UGI Corp (UGI) 2005 Q4 法說會逐字稿

Good day, and welcome, everyone to the UGI and AmeriGas partners fourth quarter earnings conference call and web cast. This call is being recorded. At this time for opening remarks and introductions I would like to turn the call over to Mr. Tony Mendicino, Senior Vice President and Chief Financial Officer. Mr. Mendicino please go ahead.

Thank you very much. I'm pinch hitting for Bob Krick who is in Europe visiting our international propane operations this week. As we begin let me remind your comments will contain certain forward-looking statements which we 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 report on Form 10-K for a fuller list of factors that could affect results; but among them are: Adverse weather conditions, price volatility and availability of all energy products, including natural gas, propane and fuel oil; increased customer conservation measures; political, economic, legislative and regulatory changes in the US and abroad; currency exchange rates and competition for the same and alternative energy sources.

UGI and AmeriGas undertake no obligation to release revisions to these forward-looking statements to reflect events or circumstances occurring after today. With me today are John Walsh, President and COO of UGI, Gene Bissell, President and CEO of AmeriGas, and your host, Chairman and CEO of UGI, Lon Greenberg. Lon?

Thank you, Tony. Let me also welcome everybody to our call. I trust you have all had the opportunity to review our press releases recording our fiscal year 2005 results. UGI reported earnings per share of $1.77 a share for fiscal year 2005. Adjusting for the effects of our refinancing charge associated with AmeriGas and the benefit of adjustments associated with non-income taxes at Antargaz, earnings per share really were at the $1.72 level.

AmeriGas reported EBITDA of $249.5 million, excluding the loss from its refinancing. Included in that number is about $9.1 million of gain from the sale of an inport terminal. If you exclude that gain from AmeriGas' results, you get about $240 million of EBITDA during fiscal year 2005. Obviously, we're very pleased with our earnings performance during fiscal year 2005. Operating income at all of our major business units improved over last year, other than at AmeriGas, which not only experienced the very high commodity cost environment, but also had warmer weather than the prior year. Given that environment, we believe AmeriGas did a very good job in producing the results that it did.

Once again, our excellent results produced above average total returns for our shareholders at UGI, even after considering the recent decline in our shares. At the same time, the total returns to AmeriGas unit holders have likewise been excellent during the year. We believe our disciplined focus on executing our business unit strategies while productively investing our excess cash flow has resulted in a tradition of success at UGI. We also believe that tradition will be a source of strength to us as we navigate our way through the challenges of fiscal year 2006. But before I begin to address our prospects for next year, I would like to turn the call over to John to comment on the results of our domestic businesses. Following John, Gene will comment further on AmeriGas' performance, and Tony will review not only international results but also our overall financial condition. So John, why don't you go ahead?

Thanks, Lon. UGI's domestic businesses delivered a solid performance in 2005, as we responded aggressively to the combined challenges of higher energy costs, customer conservation and warmer than normal weather. Our team identified opportunities to generate incremental margins through a range of innovative and timely sales and marketing programs, while reducing expenses in response to weaker market demand and ensuring that our cash management processes were optimized. These efforts enabled us to increase to increase operating profit contributions from our energy services and utilities businesses and to offset a significant portion of the negative impact of warm weather and conservation within AmeriGas.

Gene will provide you with more detail on the AmeriGas performance, but I'd like to briefly highlight a few points. We delivered solid growth in both our PPX and strategic account segments, where our national footprint and consistently high service levels position us as the supplier of choice. We delivered growth in our core residential customer base for the fourth consecutive year. This growing base of residential customers is critically important for our future. Our energy services business performed well in 2005 dynamic market environment. This business includes our regional gas and electric marketing activities, our electric generation assets and our energy peaking business. Our energy peaking business is a portfolio of assets used to provide supplemental energy, primarily LNG and propane air mixtures, to gas utilities at times of peak demand. Our operating income and energy services grew 20% in 2005 as we strengthened our position with major accounts and extended the scope of our services.

Unit margins and sales volumes increased in our gas marketing business, and we extended our asset management business through the acquisition of an propane import terminal in Virginia early in the fiscal year. We are pleased with the progress made in energy services and see this business as particularly well positioned for growth as the energy market evolves. Both the gas and electric utilities grew operating income in fiscal year 2005. Our gas utility through-put grew by 3%, due primarily to higher volumes with our interruptable service customers. Within our core retail customer segment, the positive impact of slightly colder weather than 2004 was offset by customer conservation in response to high natural gas prices. We continue to expand our gas utility customer base on the back of strong economic growth in our eastern Pennsylvania service territories. We added over 11,000 new residential and commercial customers over the past 12 months, which represents a 3% increase in our customer base.

The electric utility performed well in 2005, as we set new records for both winter and summer peak consumption. Our sales increased by almost 4%, with increased consumption within our existing customer base accounting for the majority of that growth. Our utility was also recognized by JD Power as the Number One Rated Gas Utility in the Northeast/Due West for the third year running. This award, based on customer surveys, recognizes the quality of service and support provided by the UGI team. We are the first utility to win this award 3 years in a row, and we are pleased that our customers appreciate the dedicated efforts of the UGI Utilities' team to serve their needs. This customer focus is especially critical in today's environment, as we communicate with our customers regarding programs to help them address the impact of high energy costs. We recognize that many of the challenges we faced in 2005 remain with us today.

Our focus on expense control, cash management and margin improvement, which were critical to our performance in 2005, will be equally important in the coming year. One of the key strengths of the businesses within UGI is our ability to perform well under a range of market conditions. Our business teams have prepared for the potential of another high-cost warm weather heating season, while also insuring that we can respond rapidly to increased demand that could result from colder weather and reduced energy costs. Finally, and most critically, we continue to improve our customer service levels in each of our businesses and our performance in our key safety measures continues to improve. This is good news for our shareholders, our customers and our people. I would now like to turn it over to Gene, who will provide you with more detail on AmeriGas' performance.

Thank you, John. As you have heard from Lon and John, we faced a number of challenges in fiscal year 2005: Warm weather, record high energy prices, customer conservation and natural disasters. Given the cards we were dealt, I'm pleased with the results we're announcing today and with the response of our employees in an unusual year. Volumes for the year were down about 2% compared to the prior year. While 2% warmer weather contributed to the shortfall, customer conservation due to record high propane prices was the primary reason for the lower volume. The impact of the warmer weather and customer conservation was offset to some degree by customer growth and acquisitions. The average wholesale cost of propane increased by 28% compared to the prior year, and it was 60% higher than the cost in the previous five-year period. The cost rose in lock-step with higher crude oil and higher natural gas prices.

In addition to causing customer conservation, higher energy prices pushed up our expenses. Expenses for the year were up 17 million or about 3%; but almost half the increased expenses was the result of higher vehicle fuel and bad debt expense resulting from higher energy prices. Vehicle lease expense was also up about $3.7 million. Excluding these items, expenses were up about 1%. We were able to partially offset inflationary expense increases by increasing the use of seasonal employees and by centralizing or automating a number of functions that have traditionally been performed at the district level. EBITDA for the quarter was down less than $700,000 from last year's level. Our volumes were actually up slightly compared to the prior year, despite much warmer weather. The effect of warmer weather was partially offset by customer growth and acquisitions. Operating expenses were up by about $6 million. Over half of this expense increase was due to the effect of higher energy prices on vehicle fuel and bad debt.

I would be remiss in talking about our results for last year if I didn't mention the impact of Katrina, Rita and Wilma. In total, we had 25 districts in Louisiana, Mississippi, Alabama, Texas and Florida that were affected by the hurricanes. We were fortunate that none of our employees were injured and that the property damage was minimal. We estimate that in total, the cost to AmeriGas of all of these hurricanes will be less than $1 million. We have thousands of customer installations in these areas, however, that will require some amount of repair work in order to restore service, and it will take us several more months to complete this work. In addition to our dedicated employees in these areas, we are fortunate to have a large number of employees in other parts of the country that have volunteered to help us restore service to these customers. Let me also mention the results for the year on our core strategies of growth through acquisitions, PPX, strategic accounts, and in our traditional customer base of residential, commercial and agricultural customers. We added 10 million gallons through foreign acquisitions last year. This is somewhat lower than our target of adding 20 million gallons per year through acquisitions, and the lower level is a reflection of a more competitive market.

Despite the fact that there are more buyers in the market, we are activity pursuing high quality independence, and expect to be able to add 20 million gallons through acquisitions in 2006, while maintaining our track record of delivering on pro forma results. We also completed about nine divestitures during the year that together account for 6 million gallons on an annualized basis. PPX volumes increased by 5% last year, a combination of higher same-store growth and the addition of new locations. This level of growth was also somewhat below our expectations. The good news here is that we have a healthy backlog of stores where we will begin installing PPX equipment before the drilling season begins again in May of 2006. So we're expecting stronger growth next year from PPX. Strategic accounts volume increased by 11% last year compared to 7% in the previous year.

The growth in strategic accounts was the result both of existing customers awarding us more locations and the addition some of some new customers. The growth of strategic accounts is being fueled by companies with the national or regional footprints that recognize they can reduce their cost of purchasing and experience consistently high quality service by consolidating vendors. For these customers, our industry-leading geographic coverage gives us a significant competitive advantage. We were also pleased with the growth we achieved in our traditional customer base of residential, commercial and agricultural customers. This is the toughest malagram for growth, because we complete -- we compete with thousands of independent propane companies in addition to the majors. Last year, despite the record increase in propane selling prices, our growth in our traditional customer base was in a par with the solid growth that we achieved in the previous year. This is the fourth year of positive growth in this segment, and we have taken steps to continue our track record of growth by improving customer service and the effectiveness of our sales force.

Finally, we were especially pleased in May to be able to announce an increase in the distribution. I am sure our unit holders are anxious to have us increase their distribution every year. With that in mind, I hope that they will be encouraged by the fact for the last 2 fiscal years, despite warmer than normal weather, customer conservation and record high energy prices, we achieved relatively strong distribution coverage. Our coverage in 2004 was 1.3 times, and our coverage in 2005 was 1.2 times. Looking forward, our biggest concern for 2006 is that high energy prices will result in additional customer conservation and higher expenses. Propane prices are up 17% from last year at this time. These higher propane prices are bound to have an impact on our volumes this winter. Customers only have to turn down their thermostat by one degree to reduce their consumption by 5%. We can also expect higher vehicle fuel expense, higher bad debt and higher utilities bills.

We'll be closely monitoring the effect of higher energy prices on our business this year, and taking appropriate action to mitigate the impact of lower volumes or higher expenses. I would like to finish today by thanking our employees for their contribution to success in 2005. Our front line employees tend to bear the brunt of customer frustration with high energy prices. They also responded to our call this year to cut back on expenses in reaction to lower than expected volumes while continuing to grow our customer base. The dedication and the commitment of our employees continues to be a significant competitive advantage for AmeriGas. With that, let me turn it back to Tony.

Thank you, Gene. I would like to speak briefly today to four items. First, our consolidated results; second, since Lon and Gene covered domestic operations, I'll talk about our international propane operations. Next, our balance sheet; and finally, our liquidity. As Lon said, fiscal 2005 was an another excellent year for UGI. Reported earnings per share were $1.77. There were two one-time items that are included in this number that should be removed to get a full picture of our results. Antargaz recognized a $0.14 per share benefit in its non-income tax accruals that should be netted against the $0.09 per share loss for an extinguishment of debt at AmeriGas. The net of these two items is a nickel, which when removed from our reported EPS results in an adjusted EPS of $1.72. Adjusted $1.72 level earnings are up $0.57 per share, or 50% compared to last year.

Adjusted for splits, we think this is a record EPS performance for the Company. Net income after adjustments was $183 million, an increase of nearly $71 million or more than 60% compared to fiscal 2004. The increase in net income was driven by international propane, whose net income contribution increased $86 million to $99.4 million or $0.94 per share. The big earnings contributor in international propane Antargaz, our French LPG distribution company. Net income at Antargaz was $98.3 million compared to $11.8 million last year. The two years are really not very comparable at the net income level because we owned 100% of Antargaz for the entire fiscal year this year, and we were only at 19.5% equity investing in Antargaz during the winter heating season in fiscal 2004, when all of the serious money was earned.

Adjusting Antargaz downward for the $14 million one-time item related to non-income tax accruals results in 2005 net income for Antargaz of $84.1 million, an incredible performance. Antargaz volumes this year was 656,000 tons compared to 652,000 tons last year, a modest increase of about 0.6%. Weather in fiscal 2005 was 4% warmer than normal, and about the same as last year. As we have mentioned throughout the year, unit margins in fiscal 2005 were significantly above historic norms and are, in our view, not sustainable at current levels over the long term. In addition to the benefit of high unit margins in fiscal 2005, Antargaz's earnings enjoyed a very favorable dollar/euro conversion rate, the result of a weak dollar when the bulk of its earnings were translated from euros to dollars during the fiscal 2005 heating season. We believe that the aggregate benefit, which we do not expect to continue going forward, from both high-unit margins and the favorable translation rates, added about $26 million to Antargaz's net income in fiscal 2005.

Moving to our balance sheet, UGI had consolidated debt of about $1.7 billion at year end, essentially flat to last year. At September 30, UGI had about $150 million of cash to invest in growth opportunities. At year end, AmeriGas had $913 million in debt, up a little compared to the $902 million it had last year. Other than letters of credit that reduced borrowing capacity, AmeriGas had no outstanding balances on its revolver and more than $90 million of cash on September 30. We have talked a lot about -- on this call about high commodity prices and their impact on customer conservation. These high prices also have an impact on our liquidity, as working capital increases to support higher levels of accounts receivable and inventory. Liquidity is excellent throughout all of our operating subsidiaries, and we are prepared as energy prices increase even further. In utilities, we increased our short-term borrowing capacity by $70 million.

In energy services, we expanded our borrowing limit based on accounts receivable to $300 million from $150 million. As I just mentioned, AmeriGas at year end had more than $90 million in cash and over $110 million of its revolver capacity available. Finally, at Antargaz, we have about 80 million euros of cash and 50 million euros of unused revolver capacity -- again, our liquidity throughout the Company is in great shape. Lon, back to you for closing comments.

Thanks, Tony. I would like to leave everyone with the following thoughts as we end our presentation. Given our fiscal year 2005 results, our 2006 guidance of $1.55 to $1.60 might appear conservative or disconcerting to some of you. Let me remind you, as Tony just did, that earnings from Antargaz were unusually high during fiscal 2005 due to exceptional unit margins and a weak dollar. Margins at Antargaz have returned to more normal levels overall, and the dollar has certainly strengthened. As Tony noted, the unusually good conditions during fiscal year 2005 contributed about $0.25 a share. I want to emphasize that this does not mean Antargaz's performance will be poor. Frankly, on the contrary, we expect earnings at Antargaz to nicely exceed the level we assumed when we acquired 100% of Antargaz.

Said differently, earnings at Antargaz will be quite good, but not exceptional; and they will be more reflective of conditions in the French market, which are changing and becoming more competitive. Let me now turn to our other business units. We anticipate improved performance in all of our other business units, including utilities and AmeriGas. These improvements will come despite the challenging environment which exists for all energy distributors. As you all know, the high energy commodity cost environment will result in both customer conservation, as well as increases in certain expenses. We have taken actions to mitigate the effects of these things on our results, and we will continue to monitor developments carefully as the year progresses. At the same time we're keeping a watchful eye on these developments, we remain financially strong, with healthy levels of cash and excess cash flow generation.

We continue to seek opportunities to put that cash to productive uses; growth opportunities, as always will be consistent with our overall vision and long-standing strategies. You should expect us to seek out both domestic and international growth opportunities and to remain disciplined. In summary, my expectations are that Antargaz will perform well during fiscal year 2006, although financial results will be below the exceptional results of last year. All other business units are expected to perform at levels in excess of fiscal year 2005.

And we continue to look for opportunities to invest profitably our cash balances, and we anticipate adding significantly to our cash balances during fiscal year 2006. All of that points to a very strong year for us during fiscal year 2006. Put that together with our announced target of increasing our dividend by 4%, and you can see why we're quite optimistic about the future for UGI. And incidently, we're similarly optimistic about the prospect for AmeriGas' performance during fiscal year 2006. Last year, AmeriGas raised its distribution for the first time; and as we said at that time, we were mindful of the long-term implications of that action when we took it. Let me conclude by stating that we remain unwavering in our commitment to deliver above average long term shareholder value through our growth in income orientation, and we continue to look forward to reporting on our progress as fiscal year 2006 progresses. At this point, Dixie, I think we'll take some questions from our listeners.

[OPERATOR INSTRUCTIONS]. We'll go first to Yves Siegel with Wachovia Securities. Please go ahead.

Thanks, good afternoon.

Hi, Yves.

Hey, Lon. I just have a couple of questions, or clarifications. One is the 150 million of cash at the -- at year end, does that include the 80 million euros at Antargaz?

No.

Okay, then that begs the second question. What's the likelihood or probability that you can repatriate that amount of money from Antargaz?

I -- I would almost bet my life on it, but very high. We're very confident we'll get that money. And likely we'll get it sometime in early '06.

Calendar '06.

Calendar. Early -- yes, early calendar '06.

Any -- any thoughts of that money would go to?

Legal thoughts? Yes, no -- we'll -- we're obviously going to add it to our cash balances; and incidently that -- we expect to also produce more cash flow than that as the year progresses, as we always do. We're -- as I said, Yves, we continue to look for opportunities to grow both domestically and internationally. We're mindful of not sitting with large cash balances for long periods of time if we don't have prospects for redeploying that cash. And as I have said many times, we view redeploying the cash as a far better thing for our shareholders long term than buying back stock. That's not to say we don't have authorization and it's not to say we don't look at it, and that's not to say we wouldn't do it. But it is to say that from a priority standpoint, our priority is to invest the money profitably for our shareholders, as we have done over the last seven years. And with the Board, people watch and rely on the amount and make sure it doesn't become so excessive that we should be buying stock back with it.

Is it -- in terms of the the guidance for '06, how much are you assuming is added by the redeployment of cash? It is about a nickel or so?

I would tell you that there is no additional -- we're not assuming -- because we can't control that -- that the cash would be redeployed. We have it at basically bank rates of interest, which are not very healthy, as you might imagine.

Okay, great. If I could, just two other questions, one is, Tony, is it possible to break out the $25 or $26 million of -- of -- I don't know what -- earnings from -- from international propane that relates to the unusual margin versus currency?

I would say it's roughly 60% is the margin and 40% is translation.

And what should we -- going -- in terms of the the forecast for '06, what should we be thinking about in terms of the euro/dollar, relationship?

We -- we have done our budget in these forecasts based on around $1.20 for the euro. It's -- the dollar has actually strengthened a little bit from there. But it's about $1.20.

Okay. And my last question is, as it relates to AmeriGas, can you tell us what the bad debt experience has been in '05, and how does that relate to as a percentage of -- of revenue?

Yes, it was -- Gene or Jerry, correct me -- it was about $10 to $11 million bucks total. $11.5 million dollars in [AUDIO CUT OUT].

I didn't do anything -- Dixie?

Yes, they just hung up. Let me get them back on the phone. Give us just one moment.

I lost them as well .

Mr. Krick, did you have a phone number we can dial back out to them?

Yes, you can dial them at 610 -- 610-337-1000, extension 3202 -- that will be Brenda Blake, and she'll be able to take you in there.

Okay. Thank you .

Bob?

Yes.

No more questions for me -- it's Siegel.

Is that it?

Yes. I guess you are the only one -- you and I are the only two talking. I guess everybody else got cut out.

Yes.

Mr. Krick, we are trying to dial out to them and it just rings and rings.

Try extension 3365. It's 337-1000, and then you'll get an announcement and it should be 3365.

When we dial the main number, the 610-337-1000, it just rings and no announcement.

Nothing's happening? Maybe they had a -- they may have had a power fail. Try 337-7000.

All right, give us just one moment.

Okay.

Who is their utility provider?

They need to use a different one, huh? Wow. I guess we're on here alone. They might have a power -- power issue.

Well, I might be on just because I was open to ask questions. It may well be that you have other people on the call --

They could be listening. And I'm sorry for the delay if anybody is listening out there. This is Bob Krick. We seem to have had a failure in the line somewhere. They are trying to call back into the conference room in which they are located.

All right, we do have the speakers joining us right as we speak.

Dixie?

Thank you.

Yes.

We lost electricity in the building, so I'm on a cell phone.

Okay. Your lines are back open.

Okay.

I'm here with you, Lon.

Hi, Bob.

And we'll take our next question from Jay [Ginello] from [Kelly] Capital.

I'm going to stop laughing about the electricity.

I think it was sent by some shareholder who doubted our prognostication.

Yes, they didn't like the performance today and they got mad.

Exactly.

Not to split hairs so early in the quarter, but we haven't had some great weather. And I see guidance for '06 is based on normal weather, and I also see that the weather outlook is improving. How should we view that guidance with the to-date weather we have had? Is there any way you can kind of count it?

Yes, I would tell you that we considered results as close as we can tell today in giving the guidance. You know, we assume that we can -- we can recover from those kinds of things. It's early in the season, it's only -- it's early in the year, and so we can recover from that. And you know what? You guys might want to call in and I'll talk here. So Jay, I will tell you that we have always said that we can handle modest weather shortfall, so we're not terribly worried about the weather to date. If we have this kind of weather into December and January, I'll be worried about it.

Okay, just a follow-up. Lon, in New York, in the press release and again on the call today, you are reiterating your desire to reinvest in the business, and I might be wrong, but it seems like you are repeating that more strongly. Is there something that you are working on, or are there a bunch of things you are working on that you could -- without going into detail -- just say, hey, we're working a couple of things, we're getting close to a couple of things? Is there any kind of flavor you can put on that? Or are you just -- is this the normal, you know, statements you are making?

Yes, I would tell you that we don't comment on any specific transaction -- you know, that's our policy. But I will tell you the pipeline is robust with opportunities, and that we will continue to pursue -- I'm sorry -- I don't think you ought to read too much into that, Jay. It's our long-standing view that we're better off investing the money, but that having been said, I would tell you that there's no shortage of opportunities that we're examining, and the issue for financially disciplined folks like us and -- is price.

Okay. And just not to -- is it more robust than over the past few years?

I guess I would tell you that it's certainly more robust than it has been over the last year.

Okay.

But there have been lots of -- lots of times when it has been more robust and less robust, so it's kind of a little bit better than average.

All right. Fair enough, thank you.

Okay.

And we'll take our next question from Paul Patterson from Glenrock Associates. Please go ahead.

Hi, can you hear me?

Oh, yes. We're back up.

Oh, great. Listen. I wanted to get some -- I wanted to clarify a previous question on cash deployment. Did I understand that your -- your 2006 guidance only has a cash balance earning a debt return? Is that correct?

Money market return, that's correct.

Okay. Money market return. And how much is that balance again? The total balance redeployed --

As of September 30, it was $150 million, and it will grow, say midyear to closer to $300 million, I think. Is that right or is that too much? Over the fiscal year it will grow to $300 million.

Okay. Looking at -- you know, going back to the presentation that you guys had in New York, you guys had indicated that you were kind of expecting some -- someplace in the neighborhood of $0.05 to $0.11. So I guess there really -- I mean, could you just sort of reconcile the --

Oh, sure.

-- that amount compared to the fact that it looks a lot less now.

Yes. We always -- when we do a reinvestment of the money, and we don't have something that we effectively feel confident can be done and that is announced, we typically budget, redeploying the money only in a money market return, because we can't control the alternatives, and nor do we want to put pressure on ourselves to do something that's not in the interest of shareholders. When we make our presentations out there, generally what we say is we expect on average over time to be able to achieve a return of that $0.05 to $0.11 from reinvesting cash; and incidentally, that's not reinvesting all of the cash, as the example we give in that presentation is if we seek returns on equity [SPEAKERS OVERLAPPING] -- exactly. We reinvest our cash flow from one year and get adequate returns on equity for first year of an acquisition on even 8% ROE, which would be very low for us, you get, you know, $0.06 -- or $0.07 in earnings from just doing that small amount of money. And so obviously Antargaz is a good example. I mean, we had earnings per share improvement from Antargaz which we anticipated on the order of $0.25 a share by reinvesting $100 million and issuing stock on it. So it varies given the size of the deal, but given our IRR orientation and our normal returns, we try to illustrate what on average would be achieved by investing some of that money.

Okay, so could one say -- I'm sorry, can you hear me?

Yes.

Could one say that as a result, if we were to take the more normalized approach that you guys presented as opposed to what -- I guess you could say the guidance was very conservative then if you guys are simply assuming that your cash balance equals the money market rate of return in your guidance, right? I mean -- and you could easily do better than that it sounds like. Am I missing something?

I will tell you it would be hard to do worse with that, absent interest rates going down, assuming the other portions of the business hold up as well as they do.

Sure.

But it is a conservative cash number; and again, the reason for that is, we don't want to mislead investors unless -- on where our prospects are for reinvesting that cash. The most prudent thing we can do is do something we know we can achieve and that doesn't slow us down on our efforts to redeploy that cash, but it also doesn't put pressure on us to do something that's not in the interest of shareholders.

Okay. Now, you also said that you expected to have an improvement in all of our other businesses, minus Antargaz and the unusual items there. Now, when we're looking at the impact of higher energy prices and conservation and what have you, and we talked about this when the meeting came in -- when you came in for the meeting.

Uh-huh.

What -- now that you can talk about 2006 guidance, is there any negative impact associated with higher prices, or do you guys feel that you guys can completely offset that? Or in other words, if you weren't to have the high prices, would your growth rate in fact be higher?

I would tell you that we chose the word mitigate on purpose, that we can't offset all of that by the steps we are taking in our business units. And incidently, the management teams there are doing an excellent job in trying to offset all of this; but as a practical matter, the marginal contribution to earnings from additional volume that you have typically higher than you get on average because the incremental operating expenses are not as great. So I would tell you absent the conservation that we anticipate, as well as the increase in expense we anticipate due to hire commodity costs, our earnings would have been somewhat higher than they are today, obviously.

Okay. And can you give us a weather impact for 2005?

I -- you know what, we haven't calculated it. I wouldn't want to speculate on it. I would tell you that certainly the propane business was adversely affected by the weather, and if you look at the -- the way the weather hit other businesses, utilities were pretty close to normal -- modestly warmer than normal, but effectively normal. It was really in propane that the shortfall came. And we came out with guidance of $2.55 to $2.60 when we started last year, and we ended up with an equivalent of $2.49. So, you know, there are certainly 10 -- $10 million nominally EBITDA that didn't appear, and whether it's all attainable to weather or other factors offset by other things I can't articulate for you; but given the guidance we gave, that's an easy way to articulate it for you.

Okay, great. Thanks a lot.

And once again, ladies and gentlemen, if you would like to ask a question, please press star 1. And we'll go next to Hunter Morgan with Amaranth Advisors. Please go ahead.

Hi, it's actually Jim McFadden. Lon, how are you?

Good, Jim, how about yourself?

Okay. Two -- I had two questions. First, you know, probably the [INAUDIBLE] structure works there, and if your stock does real well versus your peers you allocate that to the management team. How much -- how much was that boost in -- in '05, and then how much is reflected -- how much of an incentive payment which, you know -- I hope you get paid it, but how much -- which would mean the stock has a nice run from here. But how much of that service is victim to -- of expenses is baked into your '06 guidance?

You know, I'm not quite positive of that Jim. I can tell you it -- it's obviously in the millions of dollars range. The -- you are correct that we are somewhat unusual among other companies, because we have a performance contingency on our long-term compensation that pays us if our shareholders do well and doesn't pay us if your shareholders don't do well, so -- on the other hand, we don't try to measure that on a daily basis when the stock price is off a little bit because of, perhaps, misunderstandings about where we are going to end up and how we are doing things. So it -- it's -- clearly in the millions of dollars, there's no question about it, and it's hard --

That's for '06, you mean?

For '06, yes.

What was it for '05?

'05 it's still yet to be determined, oh no-- '05 it was done. I would be afraid to venture a number. It was certainly in excess of that because we had one plan that had several years, but the problem with calculating the number, Jim, is that we do accruals for that each year. And I couldn't tell you what the incremental accrual for the prior year was, because under the accounting rules, we have to approve for it as we go along, and I don't know how much hit '05 compared to the end of '04 without studying it -- but again, it's clearly in the millions of dollars. It was clearly in the millions of dollars.

All right. Second is, I think you have a little over 100 million megawatts of [Tanamal] right?

Yes.

And there was a transaction announced last night at a -- you know, $1,600 a kilowatt price. Just -- is there any kind of thoughts of taking advantage of that marketplace?

Well, yes -- no. We were -- astounded might be the tightest world we could use for it -- at the price level for Tanamal. But as you might recall, one, obviously the entity that did that amount viewed the economics of the future power markets as justifying an adequate return for them, and being an owner of that incidentally $600 of megawatt, and the fact that we paid -- I think we paid $650 for it several years ago. We are reaping the benefit of that in our earnings as we go forward, and we would have -- we just got the information that you did, and we obviously will evaluate the -- continuing to hold that versus not holding it. But I can tell you, we didn't buy it as a financial investment, we bought it as a strategic investment. It does tie to a number of our strategic initiatives, and our electric utility business as well. So we would have to take those strategic factors into account as we evaluate what we should do with Tanamal.

All right. Just to make sure, the $300 million in cash that you'll have which is investible, is the 150 plus the repatriation of the $80 million in euros, plus the free cash you generate yourselves, is that -- that's what it --?

That's a shorthand way of doing it, yes.

And that will be present by, like, mid-calendar '06?

Most of it will be present by the calendar '06, because we'll be able to get access to the Antargaz money; but obviously, some of it gets generated later in the year as our subsidiaries pay us dividends on the earnings. But most of it is there by -- you know, early '06.

Okay. One thing you have mentioned some -- how big could this pot of money grow before you feel you have to do something with it?

Again, we don't have a hard and fast rule. I feel like Alan Greenspan versus Bernie Key is little bit [INAUDIBLE]. It depends on the pipeline and our prospects for reinvesting. We are very cognizant that we are paid by our shareholders to create longterm shareholder value, and we -- we are not the type of folks who are going to sit on substantial sums of money without prospects of reinvesting it over a reasonable period of time. The easiest thing I could do is I take that money, buy back stock, tell you my earnings are going to be wonderful, and fool some things into thinking that's a wonderful thing for this company to do. That's not what you pay this management team for; that's not what you've paid us for for the last seven years. We have bought back stock over that period of time, as you know, and we're not afraid to buy back stock by any means; but it's a constant balancing of priorities, and it's a constant balancing of doing the right thing for the long term for our shareholders, and that's what our Board strives to do as we evaluate it with them.

What's the hurdle rate versus on your shares buy? It has to be -- you know, 60% better, or what's the hurdle rate?

Well, I think we would -- we would look at whether we would redeploy the money. And generally what we have done in looking at these is redeploying the money at assumed rates of return versus buying back stock at an actual price or an assumed price, and you compare that out over a year, 2 years, 3 years, 4 years, 5 years, and you look at the differential at the beginning versus the differential at the end of that period of time and try to get a measure for, are you creating real shareholder value by investing the money or buying back stock? So it's not an actual differential that I can articulate, but that's the process we go through.

Okay. Thanks for your time.

Sure.

And our next question comes from Ron Londe with AG Edwards. Please go ahead.

How many units of AmeriGas were outstanding at the end of the year?

57 million.

57 million?

Yes.

Back of the envelope, when you look at your forecast, I assume you have about 20 million maintenance Cap Ex.

Yes, 22, 23.

19, I think, this year and a little higher next year.

Yes, 20 million is a good year.

You get to a distributable cash flow of $160, $165 million; and at 57.1 units outstanding, 224 distribution, that's 128 million in distributions. You've got a lot of room to raise the distribution if you desire to do that, because each nickel you would be about $3 million.

Yes.

Can you give us a feel for what your policy is going to be going forward?

That -- that math obviously is not lost on us, Ron. We have -- as you know last year, we satisfied ourselves that we could produce the levels of EBITDA that we felt important and to sustain an ability to increase our distribution over time. The offsetting balance that we have talked about and we continue to talk about is improving our balance sheet; and if you look at the last three, four, or five years of AmeriGas, we've spent a lot of time lowering our debt ratios, improving our interest coverage, and we've accomplished both goals. We haven't had the opportunity yet to sit down with the AmeriGas Board of Directors and review from a formulaic standpoint whether we ought to come out with a policy like UGI has, for example, of announcing a -- people expect a 4% increase at UGI.

We will be reviewing that with the AmeriGas Board probably in the beginning part of calendar year 2006 to get their sense for whether it's appropriate given our prospects and the math that you point out that we ought to come out with some kind of policy statement on our dividend. But at the current time, there is no Board approved policy statement. So it would be inappropriate for me to comment, other than I did say we were mindful and the Board was mindful of the long-term implications when we raised our distribution by the 2% last time we did that.

Okay. Where do you stand from the standpoint of being comfortable with the balance sheet? What kind of, you know, near term debt do you have coming due, you know, in fiscal '06?

I'll tell you we're in a wonderful position on that, Ron. We are. I think the issue that we wrestle with is an ever changing landscape at some of the rating agencies on what it takes to improve our credit standing. And while we don't let that dictate to us what we think is appropriate for our shareholders and for the Company, we of course have to understand where rating agencies are, because it does affect our ability to not only raise capital but also to get credit from suppliers, et cetera. So it's important for us to maintain a strong balance sheet, the nature of our management to -- to do that; but we are pleased with the progress we have shown, and if you look at our EBITDA -- and divide it into our debt or our interest coverage, I think you'll find us among the strongest now of all of the propane companies that are out there, and setting the bar and the standard for them in that regard.

Do you think the rating agencies take into consideration that the GP going to have $300 million in cash on the balance sheet?

I can't speak for the rating agencies, and when I do I get myself in trouble. So I won't take this opportunity to put my foot in my mouth, so I'll just leave it at that.

Okay. Thank you.

Uh-huh.

And it appears we have no further questions at this time.

Okay. I want to thank all of your for participating in our call. I hope you had the opportunity to listen to our comments and the optimism we have for our performance for the ensuing year; and not only the ensuing year, but for the future of both UGI and AmeriGas over time. We are committed to improving long-term shareholder value at above-average rates, and we're confident that as we have delivered that in the past, we will continue to deliver that in the future. So thanks for your attention, and we look forward to reporting on our earnings in January for you. So long.

And that does conclude today's conference. You may now disconnect.