UGI Corp (UGI) 2002 Q4 法說會逐字稿

Good day and welcome to the UGI/AmeriGas Partners fourth quarter earnings release conference call. Today's call is being recorded. For opening remarks and introductions, I would like to turn the call over to Mr. Bob Krick. Please go ahead.

Thank you. Good afternoon to you all. As we begin, let me remind you our comments today will contain forward-looking statements, which for the management of UGI, AmeriGas and subsidiaries believe to be reasonable as of today's date only. Actual results may differ significantly because of risks and uncertainties which are difficult to predict and many of which are beyond management's control. You should read the company's and the partnership’s report on form 10-K for a full list of factors that could affect results. Among them are weather conditions, cost and availability of all energy products, including natural gas propane and fuel oil, competition from the same and alternative energy sources, and political, legislative and regulatory changes. UGI and AmeriGas undertake no obligation to release revisions to forward-looking statements to reflect events or circumstances occurring after today.

I would like to introduce your host, Chairman and CEO, Lon Greenberg.

Thanks, Bob. Let me also welcome you to the call. I apologize for my voice -- I am fighting a nice cold. I trust you have all had the opportunity to review our press releases reporting 2002 fiscal year-end results. Having said it so often, I know all of you by now know our three financial objectives. For those of you who need reminding, let me remind you. They are: grow earnings per share 6 to 10% annually, increase dividend per share annually by 3%. By achieving these goals reduce earnings pay-out ratio to between 50 and 75%.

Fiscal year 2002 represents the fourth executive year in which we met or exceeded these goals. Earnings per share this year grew 29%, to $2.70 per share. Over the four-year period I referenced earnings per share have grown at the compounded rate of nearly 22%. Dividend was increased by approximately 3.1% this year and our dividend has grown from $1.42 in 1998, to $1.65 this year. Similarly our dividend pay-out ratio has fallen significantly over this period to the present time, where it sits at about 61%. Our track record has been achieved in a wide variety of environments, including the tumultuous energy industry conditions which existed this past year, and in normal and warmer than normal weather conditions, including the really warm winter weather conditions of our fiscal year 2002.

Our employees deserve the credit for our excellent performance and have delivered for all of our constituencies, including you, our shareholders. Total return to shareholders this year is up over 31%. Importantly, this follows a year in which we delivered an even higher increase in shareholder return. Common sense precludes me from commenting that kind of return indefinitely into the future, however, our combination of growth and income is designed to create above-average, long-term shareholder returns and we remain resolutely focused on doing just that.

I recognize this is UGI and an AmeriGas conference call. So, let me briefly comment on AmeriGas's performance, as well. AmeriGas EBITDA grew over $2 million in fiscal year 2002 to 210.4 million, reflecting benefit of acquisition of Columbia, offset by the adverse effects of the substantially warmer than normal winter. The progress made by AmeriGas over the past few years has also been recognized in the marketplace. The total return to unit holder of AmeriGas thus far this year is positive in a year in which the market averages and comparable investments have had a negative return and substantially negative return.

Fiscal year 2002 was an important year for us in that we grew our earnings notwithstanding in significantly warmer than normal winter weather, effecting not only core domestic propane business, AmeriGas, but also our core natural gas utility. This greater balance, if you will to earnings, came as a result of first our ability to not only stabilize, but also grow our electric business earnings as we capitalize on lower product cost. Second, significant contribution to earnings this year from international propane operations, third, growth in earnings from energy marketing and HVAC businesses, and lastly, of course, the benefit from the elimination of amortization of goodwill. The end of fiscal year 2002 also marks an important step for AmeriGas. We believe it is highly likely the remaining subordinated units of AmeriGas will convert to common units. This conversion, of course, does not increase the number of units outstanding, but merely takes the units that UGI holds in AmeriGas, which are subordinated in terms of dividend payments and makes them peripath (ph) with other common units in the marketplace. We are in the process now of finalizing our review of the conversion calculation and expect to finish that review shortly.

Again, we believe it is highly likely that our review will substantiate our view that the subordinated units in AmeriGas have converted to common units. It is important to note should we achieve our earnings expectations for AmeriGas this year in fiscal year 2003 for us, common units distribution should exceed a strong 1.25 times during the year.

At this point in the call, I am going to turn over to Tony Mendecino to comment specifically on earnings. After Tony concludes, we will have Gene comment on AmeriGas's results. When Gene is done, I will continue. Tony.

Thank you, Lon. Last year at this time, during a similar call, we made comments about our prospect for fiscal year 2002. We indicated the combination of normal weather, the full-year impact of both Columbia acquisition and investment of Antargaz and end of goodwill amortization could result in extraordinary year-over-year EPS growth. We got everything but normal weather and produced a 29% increase in EPS with fiscal year 2002 EPS at $2.70, compared to $2.10 last year. This result obtained despite weather 10% better than normal and 12% warmer than last year nationally and 17% warmer than normal and 19% warmer than last year at our gas service territory.

Let's look at individual operations. For the year, AmeriGas generated pretax income of $28.8 million, down slightly from last year with pretax income was 29.9 million. On EBITDA that was 210.4 million, up about $2 million from prior year. The benefit of full-year of Columbia and outstanding year for PPX was offset by warmer weather and the weak economy. As always, Gene will have more to say about AmeriGas's performance in his comments.

In our utility operation pretax income decreased to 73.7 million, compared to 79.5 million last year, with lower performance in gas utility offsetting improved performance in the Electric Utility. Gas utility operating income declined by 10.7 million, to $77.1 million this year. The decline is a result of 19% warmer weather this year. Warm weather pushed throughput down to 70.5 bcf, compared to 77.3 bcf in fiscal year 2001.

Gas utility margin declined by 15 million, as a result of lower throughput and the flowback of interruptible margin to firm customers. The decline in margin was partially offset by lower operating and depreciation expenses. Operating expenses were down nearly 4 million as a result of lower bad debt expense and lower distribution system expenses. Depreciation expense declined about 1 million as result of an asset life study required by Pennsylvania Public Utility Commission. During the year, the gas utility added 9,000 heating customers, increase of approximately 3.3%, to core heating customer base. Operating income in our electric utility increased by two-and-a-half million to $13.2 million for the year. Increased unit margins from lower purchase power costs offset the decline in kilowatt hours sold. The decline in kilowatt hours sold was due to warmer winter weather.

Energy services, we had another excellent year. Operating income was up 50% to $11.3 million. The growth in operating income comes as result of 27% increase in natural gas volumes sold and improved unit margins. Volume increased due to full-year ownership of 2001 acquisitions and organic growth. In international operations, pretax income is $8 million this year, compared to a pretax loss of $5.6 million in fiscal year 2001. This substantial turnaround is primarily due to full-year ownership of 20% stake in Antargaz, the French propane distributor, and the continued improved performance at FLAGA. While we expect FLAGA pretax income to improve again in fiscal year 2003, we believe that Antargaz’s earnings contribution will decline next year. Antargaz, contributing approximately 30 cents to earnings per share, had exceptional year in fiscal 2002, primarily as a result of higher than normal unit margins. I expect the contribution from Antargaz will decline to approximately 15 cents per share in fiscal year 2003 under normal unit margin assumptions.

Looking now at the balance sheet, consolidated total debt for UGI is $1.33 billion, down 32 million from the beginning of fiscal year. UGI entered the year with $114 million of investable cash, and the current environment it is good to be liquid. Total debt in AmeriGas at September 30 was 956 million, down 51 million from the beginning of fiscal year. On September 30, AmeriGas had effectively zero balance on the 100 million working capital revolver and $75 million acquisition line.

With that, over to Gene for specific AmeriGas comments.

Thanks, Tony. We reported $2 million increase in EBITDA for the year, despite warm weather and the weak economy. While volume was up 112 million gallons to 14% due to the Columbia acquisition, on a pro forma basis, volume was actually down by 117 million gallons, or 11%. Most of the variance was due to weather, 12% warmer than last year and 10% warmer than the normal. We also continue to see lower than normal commercial industrial volumes due to the weak economy. Unit margins were up slightly year over year. Basically margins are about flat year over year and modest increase in unit margin is attributable to the impact of higher PPX volume and unit margins.

Operating expenses were up by $89 million, reflecting impact of PPX and Columbia. PPX expenses increased by 15 million. The balance of increase was related to the addition of Columbia locations and one-time costs associated with the integration of Columbia. I am pleased to say we completed integration of Columbia and we have exceeded expense reduction targets that we assumed in our valuation analysis. Our expenses reflect a substantial effort by employees throughout our organization to reduce expenses in the face of lower than expected volume. We also had good results in terms of cash flow this year, despite the weak volumes, we ended the year with $7 million in positive cash flow, after both maintenance and growth capital expenditures due to better working capital management. We improved accounts payable and accounts receivable ratios and reduced investment in inventory. We also generated $10 million from asset sales.

EBITDA for the quarter was down $4 million from last year, which is lower than we had expected due to the effects of weather that was significantly warmer than normal. Volume for the quarter compared to last year was up by 7 million gallons or 5% due to the Columbia acquisition. On a pro forma basis, volume was down 10 million gallons or 6%. The weak volumes resulted primarily from weather 29% warmer than normal, and 20% warmer than last year. September is the first heating month in many parts of the country. So, a warm September can have an effect on volumes for the fourth quarter.

On our non-weather sensitive volumes were lower than expected due to continued weakness in the economy, and we had lower sales to crop drying customers due to the record warm weather and drought conditions across about half of the country. Propane margins for the quarter were higher than last year, but virtually all increase can be explained by increase in PPX unit margins and volumes. Excluding PPX, base business margins were essentially flat. While our base business unit margins were unchanged, average selling price excluding PPX actually was reduced as we passed through the decline in propane cost to customers.

Expenses for the quarter were up 20 million. This increase was due to the addition of Columbia and higher PPX expenses. During the quarter, we had benefit of expense savings from consolidation of Columbia and experienced higher expenses in other areas, including our liability reserves.

I would like to take a minute now to talk about results on our core strategies. Regardless of what happens with the economy or the weather, we continue to pursue these strategies that is create a brighter future for AmeriGas and our unit holders. Our biggest achievement this year was the smooth integration of Columbia, a business one-third the size of AmeriGas. We closed on the deal in August of 2001. We have had 50 employees occupied full-time this year to complete the conversion of Columbia locations to our customer information system and to blend 90 of the 186 locations with AmeriGas locations. We closely tracked our performance on the integration this year and the acquisition has exceeded our expectations in every measure.

We received greater blend savings more quickly than we expected. We were able to improve margins versus our plan and the volume performance is in line with base business. We also had good retention of customers and gained talented managers and dedicated, experienced employees.

We also continue to pursue PPX national account as way to leverage our footprint, which is the broadest in the industry. PPX had a great year. EBITDA increased from 6 million to 27 million. Volume was up by 66%. We reported significant increase in unit margins. Both the increase in the volume and the margins were driven by the change in regulations that required any grill cylinders be fit wide new safer valve. Along with higher margins was an increase in capital for the new safer valves. Still on overall basis, PPX was able to deliver a significant increase in cash flow, versus the prior year.

National accounts grew by 8%, less than prior years, but still strong growth given the economy. National account locations served actually increased by 17%, but average account volumes declined as a result of the weak economy. While we were busy with Columbia acquisition and PPX, we also invested time in studying sales and marketing strategies. I believe we developed an effective set of plans for customer retention and growth and we're pleased with progress we have made in this area during the year. As a result, we recently hired VP of sales and increased size of our sales force and rolling out a number of new sales and marketing programs. We also continue this year to test new business practices and new technology that we expect to lower cost of doing business and improve customer service. While there is more work to be done in this area, we are confident these efforts will bear fruit in future years.

It was a busy year for AmeriGas. We had lower than expected volumes to address, along with integration of Columbia and a 66% increase in PPX volumes. We feel our team did an excellent job during the year.

Turning to the current fiscal year, we have six weeks under our belt so far and weather seems to be cooperating. Unfortunately, we still have not seen signs of economic recovery that would boost our industrial commercial volumes, but we remain optimistic. Naturally, if we see lower than expected volumes, we will manage margins, expenses and capital as we did this year to offset to the largest extent possible, impact on earnings and cash flow.

Strategically, we will continue to focus on growing our business, by leveraging footprint through PPX and natural accounts and be pursuing acquisitions aggressively and working hard to retain customers to great service and add to our customer base through our sales and marketing efforts. We expect another strong year for PPX at roughly the same level of EBITDA as last fiscal year. With any kind of recovery of the economy, I would expect double-digit growth in national accounts. Now that we completed integration of Columbia, we will be aggressively pursuing acquisitions. Multiples have come down, but we're not seeing as many candidates as I would like to see. We are optimistic about the effects of our new sales and marketing efforts that I mentioned and will continue to pursue new business practices and new technology that will help us reduce cost and enhance customer service.

The key to achieving our goal this year will be our well-trained and talented team of employees and managers, which I consider to be a real competitive advantage for AmeriGas. I would like to thank them for their efforts this last year and continued dedication to our customers and to our company. Now, let me turn back to Lon.

Thanks, Gene. I would like to leave you with the following thoughts as we end our presentation. First, the return of more normal winter weather will beneficially affect our earnings, particularly those of our core domestic propane business AmeriGas and our gas utility business. Second, our electric business should continue to benefit from conditions in the industry, including lower product costs. Our gas marketing and HVAC businesses should contribute higher earnings this year from continued internal growth and lastly, we do not expect to see, as Tony said, a greater contribution or as great a contribution from our international propane operations next year, as result that Antargaz fall to more sustainable levels.

All things considered, I continue to expect our core earnings growth to meet or exceed the 6 to 10% goal and to be about $3.10 per share, give or take a little, which I have given that number previously. With respect to AmeriGas, we continue to expect to see EBITDA of about 250 million, give or take a little. These expectations, as you know, are based on the assumption that we will get relatively normal winter weather -- doesn't have to be precisely normal, but relatively normal winter weather.

We feel we are strong financially and have approximately $135 million of cash on hand. We continue to be mindful of the importance of retaining that financial strength and keeping the balance sheet of all of our businesses strong. We are looking for growth opportunities in all of our businesses and we will pursue those opportunities, which are consistent with our strategy and which aid us in achieving our financial goals. We understand that we cannot be complacent, that our past success does not assure future success and we remain, as always, unwavering in our commitment to you to deliver above-average long-term shareholder value. That is the end of our presentation. I would like to open Jennifer, to questions.

Thank you. Today's question-and-answer session will be conducted electronically. If you would like to signal a question, press the star key, followed by one on your touchtone phone. If you are using speakerphone, please make sure the mute function is turned off to allow your signal to reach our equipment. Once again, for questions press star, one at this time. Our first question comes from Adam Light of Credit Suisse First Boston.

Good afternoon. Lon, I hate to do this, but you keep having a double conference call. AmeriGas question. Just maybe for Gene, on the EBITDA assumptions, can we just get a sense of propane costs look like they are going up. Are you anticipating no difficulty in passing on the increased cost and kind of what do we do with expenses going forward? Are they going to stay at the rate we saw operating expenses in this last year?

I hope you were not talking about the rate of growth in operating expenses, because you’d see me jump out the window if that occurred. Let me turn to Gene to comment on the assumptions there.

On the assumptions in terms of -- your question was about the increase in the cost of propane and will that affect our ability to pass that along to the customer? As you know, we have a long history of being able to pass that along to our customer. The increase we are see nothing propane prices now is nothing compared to what we have seen in the past. And we are not anticipating anything extreme unless we have a situation in the Middle East, but we have lived through those increases before and been able to deal with them effectively. I am not concerned about that. On the expense management side, we have done a lot to try to make sure we control our expenses going forward. PPX, assuming it stays at the level it is at now, shouldn't be pressure on expense that is we saw this last year. But, I think that the expenses should be fairly close to the range they are at now, little bit of inflationary increase there, but along the line with what you might expect.

Okay. And just on total retail volumes in order to get your EBITDA number, what do you think that requires?

Billion to billion one, in that range.

Thanks.

Next question from David Labonty with Smith Barney.

Gene, I was hoping that you could provide more detail with respect to the items that were driving operating and administrative expenses up. You mentioned liabilities reserves and also PPX was higher. Can you give better idea as far as what were some of those items?

For the quarter in particular?

Fourth quarter in particular.

I would say PPX contributed about $7 million increase, about a third of the increase, I would say came from PPX, in that range. Then, we had to make few adjustments -- bad debt was higher than typically in a quarter like this. So was our insurance expense. Each of those probably together maybe represented another $3 million. So, those are the major factors. The rest really has to do with Columbia. Of course, on pro forma basis, if you looked at our expenses, took out PPX, you would see that expenses were down quite a bit. But, you expect them to be down with all the consolidations we did. But, on pro forma basis, they would have been down significantly.

Do you know off the top of your head what PPX expenses were in the fiscal third quarter of this year? It just seems like on cents per gallon basis, even numbers like 78 cents or so in terms of opex per gallon, that is pretty big increase. I am trying to nail down is that primarily PPX and was anything else more or less unexpected in there?

I don't have the expenses for third fiscal quarter handy for PPX. I can tell you the increase was about -- of the increase in expenses a third was PPX.

Have you had issues with uncollectible receivables at all this year?

We had two or three bankruptcies and that is part of the reason we increased reserve in the final quarter. But, that is about it. I think that has been kind of common in our industry this year. Few companies aren't going to make it.

What are the reserves at now, 20 million or so?

The other thing I should mention is that we also improved our receivables significantly. I know I mentioned that during the discussion. Our DSO we actually brought down about six days. I'm sorry. I missed the question.

Actual amount of reserves that you have currently?

Seven or 8 million.

Seven or 8 million.

We study that carefully to make sure we felt we were appropriately reserved. Coming out of the year, you know, looking at the situations that we experienced in the first quarter.

All right. Thanks a lot.

Once again, star, one for questions. We will go to William Mayes of Banc of America Securities.

It is actually Mitch Grashner. Couple of questions –firstly, with UGI and Lon, you gave out $3.10 guidance for next year. Assuming 6 to 10% growth on base of 270, that puts us at about 286 or 297 range. I am not sure as to what the 3.10, are you guys expecting normal weather or what exactly…

I would say in the 3.10, we are certainly expecting better weather than 17 or 18% warmer in the gas utility and 10 or 11% warmer nationally in propane. It is clear part of it -- part of that extra clearly is some normalizing of weather in that process. But, if you look at trends, we have not had in our gas utility territory, weather that warm in all the charts presented around here, you can't find 17 or 18% warmer than normal weather typically in that area. You get 5, 7, 8% warmer when it is real warm. It is unusual. But, your sense is right, we are expecting good growth in some of our businesses. We expect to lose a little bit in Antargaz and expect a return to more normal weather, although not 100% normal in that number.

Okay. Could you give us a sense as to how much FLAGA contributed in fiscal year 2002?

Two to 3 cents per share in earnings.

Two to 3. My final question is that Moody's placed you guys on debt ratings on possible downgrade. That was actually kind of down 10%. Could you touch upon that and what Moody's was look being at?

As much as we know, I can comment on it. We went through a process, as all of you know, with Standard and Poor's and the -- it's really indicative of the overall environment in which we live in which ratings agencies are reevaluating how they rate companies and how they rate industries. The propane industry unfortunately, notwithstanding some of the players, have good balance sheets and some have strong parents, other players in the industry have had difficulty, Cornerstone, Level Propane before that, as you all know -- National before that. And there has been a series of companies that have had difficulty.

I would say that I believe in the environment in which we exist now that rating agencies are paying more attention to the industries in which one participates and the volatility in those industries, in addition to how the companies themselves are performing. We feel very good about our prospects for next year. As I told you, I am not one to go out on big limbs, as you all know me. And we feel our coverage next year will be from a unit dividend coverage, excellent, one, two, one, two, five or better, so, no new information about our company that we believe that Moody's would be focused on. You would have to ask them. We think this is part of the logical process that Moody's and Standard and Poor's and Fitch and everyone else is going through as they become tighter in how they are evaluating things. But, there is nothing that relates to AmeriGas itself that we believe precipitated this event. We think it is ordinary course review by Moody's.

Okay. 1.25 coverage that’s assuming the conversion of (inaudible)?

That is correct.

Now to Ron Londe with A.G. Edwards.

Follow-up on the Moody's question. What are the parameters that they talk about? Is debt adjusted for leases to EBITDA? Have they used an adjustment for leases and what is your position relative to other participants in the industry? Can you comment on the industry?

Ron, interesting question. We believe when they say leases, they refer to cap leases. We just don't have any of those. In terms of operating leases, we don't – we haven't gone out and operating leased them back. We haven't done a lot of things that are unusual. We own some vehicles. We lease a lot of our vehicles. We own a lot of property and lease a lot of property. We haven't done sales and lease backs. We have been doing the same thing in operating leases that is we have done all the time and had no big bump up. We haven't leased a whole bunch of computer stuff. So, I don't think that is an issue. I would be surprised if Moody's has that as an issue with us, because there has been nothing new under the sun for us.

Also, you mentioned in passing $10 million in asset sales, there were gains or benefits to the P&L statement from them?

Relatively minor -- Mark, do you have that? We don't have the number, but it is inconsequential. You are happy when you break even.

A good chunk was to happen because of Columbia. (inaudible).

Just an adjustment to opening balance sheet.

Thank you.

Peter Hark of Talon Capital.

Good afternoon. Thanks, guys. First, for both AmeriGas and UGI, I was wondering if you could please reconcile the year-over-year change to operating results net of normalized weather and the goodwill elimination?

Let me do this off the top of my head and Tony will give you the real answer. He is thinking about it while I do it. Goodwill, 45 to 50 cents, 48 cents goodwill. You got to take 270 nominally, minus 48. And then you have to add back -- I would say 30 to 40 cents in weather. Is that a good number, guys? 30 to 40 cents in weather, that is ballpark. Tony is saying closer to 40. Add that back in weather. That gives you a broad brush approach and gets Tony off the hook.

Great. If I work off the 270 operating for '02 and looking at '03, why don't I just add the 30 to 40 cents and say that is what you get back from normal weather and I am there on an operating basis to your estimate for this year?

Yeah, I guess what I would tell you is that if we felt comfortable we were going to get normal weather that might be a logical conclusion to do. But, we will see as we said before, you are going to see growth in our businesses that are going to add to that and see offset to Antargaz that will subtract from that. That net, we think our business is normalized business year over year, you would see us making the 10% goal.

Okay. Separately on energy services segment, I was hoping you could kind of project for us what '03 results might look like. You did a nice turnaround and I know it had to do with eliminating underperforming businesses out of '01. Is it fair to look at 11.1 million of pretax income at energy services and kind of speculate as to what it might look like for '03?

We expect that to be higher in '03. I think there is weather element in there that is difficult to predict going forward. But, that business is seeing growth. It is benefiting to some degree from the turmoil in the energy industry. Marketing is a very, very difficult business, as you know. There is a saying, banks of the river are littered with bodies of our competitors in that business. We have a different business model where we are not out there with a trade book. We don't do trading. We do back-to-back transactions with customers and deliver real value to customers. And as people have exited the business, some of the bigger players, there has been a vacuum out there and we are picking up market share and expanding our market to areas we have a nice capital base. That is we know the rules of the pipeline and LDCs. We expect to see it grow. I can't tell you it will grow like it did last year, but you will see healthy growth in the business.

Forgive me, I am a novice to that part of the business. How do you essentially make money there?

We make money by -- in a deregulated gas environment selling gas directly to end-use customers. And providing not only gas, but provide capacity and gas and we will obviously mark a margin on top of the value of services that we provide them. Sometimes we might manage their supply for them, we might give them advice. A bunch of things we do.

Got you. Do you take any commodity risk?

Virtually no commodity risk at all. We’ve got no trade book, we do back-to-back transactions with customers. We don't lock in prices to customers until we lock in our supply costs on that. So, there is slight element of -- I can't buy molecule for molecule for people. You have to average. Who will need what at what point in time. That is why the mass we have worked to our advantage so much. We have no speculative base to our business.

Perfect. Thank you. Then, on the conversion of subordinated units, I understand it has no impact to debt, cash flow or net income. What effectively is the equity ratio at UGI, post that conversion? I guess it doesn't change. The equity goes up and minority interest goes away. What is the equity ratio look like?

I’ll tell you the truth, we haven't done the math. We haven't done the math ourselves. The only thing I can tell you, in my understated way, it is better.

Okay. Any tax implications to that?

It is an accounting sort of output – for layman’s purposes I’ll call it a re-class. That is not what happens under GAAP.

Without knowing the numbers, do you contemplate any need for equity issuance at UGI or at AmeriGas in '03?

Well is no burning need for equity. Certainly UGI we got 135 million bucks on balance sheet and life is good. If AmeriGas, we have committed to pay down debt out of cash flow. And AmeriGas's cash flow should be sufficient to do that. We are mindful of our balance sheet for AmeriGas and from time to time, we will look at doing acquisitions and other things with equity so that we continue to beef up the equity line.

Perfect, and I’ve got just a couple other little more detaily questions.

I will cut you off at the next one and come back.

It had to do with the electric utility. I was reviewing last Q and you talk about polar settlement. I am not clear what that means. You stated termination of stranded cost recovery will happen at Electric Utility in July for commercial and industrial and for residentials, in November of this year, I guess. I just don't know what that means to the results of the Electric Utility.

I will stick by what I said. We expect improved results in Electric Utility, essentially what has happened is we have come out of rate caps with our customers. Pennsylvania went deregulated. Many of the big utilities around us and all utilities in the state, virtually, have rate caps in place through 2006, 2008. Our rate cap ended under initial agreement with PUC. We went back to the PUC and said that we would like to provide our last-resort service and market to our customers. We think there is value to our customers to do that. Obviously our market is open to other marketers to come in and sell. Our rate payers will have a choice, obviously, to buy from someone else or buy from us. If they buy from us, the PUC approved terms in which they buy from us.

Great. Thank you.

Thank you.

Now to Peter Ashley with Snyder Capital Management.

First of all, I am disappointed to hear you will not guarantee 31% return next year.

Peter, I will buy you a steak dinner if we do.

I will remember that.

I know you will.

Two questions. First of all, what was the cash available or cash flow after dividends -- in other words, cash available for growth at UGI for the year?

Did we push 40 million this year? Yeah. When you get 20 million back from Antargaz, part of the investment came back. Probably were $50 million or so, in excess of $50 million in cash flow.

Would you expect that next year, given your $3…

Probably in the 35 to $40 million range, Peter.

Okay. And I missed part of the call. But, was PPX unit a cash generator or user?

Cash generator this year.

What magnitude?

Generated about $4 million of cash. Net of -- you know, with the whole valve replacement we have been going through, awful lot of cash going into the valves. Net of that big investment of capital expenditures on the valves.

As you know, Peter, this is the first year PPX has been a cash generator for us.

Yeah. I know for the quarter, for UGI, you guys almost hit break even on operating income basis, which I think is first time ever?

That is correct. You know, again, it is testament to the balance we are bringing to the earnings by having our new investments working out well and other businesses continuing to improve performance.

Right. One last question. Is the Columbia integration pretty well completed in terms of the blends in eliminating cost savings that could be achieved there?

We completed blending process and conversion to our computer system in August. So, that's behind us. Really, all of the other changes that had to be made are now behind us. For this coming year, we get full benefit.

Great. Thanks very much. Great job.

Once again, star, one for questions. Follow-up from William Mayes.

Could you remind us what the cash base performance and distribution requirements were for conversion of subordinated units?

About one of the most complicated tests that exists, but it was a look-back test. Bob Krick looks like he understands the test, I will ask him to describe it to you.

Several parts to the test. One, you have to pay all distributions on all units each quarter for the past 16 quarters. In addition, on average over that period of 16 trailing quarters, you have to earn the distribution through cash flow. Not just EBITDA, for example. It is all cash. And it averages over that 16 quarter period. In addition to that, you have to earn it in each of the two prior fourth quarter periods, not overlapping. It is the most recent fourth quarter period and ultimate fourth quarter period, as well.

Now you understand why we are still reviewing the calculation.

Thanks, guys.

Gentlemen, it appears we have no further questions at this time.

Should I go ahead? Thank you. I want to thank you for all your interest in UGI and AmeriGas. We are optimistic about this upcoming year and feeling good about our progress. Again, you aren’t going to find us sitting back complacent and resting on our laurels. We continue to make good progress for you and meet our goals as we go forward. Thanks for your interest and I look forward to talking to you all in January at some point.

That does conclude today's conference. You may disconnect at this time.