UGI Corp (UGI) 2003 Q2 法說會逐字稿

Good day, everyone, and welcome to this UGI and AmeriGas Partners second quarter earnings release. Today's conference is being recorded.

At this time, for opening remarks and introductions, I'll turn the call over to the Vice President and Treasurer of UGI Corporation and AmeriGas Partners, Mr. Bob Krick. Please go ahead, sir.

Thank you, Jessica, and good afternoon.

As we begin, as always, let me remind you that our comments today will contain certain forward-looking statements, which the management of UGI, AmeriGas and their 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 report on Form 10-K for a fuller relict of factors that could affect results, but among them are weather condition; the 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 these forward-looking statements to reflect events or circumstances occurring after today.

Now I would like to introduce your host, the Chairman and CEO of UGI, Lon Greenberg.

Thank you, Bob. Let me also welcome all of you to our call.

I trust you've had the opportunity to review our press releases recording our 2003 fiscal year second quarter results. For the quarter, both UGI and AmeriGas reported significant increases in earnings.

In the case of UGI, earnings per share rose over 29 percent to $1.62 per share from $1.28 last year on a post-split basis. In the case of AmeriGas, earnings per unit rose nearly 10 percent to $1.80 from $1.64 last year.

As most of you use EBITDA as a measure of performance for AmeriGas, we reported that EBITDA rose to 134 million from 120 million last year, or nearly 11 percent.

We are quite proud of what we achieved this quarter, as we continue to demonstrate the efficacy, not only of our strategy but also the skillful manner that our many employees are executing our priorities. It is these folks who are getting it done on a daily basis for our customers, and they deserve the credit for these very good results.

I might add that providing the high level of service to our customers this quarter was a challenge for our employees, as it was an unusual quarter. Some of our business units benefited from colder-than-normal weather, but with that colder weather came challenges of serving our customers reliably in the face of snow and ice the like of which we haven't seen in many years.

Other areas of the country had much warmer than normal weather, and all of you know too well the challenges that our employees face when they're faced with these conditions.

All of our business units also encountered the challenges, not only of high-energy, commodity costs but also difficulties in obtaining supply and adverse customer reaction to high energy bills, yet our employees persevered in serving our customers and in providing all of you with a good return on your investment.

At this point, I'm going to turn the all over to Tony Mendicino to review our financial performance. After Tony concludes his remarks, Gene Bissell will comment on AmeriGas's results, and, when Gene finishes, I'll be back with a few conclusory (ph) comments.

Thank you, Lon.

We got some degree days again this quarter, and we, again, have smiles on our faces. As Lon mentioned, we had a great quarter with fully-diluted earnings per share of $1.62, up 29 percent from the second quarter of last year. Quarterly earnings comparisons for both AmeriGas and our utility operations enjoyed the benefit of a positive variance in weather year to year.

Weather in our utility service territory was about eight percent colder than normal and 30 percent colder than last year. AmeriGas experienced weather that was essentially normal this year and seven percent colder than last year. Again, degree days were big drivers of our comparative performance.

With the most temperature-sensitive portion of fiscal '03 behind us, and not withstanding our concerns that the economy is not going to do much to improve commercial and industrial demand across all of our business units, results for the full fiscal year '03 should once again handsomely exceed our EPS growth objective.

Now let's look at some for the operating and financial details of our business groups.

AmeriGas, with weather that was about normal but seven percent colder than last year, saw EBITDA jump 11 percent to 134 million from 121 million last year on an eight -percent increase in retail gallons sold. While weather was normal on average for AmeriGas, there was substantial variations in weather regionally. This resulted in what I'll call an extremely choppy operating environment. Gene will cover this in his comments.

Unit margins for the quarter in AmeriGas were up modesty, compared to last year, despite the volatility in product cost for the quarter. Operating expenses were up 15 percent as a result of increases in payroll, vehicle expenses, incentive compensation and uncollectibles, all items that are driven largely by the increase in activity and financial performance.

Operating expenses also increased because of higher medical and general insurance costs. AmeriGas's operating income contribution to UGI was $116 million, compared to 104 million for the second quarter of fiscal year '02, an 11-percent increase. Again, Gene will have more to say about AmeriGas performance in his comments.

Operating income in our utility operations was $64 million, compared to 41 million for the same period last year. Both gas and electric operations enjoyed substantial increases, and our gas utility throughput was up six bcf, or 24 percent, on weather that was 30 percent colder than the same quarter in fiscal year '02.

Virtually all the increased throughput was delivered to core, residential and firm customers that carry higher unit margins than do our interruptible customers. The increase in total gross margin from higher volumes and higher unit margins was partially offset by a $4.6-million increase in operating expenses.

The increase in operating expenses relate primarily to higher distribution system maintenance expense, higher uncollectibles and higher incentive compensation expense. These higher expenses are, again, largely a result of increased activity and financial performance.

Additions to our core, heating customer base remain at a healthy level and on pace with last year, with an increase of more than 4,000 customers on a year-to-date basis.

Operating income in electric operations, comprised of our electric utility and our unregulated generating assets, was $8.4 million, up 5.5 million from last year. Electric utility contributed 3.1 million to the increase as a result of reduced purchase power costs and a 13-percent increase in megawatt hours sold on weather that was eight percent colder than normal and 29 percent colder than last year.

Operating income from our generating assets increased $2.4 million, primarily as a result of our strategy to sell 100 percent of the output from our plants to third parties rather than to our electric utility.

Moving on to our other operations, first, energy services operating income doubled (ph) to $4 million in the current quarter. Volumes were up 50 percent, with half of the increase attributable to colder weather and organic growth, and the balance of the increase attributable to one-month results from the TXU acquisition.

The integration of TXU's gas marketing business with energy services is proceeding smoothly. Unit margins in energy services also improved slightly in the quarter, relative to last year.

Next, overall results from international propane were improved again, relative to last year. Equity income at Antargaz increased to 5.2 million from $3.8 million. This increase resulted from colder weather, a stronger euro and the elimination of goodwill amortization, offset in part by lower unit margins.

Operating income at FLAGA, where weather was two percent colder than normal, was $1.5 million, down .5 million from last year, while improvement due to weather was dampened by price-induced conservation, and unit margins, particularly in cylinder sales, were adversely affected by rapid propane cost increases.

Moving now to our balance sheet, on a consolidated basis, UGI's total debt on March 31st was just under $1.3 billion, about $26 million less than last year. Currently, UGI has about 140 million in investable cash on its balance sheet. We will use 50 million of this cash to close our purchase of 4.9 percent of Conemaugh generating station this quarter. We expect to have investable cash in excess of $100 million at fiscal year end.

AmeriGas closed the quarter with $950 million in debt, down 16 million from last year. Despite a high level of accounts receivable relating to higher sales volume and higher prices, AmeriGas has done an excellent job of managing its working capital.

The net year-to-year increase in working capital, defined as accounts receivable and inventory less accounts payable, is only $16 million. As a result, AmeriGas had about $150 million of unused revolver capacity at March 31st.

Gene will now expand on AmeriGas's results.

Thank you, Tony.

And, as Tony mentioned, we're glad to be reporting more than a 10-percent increase in EBITDA and in net income per unit this quarter, as a result of relatively normal weather.

It was actually quite a challenging quarter for AmeriGas and for the propane industry. We continued to enjoy very cold weather in the Northeast and Midwest but had near-record warm weather in the West. While there was plenty of propane in the West, suppliers struggled to move enough propane to terminals in the East to meet demand.

Many of the supply points were forced to place AmeriGas and other retailers on allocation, and Conway (ph), the second-largest propane storage location in the - in the country, actually ran out of gas by the middle of March. AmeriGas was always able to source propane, but we often had to transport it longer distances at a higher cost. In addition, our operations in the East had to scramble, incurring additional overtime to keep up with the deliveries.

On top of these supply and demand issues, the wholesale cost of propane for this quarter rose to the highest level in at least 15 years. Due to a strike in Venezuela, the situation in Iraq and higher demand, the average, wholesale cost of propane at Mount Belleview (ph) literally doubled from 33 cents per gallon last year to 66 cents this year.

Averaging this for the quarter doesn't quite paint the picture of the high prices we saw during the month - or during the quarter. To give you a sense of that, the average price for one of the days at the end of February was $1.17.

Our managers and employees responded well to those challenges, as you can see in our results for the quarter. Volume increased by 8.3 percent on weather that, according to NOAA, was seven-percent colder than last year. While this volume was in line with the weather and reflects some growth in our customer accounts (ph), it was actually less than what we'd expected.

We believe that these volumes continue to reflect a sluggish economy and some price-induced conservation. Despite the run-up in product cost, we were able to maintain our margins, and, in fact, we were able to moderate the impact of the cost increase on our customers, to some extent, on the basis of favorable agreements with our suppliers and our hedging program.

Operating expenses increased by 15 percent, due to higher volumes, higher earnings and higher propane prices. The increase in payroll costs was in line with the increase in volume. Incentives and commissions increased as a result of the higher earnings, and the dramatic increase in energy prices pushed up the cost of fuel for our vehicles and the cots to heat our districts at our 650 locations.

We also increased our bad debt reserve, due to the 36-percent increase in revenues and because of the concerns about the big bills that our customers have been receiving this year. The other significant expense increase was for insurance, something I'm sure that all companies are complaining about this year.

I'd also like to update you on the progress we've made on our core strategies each quarter. We are just about to enter the PPX selling season. At the beginning of the year, I told you we expected PPX results for the year to be about the same as last year and that we would see a nice improvement in cash flow. We're on track to achieve that level of performance of volume. Year to date it's (ph) up 22 percent and results are modestly better than last year.

Of course, most of the volume, and about two-thirds of the profit in PPX, is earned between May and September, so these first six months are not that significant.

Our national accounts volume was up 15 percent for the quarter, due primarily to an increase in the number of locations that we serve. We completed one, small acquisition at the end of the quarter, the second for this year, and we have a number of prospects that we're talking to and at least one signed letter of intent, but we're still finding that sellers have inflated expectations.

Finally, I'm pleased to say that we have seen a positive result from our efforts to improve customer retention while adding new accounts. The record results that we've achieved this year are an excellent demonstration of what AmeriGas can earn with more normal weather. Our unit holders should be pleased to see that our distribution coverage for the trailing 12 months is over 1.2.

Looking forward to the balance of the year, we are not banking on much of a recovery in the economy, so expect volumes to be not much better than last year. Due to the continued high cost of propane, we aren't expecting to experience higher margins than last year, and, in terms of expenses, last year we took actions during the second half to reduce expenses, what we called our recovery plan, because we were having such a warm year.

This year, we're not going to be making those kinds of expense reductions, and, in addition, we'll have issues like insurance and bad debt, but we do expect expenses to be higher for the last six months.

Not withstanding these factors, we expect to do significantly better than last year, with EBITDA for the full fiscal year to be in the range, plus or minus, of 240 million.

I'd like to finish by thanking our employees for arising to meet the challenges that we faced (ph) this season. They continue to provide excellent service to our customers, despite the dramatic increase in volumes in many areas, tight supply situations and the very high, wholesale, propane prices.

I consider the dedication of our employees to customers and their commitment to AmeriGas to be our greatest competitive advantage.

Now I'd like to turn the call back to Lon.

Thank you, Gene. I'd like to leave all of you with the following thoughts, as we end our prepared comments.

First, we remain committed to achieving our longstanding, financial goal of growing our earnings per share between six to 10 percent annually and increasing our dividend three percent annually.

It's rather obvious to all of you that we will, once again, exceed our targeted earnings growth this year. Contributing to doing so has been the return of colder, winter weather, particularly in our utility territories, where colder-than-normal weather contributed around 15 cents a share.

Equally important, however, is the contributions to earnings from the proficient execution of the strategies that we have in place. All of our business units are doing a fine job in this regard, and we will not lose sight of continuing our focus on execution.

The process of raising the bar and continuous improvement is something we are committed to. Expect us to continue our efforts to not only grow each of our businesses but, equally importantly, to focus on productivity and efficiency. That is running our business units more effectively, as we seek ways to deliver superior service to our customers.

Our mindset is not changed. It is to attack these productivity and efficiency issues even more vigorously in a good year than in a bad year. Doing so enables one to do it from a position of strength rather than a position of weakness.

I'll also note the progress we made during the quarter in growing our propane energy marketing and electric generation businesses through acquisition. We continue to have excess investable cash, excellent liquidity and solid balance sheets from which to grow further, as we pursue our focused strategy in a disciplined manner.

Looking forward through the remainder of our 2003 fiscal year, I now expect our earnings per share at UGI to be approximately $2.25, give or take a little, on a - on a post-split basis. This new, higher estimate reflects the good performance we've had so far this year, offset in part by performance for the remaining six months of the year at levels somewhat lower than last year.

As we enter the second half of this year, the economy remains weak, and that will affect our results going forward. In addition, as you may recall, last year was a particularly difficult weather year for us, and given that, we took tough-minded actions to reduce our expenses, including actions to reduce compensation and benefit expense, but also actions to defer certain non-safety-related maintenance expenses.

These are actions, which are the very type of action one would expect a well-advised management to take in a difficult year. This year we expect to see expenses rise to above-normal levels, as we address items we deferred in prior years, in particularly last year. Again, this is what one would expect to see in a good year.

All in all, I am comfortable raising our earnings projection for this year to the $2.25-cent level, plus or minus a little, that I did earlier in the call. With regard to AmeriGas, taking into account the same factors that I noted before, as well as other conditions in the propane industry, I expect EBITDA to approximate the $240 million, give or take a little, that Gene mentioned.

So we are very happy with where we sit today. We've had an excellent year. Things are looking good for the company as we look forward, and I'll end my prepared remarks on that upbeat note and allow all of you, at this point, to ask some questions. Thank you.

Thank you, sir. To ask a question, please press the star key, followed by the digit one, on your touch-tone telephone. Also, if you're listening on a speakerphone, you may want to disengage your mute button to allow your signal to reach our equipment.

Once again, that's star, one, to ask question, and we'll take our first question from David Schanzer with Janney Montgomery Scott. Please go ahead.

Yes. Good afternoon. Congratulations on a really good quarter.

Thank you, Dave.

My question has to do with PPX. Sounds like things are moving ahead there, and I was wondering. In - if you could kind of give us an idea, in terms of market share, where PPX is, compared to, say, Blue Rhino and some of the other competitors, and, also, if you could, give us an idea, you know, maybe going three years out, what percentage of overall propane earnings would you say PPX will provide?

: Well, in terms of the market share, I won't say - I won't say that we take a lot of time to calculate that. I can tell you the way the market stacks up for propane exchange. It's a - Blue Rhino is number one. We're number two, and, then, you have to go way, way down before you get to number three. It's really a two-player game. There's nobody else significant out there.

We've both been growing pretty dramatically as people move from filling their - having their cylinders - having their cylinders filled to exchanging them. That's probably the best way I can characterize it. I hate to get into estimating what the - what the shares are.

Why don't - why don't I take a shot at the future side of that for you, Dave?

OK.

On the future earnings side, I think the predominant factor there's going to be on how fast we grow the rest of the business. As you know, Gene has strategies of growing internally, as well as through acquisition, and, obviously, if we were to land a decent size acquisition, PPX earrings, as a percent of the total, would vary.

You know, on a relatively static basis, you know, PPX is a relatively small but important part of what we do. It's in the order of 15 percent, give or take a little. And, again, going forward, it'll be difficult to project how it will look going forward, because, again, if we were to land a Columbia-size (ph) acquisition, obviously, the proportion of earnings from PPX would drop.

So if you think about it as a 15-percent kind of contributor, on a relative basis, that's probably a good number.

: And the great thing about it is that it all happens in the summer. So it's the reverse of our heating business. So we love the way it fills in that gap. But that's a good estimate.

Great. Thanks.

Sure. Thank you, Dave (ph).

Just a reminder - to ask a question, please press star, one, and we'll now go to David Fleischer with Goldman Sachs. Please go ahead.

Yes. A few questions. I guess, first of all, on AmeriGas, I wanted to ask - in, you know, this world and tomorrow's world, you know, with some of your changed strategies on pricing basically, trying to - you know, the objective being to maintain margins or to use margins to offset unfavorable swings in volumes as you can - you know, help us understand what your ability is now, Lon or Gene, to know your costs day by day, transmit that to your outlooks and to set prices, you know, knowledgeably, and hopefully get those prices.

And second part of that is what do you see as the, you know, competitive environment? You know, in the past, we've seen when some of those mom-and-pop's come in and throw crazy prices out there and muck up the market. Do you think the world's a little different because of the - more players having more knowledge about their cost structures?

David, let me start with how we manage it. We do have very good control over what our cost is - very good knowledge of what our cost is every day at every location. And so we - you know, we pride ourselves on the fact that we know exactly where we are every day. We know what our selling prices are. We know where we're positioned on margin. We also spend a lot of time trying to understand where we are competitively and making sure that we maintain the competitive position that we - that we want to maintain.

So that's why we've been able - when you see the kind of cost increases that you saw this year, working with our hedging and with our supply agreements, we've been able to consistently achieve the margins that we target every year.

I would say, in terms of the competition, nothing has really changed dramatically. If you look back to 2000-2001, we had a big price spike, and prices fell off. It was a similar year to that year. We were able to achieve the margins we expected to achieve that year. We will again this year.

So I don't see anything in the competitive dynamics that - at all troubling for us on the margin side.

OK. Second question, and maybe this is one you can answer real quickly. But, looking at your costs, you mentioned how much - you know, that the compensation had gone up kind of in line with your volume change. Wondering, as we look at that number and try to understand the bad debt expense versus insurance expense versus other expenses, if one of those is an outlier.

I mean (ph), bad debt expense - how much - you know, if you can be specific, how much did you allocate there, and, you know, was that a allocation as opposed to, you know, actually having those write-downs knowing what customers aren't paying yet? Because there's probably - it's probably going to take some time until you really know what you're going to be able to collect there.

Well, let me - maybe I should answer that kind of in reverse. On the bad debt - you know, we - first of all, revenues were up 36 percent, and we reserved - the amount that we put aside is the amount we reserved. It's not an indication of any increase in write-offs, which we haven't seen. The 36 percent is a part of it.

We also said, based on the kind of winter we had, the big - the big bills that our customers are paying - we're going to be a little bit more conservative, in terms of the percentage of the revenues that we set aside. So we set aside a slightly higher percentage than we normally do.

All that being said, right now, our DSO is about the same as last year. Our delinquency's actually down. You know, things look very good, but you just want to be cautious in this kind of an environment until all the bills are paid. We wanted to make sure we had the right - the right amount set aside.

We don't know what other problems might come up going forward, but we think we've set a conservative but appropriate amount aside, in terms of bead debt.

There's no real outlier in all those things that I talked about. I kind of broke it down into a couple of different categories. You know, if you look at higher volume and higher price, you know, that was - that was a good bit of it - over $3 million. Things like fuel and bad debt, things that are related to higher profit, things like commissions, incentive accruals - things like that are a little over three.

Insurance was about three. You know, they're all kind of in the same neighborhood, in terms of relative value. There's not one big outlier.

OK. Third question I wanted to ask, if I can, you know, related to the interest expense at AmeriGas were - by just taking the math, based on the 950 debt that you gave us and - if that was the average, but it was - I know it was a quarter end - and the interest expense that you incurred, it'd be 9.2 percent interest.

And I guess my question is, you know, where are you, in terms of managing, you know, your debt and making decisions on floating versus fixed, and how you want to position yourself there, as your, you know, financial condition strengthens, and you have more flexibility? Wondering how you're viewing all this.

Dave, it's Lon. I'll take a shot at that, because I'm familiar with the balance sheets. We - when we set up our debt structure, we set it up on the basis of never having a maturity come that we couldn't finance internally if we had a problem. And so we've got 50 million-ish (ph), give or take a little, that comes due almost every year, and, of course, that helps you with averaging interest rates as well.

And so what we've been doing over the last several years is been replacing higher interest debt, kind of 10 percent related to debt, with - most recently, we issued - 7.69 was it? Seven-point-seven percent - 7.70 yield-to-debt (ph) to refund a portion of that debt. Part of that debt we're paying off through cash flows and - that we have.

So we make steady progress. Where we like the positioning of interest rates, we might go out and hedge interest rates a little bit, so that you can lock in a portion of that. Obviously, you can't lock in the basis, but we're managing down slowly but surely our interest expense, as these maturities come due.

We did call, in advance, one of our high-yield issuances - 85 million-ish (ph) of it - 10 and an eighth (ph) that we replaced with low-eight-percent base debt, so we're making steady progress. We expect to make more steady progress as we go forward. We're careful on floating-rate debt, revolver floats, but we don't have much else that floats, because we like the - we like the fixed interest rate in the market that's out there today. And so we don't see the point in having it float, because we're a little bit worried about rates going up in the future.

So slow but steady progress and meaningful progress when you add it up over a few years, but it continues to work its way through the system.

OK. Thank you.

Thank you, Dave (ph).

We have a question from Stacy Saul with W.H. Reaves. Go ahead, please.

Hi. Actually, I have several questions. First, can you just repeat the debt balances for UGI and AmeriGas? I missed that.

OK. Let me give that to Tony, Stacy.

AmeriGas, Stacy, was 950 million, and UGI consolidated was just under 1.3 billion.

OK. Great. Now AmeriGas - you got the coverage at 1.2 times. When do you think the board is going to look at increase in the distribution?

I'll answer that one Stacy.

I think I ask this every quarter. Don't I?

Yes. I think you do.

OK.

But our answer never changes.

Well, hopefully, one day it will.

Yes. Someday it will. We'll be the first to tell you when it does. You know, we're mindful of our balance sheet. As you know, credit agencies have taken some action in the course of the years with many companies to lower their ratings out there, and we're proud to say we're one of the many that has been affected by that. And, so, we're quite mindful of the balance sheets that are out there.

We - our viewpoint on the distribution is we want to assure all of you that the one-two (ph), the one-three (ph) is real, it's repeatable and - so that you get the confidence that it's sustainable in the future. And when we feel, at that point that it is sustainable, even in a relatively warm year, to move ahead, we'll be the first do that.

We know it's important to the investing community that we examine that. We do examine it. Our board does examine it. But, in this day and age, one has to be very mindful of balance-sheet strength, and we'd rather put off that decision a little bit, as we evaluate our balance sheets and evaluate market conditions.

OK. I also just wanted to touch on '04. I know it's early for you to give guidance there, but, if you look at AmeriGas, weather was normal. The utility was a bit stronger with colder-than-normal weather, but, on the other hand, you have some other investments, the power plant investment, the TXU and the gas marketing.

With all this put together, is there - do you think it's likely that you're still going to be able to have EPS growth in '04 versus '03 within your long-term guidance?

You're a quarter early in asking me that, Stacy. I would like to reserve on that, but I promise to answer it next time you ask it. At the July quarter I'll answers that.

I was going to try at AGA but ...

No. You'll get the same answer at AGA.

OK. Thank you.

Yes.

Our next question comes from Peter Hark with Talon Capital. Please go ahead.

Good afternoon, and congratulations on a fine quarter.

Well, thank you very much.

First, I was hoping you can reconcile the earnings differential - the $1.62 versus the $1.47 adjusted for second quarter of '02.

Let me try to go through that off the top of my head. When you adjusted the $1.47, what adjustments did you make, because our lawyers get mad at us when we do adjustments to GAAP numbers.

I'm sorry. You have a Footnote A, I guess, in your net income statement that shows that if you took second quarter '02 and adjusted out the goodwill that it would have been $1.47, I guess. So I'm saying I'm looking to explain the 15-cent differential.

OK. We all that - all that goodwill was related to AmeriGas. On a - on a - the footnote doesn't ring true to - let me tell you. There's no difference in goodwill this quarter versus last quarter. It hasn't been amortized in either quarter. The only exception to that is Antargaz, which is a very small number. So, Peter, if you read that footnote that way, we did not present it effectively to you, because ...

I'm sorry OK.

It was - in a 12-month number, there's a goodwill difference but not in a six-month number.

All right. I'm sorry. You're right, Lon.

Yes.

Thank you. Thank you.

Star, one, for questions, please. OK. We have Peter Hark again in the queue. Go ahead, sir.

I'm sorry. I was trying to - still trying to get a reconciliation. I don't know if you can do it on an earnings-per-share basis.

I can do the reconciliation to the $1.62 to the dollar - that we reported last year. I can do that.

That'd be great.

And, as you can see, the - on an EPS basis, the utilities had a significant increase in earnings over last year. At the utility level, it's about 81 cents this year versus 53 last year. So you got a very substantial increase there. At the AmeriGas level, it's 64 - this is to UGI.

Yes, sir.

Sixty-four cents to UGI versus 57 last year. At the energy services level, it's about double six cents this year versus three cents last year.

OK.

International is about 12 cents this year versus 10 last year, and that's the basic reconciliation right there.

That's great. That's perfect. And then in your statement, you talked, Lon, about the bifurcation of weather, yet, nationally, weather as normal. And I was trying to understand what it meant, in terms of, I guess, the geography of your customers, to the extent maybe you have a greater concentration of customers in, you know, the colder part of the country versus out West, and what the growth dynamics are of those - of that customer base.

Yes. It - Peter, it varies by business unit. Our utilities are all in the middle-Atlantic states and Pennsylvania. Our gas marketing business is largely middle-Atlantic. We'll go from, predominantly (ph), Virginia up to New York State out to Ohio.

And, so, both of those had some - both the utilities and the energy services business has had some nice weather this year. Internationally, we're in France, and we're in Austria, and I think the weather was a little bit better in both of those places, compared to prior year.

OK.

And then, lastly, propane is where it really became a dynamic. I want to let Gene address that ...

Fine (ph). That's actually the segment I meant most.

: Sure, Peter. Well the - as I mentioned, it was a - you know, the West was quite warm. The East was quite cold, and the split - there's a wonderful map on the NOAA Web site that shows where the split occurred, and it was really right at the Mississippi. If you look in the West - they rank each year based on how warm it was of the 109 years that they look at. And when you look at - for January through March, if you look at the rank, with 109 being the warmest, for California it was 102, Oregon was 106, Nevada - 107.

You know, if you look at all those states, they're at 100 or in the 90s. And then you come east of the Mississippi. And they're all kind of in the - in the 20s, so relatively cold. When you look at our volume, about 54 percent of our volume is west of the Mississippi ...

OK.

: ... and 46 percent is east.

OK. I got you. That helps explain it. Thank you very much. When David was asking about bad debt expense, what was the number that you - what's the bad debt expense going to be for this year versus last year?

That's - we're up - we're up considerably, and we'll try to fish that number out while I talk. We adjust - obviously, the reserves for bad debt are always adjusted every quarter, based on your experience. And then there's two - there's two components to it. You set a reserve based on what you - what's on your balance sheet and then you adjust your expenses, on a going-forward basis, as a percent of revenue, based on what you anticipate, given conditions in the industry.

We will look at commodity prices as we go forward and decide whether we're withholding the proper amount out of our revenues on a going-forward basis. The actual reserve - probably, we'll take a hard - we always take a look at it every quarter, and we will also look at it at the end of the - our fiscal year at the end of September, because most of the bills will have run through that.

Right.

But the number compared to last year ...

No. That would be (ph) ...

The number - the number now is roughly - we've got about, roughly, $8 million in total bad debt reserves at this point.

Versus what last year?

... what we take this year.

I'm sorry.

Our reserve is about 12 right now.

Our reserve is - I'm sorry.

... expense.

Is that the expense? All right. The increase - I'm speaking without good knowledge. Let me see. The - where are we, in terms of level now, as we sit?

We're about 12 million.

We're at $12 million as we sit today in bad debt - total bad debt reserve ...

OK. And I was trying to get the incremental. You know, this year versus ...

The incremental over last year - do you know that, Martha?

For the quarter or for the ...

For the year.

Well, if you're comparing where we are today and our reserve ...

Versus a year ago.

... today, we're - it's a timing (ph) of reserves. We're probably about three or four million, once you consider when we did (ph) write-offs.

OK. It's a - it's a hard question to look at, and I think, Peter, we're evaluating it. We see a market condition where things have ...

Peter, just in general, if our revenues - our bad debt expense is a percentage of revenues, largely speaking. If our revenues go up 36 percent for the year, our bad debt expense is going to look about like that, in terms of total expense for the year.

OK. That's helpful. Thank you very much. And I'm sorry. I have just two more smaller questions, but if you can bear with me. You're going to take possession of Conemaugh. I guess you're buying from Allegheny. I was wondering what your efforts will be to market that - the output of that facility.

Will it be to your - I guess - I'd spoken to Bob Krick about this a little bit but - trying to understand - I guess, at some point, you want to market that to your incumbent utility customers, but, until then, you know, how do you market the output of that facility?

Yes. Our view of the generation business is you're not going to see us be a big generation player. We're not - it's not our geol. Our goal is to keep generation size within the reason of our electric utility business, plus we do aspire to market electricity to customers just like GASMARK does to commercial-industrial -small commercials and industrials on the gas side.

So we want to complement the products we offer those same customers. So we want to have it there. We'll take the plant over at the end of June. We'll probably, at that point in time, evaluate the plans of our various businesses. We - in the near term, we will not sell it - use it to sell to our electric distribution customers.

We'll either sell it in the spot market, use it to support - a portion of it to support our retail electricity marketing to - for small commercial-industrial and sell the rest, either on spot basis or sign the contract for a period of time to take this - to hedge - you know, to hedge the current prices a little bit.

Right. Perfect. Perfect, Lon. Shipping over to GASMARK, I guess, and your acquisition of the TXU business - you made a comment in your release that that business added value immediately, and I was hoping you could either, you know, explain that or quantify what it - what it brought to the table.

Yes. In the broad scheme of things, it didn't bring a lot to UGI. I think if you look at our energy service numbers for the quarter, you saw, kind of, a doubling in contribution from - was it four to - two to four?

... to four.

Yes.

Two to four - we only had that for a month and ...

But that wasn't the entire two million increment. Was it?

No. No. No. Definitely not. We've had internal growth in that business. We've had, you know, a little bit better margins than the business as well. You know, it's in the hundreds of thousand of dollars ...

OK.

... that it added for this.

But that's - I just wanted to get an order of magnitude. And, last - I promise - on Antargaz - trying to understand - first you said the improved Antargaz results were helped by - I guess partly by weather, a stronger euro and the elimination of goodwill.

I didn't know if you could quantify that - if there's any ongoing benefits from either, you know euro improvement or goodwill amortization. Is there any more of that to do?

Let me answer that this way, Peter. It's really not - it's not a big number there that we - you know, our exposure to the euro, obviously, is tied to the earnings of that business. We only have 20 percent of the earnings of that business, so it's not a huge number.

They the change in goodwill amortization also is not a huge number for them. The fundamentals of the business have been - have been good. Margins were better than they - we thought they would be. The weather was cooperative. And those - you know, when you take a step back, going forward, those are going to be the primary drivers.

The rest of this stuff is - you know, the euro's going to change in value from time to time. Amortization's going to be behind us, and the key factors to focus on are the drivers of that business, and it's been a heck of a performance for us.

It certainly has. That's great. Well, I appreciate your time, and congratulations again, and we'll see you down in Arizona.

Terrific - look forward to it.

Thank you.

We'll now go to Peter Eisele with Snyder Capital. Please go ahead.

Yes, Lon. Just a couple of quick questions. On the electric utility, one of the items you mentioned for the improvement was the third-party spot market sales, and I was wondering if your could - in terms of the improvement year over year, how much was related to that particular item?

Yes. We - let me try to answer it this way, Peter. We don't - we don't - we don't - you know, we treat that as one segment - our electric business as well as one segment. To (ph) give you a ballpark, probably it's - half the benefit was on the electric distribution side, and half the benefit was on the generation side.

And, you know, obviously, electric prices have moved up all across the country, as all energy product costs have moved up, and our guys have done a nice job running those plants and keeping them operating, and the folks who sell it have done a good job selling it as well.

OK. And, secondly, on the on AmeriGas side, am I correct to assume that in the last two quarters of this fiscal year that the EBITDA would be the same, better or worse than last year? Could ...

Worse. If you look at it on a trailing-12 basis, it's 247 (ph) a year.

Yes.

And we're telling you to look at, kind of, a 240-ish (ph) number. And the reasons for that are, as we said, that we took some tough-minded actions last year in a very warm-winter year to cut compensation, to look at - hard at benefits for that period of time and a whole bunch of other expense reduction kind of efforts to - you know, what any good management would do in a difficult year, and this is obviously not a trying year for us as last year was, and there's opportunities to - there's no reason to put our employees through that situation again this year.

And, you know, you always, in a tough year, take other expense actions and defer other activities that you'd like to pursue, and there's no reason to do that as well. So that's going to be a principal driver in that difference.

OK. OK. Thanks very much.

Sure.

Star, one, for questions, please. Well, there appear to be no further questions in the queue, so I'll turn the call back over to our speakers for any additional or closing remarks.

OK. Thank you, Jessica. I want to thank all of you for your interest in UGI and AmeriGas. We continue to strive to improve results and deliver long-term, shareholder value to all of you. I'm told by Bob Krick that he's going to bring you a message from our sponsors, my having said things that are not necessarily GAAP-related.

So let me turn it over to Bob to give you that information.

Thanks, Lon. As we close, I'd like to tell you that the forward-looking statements related to non-GAAP financial information that we discussed on this call will be available shortly at the Investor Relations section of our Internet Web site, AmeriGas.com. Thank you very much.

Thank you. Again, that does conclude today's conference call. We appreciate your participation, and you may now disconnect.