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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended December 31, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from __________ to __________
 Commission file number 1-1398
 UGI UTILITIES, INC.
  Pennsylvania
(State or other jurisdiction of 
incorporation or organization)
    
    23-1174060
(I.R.S. Employer
Identification No.)
 
 þ o
 o o þ
 o þ




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UGI UTILITIES, INC. AND SUBSIDIARIES
 TABLE OF CONTENTS
 PAGESPart I  Financial InformationItem 1.
    
    Financial StatementsCondensed
Consolidated Balance Sheets as of December 31, 2006, September 30, 2006 and December 31, 2005
    
    
    1Condensed
Consolidated Statements of Income for the three months ended December 31, 2006 and 2005
    
    
    2Condensed
Consolidated Statements of Cash Flows for the three months ended December 31, 2006 and 2005
    
    
    3Notes to Condensed Consolidated Financial Statements
    
    
    4 - 13Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14 - 19Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    19 - 20Item 4.
    
    Controls and Procedures
    
    
    20 - 21Part II  Other InformationItem 1A.
    
    Risk Factors
    
    
    22Item 6.
    
    Exhibits
    
    
    22Signatures
    
    
    23Exhibit 12.1Exhibit 31.1Exhibit 31.2Exhibit 32
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December 31,
    
    
    September 30,
    
    
    December 31,2006
    
    
    2006
    
    
    2005ASSETSCurrent assets:Cash and cash equivalents
    
    $
    8,083
    
    
    $
    2,942
    
    
    $
    2,514Restricted cash
    
    
    6,981
    
    
    
    2,697
    
    
    
    Accounts receivable (less allowances for doubtful accounts
of $12,027, $12,389 and $5,560,
respectively)
    
    
    109,177
    
    
    
    61,917
    
    
    
    89,253Accounts receivable  related parties
    
    
    7,590
    
    
    
    1,888
    
    
    
    1,268Accrued utility revenues
    
    
    58,103
    
    
    
    16,649
    
    
    
    59,190Inventories
    
    
    162,087
    
    
    
    162,610
    
    
    
    81,023Deferred fuel costs
    
    
    
    
    
    
    
    
    
    
    9,435Other current assets
    
    
    21,784
    
    
    
    26,658
    
    
    
    5,641Total current assets
    
    
    373,805
    
    
    
    275,361
    
    
    
    248,324Property, plant and equipment, at cost (less accumulated depreciation
and amortization of $513,410, $503,046 and $335,802, respectively)
    
    
    1,053,283
    
    
    
    1,050,824
    
    
    
    659,092Goodwill
    
    
    182,851
    
    
    
    182,851
    
    
    
    Regulatory assets
    
    
    73,764
    
    
    
    72,919
    
    
    
    61,794Other assets
    
    
    26,000
    
    
    
    27,788
    
    
    
    31,763Total assets
    
    $
    1,709,703
    
    
    $
    1,609,743
    
    
    $
    1,000,973LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current maturities of long-term debt
    
    $
    20,000
    
    
    $
    20,000
    
    
    $
    Bank loans
    
    
    250,000
    
    
    
    216,000
    
    
    
    145,500Accounts payable
    
    
    78,144
    
    
    
    46,916
    
    
    
    95,304Accounts payable  related parties
    
    
    10,121
    
    
    
    14,768
    
    
    
    3,520Deferred fuel refunds
    
    
    11,914
    
    
    
    12,171
    
    
    
    Accrued income taxes
    
    
    6,099
    
    
    
    
    
    
    
    2,355Other current liabilities
    
    
    75,091
    
    
    
    59,243
    
    
    
    42,908Total current liabilities
    
    
    451,369
    
    
    
    369,098
    
    
    
    289,587Long-term debt
    
    
    492,000
    
    
    
    492,000
    
    
    
    237,000Deferred income taxes
    
    
    166,316
    
    
    
    162,871
    
    
    
    162,198Deferred investment tax credits
    
    
    6,707
    
    
    
    6,803
    
    
    
    7,096Other noncurrent liabilities
    
    
    32,844
    
    
    
    31,872
    
    
    
    14,255Total liabilities
    
    
    1,149,236
    
    
    
    1,062,644
    
    
    
    710,136Commitments and contingencies (note 7)Common stockholders equity:Common Stock, $2.25 par value (authorized - 40,000,000 shares;
issued and outstanding -
26,781,785 shares)
    
    
    60,259
    
    
    
    60,259
    
    
    
    60,259Additional paid-in capital
    
    
    345,801
    
    
    
    345,801
    
    
    
    80,622Retained earnings
    
    
    158,593
    
    
    
    144,833
    
    
    
    148,599Accumulated other comprehensive (loss) income
    
    
    (4,186
    )
    
    
    (3,794
    )
    
    
    1,357Total common stockholders equity
    
    
    560,467
    
    
    
    547,099
    
    
    
    290,837Total liabilities and stockholders equity
    
    $
    1,709,703
    
    
    $
    1,609,743
    
    
    $
    1,000,973
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Three Months EndedDecember 31,2006
    
    
    2005Revenues
    
    $
    299,324
    
    
    $
    243,673Costs and expenses:Cost of sales  gas, fuel and purchased power
    
    
    205,976
    
    
    
    171,246Operating and administrative expenses
    
    
    33,210
    
    
    
    21,986Operating and administrative expenses  related parties
    
    
    2,461
    
    
    
    726Taxes other than income taxes
    
    
    4,563
    
    
    
    3,262Depreciation and amortization
    
    
    10,234
    
    
    
    6,188Other income, net
    
    
    (1,561
    )
    
    
    (1,961
    )254,883
    
    
    
    201,447Operating income
    
    
    44,441
    
    
    
    42,226Interest expense
    
    
    11,422
    
    
    
    5,636Income before income taxes
    
    
    33,019
    
    
    
    36,590Income taxes
    
    
    13,260
    
    
    
    14,665Net income
    
    $
    19,759
    
    
    $
    21,925
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Three Months EndedDecember 31,2006
    
    
    2005CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    19,759
    
    
    $
    21,925Adjustments to reconcile net income to net cash used
by operating activities:Depreciation and amortization
    
    
    10,234
    
    
    
    6,188Deferred income taxes, net
    
    
    2,295
    
    
    
    10,397Provision for uncollectible accounts
    
    
    3,702
    
    
    
    2,771Other, net
    
    
    5,025
    
    
    
    (1,827
    )Net change in:Accounts receivable and accrued
utility revenues
    
    
    (98,119
    )
    
    
    (92,462
    )Inventories
    
    
    523
    
    
    
    (9,439
    )Deferred fuel costs
    
    
    (257
    )
    
    
    (26,805
    )Accounts payable
    
    
    26,769
    
    
    
    46,023Other current assets and liabilities
    
    
    24,452
    
    
    
    (4,170
    )Net cash used by operating activities
    
    
    (5,617
    )
    
    
    (47,399
    )CASH FLOWS FROM INVESTING ACTIVITIES:Expenditures for property, plant and equipment
    
    
    (12,867
    )
    
    
    (9,713
    )Net costs of property, plant and equipment disposals
    
    
    (88
    )
    
    
    (227
    )Increase in restricted cash
    
    
    (4,289
    )
    
    
    Net cash used by investing activities
    
    
    (17,244
    )
    
    
    (9,940
    )CASH FLOWS FROM FINANCING ACTIVITIES:Payment of dividends
    
    
    (5,998
    )
    
    
    (7,133
    )Increase in bank loans with maturities of
three months or less
    
    
    34,000
    
    
    
    64,300Repayment of debt
    
    
    
    
    
    
    (50,000
    )Issuance of debt
    
    
    
    
    
    
    50,000Net cash provided by financing activities
    
    
    28,002
    
    
    
    57,167Cash and cash equivalents increase (decrease)
    
    $
    5,141
    
    
    $
    (172
    )CASH AND CASH EQUIVALENTS:End of period
    
    $
    8,083
    
    
    $
    2,514Beginning of period
    
    
    2,942
    
    
    
    2,686Increase (decrease)
    
    $
    5,141
    
    
    $
    (172
    )
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UGI UTILITIES, INC. AND SUBSIDIARIESNotes to Condensed Consolidated Financial Statements
 1.
    
    Basis of Presentation
    Comprehensive Income.
 Three Months EndedDecember 31,2006
    
    
    2005Net income
    
    $
    19,759
    
    
    $
    21,925Other comprehensive (loss) income
    
    
    (392
    )
    
    
    1,114Comprehensive income
    
    $
    19,367
    
    
    $
    23,039
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UGI UTILITIES, INC. AND SUBSIDIARIESNotes to Condensed Consolidated Financial Statements
 Reclassifications.
 Use of Estimates.
 2.
    
    PG Energy Acquisition
  3.
    
    Segment Information
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UGI UTILITIES, INC. AND SUBSIDIARIESNotes to Condensed Consolidated Financial Statements
  Three Months Ended December 31, 2006:
 Gas
    
    
    ElectricTotal
    
    
    Utility
    
    
    UtilityRevenues
    
    $
    299,324
    
    
    $
    274,429
    
    
    $
    24,895Cost of sales 
gas, fuel and
purchased power
    
    
    205,976
    
    
    
    193,800
    
    
    
    12,176Depreciation and
amortization
    
    
    10,234
    
    
    
    9,294
    
    
    
    940Operating income
    
    
    44,441
    
    
    
    38,231
    
    
    
    6,210Interest expense
    
    
    11,422
    
    
    
    10,771
    
    
    
    651Income before
income taxes
    
    
    33,019
    
    
    
    27,460
    
    
    
    5,559Total assets at
period end
    
    $
    1,709,703
    
    
    $
    1,603,225
    
    
    $
    106,478Goodwill at period end
    
    $
    182,851
    
    
    $
    182,851
    
    
    $
    
 Three Months Ended December 31, 2005:
 Gas
    
    
    ElectricTotal
    
    
    Utility
    
    
    UtilityRevenues
    
    $
    243,673
    
    
    $
    219,799
    
    
    $
    23,874Cost of sales 
gas, fuel and
purchased power
    
    
    171,246
    
    
    
    159,920
    
    
    
    11,326Depreciation and
amortization
    
    
    6,188
    
    
    
    5,375
    
    
    
    813Operating income
    
    
    42,226
    
    
    
    35,690
    
    
    
    6,536Interest expense
    
    
    5,636
    
    
    
    5,109
    
    
    
    527Income before
income taxes
    
    
    36,590
    
    
    
    30,581
    
    
    
    6,009Total assets at
period end
    
    $
    1,000,973
    
    
    $
    896,809
    
    
    $
    104,164Goodwill at period end
    
    $
    
    
    
    $
    
    
    
    $
    
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UGI UTILITIES, INC. AND SUBSIDIARIESNotes to Condensed Consolidated Financial Statements
 4.
    
    Regulatory Matters
   5.
    
    Revolving Credit Agreement
  6.
    
    Defined Benefit Pension and Other Postretirement Plans
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UGI UTILITIES, INC. AND SUBSIDIARIESNotes to Condensed Consolidated Financial Statements
  Pension Benefits
    
    
    Other Postretirement BenefitsThree Months Ended
    
    
    Three Months EndedDecember 31,
    
    
    December 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Service cost
    
    $
    1,380
    
    
    $
    1,310
    
    
    $
    65
    
    
    $
    32Interest cost
    
    
    4,277
    
    
    
    3,222
    
    
    
    243
    
    
    
    204Expected return on assets
    
    
    (5,456
    )
    
    
    (4,448
    )
    
    
    (151
    )
    
    
    (152
    )Amortization of:Prior service cost
(benefit)
    
    
    60
    
    
    
    196
    
    
    
    (55
    )
    
    
    (55
    )Actuarial loss
    
    
    216
    
    
    
    427
    
    
    
    37
    
    
    
    48Net benefit cost
    
    
    477
    
    
    
    707
    
    
    
    139
    
    
    
    77Change in regulatory and other
assets and
liabilities
    
    
    (57
    )
    
    
    
    
    
    
    715
    
    
    
    698Net expense
    
    $
    420
    
    
    $
    707
    
    
    $
    854
    
    
    $
    775
   7.
    
    Commitments and Contingencies
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UGI UTILITIES, INC. AND SUBSIDIARIESNotes to Condensed Consolidated Financial Statements
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UGI UTILITIES, INC. AND SUBSIDIARIESNotes to Condensed Consolidated Financial Statements
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UGI UTILITIES, INC. AND SUBSIDIARIESNotes to Condensed Consolidated Financial Statements
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UGI UTILITIES, INC. AND SUBSIDIARIESNotes to Condensed Consolidated Financial Statements
  8.
    
    Related Party Transactions
    - 12 -




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UGI UTILITIES, INC. AND SUBSIDIARIESNotes to Condensed Consolidated Financial Statements
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UGI UTILITIES, INC. AND SUBSIDIARIES
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 Forward-Looking Statements
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UGI UTILITIES, INC. AND SUBSIDIARIES
 ANALYSIS OF RESULTS OF OPERATIONS
  2006 three-month period compared with 2005 three-month period
 IncreaseThree Months Ended December 31,
    
    2006
    
    
    2005
    
    
    (Decrease)(Millions of dollars)Gas Utility:Revenues
    
    $
    274.4
    
    
    $
    219.8
    
    
    $
    54.6
    
    
    
    24.8
    %Total margin (a)
    
    $
    80.6
    
    
    $
    59.9
    
    
    $
    20.7
    
    
    
    34.6
    %Operating income
    
    $
    38.2
    
    
    $
    35.7
    
    
    $
    2.5
    
    
    
    7.0
    %Income before income taxes
    
    $
    27.5
    
    
    $
    30.6
    
    
    $
    (3.1
    )
    
    
    (10.1
    )%System throughput  bcf
    
    
    33.4
    
    
    
    22.9
    
    
    
    10.5
    
    
    
    45.9
    %Heating degree days  % warmer
than normal (b)
    
    
    15.0
    %
    
    
    1.3
    %
    
    
    
    
    
    
    Electric Utility:Revenues
    
    $
    24.9
    
    
    $
    23.9
    
    
    $
    1.0
    
    
    
    4.2
    %Total margin (a)
    
    $
    11.4
    
    
    $
    11.2
    
    
    $
    0.2
    
    
    
    1.8
    %Operating income
    
    $
    6.2
    
    
    $
    6.5
    
    
    $
    (0.3
    )
    
    
    (4.6
    )%Income before income taxes
    
    $
    5.6
    
    
    $
    6.0
    
    
    $
    (0.4
    )
    
    
    (6.7
    )%Distribution sales  gwh
    
    
    249.0
    
    
    
    258.0
    
    
    
    (9.0
    )
    
    
    (3.5
    )%
  (a)
    
    Gas Utilitys total margin represents total revenues less cost of sales. Electric Utilitys
total margin represents total revenues less total cost of sales and revenue-related taxes, i.e.
Electric Utility gross receipts taxes, of $1.3 million in each of the three-month periods ended
December 31, 2006 and 2005. For financial statement purposes, revenue-related taxes are included
in Taxes other than income taxes on the Condensed Consolidated Statements of Income.(b)
    
    Deviation from average heating degree days based upon weather statistics provided by the
National Oceanic and Atmospheric Administration (NOAA) for five airports (four airports prior to
the PG Energy Acquisition) located within our service territory.
 Gas Utility.
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UGI UTILITIES, INC. AND SUBSIDIARIES
     Electric Utility.
  - 16 -




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UGI UTILITIES, INC. AND SUBSIDIARIES
   FINANCIAL CONDITION AND LIQUIDITY
 Financial Condition
   Cash Flows
 Operating activities.
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UGI UTILITIES, INC. AND SUBSIDIARIES
  Investing activities.
 Financing activities.
 PG Energy Acquisition
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UGI UTILITIES, INC. AND SUBSIDIARIES
 Regulatory Matters
   
 ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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UGI UTILITIES, INC. AND SUBSIDIARIES
  
 ITEM 4.
    
    CONTROLS AND PROCEDURES
 (a)
    
    Evaluation of Disclosure Controls and Procedures
 The Companys management, with the participation of the Companys Chief Executive Officer
and Chief Financial Officer, evaluated the effectiveness of the Companys disclosure
controls and procedures as of the end of the period covered by this report. Based on that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the
Companys disclosure controls and procedures as of the end of the period covered by this
report were designed and functioning effectively to provide reasonable assurance that the
information required to be disclosed by the Company in reports filed under the Securities
Exchange Act of 1934, as amended, is (i) recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange Commissions rules and forms, and
(ii) accumulated and communicated to our management, including the Chief Executive Officer
and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure.
 (b)
    
    Change in Internal Control over Financial ReportingExcept as discussed below, during the quarter ended December 31, 2006, there has been no
change in the Companys internal control over financial reporting (as such term is defined
in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that has materially affected, or is
reasonably likely to materially affect, the Companys internal control over financial
reporting.During October 2006, the Company implemented certain financial components of a new
information system (the UGI System) that supports our human resource, accounting,
purchasing and payroll transaction processing functions. The implementation of the UGI
System affected processes that include certain internal controls affecting financial
reporting, and accordingly, we have updated our internal controls.
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UGI UTILITIES, INC. AND SUBSIDIARIES
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UGI UTILITIES, INC. AND SUBSIDIARIES
 
 PART II OTHER INFORMATION
 
 ITEM 1A.
    
    RISK FACTORS
  
 ITEM 6.
    
    EXHIBITS
  Exhibit No.
    
    Exhibit12.1
    
    Computation of ratio of earnings to fixed charges.31.1
    
    Certification by the Chief Executive Officer relating to the
Registrants Report on Form 10-Q for the quarter ended
December 31, 2006, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.31.2
    
    Certification by the Chief Financial Officer relating to the
Registrants Report on Form 10-Q for the quarter ended
December 31, 2006, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.32
    
    Certification by the Chief Executive Officer and the Chief
Financial Officer relating to the Registrants Report on Form
10-Q for the quarter ended December 31, 2006, pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
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UGI UTILITIES, INC. AND SUBSIDIARIES
 
   UGI Utilities, Inc.
(Registrant)Date: February 8, 2007
    By:
    /s/ John C. BarneyJohn C. BarneySenior Vice President - Finance
(Principal Financial Officer)  - 23 -




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UGI UTILITIES, INC.
 EXHIBIT INDEX
 12.1
    
    Computation of ratio of earnings to fixed charges.31.1
    
    Certification by the Chief Executive Officer relating to the Registrants Report on Form
10-Q for the quarter ended December 31, 2006, pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.31.2
    
    Certification by the Chief Financial Officer relating to the Registrants Report on Form
10-Q for the quarter ended December 31, 2006, pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.32
    
    Certification by the Chief Executive Officer and the Chief Financial Officer relating to
the Registrants Report on Form 10-Q for the quarter ended December 31, 2006, pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.