ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
A forward-looking statement may include a statement of the assumptions or bases underlying the forward-looking statement. We believe that we have chosen these assumptions or bases in good faith and that they are reasonable. However, we caution you against relying on any forward-looking statement as these statements are subject to risks and uncertainties that may cause actual results almost alwaysto vary from assumed facts or bases, and the differences between actual results and assumed facts or bases can be material, depending on the circumstances. When considering forward-looking statements, you should keep in mind those factors set forth in Item 1A. Risk Factors in this report and in the Company’s 2022 Annual Report and the Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2022 as well as the following important factors that could affect our future results and could cause those results to differ materially from those expressed in our forward-looking statements: (1) adverse weather conditions, including increasingly uncertain weather patterns due to climate change, resulting in reduced demand;demand, the seasonal nature of our business, and disruptions in our operations and supply chain; (2) cost volatility and availability of energy products, including propane and other liquefied petroleum gases (“LPG”), oil,LPG, electricity, and natural gas, as well as the availability of LPG cylinders, and the capacity to transport product to our customers; (3) changes in domestic and foreign laws and regulations, including safety, health, tax, transportation, consumer protection, data privacy, accounting, and environmental and accounting matters;matters, such as regulatory responses to climate change; (4) inability to timely recover costs through utility rate proceedings; (5) the impact of pending and future legal proceedings;or regulatory proceedings, inquiries or investigations; (6) competitive pressures from the same and alternative energy sources; (7) failure to acquire new customers andor retain current customers thereby reducing or limiting any increase in revenues; (8) liability for environmental claims; (9) increased customer conservation measures due to high energy prices and improvements in energy efficiency and technology resulting in reduced demand; (10) adverse labor relations;relations and our ability to address existing or potential workforce shortages; (11) customer, counterparty, supplier, or vendor defaults; (12) liability for uninsured claims and for claims in excess of insurance coverage, including those for personal injury and property damage arising from explosions, acts of war, terrorism, natural disasters, pandemics, and other catastrophic events that may result from operating hazards and risks incidental to generating and distributing electricity and transporting, storing and distributing natural gas and LPG;LPG in all forms; (13) transmission or distribution system service interruptions; (14) political, regulatory and economic conditions in the United States, Europe and inother foreign countries, including uncertainties related to the current conflicts inwar between Russia and Ukraine, the Middle East,European energy crisis, and foreign currency exchange rate fluctuations, particularly the euro; (15) credit and capital market conditions, including reduced access to capital markets and interest rate fluctuations; (16) changes in commodity market prices resulting in significantly higher cash collateral requirements; (17) impacts of our indebtedness and the restrictive covenants in our debt agreements; (18) reduced distributions from subsidiaries impacting the ability to pay dividends; (18)dividends or service debt; (19) changes in Marcellus and Utica Shale gas production; (19)(20) the availability, timing and success of our acquisitions, commercial initiatives and investments to grow our businesses; (20)(21) our ability to successfully integrate acquired businesses and achieve anticipated synergies; (21)(22) the interruption, disruption, failure, malfunction, or breach of our information technology systems, and those of our third-party vendors or service providers, including due to cyber attack; (23) the inability to complete pending or future energy infrastructure projects; (24) our ability to achieve the operational benefits and (22) continued analysiscost efficiencies expected from the completion of recentpending and future business transformation initiatives, including the impact of customer service disruptions resulting in potential customer loss due to the transformation activities; (25) our ability to attract, develop, retain and engage key employees; (26) uncertainties related to global pandemics; (27) the impact of proposed or future tax legislation.legislation; (28) the impact of declines in the stock market or bond market, and a low interest rate environment, on our pension liability; (29) our ability to protect our intellectual property; and (30) our ability to overcome supply chain issues that may result in delays or shortages in, as well as increased costs of, equipment, materials or other resources that are critical to our business operations.
These factors, and those factors set forth in Item 1A. Risk Factors in this report and those factors set forth in Item 1A. Risk Factors in the Company’s 20172022 Annual Report and the Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2022, are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors could also have material adverse effects on future results. Any forward-looking statement speaks only as of the date on which such statement is made. We undertake no obligation (and expressly disclaim any obligation) to update publicly any forward-looking statement, whether as a result of new information or future events, except as required by the federal securities laws.
Because most of our businesses sell or distribute energy products used in large part for heating purposes, our results are significantly influenced by temperatures in our service territories, particularly during the heating-season months of October through March. As a result, our operating results, excluding the effects of gains and losses on commodity derivative instruments not associated with current-period transactions as further discussed below, are significantly higher in our first and second fiscal quarters.
UGI management uses “adjusted net income attributable to UGI Corporation” and “adjusted diluted earnings per share,” both of which are non-GAAP financial measures, when evaluating UGI’s overall performance. Management believes that these non-GAAP measures provide meaningful information to investors. Adjusted net income attributable to UGI Corporation excludes (1) net after-taxinvestors about UGI’s performance because they eliminate gains and losses on commodity and certain foreign currency derivative instruments not associated with current-period transactions and (2) other significant discrete items that management believescan affect the comparison of period-over-period results (as such items are further described below). results.
Non-GAAP financial measures are not in accordance with, or an alternative to, GAAP and should be considered in addition to, and not as a substitute for, the comparable GAAP measures. Management believes that these non-GAAP measures provide meaningful information to investors about UGI’s performance because they eliminate gains and losses on commodity and certain foreign currency derivative instruments not associated with current-period transactions and other significant discrete items that can affect the comparison of period-over-period results.
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Three Months Ended December 31, 2017 | | Total | | AmeriGas Propane | | UGI International | | Midstream & Marketing | | UGI Utilities | | Corporate & Other |
Adjusted net income attributable to UGI Corporation (millions): | | | | | | | | | | | | |
Net income (loss) attributable to UGI Corporation | | $ | 365.9 |
| | $ | 141.6 |
| | $ | 61.1 |
| | $ | 112.0 |
| | $ | 68.3 |
| | $ | (17.1 | ) |
Net gains on commodity derivative instruments not associated with current-period transactions (net of tax of $2.1) (a) | | (4.6 | ) | | — |
| | — |
| | — |
| | — |
| | (4.6 | ) |
Unrealized losses on foreign currency derivative instruments (net of tax of $(0.0)) (a) | | 0.1 |
| | — |
| | — |
| | — |
| | — |
| | 0.1 |
|
Integration expenses associated with Finagaz (net of tax of $(0.7)) (a) | | 1.2 |
| | — |
| | 1.2 |
| | — |
| | — |
| | — |
|
Impact of French Finance Bill | | (17.3 | ) | | — |
| | (17.3 | ) | | — |
| | — |
| | — |
|
Impact from TCJA | | (166.0 | ) | | (113.1 | ) | | 9.3 |
| | (74.3 | ) | | (8.1 | ) | | 20.2 |
|
Adjusted net income (loss) attributable to UGI Corporation | | $ | 179.3 |
| | $ | 28.5 |
| | $ | 54.3 |
| | $ | 37.7 |
| | $ | 60.2 |
| | $ | (1.4 | ) |
| | | | | | | | | | | | |
Adjusted diluted earnings per share: | | | | | | | | | | | | |
UGI Corporation earnings (loss) per share — diluted | | $ | 2.07 |
| | $ | 0.80 |
| | $ | 0.35 |
| | $ | 0.63 |
| | $ | 0.39 |
| | $ | (0.10 | ) |
Net gains on commodity derivative instruments not associated with current-period transactions | | (0.03 | ) | | — |
| | — |
| | — |
| | — |
| | (0.03 | ) |
Unrealized losses on foreign currency derivative instruments | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Integration expenses associated with Finagaz | | 0.01 |
| | — |
| | 0.01 |
| | — |
| | — |
| | — |
|
Impact of French Finance Bill | | (0.10 | ) | | — |
| | (0.10 | ) | | — |
| | — |
| | — |
|
Impact from TCJA | | (0.94 | ) | | (0.64 | ) | | 0.05 |
| | (0.42 | ) | | (0.05 | ) | | 0.12 |
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Adjusted diluted earnings (loss) per share | | $ | 1.01 |
| | $ | 0.16 |
| | $ | 0.31 |
| | $ | 0.21 |
| | $ | 0.34 |
| | $ | (0.01 | ) |
UGI CORPORATION AND SUBSIDIARIES
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| | | | | | | | |
| | Three Months Ended June 30, | | Nine Months Ended June 30, |
Adjusted diluted earnings per share | | 2023 | | 2022 | | 2023 | | 2022 |
AmeriGas Propane | | $ | (0.17) | | | $ | (0.17) | | | $ | 0.40 | | | $ | 0.63 | |
UGI International | | 0.06 | | | 0.07 | | | 0.69 | | | 0.75 | |
Midstream & Marketing | | 0.10 | | | 0.11 | | | 0.76 | | | 0.61 | |
Utilities | | 0.05 | | | 0.08 | | | 1.08 | | | 1.00 | |
Corporate & Other (a) | | (3.80) | | | (0.12) | | | (10.71) | | | 0.85 | |
Diluted (loss) earnings per share (c) | | (3.76) | | | (0.03) | | | (7.78) | | | 3.84 | |
Net losses (gains) on commodity derivative instruments not associated with current-period transactions (c) | | 0.55 | | | (0.06) | | | 6.34 | | | (1.18) | |
Unrealized losses (gains) on foreign currency derivative instruments | | 0.01 | | | (0.05) | | | 0.18 | | | (0.06) | |
Loss associated with impairment of AmeriGas Propane goodwill | | 3.14 | | | — | | | 3.14 | | | — | |
Loss on extinguishments of debt | | 0.03 | | | — | | | 0.03 | | | 0.03 | |
Acquisition and integration expenses associated with the Mountaineer Acquisition | | — | | | — | | | — | | | — | |
Business transformation expenses | | 0.01 | | | 0.01 | | | 0.02 | | | 0.02 | |
AmeriGas operations enhancement for growth project | | 0.02 | | | — | | | 0.07 | | | — | |
Impairments associated with certain equity method investments | | — | | | 0.17 | | | — | | | 0.17 | |
| | | | | | | | |
Restructuring costs | | — | | | 0.02 | | | — | | | 0.08 | |
Loss on disposal of U.K. energy marketing business | | — | | | — | | | 0.72 | | | — | |
Impairment of assets | | — | | | — | | | 0.09 | | | — | |
| | | | | | | | |
Total adjustments (a) | | 3.76 | | | 0.09 | | | 10.59 | | | (0.94) | |
Adjusted diluted earnings per share (c) | | $ | — | | | $ | 0.06 | | | $ | 2.81 | | | $ | 2.90 | |
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Three Months Ended December 31, 2016 | | Total | | AmeriGas Propane | | UGI International | | Midstream & Marketing | | UGI Utilities | | Corporate & Other |
Adjusted net income attributable to UGI Corporation (millions): | | | | | | | | | | | | |
Net income attributable to UGI Corporation | | $ | 230.7 |
| | $ | 16.6 |
| | $ | 88.3 |
| | $ | 29.9 |
| | $ | 44.3 |
| | $ | 51.6 |
|
Net gains on commodity derivative instruments not associated with current-period transactions (net of tax of $33.3) (a) | | (52.2 | ) | | — |
| | — |
| | — |
| | — |
| | (52.2 | ) |
Unrealized gains on foreign currency derivative instruments (net of tax of $0.4) (a) | | (0.8 | ) | | — |
| | — |
| | — |
| | — |
| | (0.8 | ) |
Loss on extinguishments of debt (net of tax of $(3.4)) (a) | | 5.3 |
| | 5.3 |
| | — |
| | — |
| | — |
| | — |
|
Integration expenses associated with Finagaz (net of tax of $(2.8)) (a) | | 5.3 |
| | — |
| | 5.3 |
| | — |
| | — |
| | — |
|
Impact from change in French tax rate | | (27.4 | ) | | — |
| | (27.4 | ) | | — |
| | — |
| | — |
|
Adjusted net income (loss) attributable to UGI Corporation | | $ | 160.9 |
| | $ | 21.9 |
| | $ | 66.2 |
| | $ | 29.9 |
| | $ | 44.3 |
| | $ | (1.4 | ) |
| | | | | | | | | | | | |
Adjusted diluted earnings per share: | | | | | | | | | | | | |
UGI Corporation earnings per share — diluted | | $ | 1.30 |
| | $ | 0.09 |
| | $ | 0.50 |
| | $ | 0.17 |
| | $ | 0.25 |
| | $ | 0.29 |
|
Net gains on commodity derivative instruments not associated with current-period transactions | | (0.29 | ) | | — |
| | — |
| | — |
| | — |
| | (0.29 | ) |
Unrealized gains on foreign currency derivative instruments (b) | | (0.01 | ) | | — |
| | — |
| | — |
| | — |
| | (0.01 | ) |
Loss on extinguishments of debt | | 0.03 |
| | 0.03 |
| | — |
| | — |
| | — |
| | — |
|
Integration expenses associated with Finagaz | | 0.03 |
| | — |
| | 0.03 |
| | — |
| | — |
| | — |
|
Impact from change in French tax rate | | (0.15 | ) | | — |
| | (0.15 | ) | | — |
| | — |
| | — |
|
Adjusted diluted earnings (loss) per share | | $ | 0.91 |
| | $ | 0.12 |
| | $ | 0.38 |
| | $ | 0.17 |
| | $ | 0.25 |
| | $ | (0.01 | ) |
| |
(a) | Income taxes associated with pre-tax adjustments determined using statutory business unit tax rates. |
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(b) | Includes the effects of rounding associated with per share amounts. |
(a)Corporate & Other includes certain adjustments made to our reporting segments in arriving at net income (loss) attributable to UGI Corporation. These adjustments have been excluded from the segment results to align with the measure used by our CODM in assessing segment performance and allocating resources. See Note 14 to Condensed Consolidated Financial Statements for additional information related to these adjustments, as well as other items included within Corporate & Other.
RESULTS OF OPERATIONS(b)Income taxes associated with pre-tax adjustments determined using statutory business unit tax rates.
2017 three-month period compared(c)The loss per share for the three months ended June 30, 2022, was determined excluding the effect of 5.67 million dilutive shares as the impact of such shares would have been antidilutive due to the 2016 three-monthnet loss for the period,
Note - Average temperatures while the adjusted earnings per share for the three months ended June 30, 2022, was determined based upon heating degree daysfully diluted shares of 215.89 million. The loss per share for allthe nine months ended June 30, 2023, was determined excluding the effect of our business segments presented below are now6.22 million dilutive shares as the impact of such shares would have been antidilutive due to the net loss for the period, while the adjusted earnings per share for the nine months ended June 30, 2023, was determined based upon recent 15-year periods (rather than recent 30-year periods) as we believe more recent temperatures are a better indicationfully diluted shares of normal heating degree days. Prior-period weather statistics have been restated, as appropriate, to conform to the new periods.216.03 million.
UGI CORPORATION AND SUBSIDIARIES
EXECUTIVE OVERVIEW
Recent Developments
Impairment of Goodwill. During the quarter ended June 30, 2023, the Company identified interim impairment indicators related to goodwill within the AmeriGas Propane reporting unit: (1) AmeriGas Partners issued $500 million of Senior Notes at an interest rate of 9.375%, which was significantly higher than the interest rates on the other AmeriGas Propane debt obligations; and (2) financial projections for the AmeriGas Propane reporting unit were reduced significantly compared to previous forecasts following declines in gross margins and customer retention and higher operating expenses. The Company concluded that these events constituted triggering events that indicate that the AmeriGas Propane goodwill may be impaired and, as such, performed an interim impairment test of its goodwill as of May 31, 2023.
We performed a quantitative assessment of the AmeriGas Propane reporting unit using a weighting of the income and market approaches to determine its fair value. Based on our evaluation, the estimated fair value of the reporting unit was determined to be less than its carrying value. As a result, the Company recorded a non-cash pre-tax goodwill impairment charge of $656 million, included in “Impairment of goodwill” on the Condensed Consolidated Statement of Income, to reduce the carrying value of AmeriGas Propane to its fair value. The Company calculated the deferred tax effect using the simultaneous equation method.
The performance of the AmeriGas Propane reporting unit and the potential for future developments in the global economic environment, including the prospect of higher interest rates, introduces a heightened risk for additional impairment in the AmeriGas Propane reporting unit. If there is continued deterioration in the results of operations, a portion or all of the remaining recorded goodwill for the AmeriGas Propane reporting unit, which was $1.3 billion as of June 30, 2023, could be subject to further impairment.
See Note 2 to Condensed Consolidated Financial Statements for additional information.
Sale of U.K. Energy Marketing Business. On October 21, 2022, UGI International, through a wholly-owned subsidiary, sold its natural gas marketing business located in the U.K. for a net cash payment of $19 million which includes certain working capital adjustments. In conjunction with the sale, during the first quarter of Fiscal 2023, the Company recorded a pre-tax loss of $215 million ($151 million after-tax) substantially all of which loss was due to the non-cash transfer of commodity derivative instruments associated with the business. At the date of closing of the sale, these commodity derivative instruments had a net carrying value of $206 million which is attributable to net unrealized gains on such instruments. At September 30, 2022, these derivative instruments had a net carrying value of $276 million. The change in the carrying amount of these derivative instruments between September 30, 2022 and October 21, 2022 resulted from changes in their fair value during that period.
Other UGI International Energy Marketing Businesses. In November 2022, the Company announced that it expected to sign a definitive agreement during the first quarter of Fiscal 2023 to sell its energy marketing business in France. In December 2022, the Company announced that it no longer expected to sign a such agreement as extended negotiations with the potential buyer had been discontinued.
During the first quarter of Fiscal 2023, the Company recorded a $19 million pre-tax impairment charge to reduce the carrying values of certain assets associated with its energy marketing business in the Netherlands, comprising property, plant and equipment and intangible assets.
On July 8, 2023, UGI International, through a wholly-owned subsidiary, entered into a definitive agreement to sell a substantial portion of its energy marketing business located in Belgium, principally comprising customer contracts and prepaid broker fees. The assets associated with the pending sale were not material at June 30, 2023 and have been classified as “Held for sale assets” on the Condensed Consolidated Balance Sheet as of June 30, 2023. The initially estimated cash proceeds, less a payment to the buyer, on or subsequent to the closing date, pursuant to the definitive agreement is not expected to be material. The cash payment to buyer is equal to an agreed upon portion of the fair value, as of the closing date, of associated derivative commodity hedge contracts currently held by UGI International. The closing of the pending sale is subject to regulatory and other third-party approvals and is expected to occur during the fourth quarter of Fiscal 2023.
On August 1, 2023, UGI International, through a wholly-owned subsidiary, entered into a definitive agreement to sell a substantial portion of its energy marketing business located in France, principally comprising customer contracts, energy certificates and substantially all of its derivative commodity hedge contracts, for an initially estimated net cash payment to the buyer of €23 million. This initially estimated closing date payment is subject to adjustments relating to, among other things, the
UGI CORPORATION AND SUBSIDIARIES
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| | | | | | | | | | | | | | | |
For the three months ended December 31, | | 2017 | | 2016 | | Increase (Decrease) |
(Dollars in millions) | | | | | | | | |
Revenues | | $ | 787.3 |
| | $ | 677.2 |
| | $ | 110.1 |
| | 16.3 | % |
Total margin (a) | | $ | 421.2 |
| | $ | 416.5 |
| | $ | 4.7 |
| | 1.1 | % |
Partnership operating and administrative expenses | | $ | 230.3 |
| | $ | 226.8 |
| | $ | 3.5 |
| | 1.5 | % |
Partnership Adjusted EBITDA (b)(c) | | $ | 194.1 |
| | $ | 185.1 |
| | $ | 9.0 |
| | 4.9 | % |
Operating income (c) (d) | | $ | 147.9 |
| | $ | 141.9 |
| | $ | 6.0 |
| | 4.2 | % |
Retail gallons sold (millions) | | 305.0 |
| | 305.7 |
| | $ | (0.7 | ) | | (0.2 | )% |
Heating degree days—% (warmer) than normal (e) | | (1.4 | )% | | (10.3 | )% | | — |
| | — |
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actual date of closing, the fair value of derivative commodity hedge contracts currently held by the Company but not subject to transfer to the buyer, and conditions associated with certain customer contracts. The effects of these adjustments will be settled on, or subsequent to, the closing date. The closing of the pending sale is subject to regulatory and other third-party approvals and is expected to occur during the first quarter of Fiscal 2024. | |
(a) | Total margin represents total revenues less total cost of sales. Total margin for the three months ended December 31, 2017 and 2016 excludes net pre-tax gains of $0.8 million and $25.7 million, respectively, on AmeriGas Propane commodity derivative instruments not associated with current-period transactions. |
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(b) | Partnership Adjusted EBITDA should not be considered as an alternative to net income (loss) (as an indicator of operating performance) and is not a measure of performance or financial condition under GAAP. Management uses Partnership Adjusted EBITDA as the primary measure of segment profitability for the AmeriGas Propane segment (see Note 15 to condensed consolidated financial statements). |
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(c) | Amounts for the three months ended December 31, 2016, reflect adjustments to correct previously recorded gains on sales of fixed assets ($8.8 million) and decreased depreciation expense ($1.1 million) relating to certain assets acquired with the Heritage Propane acquisition in 2012, which adjustments reduced Partnership Adjusted EBITDA by $8.8 million and reduced operating income by $7.7 million. |
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(d) | Operating income reflects certain operating and administrative expenses of the General Partner. |
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(e) | Deviation from average heating degree days for the 15-year period 2002-2016 based upon national weather statistics provided by the National Oceanic and Atmospheric Administration (“NOAA”) for 344 Geo Regions in the United States, excluding Alaska and Hawaii. |
The Company continues to pursue the wind-down of its energy marketing business located in the Netherlands and its remaining natural gas marketing business in France. On July 21, 2023, DVEP signed a definitive agreement to sell a substantial portion of its power purchase agreement portfolio for a net cash payment to the buyer. Such payment is not expected to be material. The closing of the pending sale is subject to regulatory and other third-party approvals and is expected to occur during the first half of Fiscal 2024.
See Note 5 to Condensed Consolidated Financial Statements for additional information.
Global Macroeconomic Conditions. Beginning in Fiscal 2021 and continuing into Fiscal 2023, global commodity and labor markets have experienced significant inflationary pressures attributable to various economic and political factors, including, among others: the economic recovery and evolving consumer patterns associated with the COVID-19 pandemic; supply chain issues including those associated with labor shortages; significant increases and volatility in energy commodity prices; and political and regulatory conditions resulting from the war between Russia and Ukraine. These factors have contributed to inflationary pressures as evidenced by recent increases in various consumer price indices. In response to these inflationary pressures, central banks in the U.S. and Europe began increasing interest rates during Fiscal 2022. In addition, during the last several years, we have experienced significant volatility in energy commodity prices, particularly in LPG, natural gas and electricity prices, which have resulted in substantial fluctuations in the fair values of our commodity derivative instruments. These inflationary pressures and commodity price fluctuations have resulted in, among other things, increases in inventory and certain operating and distribution expenses across all of our businesses. Commodity price fluctuations have also significantly affected the cash collateral deposit requirements of our derivative instrument counterparties and the restricted cash required to be held in our derivative broker and clearing institution accounts. We cannot predict the duration or total magnitude of these conditions and the effects such conditions may have on our future business, financial results, financial position, and liquidity and cash flows. However, we continue to monitor and respond to these global economic and political conditions and remain focused on managing our financial condition and liquidity as these conditions continue to evolve.
2023 three-month period compared with 2022 three-month period
Discussion. Net loss attributable to UGI Corporation for the 2023 three-month period was $789 million (equal to $3.76 loss per diluted share) compared to $7 million (equal to $0.03 loss per diluted share) for the 2022 three-month period. These results include net (losses) gains from changes in unrealized commodity derivative instruments and certain foreign currency derivative instruments of $(116) million and $22 million during the 2023 and 2022 three-month periods, respectively. The higher losses from changes in commodity derivative instruments during the 2023 three-month period principally reflects significant declines in commodity energy prices in Europe following unprecedented increases in such prices during Fiscal 2022.
Net loss attributable to UGI Corporation during the 2023 three-month period also includes (1) a $660 million loss associated with impairment of AmeriGas Propane goodwill; (2) loss on extinguishment of debt of $7 million at AmeriGas Propane; (3) external advisory fees of $4 million associated with AmeriGas operations enhancement for growth project; and (4) business transformation expenses of $1 million associated with corporate support functions.
Net loss attributable to UGI Corporation during the 2022 three-month period also includes (1) impairments of $36 million associated with certain equity method investments; (2) restructuring costs of $4 million largely attributable to a reduction in workforce and related costs; and (3) business transformation expenses of $1 million associated with corporate support functions.
Adjusted net loss attributable to UGI Corporation for the 2023 three-month period was $1 million (equal to $0.00 per diluted share) compared to adjusted net income of $12 million (equal to $0.06 per diluted share) for the 2022 three-month period. The increase in adjusted net loss attributable to UGI Corporation during the 2023 three-month period reflects a lower earnings contribution from Utilities, UGI International and Midstream & Marketing business segments, partially offset by a slightly higher earnings contribution from the AmeriGas Propane business segment. During the 2023 three-month period, temperatures in all of our business segments, except for our UGI International business segment, were warmer than the prior-year period.
AmeriGas Propane’s adjusted net loss attributable to UGI Corporation decreased $2 million in the 2023 three-month period. This decrease principally reflects higher total margin primarily resulting from the benefit of higher average retail propane unit margin in the 2023 three-month period, partially offset by lower volumes sold and higher operating and administrative
UGI CORPORATION AND SUBSIDIARIES
expenses. The higher operating and administrative expenses primarily reflect, among other things, higher overtime and other employee-related costs associated with distribution activity and the effects of continuing inflationary pressures.
UGI International’s adjusted net income attributable to UGI Corporation decreased $2 million in the 2023 three-month period, notwithstanding slightly higher retail LPG gallons sold, duringprincipally reflecting lower total margin from our energy marketing business, substantially offset by higher average unit margin from our LPG business attributable to strong margin management efforts and colder weather. This decrease also reflects higher operating and administrative expenses primarily reflecting the 2017impact of inflationary increases.
Midstream & Marketing’s adjusted net income attributable to UGI Corporation decreased $1 million in the 2023 three-month period were approximately equalprimarily attributable to lower total margin from natural gas marketing activities, partially offset by the impact of incremental natural gas gathering activities reflecting in large part the Fiscal 2022 acquisition of Pennant.
Utilities’ adjusted net income attributable to UGI Corporation decreased $9 million in the 2023 three-month period compared to the prior-year period. AverageThe decrease was largely attributable to the higher operating expenses, including higher uncollectible accounts expenses and higher contractor labor and personnel-related expenses. This decrease was partially offset by the increase in total margin due in large part to the increase in base rates and the implementation of the weather normalization adjustment at PA Gas Utility, both of which became effective during the first quarter of Fiscal 2023.
2023 nine-month period compared with 2022 nine-month period
Discussion. Net loss attributable to UGI Corporation for the 2023 nine-month period was $1,633 million (equal to $7.78 loss per diluted share) compared to net income attributable to UGI Corporation of $829 million (equal to $3.84 per diluted share) for the 2022 nine-month period. These results include net (losses) gains from changes in unrealized commodity derivative instruments and certain foreign currency derivative instruments of $(1,386) million and $269 million during the 2023 and 2022 nine-month periods, respectively. The higher losses from changes in commodity derivative instruments during the 2023 nine-month period, principally reflects significant declines in commodity energy prices in Europe following unprecedented increases in such prices during Fiscal 2022.
Net loss attributable to UGI Corporation during the 2023 nine-month period also includes (1) a $660 million loss associated with impairment of AmeriGas Propane goodwill; (2) a $151 million loss on the sale of our energy marketing business in the U.K., principally reflecting the impact of the transfer of derivative hedge contracts; (3) an impairment of assets of $19 million; (4) external advisory fees of $14 million associated with AmeriGas operations enhancement for growth project; (5) loss on extinguishment of debt of $7 million at AmeriGas Propane; and (6) business transformation expenses of $4 million associated with corporate support functions.
Net income attributable to UGI Corporation during the 2022 nine-month period also includes (1) impairments of $36 million associated with certain equity method investments; (2) restructuring costs of $17 million largely attributable to a reduction in workforce and related costs; (3) loss on extinguishment of debt of $8 million at UGI International; (4) business transformation expenses of $4 million associated with corporate support functions; and (5) acquisition and integration expenses of $1 million associated with the Mountaineer Acquisition.
Adjusted net income attributable to UGI Corporation for the 2023 nine-month period was $608 million (equal to $2.81 per diluted share) compared to $626 million (equal to $2.90 per diluted share) for the 2022 nine-month period. The decrease in adjusted net income attributable to UGI Corporation for the 2023 nine-month period reflects lower earnings contributions from our AmeriGas Propane and UGI International business segments, partially offset by higher earnings contributions from our Midstream & Marketing and Utilities business segments. During the 2023 nine-month period, temperatures based uponin all of our business units, except for our AmeriGas Propane business segment, were warmer than the prior-year period.
AmeriGas Propane’s adjusted net income attributable to UGI Corporation decreased $48 million in the 2023 nine-month period. This decrease principally reflects higher operating and administrative expenses reflecting, among other things, higher overtime and other employee-related costs associated with distribution activity, the effects of continuing inflationary pressures and lower total margin largely attributable to the lower retail propane volumes sold, substantially offset by the benefit of higher average retail propane unit margins in the 2023 nine-month period.
UGI International’s adjusted net income attributable to UGI Corporation decreased $11 million in the 2023 nine-month period, mainly reflecting the translation effects of weaker foreign currencies. UGI International operating results reflect lower total LPG margin principally due to the effects of the lower LPG retail volumes sold attributable to the warmer weather and lower residential LPG consumption resulting from energy conservation measures in Europe due in large part to the war between
UGI CORPORATION AND SUBSIDIARIES
Ukraine and Russia. These decreases were partially offset by higher margin from natural gas energy marketing activities and higher retail LPG average unit margins attributable to strong margin management efforts and lower commodity prices.
Midstream & Marketing’s adjusted net income attributable to UGI Corporation increased $33 million in the 2023 nine-month period. The increase in adjusted net income is primarily attributable to higher margins related to natural gas marketing activities and incremental earnings contributions from UGI Moraine East and Pennant.
Utilities’ adjusted net income attributable to UGI Corporation increased $18 million in the 2023 nine-month period. The increase was largely related to the increase in base rates and the implementation of the weather normalization adjustment at PA Gas Utility, both of which became effective during the first quarter of Fiscal 2023. The increase in total margin was partially offset by higher operating and administrative expenses.
SEGMENT RESULTS OF OPERATIONS
2023 Three-Month Period Compared with the 2022 Three-Month Period
AmeriGas Propane
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For the three months ended June 30, | | 2023 | | 2022 | | Increase (Decrease) |
(Dollars in millions) | | | | | | | | |
Revenues | | $ | 514 | | | $ | 597 | | | $ | (83) | | | (14) | % |
Total margin (a) | | $ | 263 | | | $ | 227 | | | $ | 36 | | | 16 | % |
Operating and administrative expenses | | $ | 236 | | | $ | 204 | | | $ | 32 | | | 16 | % |
Operating loss/loss before interest expense and income taxes | | $ | (8) | | | $ | (10) | | | $ | 2 | | | (20) | % |
Retail gallons sold (millions) | | 163 | | | 173 | | | (10) | | | (6) | % |
Heating degree days—% colder than normal (b) | | 4.2 | % | | 16.5 | % | | — | | | — | |
(a)Total margin represents total revenues less total cost of sales.
(b)Deviation from average heating degree days is determined on a rolling 10-year period utilizing volume-weighted weather data based on weather statistics provided by NOAA for 344 regions in the United States, excluding Alaska and Hawaii.
Average temperatures during the 20172023 three-month period were 1.4% warmer4.2% colder than normal but 9.9% colderand 9.2% warmer than the prior-year period. Average temperaturesTotal retail gallons sold decreased 6% during the 20172023 three-month period were significantly influenced by much colder than normal temperatures that occurred during the last week of December which was nearly 60% colder than the prior year. Excluding the last week of December 2017, average temperatures during the 2017 three-month period were approximately 6.6% warmer than normal and 3.8% colder than the prior-year period.
AmeriGas Propane’s retail propane revenues increased $99.2 million during the 2017 three-month period reflecting thedue to effects of higher average retail selling prices ($100.6 million) partially offset by the lower retail volumes sold ($1.4 million). Wholesale propane revenues increased $8.2 million during the 2017 three-month period reflecting the effects of higher average wholesale selling prices ($5.6 million)continuing customer attrition and higher wholesale volumes sold ($2.6 million). structural conservation.
Average daily wholesale propane commodity prices during the 20172023 three-month period at Mont Belvieu, Texas, one of the major supply points in the U.S., were approximately 64% higher46% lower than such prices during the 20162022 three-month period. OtherTotal revenues indecreased $83 million during the 20172023 three-month period were slightly higher than inlargely reflecting lower retail propane revenues ($55 million) on the prior-year period. AmeriGas Propane totallower retail volumes sold ($28 million) and the effects of lower average retail propane selling prices ($27 million), and lower wholesale revenues ($24 million).
Total cost of sales increased $105.4decreased $119 million principallyduring the 2023 three-month period largely reflecting the effects of higher averagelower retail propane product costs ($103.071 million) and, to a much lesser extent,, the effects of the higher wholesalelower average retail propane volumes sold.
AmeriGas Propane totalsold ($17 million), and lower wholesale cost of sales ($28 million). Total margin increased $4.7$36 million in the 20172023 three-month period principally reflecting slightlylargely attributable to higher average retail propane total marginunit margins ($2.644 million) and slightly higher non-propane total marginwholesale margins ($2.14 million). The increase in retail propane total margin reflects slightly higher average retail unit margin.
Partnership Adjusted EBITDA increased $9.0 million in the 2017 three-month period principally reflecting the effects of the higher total margin ($4.7 million) and higher other operating income ($7.8 million), partially offset by slightlythe effects on total margin from the lower retail propane volumes sold ($11 million).
Operating loss and loss before interest expense and income taxes decreased $2 million during the 2023 three-month period primarily reflecting the increase in total margin ($36 million), largely offset by higher Partnership operating and administrative expenses ($3.532 million). The increase in other operating income reflects the absence of an $8.8 million adjustment recorded in compared to the prior-year period to correct previously recorded gains on sales of fixed assets acquired with the Heritage Propane acquisition in 2012.period. The increase in operating and administrative expenses principally reflects, among other things, higher salaries and benefits expenses, higher overtime, higher advertising expenses and higher vehicle ($2.9 million), outside services ($2.0 million) and compensation and benefits ($1.9 million) expenses partially offset by lower general insurance and self-insured casualty and liability expense.expenses.
UGI CORPORATION AND SUBSIDIARIES
AmeriGas Propane operating income increased $6.0 million in the 2017 three-month period principally reflecting the $9.0 million increase in Adjusted EBITDA partially offset by a $2.8 million increase in depreciation and amortization expense.
During the 2016 three-month period, AmeriGas Partners recognized a pre-tax loss of $33.2 million associated with early repayments of $500 million principal amount of AmeriGas Partners’ 7.0% Senior Notes comprising early redemption premiums and the write-off of unamortized debt issuance costs.
UGI International
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For the three months ended December 31, | | 2017 | | 2016 | | Increase (Decrease) |
(Dollars in millions) | | | | | | | | |
Revenues | | $ | 784.2 |
| | $ | 539.1 |
| | $ | 245.1 |
| | 45.5 | % |
Total margin (a) | | $ | 299.4 |
| | $ | 281.1 |
| | $ | 18.3 |
| | 6.5 | % |
Operating and administrative expenses (b) | | $ | 173.9 |
| | $ | 165.6 |
| | $ | 8.3 |
| | 5.0 | % |
Operating income (b) | | $ | 93.1 |
| | $ | 88.9 |
| | $ | 4.2 |
| | 4.7 | % |
Income before income taxes (b) (c) | | $ | 82.6 |
| | $ | 84.0 |
| | $ | (1.4 | ) | | (1.7 | )% |
LPG retail gallons sold (millions) | | 263.6 |
| | 254.2 |
| | $ | 9.4 |
| | 3.7 | % |
UGI International degree days—% (warmer) colder than normal (d) | | (0.9 | )% | | 6.6 | % | | — |
| | — |
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For the three months ended June 30, | | 2023 | | 2022 | | (Decrease) Increase |
(Dollars in millions) | | | | | | | | |
Revenues | | $ | 611 | | | $ | 738 | | | $ | (127) | | | (17) | % |
Total margin (a) | | $ | 193 | | | $ | 194 | | | $ | (1) | | | (1) | % |
Operating and administrative expenses | | $ | 157 | | | $ | 143 | | | $ | 14 | | | 10 | % |
Operating income | | $ | 21 | | | $ | 22 | | | $ | (1) | | | (5) | % |
Earnings before interest expense and income taxes | | $ | 22 | | | $ | 26 | | | $ | (4) | | | (15) | % |
LPG retail gallons sold (millions) | | 158 | | | 155 | | | 3 | | | 2 | % |
Heating degree days—% (warmer) than normal (b) | | (9.8) | % | | (9.1) | % | | — | | | — | |
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(a) | Total margin represents total revenues less total cost of sales. Total margin for the three months ended December 31, 2017 and 2016 excludes net pre-tax gains of $17.0 million and $15.9 million, respectively, on UGI International commodity derivative instruments not associated with current-period transactions. |
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(b) | Reflects impacts of Finagaz integration expenses for the three months ended December 31, 2017 and 2016, of $1.9 million and $8.1 million, respectively. |
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(c) | Income before income taxes for the three months ended December 31, 2017 and 2016 excludes net pre-tax unrealized gains (losses) on certain foreign currency derivative contracts of $(0.1) million and $1.2 million, respectively. |
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(d) | Deviation from average heating degree days for the 15-year period 2002-2016 at locations in our UGI International service territories. |
(a)Total margin represents revenues less cost of sales.
(b)Deviation from average heating degree days is determined on a rolling 10-year period utilizing volume-weighted weather data at locations in our UGI International service territories.
Average temperatures during the 20172023 three-month period were approximately 0.9%9.8% warmer than normal and 7.0% warmer5.1% colder than the prior-year period. Total LPG retail gallons sold during the 20172023 three-month period were 2% higher than the prior-year period as incremental retail gallons sold as a result of our October 2017 acquisition of Total’s retail LPG businessdue in Italy (now known as “UniverGas”) were partially offset bylarge part to the effects of the warmercolder weather on bulk sales and lower crop-drying volumes. During the 2017 three-month period, average wholesale commodity prices for propane and butane in northwest Europe were approximately 37% and 25% higher than in the prior-year period, respectively.substantially offset by lower consumption, principally from residential customers, primarily resulting from the European conservation measures due in large part to high global energy prices and the war between Russia and Ukraine.
UGI International base-currency results are translated into U.S. dollarsUSD based upon exchange rates experienced during the reporting periods. The functional currency of a significant portion of our UGI International results is the euro and, to a much lesser extent, the British pound sterling. During the 20172023 and 20162022 three-month periods, the average un-weighted euro-to-dollarunweighted euro-to-USD translation rates were approximately $1.18$1.09 and $1.08,$1.06, respectively, and the average un-weightedunweighted British pound sterling-to-dollarsterling-to-USD translation rates were approximately $1.33$1.25 and $1.25,$1.26, respectively. Although the euro and British pound sterling were stronger during the 2017 three-month period and impact the comparison of line item amounts presentedFluctuations in the table above, the effects of these stronger currencies did notforeign currency exchange rates can have a significant impact on UGI International net income due to gains and losses onthe individual financial statement components discussed below. The Company uses forward foreign currency exchange contracts.contracts entered into over multi-year periods to reduce the volatility in earnings that may result from such changes in foreign currency exchange rates. Realized gains (losses) on these foreign exchange contracts did not have a material impact on either of the three-month periods.
UGI International revenues increased $245.1 million during the 2017 three-month period reflecting approximately $137.0 million of combined incremental revenues from UniverGas and our August 2017 acquisition of an electricity and natural gas marketing business in the Netherlands (“DVEP”), the effects of higher LPG selling prices resulting from the higher LPG product costs, and the translation effects on local currency revenues of the stronger euro and British pound sterling. UGI International cost of sales increased $226.8decreased $127 million and $126 million, respectively, during the 20172023 three-month period reflectingcompared to the prior-year period. Average wholesale prices for propane and butane during the 2023 three-month period in northwest Europe were approximately $119.0 million of incremental41% and 50% lower, respectively, compared with the prior-year period. The decrease in revenues and cost of sales associated with UniverGasprincipally reflects the impact from lower LPG sales prices and DVEP,lower LPG costs, partially offset by slightly higher average LPG commodity costs,retail volumes sold and the translation effects of the stronger euroforeign currencies (approximately $10 million and British pound sterling.$6 million, respectively).
UGI International total margin increased $18.3decreased $1 million during the 2023 three-month period primarily reflecting lower total margin from our energy marketing businesses, substantially offset by higher margins from our LPG business attributable to strong unit margin management efforts and colder weather than the prior-year period and the translation effects of stronger foreign currencies (approximately $4 million).
UGI International operating income and earnings before interest expense and income taxes decreased $1 million and $4 million, respectively, during the 2023 three-month period compared to the prior-year period. The decrease in operating income principally reflects higher operating and administrative expenses ($14 million), partially offset by higher other income ($8 million). The higher operating and administrative expenses during the 2023 three-month period primarily reflects the effect of inflationary increases, higher uncollectible accounts expenses from energy marketing businesses and the translation effects of the stronger euroforeign currencies (approximately $3 million). The decrease in earnings before interest expense and British pound sterlingincome taxes in the 2023 three-month period largely reflects the decrease in operating income and approximately $18.0slightly lower realized gains on foreign currency exchange contracts entered into in order to reduce volatility in UGI International earnings resulting from the effects of changes in foreign currency exchange rates.
UGI CORPORATION AND SUBSIDIARIES
Midstream & Marketing
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For the three months ended June 30, | | 2023 | | 2022 | | Increase (Decrease) |
(Dollars in millions) | | | | | | | | |
Revenues | | $ | 279 | | | $ | 525 | | | $ | (246) | | | (47) | % |
Total margin (a) | | $ | 87 | | | $ | 89 | | | $ | (2) | | | (2) | % |
Operating and administrative expenses | | $ | 31 | | | $ | 29 | | | $ | 2 | | | 7 | % |
Operating income | | $ | 40 | | | $ | 38 | | | $ | 2 | | | 5 | % |
Earnings before interest expense and income taxes | | $ | 41 | | | $ | 44 | | | $ | (3) | | | (7) | % |
(a)Total margin represents revenues less cost of sales.
Average temperatures across Midstream & Marketing’s energy marketing territory during the 2023 three-month period were 6.8% warmer than normal and 3.0% warmer than the prior-year period.
Midstream & Marketing revenues decreased $246 million during the 2023 three-month period compared to the prior-year period, primarily reflecting lower revenues from natural gas marketing activities ($255 million), including the effects of peaking and capacity management activities, that were primarily impacted by significantly lower natural gas prices and, to a lesser extent, lower volumes from the warmer weather partially offset by higher retail power marketing revenues.
Midstream & Marketing cost of sales decreased $244 million during the 2023 three-month period compared to the prior-year period, largely driven by the lower natural gas costs related to the previously mentioned natural gas marketing activities, partially offset by higher cost of sales related to retail power marketing activities.
Midstream & Marketing total margin decreased $2 million during the 2023 three-month period largely reflecting lower margins from natural gas marketing activities ($10 million), including the effects of peaking and capacity management activities, partially offset by incremental natural gas gathering and processing activities ($7 million), primarily from the prior-year acquisition of Pennant.
Midstream & Marketing operating income during the 2023 three-month period increased $2 million, largely attributable to higher other income, partially offset by the previously mentioned decrease in total margin, higher operating and administrative expenses ($2 million) and higher depreciation and amortization ($2 million). The decrease in earnings before interest expense and income taxes of $3 million principally reflects lower income from UniverGasequity investees following the acquisition of the remaining 53% ownership interest in Pennant during the fourth quarter of Fiscal 2022, partially offset by the increase in operating income.
Utilities
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For the three months ended June 30, | | 2023 | | 2022 | | Increase (Decrease) |
(Dollars in millions) | | | | | | | | |
Revenues | | $ | 278 | | | $ | 274 | | | $ | 4 | | | 1 | % |
Total margin (a) | | $ | 156 | | | $ | 151 | | | $ | 5 | | | 3 | % |
Operating and administrative expenses (a) | | $ | 87 | | | $ | 79 | | | $ | 8 | | | 10 | % |
Operating income | | $ | 32 | | | $ | 38 | | | $ | (6) | | | (16) | % |
Earnings before interest expense and income taxes | | $ | 34 | | | $ | 40 | | | $ | (6) | | | (15) | % |
Gas Utility system throughput—bcf | | | | | | | | |
Core market | | 12 | | | 13 | | | (1) | | | (8) | % |
Total | | 77 | | | 74 | | | 3 | | | 4 | % |
Electric Utility distribution sales - gwh | | 209 | | | 220 | | | (11) | | | (5) | % |
Natural gas heating degree days—% (warmer) than normal (b) | | (11.2) | % | | (3.0) | % | | — | | | — | |
(a)Total margin represents revenues less cost of sales and DVEP.revenue-related taxes (i.e., gross receipts and business and occupation taxes) of $4 million and $2 million, respectively, during the 2023 and 2022 three-month periods. For financial statement purposes, revenue-related taxes are included in “Operating and administrative expenses” on the Condensed Consolidated Statements of Income (but are excluded from operating and administrative expenses presented above).
UGI CORPORATION AND SUBSIDIARIES
(b)Deviation from average heating degree days is determined on a 10-year period utilizing volume-weighted weather data based on weather statistics provided by NOAA for airports located within Gas Utility’s service territories.
Temperatures in Gas Utility’s service territories during the 2023 three-month period were 11.2% warmer than normal and 7.9% warmer than the prior-year period. The decrease in Gas Utility core market volumes during the 2023 three-month period is largely related to the significantly warmer weather, partially offset by growth in the core market customers. The decrease in Electric Utility distribution sales volumes is primarily attributable to warmer weather during the current-year period.
Utilities revenues increased $4 million in the 2023 three-month period. The increase in Gas Utility revenues ($4 million) is principally the result of the effects of the increase in base rates and the impact of the weather normalization adjustments for PA Gas Utility that went into effect during the first quarter of Fiscal 2023. These increases were partially offset by the lower core market volumes due to the warmer weather and lower off-system sales. Electric Utility revenues during the 2023 three-month period were comparable to the prior-year period.
Utilities cost of sales during the 2023 three-month period were comparable to the prior-year period for both Gas Utility and Electric Utility.
Utilities total margin increased $5 million during the 2023 three-month period largely reflecting higher Gas Utility total margin ($5 million), mainly reflecting the effects of the increase in margin werebase rates and weather normalization adjustments for PA Gas Utility that went into effect during the first quarter of Fiscal 2023, partially offset by the effects on legacy businesscore market volumes of the warmer weather. Electric Utility margin was comparable to the prior-year period.
Utilities operating income and earnings before interest expense and income taxes each decreased $6 million during the 2023 three-month period. These decreases largely reflect higher operating and administrative expenses ($8 million) compared to the prior-year period partially offset by the previously mentioned increase in total marginmargin. The higher operating and administrative expenses reflects, among other things, higher uncollectible accounts expenses, contract labor costs and personnel-related expenses.
Interest Expense and Income Taxes
Our consolidated interest expense during the 2023 three-month period was $96 million compared to $82 million during the 2022 three-month period. This increase largely reflects higher credit agreement interest rates and borrowings and higher long-term debt outstanding principally at Midstream & Marketing and Utilities.
The higher effective income tax rate for the 2023 three-month period reflects the impact of the tax benefit of the goodwill impairment at AmeriGas Propane which includes a gross-up component in the associated deferred tax asset. This benefit was slightly offset by a valuation allowance adjustment and by a lower concentration of pretax loss in higher tax rate jurisdictions resulting from slightly lower average LPG retail bulklosses on derivative instruments.
The Company continues to evaluate the elections available under current regulations and pending legislation. Accordingly, the impacts on the Company’s income tax provisions and taxes payable or refundable related to these items are subject to change.
2023 Nine-Month Period Compared with the 2022 Nine-Month Period
AmeriGas Propane
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For the nine months ended June 30, | | 2023 | | 2022 | | Increase (Decrease) |
(Dollars in millions) | | | | | | | | |
Revenues | | $ | 2,147 | | | $ | 2,423 | | | $ | (276) | | | (11) | % |
Total margin (a) | | $ | 1,080 | | | $ | 1,090 | | | $ | (10) | | | (1) | % |
Operating and administrative expenses | | $ | 734 | | | $ | 684 | | | $ | 50 | | | 7 | % |
Operating income/earnings before interest expense and income taxes | | $ | 240 | | | $ | 303 | | | $ | (63) | | | (21) | % |
Retail gallons sold (millions) | | 678 | | | 743 | | | (65) | | | (9) | % |
Heating degree days—% colder (warmer) than normal (b) | | 0.5 | % | | (0.8) | % | | — | | | — | |
(a)Total margin represents total revenues less total cost of sales.
UGI CORPORATION AND SUBSIDIARIES
(b)Deviation from average heating degree days is determined on a rolling 10-year period utilizing volume-weighted weather data based on weather statistics provided by NOAA for 344 regions in the U.S., excluding Alaska and Hawaii.
cylinder unit margins,
Average temperatures during the 2023 nine-month period were 0.5% colder than normal and 1.9% colder than the prior-year period. Total retail gallons sold decreased 9% during the 2023 nine-month period due to the effects of driver staffing shortages (which also limited growth), continuing customer attrition and structural conservation.
Average daily wholesale propane commodity prices during the 2023 nine-month period at Mont Belvieu, Texas, one of the major supply points in the U.S., were approximately 40% lower than such prices during the 2022 nine-month period. Total revenues decreased $276 million during the 2023 nine-month period largely reflecting lower retail propane revenues ($220 million) primarily on the lower legacy business LPG retail volume salesvolumes sold ($178 million) and, to a much lesser extent, slightlylower wholesale revenues ($52 million) and the effects of lower average retail propane selling prices ($42 million).
Total cost of sales decreased $266 million during the 2023 nine-month period largely reflecting the lower retail natural gas totalpropane product costs ($112 million), the lower retail propane volumes sold ($95 million) and lower wholesale cost of sales ($53 million). Total margin ondecreased $10 million in the 2023 nine-month period largely attributable to the lower retail propane volumes sold ($83 million), largely offset by higher average retail propane unit margins.margins ($70 million).
The $4.2Operating income and earnings before interest expense and income taxes each decreased $63 million increase in UGI International operating income principally reflectsduring the previously mentioned $18.3 million increase2023 nine-month period primarily reflecting the decrease in total margin partially offset by an $8.3 million increase in($10 million) and higher operating and administrative costs and a $4.3 million increase in depreciation and amortization expense.expenses ($50 million). The increase in operating and administrative expenses reflects, among other things, the higher overtime and other employee-related costs associated with distribution activity, higher vehicle expenses, higher advertising expenses and higher uncollectible accounts expenses, partially offset by lower salaries and benefits expenses, including the carryover impact from the workforce reductions made during Fiscal 2022.
UGI International
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For the nine months ended June 30, | | 2023 | | 2022 | | Increase (Decrease) |
(Dollars in millions) | | | | | | | | |
Revenues | | $ | 2,436 | | | $ | 3,011 | | | $ | (575) | | | (19) | % |
Total margin (a) | | $ | 723 | | | $ | 744 | | | $ | (21) | | | (3) | % |
Operating and administrative expenses | | $ | 471 | | | $ | 466 | | | $ | 5 | | | 1 | % |
Operating income | | $ | 197 | | | $ | 211 | | | $ | (14) | | | (7) | % |
Earnings before interest expense and income taxes | | $ | 216 | | | $ | 228 | | | $ | (12) | | | (5) | % |
LPG retail gallons sold (millions) | | 585 | | | 651 | | | (66) | | | (10) | % |
Heating degree days—% (warmer) than normal (b) | | (9.1) | % | | (2.3) | % | | — | | | — | |
(a)Total margin represents revenues less cost of sales.
(b)Deviation from average heating degree days is determined on a rolling 10-year period utilizing volume-weighted weather data at locations in our UGI International service territories.
Average temperatures during the 2023 nine-month period were 9.1% warmer than normal and 7.1% warmer than the prior-year period. Total LPG retail gallons sold during the 2023 nine-month period were 10% lower than the prior-year period largely attributable to the significantly warmer weather, lower consumption, principally from residential customers, primarily resulting from the European conservation measures due in large part to high global energy prices and the war between Russia and Ukraine, lower cylinder volumes and reduced crop drying campaigns, partially offset by the growth due to natural gas conversion.
UGI International base-currency results are translated into USD based upon exchange rates experienced during the reporting periods. The functional currency of a significant portion of our UGI International results is the euro and, to a much lesser extent, the British pound sterling. During the 2023 and 2022 nine-month periods, the average unweighted euro-to-USD translation rates were approximately $1.06 and $1.11, respectively, and the average unweighted British pound sterling-to-USD translation rates were approximately $1.21 and $1.32, respectively. Fluctuations in these foreign currency exchange rates can have a significant impact on the individual financial statement components discussed below. The Company uses forward foreign currency exchange contracts entered into over multi-year periods to reduce the volatility in earnings that may result from such changes in foreign currency exchange rates. These forward foreign currency exchange contracts resulted in realized net gains of $16 million and $12 million in the 2023 and 2022 nine-month periods, respectively.
UGI CORPORATION AND SUBSIDIARIES
UGI International revenues and cost of sales decreased $575 million and $554 million, respectively, during the 2023 nine-month period compared to the prior-year period. Average wholesale prices for propane and butane during the 2023 nine-month period in northwest Europe were approximately 25% and 28% lower, respectively, compared with the prior-year period. The decrease in revenues and cost of sales principally reflects the impact from lower LPG retail volumes sold and the translation effects of the stronger euroweaker foreign currencies (approximately $153 million and British pound sterling on local currency expenses and approximately $10.0$112 million, of incremental expenses from UniverGas and DVEP. These increases in operating and administrative expenses wererespectively), partially offset by the impact from the LPG price increases. Energy marketing businesses also contributed to the decrease in revenues and cost of sales during the 2023 nine-month period primarily due to lower local currency operating expenses at our legacyvolumes sold, partially offset by the impact from price increases.
UGI International total margin decreased $21 million during the 2023 nine-month period primarily reflecting the effects of the lower LPG business reflecting, in large part, expense synergies from Finagaz integration activities and lower repairs and maintenance, LPG distribution and Finagaz integration expenses. Operating and administrative expenses in the 2017 and 2016 three-month periods include $1.9 million and $8.1 million of Finagaz integration costs, respectively. The higher depreciation and amortization reflects UniverGas and DVEPretail volumes sold ($2.883 million) and the translation effects of the stronger currencies. UGI International income before income taxes decreased $1.4 million principally reflecting the previously mentioned $4.2 million increaseweaker foreign currencies (approximately $41 million). These factors were partially offset by higher average unit margins from our LPG business attributable to strong margin management efforts and lower commodity prices. The decrease in UGI International operating income reduced by realized losses on foreign currency exchange contracts ($4.7 million) and slightly higher interest expense ($0.8 million) due to the stronger euro.
Midstream & Marketing
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For the three months ended December 31, | | 2017 | | 2016 | | Increase |
(Dollars in millions) | | | | | | | | |
Revenues | | $ | 328.0 |
| | $ | 269.8 |
| | $ | 58.2 |
| | 21.6 | % |
Total margin (a) | | $ | 89.0 |
| | $ | 78.0 |
| | $ | 11.0 |
| | 14.1 | % |
Operating and administrative expenses | | $ | 26.7 |
| | $ | 23.0 |
| | $ | 3.7 |
| | 16.1 | % |
Operating income | | $ | 52.3 |
| | $ | 49.7 |
| | $ | 2.6 |
| | 5.2 | % |
Income before income taxes | | $ | 52.6 |
| | $ | 49.1 |
| | $ | 3.5 |
| | 7.1 | % |
| |
(a) | Total margin represents total revenues less total cost of sales. Total margin for the three months ended December 31, 2017 and 2016 excludes net pre-tax gains (losses) of $(11.1) million and $62.6 million, respectively, on Midstream & Marketing commodity derivative instruments not associated with current-period transactions. |
Temperatures across Midstream & Marketing’s energy marketing territory were approximately 1.1% warmer than normal but 6.2% colder than in the prior-year period. Midstream & Marketing 2017 three-month period revenues were $58.2 million higher reflecting higher natural gas revenues ($42.0 million) and, to a much lesser extent, higher natural gas gathering and peaking revenues. The increase in natural gas revenues principally reflects the effects of higher natural gas volumes, reflecting customer growth and the colder weather, and the effects of slightly higher average natural gas prices. The increase in peaking revenues reflects an increase in the number of contracts and the effects of the colder weather while the increase in natural gas gathering revenues reflects incremental revenues from the Sunbury Pipeline, which serves a natural gas-fired electricity generation facility in central Pennsylvania and began generating revenues in late Fiscal 2017, and, to a much lesser extent, incremental revenues from a north-central Pennsylvania natural gas gathering system acquired on October 31, 2017. Midstream & Marketing cost of sales were $239.0 million in the 2017 three-month period compared to $191.8 million in the 2016 three-month period, an increase of $47.2 million, principally reflecting higher natural gas cost of sales primarily a result of the higher natural gas volumes and prices.
Midstream & Marketing total margin increased $11.0 million in the 2017 three-month period reflectingwas partially offset by higher total margin from our midstream assetsenergy marketing businesses ($8.042 million), principally during the result of higher natural gas gathering and peaking total margin, and higher electricity generation total margin ($3.2 million). The increase in natural gas gathering total margin reflects incremental margin from the Sunbury Pipeline and, to a much lesser extent, margin from the recently acquired natural gas gathering assets, while the increase in peaking total margin reflects an increase in the number of contracts and the effects of the colder weather. The higher electricity generation total margin reflects higher electricity unit margins and higher electric generation volumes principally at our Hunlock Station generating facility.2023 nine-month period.
Midstream & MarketingUGI International operating income and incomeearnings before interest expense and income taxes decreased $14 million and $12 million, respectively, during the 2017 three-month period increased $2.6 million and $3.5 million, respectively.2023 nine-month period. The increasedecrease in operating income principally reflects the previously mentioned $21 million decrease in total margin, lower gains associated with sales of assets ($11 million) and higher operating and administrative expenses ($5 million). These decreases were partially offset by higher foreign currency transaction gains ($11 million), higher other operating income ($7 million) and lower depreciation and amortization expenses ($3 million). The higher operating and administrative expenses in the 2023 nine-month period primarily reflects the effects of inflationary increases, largely offset by the translation effects of the weaker foreign currencies (approximately $25 million). The decrease in earnings before interest expense and income taxes in the 2023 nine-month period largely reflects the $14 million decrease in operating income partially offset by higher realized gains on foreign currency exchange contracts entered into in order to reduce volatility in UGI International earnings resulting from the effects of changes in foreign currency exchange rates ($4 million).
Midstream & Marketing
| | | | | | | | | | | | | | | | | | | | | | | | | | |
For the nine months ended June 30, | | 2023 | | 2022 | | Increase (Decrease) |
(Dollars in millions) | | | | | | | | |
Revenues | | $ | 1,586 | | | $ | 1,731 | | | $ | (145) | | | (8) | % |
Total margin (a) | | $ | 401 | | | $ | 342 | | | $ | 59 | | | 17 | % |
Operating and administrative expenses | | $ | 95 | | | $ | 88 | | | $ | 7 | | | 8 | % |
Operating income | | $ | 249 | | | $ | 197 | | | $ | 52 | | | 26 | % |
Earnings before interest expense and income taxes | | $ | 253 | | | $ | 216 | | | $ | 37 | | | 17 | % |
(a)Total margin represents revenues less cost of sales.
Average temperatures across Midstream & Marketing’s energy marketing territory during the 2023 nine-month period were 11.0% warmer than normal and 5.8% warmer than the prior-year period.
Midstream & Marketing revenues decreased $145 million compared to the prior-year period, primarily reflecting lower revenues from natural gas marketing activities ($213 million), including the effects of peaking and capacity management activities, that were primarily impacted by lower natural gas prices and lower volumes from the warmer weather. This decrease was partially offset by higher natural gas gathering and processing activities ($40 million), primarily due to the impact on revenues from the prior-year acquisitions of UGI Moraine East and Pennant and higher retail power marketing revenues ($26 million).
Midstream & Marketing cost of sales decreased $204 million compared to the prior-year period, primarily reflecting the lower natural gas costs ($233 million) related to the previously mentioned natural gas marketing activities partially offset by higher cost of sales related to retail power marketing activities.
Midstream & Marketing total margin increased $59 million in the 2023 nine-month period reflecting incremental natural gas gathering and processing activities ($43 million), primarily from the prior year acquisitions of UGI Moraine East and Pennant; and higher margins from natural gas marketing activities ($20 million), including the effects of peaking and capacity management activities that benefited from extremely cold weather in late December.
UGI CORPORATION AND SUBSIDIARIES
Midstream & Marketing operating income and earnings before interest expense and income taxes during the 2023 nine-month period increased $52 million and $37 million, respectively, compared to the prior-year period. The increase in operating income is largely attributable to the previously mentioned $59 million increase in total margin and higher other income ($11.07 million), partially offset by higher operating and administrative expense ($7 million) and higher depreciation and amortization ($8 million). The increase in earnings before interest expense and income taxes principally reflects the increase in operating income, partially offset by lower income from equity investees following the acquisition of the remaining 53% ownership interest in Pennant during the fourth quarter of Fiscal 2022.
Utilities
| | | | | | | | | | | | | | | | | | | | | | | | | | |
For the nine months ended June 30, | | 2023 | | 2022 | | Increase (Decrease) |
(Dollars in millions) | | | | | | | | |
Revenues | | $ | 1,644 | | | $ | 1,400 | | | $ | 244 | | | 17 | % |
Total margin (a) | | $ | 750 | | | $ | 681 | | | $ | 69 | | | 10 | % |
Operating and administrative expenses (a) | | $ | 275 | | | $ | 250 | | | $ | 25 | | | 10 | % |
Operating income | | $ | 361 | | | $ | 325 | | | $ | 36 | | | 11 | % |
Earnings before interest expense and income taxes | | $ | 367 | | | $ | 332 | | | $ | 35 | | | 11 | % |
Gas Utility system throughput—bcf | | | | | | | | |
Core market | | 90 | | | 94 | | | (4) | | | (4) | % |
Total | | 296 | | | 290 | | | 6 | | | 2 | % |
Electric Utility distribution sales - gwh | | 712 | | | 746 | | | (34) | | | (5) | % |
Gas Utility heating degree days—% (warmer) than normal (b) | | (11.6) | % | | (7.6) | % | | — | | | — | |
(a)Total margin represents revenues less cost of sales and revenue-related taxes (i.e., gross receipts and business and occupation taxes) of $21 million and $18 million, respectively, during the 2023 and 2022 nine-month periods. For financial statement purposes, revenue-related taxes are included in “Operating and administrative expenses” on the Condensed Consolidated Statements of Income (but are excluded from operating and administrative expenses presented above).
(b)Deviation from average heating degree days is determined on a 10-year period utilizing volume-weighted weather data based on weather statistics provided by NOAA for airports located within Gas Utility’s service territories.
Temperatures in Gas Utility’s service territories during the 2023 nine-month period were 11.6% warmer than normal and 4.6% warmer than the prior-year period. The decrease in Gas Utility core market volumes during the 2023 nine-month period is largely related to the warmer weather partially offset by growth in the core market customers. The decrease in Electric Utility distribution sales volumes is primarily attributable to warmer weather during the 2023 nine-month period.
Utilities revenues increased $244 million in the 2023 nine-month period reflecting a $230 million increase in Gas Utility revenues and a $14 million increase in Electric Utility revenues. The increase in Gas Utility revenues was largely driven by higher PGC and PGA rates reflecting higher natural gas costs; the effects of the increase in base rates and weather normalization adjustments for PA Gas Utility that went into effect during the first quarter of Fiscal 2023; higher off-system sales; and higher other revenues. These increases were partially offset by the effects on core market volumes of the warmer weather. The increase in Electric Utility revenues was largely driven by higher DS rates reflecting higher power costs.
Utilities cost of sales increased $175 million in the 2023 nine-month period primarily attributable to Gas Utility ($159 million) mainly reflecting higher PGC and PGA rates, higher cost of sales associated with off-system sales and higher other cost of sales. Electric Utility cost of sales increased $16 million during the 2023 nine-month period largely reflecting the higher DS rates.
Utilities total margin increased $69 million during the 2023 nine-month period primarily attributable to higher Gas Utility total margin ($71 million) mainly reflecting the effects of the increase in base rates and weather normalization adjustments for PA Gas Utility that went into effect during the first quarter of Fiscal 2023 and, to a much lesser extent, impacts from growth in the core market customers and higher other revenues. Electric Utility margin was comparable to the prior-year period.
Utilities operating income and earnings before interest expense and income taxes increased $36 million and $35 million, respectively, during the 2023 nine-month period. These increases largely reflect the previously mentioned increase in total margin partially offset by higher operating and administrative expenses ($3.725 million), and higher depreciation expense ($2.1 million), and a $2.7 million decrease in other operating income primarily from the absence of AFUDC income associated with the Sunbury Pipeline project recorded in the prior-year period. The $3.7 million increase in operating and administrative expenses reflects higher wage and benefits expense and higher expenses associated with greater peaking and gas gathering activities, while the increase in depreciation expense principally reflects incremental depreciation from the expansion
4
UGI CORPORATION AND SUBSIDIARIES
of our natural gas pipeline and peaking assets. The increase in income before income taxes in the 2017 three-month period reflects the higher operating income and $1.2 million of income from our PennEast pipeline equity investment reflecting AFUDC income.
UGI Utilities
|
| | | | | | | | | | | | | | | |
For the three months ended December 31, | | 2017 | | 2016 | | Increase |
(Dollars in millions) | | | | | | | | |
Revenues | | $ | 323.1 |
| | $ | 261.4 |
| | $ | 61.7 |
| | 23.6 | % |
Total margin (a) | | $ | 170.0 |
| | $ | 150.6 |
| | $ | 19.4 |
| | 12.9 | % |
Operating and administrative expenses | | $ | 54.7 |
| | $ | 52.3 |
| | $ | 2.4 |
| | 4.6 | % |
Operating income | | $ | 96.3 |
| | $ | 82.2 |
| | $ | 14.1 |
| | 17.2 | % |
Income before income taxes | | $ | 85.4 |
| | $ | 72.2 |
| | $ | 13.2 |
| | 18.3 | % |
Gas Utility system throughput—billions of cubic feet (“bcf”) | | | | | | | | |
Core market | | 25.5 |
| | 23.0 |
| | 2.5 |
| | 10.9 | % |
Total | | 69.2 |
| | 66.2 |
| | 3.0 |
| | 4.5 | % |
Electric Utility distribution sales - millions of kilowatt hours (“gwh”) | | 246.6 |
| | 240.6 |
| | 6.0 |
| | 2.5 | % |
Gas Utility heating degree days—% (warmer) than normal (b) | | (1.9 | )% | | (6.3 | )% | | — |
| | — |
|
| |
(a) | 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 during each of the three months ended December 31, 2017 and 2016, respectively. For financial statement purposes, revenue-related taxes are included in “Operating and administrative expenses” on the Condensed Consolidated Statements of Income. |
| |
(b) | Deviation from average heating degree days for the 15-year period 2000-2014 based upon weather statistics provided by NOAA for airports located within Gas Utility’s service territory. |
Temperatures in Gas Utility’s service territory during the three months ended December 31, 2017, were 1.9% warmer than normal but 6.0% colder than during the three months ended December 31, 2016. Gas Utility core market volumes increased 2.5 bcf (10.9%) principally reflecting the effects of the colder 2017 three-month period weather and growth in the number of core market customers. Total Gas Utility distribution system throughput increased 3.0 bcf principally reflecting the higher core market volumes and slightly higher large firm delivery service volumes. These increases were partially offset by lower interruptible delivery service volumes. Electric Utility kilowatt-hour sales were 2.5% higher than the prior-year period, principally reflecting the impact of the colder weather on Electric Utility heating-related sales.
UGI Utilities revenues increased $61.7 million reflecting a $62.9 million increase in Gas Utility revenues partially offset by slightly lower Electric Utility revenues. The higher Gas Utility revenues principally reflect an increase in core market revenues ($48.1 million), higher off-system sales revenues ($11.5 million), and higher large firm delivery service revenues ($4.4 million). The $48.1 million increase in Gas Utility core market revenues reflects the effects of the higher core market throughput ($18.8 million), higher average retail core market PGC rates ($25.3 million) and the increase in PNG base rates effective October 20, 2017 ($4.0 million). The decrease in Electric Utility revenues principally reflects slightly lower average DS rates ($1.3 million) and lower transmission revenue ($0.4 million) partially offset by the higher Electric Utility volumes. UGI Utilities cost of sales was $151.8 million in the three months ended December 31, 2017 compared with $109.5 million in the three months ended December 31, 2016, principally reflecting higher Gas Utility cost of sales ($43.3 million) partially offset by lower Electric Utility cost of sales ($1.0 million) from lower DS rates. The higher Gas Utility cost of sales reflects higher average retail core market PGC rates ($22.6 million), higher cost of sales associated with Gas Utility off-system sales ($11.5 million), and higher retail core-market volumes ($9.2 million).
UGI Utilities total margin increased $19.4 million principally reflecting higher total margin from Gas Utility core market customers ($16.4 million) and higher large firm delivery service total margin ($3.8 million). The increase in Gas Utility core market margin principally reflects the higher core market throughput ($12.3 million) and the increase in PNG base rates effective October 20, 2017 ($4.0 million). Electric Utility total margin decreased slightly principally reflecting the lower transmission revenue.
UGI Utilities operating income increased $14.1 million, principally reflecting the increase in total margin ($19.4 million) partially offset by higher operating and administrative expenses ($2.4 million)reflect, among other things, higher uncollectible accounts expenses, contract labor costs and greaterpersonnel-related expenses. The higher depreciation and amortization expense ($3.0 million) associated with increasedcompared to the prior-year period reflects the effects of continued distribution system capital expenditure activity. The increase in UGI Utilities operating and administrative expenses reflects higher distribution expenses ($1.8 million), higher uncollectible accounts expense ($1.0 million) and higher information technology expenses ($0.7 million) partially offset by a favorable payroll tax adjustment related to prior periods ($2.1 million).
UGI CORPORATION AND SUBSIDIARIES
UGI Utilities income before income taxes increased $13.2 million reflecting the increase in UGI Utilities operating income ($14.1 million) partially offset by slightly higher interest expense.
Interest Expense and Income Taxes
Our consolidated interest expense during the 2017 three-month2023 nine-month period was $58.2$281 million $2.8compared to $245 million higher than the $55.4 million of interest expense recorded during the 2016 three-month2022 nine-month period. TheThis increase largely reflects higher credit agreement interest expense principally reflects the effects ofrates and borrowings and higher long-term debt outstanding principally at AmeriGas PropaneMidstream & Marketing and UGI Utilities. These increases were partially offset by lower average interest rates on long-term debt at AmeriGas Propane.
As previously mentioned, our consolidated income taxes for the three months ended December 31, 2017, were significantly impacted by the enactment of the TCJA and the December 2017 French Finance Bills. Accordingly, the effective tax rate as calculated based upon amounts on our condensed consolidated statement of income for the 2017 three-month period includes the effects of one-time discrete adjustments to deferred income tax assets and liabilities, accrued income taxes and deferred tax valuation allowances which reduced income tax expense by $183.3 million.
The effective income tax rate in the 2016 three-month period reflects the impact of a December 2016 change in the French corporate income tax rate for future years which reduced consolidated income tax expense by $27.4 million and, to a much lesser extent, the effects of an income tax settlement refund of $6.7 million, plus interest, in France.
Excluding the impacts of the one-time discrete adjustments from the TCJA and French tax rate changes in both periods as noted above, ourlower effective income tax rate for the 2017 three-month2023 nine-month period was lower thanreflects the impact of the tax benefit of the goodwill impairment at AmeriGas Propane which includes a gross-up component in the prior-year period principally reflecting the lower blended U.S.associated deferred tax asset. The current year income tax rate also includes the projected availability of 24.5%investment tax credits in Fiscal 2018 resulting from the2023 following enactment of the TCJA.Inflation Reduction Act in August 2022. These benefits were slightly offset by a greater concentration of pretax loss in higher tax rate jurisdictions resulting from losses on derivative instruments and adjustments to deferred tax valuation allowances.
The Company continues to evaluate the elections available under current regulations and pending legislation. Accordingly, the impacts on the Company’s income tax provisions and taxes payable or refundable related to these items are subject to change.
FINANCIAL CONDITION AND LIQUIDITY
The Company expects to have sufficient liquidity, including cash on hand and available borrowing capacity, to continue to support long-term commitments and ongoing operations despite uncertainties associated with ongoing global macroeconomic conditions including, among others, changes in consumer behavior resulting from the COVID-19 pandemic, the inflationary cost environment and ongoing energy commodity price volatility. Our total available liquidity balance, comprising cash and cash equivalents and available borrowing capacity on our revolving credit facilities, totaled approximately $1.8 billion and $1.7 billion at June 30, 2023 and September 30, 2022, respectively. Our total available liquidity at June 30, 2023 increased due to higher available borrowing capacity on our revolving credit facilities, partially offset by the impact of cash collateral payments associated with a significant decline in commodity prices during the 2023 nine-month period and increases in restricted cash margin requirements in commodity futures brokerage accounts, principally at UGI International. The Company does not have any senior note or term loan maturities in the next twelve months. The Company cannot predict the duration or total magnitude of the uncertain economic factors mentioned above and the total effects they will have on its liquidity, debt covenants, financial condition or the timing of capital expenditures. UGI and its subsidiaries were in compliance with all debt covenants as of June 30, 2023. See Note 8 to the Condensed Consolidated Financial Statements for additional information on the equity cure provision.
We depend on both internal and external sources of liquidity to provide funds for working capital and to fund capital requirements. Our short-term cash requirements not met by cash from operations are generally satisfied with borrowings under credit facilities and, in the case of Midstream & Marketing, also from a Receivables Facility. Long-term cash requirements are generally met through the issuance of long-term debt or equity securities. We believe that each of our business units has sufficient liquidity in the forms of cash and cash equivalents on hand; cash expected to be generated from operations; credit facility and ReceivableReceivables Facility borrowings;borrowing capacity; and the ability to obtain long-term financing to meet anticipated contractual and projected cash commitments. Issuances of debt and equity securities in the capital markets and additional credit facilities may not, however, be available to us on acceptable terms.
The primary sources of UGI’s cash and cash equivalents are the dividends and other cash payments made to UGI or its corporate subsidiaries by its principal business units. Our cash and cash equivalents totaled $446.4$260 million at December 31, 2017,June 30, 2023, compared with $558.4$405 million at September 30, 2017.2022. The decrease in cash and cash equivalents since September 30, 2022 is primarily attributable to commodity price volatility experienced in the 2023 nine-month period and the seasonality of our business as further described in “Cash Flows” below. Excluding cash and cash equivalents that reside at UGI’s operating subsidiaries, at December 31, 2017June 30, 2023 and September 30, 2017,2022, UGI had $162.0$35 million and $291.1$140 million of cash and cash equivalents, respectively, most of which are located in the U.S.respectively. Such cash is available to pay dividends on UGI Common Stock and for investment purposes.
UGI CORPORATION AND SUBSIDIARIES
Long-term Debt and Short-term BorrowingsCredit Facilities
Long-term Debt
The Company’s debt outstanding at December 31, 2017June 30, 2023 and September 30, 2017,2022, comprises the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2023 | | September 30, 2022 |
(Millions of dollars) | AmeriGas Propane | | UGI International | | Midstream & Marketing | | Utilities | | Corp & Other | | Total | | Total |
Short-term borrowings | $ | — | | | $ | 245 | | | $ | 70 | | | $ | 166 | | | $ | — | | | $ | 481 | | | $ | 368 | |
| | | | | | | | | | | | | |
Long-term debt (including current maturities): | | | | | | | | | | | | | |
Senior notes | $ | 2,400 | | | $ | 437 | | | $ | — | | | $ | 1,505 | | | $ | — | | | $ | 4,342 | | | $ | 4,472 | |
Term loans | — | | | 327 | | | 796 | | | 130 | | | 738 | | | 1,991 | | | 1,871 | |
Other long-term debt | — | | | 4 | | | 41 | | | 21 | | | 283 | | | 349 | | | 322 | |
Unamortized debt issuance costs | (16) | | | (8) | | | (15) | | | (6) | | | (2) | | | (47) | | | (33) | |
Total long-term debt | $ | 2,384 | | | $ | 760 | | | $ | 822 | | | $ | 1,650 | | | $ | 1,019 | | | $ | 6,635 | | | $ | 6,632 | |
Total debt | $ | 2,384 | | | $ | 1,005 | | | $ | 892 | | | $ | 1,816 | | | $ | 1,019 | | | $ | 7,116 | | | $ | 7,000 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2017 | | September 30, 2017 |
(Currency in millions) | AmeriGas Propane | | UGI International | | Midstream & Marketing | | UGI Utilities | | Other | | Total | | Total |
Short-term borrowings (a) | $ | 263.5 |
| | $ | 41.1 |
| | $ | 100.0 |
| | $ | 181.5 |
| | $ | — |
| | $ | 586.1 |
| | $ | 366.9 |
|
| | | | | | | | | | | | | |
Long-term debt (including current maturities): | | | | | | | | | | | | | |
Senior notes | $ | 2,575.0 |
| | $ | — |
| | $ | — |
| | $ | 675.0 |
| | $ | — |
| | $ | 3,250.0 |
| | $ | 3,250.0 |
|
Term loans and notes | — |
| | 825.1 |
| | — |
| | 185.0 |
| | — |
| | 1,010.1 |
| | 902.1 |
|
Other long-term debt | 27.3 |
| | 22.2 |
| | 0.5 |
| | — |
| | 9.2 |
| | 59.2 |
| | 59.8 |
|
Unamortized debt issuance costs | (30.4 | ) | | (4.0 | ) | | — |
| | (4.4 | ) | | — |
| | (38.8 | ) | | (39.8 | ) |
Total long-term debt | $ | 2,571.9 |
| | $ | 843.3 |
| | $ | 0.5 |
| | $ | 855.6 |
| | $ | 9.2 |
| | $ | 4,280.5 |
| | $ | 4,172.1 |
|
Total debt | $ | 2,835.4 |
| | $ | 884.4 |
| | $ | 100.5 |
| | $ | 1,037.1 |
| | $ | 9.2 |
| | $ | 4,866.6 |
| | $ | 4,539.0 |
|
| |
(a) | Short-term borrowings at UGI International as of December 31, 2017, primarily comprise bank overdrafts at UGI France SAS. |
UGI International. In December 2017, Flaga repaid $9.2 million of the outstanding principal amount of its then-existing $59.1 million U.S. dollar denominated variable-rate term loan due September 2018. Concurrently, Flaga entered into an amendment to the aforementioned term loan, which amends and restates the previous agreement to provide for a principal balance of $49.9 million and extends the maturity of the term loan to April 2020 (“Flaga Term Loan”). The outstanding principal bears interest at the one-month LIBOR rate plus a margin of 1.125%. Flaga has effectively fixed the LIBOR component of the interest rate, and has effectively fixed the U.S. dollar value of the interest and principal payments payable under the Flaga Term Loan, by entering into a cross-currency swap arrangement with a bank.
UGI Utilities. In October 2017, UGI Utilities entered into a $125 million unsecured variable-rate term loan agreement (the “Utilities Term Loan”) with a group of banks which initially matures on October 30, 2018. Such maturity will be automatically extended to October 30, 2022, after UGI Utilities receives a securities certificate from the PUC authorizing issuance of the security and upon delivery of such certificate to the agent. Proceeds from the Utilities Term Loan were used to repay revolving credit balances and for general corporate purposes. The outstanding principal amount of the Utilities Term Loan is payable in equal quarterly installments of $1.6 million with the balance of the principal being due and payable in full on the maturity date. Under the Utilities Term Loan, UGI Utilities may borrow at various prevailing market interest rates, including LIBOR and the banks’ prime rate, plus a margin. The margin on such borrowings ranges from 0.0% to 1.875% and is based upon the credit ratings of certain indebtedness of UGI Utilities.
Credit Facilities
Additional information related to the Company’s credit agreements can be found in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and Note 58 to the Consolidated Financial Statements in the Company’s 20172022 Annual Report.
UGI CORPORATION AND SUBSIDIARIES
Information about the Company’s principal credit agreements (excluding the Energy Services Receivables Facility discussed below) as of December 31, 2017June 30, 2023 and 2016,2022, is presented in the table below.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(Currency in millions) | | Total Capacity | | Borrowings Outstanding | | Letters of Credit and Guarantees Outstanding | | Available Borrowing Capacity |
As of June 30, 2023 | | | | | | | | |
AmeriGas OLP | | $ | 600 | | | $ | — | | | $ | 2 | | | $ | 598 | |
UGI International, LLC (a) | | € | 500 | | | € | 225 | | | € | — | | | € | 275 | |
Energy Services | | $ | 260 | | | $ | 25 | | | $ | — | | | $ | 235 | |
UGI Utilities | | $ | 425 | | | $ | 108 | | | $ | — | | | $ | 317 | |
Mountaineer | | $ | 150 | | | $ | 58 | | | $ | — | | | $ | 92 | |
UGI Corporation (b) | | $ | 300 | | | $ | 283 | | | $ | — | | | $ | 17 | |
As of June 30, 2022 | | | | | | | | |
AmeriGas OLP | | $ | 600 | | | $ | 50 | | | $ | 3 | | | $ | 547 | |
UGI International, LLC (a) | | € | 300 | | | € | — | | | € | — | | | € | 300 | |
Energy Services | | $ | 260 | | | $ | — | | | $ | — | | | $ | 260 | |
UGI Utilities | | $ | 350 | | | $ | 170 | | | $ | — | | | $ | 180 | |
Mountaineer | | $ | 100 | | | $ | 55 | | | $ | — | | | $ | 45 | |
UGI Corporation (b) | | $ | 300 | | | $ | 230 | | | $ | — | | | $ | 70 | |
(a)Permits UGI International, LLC to borrow in euros or USD. At June 30, 2023, the amount borrowed consisted of euro-denominated borrowings equivalent to $245 million.
(b)Borrowings outstanding have been classified as “Long-term debt” on the Condensed Consolidated Balance Sheets.
|
| | | | | | | | | | | | | | | | |
(Currency in millions) | | Total Capacity | | Borrowings Outstanding | | Letters of Credit and Guarantees Outstanding | | Available Borrowing Capacity |
As of December 31, 2017 | | | | | | | | |
AmeriGas OLP | | $ | 600.0 |
| | $ | 263.5 |
| | $ | 67.2 |
| | $ | 269.3 |
|
UGI International, LLC | | € | 300.0 |
| | € | — |
| | € | — |
| | € | 300.0 |
|
UGI France SAS | | € | 60.0 |
| | € | — |
| | € | — |
| | € | 60.0 |
|
Flaga (a) | | € | 55.0 |
| | € | — |
| | € | 1.0 |
| | € | 54.0 |
|
Energy Services, LLC | | $ | 240.0 |
| | $ | 55.0 |
| | $ | — |
| | $ | 185.0 |
|
UGI Utilities | | $ | 300.0 |
| | $ | 181.5 |
| | $ | 2.0 |
| | $ | 116.5 |
|
As of December 31, 2016 | | | | | | | | |
AmeriGas OLP | | $ | 525.0 |
| | $ | 77.5 |
| | $ | 67.2 |
| | $ | 380.3 |
|
UGI France SAS | | € | 60.0 |
| | € | — |
| | € | — |
| | € | 60.0 |
|
Flaga (a) | | € | 55.0 |
| | € | — |
| | € | 8.0 |
| | € | 47.0 |
|
Energy Services, LLC | | $ | 240.0 |
| | $ | 20.0 |
| | $ | — |
| | $ | 220.0 |
|
UGI Utilities | | $ | 300.0 |
| | $ | 98.4 |
| | $ | 2.0 |
| | $ | 199.6 |
|
| |
(a) | Total capacity comprises a €25 million multi-currency revolving credit facility, a €5 million overdraft facility and a €25 million guarantee facility. Guarantees outstanding reduce the available capacity on the €25 million guarantee facility. |
UGI CORPORATION AND SUBSIDIARIES
The average daily and peak short-term borrowings under the Company’s principal credit agreements during the three months ended December 31, 2017 and 2016 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the nine months ended | | For the nine months ended |
| | June 30, 2023 | | June 30, 2022 |
(Millions of dollars or euros) | | Average | | Peak | | Average | | Peak |
AmeriGas OLP | | $ | 105 | | | $ | 242 | | | $ | 203 | | | $ | 388 | |
UGI International, LLC | | € | 194 | | | € | 300 | | | € | 100 | | | € | 250 | |
Energy Services | | $ | 9 | | | $ | 82 | | | $ | — | | | $ | — | |
UGI Utilities | | $ | 202 | | | $ | 340 | | | $ | 178 | | | $ | 270 | |
Mountaineer | | $ | 74 | | | $ | 101 | | | $ | 49 | | | $ | 80 | |
UGI Corporation | | $ | 239 | | | $ | 292 | | | $ | 181 | | | $ | 288 | |
|
| | | | | | | | | | | | | | | | |
| | For the three months ended December 31, 2017 | | For the three months ended December 31, 2016 |
(Currency in millions) | | Average | | Peak | | Average | | Peak |
AmeriGas OLP | | $ | 199.0 |
| | $ | 286.0 |
| | $ | 191.6 |
| | $ | 292.5 |
|
UGI International, LLC | | € | — |
| | € | — |
| | € | — |
| | € | — |
|
UGI France SAS | | € | — |
| | € | — |
| | € | — |
| | € | — |
|
Flaga | | € | — |
| | € | — |
| | € | — |
| | € | — |
|
Energy Services, LLC | | $ | 44.7 |
| | $ | 79.0 |
| | $ | 18.3 |
| | $ | 28.0 |
|
UGI Utilities | | $ | 168.1 |
| | $ | 205.0 |
| | $ | 96.6 |
| | $ | 137.0 |
|
AmeriGas Partners. In December 2017, AmeriGas Partners entered into the Second Amended and Restated Credit Agreement (“AmeriGas Credit Agreement”) with a group of banks. The AmeriGas Credit Agreement amends and restates a previous credit agreement. The AmeriGas Credit Agreement provides for borrowings up to $600 million (including a $150 million sublimit for letters of credit) and expires in December 2022. The AmeriGas Credit Agreement permits AmeriGas to borrow at prevailing interest rates, including the base rate, defined as the higher of the Federal Funds rate plus 0.50% or the agent bank’s prime rate, or at a one-week, one-, two-, three-, or six-month Eurodollar Rate, as defined in the AmeriGas Credit Agreement, plus a margin. Under the AmeriGas Credit Agreement, the applicable margin on base rate borrowings ranges from 0.50% to 1.75%; the applicable margin on Eurodollar Rate borrowings ranges from 1.50% to 2.75%; and the facility fee ranges from 0.30% to 0.50%.
UGI International. In December 2017, UGI International, LLC, a wholly owned subsidiary of UGI, entered into a secured multicurrency revolving facility agreement (the "UGI International Credit Agreement") with a group of banks providing for borrowings up to €300 million. The UGI International Credit Agreement is scheduled to expire in April 2020. Under the UGI International Credit Agreement, UGI International, LLC may borrow in euros or U.S. dollars. Loans made in euros will bear interest at the associated euribor rate plus a margin ranging from 1.45% to 2.35%. Loans made in U.S. dollars will bear interest at LIBOR plus a margin ranging from 1.70% to 2.60%.
Midstream & Marketing. Receivables Facility. Energy Services LLC has a receivables purchase facility (“Receivables Facility”)Facility with an issuer of receivables-backed commercial paper currently scheduled to expire in October 2018. At December 31, 2017,2023. The Receivables Facility provides Energy Services with the outstanding balance of ESFC trade receivables was $101.0ability to borrow up to $150 million of eligible receivables during the period October 21, 2022 to April 30, 2023, and up to $75 million of eligible receivables during the period May 1, 2023 to October 20, 2023. Energy Services uses the Receivables Facility to fund working capital, margin calls under commodity futures contracts, capital expenditures, dividends and for general corporate purposes.
Under the Receivables Facility, Energy Services transfers, on an ongoing basis and without recourse, its trade accounts receivable to its wholly owned, special purpose subsidiary, ESFC, which $45.0 million wasis consolidated for financial statement purposes. ESFC, in turn, has sold and, subject to certain conditions, may from time to time sell, an undivided interest in some or all of the bank. At December 31, 2016, the
UGI CORPORATION AND SUBSIDIARIES
outstanding balance of ESFC trade receivables was $81.4 million and there were $35.0 million amounts sold to thea major bank. Amounts sold to the bank are reflected as “Short-term borrowings” on the Condensed Consolidated Balance Sheets. ESFC was created and has been structured to isolate its assets from creditors of Energy Services and its affiliates, including UGI. Trade receivables sold to the bank remain on the Company’s balance sheet and the Company reflects a liability equal to the amount advanced by the bank. The Company records interest expense on amounts owed to the bank. Energy Services continues to service, administer and collect trade receivables on behalf of the bank, as applicable.
At June 30, 2023, the outstanding balance of ESFC trade receivables was $62 million, $45 million of which were sold to the bank. At June 30, 2022, the outstanding balance of ESFC trade receivables was $88 million, none of which was sold to the bank. During the threenine months ended December 31, 2017June 30, 2023 and 2016,2022, peak sales of receivables were $45.0$150 million and $36.5$98 million, respectively, and average daily amounts sold were $28.6$44 million and $23.7$2 million, respectively. For additional information regarding
Significant Financing Activities
The following significant financing activities occurred during the Receivables Facility, see2023 nine-month period. See Note 8 to Condensed Consolidated Financial Statements for additional information on these transactions.
AmeriGas Partners Senior Notes. On May 31, 2023, AmeriGas Partners and AmeriGas Finance Corp. issued $500 million principal amount of 9.375% Senior Notes due May 2028. The 9.375% Senior Notes rank equally with AmeriGas Partners’ existing and future outstanding senior notes. The net proceeds from the condensed consolidatedissuance of the 9.375% Senior Notes, together with cash on hand, a $150 million cash contribution from the Company and other sources of liquidity, were used for the early repayment, pursuant to a tender offer and notice of redemption, of all AmeriGas Partners 5.625% Senior Notes having an aggregate principal balance of $675 million, plus tender premiums and accrued and unpaid interest. In conjunction with the early repayment of the 5.625% Senior Notes, in June 2023 the Partnership recognized a pre-tax loss of $9 million primarily comprising tender premiums and the write-off of unamortized debt issuance costs, which is reflected in “Loss on extinguishments of debt” on the Condensed Consolidated Statements of Income.
2022 AmeriGas OLP Credit Agreement. Under the 2022 AmeriGas OLP Credit Agreement, AmeriGas OLP, as borrower, is required to comply with financial statements.covenants related to leverage and interest coverage measured at the Partnership and at AmeriGas OLP. The 2022 AmeriGas OLP Credit Agreement contains an equity cure provision, which allows AmeriGas OLP’s direct or indirect parent, including UGI and its other subsidiaries, to fund capital contributions to eliminate any EBITDA (as defined in the 2022 AmeriGas OLP Credit Agreement) shortfalls that would otherwise result in non-compliance with these financial covenants. Each equity cure is eligible to eliminate such EBITDA shortfalls up to four quarters after contribution. We are permitted to use the equity cure provision five times over the course of the Credit Agreement, twice during any rolling four-quarter period, and not in consecutive quarters.
UGI CORPORATION AND SUBSIDIARIES
As of March 31, 2023, AmeriGas OLP was in breach of the leverage ratio debt covenant and interest coverage ratio, which it cured with the funds received from UGI. UGI made capital contributions to AmeriGas OLP of $20 million and $11 million on March 31, 2023 and April 24, 2023, respectively, which in aggregate represented one equity cure in accordance with the 2022 AmeriGas OLP Credit Agreement. As a result of these capital contributions, AmeriGas OLP and the Partnership were in compliance with all financial covenants after consideration of the equity cure provision as of June 30, 2023 and March 31, 2023.
UGI also provided an irrevocable letter of support whereby UGI has committed to fund any such EBITDA shortfalls and debt service, if any. Based on the support and the projected EBITDA, AmeriGas OLP is expected to remain in compliance with its financial debt covenants for the succeeding twelve-month period. In addition, in May 2023, the Company contributed $52 million in an equity contribution principally to fund debt service on the senior notes.
UGI International 2023 Credit Facilities Agreement. On March 7, 2023, UGI International, LLC and its indirect wholly-owned subsidiary, UGI International Holdings B.V., entered into the UGI International 2023 Credit Facilities Agreement, a five-year unsecured senior facilities agreement, maturing March 7, 2028, with a consortium of banks. The UGI International 2023 Credit Facilities Agreement consists of (1) a €300 million variable-rate term loan facility ("Facility A") and (2) a €500 million multicurrency revolving credit facility, including a €100 million sublimit for swingline loans ("Facility B"). We have designated borrowings under Facility A as a net investment hedge. In connection with the entering into of the UGI International 2023 Credit Facilities Agreement, UGI International, LLC paid off in full and terminated the UGI International Credit Facilities Agreement, dated as of October 18, 2018. The net proceeds from the UGI International 2023 Credit Facilities Agreement were used to refinance the UGI International Credit Facilities Agreement. Borrowings under the multicurrency revolving credit facility may be used to finance the working capital needs of UGI International, LLC and its subsidiaries and for general corporate purposes.
UGI Energy Services Credit Agreement. On May 12, 2023, Energy Services entered into the second amendment to the UGI Energy Services Credit Agreement, which provides that the Term SOFR rate (as defined in the UGI Energy Services Credit Agreement) shall replace LIBOR as a reference rate. After giving effect to the second amendment, the UGI Energy Services Credit Agreement shall bear interest at a floating rate of, at Energy Services’ option, either (i) Term SOFR plus the Applicable Rate (as defined in the UGI Energy Services Credit Agreement) plus a credit spread adjustment of 0.10%, or (ii) the base rate plus the Applicable Rate. The Applicable Rate will be based on the leverage of Energy Services.
Energy Services Amended Term Loan Credit Agreement. On February 23, 2023, Energy Services entered into the Energy Services Amended Term Loan Credit Agreement, the first amendment to the Energy Services Term Loan Credit Agreement, dated August 13, 2019. The Energy Services Amended Term Loan Credit Agreement provides, among other items, that (i) the outstanding principal amount of the loans will be increased by $125 million to $800 million, (ii) the maturity date of the loans shall be extended to February 22, 2030, and (iii) Term SOFR (as defined in the Energy Services Amended Term Loan Credit Agreement) shall replace LIBOR as a reference rate.
UGI Utilities Credit Agreement. On December 13, 2022, UGI Utilities entered into an amendment to the UGI Utilities Credit Agreement, providing for borrowings up to $425 million and to replace the use of LIBOR with Term SOFR. Borrowings under the amended UGI Utilities Credit Agreement can be used to finance the working capital needs of UGI Utilities and for general corporate purposes. The UGI Utilities Credit Agreement is scheduled to expire June 2024.
Mountaineer Credit Agreement. On October 20, 2022, Mountaineer entered into the Mountaineer 2023 Credit Agreement, with a group of lenders. The Mountaineer 2023 Credit Agreement amends and restates a previous credit agreement and provides for borrowings up to $150 million, including a $20 million sublimit for letters of credit. Mountaineer may request an increase in the amount of loan commitments to a maximum aggregate amount of $250 million, subject to certain terms and conditions. Borrowings under the Mountaineer 2023 Credit Agreement can be used to finance the working capital needs of Mountaineer and for general corporate purposes. The Mountaineer 2023 Credit Agreement is scheduled to expire in November 2024, with an option to extend the maturity date.
UGI Corporation Credit Agreement. On May 12, 2023, the Company entered into the second amendment to the UGI Corporation Credit Agreement, which provides that the Term SOFR rate (as defined in the UGI Corporation Credit Agreement) shall replace LIBOR as a reference rate. After giving effect to the second amendment, the UGI Corporation Credit Agreement shall bear interest at a floating rate of, at the Company’s option, either (i) Term SOFR plus the Applicable Rate (as defined in the UGI Corporation Credit Agreement) plus a credit spread adjustment of 0.10%, or (ii) the base rate plus the applicable margin that will be based on the leverage of the Company or credit ratings assigned to certain indebtedness of the Company.
UGI CORPORATION AND SUBSIDIARIES
The Company is pursuing the refinancing of the UGI Corporation revolving credit facility, which matures August 1, 2024. The UGI Corporation revolving credit facility contains a leverage ratio debt covenant which the Company was in compliance with as of June 30, 2023, and expects to maintain compliance through the August 1, 2024 maturity date. The Company has other sources of liquidity currently available which would be sufficient to repay the maturing credit facility should a refinancing not be successful.
Dividends and DistributionsRepurchases of Common Stock
On November 29, 2017,17, 2022, UGI’s Board of Directors declared a cash dividend equal to $0.25$0.36 per common share. The dividend was paid on January 1, 2018,2023, to shareholders of record on December 15, 2017.2022. On January 25, 2018,February 1, 2023, UGI’s Board of Directors declared a quarterly dividend of $0.25$0.36 per common share. The dividend was paid on April 1, 2023, to shareholders of record on March 15, 2023. On May 3, 2023, UGI’s Board of Directors approved an increase in the quarterly dividend rate on UGI Common Stock to $0.375 per common share, or $1.50 on an annual basis. The new dividend rate reflects an approximate 4.2% increase from the previous quarterly rate of $0.36. The dividend was paid on July 1, 2023, to shareholders of record on June 15, 2023. On August 2, 2023, UGI’s Board of Directors declared a quarterly dividend of $0.375 per common share. The dividend is payable AprilOctober 1, 2018,2023, to shareholders of record on MarchSeptember 15, 2018.2023.
During the three months ended December 31, 2017, the General Partner’s Board of Directors declared and the Partnership paid a quarterly distribution on all limited partner units at a rate of $0.95 per Common Unit for the quarter ended September 30, 2017. On January 24, 2018, the General Partner’s Board of Directors approved a quarterly distribution of $0.95 per limited partner unit for the quarter ended December 31, 2017. The distribution will be paid on February 20, 2018, to unitholders of record on February 9, 2018.
Repurchase of Common Stock
In January 2014, UGI’s Board of Directors authorized a share repurchase program for up to 15 million shares of UGI Corporation Common Stock. The authorization permitted the execution of the share repurchase program over a four-year period, expiring in January 2018. On January 25, 2018,2, 2022, UGI’s Board of Directors authorized an extension of thean existing share repurchase program for up to 8 million shares of UGI Corporation Common Stock for an additional four-year period.period, expiring in February 2026. Pursuant to such authorization, during the nine months ended June 30, 2023, the Company purchased 0.6 million shares on the open market at a total purchase price of approximately $22 million. The Company did not repurchase any shares during the third quarter of Fiscal 2023.
Cash Flows
Due to the seasonal nature of the Company’s businesses, cash flows from operating activities are generally strongest during the second and third fiscal quarters when customers pay for natural gas, LPG, electricity and other energy products and services consumed during the peak heating season months. Conversely, operating cash flows are generally at their lowest levels during the fourth and first fiscal quarters when the Company’s investment in working capital, principally inventories and accounts receivable, is generally greatest.
Operating Activities.Year-to-year variations in our cash flows from operating activities can be significantly affected by changes in operating working capital, especially during periods with significant changes in energy commodity prices. Cash flow provided by operating activities was $31.4$857 million in the 2017 three-month2023 nine-month period compared to $126.6$848 million in the 2016 three-month2022 nine-month period. Cash flow from operating activities before changes in operating working capital was $384.6$1,209 million in the 2017 three-month2023 nine-month period compared to $333.9$1,114 million in the prior-year2022 nine-month period. The higher cash flow from operating activities before changes in operating working capital reflects the positive effects on cash flow of higher net income (after adjusting net income for the previously mentioned one-time impacts of the enactment of the TCJA and changes in French tax laws on tax-related accounts in 2017 ($183.3 million) and in 2016 ($27.4 million); the non-cash effects of changes in unrealized gains and losses on derivative instruments; and the loss on extinguishments of debt at AmeriGas Partners, the cash flow effects of which are reflected in cash flows from financing activities). Cash used to fund changes in operating working capital totaled $353.2$352 million in the 2017 three-month2023 nine-month period compared to $207.3$266 million in the prior-year2022 nine-month period. The higherincrease in cash used to fund operating working capital changes in the 2023 nine-month period principally reflects a significant increase in collateral payments on derivative instruments during the 2023 nine-month period and greater cash required to fund changes in accounts receivable and inventories reflects,payable. These increases in cash used to fund changes in operating working capital were offset in large part by greater 2023 nine-month period cash from changes in accounts receivable and inventories. These changes in working capital items largely reflect the impactimpacts of higher LPG and natural gas coststhe previously mentioned significant decrease in commodity energy prices during the current-year period.2023 nine-month period, principally at our UGI International operations.
Investing Activities.Cash flow used by investing activities was $327.5 million in the 2017 three-month period compared with $192.4 million in the prior-year period. Investing activity cash flow is principally affected by cash expenditures for property, plant and equipment; cash paid for acquisitions of businesses; changes in restricted cash balances;businesses and assets; investments in equity method investees; and cash proceeds from sales and retirements of assetsproperty, plant and businesses.equipment. Cash paymentsflow used by investing activities was $761 million in the 2023 nine-month period compared to $717 million in the 2022 nine-month period. Cash expenditures for property, plant and equipment were $147.5$670 million in the 2017 three-month2023 nine-month period compared with $551 million in the 2022 nine-month period principally reflecting higher cash capital expenditures in our Utilities segment and, to a lesser extent, Midstream & Marketing. Cash flows from investing activities include cash received from the settlement of certain forward foreign currency contracts previously designated as net investment hedges of $22 million in the 2023 nine-month period compared to $197.1$26 million in the prior-year2022 nine-month period. Cash paymentsInvestments in equity method investments during the prior-year included capital expenditures associated with the Sunbury Pipeline project2023 nine-month period include our continuing investments in renewable energy projects principally at Midstream & Marketing. CashPrior-year cash flows from investing activities include cash used for acquisitions of businesses and assets in the 2017 three-month period principally reflects the acquisition of UniverGas at UGI International and the acquisition of a natural gas gathering system in northern Pennsylvania at Midstream & Marketing.Stonehenge Acquisition.
Financing Activities. Cash flow provided by financing activities was $181.1 million in the 2017 three-month period compared with $98.6 million in the prior-year period. Changes in cash flow from financing activities are primarily due to issuances and repayments of long-term debt; net short-term borrowings; dividends and distributions on UGI Common StockStock; quarterly payments on outstanding Purchase Contracts; and AmeriGas Partners Common Units;issuances and from time to time, issuancesrepurchases of UGI and AmeriGas Partners equity instruments. In October 2017,
UGI CORPORATION AND SUBSIDIARIES
Cash flow used by financing activities was $244 million in the 2023 nine-month period compared to $290 million in the 2022 nine-month period. The 2023 nine-month period includes the cash flow effects from entering into the previously mentioned UGI Utilities issued $125 millionInternational 2023 Credit Facilities Agreement and the concurrent repayment of unsecured notesborrowings under the UGI International Credit Facilities Agreement (a predecessor agreement). The 2023 nine-month period cash flows from financing activities also includes the cash proceeds from the previously mentioned Energy Services Amended Term Loan Agreement entered into in February 2023 and used the proceeds principally to reduce short-term borrowingsconcurrent repayment of amounts outstanding under the Energy Services variable rate term loan, and for general corporate purposes.
UGI Standby Commitment to Purchasethe May 2023 AmeriGas Partners Class B Common Units
On November 7, 2017, UGI entered into a Standby Equity Commitment Agreement (the “Commitment Agreement”) with AmeriGas Partners and AmeriGas Propane, Inc. Under the terms of the Commitment Agreement, UGI has committed to make up to $225 million of capital contributions to the Partnership through July 1, 2019 (the “Commitment Period”). UGI’s capital contributions may be made from time to time during the Commitment Period upon request of the Partnership. There have been no capital contributions made to the Partnership under the Commitment Agreement.
In consideration for any capital contributions made pursuant to the Commitment Agreement, the Partnership will issue to UGI or a wholly owned subsidiary new Class B Common Units representing limited partner interests in the Partnership (“Class B Units”). The Class B Units will be issued at a price per unit equal to the 20-day volume-weighted average price of AmeriGas Partners Common Units prior to the date of the Partnership’s related capital call. The Class B Units will be entitled to cumulative quarterly distributions at a rate equal to the annualized Common Unit yield at the time of the applicable capital call, plus 130 basis points. The Partnership may choose to make the distributions in cash or in the form of additional Class B Units. While outstanding, the Class B Units will not be subject to any incentive distributions from the Partnership.
At any time after five years from the initial issuance of the Class B Units, holders may elect to convert all or any portion$500 million principal amount of 9.375% Senior Notes and the repayment of the Class B Units they own into Common Units on a one-for-one basis, and at any time after six years from the initial issuance$675 million aggregate principal balance of the Class B Units, the Partnership may elect to convert all or any portion of the Class B Units into Common Units if (i) the closing trading price of the Common Units is greater than 110% of the applicable purchase price for the Class B Units and (ii) the Common Units are listed or admitted for trading on a National Securities Exchange. Upon certain events involving a change of control and immediately prior to a liquidation or winding up of the Partnership, the Class B Units will automatically convert into Common Units on a one-for-one basis.
IMPACT OF TAX REFORM
On December 22, 2017, the Tax Cuts and Jobs Act (the “TCJA”) was enacted into law. Among the significant changes resulting5.625% Senior Notes. Cash flow from the law, the TCJA reduces the U.S. federal income tax rate from 35% to 21% effective January 1, 2018, creates a territorial tax system with a one-time mandatory “toll tax” on previously unrepatriated foreign earnings, and allows for immediate capital expensing of certain qualified property. It also applies restrictions on the deductibility of interest expense, eliminates bonus depreciation for regulated utilities, and applies a broader application of compensation limitations.
As a result, during the three months ended December 31, 2017, we reduced our net deferred income tax liabilities by $383.8 million due to the remeasuring of our existing federal deferred income tax assets and liabilities as of the date of the enactment. Because part of the reduction to our net deferred income taxes relates to UGI Utilities’ regulated utility plant assets as further described below, most of UGI Utilities’ reduction in deferred income taxes is not being recognized immediately in income tax expense.
Discrete deferred income tax adjustments recorded during the three months ended December 31, 2017, which reduced income tax expense, totaled $166.0 million ($0.94 per diluted share) and consisted primarily of the following items:
| |
(1) | a $180.3 million reduction in net deferred tax liabilities in the U.S from the reduction of the U.S. tax rate; |
| |
(2) | the establishment of $12.6 million of valuation allowances related to deferred tax assets impacted by U.S. tax law changes; and |
| |
(3) | a $1.7 million “toll tax” on un-repatriated foreign earnings. |
In order for UGI Utilities’ regulated utility plant assets to continue to be eligible for accelerated tax depreciation, current law requires that excess deferred income taxes be amortized no more rapidly than over the remaining lives of the assets that gave rise to the excess deferred income taxes. At December 31, 2017, UGI Utilities has recorded a regulatory liability of $216.1 million associated with the excess deferred federal income taxes related to its regulated utility plant assets. This regulatory liability has been increased, and a federal deferred income tax asset has been recorded,financing activities in the amount of $87.8 million to reflectprior-year period includes the tax benefit generated by the amortization of the excess deferred federal income taxes. For further information on this regulatory liability, see Note 7 to condensed consolidated financial statements.
For the three months ended December 31, 2017, we included the estimated impacts of the TCJA in determining our estimated annual effective income tax rate. We are subject to a blended federal tax rate of 24.5% for Fiscal 2018 because our fiscal year contains the effective date of the rate change from 35% to 21%. As a result, the U.S. federal income tax rate included in our
UGI CORPORATION AND SUBSIDIARIES
estimated annual effective tax rate is based on this 24.5% blended rate for fiscal year 2018. For the three months ended December 31, 2017, thecash flow effects of the tax law changes on current period results (excluding the one-time impacts described above) decreased income tax expense, and increased net income attributable torefinancing of senior notes at UGI by approximately $20.4 million. Regarding UGI Utilities, the PUC has not issued any orders with respect to the lower income tax rate. Our estimated annual effective tax rate for Fiscal 2018 does not reflect the impact of any regulatory action that may be taken by the PUC with respect to the TCJA.International.
In addition, in December 2017, the French Parliament approved the Finance Bill for 2018 and the second Amended Finance Bill for 2017 (collectively, the “December 2017 French Finance Bills”). One impact of the December 2017 French Finance Bills is an increase in the Fiscal 2018 corporate income tax rate in France to 39.4% from 34.4% previously. The December 2017 French Finance Bills also include measures to reduce the corporate income tax rate to 25.8% effective for fiscal years starting after January 1, 2022 (Fiscal 2023). As a result of the future corporate income tax rate reduction effective in Fiscal 2023, during the three months ended December 31, 2017, the Company reduced its net French deferred income tax liabilities and recognized an estimated deferred tax benefit of $17.3 million ($0.10 per diluted share). The estimated annual effective income tax rate used in determining income taxes for the three months ended December 31, 2017 reflects the impact of the single year Fiscal 2018 income tax rate as a result of the December 2017 French Finance Bills. The impact of the single year rate change increased income tax expense for the three months ended December 31, 2017, by $3.9 million.
In December 2016, the French Parliament approved the Finance Bill for 2017 and amended the Finance Bill for 2016 (collectively, the “December 2016 French Finance Bills”). The December 2016 French Finance Bills, among other things, will reduce UGI France’s corporate income tax rate from the then-current 34.4% to 28.9%, effective for fiscal years starting after January 1, 2020 (Fiscal 2021). As a result of this future income tax rate reduction, during the three months ended December 31, 2017, the Company reduced its net French deferred income tax liabilities and recognized an estimated deferred tax benefit of $27.4 million ($0.15 per diluted share).
For more detailed information on the TCJA and the changes in French tax laws, see Note 5 to condensed consolidated financial statements.
UTILITY REGULATORY MATTERS
Base Rate Filings. UGI Utilities.On January 26, 2018,27, 2023, Electric Utility filed a rate request with the PUCPAPUC to increase its annual base distribution revenues by $9.2$11 million. The increased revenues would fund ongoing system improvements and operations necessary to maintain safe and reliable electric service. Electric Utility requested that the new electric rates become effective March 27, 2018, although the PUC typically suspends28, 2023. The PAPUC issued an order on March 2, 2023, suspending the effective date for general basethe rate proceedingsincrease to allow for investigation and public hearings. This review processOn July 14, 2023, a Joint Petition for Approval of Settlement of all issues supported by all active parties was filed with the PAPUC providing for a $9 million annual base distribution rate increase for Electric Utility. The Joint Petition is expectedsubject to last up to nine months; however,receipt of a recommended decision and a final order of the PAPUC approving the settlement. In accordance with the terms of the Joint Petition, the proposed rate increase will become effective on or before October 1, 2023, or as directed by the PAPUC in the final order. The Company cannot predict the timing or the ultimate outcome of the rate case review process.
On August 31, 2017,January 28, 2022, PA Gas Utility filed a request with the PUC approvedPAPUC to increase its base operating revenues for residential, commercial and industrial customers by $83 million annually. On September 15, 2022, the PAPUC issued a previously filed Joint Petition for Approval of Settlement of all issuesfinal order approving a settlement providing for an $11.3a $49 million annual base distribution rate increase for PNG. The increase became effectivePA Gas Utility, through a phased approach, with $38 million beginning October 29, 2022 and an additional $11 million beginning October 1, 2023. In accordance with the terms of the final order, PA Gas Utility will not be permitted to file a rate case prior to January 1, 2024. Also in accordance with the terms of the final order, PA Gas Utility was authorized to implement a weather normalization adjustment rider as a five-year pilot program beginning on October 20, 2017.November 1, 2022. Under this rider, when weather deviates from normal by more than 3%, residential and small commercial customer billings for distribution services are adjusted monthly for weather related impacts exceeding the 3% threshold. Additionally, under the terms of the final order, PA Gas Utility was authorized to implement a DSIC once its total property, plant and equipment less accumulated depreciation reached $3,368 million (which threshold was achieved in September 2022).
On October 14, 2016,February 8, 2021, Electric Utility filed a request with the PUC approved a previously filed Joint Petition for Approval of Settlement of all issues providing for a $27.0 millionPAPUC to increase its annual base distribution rate increase for UGI Gas. The increase became effective onrevenues by $9 million. On October 19, 2016.
Distribution System Improvement Charge.State legislation permits gas and electric utilities in Pennsylvania to recover a distribution system improvement charge (“DSIC”) on eligible capital investments as an alternative ratemaking mechanism providing for a more-timely cost recovery of qualifying capital expenditures between base rate cases.
PNG and CPG received PUC approval on a DSIC tariff, initially set at zero, in 2014. PNG and CPG began charging a DSIC at a rate other than zero beginning on April 1, 2015 and April 1, 2016, respectively. In May 2017,28, 2021, the PUCPAPUC issued a final Order approving a settlement that permitted Electric Utility, effective November 9, 2021, to approve an increase of the maximum allowable DSIC to 7.5% of billedits base distribution revenues by $6 million.
Mountaineer. On July 31, 2023, Mountaineer submitted its 2023 IREP filing to the WVPSC requesting recovery of $10 million for costs associated with capital investments after December 31, 2022, that total $131 million, including $67 million in calendar year 2024. With new base rates expected to be effective January 1, 2024, revenues from IREP rates would decrease by $12 million. The filing included capital investments totaling $383 million over the 2024 - 2028 period.
On July 1, 2017, for PNG28, 2023, Mountaineer submitted its annual PGA filing with the WVPSC. This filing allows the WVPSC to review the prudence of Mountaineer’s incurred gas costs, to review the computation of any over or under collection of gas costs, and CPG, pending reconsideration at each company’s Long-term Infrastructure Improvement Plan filing in 2018. PNG’s DSIC has been reset to zero as a result of its most recent rate case. The DSIC rate for PNG will resume upon exceeding the threshold amount of DSIC-eligible plant in service agreed upon in the settlement of its recent base rate case.
In November 2016, UGI Gas received PUC approval to establish a DSIC tariff mechanism, capped at 5%PGA billing rate for the upcoming year. The new PGA billing rate is intended to settle past over or under collections and allows Mountaineer to recover its projected gas costs for the upcoming year.
On March 6, 2023, Mountaineer submitted a base rate case filing with the WVPSC seeking a net revenue increase of distribution charges billed$20 million, which consists of an increase in base rates of $38 million and a decrease in the IREP rates of $18 million annually to customers,be effective on April 5, 2023. On March 31, 2023 the WVPSC suspended the effective date of the requested rate change increase until January 1, 2017. UGI Gas will be permitted2024 to recover revenue under the mechanismallow for the amount of DSIC-eligible plant placed into service in excessa full review of the threshold amountfiling.
On July 29, 2022, Mountaineer submitted its 2022 IREP filing to the WVPSC requesting recovery of DSIC-eligible plant agreed uponcosts associated with capital investments totaling $354 million over the 2023 - 2027 period, including $64 million in calendar year 2023. On November 16, 2022, Mountaineer and the settlement of its recent base rate case.
intervening parties submitted a Joint Stipulation and Agreement for Settlement to the
UGI CORPORATION AND SUBSIDIARIES
WVPSC requesting approval of 2023 IREP revenue of $22 million to be charged effective January 1, 2023, which includes the recovery of a $1 million under-recovery of 2021 IREP revenue. On December 21, 2022, the WVPSC issued an order approving the Joint Stipulation and Agreement for Settlement as filed.
OTHER MATTERS
West Reading, Pennsylvania Explosion. On March 24, 2023, an explosion occurred in West Reading, Pennsylvania which resulted in seven fatalities, significant injuries to eleven others, and extensive property damage to buildings owned by R.M. Palmer, a local chocolate manufacturer, and other neighboring structures. The NTSB, OSHA and the PAPUC are investigating the West Reading incident. On July 18, 2023, the NTSB issued an Investigative Update in its ongoing investigation. The report identifies a fracture in a retired UGI gas service tee and a fracture in a nearby steam system, but it does not address causation of the fractures or the explosion. The NTSB investigative team includes representatives from the Company, the PAPUC, the local fire department and the Pipeline and Hazardous Materials Safety Administration. The Company is cooperating with the investigation. The NTSB may invite other parties to participate.
While the investigation into this incident is still underway and the cause of the explosion has not been determined, the Company has received claims as a result of the explosion and is involved in lawsuits relative to the incident. The Company maintains liability insurance for personal injury, property and casualty damages and believes that third-party claims associated with the explosion, in excess of the Company’s deductible, are recoverable through the Company’s insurance. The Company cannot predict the result of these pending or future claims and legal actions at this time.
UGI CORPORATION AND SUBSIDIARIES
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our primary market risk exposures are (1) commodity price risk; (2) interest rate risk; and (3) foreign currency exchange rate risk. Although we use derivative financial and commodity instruments to reduce market price risk associated with forecasted transactions, we do not use derivative financial and commodity instruments for speculative or trading purposes.
Commodity Price Risk
The risk associated with fluctuations in the prices the Partnership and our UGI International operations pay for LPG is principally a result of market forces reflecting changes in supply and demand for LPG and other energy commodities. Their profitability is sensitive to changes in LPG supply costs. Increases in supply costs are generally passed on to customers. The Partnership and UGI International may not, however, always be able to pass through product cost increases fully or on a timely basis, particularly when product costs rise rapidly. In order to reduce the volatility of LPG market price risk, the Partnership uses contracts for the forward purchase or sale of propane, propane fixed-price supply agreements and over-the-counter derivative commodity instruments including price swap and option contracts. Our UGI International operations use over-the-counter derivative commodity instruments and may from time to time enter into other derivative contracts, similar to those used by the Partnership, to reduce market risk associated with a portion of their LPG purchases. Over-the-counter derivative commodity instruments used to economically hedge forecasted purchases of LPG are generally settled at expiration of the contract. In addition, certain of our UGI International businesses hedge a portion of their anticipated U.S. dollar-denominated LPG product purchases through the use of forward foreign currency exchange contracts as further described below.
Gas Utility'sUtilities’ tariffs contain clauses that permit recovery of all of the prudently incurred costs of natural gas it sells to its retail core-market customers, including the cost of financial instruments used to hedge purchased gas costs. The recovery clauses provide for periodic adjustments for the difference between the total amounts actually collected frombilled to customers through PGC and PGA rates and the recoverable costs incurred. Because of this ratemaking mechanism, there is limited commodity price risk associated with our Gas UtilityUtilities operations. PA Gas Utility uses derivative financial instruments, including natural gas futures and option contracts traded on the NYMEX, to reduce volatility in the cost of gas it purchases for its retail core-market customers. The cost of these derivative financial instruments, net of any associated gains or losses, is included in PA Gas Utility's PGC recovery mechanism. At December 31, 2017, the fair values of Gas Utility’s natural gas futures and option contracts were net losses of $1.7 million.
Electric Utility's DS tariffs contain clauses which permit recovery of all prudently incurred power costs, including the cost of financial instruments used to hedge electricity costs, through the application of DS rates. Because of this ratemaking mechanism, there is limited power cost risk, including the cost of FTRs and forward electricity purchase contracts, associated with our Electric Utility operations. At December 31, 2017, all of our Electric Utility’s forward electricity purchase contracts were subject to the NPNS exception. At December 31, 2017, the fair values of Electric Utility’s FTRs were not material.
In addition, Gas Utility and Electric Utility from time to time enter into exchange-traded gasoline futures contracts for a portion of gasoline volumes expected to be used in their operations. These gasoline futures contracts are recorded at fair value with changes in fair value reflected in “Operating and administrative expenses” on the Condensed Consolidated Statements of Income.
In order to manage market price risk relating to substantially all of Midstream & Marketing’s fixed-price salessale contracts for physical natural gas and electricity, Midstream & Marketing enters into NYMEX, ICE and over-the-counter natural gas and electricity futures and option contracts, and natural gas basis swap contracts or enters into fixed-price supply arrangements. Midstream & Marketing also uses NYMEX and over-the-counter electricity futures contracts to economically hedge a portion of its anticipated sales of electricity from its electricity generation facilities. Although Midstream & Marketing’s fixed-price supply arrangements mitigate most risks associated with its fixed-price sales contracts, should any of the suppliers under these arrangements fail to perform, increases, if any, in the cost of replacement natural gas or electricity would adversely impact Midstream & Marketing’s results. In order to reduce this risk of supplier nonperformance, Midstream & Marketing has diversified its purchases across a number of suppliers. UGI International’s natural gas and electricity marketing businesses also use natural gas and electricity futures and forward contracts to economically hedge market risk associated with a substantial portion of anticipated volumes under fixed-price sales and purchase contracts.
From time to time, Midstream & Marketing purchases FTRs to economically hedge certain transmission costs that may be associated with its fixed-price electricity sales contracts. Midstream & Marketing from time to time also enters into NYISO capacity swap contracts to economically hedge the locational basis differences for customers it serves on the NYISO electricity grid. Midstream & Marketing also uses NYMEX futures contracts to economically hedge the gross margin associated with the purchase and anticipated later near-term sale of natural gas or propane.
Midstream & Marketing has entered into fixed-price sales agreements for a portion of the electricity expected to be generated by its electric generation assets. In the event that these generation assets would not be able to produce all of the electricity needed to
UGI CORPORATION AND SUBSIDIARIES
supply electricity under these agreements, Midstream & Marketing would be required to purchase electricity on the spot market or under contract with other electricity suppliers. Accordingly, increases in the cost of replacement power could negatively impact Midstream & Marketing’s results.
The fair value of unsettled commodity price risk sensitive derivative instruments held at December 31, 2017 (excluding those Gas Utility and Electric Utility commodity derivative instruments that are refundable to, or recoverable from, customers) was a gain of $77.0 million. A hypothetical 10% adverse change in the market price of LPG, gasoline, natural gas, electricity and electricity transmission congestion charges would result in a decrease in fair value of approximately $77.3 million at December 31, 2017.
Interest Rate Risk
We have both fixed-rate and variable-rate debt. Changes in interest rates impact the cash flows of variable-rate debt but generally do not impact their fair value. Conversely, changes in interest rates impact the fair value of fixed-rate debt but do not impact their cash flows.
Our variable-rate debt at December 31, 2017,June 30, 2023, includes short-termrevolving credit facility borrowings and variable-rate term loans at UGI France SAS’s, Flaga’sInternational, Utilities, Energy Services and UGI Utilities’ variable-rate term loans.Corporation. These debt agreements have interest rates that are generally indexed to short-term market interest rates. UGI France SAS and Flaga, through the use ofWe have entered into pay-fixed, receive-variable interest rate swaps, have fixed the underlying euribor interest ratesswap agreements on their euro-denominated term loans through all, or a substantialsignificant portion of the periods such debt is outstanding. In addition, Flaga’s U.S. dollar-denominated loan has been swapped fromterm loans’ principal balances and a floating-rate U.S. dollar-denominatedsignificant portion of the term loans’ tenor. We have designated these interest rate to a fixed-rate euro-denominated interest rate through a cross-currency swap, removing interest rate risk (and foreign currency exchange riskswaps as further described below under Foreign Currency Exchange Rate Risk) associated with the underlying interest payments.cash flow hedges. At December 31, 2017,June 30, 2023, combined borrowings outstanding under variable-rate debt agreements, excluding UGI France SAS’s and Flaga’sthe previously mentioned effectively fixed-rate debt, totaled $711.1$1,115 million.
UGI CORPORATION AND SUBSIDIARIES
Long-term debt associated with our domestic businesses is typically issued at fixed rates of interest based upon market rates for debt with similar terms and credit ratings. As these long-term debt issues mature, we may refinance such debt with new debt having interest rates reflecting then-current market conditions. In order to reduce interest rate risk associated with near- to medium-term forecasted issuances of fixed rate debt, from time to time we enter into IRPAs.
The fair value of unsettled interest rate risk sensitive derivative instruments held at December 31, 2017 (including pay-fixed, receive-variable interest rate swaps) was a loss of $2.1 million. A 50 basis point adverse change in the three-month euribor rate and three-month LIBOR would result in a decrease in fair value of approximately $1.7 million.
Foreign Currency Exchange Rate Risk
Our primary currency exchange rate risk is associated with the U.S. dollarUSD versus the euro and, to a lesser extent, the U.S. dollarUSD versus the British pound sterling. The U.S. dollarUSD value of our foreign currency denominated assets and liabilities will fluctuate with changes in the associated foreign currency exchange rates. From time to time, we use derivative instruments to hedge portions of our net investments in foreign subsidiaries, including anticipated foreign currency denominated dividends. Gains or losses on these net investment hedges remain in AOCI until such foreign operations are sold or liquidated. With respect to our net investments in our UGI International operations, a 10% decline in the value of the associated foreign currencies versus the U.S. dollarUSD would reduce their aggregate net book value at December 31, 2017,June 30, 2023, by approximately $135.0$70 million, which amount would be reflected in other comprehensive income. From time to time, we use derivative instruments to hedge portions of our net investments in foreign subsidiaries (“We have designated certain euro-denominated borrowings as net investment hedges”). Gains or losses on net investment hedges remain in accumulated other comprehensive income until such foreign operations are sold or liquidated. At December 31, 2017, there were no unsettled net investment hedges outstanding.
hedges.
In addition, in order to reduce exposure to foreign exchange rate volatility related to our foreign LPG operations, through September 30, 2016, we entered into forward foreign currency exchange contracts to hedge a portion of anticipated U.S. dollar-denominated LPG product purchases primarily during the heating-season months of October through March.
Beginning October 1, 2016, in order to reduce the volatility in net income associated with our foreign operations, principally as a result of changes in the U.S. dollarUSD exchange rate between the euro and British pound sterling, we have enteredenter into forward foreign currency exchange contracts.
As previously mentioned, Flaga has a cross-currency swap to hedge its exposure to the variability We layer in expected future cash flows associated with the foreign currency and interest rate risk of U.S. dollar-denominated debt. This cross-currency hedge includes initial and final exchanges of principal from a fixed euro denomination to a fixed U.S. dollar-denominated amount, to be exchanged at a specified rate, which was determined by the market spot rate on the date of issuance.
UGI CORPORATION AND SUBSIDIARIES
The fair value of unsettledthese foreign currency exchange rate risk sensitive derivative instruments held at December 31, 2017, including the fair valuecontracts over a multi-year period to eventually equal approximately 90% of Flaga’s cross-currency swap, was a loss of $29.2 million. A hypothetical 10% adverse change in the value of the euro and the British pound sterling versus the U.S. dollar would result in a decrease in fair value of approximately $56.6 million.
anticipated UGI International foreign currency earnings before income taxes.
Derivative Instrument Credit Risk
We are exposed to risk of loss in the event of nonperformance by our derivative instrument counterparties. Our derivative instrument counterparties principally comprise large energy companies and major U.S. and international financial institutions. We maintain credit policies with regard to our counterparties that we believe reduce overall credit risk. These policies include evaluating and monitoring our counterparties’ financial condition, including their credit ratings, and entering into agreements with counterparties that govern credit limits or entering into netting agreements that allow for offsetting counterparty receivable and payable balances for certain financial transactions, as deemed appropriate.
Certain of these derivative instrument agreements call for the posting of collateral by the counterparty or by the Company in the forms of letters of credit, parental guarantees or cash. Additionally, our commodity exchange-traded futures contracts generally require cash deposits in margin accounts. At December 31, 2017, restricted cash in brokerage accounts totaled $19.8 million. Although weWe have concentrations of credit risk associated with derivative instruments and we evaluate the creditworthiness of our derivative counterparties on an ongoing basis. As of June 30, 2023, the maximum amount of loss, based upon the gross fair values of the derivative instruments, we would incur if these counterparties failed to perform according to the terms of their contracts was not material at December 31, 2017.$305 million. In general, many of our over-the-counter derivative instruments and all exchange contracts call for the posting of collateral by the counterparty or by the Company in the forms of letters of credit, parental guarantees or cash. At June 30, 2023, we had received cash collateral from derivative instrument counterparties totaling $36 million. In addition, we may have offsetting derivative liabilities and certain accounts payable balances with certain of these counterparties, which further mitigates the previously mentioned maximum amount of losses. Certain of the Partnership’s derivative contracts have credit-risk-related contingent features that may require the posting of additional collateral in the event of a downgrade of the Partnership’s debt rating. At December 31, 2017,June 30, 2023, if the credit-risk-related contingent features were triggered, the amount of collateral required to be posted would not be material.
The following table summarizes the fair values of unsettled market risk sensitive derivative instrument assets (liabilities) held at June 30, 2023 and changes in their fair values due to market risks. Certain of UGI Utilities’ commodity derivative instruments are excluded from the table below because any associated net gains or losses are refundable to or recoverable from customers in accordance with UGI Utilities ratemaking.
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| | Asset (Liability) |
(Millions of dollars) | | Fair Value | | Change in Fair Value |
June 30, 2023 | | | | |
Commodity price risk (1) | | $ | (202) | | | $ | (161) | |
Interest rate risk (2) | | $ | 26 | | | $ | (18) | |
Foreign currency exchange rate risk (3) | | $ | 14 | | | $ | (49) | |
(1) Change in fair value represents a 10% adverse change in the market prices of certain commodities.
(2) Change in fair value represents a 50 basis point adverse change in prevailing market interest rates.
(3) Change in fair value represents a 10% adverse change in the value of the Euro and the British pound sterling versus the USD.
UGI CORPORATION AND SUBSIDIARIES
ITEM 4. CONTROLS AND PROCEDURES
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(a) | Evaluation of Disclosure Controls and Procedures |
(a)Evaluation of Disclosure Controls and Procedures
The Company's disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by the Company in reports filed or submitted under the Securities Exchange Act of 1934, as amended, is (i) recorded, processed, summarized, and reported within the time periods specified in the SEC’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 required disclosure. 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,report, were effective at the reasonable assurance level.
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(b) | Change in Internal Control over Financial Reporting |
(b)Change in Internal Control over Financial Reporting
No change in the Company’s internal control over financial reporting occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
UGI CORPORATION AND SUBSIDIARIES
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information set forth in Note 9, Commitments and Contingencies to our Condensed Consolidated Financial Statements included in Item 1 of Part I of this report, is incorporated herein by reference.
ITEM 1A. RISK FACTORS
In addition to the information presented in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our 2022 Annual Report and the Quarterly Report on Form 10-K10-Q for the fiscal yearquarter ended September 30, 2017,December 31, 2022, which could materially affect our business, financial condition or future results. The risks described below and in our 2022 Annual Report and the Quarterly Report on Form 10-K10-Q for the fiscal quarter ended December 31, 2022, are not the only risks facing the Company. Other unknown or unpredictable factors could also have material adverse effects on future results.
Our energy marketing business in Europe may continue to be disrupted by extreme prices and volatility in the natural gas and power markets in Europe, which have resulted in, and may continue to result in, a material negative impact on our financial results. Our natural gas and power marketing businesses have traditionally relied upon relative pricing and periods of market stability. Since the end of 2021, the European energy markets have been in an unprecedented state of volatility. The war between Russia and Ukraine and the resulting substantial reduction of natural gas imports from Russia to Europe have led to significant uncertainty in supply, including price volatility of both wholesale gas and power, and have created new risks that we have experienced and expect to continue to experience within our European energy marketing business. These risks include: (i) the ability to economically support the traditional fixed price and full requirement contracts of customers due to the significant increased cost to adjust for shifting volumes due to excess or shortage of consumption expectations; (ii) the ability to service typical portfolio needs with standard trading activities due to the limitations on purchasing cost effective services in the market; (iii) the ability to pass increased and volume deviation costs, including balancing costs, onto customers due, among other things, to timing, regulatory and contractual constraints, and (iv) the ability to maintain sourcing services to customers due to the margining and liquidity constraints as well as maximum trading limits implemented by both clearing banks and wholesale counterparties on energy suppliers, and (v) the ability to economically support fixed and variable price products while offering competitive services in the market. As a result, UGI is considering all scenarios with respect to the future of its energy marketing business in Europe, including exit and wind down. In Fiscal 2023, UGI announced the sale of its energy marketing business in the United Kingdom and that UGI has entered into definitive agreements to divest of substantially all of its energy marketing businesses in France and Belgium. Further, UGI continues to make progress on the wind-down of its energy marketing business in the Netherlands. The risks identified with respect to our energy marketing business in Europe have resulted in and may continue to have a material negative impact on our financial results.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table sets forth information with respect to the Company’s repurchases of its common stock during the quarter ended December 31, 2017.June 30, 2023.
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Period | | (a) Total Number of Shares Purchased | | (b) Average Price Paid per Share (or Unit) | | (c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs (1) | | (d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs |
October 1, 2017 to October 31, 2017 | | — | | — | | — | | 10.62 million |
November 1, 2017 to November 30, 2017 | | — | | — | | — | | 10.62 million |
December 1, 2017 to December 31, 2017 | | 202,500 | | $46.82 | | 202,500 | | 10.42 million |
Total | | 202,500 | | | | 202,500 | | |
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(1)Period | In January 2014, | (a) Total Number of Shares Purchased | | (b) Average Price Paid per Share | | (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) | | (d) Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the UGI Board of Directors authorized a share repurchase program for upPlans or Programs (1) |
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April 1, 2023 to 15April 30, 2023 | | — | | $0.00 | | — | | 6.50 million shares of UGI Corporation Common Stock. The authorization permitted the execution of the share repurchase program over a four-year period, expiring in January 2018. On January 25, 2018, the UGI Board of Directors authorized an extension of the share repurchase program for up |
May 1, 2023 to 8May 31, 2023 | | — | | $0.00 | | — | | 6.50 million shares of UGI Corporation Common Stock for an additional four-year period. |
June 1, 2023 to June 30, 2023 | | — | | $0.00 | | — | | 6.50 million |
Total | | — | | | | — | | |
(1) Shares of UGI Common Stock are repurchased through an extension of a previous share repurchase program announced by the Company on February 2, 2022. The UGI Board of Directors authorized the repurchase of up to 8 million shares of UGI Common Stock over a four-year period expiring in February 2026.
UGI CORPORATION AND SUBSIDIARIES
ITEM 5. OTHER INFORMATION
Insider Trading Arrangements
During the three months ended June 30, 2023, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation-S-K.
ITEM 6. EXHIBITS
The exhibits filed as part of this report are as follows (exhibits incorporated by reference are set forth with the name of the registrant, the type of report and last date of the period for which it was filed, and the exhibit number in such filing):
Incorporation by Reference
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3.1 | | | | UGI | | Form 8-K (5/3/23) | | 3.1 |
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4.1 | | | | UGI | | Form 8-K (5/31/23) | | 4.1 |
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10.1 | | | | UGI | | Form 8-K (5/12/23) | | 10.1 |
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10.2 | | | | UGI | | Form 8-K (5/12/23) | | 10.2 |
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Exhibit No. | | Exhibit | | Registrant | | Filing | | Exhibit |
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10.1 | | Multicurrency Revolving Credit Agreement dated December 19, 2017, by and among UGI International, LLC, as Borrower, Natixis, as Agent, Security Agent, Mandated Lead Arranger, Bookrunner and Coordinator, BNP Paribas, Credit Agricole Corporate and Investment Bank, HSBC France, ING Bank N.V. and Mediobanca International (Luxembourg) S.A., as Mandated Lead Arrangers and certain other lenders. | | | | | | |
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10.2 | | Second Amended and Restated Credit Agreement dated as of December 15, 2017 by and among AmeriGas Propane, L.P., as Borrower, AmeriGas Propane, Inc., as a Guarantor, Wells Fargo Bank, National Association, as Administrative Agent, Swingline Lender, and Issuing Lender, Wells Fargo Securities, LLC, as Sole Lead Arranger and Sole Bookrunner, and the other financial institutions from time to time party thereto. | | AmeriGas Partners, L.P. | | Form 8-K (12/15/2017) | | 10.1 |
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UGI CORPORATION AND SUBSIDIARIES
EXHIBIT INDEX
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10.1 | | Multicurrency Revolving Credit Agreement dated December 19, 2017, by and among UGI International, LLC, as Borrower, Natixis, as Agent, Security Agent, Mandated Lead Arranger, Bookrunner and Coordinator, BNP Paribas, Credit Agricole Corporate and Investment Bank, HSBC France, ING Bank N.V. and Mediobanca International (Luxembourg) S.A., as Mandated Lead Arrangers and certain other lenders. |
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UGI CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | UGI Corporation |
| | (Registrant) |
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Date: | August 8, 2023 | By: | /s/ Sean P. O’Brien |
| | | Sean P. O’Brien |
| | | Chief Financial Officer |
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Date: | August 8, 2023 | UGI CorporationBy: | /s/ Jean Felix Tematio Dontsop |
| | (Registrant) | Jean Felix Tematio Dontsop |
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Date: | February 6, 2018 | By: | /s/ Kirk R. Oliver |
| | | Kirk R. Oliver |
| | | Chief Financial Officer |
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Date: | February 6, 2018 | By: | /s/ Marie-Dominique Ortiz-Landazabal |
| | | Marie-Dominique Ortiz-Landazabal |
| | | Vice President, - Accounting and Financial Control |
| | | and Chief Accounting Officer |
| | | and Corporate Controller |