UGI Corp (UGI) 2004 Q3 法說會逐字稿

Ladies and gentlemen, welcome to UGI/AmeriGas third quarter 2004 FY earnings conference call. Today's conference is being recorded. For opening remarks and introductions, I would like to turn the call over to the President and Treasurer, Mr. Robert Krick. Please go ahead.

Thank you, Kelly, and for the promotion as well. Good afternoon all of you, I am merely the Treasurer. As we begin today though, let me remind you that our comments 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 annual reports on Form 10-K for a fuller list of factors that could affect results, but among them are: weather conditions; the cost and availability of all energy products including natural gas, propane and fuel oil; competition from the same and alternatives energy sources; currency exchange rates; and political, economic, legislative and regulatory changes in the U.S. and abroad. 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.

Thanks a lot, Bob. Welcome everybody to our call. I trust all of you have had the opportunity to review our press releases, reporting our 2004 FY and third quarter results.

Given the seasonal nature of our businesses, our third and indeed fourth quarters are not typically eventful times for us. However, this year's third quarter is a bit unusual in that a few notable trends are evident from our results. They are: operating income in all of our business units improve significantly despite weather which was appreciably warmer than last year, and as a result and despite a significant increase in the number of shares outstanding we reported net income of 16 cents a share compared to a loss last year and a loss in most prior year third quarters.

The success we are having in growing our businesses both internally and through acquisitions is reflected in these results. This is particularly evident in our international propane and energy services businesses. In this regard, our most recent acquisition, that of Antargaz in France, has performed particularly well. All considered, we had an outstanding quarter last quarter. AmeriGas too report improved results despite weather that was significantly warmer than normal, and last year AmeriGas' EBITDA even improved compared to last year.

As you may recall, we previously had forecasted earnings for UGI in the $2.10 to $2.20 range, and that was somewhat higher than our prior range that we had. With the third quarter now behind us, I would now expect our earnings to be somewhat higher than that $2.10 to $2.20 range. In fact, I'd expect it to be in the range of $2.15 to $2.25. In addition, I remain comfortable with our forecast of approximately $250m of EBITDA plus or minus a little for AmeriGas for FY 2004.

We remain really quite pleased with our progress and are excited about our prospects for next year, but before I go on too long let me turn the call over to Tony Mandicino to review our performance this quarter in more detail. After Tony concludes his remarks, as is customary, Gene Bissell will comment further on AmeriGas and following Gene's remarks I'll offer a few concluding comments at the end of the call. So, Tony.

Thank you, Lon. As Lon mentioned, we are in 16 cents per share this year, compared to a loss of 5 cents per share for the same quarter in FY 2003. This is an excellent result. While all of our business segments enjoyed improved earnings relative to last year, the largest contributors to the growth and earnings were energy services and international propane.

Let's look at some of the operating and financial details of our business groups. AmeriGas with national weather that was 8% warmer than normal at last year saw EBITDA increase to $16.1m from $12.6m last year, with total volume that was down 7.2m gallons at 175.2m gallons. Decline in volume resulted from the warmer weather and price induced conservation. The impact of lower volumes on EBITDA was offset by higher unit margins and lower operating expenses.

Last year's operating expenses included about $3m of costs associated with the management realignment implemented last year. AmeriGas contributed a $4m seasonal loss to UGI's operating income, compared to a $5.8m loss in the same quarter last year. Gene will have more to say about AmerGas' performance in his comments.

Operating income in our utility operations was $12.4m, compared to $10m for the third quarter last year. In our gas utility, operating income increased by $1.4m to $6.9m. Volume increased slightly to 15.5 BCF from 15 BCF. However, gross margin was lower as a decline in higher unit margin, residential and small firm sales offset the benefit of increased sales to lower unit margin, large firm and interruptible customers. Weather was 19% warmer than normal and 30% warmer than last year.

The lower gross margin was offset by lower operating expenses resulting in the increase in operating income. Last year's operating expenses included the cost of settling environmental claim and higher long-term compensation accruals. The gas utility continues to grow its core heating customer base at rates in line with our 3% to 4% annual growth target. On a year-to-date basis, the gas utility added more than 7,500 residential heating customers, 1,000 more on a year-to-date basis than for the same period last year.

In electric, operating income was $5.5m, up $1m from last year. Send out was 221.5 megawatt hours, a 2.4% increase compared to the third quarter last year. The increase in sales came from an increase in air-conditioning loan, offset in part by reduced demand for electricity during the early Spring due to warm weather.

Heating degree days were 11% fewer than normal and 23% fewer than last year. The increase sales volume coupled with operating expenses that were essentially flat the last year resulted in the improved [inaudible] operating income.

Moving on to our other operations. First, energy services operating income more than doubled to $10.2m from $4.3m last year, an increase of $5.9m. $1.3m of this increase results from our increased ownership position in Conemaugh generating station this year. The balance of the increase comes from our gas marketing operations. GASMARK's marks operating income was $8.8m, up by $4.6m on a 6.5% increase in sales volume, and improved unit margins from the beneficial effect of seasonal margin realization.

We told you at our two prior earnings releases about the shifting of margin in GASMARK from winter quarters to our summer quarters as a result of intricacies of GAAP accounting and our fixed-price, fixed-cost business model. This margin shift contributed about $7.5m to GASMARK's operating income in the current quarter.

Operating income in international propane improved dramatically for the quarter, primarily as a result as our increased ownership in Antargaz and Antargaz's improved performance.

UGI's operating income from Antargaz was $13.9m this quarter, in which we owned 100% of the business, compared to $700,000 for the same quarter last year when we owned 20%. Antargaz enjoyed a 13% increase in volume sold on weather that was 8% warmer than normal, with 13% colder than last year.

FLAGA had an operating loss of $300,000, a $400,000 improvement compared to its $700,000 operating loss last year. The improvement resulted from a 10% increase in volume owing primarily to colder weather, and lower operating expenses partially offset by lower unit margins.

Moving now to our balance sheets. On a consolidated basis, UGI's total debt on June 30 is just under $1.7 billion, up $464m compared to last year as a result of the Antargaz acquisition. We currently have about $95m in investable cash and expect our investable cash balance to growth to $110m by the end of this fiscal year.

AmeriGas closed the quarter with $902m in debt on their balance sheet, down $28m from last year. Other than letters of credit, AmeriGas today is not using its revolver and has about $40m in cash on its balance sheet. Gene will now expand on AmeriGas' results.

Thanks, Tony. As you know, this is not a particularly important quarter for AmeriGas. Typically, we earn less than 10% of our annual EBITDA in this quarter. Nevertheless, we are pleased to be reporting a $3.5m increase in EBITDA despite weather that was warmer than last year. Of course, part of the reason for the improvement was that we had $3m in expenses last year in the third related to our management realignment. Our volume for the quarter was down 7m gallons reflecting the impact of lower heating degree days and customer conservation, offset in part by the acquisitions that we completed since last year at this time.

One of the factors that's influencing our volume is the high cost of propane. We continue to experience some of the highest wholesale propane costs in 15 years. The average cost of propane at Mt. Belview for the quarter was 65 cents, up 22% from last year's high prices, and up 70% from the last 10-year average. We've been successful in passing on this cost to our customers, but we definitely see evidence of customer conservation in our volumes.

Operating expenses decreased slightly from last year principally due to the $3m in realignment expenses that I mentioned. However, all of the increase in expense is related to PPX and acquisitions. The savings from the realignment offset inflationary increases in salaries, vehicle fuel, bad debt and other expenses.

Also since it's been a year since we announced our realignment, I would mention that in addition to saving us more than $10m a year, the realignment has caused us to be a more effective organization in that we have streamlined our structure.

I'd also like to take this opportunity to update you on our core strategies of growth through acquisition, EPX, strategic accounts and through growth in our traditional residential and commercial customer base.

We have not completed any additional acquisitions in the third quarter; however, we are actively pursuing a number of promising opportunities. Horizen, the business that we acquired in October continues to exceed our expectations. We held off integrating Horizen until the end of the heating season, but since then we have been blending our operations and we expect to have that process complete by the end of October, so that we'll capture the full benefit of this deal in the next fiscal year.

While this is not a significant quarter for the traditional propane business, it is an important quarter for PPX. There are still several months left in the grilling season, but year-to-date PPX volumes are up about 14% and EBITDA is up 3.6m. Our store count is now over 21,000; a considerable increase over last year.

Our strategic accounts volume was up 9% for the quarter mostly due to the addition of new locations. We continue to benefit in strategic accounts from having the best geographic coverage in the industry. In addition to acquisitions and PPX's strategic's accounts, we're also succeeding in growing our traditional base of residential and commercial customers through competitive pricing and superior service. We have increased the size of our traditional customer base so far this year, despite the record high prices.

Our unit holders should be pleased as for the second quarter in a row our trailing twelve distribution coverage is 1.3. Based on our third quarter results, we're still on track to earn $250m in EBITDA for the year.

And now, before I turn the call back over Lon I would like to take this opportunity to thank my fellow AmeriGas employees for their professionalism and commitment to customer service. Each quarter we are making progress and realizing our vision of being the most reliable, the safest and the most responsive propane company in each of the markets we serve. I'll turn the call back to Lon to make some closing remarks.

Thank you, Gene. I'd like to leave you with the following thoughts, to end my prepared statement. From a qualitative standpoint, we continue to be well situated for the future, we are in good businesses, we know how to run those businesses and we are in excellent financial condition. We expect to end the fiscal year in September with about $110m of cash and we anticipate generating approximately $80m of cash to invest each year. We fully expect to be able to redeploy that cash in a productive way to allow us to achieve our goal of producing above-average, long-term shareholder value.

We are quite pleased with the performance of Antargaz. The management team at Antargaz continues to do an excellent job and they are working very well with their UGI counterpart. The transition to full UGI ownership has been going well and we expected this given our knowledge of the French market, and our confidence in Antargaz's management that we have paned as a part of our partial ownership of Antargaz for three years. Like any business we, of course, have our challenges. As Gene mentioned, high energy prices are a burden to all of our customers and they do have an adverse effect on demand. Likewise the economies in the U.S. and other countries in which we do business are improving, but their improving in an uneven fashion, and finally, competition in the energy distribution and marketing business is intense. There is more interest these days by others in energy in energy distribution assets. More interest than we've seen in quite a few years. And finally, internal growth continues to require an intense focus on execution. The important fact in all of these things is, while we do have challenges we anticipate being proactive in addressing these issues and we expect to achieve our goals not withstanding having to address those issues.

We have an enviable tradition of success attributable to our track record of completing value, creating transactions and our unrelenting focus on execution. Said differently, your management team has produced while the employees of this company have produced, and we are all optimistic about our ability to do so in the future.

We're currently in the preliminary phases of our budget cycle. Based on what I understand to date in my reviews of some of those budgets, I currently expect our earnings next year to approximate $2.70 a share give or take a little. This expectation on my part while preliminary reflects the assumption of relatively normal winter weather and, of course, our confidence in UGI's future.

With respect to AmeriGas, based on preliminary budget review I would anticipate EBITDA next year of somewhere between $255m and $260m. As you know, we remain committed to our long-standing financial goals. Grow our earnings 6% to 10% per year, and grow our dividend 3% per year.

The model we have for UGI, growing our businesses somewhat in excess of their industries; producing excess cash flow and reinvesting that cash for additional growth while at the same time returning cash in the form of a handsome dividend exemplifies a balanced growth and income vehicle. We look forward to reporting more progress to you as we finish 2004, and navigate through our 2005 FY.

At this point, Kelly, I'd like to open it up for questions.

Thank you. At this time, if you'd like to ask a question you may do so by pressing star (*) one (1). Again, if you'd like to ask a question, please press star (*) one (1) now. We will pause for a moment to assemble our roster.

We'll take our first question from Yves Siegel with Wachovia Securities.

Good afternoon everybody.

Hi, Eve.

A couple of questions, if I could. Do you have the comp on Antargaz in terms of how they did as a stand-alone company a year ago.

Yes. That's an interesting question. I can tell you better and I tell you that one of the difficulties of doing the comparison is obviously the change in ownership that we have, and I can't --- SEC rules require you to sort of tie things out in press releases in ways that make life difficult for all of us. But, qualitatively Eve, I can tell you better and we are working on ways to be able to do in a rational fashion so all of you can understand how they did on a stand-alone company. But, I can tell you that they did better than last year.

Is it because of enhanced-because you've done better on the cost side or is it also cost and better gross profit margin?

Eve, as I said in my comments, the volume was off primarily because the weather was a lot colder this year. Units margins were actually down this year compared to last year and operating expenses were essentially flat year-to-year. So I think when you digest all that, I would suggest that this quarter would probably we typical of the third quarter at Antargaz give normal weather conditions, based on what we're seeing.

OK. And the, also if you could clarify a comment you made earlier as it relates to energy services. I think you said that this quarter benefited from the shift in margin from winter, and if I did the math right, I think you said that you had about a $7.5m improvement in the margin shift? Without the margin shift then, it looks to me like that maybe you would have actually witnessed a down-quarter, apples to apples? So, am I missing something?

No, Eve. I can tell you that the difficulty in managing that business is you enter into contracts with customers for periods of time and depending on what time of year you enter into that contract, you have periods of time where you may even, in fact, have negative margin or you have very good margin, and there is a difficult-there is no easy way to explain the timing of when customers enter into their contracts with us, and there are many customers who stay short until they anticipate gas prices dropping. So, I can tell you qualitatively we are not concerned about the performance of our energy services businesses. This was quite a bit better than we anticipated for this quarter and that's why the last two quarters we've been telling all of you that result for the-our FY first quarter and our FY second quarter, while not bad were not reflective of what they would have been had GAAP allowed us to record the information in a different fashion. But, it's all related to the timing of when customers, each year, lock in their contracts with us because we do fixed-price arrangements with them. So, again, there is no easy way for me to answer the question on a numbers basis, but I can tell you qualitatively that business is improving, we are not at all concerned with their results, and we would expect better things from them next year.

OK. And, if I could, just two last questions. One is, on the propane supply side, any thoughts on how you guys are filling inventory and where you would expect to be going into the winter, and the ability to maintain gross profit margin? And then the last question, would be one that you get all the time, if you're going to end the year at $110m and you're going to have another $80m of free cash flow you'll be approaching $200m in a very short period of time without making acquisitions; at what point in time do you say, hey, that is just a lot of cash and maybe we should think about buying back stock or doing a special dividend or something like that?

OK. We'll do those in the order you asked, so I can prepare my answer to the second one while Gene answers the first.

Sure. On the inventory side, as an industry we're at the lower end of normal. We're at about 46.3m barrels; last year at this time, we were at about 51.5m so we're below last year and in addition to that chemical demand is pushing record levels, and imports to date have been on the weak side. So, that all sounds like we might be-prices staying where they are right now depending on what happens in the crude oil. We're really tied to crude oil, but right now we're trading at about 78% of crude which is high for propane. And, crude is anyone's guess and that's a combination of supply and demand, and what the people are worried about in terms the international situation and terrorism.

On the margin side, our margins have been relatively strong as they often are when we have this kind of price volatility; we have some advantages as a large player in terms of the types of agreements we have with our supplier that insulate us a little bit, so our margins are a bit higher than you might expect them to be in a normal situation. So, with that, let me-did I give you long enough, Lon, to think about the next-

If you could take another year-(ha, ha, ha). On the cash question, Eve, given our nature as you well know us, we think having a dollar in our pocket is a lot of money. We-there is nothing wrong, as you know, with having cash around; its served us well to allow us to be an opportunistic buyer. I often use the phrase, "we don't let the cash burn a hole in our pocket". We're very disciplined in how we utilize the cash, we look for-we're basically value buyers and as I mentioned assets in the energy distribution marketing field are getting a little pricey in some cases, not always, but in some cases.

We are mindful of the fact that we are both a growth and income vehicle, and as you know, we raised our dividend well in excess of our 3% guideline by raising it by 10% just recently this year; to reflect our confidence in our cash flow and a confidence in the performance of the business. We will watch it carefully. $200m, as you suggested is a lot money; however, we aren't going to let it, as I said, burn a hole in our pocket and its not going to force us to use it in a way which is not productive for our shareholders for the long-term. So, you can count on us to do what's right with that money and we're fairly patient people as we look at that.

Well, thank you.

Thank you, Eve.

We'll take our next question from David Schanzer with Janney Montgomery Scott.

Hi, good afternoon, congratulations on a strong quarter. Couple of questions, one regarding PPX, at this point what would your assessment be in terms of overall market share in that industry?

I don't know if I've got a good market share estimate for you. You probably-

You regarded you and Blue Rhino as kind of being the leaders in a whole [agapolistic] kind of approach?

I think that's pretty close in the sense that if you want to say Blue Rhino's the leader, we're second, and then to get to the third you have to drop way down before you get to the third player in that market. There are a lot of independents that potentially could enter the market, but we really have taken the lead at this point-the two of us, so that the next one is probably a fraction of our size.

And, you wouldn't really have any, at this point, concept of where the market share is for you and Blue Rhino?

I just have not looked at that recently to try to estimate it and look at what the other players are. But, it's pretty easy to see the size of Blue Rhino because they report publicly and you know roughly what our size is.

OK.

I just don't have a good handle on how many other independents are out there. Now that the whole valve situation has passed, the independent propane marketers can come in and take small convenient stores, things like that.

Kind of a question for Lon about FLAGA, at this point would you characterize yourself as being satisfied with what FLAGA's doing and what kind of strategic outlook do you have for FLAGA? What's your-is there an inflection point where you kind of say, well we've reached a point where we have to decide whether or not FLAGA becomes important enough to maintain? How do you view it at this point?

Yes. Dave, we actually have been very pleased with the progress that FLAGA has made in the last year. We have new leadership at FLAGA, someone who came aboard a little bit over a year ago, he and his management team have energized the group over there and the improvement performance on a year-to-date basis is quite substantial. Through the nine months for example, FLAGA has contributed a $1.5m of net income compared to a loss last year at this time. So FLAGA's making a tremendous amount of progress and I attribute that, again, to the leadership that is there at FLAGA and the employees of that organization. So on the contrary, we are looking to grow that in Eastern Europe, we have an opportunity and have had an opportunity in the Czech Republic to expand FLAGA's presence. BP decided, because it's a small business for them in the Czech Republic to exit the Czech Republic and in a transaction that would be even relatively small for us, but a nice size for FLAGA, we agreed to buy BP's interest in the Czech Republic and that's a very complimentary transaction for us. We operate businesses in a way very complimentary with BP. They run an excellent company there. There are opportunities for their folks to join the FLAGA team and so we think that's going to be a very good transaction for FLAGA. As you can see with the improvement, we are look for ways to expand FLAGA's presence in Eastern Europe and make that even more of a contributor now that we have Antargaz.

That's helpful, thanks.

OK.

And again, if you'd like to ask a question please press star (*), one (1), now. We'll take our next question from Adam Leight with Credit Suites First Boston.

Good afternoon, gents.

Hello, Adam.

You whipped through the PPX-I didn't catch it, but I think I'd also like to know if you can tell us what were the volumes - what have been the volumes year-to-date for PPX and EBITDA contributions for the quarter?

Let's see-

Hold on, Adam, we'll get you that. We were hoping that if we whipped through you wouldn't ask that. So-but, go ahead Gene.

Well, I can tell you that the EBITDA is up $3.6m from last year's level which is-

Do you have the year-to-date?

--probably 15% higher than last year [inaudible]

That's about right. Lon probably has it right there.

So, year-to-date-

Yes, EBITDA year-to-date for PPX is about $18.5m.

How much of that was in the third quarter?

Oh, gosh. We can find that too. A lot! They made most of their money in the last two quarters. So, for the quarter it was 10.7. As you know, the third quarter and fourth quarter is probably the bigger-our third or fourth are probably the bigger-

Oh, yes. It's May June and July are the big months. So, we still continue to get pretty heavy sales right through to September, but most of the-50% of the volume is just those three months.

In your $2.55 to $2.60 AmeriGas forecast for next year how much contribution comes from PPX?

About 10% of it, Gene?

Right.

On the order of 10%, Adam.

On the competitive side there, do you have now a lead customer or set of customers that are going through a lot in volumes and are you seeing any difficulties in [inaudible] through prices which obviously [inaudible]?

Is this PPX, Adam?

Yes, just PPX?

Just PPX. Well certainly Home Depot, Wal-Mart is both large customers. We've got some other customers like that that we're pleased to have. We protect our prices in that area, so we've been in good shape in terms of managing our margins on that side of the business.

Again, the question I have it that because it was pre-committed and hedged for, do you have the flexibility to move quickly as your costs rise?

If you can find somebody who has the flexibility to move their prices quickly with Home Depot and Wal-Mart, please let us know.

OK.

So, we protect ourselves as we lock in commitments.

OK, thanks very much.

OK.

We'll take our next question from Phillip Salles of Credit Suites First Boston.

Thank you very much. Just a couple questions-I missed the cash-on-hand at UGI at quarter and including in that could you please-is there any cash that's still overseas in the amount that has to be repatriated?

We repatriated on the order of $50m?

$45m.

$45m?

July, $45m in July. In July, we repatriated from Antargaz and that brought our cash balances to 80, something-

As we sit today, we have about $95m of investable cash and $85m of that is here in the U.S. and $10m is in a French subsidiary of ours that is the parent of AGZ, Antargaz. So, we have access to that extra $10m, but it would be a long story to explain why-the right answer.

I appreciate the detail. In the quarter, was there any benefit from currency?

No, there was essentially none. I think the currency translation is below six figures in dollars.

OK, and lastly. To a discussion on AmeriGas, Lon, you commented and in the press release you talk about $250m of EBITDA, through the nine months your essentially at that level, could you comment on why you would be looking either a loss or a down fourth quarter? And, perhaps in that discussion, if you could comment on both the strength in retail unit margins which was 65 cents and the outlook there, if that's a number that is sustainable as well as price elasticity?

Let me take a stab and then I'll have Gene tell you if I've strayed, because there are a couple of questions.

The reason for conservative number for the estimate for this year is basically two things. One is September is always tricky and given our normal, little bit conservative, nature particularly when it comes to AmeriGas on numbers, a lot of income comes in September. So, we have no clue what weather will be in September and so we want to be a little careful plus there's plenty of PPX left to go, and PPX is a very difficult thing to forecast. So, we wanted to leave ourselves latitude for PPX as well, and I think so two factors, Phil, probably contributed to why we stayed where we were in our forecast.

On the margin side, Gene always tells me that margins are at a level which we ordinarily don't count on for the next year. I would tell you that in our planning for next year we would expect margins not to be as high as they are this year, generally speaking. And, we - margins are healthy for us, their healthy for this entire industry. Part of that is when you have a large bill, a few cents extra in margin you can't find, and a lot of the competitors in the industry do the same thing that we do in that regard. Volatility also helps us with margins as Gene told you it did, and so given the price volatility that's been out there, cost volatility that's been out there that's helped us as well in the numbers. So, I would tell you that we don't expect margins to fall off in any significant fashion, but we also don't expect to replicate the margins that we had this year, next year.

Yes. If you're asking specifically about this fourth quarter; it depends a lot on what happens to the cost of propane and what happened to crude oil, and if you've got any predictions there it would be very helpful. We're all wondering what's coming next. Part of-

Well, you've always bought smartly and you've always-not only have you been able to pass through the higher costs, but you've always bought smartly, and margins through the nine months has exceeded the year-ago period, and based on Lon's comments would appear to continue to strengthen or at least stabilize as you go into 2005. So, again, I question the forecast in the fourth quarter and it's unclear to me why you're maintaining the $250m in EBITDA, and the same comment goes-you know, in 2005 with the $255m to $260m it would seem with the sustainability of unit margins that those levels are again, very conservative.

Yes, let me-if you take out the "very", we might certainly on the fourth quarter agree somewhat with you. But again, Phil, this industry has been buffeted by warm weather all too often. This year was 5% or so warmer than normal. You're correct that we have been excellent buyers of propane over the years and perhaps we're thinking that maybe the odds catch up with you in a year like this as well. But, let me just clarify something you said, we don't expect margins to be at the same levels that they are this year for next year. In our planning for next year, we do not expect that. On the other hand, we don't expect them to pull perceptively or in a way that gives us discomfort with the estimate that we've given you. So, I would tell you that if you conclude that the fourth quarter estimate is conservative, so be it. I'm obviously not going to be able to talk you out of it. But, I can tell you that we get a lot of income in September and PPX has got a ways to go. It's got two months to go and a very important period for it, and so we thought it prudent to do this. Is it possible we'll out-perform that? Yes, sure, it's possible we'll out-perform that.

Thanks, Lon. Sorry for driving so hard on that, I'm just trying to get a sense of where the earnings can go and the outlook. Just one final house-

You're welcome to join our Board. We can hash it out.

Just one final housekeeping point. The range of earnings in 2004 of $2.15 and $2.25, is that before the second quarter charge for that currency loss that you had?

Yes. No, that's net of everything.

That's net of everything. I'm sorry, that's after it. OK, thank you very much.

Sure, Phil.

And we'll take our next question from Hunter Oregon with Amaranth Advisors.

Actually, it's Jim McFadden from Amaranth. Lon, how are you?

Hey, Jim. How you doing?

OK. Little bit of a follow-up on Phillip's last point there. On the 2005, kind of, build-up, when we're kind of doing it and this is very simplistic, I know, is that if you think that the $2.20 is-the midpoint of 2004 is kind of a baseline and add the 13 cents that was just mentioned regarding forward contracts and then add back 25 cents for the delusion plus having Antargaz at the wrong time of the year and then add on 20 cents for what Antargaz should earn on a normal basis, we add all those together that gets us to like $2.78 for sort of a pro forma 2004 earnings. And the, you would add on some sort of customary growth for 2005, you know, maybe 10 to 15 cents and get to sort of a back of the envelope number closer to $2.90 than $2.70, and we just kind of wonder where we're going wrong in that?

I'm going to have my office swept for bugs just like the mayor of Philadelphia did. The only issue in the numbers you're raising is as follows. One is the fact that there are a lot of things that can go wrong in businesses in any one year and then when you have as many parts as we have and you sum them up to a total-I often base my bonus on the aggregate of all the business unit numbers, and I found over the years that typically what happens is one of the business units has a problem and then my bonus doesn't quite add up the way it should given the problems encountered by that. So really, part of it is we do a subtract as we say in our presentations to the marketplace. If you add up all the numbers, we often times subtract something because things go wrong, weather is sometimes warm, things happen in businesses that can't be anticipated, so if you would like to call that being prudent I'll accept your comment that it's being prudent.

And the other thing that's out there that we're still working on is, as we've said in all our disclosures, the balance sheet of Antargaz has not been finalized. There are all sorts of appraisals that have to go on and there's going to be movement in that balance sheet. Before we come out with any numbers, we want to make sure all those things are more definitive than they sit today. That's why I called this a preliminary number at this time.

How about-just ask just maybe a little bit different. Is 20 cents still the run rate that you would-based on all you've seen so far, is that still a run rate that we should look for on an annualized basis from Antargaz.

Yes, absolutely.

OK, thank you very much.

Thank you, Jim.

We'll take our next question from Stacy Saul with W.H. Reaves & Co.

Hi, good afternoon. I have a couple of questions. I'm not going to ask my usual one. The preferred that you announced that your going to redeem, is that with cash-on-hand?

No, we'll end up-as you know, Stacy, each of our business units has a balance sheet that we keep that's stating for the industries in which they participate, so what we'll do is refund that with debt at the utility level. Our ratios at the utility are outstanding and we've talked to other rating agencies and don't expect any problems with refunding that with debt.

OK, I just wanted to clarify one thing on Antargaz. On the income statement it used to be under equity income and now that's gone and that's fully up in the operating income line?

Yes.

OK, so we should see a decline in the equity income going forward.

Absolutely, as a matter of fact it will probably disappear on you.

OK. What there anything special in the international propane earnings in 2004? The currency program that you had, that was just through the close of the acquisition or how are you going to handle currency fluctuations going forward?

We had modest currency negative in this quarter for hedging the cash that we took back. But, generally speaking, we are continuing to work with experts on dealing with currency fluctuations. I think I've articulated to the market that a 10% swing in the dollar-what I would call the wrong way or people in the U.S. would call the right way, that is the dollar strengthening would have about 7cents a share to us. So, obviously, that's a pretty big swing and we are looking at ways to hedge cash we intend to bring back or earnings or doing what's appropriate in that regard. We haven't instituted any program that this time, but we've done a lot of work behind the scenes to figure out the best way to do that.

OK, great, thank you.

We'll take our next question from Peter Hark with Talon Capital.

All my questions were asked and answered. Thank you very much.

Lon Greenberg. OK, I like you the best.

We'll take our next question from John Tysseland from Raymond James.

Hi, guys. I just had a quick follow-up question, I think you touched on it in your prepared remarks, but could you go through your balance sheet information for AmeriGas, specifically long-term debt and then equity?

Yes. I think long-term debt-Tony's going to look it up, but long-term debt was out to $902m at AmeriGas which is down $28m from the prior year, and on the equity-book equity, you understand, is not a-at least to us in managing the business is not as much of a relevant number, that we don't spend a lot of time looking at. We look at debt-by EBITDA for example its strength of balance sheet in this kind of business.

Sure.

That number is kind of in the----3.5 range. But, I don't have a number handy for you on equity because frankly it's a number we don't look at.

Martha, riding to the rescue. It's about $349m of equity.

OK, perfect. And you said the long-term debt was about 902?

902, yes.

OK, thanks guys.

Sure.

We'll take our next question from Yves Siegel.

All my questions have been answered, thank you.

Thank you, Eve.

And, there are no further questions at this time. I'll turn the conference back over to your host for any additional or closing remarks.

OK. Well, thank you all very much for tuning in to our earnings call. It's kind of you to have so much confidence in us, to ask such good questions of us, we intend to keep performing for you and executing on our business, and our job as we see it is to run the businesses well, to throw up numbers which are excellent numbers, and then have that reflected in shareholder value over time. Committed-we have the right group of managers, the right group of employees, to get us where we need to go and we'll overcome the challenges that we face as they come down the pipe. So, thanks for your interest, thanks for support, thanks for your confidence, and we look forward to talking to you sometime in November when we have our numbers for the year. So, talk to you all then, thanks.

That does conclude today's teleconference. Thank you for your participation and you may now disconnect.