. Utilities is currently defending this suit.
OTHER MATTERS
1. Mateel Environmental Justice Foundation v. AmeriGas Propane, L.P. et al. On July 29, 1996, Mateel Environmental Justice Foundation ("Mateel") filed a complaint in the Superior Court of the State of California, County of San Francisco, alleging that the Operating Partnership, and several other major propane gas distributors, are in violation of Proposition 65, "The Safe Drinking Water and Toxic Enforcement Act of 1986" (commonly referred to as "Prop 65"). The Operating Partnership is a 98.99% owned subsidiary of the Partnership. The Complaint alleges that the Operating Partnership and its co-defendants are required to provide warnings that the use of liquid propane would result in exposure to chemicals known to cause cancer and birth defects, and that the burning of liquid propane in heaters and other appliances causes exposure to carbon monoxide, benzene, formaldehyde and acetaldehyde. The maximum penalty under Prop 65 is $2,500 per day, per person exposed. In addition to the maximum penalty, Mateel is seeking attorney's fees and costs, together with an Order mandating compliance with Prop 65. Management believes that the Operating Partnership has substantial defenses to this claim. The Operating Partnership has entered into settlement negotiations with Mateel and the California Attorney General's office. The amount of the proposed settlement is immaterial to the Partnership.
2. Commercial Row Cases, Judicial Council of California, Coordination Proceeding No. 3096. Beginning in June 1994, twenty-one complaints were filed against AmeriGas Propane, Inc., a Delaware corporation ("AGP"), and a predecessor of the Operating Partnership, in the Superior Court of California, arising from an explosion which occurred in Truckee, California on November 30, 1993. The explosion is alleged to have occurred as the result of propane gas which escaped from a fractured fitting in an underground supply line. The complaints sought relief for alleged personal injuries and/or property damage, and named as defendants the manufacturer and distributor of the fitting, in addition to AGP. The cases have been consolidated by the Judicial Council of California as the Commercial Row Cases, Judicial Council Coordination Proceeding No. 3096. All of the complaints requested damages in unspecified amounts; some of the complaints sought punitive damages as well as compensatory damages. A number of complaints were settled during 1996. During pretrial discovery, the remaining claimants have asserted demands which in the aggregate now exceed $18 million. The claims asserted in the complaints are fully insured, subject to a $500,000 self-insured retention, except for awards of punitive damages or that portion of a settlement attributable to punitive damages, which may not be covered by insurance. Trial currently is scheduled to begin on February 24, 1997.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the last fiscal quarter of the 1996 fiscal year.
UGI'S EXECUTIVE OFFICERS
Information regarding UGI's executive officers is included in Part III of this Report and is incorporated in Part I by reference.
PART II: SECURITIES AND FINANCIAL INFORMATION
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Company's Common Stock is traded on the New York and Philadelphia Stock Exchanges. The following table sets forth the high and low sales prices for the Company's Common Stock on the New York Stock Exchange Composite Transactions tape as reported in The Wall Street Journal for each full quarterly period within the two most recent fiscal years:
DIVIDENDS
Quarterly dividends on UGI Common Stock were paid in the 1996 and 1995 fiscal years as follows:
HOLDERS
On December 1, 1996, UGI had 14,588 holders of record of Common Stock.
The information concerning restrictions on dividends required by Item 5 is incorporated in this Report by reference to Note 5 to the Company's Consolidated Financial Statements which appears on pages 30 through 32 of its 1996 Annual Report to Shareholders.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
(a)On April 19, 1995, a wholly owned subsidiary of AmeriGas acquired by merger the approximately 65% of Petrolane common shares not already owned by UGI or AmeriGas and combined the propane distribution businesses of Petrolane and the Company. The consolidated results of the Company include those of Petrolane for periods subsequent to April 19, 1995. Prior to April 19, 1995, the Company's investment in Petrolane (commencing with its July 15, 1993 acquisition of a significant equity investment in Petrolane) was accounted for by the equity method. On a pro forma basis as if the acquisition of the 65% of Petrolane had occurred at the beginning of fiscal 1994, revenues would have been $1,244.5 and $1,344.2, and income from continuing operations would have been $20.5 and $38.8 during the years ended September 30, 1995 and 1994, respectively.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of Operations, entitled "Financial Review" and contained on pages 10 through 18 of UGI's 1996 Annual Report to Shareholders, is incorporated in this Report by reference.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements and Financial Statement Schedules referred to in the Index contained on pages and of this Report are incorporated herein by reference.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III: UGI MANAGEMENT AND SECURITY HOLDERS
ITEMS 10 THROUGH 12.
In accordance with General Instruction G(3), and except as set forth below, the information required by Items 10, 11 and 12 is incorporated in this Report by reference to the following portions of UGI's Proxy Statement, which will be filed with the Securities and Exchange Commission by January 27, 1997:
The information concerning the Company's executive officers required by Item 10
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV: ADDITIONAL EXHIBITS, SCHEDULES AND REPORTS
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) DOCUMENTS FILED AS PART OF THIS REPORT:
(1), (2) The financial statements and financial statement schedules incorporated by reference or included in this Report are listed in the accompanying Index to Financial Statements and Financial Statement Schedules set forth on pages through of this Report, which is incorporated herein by reference.
(3) LIST OF EXHIBITS:
The exhibits filed as part of this Report are as follows (exhibits incorporated by reference are set forth with the name of the registrant, the type of report and registration number or last date of the period for which it was filed, and the exhibit number in such filing):
* Filed herewith.
** As required by Item 14(a)(3), this exhibit is identified as a compensatory plan or arrangement.
(b) Reports on Form 8-K:
During the last quarter of the 1996 fiscal year, the Company filed no Current Reports on Form 8-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
UGI CORPORATION
Date: December 10, 1996 By: Charles L. Ladner ------------------------------- Charles L. Ladner Senior Vice President - Finance and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below on December 10, 1996, by the following persons on behalf of the Registrant in the capacities indicated.
UGI CORPORATION AND SUBSIDIARIES
FINANCIAL INFORMATION
FOR INCLUSION IN ANNUAL REPORT ON FORM 10-K
YEAR ENDED SEPTEMBER 30, 1996
UGI CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The consolidated financial statements and supplementary data of UGI Corporation and subsidiaries, together with the report thereon of Coopers & Lybrand L.L.P. dated November 22, 1996, listed in the following index, are included in UGI's 1996 Annual Report to Shareholders and are incorporated in this Form 10-K Annual Report by reference. With the exception of the pages listed in this index and information incorporated in Items 1, 2, 5, 7 and 8, the 1996 Annual Report to Shareholders is not to be deemed filed as part of this Report.
UGI CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES (CONTINUED)
Annual Reports on Form 10-K/A
Annual Reports on Form 10-K/A for the UGI Utilities, Inc. and AmeriGas Propane, Inc. savings plans will be filed by amendment within the time period specified by Rule 15d-21(b).
All other financial statement schedules are omitted because the required information is not present or not present in amounts sufficient to require submission of the schedule or because the information required is included elsewhere in the respective financial statements or notes thereto contained or incorporated by reference herein.
REPORT OF INDEPENDENT ACCOUNTANTS
To The Board of Directors and Stockholders UGI Corporation Valley Forge, Pennsylvania
Our report on the consolidated financial statements of UGI Corporation and subsidiaries, which includes an explanatory paragraph regarding the Company's change in its method of accounting for postemployment benefits in 1995, has been incorporated by reference in this Form 10-K from page 39 of the 1996 Annual Report to Shareholders of UGI Corporation and subsidiaries. In connection with our audits of such financial statements, we have also audited the financial statement schedules listed in the index on pages and inclusive, of this Form 10-K.
In our opinion, the financial statement schedules (pages S-1 to S-5, inclusive) referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center Philadelphia, Pennsylvania November 22, 1996
UGI CORPORATION AND SUBSIDIARIES SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY)
BALANCE SHEETS (Millions of dollars)
S-1 UGI CORPORATION AND SUBSIDIARIES SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY)
STATEMENTS OF INCOME (Millions of dollars, except per share amounts)
S-2
UGI CORPORATION AND SUBSIDIARIES SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY)
STATEMENTS OF CASH FLOWS (Millions of dollars)
(a)Includes dividends received from unconsolidated subsidiaries of $95.2, $22.1 and $37.3, respectively, for the years ended September 30, 1996, 1995 and 1994.
Supplemental disclosure of non-cash investing activities: During the year ended September 30, 1995, UGI Corporation contributed a $10 noninterest bearing demand note to its wholly owned subsidiary, AmeriGas, Inc. During the year ended September 30, 1996, the note was contributed to AmeriGas Propane, Inc., a subsidiary of AmeriGas, Inc.
S-3
UGI CORPORATION AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (Millions of dollars)
S-4 UGI CORPORATION AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (continued) (Millions of dollars)
(1)Uncollectible accounts written off, net of recoveries. (2)Payments. (3)Represents amounts for Petrolane Incorporated (Petrolane) as a result of the purchase on April 19, 1995 of the 65% of the common stock of Petrolane not already owned by UGI or its subsidiary AmeriGas, Inc. (4)Other adjustments.
S-5
EXHIBIT INDEX