UGI Corp (UGI) 2008 Q4 法說會逐字稿

Good day, and welcome, everyone, to the UGI and AmeriGas Partners fourth quarter fiscal year 2008 earnings results conference call and webcast. This call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to Mr. Bob Krick. Please go ahead.

Thank you, Justin. Good afternoon, and thank you for joining us today. As we begin, let me remind you that our comments will contain certain forward-looking statements which the management of UGI and AmeriGas believe to be reasonable as of today's date only. Actual results may differ significantly because of risks and uncertainties that are difficult to predict and many of which are beyond managements' 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: Adverse weather condition; 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 from 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.

In addition, our remarks today will reference certain non-GAAP financial measures for fiscal 2007 that management believes provide useful information to investors to more efficiently evaluate the year-over-year results of the operations of the Company in fiscal 2008. These non-GAAP financial measures -- net income, net income per diluted share, net income per diluted partnership unit and EBITDA, all excluding the sale of a storage terminal by AmeriGas in 2007 -- are not comparable to measures used by other companies and should be considered in conjunction with reported net income, net income per diluted share, net income per diluted partnership unit, EBITDA, and other performance measures, such as cash flows from activities.

With me today are John Walsh, President and COO of UGI; Gene Bissell, President and CEO of AmeriGas; and Peter can Kelly, CFO of UGI; and of course your host, Chairman, and CEO of UGI, Lon Greenberg. Lon?

Thanks, Bo. Hello, everyone, and welcome to our year-end call. I trust you've all had the opportunity to review our press releases reporting our 2008 fiscal year results. UGI reported earnings per share of $1.99 compared to $1.89 last year. Included in last year's earnings was a $0.12 gain from the sale of a terminal by AmeriGas. After eliminating that $0.12 gain the comparison would be $1.99 compared to $1.77, or about a 12% gain in earnings per share. Similarly, AmeriGas reported a good year ,as well. AmeriGas reported net income per unit of $2.70 compared to $3.15 last year. Like with the case of UGI, last year's results for AmeriGas included the gain from a sale of a terminal and eliminating that gain results in net income per unit of 2007 of $2.51, so the applicable comparison would be $2.70 to $2.51. EBITDA rose to $313 million from approximately $293 million last year after eliminating the asset sale gain.

Looking at our earnings performance for the year, what I would point out to you is that we achieved our earnings growth and paid the dividend and distribution growth that we told you we would, despite encountering a very challenging environment. During fiscal year 2008, I don't have to remind you that we experienced a rapid escalation in commodity prices to record levels, we experienced warmer-than-normal weather, and of course, weakening worldwide economies. It's obvious that none of these circumstances is a good thing for our business. Yet, through adherence to long-standing, carefully thought out strategic plans and our unrelenting focus on execution, we were able to deliver on our commitments.

As all of you know, we have a diversified group of energy marketing and distribution businesses, and we adhere to rigorous, fundamentally-sound financial policies. We are not a significant producer of energy commodities and thus do not have the opportunity to benefit from the rising tide of significant increases in commodity costs. Rather, we have to earn our money every day, as we have millions of relatively-small transactions on a regular basis with our customers. We have said for many years we're a sound growth and income vehicle for investors, and we believe our performance last year once again demonstrates that fact.

Before I make any further comment, I'm going to turn the call over to Peter Kelly to review our financial performance in more detail. Peter will then turn the call over to John Walsh, who will give you some flavor for the progress we made operationally last year. Gene Bissell will further amplify that with regard to AmeriGas, and then it'll circle l back to me for some concluding remarks.

So Peter, why don't you fill them in?

Thank, Lon. As Lon commented in his remarks, 2008 was an extremely challenging year. Record commodity prices drove conservation, the weather didn't cooperate, and we had a weaker economy. Despite this we once again delivered on our commitment to deliver both growth in earnings and to increase our dividend. We continued to generate cash and at the end of the year closed on a significant acquisition, giving us additional natural gas and propane assets that will accretive in 2009.

So against the backdrop I'd like to cover four items; first, our consolidated results for 2008, second our major businesses, third our balance sheet, and finally, our liquidity. Our EPS was $1.99, up 5% from $1.89 reported in 2007, though I'm sure you'll all remember our 2007 numbers included a $0.12 gain on the sale of our Bumstead storage facility. Excluding the Bumstead gain from 2007 the $1.99 reported for 2008 compares to $1.77 in 2007, an improvement of over 12% year on year. In addition, for the 21st year in a row we increased our dividend and now have the enviable record of delivering a dividend 124 years in a row. The $0.22 improvement over the 2007 adjusted number was largely a result of improved performance in our Energy Services operations, which benefits from greater income from peaking supply and storage management services, as well as higher electric generation margins, and our International operations where weather, although warmer-than-normal, was colder than the record-setting warm temperatures of 2007.

Turning now to our business segment result, AmeriGas' net income contributions for 2008, 2007, were $43.9 million and $53.2 million. As previously mentioned, the 2007 results included a gain of $12.5 million from the sale of the Bumstead storage facility. Retail volumes were down 1.3%, reflecting, to a large part, the impacted significantly-higher propane costs. The average wholesale propane costs at Mt. Belvieu, Texas increased nearly 50% during fiscal 2008. Weather, although 3.4% warmer-than-normal in 2008, was colder than the 6.5% warmer-than-normal reported in 2007. AmeriGas EBITDA was $313 million versus $338.7 million in 2007. 2007 included the Bumstead gain of $46 million at the EBITDA level, so 2008 once again represents outstanding performance from the AmeriGas team, and Gene will have more comments on their performance in his remarks.

Net income for International Propane was $52.3 million versus the $44.9 million reported in 2007. The tremendous run up in propane prices clearly impacted our business. However, with weather only 4.1% warmer-than-normal in France versus the 21.1% warmer-than-normal in 2007, we saw volumes grow in our French business by 8.7% from 269 million gallons in 2007 to nearly 293 million gallons in 2008. In our domestic utility business we turned in a solid performance in both natural gas and e electricity. Natural gas net income rose in 2008 to $60.3 million from the $59 million reported in 2007, and in our electric utility, net income declined slightly from $13.7 million to $13.1 million. In our Natural Gas Utility, temperatures in 2008 were 5.5% warmer-than-normal compared to the 4.7% warmer-than-normal reported in 2007. Total distribution throughput in 2008 increased 1.9 Bcf to 133.7 Bcf, principally reflecting greater interruptable delivery service volumes and an increase in the number of Gas Utility core market customers, partially offset by lower average usage per customer.

In our electric utility system, throughput was essentially flat versus 2007, but margins were down slightly year on year, reflecting higher per unit purchased power costs and higher revenue-related taxes. In Energy Services our net income increased to $45.3 million in 2008 from $34.5 million in 2007. This improvement in profitability was primarily driven by the expansion of our peaking supply services, higher peaking rates chargee and higher electric generation margin, resulting in large part from higher spot market and fixed contract prices. Consolidated interest expense increased to $142.5 million in 2008 from $139.6 million in 2007, principally due to higher interest expense associated with greater partnerships, short-term borrowings to fund increases and working capital, mainly resulting from higher commodity prices for propane. Our effective tax rate was comparable to our rate in fiscal 2007.

Now moving to our balance sheet, our consolidated debt at approximately $2.2 billion is similar to last-year's level, and our consolidated cash position was $245 million compared to $252 million at the end of 2007. Included in the $245 million at the end of 2008 and after contributing $120 million to UGI Utilities on September 25th, we had about $97 million of cash available at our holding company to reimburse for growth. We will typically expect to generate about $90 million to $100 million of such investment cash per year. Of the $2.2 billion of debt at the end of 2008, approximately $2.1 billion is long-term debt. And by business: AmeriGas had $933 million of debt, similar to the level in 2007; Utilities had $532 million, up $20 million on the $512 million reported at the end of 2007; and the International business was approximately $590 million, down from the $605 million reported at the end of 2007. I'm pleased to say we have no significant refinancing requirements before spring of 2011.

From a property, plant and equipment perspective, we have nearly $4 billion in gross assets and $2.5 billion in net assets, up from $2.4 billion in 2007. Capital expenditures were approximately $234 million, with depreciation and amortization of $184 million. As we discussed in our recent investor meeting in New York, we are expecting our capital expenditures on internal projects to increase and are currently estimating that our expenditures in 2009 will be just over $325 million, of which approximately $175 million will be for the growth projects.

Turning to liquidity, clearly, the last few months have seen unprecedented volatility and uncertainty in the capital markets, but our traditionally conservative business approach, including minimizing exposure to individual counterparties, hedging to reduce risks as opposed to generating trading profits, and having available substantial lines of credit have stood us in great stead. We believe we have adequate liquidity to fund our requirements throughout all of our operating subsidiaries as we go into 2009. In Utilities we have lines of credit in place of $350 million, we have $200 million of borrowing capacity in Energy Services, and a $200 million line in AmeriGas. And at our French operation, Antargaz, we have a facility of EUR50 million. At the end of September, AmeriGas had used $43 million of its revolver, and had a cash balance of nearly $11 million, Utility used $57 million of its revolver with cash available of $3 million, Antargaz pulled down $50 million -- EUR50 million on its revolver, and have EUR69.3 million of cash, and Energy Services had an outstanding balance of approximately $71 million with cash available of $24 million.

So in summary, a strong year despite the run up in commodity prices, a winter that was warmer-than-normal and the effects of the economic downturn. All of our businesses continue to do and once again, the strength of our diversified business model, along with our conservative business practices, have allowed us to deliver both growth and income. We continue to generate cash and find excellent opportunities, both internally and through acquisitions, to put this cash to work.

So with that, let me pass the call over to John to discuss our operational performance.

Thanks, Peter. Peter's taken you through the financial highlights of the fiscal year, I'd like to focus on our operational performance with specific emphasis on progress on three long-term strategic objectives; growing our core core business, continuously improving operations and reinvesting cash in high-quality project. First, growing our core business. Our teams were tested this year with a combination of a decelerating economy, a sluggish housing market and high commodity prices. When faced with these conditions it's critical that we focus on identifying and developing customer segments with growth potential. We maintained our focus on growth in FY '08 and delivered solid results.

I'd like to highlight a few specific achievements. Our Gas Utility team did an outstanding job of moving quickly to take advantage of a significant opportunity to convert fuel oil and electric customers to natural gas. Conversions for the full year were up almost 90%. This strong performance more than offset the continued slowing in our new home segment, where customer additions fell by 20%. We added over 12,000 new residential and commercial accounts in FY '08, with total customer additions exceeding prior year by approximately 8%.

Antargaz's program for development of the cylinder segment through a combination of innovative product offerings and a strong operations network continues to deliver excellent results. The Calypso-branded composite cylinder is a market-leading product. We added over 225,000 new Calypso customers in the last fiscal year, and our last call I referenced Antargaz's agreements with Carrefour, a leading French retailer, to introduce a new private-branded cylinder. This product was launched in June and the results for the first few months have been outstanding. We've added well 100,000 new customers for the private-label product and we're still in the process of rolling out the product across the Carrefour network.

AmeriGas and Antargaz are both focused on developing opportunities for pipe networks. These installations serve a group of customers from a common storage tank. Individual customer usage is metered and billed monthly. This is an efficient way of serving more-remote customer clusters, such as the small or mid-size villages in France or resort communities in rural areas of the US. We typically contract with the township of the community, with contracts normally running in excess of ten years. We expect to be a leader in this segment due to the broad geographic reach of our businesses in France and the US and our knowledge of pipe gas systems and networks.

On to continuously improving operations. At EGI we benchmark our operations on a broad range of activities to assess progress on continuous improvement initiatives. I'd like to focus today on our progress on safety. We have a strong track record at UGI on safety performance, but this is an area where it is vital that we drive for continuous improvement. The two recent acquisitions in our Utilities business provided us with an excellent opportunity to benchmark and align our key safety programs. While our primary safety training programs are designed for our own employees we've also developed and implemented safety training and education programs targeted to our customers and our contractors. We can see the impact of this consistent approach in our safety statistics, where our OSHA recordable rates in UGI Gas have declined by over 60% in the past decade.

AmeriGas is also a leader in safety programs and practices within the propane sector. Employee training is the cornerstone of the safety program as we seek to identify and eliminate safety risks on our production sites, within our delivery and transport fleet, and at our customer sites. FY '08 saw continued strong safety performance for AmeriGas, as our lost work day cases dropped by almost 20% year over year and our vehicle incident rate fell by over 30%. The focus and discipline we bring to safety are also brought to bear on customer service and productivity. The other primary focus areas for our continuous improvement programs. I'll address each of these areas on future calls.

Finally, on reinvesting cash in high-quality projects, identifying and developing quality projects for reinvestment, both acquisitions and capital projects, is a strategic priority. As Peter indicated, our businesses generate roughly $100 million of cash each year and achievement of our long- term goals for EPS growth is predicted upon reinvesting that cash in attractive projects. We have a range of projects under development and we are confident in our ability to deliver quality investment opportunities. We closed the acquisition of PPL Gas Utilities and their Penn Fuel Propane business on October 1st. This acquisition adds 75,000 new customers to Gas Utilities existing base of over 475,000 and strengthens AmeriGas' market coverage in our key mid Atlantic region. We're excited to have our new employees on board and we're very pleased with the smooth transition during our first month of operation. As stated in our prior calls we expect the financial results of PPL Gas to be accretive to earnings in FY '09.

Energy Services is making excellent progress on our recently-announced Broad Mountain Landfill Gas project. This $36 million project, which will generate 11 megawatts of tier 1 renewable energy using recovered landfill methane gas is expected to come on stream within the next 60 to 90 days. Energy Services is also working on a power generation opportunity utilizing our existing Hunlock site. This project ,which is in the final stages of development, would replace our existing 44 megawatt coal-fired plant with a gas-fired 130 megawatt plant. The estimated capital cost for the project is in the $110 million to $115 million range, and we'd expect the plant to come on line mid 2011. We'll provide additional information on this project when we conclude the development phase.

I'd now like to turn the over to Gene, who'll provide you with the details on AmeriGas' performance in this last fiscal year.

Thanks, John. It's a pleasure to talk about AmeriGas' strong 2008 results and to comment ton progress we made on our core strategies. As Peter mentioned, AmeriGas achieved EBITDA of $313 million in 2008, compared to $338 million in 2007. The 2007 results, however, included a $46 million gain on the sale of our Bumstead terminal. Excluding this gain we increased EBITDA by $20.4 million, or 7% compared to 2007. On the same basis, net income per unit also increased by 7%.

Over the last five years we've achieved a 14% compound annual growth rate in net income per unit. As a result of the earnings track record and our confidence in the future, we announced a 5% increase in our distribution in April and raised our target for annual distribution increases from 3% to 5%. These results were achieved despite a nearly 50% increase in the wholesale cost of propane that drove up selling prices to customers, resulting in reduced customer demand, as well as the impact of a weakening economy on commercial customer volumes. The dramatic increase energy prices also raised our cost of diesel fuel for our trucks by over 40%, and raised our bad debt, travel and utility expenses. In total, higher energy cost accounted for over 40% of our expense increase year over year.

Most of the increase in EBITDA last year was a result of effective execution of our strategies. Our objective is to increase earnings by 4% and distributions by 5% annually by growing our market share, leveraging our scale, driving productivity and achieving world-class safety performance. We have a track record of growing our share through a combination of acquisitions, growth in our cylinder exchange business and strategic accounts, and through growth in our traditional base of residential and commercial customers. More than half of the increase in earnings last year was a result of successful integration of the acquisitions we completed in the fiscal year 2007, especially the All Star and Shell acquisitions. Last year we completed four more acquisitions, which together with the Penn Fuel acquisitions that closed on October 1st will add 20 million gallons in fiscal year 2009.

Ace also helped us to grow our market share. We achieved 10% growth in Ace cylinder transactions through same-store growth and by adding about 1,200 locations. Some of our store growth was a result of the installation of 300 7-Eleven convenience store locations. In total 7-Eleven awarded us over 1,500 locations so we still have quite a few to install this year. Our self-service cylinder dispensing machines continue to be a competitive advantage in this segment, as well. We now almost 1,000 machines in operation across the country. These machines give customers seven by 7x24 access to propane grill cylinders without even having to step into the store.

We also upgraded the quality of our strategic account customer base last year, resulting in a 4% increase in its EBITDA contribution. For the first time in six years we were not successful in growing our local customer base, primarily due to a fall off in new home sales. We believe, however, that our continued focus on customer growth and customer service helped to mitigate the impact of the weak housing market and the weak economy on internal growth. One indication of that was the fact that 93% of our customers last year rated our service as meeting or exceeding their expectations.

We also made considerable progress this last year toward our goal of achieving world-class safety performance. As John mentioned, we were successful in reducing employee and vehicle incidents by more than 25% year over year, primarily through safety training and awareness programs. In September Hurricane Ike slammed into the Texas and gave us an opportunity to demonstrate the benefits of our scale and our dedication to customer service. The hurricane primarily affected customers served from our four locations in Houston area. Before the hurricane landed we'd already mobilized our emergency response team in Georgia, who arrived at the scene with generators, satellite phones, trailers for temporary employee housing and diesel for our trucks. Employees from a three-state area joined local AmeriGas employees in responding to the crisis. The day after the storm passed over Houston our trucks were back on the road. Our first priorities were to get fuel to back-up generators at cell towers, propane for FEMA trailers and grill cylinders to customers at home centers to supply homeowners without power. Customers were amazed at how quickly we were back on the road and very complimentary of our response to the crisis.

I'd like to thank all of the employees who helped us take care of our customer ad the emergency workers in Texas. Every year we seem to have a crisis like Hurricane Ike that gives us an opportunity to demonstrate how we can bring national resources to bear to address local customer requirements. I'd also like to take this opportunity to thank the entire AmeriGas team for continuing to grow our business and our earnings in 2008, and for achieving a significant improvement in our safety performance.

With that let me turn the call back to Lon for some concluding remarks.

Thank you, Gene. Let me quickly sum up with the following thoughts. As you know we reiterated guidance of $2.10 to $2.20 a share for UGI's earnings in fiscal year '09 and $315 million to $325 million of EBITDA for AmeriGas. In the challenging environment that exists today we see some positive factor that is support our guidance. Among them are the drop in energy commodity costs that occurred over the last month or two. It is not only good for us, but it's good for our customers and it's good for our industry. We have nearly $100 million of cash on our balance sheet, we have a very strong balance sheet, and importantly, sufficient liquidity to support our businesses. We have good internal growth opportunities that John and Peter talked about, which are available to us for the next few years. And in addition, given our overall strength, if other opportunities arise during this difficult time in the economy we expect to examine those opportunities and pursue those which create long-term value for our shareholders.

I don't want our optimism to leave you with the impression that we are either unaware of or immune from the consequences of the difficult external environment that exists today, because we most assuredly are not. However, we have a long tradition of capitalizing on opportunities that arise in difficult times. In addition, our keen focus on execution has served us well for many years and we will be focused once again on meeting our commitments. We will also continue to pursue our long-term strategies as we focus on that execution. We remain committed to meeting our long-standing financial goals of growing UGI earnings per share 6% to 10% a year and increasing UGI's dividend 4%, and at the same time, increasing the distribution to AmeriGas' unit holders by 5%. We do have a very long-standing tradition of meeting those goals. That should instill confidence in all of you that our projection for next year, which once again meets these goals, is obtainable. Finally, I'm comfortable that we are examining the right issues, putting in place the correct strategies and executing against clear objectives and goals as we move forward.

Thank you, very much, for your attention and, Justin, we'll be happy to take questions.

Thank you. (OPERATOR INSTRUCTIONS). The first question comes from [Hazel Ponz] with Citi.

This is actually Barry calling.

Hi, Barry.

How you doing, guys?

How are you?

Good. I had a couple quick questions here. What exchange rate are you guys assuming in your guidance.

About $1.42, $1.43.

$1.42, $143.

But don't forget, we've already got that hedged effectively because of the way we hedge our propane purchases.

Okay. Over what period do you hedge it?

Well, that's -- because we've got all of 2009 covered, most of 2010, I believe.

Yes.

We've got three years, don't we?

Yes, some -- (multiple speakers) -- rolling basis.

Okay.

Okay. What type of deman -- what type of propane demand growth do you expect in both the US and International and what have you seen so far with the decline in the commodities prices versus your expectations with regard to the demand?

Let me take a shot at that, Barry. We -- the industry in the US probably is not going to experience any growth and for us to tell you we could grow 5%, 6%, 7% you ought to be checking our sanity, I think, that that is something that's achievable for us in that environment. We do have a goal of some growth, and the reason we are able to execute and create that growth is we really approach it through three prongs domestically. One prong is our cylinder exchange business -- or cylinder exchange program, really. Another is our strategic accounts program, and the third is our base business. And so, we certainly are going to grow next year is our belief, but it's going to be very modest growth in the US, and so it's not an area where we have high expectations for growth. But I will tell you, growing modestly in the environment that we face with virtually no housing -- new housing market, very difficult economic circumstances in the US. and in particular in the Midwest and upper Midwest, would be a very nice achievement in the current environment.

Internationally, we also expect modest growth -- very modest growth and I would say France, they too are facing similar issues that we face here. A little bit better growth, probably in eastern Europe. Those economies are still growing, although we expect those economies to slow through the ripple effects as we go forward. So on balance, I guess the answer is -- I could have short cut all of that by saying very, very modest growth in both internationally and in the US.

And I had stepped off the phone for a minute before so I apologize if you already answered this, but with regard to your revolver, what's the total revolver, when does it mature and how much of it is currently available?

I could take it only because I know the answer. Peter could correct me if I over state it just for simplicity. Revolvers don't expire untill 2011. We extended those out, as we extended out virtually a very significant part of all of our long-term debt, and if you think about our debt generally no revolvers are coming due until no earlier than '11, and a small maturity in AmeriGas in 2009, a small maturity in 2010 and then a big maturity for Antargaz in 2011, but that's in a nutshell the maturity schedule.

How much is in the revolver and how much of it is available?

There's three -- in terms of the total revolvers, $350 million for Utilities, $200 million for AmeriGas, EUR50 million for Antargaz, and we have a receivables line in Energy Services for $200 million. At the end of September AmeriGas had used $43 million, Utilities had used $57 million, Antargaz had pulled down the whole EUR50 million, and Energy Services had an outstanding balance of $71 million.

Okay.

And let me just -- Barry, just add to Peters comments on Antargaz. They pulled down the whole amount, but they're sitting with EUR69 million in cash. So effectively they haven't borrowed on their revolver and they can't pay it back, because you borrow under your revolver you've got 30-day windows and when that window comes our expectation is that that would be paid given the amount of cash that they had at the end of September.

Okay. Okay, thanks a lot, guys.

Sure.

The next question comes from Shneur Gershuni from UBS.

Good afternoon, guys.

How are you?

Good. I just wanted to follow up a bit on Barry's question, just to understand the guidance for AmeriGas, so, as you said, Lon, just a little bit of modest growth in terms of volume. Is there an implied assumption there of any acquisition volumes, or that would just be incremental to how you're thinking?

Generally speaking, when I talked about growth I did not include acquisitions, but when AmeriGas budgeted, since it is a strategic imperative to AmeriGas grow by acquisition we budget ten million gallons of acquisition a year. But one things that's built into our year-over-year numbers is the PPL Propane transaction, which was 20 million gallon that is wasn't there last year and it will be there this year.

Yes, the total acquisition we made last year plus Penn Fuel will be to 20 million gallons and we'll get the benefit this year of that.

In addition to anything that you've already acquired that's not part of the bud -- sorry, that is part of the budget and you expect to do another 10 million gallons?

Yes, we always budget ten and if you look at our history over time -- I think Gene showed something that was -- at our analyst call that was probably averaging 20 million a year for the last five years, or something like that. I can't remember how long it was.

Typically the deals that you do mid year are not going contribute a lot in that year, they contribute more in the following year.

Generally what we'll do is we'll budget a half-year convention on that stuff, so it doesn't have a big effect in this year's numbers. What drives this year's number from an acquisition standpoint -- this year being '09 -- is what we did last year that was not part of '08, and nominally that's close to 20 million gallons.

So I should assume that there's some sort of an investment CapEx above your maintenance CapEx when thinking about cash flows for next year?

Yes, there's -- we always have a fairly substantial growth CapEx number for AmeriGas. We're a little different than the other folks, that's why our capital spending is up. We -- as you heard, Gene point out, we have grown this business every year for a lot of years, except for this year, and that growth requires cylinders for Ace, it requires cylinders and tanks for strategic accounts and it requires tanks -- generally underground tanks for any kind of residential/commercial business you get.

Yes, in 2008 we spent $63 million on capital. $29 million was maintenance and $34 million was growth.

Basically the assumption is on your capital -- total CapEx basically between maintenance and growth, should be somewhere between your $30 million and $60 million numbers is kind of how I should be thinking about this --?

Yes, I think maintenance is generally in -- somewhere slightly in excess of $30 million and growth is nominally $35 million, four --, somewhere $35 million to $40 million, somewhere in that area.

Okay, perfect.

Just one other point on growth. Lon referenced the residential --the challenge is in the residential segment. There's still some -- as Gene mentioned there's some good growth opportunities and some specifics in account wins in Ace but also in strategic accounts, so we're certainly planning on and planning for growth in both of those targeted segments.

We have some nice -- actually nice backlogs of installations to do in both businesses right now.

Okay. I was wondering if we can all -- before switching off AmeriGas, I was wondering if we can talk about margins, what you forecast for your guidance with respect to margins. Did you expect a contraction at all or did you expect it to remain the current levels given the price of (inaudible), sort of how your thoughts were with respect to margins --?

Let me talk qualitatively and then Gene jump in. Qualitatively we do not see in the marketplaces any rush by the industry to reduce prices. Remember this industry carries over inventory that's purchased during the summer, it's purchased during the spring, it's stored and that has to all work its way through the system, and of course it will. As prices stay where they are that will work its way down and if you look at industry statistics published by EIA you can see prices coming down, but we don't see a real -- at this point in time we don't see a degradation of margin. Our general philosophy is that there ought to be margin -- in a static environment there ought to be margin increases sufficient to allow you to recover your costs-- your inflationary costs and that's how we think about budgeting generally speaking. But, of course, that's subject to market dynamics out there.

We are not the highest pricer in the market by far, nor are we the lowest pricer. We try to deliver a value to a customers in a way variety of ways and we intend to compete in the marketplace effectively and so we have to watch it. But I can tell you at this point in time we don't see, as I said before, any industry rush to reduce margins. There are price reductions going on but they are commensurate with a balanced approach of passing on inventory costs that people bought during the summer and passing on to the customers the benefit of the lower prices now.

Okay. I was wondering we could turn to Energy Services at UGI -- and I must applaud you guys on the amount of disclosure that you put out there. I guess unfortunately I just ask more questions. (LAUGHTER) I was wondering first if you can start with the seasonality of the business. Clearly the fourth quarter in '08 is down significantly relative to the third quarter of '08, just want to understand in there's a seasonality aspect to it, if it's related too commodities, just the difference 2007 the third quarter or is it really just more a seasonality and you should be more looking toward the previous year?

Yes, seasonality is clearly there -- well, two elements. Think of that business in three parts. One is a gas commodity marketing business, which clearly seasonal. It's got a lot of winter peaking to it and so you'll always see some seasonality in that business, because the customers by in large use it not only for process, which would be more year round, but they use it for heating, as well. So one-third of the business -- if you think of the business in thirds, one-third of it is clearly seasonal. You've got electric generation business, which is typically a little counter seasonal, but what you saw as electric prices, as electric prices dropped throughout the summer compared to where they were in the spring, and so we didn't get the normal seasonal kick that you would get from electric prices, so that piece -- that counter seasonal piece was missing this year.

The last piece of the business is what we call our mid stream peeking business. That too is seasonal. They recognize the demand charges they get for providing their services over the winter months, which are when they need to provide those services, so that third of the business is seasonal -- is largely seasonal. Not perfectly seasonal but largely seasonal. So nominally, two-thirds of the business is seasonal to the winter, one-third of it is counter seasonal to the summer, but the counter seasonal part this year wasn't as good as it was in the third -- in the fourth quarter compared to the third quarter because of falling electric generation prices.

There's also -- in Energy Services there's a mark-to-market factor. There, again, is an operating income level of $2 million in the quarter coming due, then they add a cost in the quarter -- I mean September of $3 million, so there was quite a swing as just a mark-to-market addition.

Is this a similar issue to what we had in the previous quarter where you --?

(multiple speakers) It's similar but the other way.

The (inaudible) factor at the UGI level is about $400,000, so basically nothing for the year.

But if -- but in the fourth quarter there was a $3 million negative charge relative to the 2 million positive gain?

Yes, on an operating income level. It basically hit at about $0.02 in the fourth quarter.

Hit you for $0.02 in the fourth quarter?

Yes, we -- these changes for us, these are transportation we buy that we bundle to sell to customers for electricity, and the accounting rules, which is we studiously adhere to but don't always understand -- that's a proper way to say it -- require us that notwithstanding the fact that we presold this stuff, to a lot of customers who will pay us for it, but we're obliged inter period to mark those to market and the -- but the electricity price volatility that occurred in the third quarter and fourth quarter it dragged down transportation prices with it. So third quarter saw transportation become more valuable because electricity prices were based off gas at $12, gas tanked down to $6, electric prices fell commensurately and of course, transportation fell commensurately, but we were indifferent to it because we already saw the transportation at a sum. But none the less, because we do follow the accounting rules we had some mark-to-markets in there. They're small relative to our business and that's why we don't break them out. For $0.02 this long-winded explanation -- we don't want to confuse people on it -- it's not a big deal, but you've identified the quarter swing when it's always been the biggest and Peter responded appropriately to it.

The reason I'm zeroing in on this right now is because we excluded it in the third quarter so we wanted to make that we made right adjustment.

Oh, yes, then if your -- for that intellectual honestly we applaud you, and in order to do the same you've got to exclude $3 million pretax, is it, Peter.

Yes, it's $2.7 million for Energy Services and $3.3 million for UGI as a whole pretax for Q4.

Yes, so $3.3 million pretax for Q4 going a negative. So you could add that back if you'd like, but again, fundamentally as we tell you we understand you need to do your modeling and stuff, but at the end of the day over a full -year there won't be any swing because we presell this stuff.

Right, and -- yes, exactly. So, it's just more of how it's [entered] and what quarter it lays out [to be].

Yes. No, exactly right. You're exactly right.

Right. Okay, one last question here just with the landfill gas project, what is the expected EBITDA impact for 2009 or -- and what would be the 12-month run rate once it's up and running --?

Sorry, which project? (multiple speakers)

I don't think we've publicly disclosed it. It is --

It's small. If you look at the -- our expected ROE on that project it's high teen for a $36 million investment.

Okay. That makes perfect sense. And then I was just wondering -- one last question. What is the -- and these are just crossing the Ts, dotting the Is -- I was wondering if you could give us the wholesale volumes at AmeriGas for the quarter and what is the corporate CapEx guidance for 2009 for all of UGI?

Let see. Anybody have a copy of the draft annual report to give him CapEx guidance? 20 million gallons wholesale for the quarter.

The corporate CapEx is $325 million. $175 million of that is growth and $150 million maintenance.

Perfect. Thank you very much, guys. Thanks for your patience.

Sure, our pleasure. No problem.

Your next question comes from Carl Kirst with BMO Capital.

Hey, good afternoon, everyone. Most of my questions have been hit. Just a couple maybe to clean up -- and I apologize if this was mentioned in the opening remarks as I was writing furiously here. The L&G peaker, did you guys discuss an update to the status of that?

No, that's -- that is something that's still in the investigatory planning phases, and so -- and as we -- I think we have said at our off site that that's kind of a 2011ish event,. Money will be spent '10, '11 and we don't expect to see earnings from it until probably the late '11, '12 timeframe.

Yes, it's certainly at a earlier stage of development than Hunlock, which is why we focused on Hunlock today. We continue to progress it and do the appropriate filings with the FERC, but it's still sort of a mid cycle in terms of development.

Okay. No, fair enough. I just wanted to make sure I had it -- which would be on the front burner and which would be on the back burner. And understanding -- going back to the Utility and Pennsylvania here, we lost the ground swell for decoupling and conservation trackers earlier on in the year, does the environment that we're in, is there any anticipation that that might bring that back to the forefront or --?

I think, Carl, it's an intriguing question. I have a hard enough time predicting what I'm going to eat for dinner let along what the legislators and the governor are going to do in a very difficult thing. It's clear to us the governor and legislature are concerned about energy prices, are concerned about the environment, want to put together some kind of program to handle the rate caps coming off in the electric business because of the rate shock that will be experienced by customers beginning in 2010 in Pennsylvania -- not ours because we're out of the rate caps, but generally speaking the preponderance of the population in Pennsylvania. So there's a variety of energy bills that were considered and the decoupling is not a principle driver in those bills, it is kind of an add on and it has some support, we understand, but I can't predict for you whether that will happen this year or not.

Okay. But your comments are helpful. We're not -- we're certainly not seeing the ground swell toward it right now.

No, that's correct.

And I think that really is it. Just as a general -- I know when we're only talking about 3% warmer-than-normal, 4% warmer-than-normal statistically it gets difficult to slice the numbers herem=, but on a fiscal year 2008, is there any sense of -- on a corporate 30,000-foot standpoint, had we of had normal weather are we looking at a $0.02, $0.03 impact overall, or something that was more $0.05 plus?

I'd probably be in between, because as you were talking I was -- you think back to where our expectations were and everything else, I would say approximately $0.05 give or take a little.

Okay, I just wanted make sure I was in the right range. Appreciate the comments, guys, thank you.

Thank you.

And the next question comes from [Peter Iso] with Schneider Capital Management.

Hey, good afternoon.

How are you, Peter.

Pretty good. Lon, can you provide just some clarity or detail perhaps on the $175 million in growth CapEx that you identified?

Yes, let me turn at that to Peter. He's got the details of --

Yes, it's up year on year about -- probably $60 million. $35 million of that is in our Energy Services group with the projects that John was talking about and the balance is in our International operations and in AmeriGas and is mainly around some of those cylinder exchange-type programs..

But perhaps not just the increase, but the absolute amounts by segment, do you have something like that?

Well, I have the -- to hand I have the 2008 number for AmeriGas which was $29 million of maintenance and $34 million of growth. I don't have to hand the individual numbers in terms of maintenance and growth. I do have the absolute number, if you'd like that?

Yes, I was specifically looking at -- on the gross -- growth CapEx --

Yes, I --

-- by segment. So $175 million broken down.

Yes, I don't have that to hand, Peter.

Okay.

Yes, what we can do, Peter, is maybe we can put that in the 8 and try the break it out in the annual report in some fashion so that at last will get out there. This -- just broadly speaking, Peter, is correct that Energy Services will eat a nice piece of the $175 million with their growth program for the Hunlock conversion of the electric plant. Let's call it all in for Energy Services nominally $40 million -- and these are very broad numbers -- nominally 40ish for them and we heard -- what'd you say for AmeriGas, Peter, $40 million for them. About $40 million for AmeriGas. That's $80 million, so that's nominally half of it. Antargaz, part of it is dollar conversion numbers, but I'm going to say Antargaz could be $25 million to $30 million of their total capital budget in that area is growth related to their cylinder exchange business, they're pipe business and other things they have going on. That leaves our Utility business -- and remember, we have the new business we bought from PP&L, there's additional growth capital there, and probably the remainer is our -- bulk of the remainder of the Utility business is where, as John pointed out, we had -- despite the housing slowdown we had nice growth in the Utility businesses through conversions and otherwise. That's broadly speaking where the money's going.

Okay, that's great. And the other question I had, did you mention -- I may have missed it, but on the bad debt or accounts 30 days overdue, anything -- any information there in terms of trends?

I think we felt -- Jerry, maybe you can speak -- Jerry can speak definitively about AmeriGas and then we'll jump in on the others if we can.

I guess we're happy so far with the way the agings have trended. We look at accounts that over 60 days and we've lost about 1% of ground if you look at September to September and the same goes for days outstanding, we've lost a day. So clearly there's impact both on commercial and residential with a slightly-lower pay, but nothing like what we expected.

So at 1% you'd be going from 18% to 19%?

Marginal, very marginal.

It's -- we aren't seeing -- let me qualitatively answer it using Jerry's data and knowing -- I know where we are in the Utilities and the other -- Energy Services, we get reports on the stuff. So generally speaking we are not seeing a significant issue with bad debt at this point in time. I will credit all of our operating groups for doing an outstanding job of working with customers to avoid issues. We have light/heating programs in our utilities that help that customers are low income and work with them. I know AmeriGas lends a helping hand to customers where we can and they're deserving and stay on top of it. We expect people to pay their bills and we act accordingly and we have groups to try to collect bills. So all of that said, we don't see a qualitative problem at this time, but it is something we are watching carefully because the economy continues to deteriorate and utility bills -- energy bills for customers are a necessity and so we just have to be mindful of keeping our eye on it and we have reports to do that.

Okay, great. Thank you.

Sure. Good to talk to you, Peter.

The next question comes from Justin Maurer with Lord Abbott.

Afternoon, guys, how are you?

Afternoon.

Just quick on the hedge, you talked about the hedge on the propane buys, I assume that's transactional not translation, is that fair?

On the -- we talked about that in the international currencies we were talking about. Yes, what we do is we hedge -- it gets complicated but effectively we hedge propane purchases by Antargaz because Antargaz has a currency in the Euro, and they buy propane in dollars. And so we try to hedge that cost of buying for them. That locks in at exchange rate and of course that creates gains or losses, depending on the actual exchange rate. And when we go through all the calculations implicit in that technique it has a direct correlation hedging our -- a good portion of our net income from Antargaz.

Okay, but my follow up to that -- sorry -- if you're hedging your costs going in, it generates a certain profit therein, does that -- is that subject to any exposure on FX as you translate back dollars, or no, you're saying that's effectively hedged?

Well, yes, there's two -- I think it's effectively hedged on income. We also hedge dividends that they give us, so that if we expect a return of capital from Antargaz of EUR30 million or something we will hedge that return of capital out, as well, so that we get -- so we get a return of that capital at a level that we understand it will be.

Okay.

So, a cash hed -- is that right, Bob, we have a cash hedge effectively, a net investment hedge and we have a propane product hedge, as well.

Got it, okay. And then just relative to Flaga and the stories we've been hearing over the last month about eastern European currency implosions and what knot, do you guys get concerned at all from a demand perspective that people who apparently were taking on debt -- consumers taking on debt in Euros and therefore when their currencies are going upside down they're having a hard time meeting obligations and having to cut corners, and that type of thing, is that a consideration at all?

Yes, again, the nature of our business is we have a large -- we don't have concentrated customers. We have a large number of transactions with customers and they're all relatively small. What we saw last year was quite interesting. We saw a number of the eastern European currencies appreciate vis-a-vis the Euro, which was appreciating mightily against the dollar, so we almost had a double effect, if you will, there. Recently, some of those currencies have come back in versus the Euro, but then they expanded a little more. On balance, the other eastern European country currencies are weaker to the Euro than they were last year, but they are still in a positive way, and we don't see much exposure to those currencies overall. Give you a sense of scale, the entire eastern European business is 35 million to 40 million gallons and it's broken up into thousands and thousands and thousands of transactions, and so we don't consider those currency fluctuations a big risk for us.

Yes, okay. So the debt -- you guys took down the debt at Flaga and have it sitting in cash, is that -- was there any particular reason for that?

No, no, that's AmeriGas. We pulled the revolver --

No, no, Antargaz.

I'm sorry, Antargaz. We pulled the revolver and it was -- essentially because it allowed us to reduce the interest rate on our long-term debt.

Okay, got it.

And so when you pull it down you need to pull it down before year end and then you need to repay it, and that's why we have EUR69 million in cash.

Yes, okay. Thanks a lot.

Yes.

At this time, there are no further questions.

Okay, good. Well appreciate all of you on this Veterans Cay paying attention to us and asking such good questions. It's nice to have the exchange with all of you and to hear your thoughts. To summarize we're feeling good about next year. Of course we're wary of the economic turmoil that's out there, but I think you pay us to manage that turmoil, and we've got the liquidity, we've got the asset, the balance sheet, and the execution skills to work our way through that. So we look forward to talking to you in January next time where we report our first quarter earnings and hopefully we'll have some good information for you at that time. So, talk to you all then, and thank you all very much.

That does conclude today's conference. We do thank you for your participation.