0000884614srt:AffiliatedEntityMemberugi:UGIPennEastLLCMemberugi:PennEastPipelineCompanyLLCMember2021-06-30
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| | | | | |
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2021March 31, 2022
OR
| | | | | |
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ________ to ________
Commission file number 1-11071
UGI CORPORATION
(Exact name of registrant as specified in its charter)
| | | | | | | | |
| Pennsylvania | | 23-2668356 |
(State or other jurisdiction of
incorporation or organization) | | (I.R.S. Employer
Identification No.) |
460 North Gulph Road, King of Prussia, PA 19406
(Address of Principal Executive Offices) (Zip Code)
(610) 337-1000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
| Title of each class: | Trading Symbol(s): | Name of each exchange on which registered: |
| Common Stock, without par value | UGI | New York Stock Exchange |
| Corporate Units | UGIC | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | | | | | | | | | | |
| Large accelerated filer | ý | | Accelerated filer | ☐ | | Non-accelerated filer | ☐ |
| Smaller reporting company | ☐ | | Emerging growth company | ☐ | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý
At July 31, 2021,April 30, 2022, there were 209,096,896209,993,488 shares of UGI Corporation Common Stock, without par value, outstanding.
UGI CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
GLOSSARY OF TERMS AND ABBREVIATIONS
Terms and abbreviations used in this Form 10-Q are defined below:
UGI Corporation and Related Entities
AmeriGas OLP - AmeriGas Propane, L.P., the principal operating subsidiary of AmeriGas Partners
AmeriGas Partners - AmeriGas Partners, L.P., a Delaware limited partnership and an indirect wholly-owned subsidiary of UGI; also referred to as the “Partnership”
AmeriGas Propane - Reportable segment comprising AmeriGas Propane, Inc. and its subsidiaries, including AmeriGas Partners and AmeriGas OLP
AmeriGas Propane, Inc. - A wholly owned second-tier subsidiary of UGI and the general partner of AmeriGas Partners; also referred to as the “General Partner”Partners
AvantiGas - AvantiGas Limited, an indirect wholly owned subsidiary of UGI International, LLC
Company - UGI and its consolidated subsidiaries collectively
DVEP - DVEP Investeringen B.V., an indirect wholly owned subsidiary of UGI International, LLC
Electric Utility - UGI Utilities’ regulated electric distribution utility located in Pennsylvania
Energy Services - UGI Energy Services, LLC, a wholly owned second-tier subsidiary of UGI
ESFC - Energy Services Funding Corporation, a wholly owned subsidiary of Energy Services
Flaga - Flaga GmbH, an indirect wholly owned subsidiary of UGI International, LLC
Gas Utility - UGI Utilities’UGI’s regulated natural gas distribution business, comprising the natural gas utility businesses, ownedinclusive of PA Gas Utility and operated by UGI Utilities
General Partner- AmeriGas Propane, Inc., the general partner of AmeriGas PartnersWV Gas Utility
GHI - GHI Energy, LLC, which was acquired bya Houston-based RNG company and indirect wholly owned subsidiary of Energy Services in Fiscal 2020
HVAC - UGI HVAC Enterprises, Inc., a wholly owned second-tier subsidiary of UGI, which was sold in September 2020
Midstream & Marketing - Reportable segment comprising Energy Services UGID and prior to its saleUGID
Mountaineer - Mountaineer Gas Company, a natural gas distribution company in West Virginia and an indirect wholly owned subsidiary of Mountaintop Energy Holdings, LLC
Mountaintop Energy Holdings, LLC - Indirect parent company of Mountaineer and wholly owned subsidiary of UGI, acquired on September 2020, HVAC1, 2021
PA Gas Utility - UGI Utilities’ regulated natural gas distribution business, primarily located in Pennsylvania
Partnership - AmeriGas Partners and its consolidated subsidiaries, including AmeriGas OLP
Pennant -Stonehenge Pennant Midstream,- Stonehenge Appalachia, LLC, a Delaware limited liability corporation
PennEast - PennEast Pipeline Company, LLC
Pine Run- Pine Run Gathering, LLCmidstream natural gas gathering business, which includes 47 miles of pipeline and associated compression assets
UGI - UGI Corporation
or, collectively, UGI Appalachia - UGI Appalachia, LLC, a wholly owned subsidiary of Energy ServicesCorporation and its consolidated subsidiaries
UGI France - UGI France SAS (a Société par actions simplifiée), an indirect wholly owned subsidiary of UGI International, LLC
UGI International - Reportable segment principally comprising UGI’s foreign operations
UGI International, LLC - UGI International, LLC, a wholly owned second-tier subsidiary of UGI
UGI PennEast, LLC - A wholly owned subsidiary of Energy Services that holds a 20% membership interest in PennEast
UGI Pine Run, LLC - A wholly owned subsidiary of Energy Services that holds a 49% membership interest in Pine Run
UGI Utilities - UGI Utilities, Inc., a wholly owned subsidiary of UGI. Also a reportable segment of UGI comprising UGI Utilities, Inc.PA Gas Utility and its subsidiariesElectric Utility
UGID - UGI Development Company, a wholly owned subsidiary of Energy Services
UniverGas - UniverGas Italia S.r.l, an indirect wholly owned subsidiary of UGI International, LLC
Utilities - Reportable segment comprising UGI Utilities and Mountaintop Energy Holdings, LLC
WV Gas Utility - Mountaineer’s regulated natural gas distribution business, located in West Virginia
Other Terms and Abbreviations
1.59% Senior Note - A private placement of $100 million principal amount of senior notes due June 2026, issued by UGI Utilities
1.64% Senior Note - A private placement of $75 million principal amount of senior notes due September 2026, to be issued by UGI Utilities in September 2021
2020 Annual Report - UGI Annual Report on Form 10-K for the fiscal year ended September 30, 20202021
2020 nine-month2021 six-month period - NineSix months ended June 30, 2020
2020 three-month period -Three months ended June 30, 2020
2021 nine-month period -Nine months ended June 30,March 31, 2021
2021 three-month period - Three months ended June 30,March 31, 2021
2021 UGI Corporation Senior Credit Facility2022 six-month period - Six months ended March 31, 2022
2022 three-month period - An amended unsecured senior facilities agreement entered into on May 4, 2021, by UGI which extended the maturity date of the previous three-year $300 million term loan facility included in the UGI Corporation Senior Credit Facility, now due in May 2025 and includes a new four-year $215 million term loan commitmentThree months ended March 31, 2022
2024 Purchase Contract –- A forward stock purchase contract issued by UGI Corporation as a part of the issuance of Equity Units which obligates holders to purchase a number of shares of UGI common stock from the Company on June 1, 2024
AFUDC - Allowance for Funds Used During Construction
AOCI - Accumulated Other Comprehensive Income (Loss)
ASC - Accounting Standards Codification
ASC 606 - ASC 606, “Revenue from Contracts with Customers”
ASC 980 - ASC 980, “Regulated Operations”
ASU - Accounting Standards Update
Bcf - Billions of cubic feet
CARES Act - Coronavirus Aid, Relief, and Economic Security Act
CDC - Centers for Disease Control and Prevention
CMG Acquisition - Acquisition of Columbia Midstream Group, LLC and Columbia Pennant, LLC on August 1, 2019 pursuant to the CMG Acquisition Agreements
CMG Acquisition Agreements - Agreements related to the CMG Acquisition comprising (1) a purchase and sale agreement related to the CMG acquisition, dated July 2, 2019, by and among Columbia Midstream & Minerals Group, LLC, Energy Services, UGI and TransCanada PipeLine USA Ltd., and (2) a purchase and sale agreement related to the Columbia Pennant, LLC acquisition, dated July 2, 2019, by and among Columbia Midstream & Minerals Group, LLC, Energy Services, and TransCanada PipeLine USA Ltd.
COA - Consent Order and Agreement
CODM - Chief Operating Decision Maker as defined in ASC 280, “Segment Reporting”
Common Stock - shares of UGI common stock
Conemaugh - Conemaugh generation station, a 1,711-megawatt, coal-fired electricity generation station located near Johnstown, Pennsylvania
Convertible Preferred Stock – - Preferred stock of UGI titled 0.125% series A cumulative perpetual convertible preferred stock without par value and having a liquidation preference of $1,000 per share
COVID-19 - A novel strain of coronavirus disease discovered in 2019
DS - Default service
DSIC - Distribution System Improvement Charge
EBITDA - Earnings before interest, taxes, depreciation, and amortization
Eighth CircuitEnergy Services Credit Agreement - United States CourtThird amended and restated credit agreement entered into by Energy Services, as borrower, providing for borrowings up to $260 million, including a letter or credit subfacility of Appeals for the Eighth Circuitup to $50 million, scheduled to expire in March 2025
Equity Unit Agreements –- Collection of agreements governing the rights, privileges and obligations of the holders of the Equity Units and UGI as issuer of the Equity Units, which were filed with the SEC on Form 8-K on May 25, 2021
Equity Units –A corporate unit consisting of a 2024 Purchase Contract and 1/10th10th or 10% undivided interest in one share of Convertible Preferred Stock
Exchange Act - Securities Exchange Act of 1934, as amended
FASB - Financial Accounting Standards Board
FDIC - Federal Deposit Insurance Corporation
FERC - Federal Energy Regulatory Commission
Fiscal 2019 - The fiscal year ended September 30, 2019
Fiscal 2020 - The fiscal year ended September 30, 2020
Fiscal 2021 - The fiscal year endingended September 30, 2021
Fiscal 2022 - The fiscal year ending September 30, 2022
Fiscal 2023 - The fiscal year ending September 30, 2023
GAAP - U.S. generally accepted accounting principles
GILTI - Global Intangible Low Taxed Income
Gwh - Millions of kilowatt hours
ICE - Intercontinental Exchange
IRC - Internal Revenue Code
IRPA - Interest rate protection agreement
IRS - Internal Revenue Services
IT - Information technology
LNG - Liquefied natural gas
LPG - Liquefied petroleum gas
MDPSC - Maryland Public Service Commission
MGP - Manufactured gas plant
Mountaineer - Mountaineer Gas Company, a natural gas distribution company in West Virginia
Mountaineer Acquisition - Pending acquisitionAcquisition of Mountaintop Energy Holdings LLC, indirect parent of Mountaineer, pursuant to a definitive agreement signedwhich closed on December 29, 2020September 1, 2021
NOAA - National Oceanic and Atmospheric Administration
NOL - Net operating loss
NPNS - Normal purchase and normal sale
NYDEC - New York State Department of Environmental Conservation
NYMEX - New York Mercantile Exchange
PADEP - Pennsylvania Department of Environmental Protection
PAPUC - Pennsylvania Public Utility Commission
PennEnergy - PennEnergy Resources, LLC
PGC - Purchased gas costs
PRP - Potentially Responsible Party
Purchase Contracts - Forward stock purchase contracts issued by UGI Corporation in May 2021, which obligate holders to purchase a number of shares of UGI common stock from the Company on June 1, 2024
Receivables Facility - A receivables purchase facility of Energy Services with an issuer of receivables-backed commercial paper
Retail core-market - Comprises firm residential, commercial and industrial customers to whom UGI Utilities has a statutory obligation to provide service that purchase their natural gas from Gas UtilityUtilities
RNG - Renewable natural gas
ROD - Record of Decision
SCAA - Storage Contract Administrative Agreements
SEC - U.S. Securities and Exchange Commission
Series B preferred stock -Stonehenge Acquisition Preferred stock- Acquisition of UGI titled 0.125% series B cumulative perpetual preferred stock with terms substantially identical to the Convertible Preferred Stock, except that it will not be convertibleStonehenge Appalachia, LLC, which closed January 27, 2022
TCJA - Tax Cuts and Jobs Act
Temporary Rates Order - Order issued by the PAPUC on March 15, 2018, that converted PAPUC approved rates of a defined group of large Pennsylvania public utilities into temporary rates for a period of not more than 12 months while the PAPUC reviewed effects of the TCJA
UGI Corporation Senior Credit FacilitFacility - y - An amended unsecured senior facilities agreement entered into on August 1, 2019,May 4, 2021, by UGI comprising (1) a five-year $250 million term loan facility;due August 2024; (2) a three-year $300 million term loan facility;due May 2025; (3) a $215 million term loan due May 2025 and (3) a five-year $300 million revolving credit facility (including a $10 million sublimit for letters of credit)
UGI International 3.25% Senior Notes - An underwritten private placement of €350 million principal amount of senior unsecured notes due November 1, 2025, issued by UGI International, LLC
UGI International Credit Facilities Agreement - A five-year unsecured senior facilities agreement entered into in October 2018, by UGI International, LLC comprising a €300 million term loan facility and a €300 million revolving credit facility, scheduled to expire in October 2023
U.S. - United States of America
USD - U.S. dollar
Western Missouri District Court - The United States District Court for the Western District of Missouri
WHO - World Health Organization
WV PSCWVPSC - Public Service Commission of West Virginia
UGI CORPORATION AND SUBSIDIARIES
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(Millions of dollars)
| | | June 30,
2021 | | September 30,
2020 | | June 30,
2020 | | March 31,
2022 | | September 30,
2021 | | March 31,
2021 |
| ASSETS | ASSETS | | | | | | | ASSETS | | | | | | |
| Current assets: | Current assets: | | Current assets: | |
| Cash and cash equivalents | Cash and cash equivalents | | $ | 545 | | | $ | 336 | | | $ | 487 | | Cash and cash equivalents | | $ | 718 | | | $ | 855 | | | $ | 444 | |
| Restricted cash | Restricted cash | | 31 | | | 21 | | | 45 | | Restricted cash | | 55 | | | 22 | | | 28 | |
| Accounts receivable (less allowances for doubtful accounts of $51, $42 and $42, respectively) | | 848 | | | 652 | | | 675 | | |
| Accounts receivable (less allowances for doubtful accounts of $70, $53 and $52, respectively) | | Accounts receivable (less allowances for doubtful accounts of $70, $53 and $52, respectively) | | 1,690 | | | 880 | | | 1,183 | |
| Accrued utility revenues | Accrued utility revenues | | 8 | | | 14 | | | 14 | | Accrued utility revenues | | 77 | | | 15 | | | 32 | |
| Income taxes receivable | Income taxes receivable | | 128 | | | 80 | | | 0 | | Income taxes receivable | | 128 | | | 128 | | | 127 | |
| Inventories | Inventories | | 296 | | | 241 | | | 201 | | Inventories | | 398 | | | 469 | | | 268 | |
| | Derivative instruments | Derivative instruments | | 350 | | | 44 | | | 37 | | Derivative instruments | | 877 | | | 665 | | | 127 | |
| | Prepaid expenses and other current assets | Prepaid expenses and other current assets | | 171 | | | 155 | | | 141 | | Prepaid expenses and other current assets | | 211 | | | 236 | | | 175 | |
| Total current assets | Total current assets | | 2,377 | | | 1,543 | | | 1,600 | | Total current assets | | 4,154 | | | 3,270 | | | 2,384 | |
| Property, plant and equipment, (less accumulated depreciation of $3,923, $3,698 and $3,600, respectively) | | 7,085 | | | 6,960 | | | 6,805 | | |
| Property, plant and equipment, (less accumulated depreciation of $4,117, $3,950 and $3,869, respectively) | | Property, plant and equipment, (less accumulated depreciation of $4,117, $3,950 and $3,869, respectively) | | 7,812 | | | 7,558 | | | 7,020 | |
| Goodwill | Goodwill | | 3,543 | | | 3,518 | | | 3,482 | | Goodwill | | 3,722 | | | 3,770 | | | 3,524 | |
| Intangible assets, net | Intangible assets, net | | 624 | | | 677 | | | 669 | | Intangible assets, net | | 545 | | | 583 | | | 640 | |
| Utility regulatory assets | Utility regulatory assets | | 389 | | | 395 | | | 395 | | Utility regulatory assets | | 372 | | | 373 | | | 392 | |
| Derivative instruments | Derivative instruments | | 129 | | | 38 | | | 38 | | Derivative instruments | | 340 | | | 338 | | | 61 | |
| | Other assets | Other assets | | 859 | | | 854 | | | 854 | | Other assets | | 832 | | | 831 | | | 924 | |
| Total assets | Total assets | | $ | 15,006 | | | $ | 13,985 | | | $ | 13,843 | | Total assets | | $ | 17,777 | | | $ | 16,723 | | | $ | 14,945 | |
| LIABILITIES AND EQUITY | LIABILITIES AND EQUITY | | | | | | | LIABILITIES AND EQUITY | | | | | | |
| Current liabilities: | Current liabilities: | | Current liabilities: | |
| Current maturities of long-term debt | Current maturities of long-term debt | | $ | 36 | | | $ | 53 | | | $ | 26 | | Current maturities of long-term debt | | $ | 130 | | | $ | 110 | | | $ | 51 | |
| | Short-term borrowings | Short-term borrowings | | 207 | | | 347 | | | 423 | | Short-term borrowings | | 447 | | | 367 | | | 340 | |
| Accounts payable | Accounts payable | | 579 | | | 475 | | | 382 | | Accounts payable | | 915 | | | 837 | | | 627 | |
| | Derivative instruments | Derivative instruments | | 67 | | | 64 | | | 109 | | Derivative instruments | | 69 | | | 60 | | | 42 | |
| Other current liabilities | Other current liabilities | | 812 | | | 816 | | | 739 | | Other current liabilities | | 938 | | | 923 | | | 832 | |
| Total current liabilities | Total current liabilities | | 1,701 | | | 1,755 | | | 1,679 | | Total current liabilities | | 2,499 | | | 2,297 | | | 1,892 | |
| Long-term debt | Long-term debt | | 5,811 | | | 5,981 | | | 5,961 | | Long-term debt | | 6,390 | | | 6,339 | | | 5,953 | |
| | Deferred income taxes | Deferred income taxes | | 919 | | | 640 | | | 613 | | Deferred income taxes | | 1,306 | | | 1,137 | | | 833 | |
| | Derivative instruments | Derivative instruments | | 49 | | | 59 | | | 66 | | Derivative instruments | | 40 | | | 38 | | | 46 | |
| Other noncurrent liabilities | Other noncurrent liabilities | | 1,420 | | | 1,413 | | | 1,389 | | Other noncurrent liabilities | | 1,332 | | | 1,381 | | | 1,393 | |
| Total liabilities | Total liabilities | | 9,900 | | | 9,848 | | | 9,708 | | Total liabilities | | 11,567 | | | 11,192 | | | 10,117 | |
| Commitments and contingencies (Note 9) | Commitments and contingencies (Note 9) | | 0 | | 0 | | 0 | Commitments and contingencies (Note 9) | | 0 | | 0 | | 0 |
| Equity: | Equity: | | Equity: | |
| UGI Corporation stockholders’ equity: | UGI Corporation stockholders’ equity: | | UGI Corporation stockholders’ equity: | |
| Preferred stock, without par value (authorized – 5,000,000 shares; issued – 220,000, 0 and 0 shares, respectively) | | 213 | | | 0 | | | 0 | | |
| UGI Common Stock, without par value (authorized — 450,000,000 shares; issued — 209,725,554, 209,514,044 and 209,504,994 shares, respectively) | | 1,388 | | | 1,416 | | | 1,413 | | |
| Preferred stock, without par value (authorized – 5,000,000 shares; issued – 220,000, 220,000 and 0 Series A shares, respectively) | | Preferred stock, without par value (authorized – 5,000,000 shares; issued – 220,000, 220,000 and 0 Series A shares, respectively) | | 161 | | | 213 | | | — | |
| UGI Common Stock, without par value (authorized — 450,000,000 shares; issued — 210,127,957, 209,843,296 and 209,636,619 shares, respectively) | | UGI Common Stock, without par value (authorized — 450,000,000 shares; issued — 210,127,957, 209,843,296 and 209,636,619 shares, respectively) | | 1,465 | | | 1,394 | | | 1,428 | |
| Retained earnings | Retained earnings | | 3,629 | | | 2,908 | | | 2,970 | | Retained earnings | | 4,757 | | | 4,081 | | | 3,557 | |
| Accumulated other comprehensive loss | Accumulated other comprehensive loss | | (105) | | | (147) | | | (205) | | Accumulated other comprehensive loss | | (178) | | | (140) | | | (126) | |
| Treasury stock, at cost | Treasury stock, at cost | | (28) | | | (49) | | | (52) | | Treasury stock, at cost | | (5) | | | (26) | | | (40) | |
| Total UGI Corporation stockholders’ equity | Total UGI Corporation stockholders’ equity | | 5,097 | | | 4,128 | | | 4,126 | | Total UGI Corporation stockholders’ equity | | 6,200 | | | 5,522 | | | 4,819 | |
| Noncontrolling interests | Noncontrolling interests | | 9 | | | 9 | | | 9 | | Noncontrolling interests | | 10 | | | 9 | | | 9 | |
| Total equity | Total equity | | 5,106 | | | 4,137 | | | 4,135 | | Total equity | | 6,210 | | | 5,531 | | | 4,828 | |
| Total liabilities and equity | Total liabilities and equity | | $ | 15,006 | | | $ | 13,985 | | | $ | 13,843 | | Total liabilities and equity | | $ | 17,777 | | | $ | 16,723 | | | $ | 14,945 | |
See accompanying notes to condensed consolidated financial statements.
UGI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(Millions of dollars, except per share amounts)
| | | Three Months Ended
June 30, | | Nine Months Ended
June 30, | | Three Months Ended
March 31, | | Six Months Ended
March 31, |
| | | | 2021 | | 2020 | | 2021 | | 2020 | | | 2022 | | 2021 | | 2022 | | 2021 |
| Revenues | Revenues | | $ | 1,496 | | | $ | 1,199 | | | $ | 6,009 | | | $ | 5,435 | | Revenues | | $ | 3,466 | | | $ | 2,581 | | | $ | 6,139 | | | $ | 4,513 | |
| Costs and expenses: | Costs and expenses: | | | | | | | | | Costs and expenses: | | | | | | | | |
| Cost of sales (excluding depreciation and amortization shown below) | Cost of sales (excluding depreciation and amortization shown below) | | 516 | | | 417 | | | 2,623 | | | 2,673 | | Cost of sales (excluding depreciation and amortization shown below) | | 1,470 | | | 1,274 | | | 3,590 | | | 2,107 | |
| Operating and administrative expenses | Operating and administrative expenses | | 469 | | | 437 | | | 1,473 | | | 1,452 | | Operating and administrative expenses | | 553 | | | 515 | | | 1,067 | | | 1,004 | |
| Impairment of assets held-for-sale | | 0 | | | 52 | | | 0 | | | 52 | | |
| | | Depreciation and amortization | Depreciation and amortization | | 125 | | | 122 | | | 375 | | | 362 | | Depreciation and amortization | | 128 | | | 126 | | | 257 | | | 250 | |
| | Other operating income, net | Other operating income, net | | (5) | | | (3) | | | (26) | | | (17) | | Other operating income, net | | (17) | | | (5) | | | (39) | | | (21) | |
| | 1,105 | | | 1,025 | | | 4,445 | | | 4,522 | | | 2,134 | | | 1,910 | | | 4,875 | | | 3,340 | |
| Operating income | Operating income | | 391 | | | 174 | | | 1,564 | | | 913 | | Operating income | | 1,332 | | | 671 | | | 1,264 | | | 1,173 | |
| (Loss) income from equity investees | | (86) | | | 7 | | | (69) | | | 22 | | |
| | Income from equity investees | | Income from equity investees | | 5 | | | 10 | | | 13 | | | 17 | |
| Loss on extinguishment of debt | | Loss on extinguishment of debt | | — | | | — | | | (11) | | | — | |
| | Other non-operating income (expense), net | Other non-operating income (expense), net | | 1 | | | (4) | | | 0 | | | (4) | | Other non-operating income (expense), net | | 11 | | | 18 | | | 21 | | | (1) | |
| Interest expense | Interest expense | | (77) | | | (80) | | | (233) | | | (247) | | Interest expense | | (82) | | | (78) | | | (163) | | | (156) | |
| Income before income taxes | Income before income taxes | | 229 | | | 97 | | | 1,262 | | | 684 | | Income before income taxes | | 1,266 | | | 621 | | | 1,124 | | | 1,033 | |
| Income tax expense | Income tax expense | | (79) | | | (12) | | | (320) | | | (161) | | Income tax expense | | (332) | | | (132) | | | (286) | | | (241) | |
| | Net income including noncontrolling interests | | Net income including noncontrolling interests | | 934 | | | 489 | | | 838 | | | 792 | |
| Deduct net income attributable to noncontrolling interests | | Deduct net income attributable to noncontrolling interests | | (1) | | | — | | | (2) | | | — | |
| Net income attributable to UGI Corporation | Net income attributable to UGI Corporation | | $ | 150 | | | $ | 85 | | | $ | 942 | | | $ | 523 | | Net income attributable to UGI Corporation | | $ | 933 | | | $ | 489 | | | $ | 836 | | | $ | 792 | |
| Earnings per common share attributable to UGI Corporation stockholders: | Earnings per common share attributable to UGI Corporation stockholders: | | | | | | | | | Earnings per common share attributable to UGI Corporation stockholders: | | | | | | | | |
| Basic | Basic | | $ | 0.72 | | | $ | 0.41 | | | $ | 4.51 | | | $ | 2.50 | | Basic | | $ | 4.44 | | | $ | 2.34 | | | $ | 3.98 | | | $ | 3.79 | |
| Diluted | Diluted | | $ | 0.71 | | | $ | 0.41 | | | $ | 4.48 | | | $ | 2.49 | | Diluted | | $ | 4.32 | | | $ | 2.33 | | | $ | 3.87 | | | $ | 3.77 | |
| Weighted-average common shares outstanding (thousands): | Weighted-average common shares outstanding (thousands): | | | | | | | | | Weighted-average common shares outstanding (thousands): | | | | | | | | |
| Basic | Basic | | 209,099 | | | 208,598 | | | 208,934 | | | 208,989 | | Basic | | 210,163 | | | 208,930 | | | 209,919 | | | 208,849 | |
| Diluted | Diluted | | 210,851 | | | 208,975 | | | 210,194 | | | 210,009 | | Diluted | | 215,928 | | | 210,092 | | | 215,936 | | | 209,863 | |
|
See accompanying notes to condensed consolidated financial statements.
UGI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
(Millions of dollars)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Nine Months Ended
June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
| Net income attributable to UGI Corporation | $ | 150 | | | $ | 85 | | | $ | 942 | | | $ | 523 | |
| Other comprehensive income (loss): | | | | | | | |
| Net (losses) gains on derivative instruments (net of tax of $1, $3, $(1) and $15, respectively) | 0 | | | (8) | | | 4 | | | (38) | |
| Reclassifications of net losses on derivative instruments (net of tax of $(1), $(1), $(5) and $(2), respectively) | 5 | | | 5 | | | 14 | | | 6 | |
| Foreign currency adjustments (net of tax of $3, $4, $5 and $4, respectively) | 16 | | | 28 | | | 23 | | | 42 | |
| Benefit plans (net of tax of $(1), $0, $(1) and $(1), respectively) | 0 | | | 0 | | | 1 | | | 2 | |
| Other comprehensive income | 21 | | | 25 | | | 42 | | | 12 | |
| | | | | | | |
| | | | | | | |
| Comprehensive income attributable to UGI Corporation | $ | 171 | | | $ | 110 | | | $ | 984 | | | $ | 535 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
March 31, | | Six Months Ended
March 31, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| Net income including noncontrolling interests | $ | 934 | | | $ | 489 | | | $ | 838 | | | $ | 792 | |
| Other comprehensive income (loss): | | | | | | | |
| Net gains on derivative instruments (net of tax of $(12), $(2), $(14) and $(2), respectively) | 24 | | | 4 | | | 34 | | | 4 | |
| Reclassifications of net losses on derivative instruments (net of tax of $(1), $(2), $(3) and $(4), respectively) | 6 | | | 4 | | | 10 | | | 9 | |
| Foreign currency adjustments (net of tax of $(9), $(10), $(13) and $2, respectively) | (53) | | | (56) | | | (85) | | | 7 | |
| Benefit plans (net of tax of $0, $0, $(1) and $0, respectively) | 1 | | | 1 | | | 3 | | | 1 | |
| Other comprehensive (loss) income | (22) | | | (47) | | | (38) | | | 21 | |
| Comprehensive income including noncontrolling interests | 912 | | | 442 | | | 800 | | | 813 | |
| Deduct comprehensive income attributable to noncontrolling interests | (1) | | | — | | | (2) | | | — | |
| Comprehensive income attributable to UGI Corporation | $ | 911 | | | $ | 442 | | | $ | 798 | | | $ | 813 | |
See accompanying notes to condensed consolidated financial statements.
UGI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(Millions of dollars)
| | | Nine Months Ended
June 30, | | Six Months Ended
March 31, |
| | | | 2021 | | 2020 | | | 2022 | | 2021 |
| CASH FLOWS FROM OPERATING ACTIVITIES | CASH FLOWS FROM OPERATING ACTIVITIES | | | | | CASH FLOWS FROM OPERATING ACTIVITIES | | | | |
| Net income attributable to UGI Corporation | | $ | 942 | | | $ | 523 | | |
| Adjustments to reconcile net income attributable to UGI Corporation to net cash provided by operating activities: | | |
| Net income including noncontrolling interest | | Net income including noncontrolling interest | | $ | 838 | | | $ | 792 | |
| Adjustments to reconcile net income including noncontrolling interests to net cash provided by operating activities: | | Adjustments to reconcile net income including noncontrolling interests to net cash provided by operating activities: | |
| Depreciation and amortization | Depreciation and amortization | | 375 | | | 362 | | Depreciation and amortization | | 257 | | | 250 | |
| Deferred income tax expense (benefit), net | | 267 | | | (5) | | |
| Deferred income tax expense, net | | Deferred income tax expense, net | | 160 | | | 191 | |
| Provision for uncollectible accounts | Provision for uncollectible accounts | | 25 | | | 31 | | Provision for uncollectible accounts | | 33 | | | 19 | |
| | Changes in unrealized gains and losses on derivative instruments | Changes in unrealized gains and losses on derivative instruments | | (509) | | | (1) | | Changes in unrealized gains and losses on derivative instruments | | (341) | | | (185) | |
| Impairment of assets held-for-sale | | 0 | | | 52 | | |
| | Loss (income) from equity investees | | 69 | | | (22) | | |
| Loss on extinguishment of debt | | Loss on extinguishment of debt | | 11 | | | — | |
| Income from equity investees | | Income from equity investees | | (13) | | | (17) | |
| | Other, net | Other, net | | 10 | | | (12) | | Other, net | | 15 | | | 32 | |
| Net change in: | Net change in: | | Net change in: | |
| Accounts receivable and accrued utility revenues | Accounts receivable and accrued utility revenues | | (213) | | | (70) | | Accounts receivable and accrued utility revenues | | (943) | | | (573) | |
| Income taxes receivable | Income taxes receivable | | (48) | | | 0 | | Income taxes receivable | | — | | | (47) | |
| Inventories | Inventories | | (55) | | | 28 | | Inventories | | 64 | | | (27) | |
| Utility deferred fuel and power costs, net of changes in unsettled derivatives | Utility deferred fuel and power costs, net of changes in unsettled derivatives | | (9) | | | 22 | | Utility deferred fuel and power costs, net of changes in unsettled derivatives | | — | | | (6) | |
| Accounts payable | Accounts payable | | 123 | | | (37) | | Accounts payable | | 106 | | | 181 | |
| Derivative instruments collateral deposits received | Derivative instruments collateral deposits received | | 112 | | | 8 | | Derivative instruments collateral deposits received | | 138 | | | 44 | |
| Other current assets | Other current assets | | (17) | | | 77 | | Other current assets | | 38 | | | (29) | |
| Other current liabilities | Other current liabilities | | (25) | | | 7 | | Other current liabilities | | 37 | | | 21 | |
| Net cash provided by operating activities | Net cash provided by operating activities | | 1,047 | | | 963 | | Net cash provided by operating activities | | 400 | | | 646 | |
| CASH FLOWS FROM INVESTING ACTIVITIES | CASH FLOWS FROM INVESTING ACTIVITIES | | | | | CASH FLOWS FROM INVESTING ACTIVITIES | | | | |
| Expenditures for property, plant and equipment | Expenditures for property, plant and equipment | | (460) | | | (471) | | Expenditures for property, plant and equipment | | (355) | | | (304) | |
| Acquisitions of businesses and assets, net of cash and restricted cash acquired | Acquisitions of businesses and assets, net of cash and restricted cash acquired | | (8) | | | 0 | | Acquisitions of businesses and assets, net of cash and restricted cash acquired | | (188) | | | (12) | |
| Investments in equity method investees | Investments in equity method investees | | (61) | | | 0 | | Investments in equity method investees | | (10) | | | (61) | |
| Other, net | Other, net | | 24 | | | 21 | | Other, net | | 38 | | | 20 | |
| Net cash used by investing activities | Net cash used by investing activities | | (505) | | | (450) | | Net cash used by investing activities | | (515) | | | (357) | |
| CASH FLOWS FROM FINANCING ACTIVITIES | CASH FLOWS FROM FINANCING ACTIVITIES | | | | | CASH FLOWS FROM FINANCING ACTIVITIES | | | | |
| Dividends on UGI Common Stock | Dividends on UGI Common Stock | | (210) | | | (204) | | Dividends on UGI Common Stock | | (145) | | | (138) | |
| | Issuances of long-term debt, net of issuance costs | Issuances of long-term debt, net of issuance costs | | 130 | | | 179 | | Issuances of long-term debt, net of issuance costs | | 644 | | | 30 | |
| Repayments of long-term debt and finance leases | | (329) | | | (67) | | |
| Decrease in short-term borrowings | | (121) | | | (367) | | |
| Repayments of long-term debt and finance leases, including redemption premiums | | Repayments of long-term debt and finance leases, including redemption premiums | | (552) | | | (65) | |
| Increase (decrease) in short-term borrowings | | Increase (decrease) in short-term borrowings | | 80 | | | (5) | |
| Receivables Facility net repayments | Receivables Facility net repayments | | (19) | | | (6) | | Receivables Facility net repayments | | — | | | (2) | |
| Issuance of preferred stock, net of issuance costs | | 213 | | | 0 | | |
| | Payments on Purchase Contracts | | Payments on Purchase Contracts | | (8) | | | — | |
| Issuances of UGI Common Stock | Issuances of UGI Common Stock | | 15 | | | 2 | | Issuances of UGI Common Stock | | 6 | | | 6 | |
| Repurchases of UGI Common Stock | | 0 | | | (38) | | |
| | Net cash used by financing activities | | (321) | | | (501) | | |
| | Net cash provided (used) by financing activities | | Net cash provided (used) by financing activities | | 25 | | | (174) | |
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | Effect of exchange rate changes on cash, cash equivalents and restricted cash | | (2) | | | 9 | | Effect of exchange rate changes on cash, cash equivalents and restricted cash | | (14) | | | — | |
| Cash, cash equivalents and restricted cash increase | | $ | 219 | | | $ | 21 | | |
| Cash, cash equivalents and restricted cash (decrease) increase | | Cash, cash equivalents and restricted cash (decrease) increase | | $ | (104) | | | $ | 115 | |
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH | CASH, CASH EQUIVALENTS AND RESTRICTED CASH | | | | | CASH, CASH EQUIVALENTS AND RESTRICTED CASH | | | | |
| Cash, cash equivalents and restricted cash at end of period | Cash, cash equivalents and restricted cash at end of period | | $ | 576 | | | $ | 532 | | Cash, cash equivalents and restricted cash at end of period | | $ | 773 | | | $ | 472 | |
| Cash, cash equivalents and restricted cash at beginning of period | Cash, cash equivalents and restricted cash at beginning of period | | 357 | | | 511 | | Cash, cash equivalents and restricted cash at beginning of period | | 877 | | | 357 | |
| Cash, cash equivalents and restricted cash increase | | $ | 219 | | | $ | 21 | | |
| Cash, cash equivalents and restricted cash (decrease) increase | | Cash, cash equivalents and restricted cash (decrease) increase | | $ | (104) | | | $ | 115 | |
See accompanying notes to condensed consolidated financial statements.
UGI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(unaudited)
(Millions of dollars, except per share amounts)
| | | | Three Months Ended
June 30, | | Nine Months Ended
June 30, | | Three Months Ended
March 31, | | Six Months Ended
March 31, |
| | | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
| Preferred stock, without par value | Preferred stock, without par value | | | | | | | | Preferred stock, without par value | | | | | | | |
| Balance, beginning of period | Balance, beginning of period | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | Balance, beginning of period | $ | 214 | | | $ | — | | | $ | 213 | | | $ | — | |
| Issuance of preferred stock | 213 | | | — | | | 213 | | | — | | |
| Other | | Other | (53) | | | — | | | (52) | | | — | |
| Balance, end of period | Balance, end of period | $ | 213 | | | $ | 0 | | | $ | 213 | | | $ | 0 | | Balance, end of period | $ | 161 | | | $ | — | | | $ | 161 | | | $ | — | |
| Common stock, without par value | Common stock, without par value | | | | | | | | Common stock, without par value | | | | | | | |
| Balance, beginning of period | Balance, beginning of period | $ | 1,428 | | | $ | 1,409 | | | $ | 1,416 | | | $ | 1,397 | | Balance, beginning of period | $ | 1,402 | | | $ | 1,419 | | | $ | 1,394 | | | $ | 1,416 | |
| Common Stock issued in connection with employee and director plans, net of tax withheld | Common Stock issued in connection with employee and director plans, net of tax withheld | 3 | | | — | | | 6 | | | 2 | | Common Stock issued in connection with employee and director plans, net of tax withheld | 3 | | | 2 | | | 8 | | | 3 | |
| Equity-based compensation expense | | Equity-based compensation expense | 7 | | | 7 | | | 10 | | | 9 | |
| | Equity-based compensation expense | 4 | | | 4 | | | 13 | | | 15 | | |
| Issuance of Equity Units - 2024 Purchase Contracts | (45) | | | — | | | (45) | | | — | | |
| Other | Other | (2) | | | — | | | (2) | | | (1) | | Other | 53 | | | — | | | 53 | | | — | |
| | Balance, end of period | Balance, end of period | $ | 1,388 | | | $ | 1,413 | | | $ | 1,388 | | | $ | 1,413 | | Balance, end of period | $ | 1,465 | | | $ | 1,428 | | | $ | 1,465 | | | $ | 1,428 | |
| Retained earnings | Retained earnings | | | | | | | | Retained earnings | | | | | | | |
| Balance, beginning of period | Balance, beginning of period | $ | 3,557 | | | $ | 2,953 | | | $ | 2,908 | | | $ | 2,653 | | Balance, beginning of period | $ | 3,908 | | | $ | 3,139 | | | $ | 4,081 | | | $ | 2,908 | |
| | Losses on common stock transactions in connection with employee and director plans | Losses on common stock transactions in connection with employee and director plans | (6) | | | — | | | (11) | | | (3) | | Losses on common stock transactions in connection with employee and director plans | (11) | | | (2) | | | (15) | | | (5) | |
| Net income attributable to UGI Corporation | Net income attributable to UGI Corporation | 150 | | | 85 | | | 942 | | | 523 | | Net income attributable to UGI Corporation | 933 | | | 489 | | | 836 | | | 792 | |
| Cash dividends on UGI Common Stock ($0.35, $0.33, $1.01, and $0.980, respectively) | (72) | | | (68) | | | (210) | | | (204) | | |
| Other | — | | | — | | | — | | | 1 | | |
| Cash dividends on UGI Common Stock ($0.345, $0.33, $0.69, and $0.66, respectively) | | Cash dividends on UGI Common Stock ($0.345, $0.33, $0.69, and $0.66, respectively) | (73) | | | (69) | | | (145) | | | (138) | |
| | Balance, end of period | Balance, end of period | $ | 3,629 | | | $ | 2,970 | | | $ | 3,629 | | | $ | 2,970 | | Balance, end of period | $ | 4,757 | | | $ | 3,557 | | | $ | 4,757 | | | $ | 3,557 | |
| Accumulated other comprehensive income (loss) | Accumulated other comprehensive income (loss) | | | | | | | | Accumulated other comprehensive income (loss) | | | | | | | |
| Balance, beginning of period | Balance, beginning of period | $ | (126) | | | $ | (230) | | | $ | (147) | | | $ | (217) | | Balance, beginning of period | $ | (156) | | | $ | (79) | | | $ | (140) | | | $ | (147) | |
| | Net (losses) gains on derivative instruments | — | | | (8) | | | 4 | | | (38) | | |
| Net gains on derivative instruments | | Net gains on derivative instruments | 24 | | | 4 | | | 34 | | | 4 | |
| Reclassification of net losses on derivative instruments | Reclassification of net losses on derivative instruments | 5 | | | 5 | | | 14 | | | 6 | | Reclassification of net losses on derivative instruments | 6 | | | 4 | | | 10 | | | 9 | |
| Benefit plans | Benefit plans | — | | | — | | | 1 | | | 2 | | Benefit plans | 1 | | | 1 | | | 3 | | | 1 | |
| | Foreign currency adjustments | Foreign currency adjustments | 16 | | | 28 | | | 23 | | | 42 | | Foreign currency adjustments | (53) | | | (56) | | | (85) | | | 7 | |
| Balance, end of period | Balance, end of period | $ | (105) | | | $ | (205) | | | $ | (105) | | | $ | (205) | | Balance, end of period | $ | (178) | | | $ | (126) | | | $ | (178) | | | $ | (126) | |
| Treasury stock | Treasury stock | | | | | | | | Treasury stock | | | | | | | |
| Balance, beginning of period | Balance, beginning of period | $ | (40) | | | $ | (51) | | | $ | (49) | | | $ | (16) | | Balance, beginning of period | $ | (19) | | | $ | (42) | | | $ | (26) | | | $ | (49) | |
| Common Stock issued in connection with employee and director plans, net of tax withheld | Common Stock issued in connection with employee and director plans, net of tax withheld | 12 | | | 1 | | | 22 | | | 5 | | Common Stock issued in connection with employee and director plans, net of tax withheld | 23 | | | 3 | | | 30 | | | 10 | |
| | Repurchases of UGI Common Stock | — | | | — | | | — | | | (38) | | |
| Reacquired UGI Common Stock - employee and director plans | Reacquired UGI Common Stock - employee and director plans | — | | | (2) | | | (1) | | | (3) | | Reacquired UGI Common Stock - employee and director plans | (9) | | | (1) | | | (9) | | | (1) | |
| | Balance, end of period | Balance, end of period | $ | (28) | | | $ | (52) | | | $ | (28) | | | $ | (52) | | Balance, end of period | $ | (5) | | | $ | (40) | | | $ | (5) | | | $ | (40) | |
| Total UGI stockholders’ equity | Total UGI stockholders’ equity | $ | 5,097 | | | $ | 4,126 | | | $ | 5,097 | | | $ | 4,126 | | Total UGI stockholders’ equity | $ | 6,200 | | | $ | 4,819 | | | $ | 6,200 | | | $ | 4,819 | |
| Noncontrolling interests | Noncontrolling interests | | | | | | | | Noncontrolling interests | | | | | | | |
| Balance, beginning of period | Balance, beginning of period | $ | 9 | | | $ | 9 | | | $ | 9 | | | $ | 10 | | Balance, beginning of period | $ | 10 | | | $ | 9 | | | $ | 9 | | | $ | 9 | |
| | Net income attributable to noncontrolling interests | | Net income attributable to noncontrolling interests | 1 | | | — | | | 2 | | | — | |
| | Other | Other | — | | | — | | | — | | | (1) | | Other | (1) | | | — | | | (1) | | | — | |
| Balance, end of period | Balance, end of period | $ | 9 | | | $ | 9 | | | $ | 9 | | | $ | 9 | | Balance, end of period | $ | 10 | | | $ | 9 | | | $ | 10 | | | $ | 9 | |
| Total equity | Total equity | $ | 5,106 | | | $ | 4,135 | | | $ | 5,106 | | | $ | 4,135 | | Total equity | $ | 6,210 | | | $ | 4,828 | | | $ | 6,210 | | | $ | 4,828 | |
See accompanying notes to condensed consolidated financial statements.
UGI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Currency in millions, except per share amounts and where indicated otherwise)
Note 1 — Nature of Operations
UGI is a holding company that, through subsidiaries and affiliates, distributes, stores, transports and markets energy products and related services. In the United States, we own and operate (1) a retail propane marketing and distribution business; (2) natural gas and electric distribution utilities; and (3) an energy marketing, midstream infrastructure, storage, natural gas gathering and processing, natural gas production, electricity generation and energy services businesses. In Europe, we market and distribute propane and other LPG and market other energy products and services.
We conduct a domestic propane marketing and distribution business through AmeriGas Partners. AmeriGas Partners conducts a national propane distribution business through its principal operating subsidiary AmeriGas OLP.
UGI International, through subsidiaries and affiliates, conducts (1) an LPG distribution business throughout much of Europe and (2) an energy marketing business in France, Belgium, the Netherlands and the United Kingdom. These businesses are conducted principally through our subsidiaries, UGI France, Flaga, AvantiGas, DVEP and UniverGas.
Energy Services conducts, directly and through subsidiaries and affiliates, energy marketing, including renewable natural gas,RNG, midstream transmission, LNG storage, natural gas gathering and processing, natural gas and RNG production, electricity generation and energy services businesses primarily in the eastern region of the U.S., eastern Ohio, the panhandle of West Virginia and California. UGID owns electricity generation facilities principally located in Pennsylvania. Energy Services and its subsidiaries’ storage, LNG and portions of its midstream transmission operations are subject to regulation by the FERC.
On September 1, 2021, UGI acquired Mountaineer, the largest natural gas distribution company in West Virginia for a purchase price of $540, which includes the assumption of approximately $140 principal amounts of long-term debt. Mountaineer serves more than 200,000 customers across 50 of the state’s 55 counties. Mountaineer is subject to regulation by the WVPSC. For additional information on the Mountaineer Acquisition, see Note 5.
Upon the acquisition of Mountaineer, our Utilities segment includes UGI Utilities and Mountaintop Energy Holdings, LLC. UGI Utilities directly owns and operates PA Gas Utility, a natural gas distribution utility business in eastern and central Pennsylvania and in a portion of 1one Maryland county. PA Gas Utility is subject to regulation by the PAPUC, the FERC, and, with respect to a small service territory in 1one Maryland county, the MDPSC. UGI Utilities also owns and operates Electric Utility, an electric distribution utility located in northeastern Pennsylvania. Electric Utility is subject to regulation by the PAPUC and the FERC.
Pending Acquisition of Mountaineer Gas Company
On December 29, 2020, UGI Corporation signed a definitive agreement to acquire Mountaineer, the largest natural gas distribution company in West Virginia for a preliminary purchase price of $540, which includes the assumption of approximately $140 of long-term debt. Mountaineer serves nearly 215,000 customers across 50 of the state’s 55 counties. The pending acquisition is subject to customary regulatory and other closing conditions, including approval by the WV PSC, and is expected to close in the second half of calendar year 2021. UGI currently expects to finance the pending acquisition using proceeds from the 2021 UGI Corporation Senior Credit Facility and the issuance of Equity Units. For additional information on these financing activities, see Notes 7 and 8.
On January 26, 2021, UGI and Mountaineer filed a joint petition for consent and approval of the pending acquisition at the WV PSC.On July 15, 2021, UGI and Mountaineer filed, on behalf of all parties, a unanimous joint stipulation and agreement for settlement (the “Settlement”) of all issues in the proceeding that, among other provisions, requests the WV PSC to approve the pending acquisition. The Settlement was presented to the WV PSC in an evidentiary hearing on July 20, 2021. The Company cannot predict the timing or the ultimate outcome of the Settlement approval process.
Note 2 — Summary of Significant Accounting Policies
The accompanying condensed consolidated financial statements are unaudited and have been prepared in accordance with the rules and regulations of the SEC. They include all adjustments that we consider necessary for a fair statement of the results for the interim periods presented. Such adjustments consisted only of normal recurring items unless otherwise disclosed. The September 30, 2020,2021, Condensed Consolidated Balance Sheet was derived from audited financial statements but does not include all footnote disclosures from the annual financial statements.
UGI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Currency in millions, except per share amounts and where indicated otherwise)
These financial statements should be read in conjunction with the financial statements and related notes included in the Company’s 20202021 Annual Report. Due to the seasonal nature of our businesses, the results of operations for interim periods are not necessarily indicative of the results to be expected for a full year.
Restricted Cash. Restricted cash principally represents those cash balances in our commodity futures brokerage accounts that are restricted from withdrawal. The following table provides a reconciliation of the total cash, cash equivalents and restricted
UGI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Currency in millions, except per share amounts and where indicated otherwise)
cash reported on the Condensed Consolidated Balance Sheets to the corresponding amounts reported on the Condensed Consolidated Statements of Cash Flows.
| | | June 30,
2021 | | June 30,
2020 | | September 30, 2020 | | September 30, 2019 | | March 31,
2022 | | March 31,
2021 |
| Cash and cash equivalents | Cash and cash equivalents | | $ | 545 | | | $ | 487 | | | $ | 336 | | | $ | 447 | | Cash and cash equivalents | | $ | 718 | | | $ | 444 | |
| Restricted cash | Restricted cash | | 31 | | | 45 | | | 21 | | | 64 | | Restricted cash | | 55 | | | 28 | |
| Cash, cash equivalents and restricted cash | Cash, cash equivalents and restricted cash | | $ | 576 | | | $ | 532 | | | $ | 357 | | | $ | 511 | | Cash, cash equivalents and restricted cash | | $ | 773 | | | $ | 472 | |
Earnings Per Common Share. Basic earnings per share attributable to UGI stockholders reflect the weighted-average number of common shares outstanding. Diluted earnings per share attributable to UGI stockholders include the effects of dilutive stock options, and common stock awards.
awards and Equity Units. Shares used in computing basic and diluted earnings per share are as follows:
| | | Three Months Ended
June 30, | | Nine Months Ended
June 30, | | Three Months Ended
March 31, | | Six Months Ended
March 31, |
| | | | 2021 | | 2020 | | 2021 | | 2020 | | | 2022 | | 2021 | | 2022 | | 2021 |
| Denominator (thousands of shares): | Denominator (thousands of shares): | | | | | | | | | Denominator (thousands of shares): | | | | | | | | |
| Weighted-average common shares outstanding — basic | Weighted-average common shares outstanding — basic | | 209,099 | | | 208,598 | | | 208,934 | | | 208,989 | | Weighted-average common shares outstanding — basic | | 210,163 | | | 208,930 | | | 209,919 | | | 208,849 | |
| Incremental shares issuable for stock options and awards | | 1,752 | | | 377 | | | 1,260 | | | 1,020 | | |
| Incremental shares issuable for stock options, common stock awards and Equity Units (a) | | Incremental shares issuable for stock options, common stock awards and Equity Units (a) | | 5,765 | | | 1,162 | | | 6,017 | | | 1,014 | |
| Weighted-average common shares outstanding — diluted | Weighted-average common shares outstanding — diluted | | 210,851 | | | 208,975 | | | 210,194 | | | 210,009 | | Weighted-average common shares outstanding — diluted | | 215,928 | | | 210,092 | | | 215,936 | | | 209,863 | |
(a)For the three and ninesix months ended June 30,March 31, 2022 and 2021, and 2020, there were 2,5026,535 and 7,0835,102 shares, respectively, associated with outstanding stock option awards that were excluded fromnot included in the computation of diluted earnings per share above because their effect was antidilutive.
As described in Note 8, the Company issued $220 in Equity Units in May 2021, consisting of Convertible Preferred Stock and the 2024 Purchase Contracts. The 2024 Purchase Contracts contain conversion provisions available under certain conditions. The Company will settle such conversions by paying or delivering (i) 1 share of UGI’s Series B preferred stock (or, for conversions in connection with a redemption of the Convertible Preferred Stock, up to $1,000 per share in cash) per share of Convertible Preferred Stock being converted; and (ii) to the extent the conversion value exceeds the liquidation preference of the Convertible Preferred Stock, shares of UGI’s common stock. The Convertible Preferred Stock is excluded from the denominator of the diluted earnings per share calculation on the basis that the Convertible Preferred Stock will be settled in cash except to the extent that the conversion value exceeds its liquidation preference. Therefore, before any redemption or conversion, the shares of UGI’s common stock that would be required to settle the applicable conversion value in excess of the liquidation preference, if the Company elects to settle such excess in shares of UGI’s common stock, would be included in the denominator of diluted earnings per share in periods in which they are dilutive. There were no shares related to the Convertible Preferred Stock included in the diluted earnings per share calculation during the three and nine months ended June 30, 2021.
Derivative Instruments. Derivative instruments are reported on the Condensed Consolidated Balance Sheets at their fair values, unless the NPNS exception is elected. The accounting for changes in fair value depends upon the purpose of the derivative instrument, whether it is subject to regulatory ratemaking mechanisms or if it qualifies and is designated as a hedge for accounting purposes.
Certain of our derivative instruments qualify and are designated as cash flow hedges. For cash flow hedges, changes in the fair values of the derivative instruments are recorded in AOCI, to the extent effective at offsetting changes in the hedged item, until earnings are affected by the hedged item. We discontinue cash flow hedge accounting if occurrence of the forecasted
UGI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Currency in millions, except per share amounts and where indicated otherwise)
transaction is determined to be no longer probable. Hedge accounting is also discontinued for derivatives that cease to be highly effective. We do not designate our commodity and certain foreign currency derivative instruments as hedges under GAAP. Changes in the fair values of these derivative instruments are reflected in net income. Gains and losses on substantially all of the commodity derivative instruments used by UGI Utilities are included in regulatory assets or liabilities because it is probable such gains or losses will be recoverable from, or refundable to, customers. From time to time, we also enter into net investment hedges. Gains and losses on net investment hedges that relate to our foreign operations are included in the cumulative translation adjustment component in AOCI until such foreign net investment is substantially sold or liquidated.
Cash flows from derivative instruments, other than certain cross-currency swaps and net investment hedges, if any, are included in cash flows from operating activities on the Condensed Consolidated Statements of Cash Flows. Cash flows from the interest portion of our cross-currency hedges, if any, are included in cash flows from operating activities while cash flows from the currency portion of such hedges, if any, are included in cash flows from financing activities. Cash flows from net investment hedges, if any, are included in cash flows from investing activities on the Condensed Consolidated Statements of Cash Flows.
For a more detailed description of the derivative instruments we use, our accounting for derivatives, our objectives for using them and other information, see Note 12.
Impairment of long-lived assets held for sale. In July 2020, Energy Services, through a wholly owned subsidiary, entered into an agreement to sell its approximate 5.97% ownership interest in Conemaugh. As a result, the Company reduced the carrying amount of these assets to their fair value and classified these assets as held-for-sale within the Midstream & Marketing segment as of June 30, 2020. The Company determined the fair value of such assets fell within Level 2 of the fair value hierarchy and was based upon the agreed upon sales price. During the three and nine months ended June 30, 2020, we recognized a non-cash, pre-tax impairment charge of $52 which amount is reflected in “Impairment of assets held-for-sale” on the Condensed Consolidated Statements of Income.
Use of Estimates. The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and costs. These estimates are based
UGI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Currency in millions, except per share amounts and where indicated otherwise)
on management’s knowledge of current events, historical experience and various other assumptions that are believed to be reasonable under the circumstances. Accordingly, actual results may be different from these estimates and assumptions.
Reclassifications. CertainFor purposes of comparability, certain prior-period amounts have been reclassified to conform to the current-period presentation. During the second quarter of Fiscal 2022, the Company reclassified certain amounts on the Consolidated Balance Sheet and Consolidated Statement of Changes in Equity related to the accounting for the Equity Units issued in May 2021.
Note 3 — Accounting Changes
New Accounting Standard Adopted in Fiscal 2021
Credit Losses. Effective October 1, 2020, the Company adopted ASU 2016-13, “Measurement of Credit Losses on Financial Instruments,” including subsequent amendments, using a modified retrospective transition approach. This ASU, as subsequently amended, requires entities to estimate lifetime expected credit losses for financial instruments not measured at fair value through net income, including trade and other receivables, net investments in leases, financial receivables, debt securities, and other financial instruments, which may result in earlier recognition of credit losses. Further, the new current expected credit loss model may affect how entities estimate their allowance for losses related to receivables that are current with respect to their payment terms. The adoption of the new guidance did not have a material impact on our consolidated financial statements.
Accounting Standard Not Yet Adopted2022
Income Taxes. In December 2019,Effective October 1, 2021, the FASB issuedCompany adopted ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.”Taxes” prospectively and retrospectively where deemed applicable. This ASU simplifies the accounting for income taxes by eliminating certain exceptions within the existing guidance for recognizing deferred taxes for equity method investments, performing intraperiod allocations and calculating income taxes in interim periods. Further, this ASU clarifies existing guidance related to, among other things, recognizing deferred taxes for goodwill and allocated taxes to members of a consolidated group. This new guidance is effective for the Company for interim and annual periods beginning October 1, 2021 (Fiscal 2022). Early adoption is permitted; however, the Company will adopt the new guidance effective October 1, 2021. The Company is in the process of assessing the impact on its financial statements from the adoption of the new guidance.guidance did not have a material impact on our consolidated financial statements.
UGI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Currency in millions, except per share amounts and where indicated otherwise)
Accounting Standard Not Yet Adopted
Debt and Derivatives and Hedging. In August 2020, the FASB issued ASU 2020-06, “Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40).” The amendments in this ASU affect entities that issue convertible instruments and/or contracts indexed to and potentially settled in an entity’s own equity. This ASU reduces the number of accounting models for convertible debt instruments and convertible preferred stock, expands disclosure requirements for convertible instruments, and simplifies the related earnings per share guidance. This new guidance is effective for the Company for interim and annual periods beginning October 1, 2022 (Fiscal 2023). Early adoption is permitted. The amendments in this ASU may be adopted using the modified or full retrospective transition methods. The Company is in the process of assessing the impact on its financial statements from the adoption of the new guidance and determining the transition method and the period in which the new guidance will be adopted.
Note 4 — Revenue from Contracts with Customers
The Company recognizes revenue when control of promised goods or services is transferred to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. See Note 4 in the Company’s 20202021 Annual Report for additional information on our revenues from contracts with customers.
UGI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Currency in millions, except per share amounts and where indicated otherwise)
Revenue Disaggregation
The following tables present our disaggregated revenues by reportable segment:
| | | Three Months Ended June 30, 2021 | | Total | | Eliminations
(a) | | AmeriGas Propane | | UGI International | | Midstream & Marketing | | UGI Utilities | | Corporate & Other | |
| Three Months Ended March 31, 2022 | | Three Months Ended March 31, 2022 | | Total | | Eliminations
(a) | | AmeriGas Propane | | UGI International | | Midstream & Marketing | | Utilities | | Corporate & Other |
| Revenues from contracts with customers: | Revenues from contracts with customers: | | | | | | | | | | | | | | | Revenues from contracts with customers: | | | | | | | | | | | | | | |
| Utility: | Utility: | | Utility: | |
| Core Market: | Core Market: | | Core Market: | |
| Residential | Residential | | $ | 90 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 90 | | | $ | 0 | | Residential | | $ | 400 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 400 | | | $ | — | |
| Commercial & Industrial | Commercial & Industrial | | 34 | | | 0 | | | 0 | | | 0 | | | 0 | | | 34 | | | 0 | | Commercial & Industrial | | 167 | | | — | | | — | | | — | | | — | | | 167 | | | — | |
| Large delivery service | Large delivery service | | 33 | | | 0 | | | 0 | | | 0 | | | 0 | | | 33 | | | 0 | | Large delivery service | | 54 | | | — | | | — | | | — | | | — | | | 54 | | | — | |
| Off-system sales and capacity releases | Off-system sales and capacity releases | | 6 | | | (10) | | | 0 | | | 0 | | | 0 | | | 16 | | | 0 | | Off-system sales and capacity releases | | 37 | | | (40) | | | — | | | — | | | — | | | 77 | | | — | |
| Other | Other | | 5 | | | 0 | | | 0 | | | 0 | | | 0 | | | 5 | | | 0 | | Other | | 7 | | | — | | | — | | | — | | | — | | | 7 | | | — | |
| Total Utility | Total Utility | | 168 | | | (10) | | | 0 | | | 0 | | | 0 | | | 178 | | | 0 | | Total Utility | | 665 | | | (40) | | | — | | | — | | | — | | | 705 | | | — | |
| Non-Utility: | Non-Utility: | | | | | | | | | | | | | | | Non-Utility: | | | | | | | | | | | | | | |
| LPG: | LPG: | | LPG: | |
| Retail | Retail | | 800 | | | 0 | | | 424 | | | 376 | | | 0 | | | 0 | | | 0 | | Retail | | 1,554 | | | — | | | 908 | | | 646 | | | — | | | — | | | — | |
| Wholesale | Wholesale | | 77 | | | 0 | | | 35 | | | 42 | | | 0 | | | 0 | | | 0 | | Wholesale | | 154 | | | — | | | 68 | | | 86 | | | — | | | — | | | — | |
| Energy Marketing | Energy Marketing | | 311 | | | (24) | | | 0 | | | 129 | | | 206 | | | 0 | | | 0 | | Energy Marketing | | 909 | | | (81) | | | — | | | 466 | | | 524 | | | — | | | — | |
| Midstream: | Midstream: | | Midstream: | |
| Pipeline | Pipeline | | 45 | | | 0 | | | 0 | | | 0 | | | 45 | | | 0 | | | 0 | | Pipeline | | 50 | | | — | | | — | | | — | | | 50 | | | — | | | — | |
| Peaking | Peaking | | 1 | | | (5) | | | 0 | | | 0 | | | 6 | | | 0 | | | 0 | | Peaking | | 23 | | | (57) | | | — | | | — | | | 80 | | | — | | | — | |
| Other | Other | | 2 | | | 0 | | | 0 | | | 0 | | | 2 | | | 0 | | | 0 | | Other | | 2 | | | — | | | — | | | — | | | 2 | | | — | | | — | |
| Electricity Generation | Electricity Generation | | 1 | | | 0 | | | 0 | | | 0 | | | 1 | | | 0 | | | 0 | | Electricity Generation | | 14 | | | — | | | — | | | — | | | 14 | | | — | | | — | |
| Other | Other | | 69 | | | 0 | | | 51 | | | 18 | | | 0 | | | 0 | | | 0 | | Other | | 71 | | | — | | | 54 | | | 17 | | | — | | | — | | | — | |
| Total Non-Utility | Total Non-Utility | | 1,306 | | | (29) | | | 510 | | | 565 | | | 260 | | | 0 | | | 0 | | Total Non-Utility | | 2,777 | | | (138) | | | 1,030 | | | 1,215 | | | 670 | | | — | | | — | |
| Total revenues from contracts with customers | Total revenues from contracts with customers | | 1,474 | | | (39) | | | 510 | | | 565 | | | 260 | | | 178 | | | 0 | | Total revenues from contracts with customers | | 3,442 | | | (178) | | | 1,030 | | | 1,215 | | | 670 | | | 705 | | | — | |
| Other revenues (b) | Other revenues (b) | | 22 | | | (1) | | | 16 | | | 7 | | | 1 | | | 3 | | | (4) | | Other revenues (b) | | 24 | | | (1) | | | 18 | | | 9 | | | 1 | | | 2 | | | (5) | |
| Total revenues | Total revenues | | $ | 1,496 | | | $ | (40) | | | $ | 526 | | | $ | 572 | | | $ | 261 | | | $ | 181 | | | $ | (4) | | Total revenues | | $ | 3,466 | | | $ | (179) | | | $ | 1,048 | | | $ | 1,224 | | | $ | 671 | | | $ | 707 | | | $ | (5) | |
UGI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Currency in millions, except per share amounts and where indicated otherwise)
| | | Three Months Ended June 30, 2020 | | Total | | Eliminations
(a) | | AmeriGas Propane | | UGI International | | Midstream & Marketing | | UGI Utilities | | Corporate & Other | |
| Three Months Ended March 31, 2021 | | Three Months Ended March 31, 2021 | | Total | | Eliminations
(a) | | AmeriGas Propane | | UGI International | | Midstream & Marketing | | Utilities | | Corporate & Other |
| Revenues from contracts with customers: | Revenues from contracts with customers: | | | | | | | | | | | | | | | Revenues from contracts with customers: | | | | | | | | | | | | | | |
| Utility: | Utility: | | Utility: | |
| Core Market: | Core Market: | | Core Market: | |
| Residential | Residential | | $ | 103 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 103 | | | $ | 0 | | Residential | | $ | 243 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 243 | | | $ | — | |
| Commercial & Industrial | Commercial & Industrial | | 30 | | | 0 | | | 0 | | | 0 | | | 0 | | | 30 | | | 0 | | Commercial & Industrial | | 96 | | | — | | | — | | | — | | | — | | | 96 | | | — | |
| Large delivery service | Large delivery service | | 30 | | | 0 | | | 0 | | | 0 | | | 0 | | | 30 | | | 0 | | Large delivery service | | 44 | | | — | | | — | | | — | | | — | | | 44 | | | — | |
| Off-system sales and capacity releases | Off-system sales and capacity releases | | 5 | | | (7) | | | 0 | | | 0 | | | 0 | | | 12 | | | 0 | | Off-system sales and capacity releases | | 22 | | | (25) | | | — | | | — | | | — | | | 47 | | | — | |
| Other | Other | | 3 | | | 0 | | | 0 | | | 0 | | | 0 | | | 3 | | | 0 | | Other | | 7 | | | — | | | — | | | — | | | — | | | 7 | | | — | |
| Total Utility | Total Utility | | 171 | | | (7) | | | 0 | | | 0 | | | 0 | | | 178 | | | 0 | | Total Utility | | 412 | | | (25) | | | — | | | — | | | — | | | 437 | | | — | |
| Non-Utility: | Non-Utility: | | | | | | | | | | | | | | | Non-Utility: | | | | | | | | | | | | | | |
| LPG: | LPG: | | LPG: | |
| Retail | Retail | | 622 | | | 0 | | | 372 | | | 250 | | | 0 | | | 0 | | | 0 | | Retail | | 1,395 | | | — | | | 833 | | | 562 | | | — | | | — | | | — | |
| Wholesale | Wholesale | | 32 | | | 0 | | | 10 | | | 22 | | | 0 | | | 0 | | | 0 | | Wholesale | | 99 | | | — | | | 38 | | | 61 | | | — | | | — | | | — | |
| Energy Marketing | Energy Marketing | | 223 | | | (16) | | | 0 | | | 81 | | | 158 | | | 0 | | | 0 | | Energy Marketing | | 514 | | | (39) | | | — | | | 186 | | | 367 | | | — | | | — | |
| Midstream: | Midstream: | | Midstream: | |
| Pipeline | Pipeline | | 40 | | | 0 | | | 0 | | | 0 | | | 40 | | | 0 | | | 0 | | Pipeline | | 48 | | | — | | | — | | | — | | | 48 | | | — | | | — | |
| Peaking | Peaking | | (1) | | | (4) | | | 0 | | | 0 | | | 3 | | | 0 | | | 0 | | Peaking | | 9 | | | (53) | | | — | | | — | | | 62 | | | — | | | — | |
| Other | Other | | 3 | | | 0 | | | 0 | | | 0 | | | 3 | | | 0 | | | 0 | | Other | | 2 | | | — | | | — | | | — | | | 2 | | | — | | | — | |
| Electricity Generation | Electricity Generation | | 6 | | | 0 | | | 0 | | | 0 | | | 6 | | | 0 | | | 0 | | Electricity Generation | | 3 | | | — | | | — | | | — | | | 3 | | | — | | | — | |
| Other | Other | | 75 | | | 0 | | | 53 | | | 13 | | | 9 | | | 0 | | | 0 | | Other | | 70 | | | — | | | 54 | | | 16 | | | — | | | — | | | — | |
| Total Non-Utility | Total Non-Utility | | 1,000 | | | (20) | | | 435 | | | 366 | | | 219 | | | 0 | | | 0 | | Total Non-Utility | | 2,140 | | | (92) | | | 925 | | | 825 | | | 482 | | | — | | | — | |
| Total revenues from contracts with customers | Total revenues from contracts with customers | | 1,171 | | | (27) | | | 435 | | | 366 | | | 219 | | | 178 | | | 0 | | Total revenues from contracts with customers | | 2,552 | | | (117) | | | 925 | | | 825 | | | 482 | | | 437 | | | — | |
| Other revenues (b) | Other revenues (b) | | 28 | | | (1) | | | 16 | | | 5 | | | 3 | | | 1 | | | 4 | | Other revenues (b) | | 29 | | | (1) | | | 15 | | | 9 | | | 2 | | | 5 | | | (1) | |
| Total revenues | Total revenues | | $ | 1,199 | | | $ | (28) | | | $ | 451 | | | $ | 371 | | | $ | 222 | | | $ | 179 | | | $ | 4 | | Total revenues | | $ | 2,581 | | | $ | (118) | | | $ | 940 | | | $ | 834 | | | $ | 484 | | | $ | 442 | | | $ | (1) | |
UGI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Currency in millions, except per share amounts and where indicated otherwise)
| | | Nine Months Ended June 30, 2021 | | Total | | Eliminations
(a) | | AmeriGas Propane | | UGI International | | Midstream & Marketing | | UGI Utilities | | Corporate & Other | |
| Six Months Ended March 31, 2022 | | Six Months Ended March 31, 2022 | | Total | | Eliminations
(a) | | AmeriGas Propane | | UGI International | | Midstream & Marketing | | Utilities | | Corporate & Other |
| Revenues from contracts with customers: | Revenues from contracts with customers: | | | | | | | | | | | | | | | Revenues from contracts with customers: | | | | | | | | | | | | | | |
| Utility: | Utility: | | Utility: | |
| Core Market: | Core Market: | | Core Market: | |
| Residential | Residential | | $ | 498 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 498 | | | $ | 0 | | Residential | | $ | 634 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 634 | | | $ | — | |
| Commercial & Industrial | Commercial & Industrial | | 190 | | | 0 | | | 0 | | | 0 | | | 0 | | | 190 | | | 0 | | Commercial & Industrial | | 261 | | | — | | | — | | | — | | | — | | | 261 | | | — | |
| | Large delivery service | Large delivery service | | 117 | | | 0 | | | 0 | | | 0 | | | 0 | | | 117 | | | 0 | | Large delivery service | | 97 | | | — | | | — | | | — | | | — | | | 97 | | | — | |
| Off-system sales and capacity releases | Off-system sales and capacity releases | | 43 | | | (49) | | | 0 | | | 0 | | | 0 | | | 92 | | | 0 | | Off-system sales and capacity releases | | 56 | | | (62) | | | — | | | — | | | — | | | 118 | | | — | |
| Other | Other | | 16 | | | (1) | | | 0 | | | 0 | | | 0 | | | 17 | | | 0 | | Other | | 12 | | | (1) | | | — | | | — | | | — | | | 13 | | | — | |
| Total Utility | Total Utility | | 864 | | | (50) | | | 0 | | | 0 | | | 0 | | | 914 | | | 0 | | Total Utility | | 1,060 | | | (63) | | | — | | | — | | | — | | | 1,123 | | | — | |
| Non-Utility: | Non-Utility: | | | | | | | | | | | | | | | Non-Utility: | | | | | | | | | | | | | | |
| LPG: | LPG: | | LPG: | |
| Retail | Retail | | 3,250 | | | 0 | | | 1,829 | | | 1,421 | | | 0 | | | 0 | | | 0 | | Retail | | 2,804 | | | — | | | 1,554 | | | 1,250 | | | — | | | — | | | — | |
| Wholesale | Wholesale | | 235 | | | 0 | | | 92 | | | 143 | | | 0 | | | 0 | | | 0 | | Wholesale | | 294 | | | — | | | 124 | | | 170 | | | — | | | — | | | — | |
| Energy Marketing | Energy Marketing | | 1,205 | | | (89) | | | 0 | | | 470 | | | 824 | | | 0 | | | 0 | | Energy Marketing | | 1,623 | | | (136) | | | — | | | 799 | | | 960 | | | — | | | — | |
| Midstream: | Midstream: | | Midstream: | |
| Pipeline | Pipeline | | 138 | | | 0 | | | 0 | | | 0 | | | 138 | | | 0 | | | 0 | | Pipeline | | 96 | | | — | | | — | | | — | | | 96 | | | — | | | — | |
| Peaking | Peaking | | 12 | | | (94) | | | 0 | | | 0 | | | 106 | | | 0 | | | 0 | | Peaking | | 29 | | | (96) | | | — | | | — | | | 125 | | | — | | | — | |
| Other | Other | | 6 | | | 0 | | | 0 | | | 0 | | | 6 | | | 0 | | | 0 | | Other | | 4 | | | — | | | — | | | — | | | 4 | | | — | | | — | |
| Electricity Generation | Electricity Generation | | 8 | | | 0 | | | 0 | | | 0 | | | 8 | | | 0 | | | 0 | | Electricity Generation | | 19 | | | — | | | — | | | — | | | 19 | | | — | | | — | |
| Other | Other | | 211 | | | 0 | | | 161 | | | 50 | | | 0 | | | 0 | | | 0 | | Other | | 149 | | | — | | | 112 | | | 37 | | | — | | | — | | | — | |
| Total Non-Utility | Total Non-Utility | | 5,065 | | | (183) | | | 2,082 | | | 2,084 | | | 1,082 | | | 0 | | | 0 | | Total Non-Utility | | 5,018 | | | (232) | | | 1,790 | | | 2,256 | | | 1,204 | | | — | | | — | |
| Total revenues from contracts with customers | Total revenues from contracts with customers | | 5,929 | | | (233) | | | 2,082 | | | 2,084 | | | 1,082 | | | 914 | | | 0 | | Total revenues from contracts with customers | | 6,078 | | | (295) | | | 1,790 | | | 2,256 | | | 1,204 | | | 1,123 | | | — | |
| Other revenues (b) | Other revenues (b) | | 80 | | | (3) | | | 50 | | | 22 | | | 4 | | | 9 | | | (2) | | Other revenues (b) | | 61 | | | (2) | | | 36 | | | 17 | | | 2 | | | 3 | | | 5 | |
| Total revenues | Total revenues | | $ | 6,009 | | | $ | (236) | | | $ | 2,132 | | | $ | 2,106 | | | $ | 1,086 | | | $ | 923 | | | $ | (2) | | Total revenues | | $ | 6,139 | | | $ | (297) | | | $ | 1,826 | | | $ | 2,273 | | | $ | 1,206 | | | $ | 1,126 | | | $ | 5 | |
UGI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Currency in millions, except per share amounts and where indicated otherwise)
| | | Nine Months Ended June 30, 2020 | | Total | | Eliminations
(a) | | AmeriGas Propane | | UGI International | | Midstream & Marketing | | UGI Utilities | | Corporate & Other | |
| Six Months Ended March 31, 2021 | | Six Months Ended March 31, 2021 | | Total | | Eliminations
(a) | | AmeriGas Propane | | UGI International | | Midstream & Marketing | | Utilities | | Corporate & Other |
| Revenues from contracts with customers: | Revenues from contracts with customers: | | | | | | | | | | | | | | | Revenues from contracts with customers: | | | | | | | | | | | | | | |
| Utility: | Utility: | | Utility: | |
| Core Market: | Core Market: | | Core Market: | |
| Residential | Residential | | $ | 499 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 499 | | | $ | 0 | | Residential | | $ | 408 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 408 | | | $ | — | |
| Commercial & Industrial | Commercial & Industrial | | 193 | | | 0 | | | 0 | | | 0 | | | 0 | | | 193 | | | 0 | | Commercial & Industrial | | 156 | | | — | | | — | | | — | | | — | | | 156 | | | — | |
| Large delivery service | Large delivery service | | 113 | | | 0 | | | 0 | | | 0 | | | 0 | | | 113 | | | 0 | | Large delivery service | | 84 | | | — | | | — | | | — | | | — | | | 84 | | | — | |
| Off-system sales and capacity releases | Off-system sales and capacity releases | | 44 | | | (37) | | | 0 | | | 0 | | | 0 | | | 81 | | | 0 | | Off-system sales and capacity releases | | 37 | | | (39) | | | — | | | — | | | — | | | 76 | | | — | |
| Other | Other | | 12 | | | (1) | | | 0 | | | 0 | | | 0 | | | 13 | | | 0 | | Other | | 11 | | | (1) | | | — | | | — | | | — | | | 12 | | | — | |
| Total Utility | Total Utility | | 861 | | | (38) | | | 0 | | | 0 | | | 0 | | | 899 | | | 0 | | Total Utility | | 696 | | | (40) | | | — | | | — | | | — | | | 736 | | | — | |
| Non-Utility: | Non-Utility: | | | | | | | | | | | | | | | Non-Utility: | | | | | | | | | | | | | | |
| LPG: | LPG: | | LPG: | |
| Retail | Retail | | 2,911 | | | 0 | | | 1,715 | | | 1,196 | | | 0 | | | 0 | | | 0 | | Retail | | 2,450 | | | — | | | 1,405 | | | 1,045 | | | — | | | — | | | — | |
| Wholesale | Wholesale | | 172 | | | 0 | | | 51 | | | 121 | | | 0 | | | 0 | | | 0 | | Wholesale | | 158 | | | — | | | 57 | | | 101 | | | — | | | — | | | — | |
| Energy Marketing | Energy Marketing | | 1,005 | | | (64) | | | 0 | | | 349 | | | 720 | | | 0 | | | 0 | | Energy Marketing | | 894 | | | (65) | | | — | | | 341 | | | 618 | | | — | | | — | |
| Midstream: | Midstream: | | Midstream: | |
| Pipeline | Pipeline | | 128 | | | 0 | | | 0 | | | 0 | | | 128 | | | 0 | | | 0 | | Pipeline | | 93 | | | — | | | — | | | — | | | 93 | | | — | | | — | |
| Peaking | Peaking | | 6 | | | (96) | | | 0 | | | 0 | | | 102 | | | 0 | | | 0 | | Peaking | | 11 | | | (89) | | | — | | | — | | | 100 | | | — | | | — | |
| Other | Other | | 6 | | | 0 | | | 0 | | | 0 | | | 6 | | | 0 | | | 0 | | Other | | 4 | | | — | | | — | | | — | | | 4 | | | — | | | — | |
| Electricity Generation | Electricity Generation | | 23 | | | 0 | | | 0 | | | 0 | | | 23 | | | 0 | | | 0 | | Electricity Generation | | 7 | | | — | | | — | | | — | | | 7 | | | — | | | — | |
| Other | Other | | 237 | | | (2) | | | 168 | | | 43 | | | 28 | | | 0 | | | 0 | | Other | | 142 | | | — | | | 110 | | | 32 | | | — | | | — | | | — | |
| Total Non-Utility | Total Non-Utility | | 4,488 | | | (162) | | | 1,934 | | | 1,709 | | | 1,007 | | | 0 | | | 0 | | Total Non-Utility | | 3,759 | | | (154) | | | 1,572 | | | 1,519 | | | 822 | | | — | | | — | |
| Total revenues from contracts with customers | Total revenues from contracts with customers | | 5,349 | | | (200) | | | 1,934 | | | 1,709 | | | 1,007 | | | 899 | | | 0 | | Total revenues from contracts with customers | | 4,455 | | | (194) | | | 1,572 | | | 1,519 | | | 822 | | | 736 | | | — | |
| Other revenues (b) | Other revenues (b) | | 86 | | | (2) | | | 49 | | | 17 | | | 10 | | | 2 | | | 10 | | Other revenues (b) | | 58 | | | (2) | | | 34 | | | 15 | | | 3 | | | 6 | | | 2 | |
| Total revenues | Total revenues | | $ | 5,435 | | | $ | (202) | | | $ | 1,983 | | | $ | 1,726 | | | $ | 1,017 | | | $ | 901 | | | $ | 10 | | Total revenues | | $ | 4,513 | | | $ | (196) | | | $ | 1,606 | | | $ | 1,534 | | | $ | 825 | | | $ | 742 | | | $ | 2 | |
(a)Includes intersegment revenues principally among Midstream & Marketing, UGI Utilities and AmeriGas Propane.
(b)Primarily represents revenues from tank rentals at AmeriGas Propane and UGI International, revenues from certain gathering assets at Midstream & Marketing, revenues from alternative revenue programs at UGI Utilities and gains and losses on commodity derivative instruments not associated with current-period transactions reflected in Corporate & Other, none of which are within the scope of ASC 606 and are accounted for in accordance with other GAAP.
Contract Balances
The timing of revenue recognition may differ from the timing of invoicing to customers or cash receipts. Contract assets represent our right to consideration after the performance obligations have been satisfied when such right is conditioned on something other than the passage of time. Contract assets were not material for all periods presented. Substantially all of our receivables are unconditional rights to consideration and are included in “Accounts receivable” and, in the case of UGI Utilities, “Accrued utility revenues” on the Condensed Consolidated Balance Sheets. Amounts billed are generally due within the following month.
Contract liabilities arise when payment from a customer is received before the performance obligations have been satisfied and represent the Company’s obligations to transfer goods or services to a customer for which we have received consideration. The balances of contract liabilities were $109, $161$100, $149 and $104$93 at JuneMarch 31, 2022, September 30, 2021 September 30, 2020 and June 30, 2020,March 31, 2021, respectively, and are included in “Other current liabilities” and “Other noncurrent liabilities” on the Condensed Consolidated Balance Sheets. Revenues recognized for the ninesix months ended June 30,March 31, 2022 and 2021, and 2020, from the amounts included in contract liabilities at September 30, 2021 and 2020, were $112 and 2019, were $137 and $122,$131, respectively.
UGI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Currency in millions, except per share amounts and where indicated otherwise)
Remaining Performance Obligations
The Company excludes disclosures related to the aggregate amount of the transaction price allocated to certain performance obligations that are unsatisfied as of the end of the reporting period because these contracts have an initial expected term of one year or less, or we have a right to bill the customer in an amount that corresponds directly with the value of services provided to the customer to date. Certain contracts with customers at Midstream & Marketing and UGI Utilities contain minimum future performance obligations through 2047 and 2053, respectively. At June 30, 2021,March 31, 2022, Midstream & Marketing and UGI Utilities expect to record approximately $2.0$2.3 billion and $0.2 billion of revenues, respectively, related to the minimum future performance obligations over the remaining terms of the related contracts.
Note 5 — Acquisitions
Stonehenge Acquisition
On January 27, 2022, UGI through its wholly owned indirect subsidiary, Energy Services, completed the Stonehenge Acquisition in which Energy Services acquired all of the equity interests in Stonehenge, for total cash consideration of approximately $190. The Stonehenge business includes a natural gas gathering system, located in Western Pennsylvania, with more than 47 miles of pipeline and associated compression assets. The Stonehenge Acquisition is consistent with our growth strategies, including expanding our midstream natural gas gathering assets within the Appalachian basin production region. The Stonehenge Acquisition was funded using available cash. The Company has accounted for the Stonehenge Acquisition using the acquisition method and the purchase price has been primarily allocated to property, plant and equipment.
Mountaineer Acquisition
On September 1, 2021, UGI completed the Mountaineer Acquisition in which UGI acquired all of the equity interests in Mountaineer, the largest natural gas distribution company in West Virginia, for a purchase price of $540, including the assumption of $140 principal amounts of long-term debt. The Mountaineer Acquisition was consummated pursuant to a purchase and sale agreement between UGI and the iCON Sellers and is consistent with our growth strategies, including expanding our core utility operations in the mid-Atlantic region.The Mountaineer Acquisition was funded with cash proceeds from the UGI Corporation Senior Credit Facility $215 term loan and cash on hand including proceeds from the issuance of Equity Units. Accounts associated with Mountaineer are included within our Utilities reportable segment.
The Company has accounted for the Mountaineer Acquisition using the acquisition method. During the six months ended March 31, 2022, the Company recorded an adjustment to decrease goodwill by $5 primarily reflecting an adjustment to a valuation allowance on certain deferred income taxes. The Condensed Balance Sheet at March 31, 2022, reflects the final allocation of the purchase price to the assets acquired and liabilities assumed for the Mountaineer Acquisition.
UGI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Currency in millions, except per share amounts and where indicated otherwise)
The components of the Mountaineer purchase price allocations are as follows:
| | | | | |
| Assets acquired: | |
| Cash and cash equivalents | $ | 3 | |
| Accounts receivable | 14 | |
| Inventories | 41 | |
| Other current assets | 21 | |
| Property, plant and equipment | 397 | |
| Other noncurrent assets | 48 | |
| Total assets acquired | $ | 524 | |
| |
| Liabilities assumed: | |
| Short-term borrowings | $ | 55 | |
| Accounts payable | 20 | |
| Other current liabilities | 52 | |
| Long-term debt | 164 | |
| Pension and other postretirement benefit obligation | 33 | |
| Deferred income taxes | 21 | |
| Other noncurrent liabilities | 29 | |
| Total liabilities assumed | $ | 374 | |
| Goodwill | 250 | |
| Net consideration transferred | $ | 400 | |
Mountaineer is a regulated entity which accounts for the financial effects of regulation in accordance with ASC 980. The effects of regulation can impact the fair value of certain assets and liabilities acquired, and as such, the measurement of the fair value of regulated property assets using the predecessor’s carrying value is generally accepted since regulation attaches to the assets and regulation is so pervasive that the regulation extends to the individual assets. In certain other instances where assets or liabilities are subject to rate recovery, we recorded fair value adjustments to such assets and liabilities as regulatory assets and liabilities.
The excess of the purchase price for the Mountaineer Acquisition over the fair values of the assets acquired and liabilities assumed has been reflected as goodwill, assigned to the Utilities reportable segment. Goodwill is attributable to the assembled workforce of Mountaineer, planned customer growth and planned growth in rate base through continued investment in utility infrastructure. The goodwill recognized from the Mountaineer Acquisition is not expected to be deductible for income tax purposes.
The impact of the Mountaineer Acquisition on a pro forma basis as if the Mountaineer Acquisition had occurred on October 1, 2020 was not material to the Company’s revenues or net income for the three and six months ended March 31, 2021.
UGI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Currency in millions, except per share amounts and where indicated otherwise)
Note 56 — Inventories
Inventories comprise the following:
| | | June 30,
2021 | | September 30,
2020 | | June 30,
2020 | | March 31,
2022 | | September 30,
2021 | | March 31,
2021 |
| Non-utility LPG and natural gas | Non-utility LPG and natural gas | | $ | 187 | | | $ | 164 | | | $ | 135 | | Non-utility LPG and natural gas | | $ | 253 | | | $ | 278 | | | $ | 179 | |
| Gas Utility natural gas | Gas Utility natural gas | | 16 | | | 20 | | | 11 | | Gas Utility natural gas | | 6 | | | 68 | | | 3 | |
| Energy certificates | | Energy certificates | | 63 | | | 53 | | | 31 | |
| Materials, supplies and other | Materials, supplies and other | | 93 | | | 57 | | | 55 | | Materials, supplies and other | | 76 | | | 70 | | | 55 | |
| Total inventories | Total inventories | | $ | 296 | | | $ | 241 | | | $ | 201 | | Total inventories | | $ | 398 | | | $ | 469 | | | $ | 268 | |
Note 67 — Utility Regulatory Assets and Liabilities and Regulatory Matters
For a description of the Company’s regulatory assets and liabilities other than those described below, see Note 9 in the Company’s 20202021 Annual Report. Other than removal costs, UGI Utilities currently does not recover a rate of return on its regulatory assets listed below. The following regulatory assets and liabilities associated with UGI Utilities are included on the Condensed Consolidated Balance Sheets:
| | | June 30,
2021 | | September 30,
2020 | | June 30,
2020 | | March 31,
2022 | | September 30,
2021 | | March 31,
2021 |
| Regulatory assets (a): | Regulatory assets (a): | | | | | | | Regulatory assets (a): | | | | | | |
| Income taxes recoverable | Income taxes recoverable | | $ | 131 | | | $ | 124 | | | $ | 133 | | Income taxes recoverable | | $ | 148 | | | $ | 143 | | | $ | 128 | |
| Underfunded pension and postretirement plans | Underfunded pension and postretirement plans | | 166 | | | 175 | | | 169 | | Underfunded pension and postretirement plans | | 104 | | | 108 | | | 169 | |
| Environmental costs | Environmental costs | | 58 | | | 61 | | | 62 | | Environmental costs | | 55 | | | 58 | | | 59 | |
| | Deferred fuel and power costs | | Deferred fuel and power costs | | 6 | | | 11 | | | — | |
| Removal costs, net | Removal costs, net | | 24 | | | 26 | | | 22 | | Removal costs, net | | 22 | | | 24 | | | 24 | |
| Other | Other | | 17 | | | 11 | | | 13 | | Other | | 49 | | | 53 | | | 18 | |
| Total regulatory assets | Total regulatory assets | | $ | 396 | | | $ | 397 | | | $ | 399 | | Total regulatory assets | | $ | 384 | | | $ | 397 | | | $ | 398 | |
| Regulatory liabilities (a): | Regulatory liabilities (a): | | | | | | | Regulatory liabilities (a): | | | | | | |
| Postretirement benefit overcollections | Postretirement benefit overcollections | | $ | 12 | | | $ | 13 | | | $ | 13 | | Postretirement benefit overcollections | | $ | 12 | | | $ | 13 | | | $ | 12 | |
| | Deferred fuel and power refunds | Deferred fuel and power refunds | | 21 | | | 29 | | | 28 | | Deferred fuel and power refunds | | 17 | | | 36 | | | 17 | |
| State tax benefits — distribution system repairs | State tax benefits — distribution system repairs | | 30 | | | 28 | | | 29 | | State tax benefits — distribution system repairs | | 34 | | | 32 | | | 29 | |
| PAPUC Temporary Rates Order | | 0 | | | 7 | | | 10 | | |
| | Excess federal deferred income taxes | Excess federal deferred income taxes | | 269 | | | 274 | | | 275 | | Excess federal deferred income taxes | | 283 | | | 287 | | | 270 | |
| Other | Other | | 2 | | | 2 | | | 3 | | Other | | 14 | | | 20 | | | 7 | |
| Total regulatory liabilities | Total regulatory liabilities | | $ | 334 | | | $ | 353 | | | $ | 358 | | Total regulatory liabilities | | $ | 360 | | | $ | 388 | | | $ | 335 | |
(a)Current regulatory assets are included in “Prepaid expenses and other current assets” and regulatory liabilities are included in “Other current liabilities” and “Other noncurrent liabilities” on the Condensed Consolidated Balance Sheets.
Deferred Fuelfuel and Power Refunds.power - costs and refunds. Gas Utility’s and Electric Utility’sUtilities’ tariffs contain clauses that permit recovery of all prudently incurred purchased gas and power costs through the application of PGC rates in the case of Gas Utility and DS tariffs in the case of Electric Utility.tariffs. These clauses provide for periodic adjustments to PGC and DS rates for differences between the
UGI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Currency in millions, except per share amounts and where indicated otherwise)
total amount of purchased gas and electric generation supply costs billed tocollected from customers and recoverable costs incurred. Net undercollected costs are classified as a regulatory asset and net overcollections are classified as a regulatory liability.
PA Gas Utility uses derivative instruments to reduce volatility in the cost of gas it purchases for retail core-market customers. Realized and unrealized gains or losses on natural gas derivative instruments are included in deferred fuel and power costs or refunds. Net unrealized gains on such contracts at JuneMarch 31, 2022, September 30, 2021 September 30, 2020 and June 30, 2020March 31, 2021 were $9, $8$21, $35 and $1, respectively.
UGI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Currency in millions, except per share amounts and where indicated otherwise)
Other Regulatory Matters
Base Rate Filings.Filings. On January 28, 2022, PA Gas Utility filed a request with the PAPUC to increase its base operating revenues for residential, commercial and industrial customers by $83 annually. The increased revenues would fund ongoing system improvements and operations necessary to maintain safe and reliable natural gas service and continue to fund programs designed to promote and reward customers’ efforts to increase efficient use of natural gas. PA Gas Utility requested that the new gas rates become effective March 29, 2022. The PAPUC entered an Order on February 24, 2022, suspending the effective date for the rate increase to allow for investigation and public hearings. Unless a settlement is reached sooner, the review process is expected to last up to nine months from the date of filing. The Company cannot predict the timing or the ultimate outcome of the rate case review process.
On February 8, 2021, Electric Utility filed a rate request with the PAPUC to increase its annual base distribution revenues by $9. 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 April 9, 2021. The PAPUC entered an Order on March 11,On October 28, 2021, suspending the effective date for the rate increase to allow for investigation and public hearings. On July 19, 2021, a Joint Petition for Approval of Settlement of all issues supported by all active parties was filed with the PAPUC providing for a $6 annual base distribution rate increase for Electric Utility. The Joint Petition is subject to receipt of a recommended decision by a PAPUC administrative law judge and an order of the PAPUC approving the settlement. Unless the PAPUC issuesissued a final order prior to the end of the statutory suspension period, the initial proposed rate increase will becomeapproving a settlement that permitted Electric Utility, effective on or before November 9, 2021, subject to refund and a subsequent PAPUC order. The Company cannot predict the timing or the ultimate outcome of the rate case review process.increase its base distribution revenues by $6.
On January 28, 2020, PA Gas Utility filed a request with the PAPUC to increase its annual base distribution operating revenues by $75 annually. On October 8, 2020, the PAPUC issued a final Order approving a settlement that permitspermitted PA Gas Utility to increase its annual base distribution rates by $20, through a phased approach, with $10 beginning January 1, 2021 and an additional $10 beginning July 1, 2021. Additionally, PA Gas Utility was authorized to implement a DSIC once PA Gas Utility total property, plant and equipment less accumulated depreciation reached $2,875. This threshold was achieved in December 2020, and PA Gas Utility implemented a DSIC effective April 1, 2021. The PAPUC’s final Order also includesincluded enhanced COVID-19 customer assistance measures, including the establishment of an Emergency Relief Program for a defined set of payment troubled customers (“ERP”). Additionally, the PAPUC’s final Order permitsorder permitted PA Gas Utility to establish a regulatory asset for certain incremental expenses attributable to the ongoing COVID-19 pandemic, most notably expenses related to the ERP and uncollectible accounts expense, through the effective date of rates in the next PA Gas Utility base rate case, to be recovered and amortized over a 10-year period. In accordance with the terms of the PAPUC’s final Order,Joint Petition, PA Gas Utility iswas not permitted to file a rate case prior to January 1, 2022.
On January 28, 2019, Gas Utility filed a rate request with the PAPUC to increase the base operating revenues for residential, commercial, and industrial customers throughout its Pennsylvania service territory by an aggregate $71. On October 4, 2019, the PAPUC issued a final Order approving a settlement that permitted Gas Utility, effective October 11, 2019, to increase its base distribution revenues by $30 under a single consolidated tariff, approved a plan for uniform class rates, and permitted Gas Utility to extend its Energy Efficiency and Conservation and Growth Extension Tariff programs by an additional term of five years. The PAPUC’s final Order approved a negative surcharge, to return to customers $24 of tax benefits experienced by Gas Utility over the period January 1, 2018 to June 30, 2018, plus applicable interest, in accordance with the May 17, 2018 PAPUC Order, which became effective for a twelve-month period beginning on October 11, 2019, the effective date of Gas Utility’s new base rates.
Note 78 — Debt
UGI International. On December 7, 2021, UGI Corporation Senior Credit Facility. On May 4, 2021, UGI amended the existing UGI Corporation Senior Credit Facility. The 2021 UGI Corporation Senior Credit Facility (1) extends the maturity dateInternational, LLC issued, in an underwritten private placement, €400 principal amount of the previous three-year $300 term loan includedUGI International 2.50% Senior Notes due December 1, 2029. The UGI International 2.50% Senior Notes rank equal in the existing UGI Corporation Senior Credit Facility, which is now due in May 2025; and (2) includes a new four-year term loan commitment, which, effective June 9, 2021, was reduced from $300 to $215, pursuant to the termsright of the 2021 UGI Corporation Senior Facility. Proceeds from new borrowingspayment with indebtedness issued under the 2021 UGI Corporation SeniorInternational Credit Facility may be used to finance a portion of the Mountaineer Acquisition and for general corporate purposes.Facilities Agreement.
New borrowings under the 2021 UGI Corporation Senior Credit Facility bear interest subject to our election, at either (1) the associated prime rate plus a margin or (2) an adjusted LIBOR or an alternate benchmark rate plus a margin and are due in their
UGI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Currency in millions, except per share amounts and where indicated otherwise)
entirety at the maturity date. The applicable margin on the new borrowings, which is dependent upon a ratio of consolidated net indebtedness to consolidated EBITDA, as defined, or UGI’s credit ratings, ranges from 0.125% to 1.50% if the prime rate option is elected and 1.125% to 2.50% if the LIBOR option is elected.
The 2021 UGI Corporation Senior Credit Facility restricts the ability of UGI to, among other things, incur additional indebtedness, make investments, incur liens, and effect mergers, consolidations and sales of assets. The 2021 UGI Corporation Senior Credit Facility also requires UGI not to exceed a ratio of consolidated net indebtedness to consolidated EBITDA, each as defined and calculated on a rolling four-quarter basis as of the last day of each fiscal quarter of 4.50 to 1.00 and raised to 4.75 to 1.00 during an Acquisition Period, as defined by the agreement. UGI is also required to maintain a ratio of consolidated EBITDA to consolidated interest expense, each as defined, as of the last day of each fiscal quarter of not less than 3.50 to 1.00, except in certain circumstances related to UGI’s credit rating.
During the nine months ended June 30, 2021, the Company repaid $285 of borrowings on its five-year $300 revolving credit facility under the 2021 UGI Corporation Senior Credit Facility. A portion of these repayments were funded by the proceeds from the issuance of Equity Units discussed in Note 8. In July 2021, the Company repaid the remaining $15 of borrowings outstanding on this revolving credit facility. As a result of this repayment in July, the Company classified these repayments as “Current maturities of long-term debt” on the June 30, 2021 Condensed Consolidated Balance Sheet. The Company intends to draw upon this revolving credit facility concurrent with the closing of the pending Mountaineer Acquisition.
UGI Utilities Senior Notes. On May 7, 2021, UGI Utilities entered into a Note Purchase Agreement which provides for the private placement of (1) $100 aggregate principal amount of 1.59% Senior Notes due June 15, 2026 and (2) $75 aggregate principal amount of 1.64% Senior Notes due September 15, 2026. On June 15, 2021, UGI Utilities issued $100 aggregate principal amount of 1.59% Senior Notes pursuant to the Note Purchase Agreement. The net proceeds from the issuance of the 1.59%UGI International 2.50% Senior Notes were used (1) to repay short-term borrowings. The 1.64%all of the UGI International 3.25% Senior Notes are expected to be issued in September 2021. These Senior Notes are unsecureddue November 1, 2025 and will rank equally with UGI Utilities’ existing outstanding senior debt. UGI Utilities expects to use the net proceeds from the issuance of the 1.64% Senior Notes to reduce short-term borrowingsassociated fees and expenses and (2) for general corporate purposes. TheseWe have designated the UGI International 2.50% Senior Notes include the usual and customary covenants for similar type notes including, among others, maintenance of existence, payment of taxes when due, compliance with laws and maintenance of insurance. These Senior Notes require UGI Utilities not to exceedas a ratio of Consolidated Debt to Consolidated Total Capital, as defined, of 0.65 to 1.00.
Note 8 — Issuance of Equity Units
On May 25, 2021, the Company issued 2.2 million Equity Units with a total notional value of $220. Each Equity Unit has a stated amount of $100 and consists of 1) a 10% undivided beneficial ownership interest in one share of Convertible Preferred Stock with a liquidation preference of $1,000 per share and 2) a 2024 Purchase Contract. The Company received approximately $213 in proceeds from the issuance of the Equity Units, net of offering expenses and underwriting costs and commissions, and issued 220,000 shares of Convertible Preferred Stock, recording $213 in “Preferred stock” on the accompanying Condensed Consolidated Balance Sheet. The proceeds were used to repay borrowings on the Company’s five-year $300 revolving credit facility under the 2021 UGI Corporation Senior Credit Facility. Concurrent with the closing of the pending Mountaineer Acquisition, the Company intends to draw upon this revolving credit facility to pay a portion of the purchase price and related fees and expenses, and for general corporate purposes.
Convertible Preferred Stock. Holders of the Convertible Preferred Stock will generally have no voting rights, except under the limited circumstances as described in the Equity Unit Agreements, and will be entitled to receive cumulative dividends at an initial annual rate of 0.125% when, as, and if declared by the UGI Board of Directors, payable quarterly in arrears on March 1, June 1, September 1 and December 1, commencing September 1, 2021. The Company may elect to pay such dividends in cash, shares of UGI’s common stock or a combination of cash and shares of UGI’s common stock. Unless all accumulated and unpaid dividends on the Convertible Preferred Stock for prior completed dividend periods have been declared and paid, the Company may not make any distributions on, or repurchase, any of its capital stock ranking equal or junior to the Convertible Preferred Stock as to dividends or upon liquidation, subject to certain exceptions.
The Convertible Preferred Stock has no maturity date and will remain outstanding unless converted by holders or redeemed by the Company. The Company has the option to redeem all or a portion of the Convertible Preferred Stock at any time, and from
UGI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Currency in millions, except per share amounts and where indicated otherwise)
time to time, on or after September 3, 2024, for cash at a redemption price equal to the liquidation preference of the Convertible Preferred Stock being redeemed plus any accumulated and unpaid dividends. Each share of Convertible Preferred Stock may be converted at the option of the holders on and after June 1, 2024, only after it has been separated from the Equity Units and, prior to June 1, 2024, only under limited circumstances in connection with a fundamental change, as defined in the Equity Unit Agreements. The Company will settle conversions by paying or delivering (i) 1 share of UGI’s 0.125% Series B preferred stock (or, for conversions in connection with a redemption of the Convertible Preferred Stock, up to $1,000 per share in cash plus all accumulated but unpaid dividends to, but excluding, the payment date immediately preceding the relevant conversion date) per share of Convertible Preferred Stock being converted; and (ii) to the extent the conversion value exceeds the liquidation preference of the Convertible Preferred Stock, shares of UGI’s common stock.The conversion rate is initially 19.0215 shares of UGI’s common stock per one share of Convertible Preferred Stock, which is equivalent to an initial conversion price of approximately $52.57 per share of UGI’s common stock.
The Convertible Preferred Stock can be remarketed during either (i) an optional remarketing period beginning on, and including, March 1, 2024 and ending on, and including, May 13, 2024 or (ii) a final remarketing period beginning on, and including, May 23, 2024 and ending on, and including, May 30, 2024.investment hedge. In connection with this early repayment of debt, UGI International recognized a successful remarketing, the conversion rate and dividend ratepre-tax loss of the Convertible Preferred Stock may be increased, and the earliest redemption date for the Convertible Preferred Stock may be changed to a later date that is on or before August 29, 2025.
2024 Purchase Contracts. The 2024 Purchase Contracts obligate the holders to pay $100 to UGI to purchase a variable number of shares of UGI’s common stock on the purchase contract settlement date,$11, which is scheduled to occurreflected in “Loss on June 1, 2024. The numberextinguishment of shares of UGI’s common stock to be issued upon settlement of each 2024 Purchase Contract on the purchase contract settlement date will be equal to $100 divided by the market value per share of UGI’s common stock, which will be determined over a market value averaging period preceding the settlement date, subject to a maximum settlement rate of 2.2826 shares of UGI’s common stock per 2024 Purchase Contract, subject to adjustment. The initial maximum settlement rate of the 2024 Purchase Contracts is approximately equal to $100 divided by the last reported sale price of $43.81 per share of UGI’s common stock on May 17, 2021. Absent any fundamental changes, as defined in the Equity Unit Agreements, the holders can settle the 2024 Purchase Contracts early, subject to certain exceptions and conditions. Upon early settlement of any 2024 Purchase Contracts, other than in connection with a fundamental change, the Company will deliver the number of shares of UGI’s common stock equal to 85% of the number of shares of UGI’s common stock that would have otherwise been deliverable.
The Company will pay holders of the 2024 Purchase Contracts quarterly contract adjustment payments at an annual rate of 7.125%, payable quarterly in arrears on March 1, June 1, September 1 and December 1, commencing September 1, 2021.The Company may elect to pay such contract adjustment payments in cash, shares of UGI’s common stock or a combination of cash and shares of UGI’s common stock. The Company may defer the contract adjustment payments for one or more consecutive periods but generally not beyond the purchase contract settlement date.If contract adjustment payments are deferred, the Company will be subject to certain dividend, distribution, and other restrictions related to its capital stock as defined in the Equity Unit Agreements.
The present value of the quarterly contract adjustment payments liability was $45 upon issuance of the Equity Units and is recorded in “Other current liabilities” and “Other noncurrent liabilities” on the Condensed Consolidated Balance Sheet. Such liability reduced “UGI Common Stock” on the Condensed Consolidated Balance Sheet at inception. As each quarterly contract adjustment payment is made, the related liability is reduced and the difference between the cash payment and the present value will accrete to “Interest expense”debt” on the Condensed Consolidated Statements of Income. This accretion was 0t material forIncome, and primarily comprises the threewrite-off of unamortized debt issuance costs and nine months ended June 30, 2021.early redemption premiums.
UGI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Currency in millions, except per share amounts and where indicated otherwise)
Note 9 — Commitments and Contingencies
Environmental Matters
UGI Utilities
From the late 1800s through the mid-1900s, UGI Utilities and its former subsidiaries owned and operated a number of MGPs prior to the general availability of natural gas. Some constituents of coal tars and other residues of the manufactured gas process are today considered hazardous substances under the Superfund Law and may be present on the sites of former MGPs. Between 1882 and 1953, UGI Utilities owned the stock of subsidiary gas companies in Pennsylvania and elsewhere and also operated the businesses of some gas companies under agreement. By the early 1950s, UGI Utilities divested all of its utility operations other than certain gas and electric operations. Beginning in 2006 and 2008, UGI Utilities also owned and operated 2 acquired subsidiaries, with similar histories of owning, and in some cases operating, MGPs in Pennsylvania.
UGI CORPORATION AND SUBSIDIARIES
Notes to October 1, 2020, Condensed Consolidated Financial Statements
(unaudited)
(Currency in millions, except per share amounts and where indicated otherwise)
UGI Utilities wasis subject to three COAsa COA with the PADEP to address the remediation of specified former MGP sites in Pennsylvania and, in the case of one COA, the plugging of specified natural gas wells. Effective October 1, 2020, the COAs were consolidated into one agreement that supersedes the existing agreements, and which is scheduled to terminate at the end of 2031. In accordance with the consolidated COA, UGI Utilities is required to either obtain a certain number of points per calendar year based on defined eligible environmental investigatory and/or remedial activities at the MGPs, or make expenditures for such activities in an amount equal to an annual environmental minimum expenditure threshold. The annual minimum expenditure required underthreshold of the consolidated COA is $5. The consolidated COA permits the transfer of the specified wells, with related costs counted towards the annual minimum expenditure. At JuneMarch 31, 2022, September 30, 2021 September 30, 2020 and June 30, 2020,March 31, 2021, our aggregate estimated accrued liabilities for environmental investigation and remediation costs related to the current COA and the predecessor agreements totaled $49, $53$50 and $55,$50, respectively.
We do not expect the costs for investigation and remediation of hazardous substances at Pennsylvania MGP sites to be material to UGI Utilities’ results of operations because UGI Utilities receives ratemaking recovery of actual environmental investigation and remediation costs associated with the sites covered by the COA. This ratemaking recognition reconciles the accumulated difference between historical costs and rate recoveries with an estimate of future costs associated with the sites. As such, UGI Utilities has recorded an associated regulatory asset for these costs because recovery of these costs from customers is probable (see Note 6)7).
From time to time, UGI Utilities is notified of sites outside Pennsylvania on which private parties allege MGPs were formerly owned or operated by UGI Utilities or owned or operated by a former subsidiary. Such parties generally investigate the extent of environmental contamination or perform environmental remediation. Management believes that under applicable law UGI Utilities should not be liable in those instances in which a former subsidiary owned or operated an MGP. There could be, however, significant future costs of an uncertain amount associated with environmental damage caused by MGPs outside Pennsylvania that UGI Utilities directly operated, or that were owned or operated by a former subsidiary of UGI Utilities if a court were to conclude that (1) the subsidiary’s separate corporate form should be disregarded, or (2) UGI Utilities should be considered to have been an operator because of its conduct with respect to its subsidiary’s MGP. Neither the undiscounted nor the accrued liability for environmental investigation and cleanup costs for UGI Utilities’ MGP sites outside Pennsylvania was material for all periods presented.
AmeriGas Propane
AmeriGas OLP Saranac Lake. In 2008, the NYDEC notified AmeriGas OLP that the NYDEC had placed property purportedly owned by AmeriGas OLP in Saranac Lake, New York on the New York State Registry of Inactive Hazardous Waste Disposal Sites. A site characterization study performed by the NYDEC disclosed contamination related to a former MGP. AmeriGas OLP responded to the NYDEC in 2009 to dispute the contention it was a PRP as it did not operate the MGP and appeared to only own a portion of the site. In 2017, the NYDEC communicated to AmeriGas OLP that the NYDEC had previously issued 3 RODs related to remediation of the site totaling approximately $28 and requested additional information regarding AmeriGas OLP’s purported ownership. AmeriGas OLP renewed its challenge to designation as a PRP and identified potential defenses. The NYDEC subsequently identified a third party PRP with respect to the site.
UGI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Currency in millions, except per share amounts and where indicated otherwise)
The NYDEC commenced implementation of the remediation plan in the spring of 2018. Based on our evaluation of the available information as of June 30, 2021,March 31, 2022, the Partnership has an undiscounted environmental remediation liability of $8 related to the site. Our share of the actual remediation costs could be significantly more or less than the accrued amount.
Other Matters
Purported Class Action Lawsuits. Between May and October of 2014, purported class action lawsuits were filed in multiple jurisdictions against the Partnership/UGI and a competitor by certain of their direct and indirect customers. The class action lawsuits allege, among other things, that the Partnership and its competitor colluded, beginning in 2008, to reduce the fill level of portable propane cylinders from 17 pounds to 15 pounds and combined to persuade their common customer, Walmart Stores, Inc., to accept that fill reduction, resulting in increased cylinder costs to retailers and end-user customers in violation of federal and certain state antitrust laws. The claims seek treble damages, injunctive relief, attorneys’ fees and costs on behalf of the putative classes.
On October 16, 2014, the United States Judicial Panel on Multidistrict Litigation transferred all of these purported class action cases to the Western Missouri District Court. As the result of rulings on a series of procedural filings, including petitions filed with the Eighth Circuit and the U.S. Supreme Court, both the federal and state law claims of the direct customer plaintiffs and the state law claims of the indirect customer plaintiffs were remanded to the Western Missouri District Court. The decision of the Western Missouri District Court to dismiss the federal antitrust claims of the indirect customer plaintiffs was upheld by the Eighth Circuit. On April 15, 2019, the Western Missouri District Court ruled that it has jurisdiction over the indirect purchasers’ state law claims and that the indirect customer plaintiffs have standing to pursue those claims. On August 21, 2019, the District Court partially granted the Company’s motion for judgment on the pleadings and dismissed the claims of indirect customer plaintiffs from ten states and the District of Columbia.
On October 2, 2019, the Partnership reached an agreement to resolve the claims of the direct purchaser class of plaintiffs; the agreement received final court approval on June 18, 2020. On September 18, 2020, the Partnership and counsel for the indirect purchaser plaintiffs filed a joint statement with the court that they had reached an agreement in principle to settle the claims of the remaining classes and plaintiffs; the settlement received final court approval on March 30, 2021.
Although we cannot predict the final results of these pending claims and legal actions, we believe, after consultation with counsel, that the final outcome of these matters will not have a material effect on our financial statements.
In addition to the matters described above, there are other pending claims and legal actions arising in the normal course of our businesses. Although we cannot predict the final results of these pending claims and legal actions, we believe, after consultation with counsel, that the final outcome of these matters will not have a material effect on our financial statements.
Note 10 — Defined Benefit Pension and Other Postretirement Plans
The Company maintains defined benefit plans and other postretirement plans for certain current and former employees. The service cost component of our pension and other postretirement plans, net of amounts capitalized, is reflected in “Operating and administrative expenses” on the Condensed Consolidated Statements of Income. The non-service cost component, net of amounts capitalized by UGI Utilities as a regulatory asset, is reflected in “Other non-operating income (expense), net” on the
UGI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Currency in millions, except per share amounts and where indicated otherwise)
amounts capitalized by Utilities as a regulatory asset, is reflected in “Other non-operating income (expense), net” on the Condensed Consolidated Statements of Income. Other postretirement benefit cost was not material for all periods presented. Net periodic pension cost includes the following components:
| | | | | | Pension Benefits | |
| Three Months Ended June 30, | | 2021 | | 2020 | |
| Three Months Ended March 31, | | Three Months Ended March 31, | | 2022 | | 2021 |
| Service cost | Service cost | | $ | 3 | | | $ | 3 | | Service cost | | $ | 4 | | | $ | 3 | |
| Interest cost | Interest cost | | 5 | | | 6 | | Interest cost | | 7 | | | 6 | |
| Expected return on assets | Expected return on assets | | (10) | | | (10) | | Expected return on assets | | (13) | | | (10) | |
| | Amortization of: | Amortization of: | | Amortization of: | |
| | Actuarial loss | Actuarial loss | | 4 | | | 4 | | Actuarial loss | | 2 | | | 3 | |
| Net cost | Net cost | | $ | 2 | | | $ | 3 | | Net cost | | $ | — | | | $ | 2 | |
| | | | | | | | | | | | |
| Nine Months Ended June 30, | | 2021 | | 2020 | |
| Six Months Ended March 31, | | Six Months Ended March 31, | | 2022 | | 2021 |
| Service cost | Service cost | | $ | 9 | | | $ | 9 | | Service cost | | $ | 8 | | | $ | 6 | |
| Interest cost | Interest cost | | 16 | | | 18 | | Interest cost | | 13 | | | 11 | |
| Expected return on assets | Expected return on assets | | (30) | | | (29) | | Expected return on assets | | (25) | | | (20) | |
| Curtailment gain | | 0 | | | (1) | | |
| | Amortization of: | Amortization of: | | Amortization of: | |
| | Actuarial loss | Actuarial loss | | 11 | | | 11 | | Actuarial loss | | 4 | | | 7 | |
| Net cost | Net cost | | $ | 6 | | | $ | 8 | | Net cost | | $ | — | | | $ | 4 | |
UGI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Currency in millions, except per share amounts and where indicated otherwise)
Note 11 — Fair Value Measurements
Recurring Fair Value Measurements
The following table presents, on a gross basis, our financial assets and liabilities, including both current and noncurrent portions, that are measured at fair value on a recurring basis within the fair value hierarchy:
| | | | | Asset (Liability) | | | Asset (Liability) |
| | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
| June 30, 2021: | | | | | | | | | |
| March 31, 2022: | | March 31, 2022: | | | | | | | | |
| Derivative instruments: | | Derivative instruments: | |
| Assets: | | Assets: | |
| Commodity contracts | | Commodity contracts | | $ | 823 | | | $ | 1,146 | | | $ | — | | | $ | 1,969 | |
| Foreign currency contracts | | Foreign currency contracts | | $ | — | | | $ | 35 | | | $ | — | | | $ | 35 | |
| Interest rate contracts | | Interest rate contracts | | $ | — | | | $ | 31 | | | $ | — | | | $ | 31 | |
| | Liabilities: | | Liabilities: | |
| Commodity contracts | | Commodity contracts | | $ | (308) | | | $ | (13) | | | $ | — | | | $ | (321) | |
| Foreign currency contracts | | Foreign currency contracts | | $ | — | | | $ | (2) | | | $ | — | | | $ | (2) | |
| Interest rate contracts | | Interest rate contracts | | $ | — | | | $ | (1) | | | $ | — | | | $ | (1) | |
| | Non-qualified supplemental postretirement grantor trust investments (a) | | Non-qualified supplemental postretirement grantor trust investments (a) | | $ | 50 | | | $ | — | | | $ | — | | | $ | 50 | |
| September 30, 2021: | | September 30, 2021: | |
| Derivative instruments: | Derivative instruments: | | Derivative instruments: | |
| Assets: | Assets: | | Assets: | |
| Commodity contracts | Commodity contracts | | $ | 241 | | | $ | 396 | | | $ | 0 | | | $ | 637 | | Commodity contracts | | $ | 641 | | | $ | 1,008 | | | $ | — | | | $ | 1,649 | |
| Foreign currency contracts | Foreign currency contracts | | $ | 0 | | | $ | 24 | | | $ | 0 | | | $ | 24 | | Foreign currency contracts | | $ | — | | | $ | 38 | | | $ | — | | | $ | 38 | |
| | Liabilities: | Liabilities: | | Liabilities: | |
| Commodity contracts | Commodity contracts | | $ | (136) | | | $ | (9) | | | $ | 0 | | | $ | (145) | | Commodity contracts | | $ | (264) | | | $ | (16) | | | $ | — | | | $ | (280) | |
| Foreign currency contracts | Foreign currency contracts | | $ | 0 | | | $ | (13) | | | $ | 0 | | | $ | (13) | | Foreign currency contracts | | $ | — | | | $ | (8) | | | $ | — | | | $ | (8) | |
| Interest rate contracts | Interest rate contracts | | $ | 0 | | | $ | (35) | | | $ | 0 | | | $ | (35) | | Interest rate contracts | | $ | — | | | $ | (29) | | | $ | — | | | $ | (29) | |
| | Non-qualified supplemental postretirement grantor trust investments (a) | Non-qualified supplemental postretirement grantor trust investments (a) | | $ | 42 | | | $ | 0 | | | $ | 0 | | | $ | 42 | | Non-qualified supplemental postretirement grantor trust investments (a) | | $ | 53 | | | $ | — | | | $ | — | | | $ | 53 | |
| September 30, 2020: | | |
| March 31, 2021: | | March 31, 2021: | |
| Derivative instruments: | Derivative instruments: | | Derivative instruments: | |
| Assets: | Assets: | | Assets: | |
| Commodity contracts | Commodity contracts | | $ | 68 | | | $ | 39 | | | $ | 0 | | | $ | 107 | | Commodity contracts | | $ | 73 | | | $ | 162 | | | $ | — | | | $ | 235 | |
| Foreign currency contracts | Foreign currency contracts | | $ | 0 | | | $ | 32 | | | $ | 0 | | | $ | 32 | | Foreign currency contracts | | $ | — | | | $ | 25 | | | $ | — | | | $ | 25 | |
| | Liabilities: | Liabilities: | | Liabilities: | |
| Commodity contracts | Commodity contracts | | $ | (54) | | | $ | (64) | | | $ | 0 | | | $ | (118) | | Commodity contracts | | $ | (63) | | | $ | (9) | | | $ | — | | | $ | (72) | |
| Foreign currency contracts | Foreign currency contracts | | $ | 0 | | | $ | (14) | | | $ | 0 | | | $ | (14) | | Foreign currency contracts | | $ | — | | | $ | (12) | | | $ | — | | | $ | (12) | |
| Interest rate contracts | Interest rate contracts | | $ | 0 | | | $ | (55) | | | $ | 0 | | | $ | (55) | | Interest rate contracts | | $ | — | | | $ | (39) | | | $ | — | | | $ | (39) | |
| | Non-qualified supplemental postretirement grantor trust investments (a) | Non-qualified supplemental postretirement grantor trust investments (a) | | $ | 42 | | | $ | — | | | $ | 0 | | | $ | 42 | | Non-qualified supplemental postretirement grantor trust investments (a) | | $ | 40 | | | $ | — | | | $ | — | | | $ | 40 | |
| June 30, 2020: | | |
| Derivative instruments: | | |
| Assets: | | |
| Commodity contracts | | $ | 39 | | | $ | 29 | | | $ | 0 | | | $ | 68 | | |
| Foreign currency contracts | | $ | 0 | | | $ | 49 | | | $ | 0 | | | $ | 49 | | |
| | Liabilities: | | |
| Commodity contracts | | $ | (58) | | | $ | (114) | | | $ | 0 | | | $ | (172) | | |
| Foreign currency contracts | | $ | 0 | | | $ | (7) | | | $ | 0 | | | $ | (7) | | |
| Interest rate contracts | | $ | 0 | | | $ | (59) | | | $ | 0 | | | $ | (59) | | |
| | Non-qualified supplemental postretirement grantor trust investments (a) | | $ | 41 | | | $ | 0 | | | $ | 0 | | | $ | 41 | | |
(a)Consists primarily of mutual fund investments held in grantor trusts associated with non-qualified supplemental retirement plans.
The fair values of our Level 1 exchange-traded commodity futures and option contracts and non-exchange-traded commodity futures and forward contracts are based upon actively quoted market prices for identical assets and liabilities. The remainder of our derivative instruments are designated as Level 2. The fair values of certain non-exchange-traded commodity derivatives designated as Level 2 are based upon indicative price quotations available through brokers, industry price publications or recent market transactions and related market indicators. The fair values of our Level 2 interest rate contracts and foreign currency contracts are based upon third-party quotes or indicative values based on recent market transactions. The fair values of
UGI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Currency in millions, except per share amounts and where indicated otherwise)
investments held in grantor trusts are derived from quoted market prices as substantially all of the investments in these trusts have active markets.
Other Financial Instruments
The carrying amounts of other financial instruments included in current assets and current liabilities (except for current maturities of long-term debt) approximate their fair values because of their short-term nature. We estimate the fair value of long-term debt by using current market rates and by discounting future cash flows using rates available for similar type debt (Level 2). The carrying amounts and estimated fair values of our long-term debt (including current maturities but excluding unamortized debt issuance costs) were as follows:
| | | June 30, 2021 | | September 30, 2020 | | June 30, 2020 | | March 31, 2022 | | September 30, 2021 | | March 31, 2021 |
| Carrying amount | Carrying amount | $ | 5,890 | | | $ | 6,081 | | | $ | 6,036 | | Carrying amount | $ | 6,559 | | | $ | 6,491 | | | $ | 6,046 | |
| Estimated fair value | Estimated fair value | $ | 6,314 | | | $ | 6,504 | | | $ | 6,208 | | Estimated fair value | $ | 6,543 | | | $ | 6,996 | | | $ | 6,362 | |
Financial instruments other than derivative instruments, such as short-term investments and trade accounts receivable, could expose us to concentrations of credit risk. We limit credit risk from short-term investments by investing only in investment-grade commercial paper, money market mutual funds, securities guaranteed by the U.S. Government or its agencies and FDIC insured bank deposits. The credit risk arising from concentrations of trade accounts receivable is limited because we have a large customer base that extends across many different U.S. markets and a number of foreign countries. For information regarding concentrations of credit risk associated with our derivative instruments, see Note 12.
Note 12 — Derivative Instruments and Hedging Activities
We are exposed to certain market risks related to our ongoing business operations. Management uses derivative financial and commodity instruments, among other things, to manage: (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 risk associated with forecasted transactions, we do not use derivative financial and commodity instruments for speculative or trading purposes. The use of derivative instruments is controlled by our risk management and credit policies, which govern, among other things, the derivative instruments we can use, counterparty credit limits and contract authorization limits. Although our commodity derivative instruments extend over a number of years, a significant portion of our commodity derivative instruments economically hedge commodity price risk during the next twelve months. For information on the accounting for our derivative instruments, see Note 2.
The following summarizes the types of derivative instruments used by the Company to manage certain market risks:
Commodity Price Risk
Regulated Utility Operations
Natural Gas
Gas Utility’sUGI Utilities’ tariffs contain clauses that permit recovery of all prudently incurred costs of natural gas it sells to retail core-market customers, including the cost of financial instruments used to hedge purchased gas costs. As permitted and agreed to by the PAPUC pursuant to PA Gas Utility’s annual PGC filings, PA Gas Utility currently uses NYMEX natural gas futures and option contracts to reduce commodity price volatility associated with a portion of the natural gas it purchases for its retail core-market customers. See Note 67 for further information on the regulatory accounting treatment for these derivative instruments.
Non-utility Operations
LPG
In order to manage market price risk associated with the Partnership’s fixed-price programs and to reduce the effects of short-term commodity price volatility, the Partnership uses over-the-counter derivative commodity instruments, principally price
UGI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Currency in millions, except per share amounts and where indicated otherwise)
swap contracts. In addition, the Partnership and our UGI International operations also use over-the-counter price swap contracts to reduce commodity price volatility associated with a portion of their forecasted LPG purchases.
Natural Gas
In order to manage market price risk relating to fixed-price sales contracts for physical natural gas, Midstream & Marketing enters into NYMEX and over-the-counter natural gas futures and over-the-counter and ICE natural gas basis swap contracts. In addition, Midstream & Marketing uses NYMEX and over-the-counter futures and options contracts to economically hedge price volatility associated with the gross margin derived from the purchase and anticipated later near-term sale of natural gas storage inventories. Outside of the financial market, Midstream & Marketing also uses ICE and over-the-counter forward physical contracts. UGI International also uses natural gas futures and forward contracts to economically hedge market price risk associated with a substantial portion of anticipated volumes under fixed-price sales contracts with its customers.
Electricity
In order to manage market price risk relating to fixed-price sales contracts for electricity, Midstream & Marketing enters into electricity futures and forward contracts. Midstream & Marketing also uses NYMEX and over-the-counter electricity futures contracts to economically hedge the price of a portion of its anticipated future sales of electricity from its electric generation facilities. UGI International also uses electricity futures and forward contracts to economically hedge market price risk associated with fixed-price sales and purchase contracts for electricity.
Interest Rate Risk
Certain of our long-term debt agreements have interest rates that are generally indexed to short-term market interest rates. In order to fix the underlying short-term market interest rates, we may enter into pay-fixed, receive-variable interest rate swap agreements and designate such swaps as cash flow hedges.
As previously mentioned in Note 7, on May 4, 2021, UGI entered into the 2021 UGI Corporation Senior Credit Facility, which as amended, includes a new term loan commitment of up to $215. Borrowings on this commitment will bear interest at a rate indexed to short-term market rates. In June 2021, UGI entered into 2 forward starting, pay-fixed, receive-variable interest rate swap agreements, commencing in January 2022. These swaps generally fix the underlying variable interest rate on $125 of future borrowings at 0.69% through September 2024. We have designated these interest rate swaps as a cash flow hedges.
The remainder of our long-term debt is typically issued at fixed rates of interest. As this long-term debt matures, we typically refinance such debt with new debt having interest rates reflecting then-current market conditions. In order to reduce market rate risk on the underlying benchmark rate of interest associated with near- to medium-term forecasted issuances of fixed-rate debt, from time to time, we enter into IRPAs. We account for IRPAs as cash flow hedges. There were 0no unsettled IRPAs during any of the periods presented. At June 30, 2021,March 31, 2022, the amount of pre-tax net losses associated with interest rate hedges (excluding pay-fixed, receive-variable interest rate swaps) expected to be reclassified into earnings during the next twelve months is $4.$3.
Foreign Currency Exchange Rate Risk
Forward Foreign Currency Exchange Contracts
In order to reduce the volatility in net income associated with our foreign operations, principally as a result of changes in the U.S. dollar exchange rate to the euro and British pound sterling, we enter into forward foreign currency exchange contracts. We layer in these foreign currency exchange contracts over a multi-year period to eventually equal approximately 90% of anticipated UGI International foreign currency earnings before income taxes. Because these contracts are not designated as hedging instruments, realized and unrealized gains and losses on these contracts are recorded in “Other non-operating income (expense), net,” on the Condensed Consolidated Statements of Income.
Net Investment Hedges
From time to time, we also enter into certain forward foreign currency exchange contracts to reduce the volatility of the U.S. dollar value of a portion of our UGI International euro-denominated net investments.investments, including anticipated foreign currency denominated dividends. We account for these foreign currency exchange contracts as net investment hedges and all changes in the fair value of these contracts are reported in the cumulative translation adjustment component in AOCI. We use the spot rate method to measure ineffectiveness of our net investment hedges.
UGI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Currency in millions, except per share amounts and where indicated otherwise)
exchange contracts asConcurrent with the repayment of UGI International’s 3.25% Senior Notes on December 7, 2021, we terminated an associated net investment hedges and all changes in the fairhedge having a notional value of these contracts€93. Cash flows from this termination are reportedincluded in cash flows from investing activities on the cumulative translation adjustment component in AOCI.Condensed Consolidated Statements of Cash Flows.
Our euro-denominated long-term debt has also been designated as net investment hedges, ofrepresenting a portion of our UGI International euro-denominated net investment. We recognized pre-tax lossesgains (losses) associated with these net investment hedges in the cumulative translation adjustment component in AOCI of $8$21 and $13$31 during the three months ended June 30,March 31, 2022 and 2021, respectively, $34 and 2020, respectively, $9 and $22$(1) during the ninesix months ended June 30,March 31, 2022 and 2021, and 2020, respectively.
Quantitative Disclosures Related to Derivative Instruments
The following table summarizes by derivative type the gross notional amounts related to open derivative contracts at JuneMarch 31, 2022, September 30, 2021 September 30, 2020 and June 30, 2020,March 31, 2021, and the final settlement dates of the Company's open derivative contracts as of June 30, 2021,March 31, 2022, excluding those derivatives that qualified for the NPNS exception:
| | | Notional Amounts
(in millions) | | Notional Amounts
(in millions) |
| Type | Type | | Units | | Settlements Extending Through | | June 30, 2021 | | September 30, 2020 | | June 30, 2020 | Type | | Units | | Settlements Extending Through | | March 31, 2022 | | September 30, 2021 | | March 31, 2021 |
| Commodity Price Risk: | Commodity Price Risk: | | | | | | | | | | | Commodity Price Risk: | | | | | | | | | | |
| Regulated Utility Operations | Regulated Utility Operations | | Regulated Utility Operations | |
| Gas Utility NYMEX natural gas futures and option contracts | | Dekatherms | | February 2022 | | 12 | | | 22 | | | 16 | | |
| PA Gas Utility NYMEX natural gas futures and option contracts | | PA Gas Utility NYMEX natural gas futures and option contracts | | Dekatherms | | February 2023 | | 11 | | | 20 | | | 12 | |
| | Non-utility Operations | Non-utility Operations | | Non-utility Operations | |
| LPG swaps | LPG swaps | | Gallons | | November 2023 | | 688 | | | 846 | | | 890 | | LPG swaps | | Gallons | | September 2024 | | 622 | | | 708 | | | 557 | |
| Natural gas futures, forward, basis swap, options and pipeline contracts | Natural gas futures, forward, basis swap, options and pipeline contracts | | Dekatherms | | July 2026 | | 344 | | | 339 | | | 343 | | Natural gas futures, forward, basis swap, options and pipeline contracts | | Dekatherms | | March 2026 | | 346 | | | 355 | | | 338 | |
| | Electricity forward and futures contracts | Electricity forward and futures contracts | | Kilowatt hours | | January 2026 | | 4,730 | | | 4,705 | | | 4,144 | | Electricity forward and futures contracts | | Kilowatt hours | | January 2026 | | 3,098 | | | 4,302 | | | 4,773 | |
| | Interest Rate Risk: | Interest Rate Risk: | | Interest Rate Risk: | |
| Interest rate swaps | Interest rate swaps | | Euro | | October 2022 | | € | 300 | | | € | 300 | | | € | 300 | | Interest rate swaps | | Euro | | October 2022 | | € | 300 | | | € | 300 | | | € | 300 | |
| Interest rate swaps | Interest rate swaps | | USD | | September 2024 | | $ | 1,424 | | | $ | 1,344 | | | $ | 1,347 | | Interest rate swaps | | USD | | September 2024 | | $ | 1,414 | | | $ | 1,421 | | | $ | 1,302 | |
| | Foreign Currency Exchange Rate Risk: | Foreign Currency Exchange Rate Risk: | | Foreign Currency Exchange Rate Risk: | |
| Forward foreign currency exchange contracts | Forward foreign currency exchange contracts | | USD | | October 2024 | | $ | 504 | | | $ | 511 | | | $ | 440 | | Forward foreign currency exchange contracts | | USD | | September 2024 | | $ | 274 | | | $ | 509 | | | $ | 384 | |
| Net investment hedge forward foreign exchange contracts | Net investment hedge forward foreign exchange contracts | | Euro | | October 2024 | | € | 173 | | | € | 173 | | | € | 173 | | Net investment hedge forward foreign exchange contracts | | Euro | | December 2026 | | € | 486 | | | € | 173 | | | € | 173 | |
|
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 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. Restricted cash in brokerage accounts is reported in “Restricted cash” on the Condensed Consolidated Balance Sheets. Although we
We have concentrations of credit risk associated with derivative instruments and we evaluate the creditworthiness of our derivative counterparties on an ongoing basis. As of March 31, 2022, 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 based upon the gross fair valueswas $2,035. In general, many of theour over-the-counter derivative instruments was not material at June 30, 2021. Certain ofand all exchange contracts call for the Partnership’s derivative contracts have credit-risk-related
UGI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Currency in millions, except per share amounts and where indicated otherwise)
posting of collateral by the counterparty or by the Company in the forms of letters of credit, parental guarantees or cash. At March 31, 2022, we had received cash collateral from derivative instrument counterparties totaling $603. 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 June 30, 2021,March 31, 2022, if the credit-risk-related contingent features were triggered, the amount of collateral required to be posted would not be material.
Offsetting Derivative Assets and Liabilities
Derivative assets and liabilities are presented net by counterparty on the Condensed Consolidated Balance Sheets if the right of offset exists. We offset amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral against amounts recognized for derivative instruments executed with the same counterparty. Our derivative instruments include both those that are executed on an exchange through brokers and centrally cleared and over-the-counter transactions. Exchange contracts utilize a financial intermediary, exchange or clearinghouse to enter, execute or clear the transactions. Over-the-counter contracts are bilateral contracts that are transacted directly with a third party. Certain over-the-counter and exchange contracts contain contractual rights of offset through master netting arrangements, derivative clearing agreements and contract default provisions. In addition, the contracts are subject to conditional rights of offset through counterparty nonperformance, insolvency or other conditions.
In general, mostmany of our over-the-counter transactions and all exchange contracts are subject to collateral requirements. Types of collateral generally include cash or letters of credit. Cash collateral paid by us to our over-the-counter derivative counterparties, if any, is reflected in the table below to offset derivative liabilities. Cash collateral received by us from our over-the-counter derivative counterparties, if any, is reflected in the table below to offset derivative assets. Certain other accounts receivable and accounts payable balances recognized on the Condensed Consolidated Balance Sheets with our derivative counterparties are not included in the table below but could reduce our net exposure to such counterparties because such balances are subject to master netting or similar arrangements.
UGI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Currency in millions, except per share amounts and where indicated otherwise)
Fair Value of Derivative Instruments
The following table presents the Company’s derivative assets and liabilities by type, as well as the effects of offsetting:
| | | June 30,
2021 | | September 30,
2020 | | June 30,
2020 | | March 31,
2022 | | September 30,
2021 | | March 31,
2021 |
| Derivative assets: | Derivative assets: | | | | | | | Derivative assets: | | | | | | |
| Derivatives designated as hedging instruments: | Derivatives designated as hedging instruments: | | | | | Derivatives designated as hedging instruments: | | | | |
| | Foreign currency contracts | Foreign currency contracts | | $ | 15 | | | $ | 17 | | | $ | 25 | | Foreign currency contracts | | $ | 18 | | | $ | 20 | | | $ | 16 | |
| | Interest rate contracts | | Interest rate contracts | | 31 | | | — | | | — | |
| | | 49 | | | 20 | | | 16 | |
| Derivatives subject to PGC and DS mechanisms: | Derivatives subject to PGC and DS mechanisms: | | Derivatives subject to PGC and DS mechanisms: | |
| Commodity contracts | Commodity contracts | | 14 | | | 7 | | | 3 | | Commodity contracts | | 38 | | | 58 | | | 2 | |
| Derivatives not designated as hedging instruments: | Derivatives not designated as hedging instruments: | | | | | Derivatives not designated as hedging instruments: | | | | |
| Commodity contracts | Commodity contracts | | 623 | | | 100 | | | 65 | | Commodity contracts | | 1,931 | | | 1,591 | | | 233 | |
| Foreign currency contracts | Foreign currency contracts | | 9 | | | 15 | | | 24 | | Foreign currency contracts | | 17 | | | 18 | | | 9 | |
| | 632 | | | 115 | | | 89 | | | 1,948 | | | 1,609 | | | 242 | |
| Total derivative assets — gross | Total derivative assets — gross | | 661 | | | 139 | | | 117 | | Total derivative assets — gross | | 2,035 | | | 1,687 | | | 260 | |
| Gross amounts offset in the balance sheet | Gross amounts offset in the balance sheet | | (77) | | | (57) | | | (42) | | Gross amounts offset in the balance sheet | | (215) | | | (216) | | | (35) | |
| Cash collateral received | Cash collateral received | | (105) | | | 0 | | | 0 | | Cash collateral received | | (603) | | | (468) | | | (37) | |
| Total derivative assets — net | Total derivative assets — net | | $ | 479 | | | $ | 82 | | | $ | 75 | | Total derivative assets — net | | $ | 1,217 | | | $ | 1,003 | | | $ | 188 | |
| Derivative liabilities: | Derivative liabilities: | | | | | | | Derivative liabilities: | | | | | | |
| Derivatives designated as hedging instruments: | Derivatives designated as hedging instruments: | | Derivatives designated as hedging instruments: | |
| | Interest rate contracts | Interest rate contracts | | $ | (35) | | | $ | (55) | | | $ | (59) | | Interest rate contracts | | $ | (1) | | | $ | (29) | | | $ | (39) | |
| | Derivatives subject to PGC and DS mechanisms: | Derivatives subject to PGC and DS mechanisms: | | Derivatives subject to PGC and DS mechanisms: | |
| Commodity contracts | Commodity contracts | | (6) | | | 0 | | | (2) | | Commodity contracts | | (17) | | | (23) | | | (1) | |
| Derivatives not designated as hedging instruments: | Derivatives not designated as hedging instruments: | | Derivatives not designated as hedging instruments: | |
| Commodity contracts | Commodity contracts | | (139) | | | (118) | | | (170) | | Commodity contracts | | (304) | | | (257) | | | (71) | |
| Foreign currency contracts | Foreign currency contracts | | (13) | | | (14) | | | (7) | | Foreign currency contracts | | (2) | | | (8) | | | (12) | |
| | (152) | | | (132) | | | (177) | | | (306) | | | (265) | | | (83) | |
| Total derivative liabilities — gross | Total derivative liabilities — gross | | (193) | | | (187) | | | (238) | | Total derivative liabilities — gross | | (324) | | | (317) | | | (123) | |
| Gross amounts offset in the balance sheet | Gross amounts offset in the balance sheet | | 77 | | | 57 | | | 42 | | Gross amounts offset in the balance sheet | | 215 | | | 216 | | | 35 | |
| Cash collateral pledged | Cash collateral pledged | | 0 | | | 7 | | | 21 | | Cash collateral pledged | | — | | | 3 | | | — | |
| Total derivative liabilities — net | Total derivative liabilities — net | | $ | (116) | | | $ | (123) | | | $ | (175) | | Total derivative liabilities — net | | $ | (109) | | | $ | (98) | | | $ | (88) | |
UGI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Currency in millions, except per share amounts and where indicated otherwise)
Effects of Derivative Instruments
The following tables provide information on the effects of derivative instruments on the Condensed Consolidated Statements of Income and changes in AOCI:
| | | Three Months Ended June 30,: | | |
| Three Months Ended March 31,: | | Three Months Ended March 31,: | |
| | Gain (Loss)
Recognized in
AOCI | | Loss
Reclassified from
AOCI into Income | | Location of Loss Reclassified from
AOCI into Income | | Gain
Recognized in
AOCI | | Loss
Reclassified from
AOCI into Income | | Location of Loss Reclassified from
AOCI into Income |
| Cash Flow Hedges: | Cash Flow Hedges: | | 2021 | | 2020 | | 2021 | | 2020 | | Cash Flow Hedges: | | 2022 | | 2021 | | 2022 | | 2021 | |
| | Interest rate contracts | Interest rate contracts | | $ | (1) | | | $ | (11) | | | $ | (6) | | | $ | (6) | | | Interest expense | Interest rate contracts | | $ | 36 | | | $ | 6 | | | $ | (7) | | | $ | (6) | | | Interest expense |
| | | Net Investment Hedges: | Net Investment Hedges: | | Net Investment Hedges: | |
| Foreign currency contracts | Foreign currency contracts | | $ | (1) | | | $ | (3) | | | Foreign currency contracts | | $ | 11 | | | $ | 7 | | |
| | | Gain (Loss)
Recognized in Income | | | Gain (Loss)
Recognized in Income | |
| Derivatives Not Designated as Hedging Instruments: | Derivatives Not Designated as Hedging Instruments: | | 2021 | | 2020 | | Location of Gain (Loss) Recognized in Income | Derivatives Not Designated as Hedging Instruments: | | 2022 | | 2021 | | Location of Gain (Loss) Recognized in Income |
| Commodity contracts | Commodity contracts | | $ | (5) | | | $ | 6 | | | Revenues | Commodity contracts | | $ | (7) | | | $ | (2) | | | Revenues |
| Commodity contracts | Commodity contracts | | 347 | | | 127 | | | Cost of sales | Commodity contracts | | 599 | | | 135 | | | Cost of sales |
| Commodity contracts | Commodity contracts | | 0 | | | 1 | | | Operating and administrative expenses | Commodity contracts | | — | | | (2) | | | Operating and administrative expenses |
| Foreign currency contracts | Foreign currency contracts | | (1) | | | (5) | | | Other non-operating income (expense), net | Foreign currency contracts | | 7 | | | 17 | | | Other non-operating income (expense), net |
| Total | Total | | $ | 341 | | | $ | 129 | | | Total | | $ | 599 | | | $ | 148 | | |
| | Nine Months Ended June 30,: | | |
| Six Months Ended March 31,: | | Six Months Ended March 31,: | |
| | Gain (Loss)
Recognized in
AOCI | | Loss
Reclassified from
AOCI into Income | | Location of Loss Reclassified from
AOCI into Income | | Gain (Loss)
Recognized in
AOCI | | Loss
Reclassified from
AOCI into Income | | Location of Loss Reclassified from
AOCI into Income |
| Cash Flow Hedges: | Cash Flow Hedges: | | 2021 | | 2020 | | 2021 | | 2020 | | Cash Flow Hedges: | | 2022 | | 2021 | | 2022 | | 2021 | |
| | Interest rate contracts | Interest rate contracts | | $ | 5 | | | $ | (53) | | | $ | (19) | | | $ | (8) | | | Interest expense | Interest rate contracts | | $ | 48 | | | $ | 6 | | | $ | (13) | | | $ | (13) | | | Interest expense |
| | | Net Investment Hedges: | Net Investment Hedges: | | Net Investment Hedges: | |
| Foreign currency contracts | Foreign currency contracts | | $ | (2) | | | $ | 7 | | | Foreign currency contracts | | $ | 11 | | | $ | (1) | | |
| | | Gain (Loss)
Recognized in Income | | | | | Gain (Loss)
Recognized in Income | | | |
| Derivatives Not Designated as Hedging Instruments: | Derivatives Not Designated as Hedging Instruments: | | 2021 | | 2020 | | Location of Gain (Loss) Recognized in Income | Derivatives Not Designated as Hedging Instruments: | | 2022 | | 2021 | | Location of Gain (Loss) Recognized in Income |
| Commodity contracts | Commodity contracts | | $ | (4) | | | $ | 14 | | | Revenues | Commodity contracts | | $ | 1 | | | $ | 1 | | | Revenues |
| Commodity contracts | Commodity contracts | | 585 | | | (112) | | | Cost of sales | Commodity contracts | | 326 | | | 238 | | | Cost of sales |
| Commodity contracts | | 0 | | | 1 | | | Operating and administrative expenses | |
| | Commodity contracts | Commodity contracts | | 5 | | | 0 | | | Other operating income, net | Commodity contracts | | — | | | 5 | | | Other operating income, net |
| Foreign currency contracts | Foreign currency contracts | | (4) | | | (5) | | | Other non-operating income (expense), net | Foreign currency contracts | | 15 | | | (3) | | | Other non-operating income (expense), net |
| Total | Total | | $ | 582 | | | $ | (102) | | | Total | | $ | 342 | | | $ | 241 | | |
We are also a party to a number of other contracts that have elements of a derivative instrument. However, these contracts qualify for NPNS exception accounting because they provide for the delivery of products or services in quantities that are expected to be used in the normal course of operating our business and the price in the contract is based on an underlying that is directly associated with the price of the product or service being purchased or sold. These contracts include, among others, binding purchase orders, contracts that provide for the purchase and delivery, or sale, of energy products, and service contracts that require the counterparty to provide commodity storage, transportation or capacity service to meet our normal sales commitments.
UGI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Currency in millions, except per share amounts and where indicated otherwise)
Note 13 — Accumulated Other Comprehensive Income (Loss)
The tables below present changes in AOCI, net of tax:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| Three Months Ended June 30, 2021 | | Postretirement Benefit Plans | | Derivative Instruments | | Foreign Currency | | Total |
| AOCI — March 31, 2021 | | $ | (25) | | | $ | (41) | | | $ | (60) | | | $ | (126) | |
| Other comprehensive income before reclassification adjustments | | 0 | | | 0 | | | 16 | | | 16 | |
| Amounts reclassified from AOCI | | 0 | | | 5 | | | 0 | | | 5 | |
| Other comprehensive income attributable to UGI | | 0 | | | 5 | | | 16 | | | 21 | |
| AOCI — June 30, 2021 | | $ | (25) | | | $ | (36) | | | $ | (44) | | | $ | (105) | |
| | | | | | | | |
| Three Months Ended June 30, 2020 | | Postretirement Benefit Plans | | Derivative Instruments | | Foreign Currency | | Total |
| AOCI — March 31, 2020 | | $ | (24) | | | $ | (54) | | | $ | (152) | | | $ | (230) | |
| Other comprehensive (loss) income before reclassification adjustments | | 0 | | | (8) | | | 28 | | | 20 | |
| Amounts reclassified from AOCI | | 0 | | | 5 | | | 0 | | | 5 | |
| Other comprehensive (loss) income attributable to UGI | | 0 | | | (3) | | | 28 | | | 25 | |
| AOCI — June 30, 2020 | | $ | (24) | | | $ | (57) | | | $ | (124) | | | $ | (205) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2022 | | Postretirement Benefit Plans | | Derivative Instruments | | Foreign Currency | | Total |
| AOCI — December 31, 2021 | | $ | (15) | | | $ | (19) | | | $ | (122) | | | $ | (156) | |
| Other comprehensive income (loss) before reclassification adjustments | | — | | | 24 | | | (53) | | | (29) | |
| Amounts reclassified from AOCI | | 1 | | | 6 | | | — | | | 7 | |
| Other comprehensive income (loss) attributable to UGI | | 1 | | | 30 | | | (53) | | | (22) | |
| AOCI — March 31, 2022 | | $ | (14) | | | $ | 11 | | | $ | (175) | | | $ | (178) | |
| | | | | | | | |
| Three Months Ended March 31, 2021 | | Postretirement Benefit Plans | | Derivative Instruments | | Foreign Currency | | Total |
| AOCI — December 31, 2020 | | $ | (26) | | | $ | (49) | | | $ | (4) | | | $ | (79) | |
| Other comprehensive income (loss) before reclassification adjustments | | — | | | 4 | | | (56) | | | (52) | |
| Amounts reclassified from AOCI | | 1 | | | 4 | | | — | | | 5 | |
| Other comprehensive income (loss) attributable to UGI | | 1 | | | 8 | | | (56) | | | (47) | |
| AOCI — March 31, 2021 | | $ | (25) | | | $ | (41) | | | $ | (60) | | | $ | (126) | |
| | Nine Months Ended June 30, 2021 | | Postretirement Benefit Plans | | Derivative Instruments | | Foreign Currency | | Total | |
| Six Months Ended March 31, 2022 | | Six Months Ended March 31, 2022 | | Postretirement Benefit Plans | | Derivative Instruments | | Foreign Currency | | Total |
| AOCI — September 30, 2021 | | AOCI — September 30, 2021 | | $ | (17) | | | $ | (33) | | | $ | (90) | | | $ | (140) | |
| Other comprehensive income (loss) before reclassification adjustments | | Other comprehensive income (loss) before reclassification adjustments | | — | | | 34 | | | (85) | | | (51) | |
| Amounts reclassified from AOCI | | Amounts reclassified from AOCI | | 3 | | | 10 | | | — | | | 13 | |
| Other comprehensive income (loss) attributable to UGI | | Other comprehensive income (loss) attributable to UGI | | 3 | | | 44 | | | (85) | | | (38) | |
| AOCI — March 31, 2022 | | AOCI — March 31, 2022 | | $ | (14) | | | $ | 11 | | | $ | (175) | | | $ | (178) | |
| | Six Months Ended March 31, 2021 | | Six Months Ended March 31, 2021 | | Postretirement Benefit Plans | | Derivative Instruments | | Foreign Currency | | Total |
| AOCI — September 30, 2020 | AOCI — September 30, 2020 | | $ | (26) | | | $ | (54) | | | $ | (67) | | | $ | (147) | | AOCI — September 30, 2020 | | $ | (26) | | | $ | (54) | | | $ | (67) | | | $ | (147) | |
| Other comprehensive income before reclassification adjustments | Other comprehensive income before reclassification adjustments | | 0 | | | 4 | | | 23 | | | 27 | | Other comprehensive income before reclassification adjustments | | — | | | 4 | | | 7 | | | 11 | |
| Amounts reclassified from AOCI | Amounts reclassified from AOCI | | 1 | | | 14 | | | 0 | | | 15 | | Amounts reclassified from AOCI | | 1 | | | 9 | | | — | | | 10 | |
| | Other comprehensive income attributable to UGI | Other comprehensive income attributable to UGI | | 1 | | | 18 | | | 23 | | | 42 | | Other comprehensive income attributable to UGI | | 1 | | | 13 | | | 7 | | | 21 | |
| | AOCI — June 30, 2021 | | $ | (25) | | | $ | (36) | | | $ | (44) | | | $ | (105) | | |
| | Nine Months Ended June 30, 2020 | | Postretirement Benefit Plans | | Derivative Instruments | | Foreign Currency | | Total | |
| AOCI — September 30, 2019 | | $ | (26) | | | $ | (25) | | | $ | (166) | | | $ | (217) | | |
| Other comprehensive (loss) income before reclassification adjustments | | 0 | | | (38) | | | 42 | | | 4 | | |
| Amounts reclassified from AOCI | | 2 | | | 6 | | | 0 | | | 8 | | |
| | Other comprehensive income (loss) attributable to UGI | | 2 | | | (32) | | | 42 | | | 12 | | |
| AOCI — June 30, 2020 | | $ | (24) | | | $ | (57) | | | $ | (124) | | | $ | (205) | | |
| AOCI — March 31, 2021 | | AOCI — March 31, 2021 | | $ | (25) | | | $ | (41) | | | $ | (60) | | | $ | (126) | |
Note 14 — Segment Information
Our operations comprise 4 reportable segments generally based upon products or services sold, geographic location and regulatory environment: (1) AmeriGas Propane; (2) UGI International; (3) Midstream & Marketing; and (4) UGI Utilities.
Corporate & Other includes certain items that are excluded from our CODM’s assessment of segment performance (see below for further details on these items). Corporate & Other also includes the net expenses of UGI’s captive general liability insurance company, UGI’s corporate headquarters facility and UGI’s unallocated corporate and general expenses as well as interest expense on UGI debt that is not allocated. Corporate & Other assets principally comprise cash and cash equivalents of UGI and
UGI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Currency in millions, except per share amounts and where indicated otherwise)
its captive insurance company, and UGI corporate headquarters’ assets. The accounting policies of our reportable segments are the same as those described in Note 2, “Summary of Significant Accounting Policies,” in the Company’s 20202021 Annual Report.
| | | Three Months Ended June 30, 2021 | | Total | | Eliminations | | AmeriGas
Propane | | UGI International | | Midstream & Marketing | | UGI
Utilities | | Corporate
& Other (a) | |
| Three Months Ended March 31, 2022 | | Three Months Ended March 31, 2022 | | Total | | Eliminations | | AmeriGas
Propane | | UGI International | | Midstream & Marketing | | Utilities | | Corporate
& Other (a) |
| Revenues from external customers | Revenues from external customers | | $ | 1,496 | | | $ | — | | | $ | 526 | | | $ | 572 | | | $ | 232 | | | $ | 171 | | | $ | (5) | | Revenues from external customers | | $ | 3,466 | | | $ | — | | | $ | 1,048 | | | $ | 1,224 | | | $ | 533 | | | $ | 667 | | | $ | (6) | |
| Intersegment revenues | Intersegment revenues | | $ | — | | | $ | (40) | | (b) | $ | 0 | | | $ | 0 | | | $ | 29 | | | $ | 10 | | | $ | 1 | | Intersegment revenues | | $ | — | | | $ | (179) | | (b) | $ | — | | | $ | — | | | $ | 138 | | | $ | 40 | | | $ | 1 | |
| Cost of sales | Cost of sales | | $ | 516 | | | $ | (39) | | (b) | $ | 267 | | | $ | 355 | | | $ | 196 | | | $ | 67 | | | $ | (330) | | Cost of sales | | $ | 1,470 | | | $ | (178) | | (b) | $ | 545 | | | $ | 930 | | | $ | 540 | | | $ | 380 | | | $ | (747) | |
| Operating income | Operating income | | $ | 391 | | | $ | 0 | | | $ | 11 | | | $ | 40 | | | $ | 14 | | | $ | 24 | | | $ | 302 | | Operating income | | $ | 1,332 | | | $ | — | | | $ | 227 | | | $ | 111 | | | $ | 85 | | | $ | 191 | | | $ | 718 | |
| (Loss) income from equity investees | | (86) | | | 0 | | | 0 | | | 0 | | | 7 | | | 0 | | | (93) | | |
| Income from equity investees | | Income from equity investees | | 5 | | | — | | | — | | | — | | | 5 | | | — | | | — | |
| | Other non-operating income (expense), net | Other non-operating income (expense), net | | 1 | | | 0 | | | 0 | | | 1 | | | 0 | | | 1 | | | (1) | | Other non-operating income (expense), net | | 11 | | | — | | | — | | | 9 | | | — | | | 3 | | | (1) | |
| Earnings before interest expense and income taxes | Earnings before interest expense and income taxes | | 306 | | | 0 | | | 11 | | | 41 | | | 21 | | | 25 | | | 208 | | Earnings before interest expense and income taxes | | 1,348 | | | — | | | 227 | | | 120 | | | 90 | | | 194 | | | 717 | |
| Interest expense | Interest expense | | (77) | | | 0 | | | (40) | | | (8) | | | (10) | | | (14) | | | (5) | | Interest expense | | (82) | | | — | | | (38) | | | (8) | | | (10) | | | (16) | | | (10) | |
| Income (loss) before income taxes | | $ | 229 | | | $ | 0 | | | $ | (29) | | | $ | 33 | | | $ | 11 | | | $ | 11 | | | $ | 203 | | |
| Income before income taxes | | Income before income taxes | | $ | 1,266 | | | $ | — | | | $ | 189 | | | $ | 112 | | | $ | 80 | | | $ | 178 | | | $ | 707 | |
| | Depreciation and amortization | Depreciation and amortization | | $ | 125 | | | $ | 0 | | | $ | 43 | | | $ | 33 | | | $ | 19 | | | $ | 29 | | | $ | 1 | | Depreciation and amortization | | $ | 128 | | | $ | — | | | $ | 44 | | | $ | 29 | | | $ | 18 | | | $ | 36 | | | $ | 1 | |
| Capital expenditures (including the effects of accruals) | Capital expenditures (including the effects of accruals) | | $ | 162 | | | $ | 0 | | | $ | 26 | | | $ | 21 | | | $ | 3 | | | $ | 112 | | | $ | 0 | | Capital expenditures (including the effects of accruals) | | $ | 170 | | | $ | — | | | $ | 36 | | | $ | 23 | | | $ | 10 | | | $ | 101 | | | $ | — | |
| | | Three Months Ended June 30, 2020 | | Total | | Eliminations | | AmeriGas
Propane | | UGI International | | Midstream & Marketing | | UGI
Utilities | | Corporate
& Other (a) | |
| Three Months Ended March 31, 2021 | | Three Months Ended March 31, 2021 | | Total | | Eliminations | | AmeriGas
Propane | | UGI International | | Midstream & Marketing | | Utilities | | Corporate
& Other (a) |
| Revenues from external customers | Revenues from external customers | | $ | 1,199 | | | $ | — | | | $ | 451 | | | $ | 371 | | | $ | 202 | | | $ | 172 | | | $ | 3 | | Revenues from external customers | | $ | 2,581 | | | $ | — | | | $ | 940 | | | $ | 834 | | | $ | 392 | | | $ | 417 | | | $ | (2) | |
| Intersegment revenues | Intersegment revenues | | $ | — | | | $ | (28) | | (b) | $ | 0 | | | $ | 0 | | | $ | 20 | | | $ | 7 | | | $ | 1 | | Intersegment revenues | | $ | — | | | $ | (118) | | (b) | $ | — | | | $ | — | | | $ | 92 | | | $ | 25 | | | $ | 1 | |
| Cost of sales | Cost of sales | | $ | 417 | | | $ | (28) | | (b) | $ | 178 | | | $ | 198 | | | $ | 158 | | | $ | 68 | | | $ | (157) | | Cost of sales | | $ | 1,274 | | | $ | (117) | | (b) | $ | 431 | | | $ | 491 | | | $ | 343 | | | $ | 202 | | | $ | (76) | |
| Operating income | Operating income | | $ | 174 | | | $ | 0 | | | $ | 19 | | | $ | 17 | | | $ | 13 | | | $ | 21 | | | $ | 104 | | Operating income | | $ | 671 | | | $ | — | | | $ | 239 | | | $ | 147 | | | $ | 90 | | | $ | 142 | | | $ | 53 | |
| | Income from equity investees | Income from equity investees | | 7 | | | 0 | | | 0 | | | 0 | | | 7 | | | 0 | | | 0 | | Income from equity investees | | 10 | | | — | | | — | | | — | | | 10 | | | — | | | — | |
| | Other non-operating (expense) income, net | | (4) | | | 0 | | | 0 | | | 4 | | | 0 | | | 0 | | | (8) | | |
| Other non-operating income, net | | Other non-operating income, net | | 18 | | | — | | | — | | | 2 | | | — | | | — | | | 16 | |
| Earnings before interest expense and income taxes | Earnings before interest expense and income taxes | | 177 | | | 0 | | | 19 | | | 21 | | | 20 | | | 21 | | | 96 | | Earnings before interest expense and income taxes | | 699 | | | — | | | 239 | | | 149 | | | 100 | | | 142 | | | 69 | |
| Interest expense | Interest expense | | (80) | | | 0 | | | (41) | | | (8) | | | (11) | | | (14) | | | (6) | | Interest expense | | (78) | | | — | | | (40) | | | (6) | | | (11) | | | (14) | | | (7) | |
| Income (loss) before income taxes | | $ | 97 | | | $ | 0 | | | $ | (22) | | | $ | 13 | | | $ | 9 | | | $ | 7 | | | $ | 90 | | |
| Income before income taxes | | Income before income taxes | | $ | 621 | | | $ | — | | | $ | 199 | | | $ | 143 | | | $ | 89 | | | $ | 128 | | | $ | 62 | |
| | Depreciation and amortization | Depreciation and amortization | | $ | 122 | | | $ | 0 | | | $ | 45 | | | $ | 30 | | | $ | 20 | | | $ | 26 | | | $ | 1 | | Depreciation and amortization | | $ | 126 | | | $ | — | | | $ | 44 | | | $ | 34 | | | $ | 19 | | | $ | 29 | | | $ | — | |
| Capital expenditures (including the effects of accruals) | Capital expenditures (including the effects of accruals) | | $ | 133 | | | $ | 0 | | | $ | 30 | | | $ | 20 | | | $ | 15 | | | $ | 68 | | | $ | 0 | | Capital expenditures (including the effects of accruals) | | $ | 124 | | | $ | — | | | $ | 30 | | | $ | 18 | | | $ | 12 | | | $ | 64 | | | $ | — | |
| | Nine Months Ended June 30, 2021 | | Total | | Eliminations | | AmeriGas
Propane | | UGI International | | Midstream & Marketing | | UGI
Utilities | | Corporate
& Other (a) | |
| Six Months Ended March 31, 2022 | | Six Months Ended March 31, 2022 | | Total | | Eliminations | | AmeriGas
Propane | | UGI International | | Midstream & Marketing | | Utilities | | Corporate
& Other (a) |
| Revenues from external customers | Revenues from external customers | | $ | 6,009 | | | $ | — | | | $ | 2,132 | | | $ | 2,106 | | | $ | 903 | | | $ | 873 | | | $ | (5) | | Revenues from external customers | | $ | 6,139 | | | $ | — | | | $ | 1,826 | | | $ | 2,273 | | | $ | 974 | | | $ | 1,063 | | | $ | 3 | |
| Intersegment revenues | Intersegment revenues | | $ | — | | | $ | (236) | | (b) | $ | 0 | | | $ | 0 | | | $ | 183 | | | $ | 50 | | | $ | 3 | | Intersegment revenues | | $ | — | | | $ | (297) | | (b) | $ | — | | | $ | — | | | $ | 232 | | | $ | 63 | | | $ | 2 | |
| Cost of sales | Cost of sales | | $ | 2,623 | | | $ | (233) | | (b) | $ | 970 | | | $ | 1,229 | | | $ | 776 | | | $ | 401 | | | $ | (520) | | Cost of sales | | $ | 3,590 | | | $ | (295) | | (b) | $ | 963 | | | $ | 1,723 | | | $ | 953 | | | $ | 580 | | | $ | (334) | |
| Operating income | Operating income | | $ | 1,564 | | | $ | 0 | | | $ | 391 | | | $ | 322 | | | $ | 156 | | | $ | 243 | | | $ | 452 | | Operating income | | $ | 1,264 | | | $ | — | | | $ | 313 | | | $ | 189 | | | $ | 159 | | | $ | 287 | | | $ | 316 | |
| (Loss) income from equity investees | | (69) | | | 0 | | | 0 | | | 0 | | | 24 | | | 0 | | | (93) | | |
| | Other non-operating income (expense), net | | 0 | | | 0 | | | 0 | | | 4 | | | 0 | | | 2 | | | (6) | | |
| Income from equity investees | | Income from equity investees | | 13 | | | — | | | — | | | — | | | 13 | | | — | | | — | |
| Loss on extinguishments of debt | | Loss on extinguishments of debt | | (11) | | | — | | | — | | | — | | | — | | | — | | | (11) | |
| Other non-operating income, net | | Other non-operating income, net | | 21 | | | — | | | — | | | 13 | | | — | | | 5 | | | 3 | |
| Earnings before interest expense and income taxes | Earnings before interest expense and income taxes | | 1,495 | | | 0 | | | 391 | | | 326 | | | 180 | | | 245 | | | 353 | | Earnings before interest expense and income taxes | | 1,287 | | | — | | | 313 | | | 202 | | | 172 | | | 292 | | | 308 | |
| Interest expense | Interest expense | | (233) | | | 0 | | | (120) | | | (21) | | | (31) | | | (42) | | | (19) | | Interest expense | | (163) | | | — | | | (79) | | | (15) | | | (20) | | | (32) | | | (17) | |
| Income before income taxes | Income before income taxes | | $ | 1,262 | | | $ | 0 | | | $ | 271 | | | $ | 305 | | | $ | 149 | | | $ | 203 | | | $ | 334 | | Income before income taxes | | $ | 1,124 | | | $ | — | | | $ | 234 | | | $ | 187 | | | $ | 152 | | | $ | 260 | | | $ | 291 | |
| | Depreciation and amortization | Depreciation and amortization | | $ | 375 | | | $ | 0 | | | $ | 130 | | | $ | 100 | | | $ | 56 | | | $ | 87 | | | $ | 2 | | Depreciation and amortization | | $ | 257 | | | $ | — | | | $ | 88 | | | $ | 60 | | | $ | 37 | | | $ | 71 | | | $ | 1 | |
| Capital expenditures (including the effects of accruals) | Capital expenditures (including the effects of accruals) | | $ | 438 | | | $ | 0 | | | $ | 83 | | | $ | 68 | | | $ | 32 | | | $ | 255 | | | $ | 0 | | Capital expenditures (including the effects of accruals) | | $ | 345 | | | $ | — | | | $ | 71 | | | $ | 46 | | | $ | 16 | | | $ | 212 | | | $ | — | |
| As of June 30, 2021 | | |
| As of March 31, 2022 | | As of March 31, 2022 | |
| Total assets | Total assets | | $ | 15,006 | | | $ | (267) | | | $ | 4,381 | | | $ | 3,749 | | | $ | 2,904 | | | $ | 3,997 | | | $ | 242 | | Total assets | | $ | 17,777 | | | $ | (163) | | | $ | 4,563 | | | $ | 4,905 | | | $ | 3,195 | | | $ | 5,106 | | | $ | 171 | |
|
UGI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Currency in millions, except per share amounts and where indicated otherwise)
| | Nine Months Ended June 30, 2020 | | Total | | Eliminations | | AmeriGas
Propane | | UGI International | | Midstream & Marketing | | UGI
Utilities | | Corporate
& Other (a) | |
| Six Months Ended March 31, 2021 | | Six Months Ended March 31, 2021 | | Total | | Eliminations | | AmeriGas
Propane | | UGI International | | Midstream & Marketing | | Utilities | | Corporate
& Other (a) |
| Revenues from external customers | Revenues from external customers | | $ | 5,435 | | | $ | — | | | $ | 1,983 | | | $ | 1,726 | | | $ | 855 | | | $ | 863 | | | $ | 8 | | Revenues from external customers | | $ | 4,513 | | | $ | — | | | $ | 1,606 | | | $ | 1,534 | | | $ | 671 | | | $ | 702 | | | $ | — | |
| Intersegment revenues | Intersegment revenues | | $ | — | | | $ | (202) | | (b) | $ | 0 | | | $ | 0 | | | $ | 162 | | | $ | 38 | | | $ | 2 | | Intersegment revenues | | $ | — | | | $ | (196) | | (b) | $ | — | | | $ | — | | | $ | 154 | | | $ | 40 | | | $ | 2 | |
| Cost of sales | Cost of sales | | $ | 2,673 | | | $ | (201) | | (b) | $ | 792 | | | $ | 968 | | | $ | 721 | | | $ | 404 | | | $ | (11) | | Cost of sales | | $ | 2,107 | | | $ | (194) | | (b) | $ | 703 | | | $ | 874 | | | $ | 580 | | | $ | 334 | | | $ | (190) | |
| Operating income (loss) | | $ | 913 | | | $ | 0 | | | $ | 390 | | | $ | 230 | | | $ | 139 | | | $ | 229 | | | $ | (75) | | |
| Operating income | | Operating income | | $ | 1,173 | | | $ | — | | | $ | 380 | | | $ | 282 | | | $ | 142 | | | $ | 219 | | | $ | 150 | |
| Income from equity investees | Income from equity investees | | 22 | | | 0 | | | 0 | | | 0 | | | 22 | | | 0 | | | 0 | | Income from equity investees | | 17 | | | — | | | — | | | — | | | 17 | | | — | | | — | |
| | Other non-operating (expense) income, net | Other non-operating (expense) income, net | | (4) | | | 0 | | | 0 | | | 17 | | | 0 | | | 0 | | | (21) | | Other non-operating (expense) income, net | | (1) | | | — | | | — | | | 3 | | | — | | | 1 | | | (5) | |
| Earnings (loss) before interest expense and income taxes | | 931 | | | 0 | | | 390 | | | 247 | | | 161 | | | 229 | | | (96) | | |
| Earnings before interest expense and income taxes | | Earnings before interest expense and income taxes | | 1,189 | | | — | | | 380 | | | 285 | | | 159 | | | 220 | | | 145 | |
| Interest expense | Interest expense | | (247) | | | 0 | | | (124) | | | (23) | | | (34) | | | (41) | | | (25) | | Interest expense | | (156) | | | — | | | (80) | | | (13) | | | (21) | | | (28) | | | (14) | |
| Income (loss) before income taxes | | $ | 684 | | | $ | 0 | | | $ | 266 | | | $ | 224 | | | $ | 127 | | | $ | 188 | | | $ | (121) | | |
| Income before income taxes | | Income before income taxes | | $ | 1,033 | | | $ | — | | | $ | 300 | | | $ | 272 | | | $ | 138 | | | $ | 192 | | | $ | 131 | |
| | Depreciation and amortization | Depreciation and amortization | | $ | 362 | | | $ | 0 | | | $ | 134 | | | $ | 92 | | | $ | 57 | | | $ | 78 | | | $ | 1 | | Depreciation and amortization | | $ | 250 | | | $ | — | | | $ | 87 | | | $ | 67 | | | $ | 37 | | | $ | 58 | | | $ | 1 | |
| Capital expenditures (including the effects of accruals) | Capital expenditures (including the effects of accruals) | | $ | 444 | | | $ | 0 | | | $ | 104 | | | $ | 62 | | | $ | 61 | | | $ | 217 | | | $ | 0 | | Capital expenditures (including the effects of accruals) | | $ | 276 | | | $ | — | | | $ | 57 | | | $ | 47 | | | $ | 29 | | | $ | 143 | | | $ | — | |
| As of June 30, 2020 | | |
| As of March 31, 2021 | | As of March 31, 2021 | |
| Total assets | Total assets | | $ | 13,843 | | | $ | (365) | | | $ | 4,311 | | | $ | 3,208 | | | $ | 2,740 | | | $ | 3,709 | | | $ | 240 | | Total assets | | $ | 14,945 | | | $ | (227) | | | $ | 4,515 | | | $ | 3,576 | | | $ | 2,893 | | | $ | 3,982 | | | $ | 206 | |
|
(a)Corporate & Other includes specific items attributable to our reportable segments that are not included in the segment profit measures used by our CODM in assessing our reportable segments’ performance or allocating resources. The following table presents such pre-tax gains (losses) which have been included in Corporate & Other, and the reportable segments to which they relate:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2021 | | Location on Income Statement | | AmeriGas Propane | | UGI International | | Midstream & Marketing | | |
| Net losses on commodity derivative instruments not associated with current-period transactions | | Revenues | | $ | 0 | | | $ | 0 | | | $ | (4) | | | |
| Net gains on commodity derivative instruments not associated with current-period transactions | | Cost of sales | | $ | 59 | | | $ | 226 | | | $ | 44 | | | |
| Unrealized losses on foreign currency derivative instruments | | Other non-operating income (expense), net | | $ | 0 | | | $ | (1) | | | $ | 0 | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Business transformation expenses | | Operating and administrative expenses | | $ | (11) | | | $ | (6) | | | $ | 0 | | | |
| Impairment of investment in PennEast | | (Loss) income from equity investees | | $ | 0 | | | $ | 0 | | | $ | (93) | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2022 | | Location on Income Statement | | AmeriGas Propane | | UGI International | | Midstream & Marketing | | |
| Net gains (losses) on commodity derivative instruments not associated with current-period transactions | | Revenues | | $ | — | | | $ | 2 | | | $ | (9) | | | |
| Net gains on commodity derivative instruments not associated with current-period transactions | | Cost of sales | | $ | 32 | | | $ | 560 | | | $ | 154 | | | |
| Restructuring costs | | Operating and administrative expenses | | $ | (14) | | | $ | (2) | | | $ | — | | | |
| | | | | | | | | | |
| Unrealized gains on foreign currency derivative instruments | | Other non-operating income (expense), net | | $ | — | | | $ | (1) | | | $ | — | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2021 | | Location on Income Statement | | AmeriGas Propane | | UGI International | | Midstream & Marketing | | |
| Net losses on commodity derivative instruments not associated with current-period transactions | | Revenues | | $ | — | | | $ | — | | | $ | (2) | | | |
| Net gains on commodity derivative instruments not associated with current-period transactions | | Cost of sales | | $ | 27 | | | $ | 48 | | | $ | 1 | | | |
| Business transformation expenses | | Operating and administrative expenses | | $ | (14) | | | $ | (3) | | | $ | — | | | |
| Unrealized gains on foreign currency derivative instruments | | Other non-operating income (expense), net | | $ | — | | | $ | 15 | | | $ | — | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2020 | | Location on Income Statement | | AmeriGas Propane | | UGI International | | Midstream & Marketing | | |
| Net gains on commodity derivative instruments not associated with current-period transactions | | Revenues | | $ | 0 | | | $ | 0 | | | $ | 3 | | | |
| Net gains on commodity derivative instruments not associated with current-period transactions | | Cost of sales | | $ | 60 | | | $ | 78 | | | $ | 22 | | | |
| Unrealized losses on foreign currency derivative instruments | | Other non-operating income (expense), net | | $ | 0 | | | $ | (7) | | | $ | 0 | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Business transformation expenses | | Operating and administrative expenses | | $ | (3) | | | $ | (4) | | | $ | 0 | | | |
| Impairment of assets held-for-sale | | Impairment of assets held-for-sale | | $ | 0 | | | $ | 0 | | | $ | (52) | | | |
| | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended March 31, 2022 | | Location on Income Statement | | AmeriGas Propane | | UGI International | | Midstream & Marketing | | |
| Net gains (losses) on commodity derivative instruments not associated with current-period transactions | | Revenues | | $ | — | | | $ | 5 | | | $ | (2) | | | |
| Net (losses) gains on commodity derivative instruments not associated with current-period transactions | | Cost of sales | | $ | (37) | | | $ | 348 | | | $ | 22 | | | |
| Restructuring costs | | Operating and administrative expenses | | $ | (14) | | | $ | (2) | | | $ | — | | | |
| Loss on extinguishment of debt | | Loss on extinguishment of debt | | $ | — | | | $ | (11) | | | $ | — | | | |
| Unrealized gains on foreign currency derivative instruments | | Other non-operating income (expense), net | | $ | — | | | $ | 5 | | | $ | — | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
UGI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Currency in millions, except per share amounts and where indicated otherwise)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended June 30, 2021 | | Location on Income Statement | | AmeriGas Propane | | UGI International | | Midstream & Marketing | | |
| Net losses on commodity derivative instruments not associated with current-period transactions | | Revenues | | $ | 0 | | | $ | 0 | | | $ | (4) | | | |
| Net gains on commodity derivative instruments not associated with current-period transactions | | Cost of sales | | $ | 123 | | | $ | 380 | | | $ | 16 | | | |
| Unrealized losses on foreign currency derivative instruments | | Other non-operating income (expense), net | | $ | 0 | | | $ | (6) | | | $ | 0 | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Business transformation expenses | | Operating and administrative expenses | | $ | (37) | | | $ | (12) | | | $ | 0 | | | |
| Impairment of investment in PennEast | | (Loss) income from equity investees | | $ | 0 | | | $ | 0 | | | $ | (93) | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended June 30, 2020 | | Location on Income Statement | | AmeriGas Propane | | UGI International | | Midstream & Marketing | | |
| Net gains on commodity derivative instruments not associated with current-period transactions | | Revenues | | $ | 0 | | | $ | 0 | | | $ | 8 | | | |
| Net gains (losses) on commodity derivative instruments not associated with current-period transactions | | Cost of sales | | $ | 48 | | | $ | (54) | | | $ | 19 | | | |
| Unrealized losses on foreign currency derivative instruments | | Other non-operating income (expense), net | | $ | 0 | | | $ | (20) | | | $ | 0 | | | |
| Acquisition and integration expenses associated with the CMG Acquisition | | Operating and administrative expenses | | $ | 0 | | | $ | 0 | | | $ | (2) | | | |
| Business transformation expenses | | Operating and administrative expenses | | $ | (27) | | | $ | (16) | | | $ | 0 | | | |
| Impairment of assets held-for-sale | | Impairment of assets held-for-sale | | $ | 0 | | | $ | 0 | | | $ | (52) | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended March 31, 2021 | | Location on Income Statement | | AmeriGas Propane | | UGI International | | Midstream & Marketing | | |
| | | | | | | | | | |
| Net gains (losses) on commodity derivative instruments not associated with current-period transactions | | Cost of sales | | $ | 64 | | | $ | 154 | | | $ | (28) | | | |
| Unrealized losses on foreign currency derivative instruments | | Other non-operating income (expense), net | | $ | — | | | $ | (5) | | | $ | — | | | |
| | | | | | | | | | |
| Business transformation expenses | | Operating and administrative expenses | | $ | (26) | | | $ | (6) | | | $ | — | | | |
| | | | | | | | | | |
(b)Represents the elimination of intersegment transactions principally among Midstream & Marketing, UGI Utilities and AmeriGas Propane.
Note 15 — Business Transformation Initiatives
AmeriGas and UGI International. Beginning in Fiscal 2019, we began executing on multi-year business transformation initiatives at our AmeriGas Propane and UGI International business segments. These initiatives are designed to improve long-term operational performance by, among other things, reducing costs and improving efficiency in the areas of sales and marketing, supply and logistics, operations, purchasing, and administration. In addition, these business transformation initiatives focus on enhancing the customer experience through, among other things, enhanced customer relationship management and an improved digital customer experience. In connection with these initiatives,During the three and six months ended March 31, 2021, we recognized expenses ofincurred $17 and $6 during the three months ended June 30, 2021 and 2020,$32 of costs, respectively, and $49 and $43 during the nine months ended June 30, 2021 and 2020, respectively. These expenses principally comprising consulting, advisory, marketing and employee-related costs. These costs and are primarily reflected in “Operating and administrative expenses” on the Condensed Consolidated Statements of Income. These previously announced business transformation initiatives are substantially complete.
Corporate Services. Beginning in Fiscal 2020, we initiated a transformation project focused on our support functions including: finance, procurement, human resources, and information technology. This initiative will standardize processes and activities across our global platform, while leveraging the use of best practices and efficiencies between our businesses. In connection with this initiative, we recognized expenses of $4 and $8 for the three and nine months ended June 30, 2021Amounts reflected in “Operating and administrative expenses” on the Condensed Consolidated Statement of Income.Income in connection with this initiative during the three and six months ended March 31, 2022 and 2021, were not material.
UGI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Currency in millions, except per share amounts and where indicated otherwise)
Note 16 — Equity Method Investments
We account for privately held equity securities of entities without readily determinable fair values in which we do not have control, but have significant influence over operating and financial policies, under the equity method. Our equity method investments are primarily comprised of PennEast, Pennant and Pine Run.
Fiscal 2021 Developments
Pine Run.In February 2021, Pine Run, a company jointly owned by Stonehenge and UGI Pine Run, LLC, a wholly-owned subsidiary of Energy Services, completed the acquisition of Pine Run Midstream, LLC from an affiliate of PennEnergy and minority partners for a preliminary purchase price of $205. Pine Run Midstream, LLC operates 43 miles of dry gas gathering pipeline and compression assets in Butler and Armstrong counties in western Pennsylvania. UGI Pine Run, LLC’s 49% membership interest in Pine Run totaled $59, as of June 30, 2021 and is accounted for as an equity method investment as we have the ability to exercise significant influence, but not control, over the entity.
PennEast. UGI PennEast, LLC and four other members comprising wholly owned subsidiaries of Southern Company, New Jersey Resources, South Jersey Industries, and Enbridge, Inc., each hold a 20% membership interest in PennEast. In September 2019, a panel of the U.S. Court of Appeals for the Third Circuit ruled that New Jersey’s Eleventh Amendment immunity barred PennEast from bringing an eminent domain lawsuit in federal court, under the Natural Gas Act, against New Jersey or its agencies. On February 3, 2021, the U.S. Supreme Court issued an order granting PennEast’s petition for a writ of certiorari and the case was argued on April 28, 2021. On June 29, 2021, the U.S. Supreme Court ruled in favor of PennEast, overturning the Third Circuit’s decision that blocked PennEast from exercising federal eminent domain authority over lands in which a state has property rights interests.
Following the favorable Supreme Court decision, the partners of the PennEast project re-assessed the remaining legal and regulatory contingencies which must be resolved before construction can commence. Based on the significant remaining legal challenges and the expected further delays in obtaining the necessary regulatory approvals, which are preventing the commencement of construction and commercial operation of the project, the Company concluded that its investment in PennEast was impaired at June 30, 2021, and that such impairment was other-than-temporary. The estimated fair value of the Company’s investment in PennEast was measured using probability-weighted cash flows under an expected present value technique based on management's estimates and assumptions regarding the likelihood of certain outcomes (and the related timing) that would be used by market participants. These assumptions included the estimated fair value of the equipment acquired by the PennEast project (principally pipes, compressors and land) as well as the required regulatory approvals, satisfactory resolution of pending legal matters, the magnitude of construction costs, in-service dates, forecasted revenues and discount rates, as well as the probability weighting of the various scenarios associated with the PennEast project. The ultimate outcome of the PennEast construction project cannot be determined at this time.
Based upon this analysis, the Company recognized an other-than-temporary pretax impairment charge of $93 in June 2021, which is recorded in “(Loss) income from equity investees” in the Condensed Consolidated Statements of Income. The Company has established a full valuation allowance on the deferred tax asset recognized for the impairment, as it is not more likely than not at June 30, 2021 that such deferred tax asset will be realized. The estimated fair value of the Company’s investment in PennEast as of June 30, 2021 represents a nonrecurring, level 3 measurement within the fair value hierarchy as the significant unobservable inputs principally reflect the probability weightings assigned to the potential outcomes discussed above.
Note 17 — Impact of Global Pandemic
In March 2020, the WHO declared a global pandemic attributable to the outbreak and continued spread of COVID-19 that has had a significant impact throughout the global economy. In connection with the mitigation and containment procedures recommended by the WHO, the CDC, and as imposed by federal, state, and local governmental authorities, including shelter-in-place orders, quarantines and similar restrictions, the Company has implemented a variety of procedures to protect ourits employees, third-party business partners, and customers worldwide. The Company continues to provide essential products and services to its global customers in a safe and reliable manner, and will continue to do so in compliance with mandated restrictions presented by each of the markets it serves. The Company continues to evaluate and react to the potential effects of a prolonged disruption and the potential of continued impact on its results of operations. These items may include, but are not limited to: the financial condition of its customers; decreased availability and demand for its products and services; realization of accounts receivable;
UGI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Currency in millions, except per share amounts and where indicated otherwise)
impairment considerations related to certain current assets, long-lived assets and goodwill; delays related to current and future projects; commodity price volatility and supply chain constraints; and the effects of government stimulus efforts including tax legislation in response to COVID-19. While its operations and financial performance continue to be impacted by COVID-19, theThe Company cannot predict the duration or magnitude of the pandemic and the total effects on its business, financial position, results of operations, liquidity or cash flows at this time.
UGI CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
Information contained in this Quarterly Report on Form 10-Q may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act. Such statements use forward-looking words such as “believe,” “plan,” “anticipate,” “continue,” “estimate,” “expect,” “may,” or other similar words. These statements discuss plans, strategies, events or developments that we expect or anticipate will or may occur in the future.
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 that actual results almost always 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 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) weather conditions, including increasingly uncertain weather patterns due to climate change, resulting in reduced demand, and the seasonal nature of our business; (2) cost volatility and availability of propane and other 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, tax, consumer protection, data privacy, accounting, matters, and environmental includingmatters, 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 or regulatory proceedings, inquiries or investigations; (6) competitive pressures from the same and alternative energy sources; (7) failure to acquire new customers or 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, 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 in all forms; (13) transmission or distribution system service interruptions; (14) political, regulatory and economic conditions in the United States, Europe and other foreign countries, including uncertainties related to the current conflicts in the Middle Eastmilitary conflict between Russia and the withdrawal of the United Kingdom from the European Union,Ukraine, and foreign currency exchange rate fluctuations, particularly the euro; (15) 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) reduced distributions from subsidiaries impacting the ability to pay dividends; (18) changes in Marcellus and Utica Shale gas production; (19) the availability, timing and success of our acquisitions, commercial initiatives and investments to grow our businesses; (20) our ability to successfully integrate acquired businesses and achieve anticipated synergies; (21) the interruption, disruption, failure or malfunction of our information technology systems, and those of our third-party vendors or service providers, including due to cyber attack; (22) the inability to complete pending or future energy infrastructure projects; (23) our ability to achieve the operational benefits and cost efficiencies expected from the completion of pending and future business transformation initiatives, including the impact of customer service disruptions resulting in potential customer loss due to the transformation activities; (24) uncertainties related to a global pandemic, including the duration and/or impact of the COVID-19 pandemic; (25) the extent to which we are able to utilize certain tax benefits currently available under the CARES Act and similarimpact of proposed or future tax legislation, and whether such benefits will remain available inincluding the future;potential reversal of existing tax legislation that is beneficial to us; and (26) the potentially dilutive impactour ability to overcome supply chain issues that the payment and settlementmay result in delays or shortages in, as well as increased costs of, the components ofequipment, materials or other resources that are critical to our Equity Units may have on holders of our Common Stock.business operations.
These factors, and those factors set forth in Item 1A. Risk Factors in this Form 10-Qreport and in the Company’s 20202021 Annual Report, 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. We undertake no 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.
ANALYSIS OF RESULTS OF OPERATIONS
The following analyses compareanalysis compares the Company’s results of operations for the 20212022 three-month period with the 20202021 three-month period and the 2021 nine-month2022 six-month period with the 2020 nine-month2021 six-month period. Our analysesanalysis of results of operations should be read in conjunction with the segment information included in Note 14 to Condensed Consolidated Financial Statements.
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
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instruments not associated with current-period transactions as further discussed below, are significantly higher in our first and second fiscal quarters.
Recent Developments
Pending Acquisition of Mountaineer Gas Company
On December 29, 2020, UGI Corporation signed a definitive agreement to acquire Mountaineer, the largest natural gas distribution company in West Virginia for a preliminary purchase price of $540 million, which includes the assumption of approximately $140 million of long-term debt. Mountaineer serves nearly 215,000 customers across 50 of the state’s 55 counties. The pending acquisition is subject to customary regulatory and other closing conditions, including approval by the Public Service Commission of West Virginia, and is expected to close in the second half of calendar year 2021. UGI currently expects to finance the pending acquisition using proceeds from the 2021 UGI Corporation Senior Credit Facility and the issuance of Equity Units. For additional information on these financing activities, see Notes 7 and 8 to the Condensed Consolidated Financial Statements.
On January 26, 2021, UGI and Mountaineer filed a joint petition for consent and approval of the pending acquisition at the WV PSC.On July 15, 2021, UGI and Mountaineer filed, on behalf of all parties, a unanimous joint stipulation and agreement for settlement (the “Settlement”) of all issues in the proceeding that, among other provisions, requests the WV PSC to approve the pending acquisition. The Settlement was presented to the WV PSC in an evidentiary hearing on July 20, 2021. The Company cannot predict the timing or the ultimate outcome of the Settlement approval process.
COVID-19 Pandemic
In March 2020, the WHO declared a global pandemic attributable to the outbreak and continued spread of COVID-19 that has had a significant impact throughout the global economy. In connection with the mitigation and containment procedures recommended by the WHO, the CDC, and as imposed by federal, state, and local governmental authorities, including shelter-in-place orders, quarantines and similar restrictions, we implemented a variety of procedures to protect our employees, third-party business partners, and customers worldwide. Although our results continue to be impacted by COVID-19 in Fiscal 2021, we continue to provide essential products and services to our global customers in a safe and reliable manner and will continue to do so in compliance with mandated restrictions presented by each of the markets we serve. We continue to evaluate and react to the potential effects of a prolonged disruption and the continued impact on our results of operations. These items may include, but are not limited to: the financial condition of our customers; decreased availability and demand for our products and services; realization of accounts receivable; impairment considerations related to certain current assets, long-lived assets and goodwill; delays related to current and future projects; and the effects of government stimulus efforts including tax legislation (see “Interest Expense and Income Taxes” below) in response to COVID-19.
We cannot predict the duration or total magnitude of the pandemic and the total effects on our business, financial position, results of operations, liquidity or cash flows at this time, but we remain focused on managing our financial condition and liquidity throughout this global crisis.
Business Transformation Initiatives
Corporate Services. Beginning in Fiscal 2020, we initiated a transformation project focused on our support functions including: finance, procurement, human resources, and information technology. This initiative will standardize processes and activities across our global platform, while leveraging the use of best practices and efficiencies between our businesses. While this initiative is being coordinated across multiple support functions, each area is at a different stage of transformation and will undergo the required changes over the next two to three years. In connection with these activities, we expect to incur approximately $40 million of non-recurring costs during that time resulting in more than $15 million of ongoing annualized savings by Fiscal 2023.
AmeriGas Propane. At AmeriGas Propane, we began executing on business transformation initiatives during Fiscal 2019 focused on efficiency and effectiveness in the following key areas: customer digital experience; customer relationship management; operating process redesign and specialization; distribution and routing optimization; sales and marketing effectiveness; purchasing and general and administrative efficiencies; and supply and logistics. The transformation activities will continue to be carried out over Fiscal 2021 and may result in customer service disruptions over the near term. However, once completed, these initiatives are expected to provide total annual benefits of more than $140 million by the end of Fiscal 2022 which will allow us to improve profitability and cash flow through operational efficiencies and expense reductions and enable increased investment into base business customer retention and growth initiatives, including the reduction of margins in
UGI CORPORATION AND SUBSIDIARIES
select segments of our base business. We estimate the total cost of executing on these initiatives, including approximately $100 million of related capital expenditures, to be approximately $200 million.
UGI International. At our UGI International LPG business, we launched an initiative in Fiscal 2019 and embarked on a process of identifying operational synergies across all 17 countries in which we currently do business. We call this initiative Project Alliance, the goal of which is to focus attention on enhanced customer service and safe and efficient operations through the establishment of two centers of excellence. One such center will be focused on commercial excellence to identify and execute projects that improve the customer’s experience. The second center will be focused on operational excellence across our distribution network and our filling centers. The business activities are in process and will continue to be executed primarily during Fiscal 2021. Once completed, these activities are expected to generate over €30 million of annual benefits. We estimate the total cumulative cost of executing on these Project Alliance initiatives, including approximately €10 million related to IT capital expenditures, to be approximately €55 million.
Non-GAAP Financial Measures
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 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.
UGI does not designate its commodity and certain foreign currency derivative instruments as hedges under GAAP. Volatility in net income attributable to UGI Corporation can occur as a result of gains and losses on such derivative instruments not associated with current-period transactions. These gains and losses result principally from recording changes in unrealized gains and losses on unsettled commodity and certain foreign currency derivative instruments and, to a much lesser extent, certain realized gains and losses on settled commodity derivative instruments that are not associated with current-period transactions. However, because these derivative instruments economically hedge anticipated future purchases or sales of energy commodities, or in the case of certain foreign currency derivatives reduce volatility in anticipated future earnings associated with our foreign operations, we expect that such gains or losses will be largely offset by gains or losses on anticipated future energy commodity transactions or mitigate volatility in anticipated future earnings. 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.
UGI CORPORATION AND SUBSIDIARIES
The following tables reflect the adjustments referred to above and reconcile net income attributable to UGI Corporation, the most directly comparable GAAP measure, to adjusted net income attributable to UGI Corporation, and reconcile diluted earnings per share, the most directly comparable GAAP measure, to adjusted diluted earnings per share:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Adjusted net income attributable to UGI Corporation | | Three Months Ended
June 30, | | Nine Months Ended
June 30, |
| (Dollars in millions) | | 2021 | | 2020 | | 2021 | | 2020 |
| AmeriGas Propane | | $ | (20) | | | $ | (15) | | | $ | 204 | | | $ | 198 | |
| UGI International | | 31 | | | (11) | | | 222 | | | 137 | |
| Midstream & Marketing | | 8 | | | 7 | | | 107 | | | 93 | |
| UGI Utilities | | 9 | | | 4 | | | 157 | | | 147 | |
| Corporate & Other (a) | | 122 | | | 100 | | | 252 | | | (52) | |
| Net income attributable to UGI Corporation | | 150 | | | 85 | | | 942 | | | 523 | |
| Net gains on commodity derivative instruments not associated with current-period transactions (net of tax of $94, $49, $147, and $6, respectively) | | (231) | | | (114) | | | (368) | | | (15) | |
| Unrealized losses on foreign currency derivative instruments (net of tax of $(1), $(3), $(2), and $(6), respectively) | | — | | | 4 | | | 4 | | | 14 | |
| | | | | | | | |
| | | | | | | | |
| Acquisition and integration expenses associated with the CMG Acquisition (net of tax of $0, $0, $0, and $(1), respectively) | | — | | | — | | | — | | | 1 | |
| Acquisition expenses associated with the pending Mountaineer Acquisition (net of tax of $0, $0, $(1), and $0, respectively) | | 1 | | | — | | | 3 | | | — | |
| Business transformation expenses (net of tax of $(6), $(3), $(15), and $(13), respectively) | | 15 | | | 4 | | | 42 | | | 30 | |
| Impact of change in Italian tax law (b) | | — | | | — | | | (23) | | | — | |
| Impairment of investment in PennEast (net of tax of $0, $0, $0, $0, respectively) | | 93 | | | — | | | 93 | | | — | |
| Impairment of assets held-for-sale (net of tax of $0, $(15), $0, and $(15), respectively) | | — | | | 37 | | | — | | | 37 | |
| Total adjustments (a) (c) | | (122) | | | (69) | | | (249) | | | 67 | |
| Adjusted net income attributable to UGI Corporation | | $ | 28 | | | $ | 16 | | | $ | 693 | | | $ | 590 | |
| | | | | | | | |
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| | Adjusted net income attributable to UGI Corporation | | Adjusted net income attributable to UGI Corporation | | Three Months Ended
March 31, | | Six Months Ended
March 31, |
| (Dollars in millions) | | (Dollars in millions) | | 2022 | | 2021 | | 2022 | | 2021 |
| AmeriGas Propane | | AmeriGas Propane | | $ | 138 | | | $ | 150 | | | $ | 172 | | | $ | 224 | |
| UGI International | | UGI International | | 89 | | | 99 | | | 146 | | | 191 | |
| Midstream & Marketing | | Midstream & Marketing | | 58 | | | 64 | | | 109 | | | 99 | |
| Utilities | | Utilities | | 134 | | | 99 | | | 197 | | | 148 | |
| Corporate & Other (a) | | Corporate & Other (a) | | 514 | | | 77 | | | 212 | | | 130 | |
| Net income attributable to UGI Corporation | | Net income attributable to UGI Corporation | | 933 | | | 489 | | | 836 | | | 792 | |
| Net gains on commodity derivative instruments not associated with current-period transactions (net of tax of $204, $22, $93 and $53, respectively) | | Net gains on commodity derivative instruments not associated with current-period transactions (net of tax of $204, $22, $93 and $53, respectively) | | (535) | | | (52) | | | (243) | | | (137) | |
| Unrealized (gains) losses on foreign currency derivative instruments (net of tax of $(1), $4, $1, and $(1), respectively) | | Unrealized (gains) losses on foreign currency derivative instruments (net of tax of $(1), $4, $1, and $(1), respectively) | | — | | | (11) | | | (4) | | | 4 | |
| Loss on extinguishment of debt (net of tax of $0, $0, $(3) and $0, respectively) | | Loss on extinguishment of debt (net of tax of $0, $0, $(3) and $0, respectively) | | — | | | — | | | 8 | | | — | |
| Acquisition and integration expenses associated with the Mountaineer Acquisition (net of tax of $0, $0, $0 and $(1), respectively) | | Acquisition and integration expenses associated with the Mountaineer Acquisition (net of tax of $0, $0, $0 and $(1), respectively) | | — | | | 1 | | | 1 | | | 2 | |
| Business transformation expenses (net of tax of $0, $(5), $(1) and $(9), respectively) | | Business transformation expenses (net of tax of $0, $(5), $(1) and $(9), respectively) | | 2 | | | 14 | | | 3 | | | 27 | |
| Impact of change in Italian tax law | | Impact of change in Italian tax law | | — | | | (23) | | | — | | | (23) | |
| Restructuring costs (net of tax of $(5), $0, $(5) and $0, respectively) | | Restructuring costs (net of tax of $(5), $0, $(5) and $0, respectively) | | 13 | | | — | | | 13 | | | — | |
| | Total adjustments (a) (b) | | Total adjustments (a) (b) | | (520) | | | (71) | | | (222) | | | (127) | |
| Adjusted net income attributable to UGI Corporation | | Adjusted net income attributable to UGI Corporation | | $ | 413 | | | $ | 418 | | | $ | 614 | | | $ | 665 | |
| | | Three Months Ended
June 30, | | Nine Months Ended
June 30, | | Three Months Ended
March 31, | | Six Months Ended
March 31, |
| Adjusted diluted earnings per share | Adjusted diluted earnings per share | | 2021 | | 2020 | | 2021 | | 2020 | Adjusted diluted earnings per share | | 2022 | | 2021 | | 2022 | | 2021 |
| AmeriGas Propane | AmeriGas Propane | | $ | (0.10) | | | $ | (0.07) | | | $ | 0.97 | | | $ | 0.94 | | AmeriGas Propane | | $ | 0.64 | | | $ | 0.71 | | | $ | 0.80 | | | $ | 1.07 | |
| UGI International | UGI International | | 0.15 | | | (0.05) | | | 1.06 | | | 0.65 | | UGI International | | 0.41 | | | 0.47 | | | 0.68 | | | 0.91 | |
| Midstream & Marketing | Midstream & Marketing | | 0.04 | | | 0.03 | | | 0.51 | | | 0.44 | | Midstream & Marketing | | 0.26 | | | 0.31 | | | 0.50 | | | 0.47 | |
| UGI Utilities | | 0.04 | | | 0.02 | | | 0.75 | | | 0.70 | | |
| Utilities | | Utilities | | 0.62 | | | 0.47 | | | 0.91 | | | 0.71 | |
| Corporate & Other (a) | Corporate & Other (a) | | 0.58 | | | 0.48 | | | 1.19 | | | (0.24) | | Corporate & Other (a) | | 2.39 | | | 0.37 | | | 0.98 | | | 0.61 | |
| Earnings per share - diluted | Earnings per share - diluted | | 0.71 | | | 0.41 | | | 4.48 | | | 2.49 | | Earnings per share - diluted | | 4.32 | | | 2.33 | | | 3.87 | | | 3.77 | |
| Net gains on commodity derivative instruments not associated with current-period transactions | Net gains on commodity derivative instruments not associated with current-period transactions | | (1.09) | | | (0.55) | | | (1.75) | | | (0.07) | | Net gains on commodity derivative instruments not associated with current-period transactions | | (2.48) | | | (0.25) | | | (1.11) | | | (0.65) | |
| Unrealized losses on foreign currency derivative instruments | | — | | | 0.02 | | | 0.03 | | | 0.07 | | |
| Unrealized (gains) losses on foreign currency derivative instruments | | Unrealized (gains) losses on foreign currency derivative instruments | | — | | | (0.05) | | | (0.02) | | | 0.02 | |
| Loss on extinguishment of debt | | Loss on extinguishment of debt | | — | | | — | | | 0.03 | | | — | |
| Acquisition and integration expenses associated with the Mountaineer Acquisition | | Acquisition and integration expenses associated with the Mountaineer Acquisition | | — | | | — | | | — | | | 0.01 | |
| Business transformation expenses | | Business transformation expenses | | 0.01 | | | 0.07 | | | 0.01 | | | 0.13 | |
| Impact of change in Italian tax law | | Impact of change in Italian tax law | | — | | | (0.11) | | | — | | | (0.11) | |
| Restructuring costs | | Restructuring costs | | 0.06 | | | — | | | 0.06 | | | — | |
| | Acquisition and integration expenses associated with the CMG Acquisition | | — | | | — | | | — | | | 0.01 | | |
| Acquisition expenses associated with the pending Mountaineer Acquisition | | — | | | — | | | 0.01 | | | — | | |
| Business transformation expenses | | 0.07 | | | 0.02 | | | 0.20 | | | 0.14 | | |
| Impact of change in Italian tax law (b) | | — | | | — | | | (0.11) | | | — | | |
| Impairment of investment in PennEast | | 0.44 | | | — | | | 0.44 | | | — | | |
| Impairment of assets held-for-sale | | — | | | 0.18 | | | — | | | 0.17 | | |
| Total adjustments (a) | Total adjustments (a) | | (0.58) | | | (0.33) | | | (1.18) | | | 0.32 | | Total adjustments (a) | | (2.41) | | | (0.34) | | | (1.03) | | | (0.60) | |
| Adjusted earnings per share - diluted | Adjusted earnings per share - diluted | | $ | 0.13 | | | $ | 0.08 | | | $ | 3.30 | | | $ | 2.81 | | Adjusted earnings per share - diluted | | $ | 1.91 | | | $ | 1.99 | | | $ | 2.84 | | | $ | 3.17 | |
(a)Corporate & Other includes certain adjustments made to our reporting segments in arriving at net income attributable to UGI Corporation. These adjustments have been excluded from the segment results to align with the measure used by our
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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.
(b)See “Interest Expense and Income Taxes” below for additional information related to this adjustment.
(c)Income taxes associated with pre-tax adjustments determined using statutory business unit tax rates.
EXECUTIVE OVERVIEW
Recent Developments
Global Macroeconomic Conditions. During Fiscal 2021 and continuing into the current fiscal year, global commodity and labor markets experienced significant inflationary pressures attributable to economic recovery and supply chain issues associated with the ongoing COVID-19 pandemic, as discussed below. These inflationary pressures led to significant volatility across various consumer price indices during Fiscal 2021 and have continued during the 2022 three- and six-month period. We have experienced substantial shifts in commodity prices, particularly in LPG, natural gas and electricity prices, which, in turn, have led to extensive mark-to-market impacts on commodity derivatives instruments not associated with current-period activity. The ongoing strain on supply costs has resulted in increased inventory costs and certain distribution expenses across all of our businesses. It has also affected requirements around cash collateral and restricted cash associated with our outstanding derivatives. The Company believes that the impact of these external factors and the associated extreme cost volatility are temporary and their impact is expected to be mitigated by our continued cost control initiatives, and liquidity management.
Ongoing COVID-19 Pandemic. In March 2020, the WHO declared a global pandemic attributable to the outbreak and continued spread of COVID-19 that has had a significant impact throughout the global economy.In connection with the mitigation and containment procedures recommended by the WHO, the CDC, and as imposed by federal, state, and local governmental authorities, including shelter-in-place orders, quarantines and similar restrictions, we have implemented a variety of procedures to protect our employees, third-party business partners, and customers worldwide. We continue to provide essential products and services to our global customers in a safe and reliable manner and will continue to do so in compliance with mandated restrictions presented by each of the markets we serve.We continue to evaluate and react to the effects of a prolonged disruption and the potential of continued impact on our results of operations.These items may include, but are not limited to: the financial condition of our customers; decreased availability and demand for our products and services; realization of accounts receivable; impairment considerations related to certain current assets, long-lived assets and goodwill; delays related to current and future projects; commodity price volatility and supply chain constraints; and the effects of government stimulus efforts including tax legislation in response to COVID-19.
We cannot predict the duration or total magnitude of the pandemic and the total effects on our business, financial position, results of operations, liquidity or cash flows at this time, but we remain focused on managing our financial condition and liquidity throughout this global crisis.
Continuing Business Transformation Initiatives.By the end of Fiscal 2021, AmeriGas Propane and UGI International substantially completed their previously announced business transformation initiatives.Anticipated benefits to be fully recognized in Fiscal 2022 for both programs remain on target.
BeginninginFiscal2020,we initiateda transformation projectfocused onourcorporate supportfunctionsincluding:finance, procurement, human resources, and information technology. This initiative will standardize processes and activities across our global platform, while leveraging the use of best practices and efficiencies between our businesses. While this initiative is being coordinated across multiple support functions, each function is at a different stage of transformation and will undergo the required changes by the end of Fiscal 2023. In connection with these activities, we expect to incur approximately $40 million of non-recurring costs during that time resulting in more than $15 million of ongoing annualized savings by the end of Fiscal 2023.
2022 three-month period compared with 20202021 three-month period
Discussion. Net income attributable to UGI Corporation for the 20212022 three-month period was $150$933 million (equal to $0.71$4.32 per diluted share) compared to $85$489 million (equal to $0.41$2.33 per diluted share) during the 20202021 three-month period. Net income attributable to UGI Corporation in the 2021 and 2020 three-month periods reflectsperiod. These results include net gains of $231 million and $110 million, respectively, from changes in unrealized commodity derivative instruments and certain foreign currency derivative instruments. Net income attributable to UGI Corporation also reflectsinstruments of $535 million and $63 million, respectively, during the 2022 and 2021 three-month periods, as well as business transformation expenses of $15$2 million and $4$14 million, respectively, in the 20212022 and 20202021 three-month periods. The 20212022 three-month period also includes a $93restructuring costs of $13 million impairment charge related to our investment in PennEast, and the 2020 three-month period includes a $37 million impairment charge related to held-for-sale assets that were disposed of in September 2020.
Adjusted net income attributable to UGI Corporation for the 2021 three-month period was $28 million (equal to $0.13 per diluted share) compared to $16 million (equal to $0.08 per diluted share) during the 2020 three-month period. The increase in adjusted net income attributable to UGI Corporation during the 2021 three-month period largely reflects higher earnings contributions from our UGI International business segment which benefited from colder weather compared to the prior-year period resulting in higher LPG volumes. This positive impact was partially offset by a lower benefit under the CARES Act compared to the prior-year period.
AmeriGas Propane’s adjusted net loss attributable to UGI Corporation was $20 million in the 2021 three-month period compared to $15 million in the prior-year period. This decrease in results was largely attributable to lower total margin due toa reduction in workforce and related
UGI CORPORATION AND SUBSIDIARIES
slightly lower average unit margins resulting from year-over-year changes in customer segment volumes and weather that was warmer than the prior-year period.
UGI International’s adjusted net income attributable to UGI Corporation increased $42 million incosts, while the 2021 three-month period principally reflecting higher total margin on increased LPG volumes which benefited from colder weather compared to the prior-year period and the translation effects of stronger foreign currencies in the 2021 three-month period. These positive factors were partially offset by higher operating and administrative expenses and lower realized gains on foreign currency exchange contracts compared to the prior-year period.
Midstream & Marketing’s adjusted net income attributable to UGI Corporation reflects a slight increase in the 2021 three-month period reflecting, among other things, equity income from its 2021 investment in Pine Run.
UGI Utilities’ adjusted net income attributable to UGI Corporation increased $5 million in the 2021 three-month period compared to the prior-year period. The increase was largely attributable to higher Gas Utility margin reflecting the effects of the increase in base rates that went into effect on January 1, 2021, and lower operating and administrative expenses compared to the prior-year period. These positive factors were partially offset by higher depreciation expenses related to continued capital improvement activities compared to the prior-year period.
2021 nine-month period compared with 2020 nine-month period
Discussion. Net income attributable to UGI Corporation for the 2021 nine-month period was $942 million (equal to $4.48 per diluted share) compared to $523 million (equal to $2.49 per diluted share) during the 2020 nine-month period. Net income attributable to UGI Corporation in the 2021 and 2020 nine-month periods reflects net gains of $364 million and $1 million, respectively, from changes in unrealized commodity derivative instruments and certain foreign currency derivative instruments. Net income attributable to UGI Corporation also reflects business transformation expenses of $42 million and $30 million, respectively, in the 2021 and 2020 nine-month periods. The 2021 nine-month period also includes a $93 million impairment charge related to our investment in PennEast as well as a $23 million tax benefit related to an election made in connection with a tax law change in Italy.Italy and $1 million of integration expenses associated with Mountaineer.
Adjusted net income attributable to UGI Corporation for the 2022 three-month period was $413 million (equal to $1.91 per diluted share) compared to $418 million (equal to $1.99 per diluted share) during the 2021 three-month period. The 2020 nine-monthdecrease in adjusted net income attributable to UGI Corporation during the 2022 three-month period reflects lower earnings contributions from our LPG businesses which were significantly impacted by the effects of commodity price volatility on current-period margins and related volumes. Results for the prior-year period also included a tax benefit under the CARES Act. These factors were partially offset by improved earnings from Utilities largely attributable to contributions from the Mountaineer Acquisition.
AmeriGas Propane’s adjusted net income attributable to UGI Corporation decreased $12 million in the 2022 three-month period. This decrease principally reflects lower retail propane margin primarily attributable to lower volumes sold and higher operating and administrative expenses primarily attributable to increasing distribution costs and other expenses attributable to inflationary pressures.
UGI International’s adjusted net income attributable to UGI Corporation decreased $10 million in the 2022 three-month period principally reflecting lower total margin from our energy marketing business. This decrease was partially offset by strong margin management efforts at UGI International’s LPG business despite the rising commodity cost environment.
Midstream & Marketing’s adjusted net income attributable to UGI Corporation decreased $6 million in the 2022 three-month period primarily attributable to lower total margin which was negatively impacted by the settlement timing of certain multi-year commodity storage hedge contracts during the current-year period, partially offset by the absence of a contingent consideration adjustment related to the GHI acquisition in the prior-year period.
Utilities’ adjusted net income attributable to UGI Corporation increased $35 million in the 2022 three-month period compared to the prior-year period. The increase was largely related to incremental earnings attributable to the Mountaineer Acquisition. Colder weather and the implementation of a DSIC at UGI Utilities, effective during the second half of Fiscal 2021, also contributed to the earnings improvement during the current-year period.
2022 six-month period compared with 2021 six-month period
Discussion. Net income attributable to UGI Corporation for the 2022 six-month period was $836 million (equal to $3.87 per diluted share) compared to $792 million (equal to $3.77 per diluted share) during the 2021 six-month period. These results include net gains from changes in unrealized commodity derivative instruments and certain foreign currency derivative instruments of $247 million and $133 million, respectively, during the 2022 and 2021 six-month periods. Net income attributable to UGI Corporation also reflects business transformation expenses of $3 million and $27 million, respectively, in the 2022 and 2021 six-month periods, as well as acquisition and integration expenses associated with Mountaineer of $1 million and $2 million, respectively, in the 2022 and 2021 six-month periods. The 2022 six-month period also includes restructuring costs of $13 million largely attributable to a reduction in workforce and related costs and a loss on extinguishment of debt of $8 million associated with financing activities at UGI International, while the 2021 six-month period includes a $37$23 million impairment chargetax benefit related to held-for-sale assets that were disposed ofan election made in September 2020.connection with a tax law change in Italy.
Adjusted net income attributable to UGI Corporation for the 2021 nine-month2022 six-month period was $693$614 million (equal to $3.30$2.84 per diluted share) compared to $590$665 million (equal to $2.81$3.17 per diluted share) during the 2020 nine-month2021 six-month period. The increasedecrease in adjusted net income attributable to UGI Corporation during the 2021 nine-month2022 six-month period reflects higherlower earnings contributions from eachour LPG businesses which were impacted by the effects of our business segments including improved margin at UGI International which benefited from colder weather compared tocommodity price volatility on current-period margins and related volumes. Results for the prior-year period also included a tax benefit under the translation effects of stronger foreign currencies, and higher average LPG unit margins including the continued effects of margin management efforts. The January 1, 2021 increase in base rates at UGI Utilities and the effects of acquisitions and assets placed into service since June 30, 2020 also contributed to the improvement.CARES Act. These positive impactsfactors were partially offset by a lower benefit underimproved earnings from Utilities largely attributable to contributions from the CARES ActMountaineer Acquisition and higher renewable energy and peaking margin at our Midstream & Marketing business compared to the prior-year period.
AmeriGas Propane’s adjusted net income attributable to UGI Corporation increased $6decreased $52 million in the 2021 nine-month2022 six-month period. This increasedecrease principally reflects lower operating and administrative expenses, including partial benefits related to ongoing transformation initiatives, higher fees associated with customer accounts and lower interest expense compared to the prior-year period. These positive factors were partially offset by lower retail propane margin primarily attributable to lower volumes.volumes sold and higher operating and administrative expenses primarily attributable to increasing distribution costs and other expenses attributable to inflationary pressures.
UGI International’s adjusted net income attributable to UGI Corporation increased $85decreased $45 million in the 2021 nine-month2022 six-month period principally reflecting increasedlower total margin from our energy marketing business and higher distribution, packaging and personnel costs associated with higher retail LPG volumes which benefited from colder weather compared to the prior-year period, higher average LPG unit margins including effectivesold and inflationary pressures. This decrease was partially offset by strong margin management efforts andat UGI International’s LPG business despite the translation effects of stronger foreign currencies. These positive factors were partially offset by higher operating and administrative expenses reflecting increased maintenance and distribution costs attributable to the stronger LPG volumes compared to the prior-year period, as well as the previously mentioned effects of stronger foreign currencies.
Midstream & Marketing’s adjusted net income attributable to UGI Corporation increased $14 million in the 2021 nine-month period largely driven by higher total earnings contributions attributable to capacity management and natural gas activities compared to the prior-year period.
UGI Utilities’ adjusted net income attributable to UGI Corporation increased $10 million in the 2021 nine-month period compared to the prior-year period. The increase was largely attributable to higher Gas Utility margin reflecting increased base rates that went into effect on January 1, 2021, and higher margin from Electric Utility related to increased distribution volumes. These positive factors were partially offset by higher depreciation expense related to continued capital improvement activities compared to the prior-year period.rising commodity cost environment.
UGI CORPORATION AND SUBSIDIARIES
Midstream & Marketing’s adjusted net income attributable to UGI Corporation increased $10 million in the 2022 six-month period primarily attributable to higher margins related to renewable energy marketing activities compared to the prior-year period.
Utilities’ adjusted net income attributable to UGI Corporation increased $49 million in the 2022 six-month period compared to the prior-year period. The increase was largely related to incremental earnings attributable to the Mountaineer Acquisition. The increase in base rates and the implementation of a DSIC at UGI Utilities, both effective during the second half of Fiscal 2021, also contributed to the earnings improvement during the current-year period.
SEGMENT RESULTS OF OPERATIONS
2021
2022 Three-Month Period Compared with the 20202021 Three-Month Period
AmeriGas Propane
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| For the three months ended June 30, | | 2021 | | 2020 | | Increase (Decrease) |
| (Dollars in millions) | | | | | | | | |
| Revenues | | $ | 526 | | | $ | 451 | | | $ | 75 | | | 17 | % |
| Total margin (a) | | $ | 259 | | | $ | 273 | | | $ | (14) | | | (5) | % |
| Operating and administrative expenses | | $ | 212 | | | $ | 209 | | | $ | 3 | | | 1 | % |
| Operating income/earnings before interest expense and income taxes | | $ | 11 | | | $ | 19 | | | $ | (8) | | | (42) | % |
| Retail gallons sold (millions) | | 184 | | | 182 | | | 2 | | | 1 | % |
| Heating degree days—% colder than normal (b) | | 2.5 | % | | 16.9 | % | | — | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the three months ended March 31, | | 2022 | | 2021 | | Increase (Decrease) |
| (Dollars in millions) | | | | | | | | |
| Revenues | | $ | 1,048 | | | $ | 940 | | | $ | 108 | | | 11 | % |
| Total margin (a) | | $ | 503 | | | $ | 509 | | | $ | (6) | | | (1) | % |
| Operating and administrative expenses | | $ | 240 | | | $ | 233 | | | $ | 7 | | | 3 | % |
| Operating income/earnings before interest expense and income taxes | | $ | 227 | | | $ | 239 | | | $ | (12) | | | (5) | % |
| Retail gallons sold (millions) | | 329 | | | 356 | | | (27) | | | (8) | % |
| Heating degree days—% colder (warmer) than normal (b) | | 2.9 | % | | (2.2) | % | | — | | | — | |
(a)Total margin represents total revenues less total cost of sales.
(b)Beginning in Fiscal 2021, deviationDeviation 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. Prior-period amounts have been restated to conform to the current-period presentation.
Average temperatures during the 20212022 three-month period were 2.5%2.9% colder than normal but 12.3% warmerand 4.8% colder than the prior-year period. Total retail gallons sold increased slightlydecreased 8% during the 20212022 three-month period principally reflecting the continued impact of customer service challenges that occurred in Fiscal 2021, increased price sensitivity in the higher national account volumes, partially offset by lowercommodity cost environment and the prior-year impact of COVID-19 on cylinder exchange volumes compared to the significant volume increase experienced in the prior-year period, lower residential volumes and the continued effects of structural conservation and other residual volume loss.resale volumes.
Total revenues increased $75 million during the 2021 three-month period largely reflecting higher average retail and wholesale propane selling prices ($63 million) and higher wholesale propane volumes ($11 million) compared to the prior-year period. Average daily wholesale propane commodity prices during the 2022 three-month period at Mont Belvieu, Texas, one of the major supply points in the U.S., were significantlyapproximately 45% higher than such prices during the 2021 three-month period. This increase in prices has impacted both total revenues and total costs of sales during the 2022 three-month period. Total revenues increased $108 million during the 2022 three-month period (approximately 112%)largely reflecting higher average propane selling prices ($152 million) and higher wholesale volumes sold ($13 million) compared to such prices during the prior-year period. These positive impacts were partially offset by the effects of the previously mentioned decrease in retail propane volumes sold ($61 million).
Total cost of sales increased $89$114 million during the 20212022 three-month period principally reflectinglargely attributable to the higher average total propane product costs ($78125 million) and higher wholesale propane volumes sold ($1012 million).
AmeriGas Propane total These increases in cost of sales were partially offset by the decrease in retail propane volumes sold ($28 million). Total margin decreased $14$6 million in the 20212022 three-month period largely attributable to lower average retail unit margins ($14 million) due to the lower cylinder exchangeretail propane volumes ($33 million) partially offset by the growth in national account volumes. These year-over-year changes in customer segment volumes resulted in slightly lowerhigher average retail unit margins compared to the prior-year period. This impact was partially offset by the higher retail propane volumes ($227 million).
Operating income and earnings before interest expense and income taxes both decreased $8$12 million during the 20212022 three-month period principallyprimarily reflecting the decrease in total margin partially offset byand higher other income from fees associated with customer accounts and gains related to the sale of select assets. Operatingoperating and administrative expenses were slightly higher($7 million) compared to the prior-year period. The increase in operating and administrative expenses was impacted by the 2021 three-month period reflecting,inflationary cost environment and reflects, among other things, higher expenses associated with general insurance ($6 million), vehicle fuel operating,($4 million) and lease expensesbad debt reserves ($34 million), increased advertising costs ($2 million), and higher general insurance costs ($2 million), compared to the prior-year period. These increases were partially offset by lower employee-related costsemployee compensation and benefits ($37 million). Operating and administrative expenses continue to reflect the partial benefits related to the previously mentioned ongoing business transformation initiatives.
UGI CORPORATION AND SUBSIDIARIES
UGI International
UGI International | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the three months ended March 31, | | 2022 | | 2021 | | Increase (Decrease) |
| (Dollars in millions) | | | | | | | | |
| Revenues | | $ | 1,224 | | | $ | 834 | | | $ | 390 | | | 47 | % |
| Total margin (a) | | $ | 294 | | | $ | 343 | | | $ | (49) | | | (14) | % |
| Operating and administrative expenses | | $ | 162 | | | $ | 164 | | | $ | (2) | | | (1) | % |
| Operating income | | $ | 111 | | | $ | 147 | | | $ | (36) | | | (24) | % |
| Earnings before interest expense and income taxes | | $ | 120 | | | $ | 149 | | | $ | (29) | | | (19) | % |
| LPG retail gallons sold (millions) | | 247 | | | 242 | | | 5 | | | 2 | % |
| Heating degree days—% warmer than normal (b) | | (5.7) | % | | (3.4) | % | | — | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| For the three months ended June 30, | | 2021 | | 2020 | | Increase |
| (Dollars in millions) | | | | | | | | |
| Revenues | | $ | 572 | | | $ | 371 | | | $ | 201 | | | 54 | % |
| Total margin (a) | | $ | 217 | | | $ | 166 | | | $ | 51 | | | 31 | % |
| Operating and administrative expenses | | $ | 144 | | | $ | 121 | | | $ | 23 | | | 19 | % |
| Operating income | | $ | 40 | | | $ | 17 | | | $ | 23 | | | 135 | % |
| Earnings before interest expense and income taxes | | $ | 41 | | | $ | 21 | | | $ | 20 | | | 95 | % |
| LPG retail gallons sold (millions) | | 166 | | | 137 | | | 29 | | | 21 | % |
| Heating degree days—% colder (warmer) than normal (b) | | 24.4 | % | | (17.3) | % | | — | | | — | |
(a)Total margin represents revenues less cost of sales and, in the 2020 three-month period, LPG cylinder filling costs of $7 million. For financial statement purposes, LPG cylinder filling costs in the 2020 three-month period are included in “Operating and administrative expenses” on the 2020 Condensed Consolidated Statement of Income (but are excluded from operating and administrative expenses presented above). LPG cylinder filling costs are included in “Cost of sales” on the 2021 Condensed Consolidated Statement of Income.sales.
(b)Beginning in Fiscal 2021, deviationDeviation 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. Prior-period amounts have been restated to conform to the current-period presentation.
Average temperatures during the 20212022 three-month period were 24.4% colder5.7% warmer than normal and 54.7% colder4.9% warmer than the prior-year period. Total LPG retail gallons sold during the 20212022 three-month period increased 21% reflecting higher bulk volumesslightly and was attributable to the colder weather and higher cylinder volumes compared to the prior-year period. These volume improvements also reflect the recovery of certain volume decreases attributable tobulk and autogas volumes that were negatively impacted by COVID-19 duringoffset by the prior-year period. Average wholesale prices for propane and butane during the 2021 three-month period in northwest Europe were approximately 81% and 76% higher, respectively, compared witheffects of weather that was warmer than the prior-year period.
UGI International base-currency results are translated into U.S. dollars 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 20212022 and 20202021 three-month periods, the average unweighted euro-to-dollar translation rates were approximately $1.21$1.12 and $1.10,$1.21, respectively, and the average unweighted British pound sterling-to-dollar translation rates were approximately $1.40$1.34 and $1.24,$1.38, respectively. Fluctuations in these foreign currency exchange rates can have a significant impact on the individual financial statement components discussed below. The net effect of changes in foreign currency exchange rates on UGI International’s earnings before interest expense and income taxes resulted in a net benefitloss of $4$7 million in the 20212022 three-month period. However, the impact of these changes is mitigated by the effects of forward foreign currency exchange contracts entered into over a multi-year period intended to substantially offset this volatility. These forward foreign currency exchange contracts resulted in a slight realized net loss in the 2021 three-month period compared to realized net gains of $2$6 million and $1 million in the 20202022 and 2021 three-month period.periods, respectively.
UGI International revenues and cost of sales increased $201$390 million and $150$439 million, respectively, during the 20212022 three-month period compared to the prior-year period. Average wholesale prices for propane and butane during the 2022 three-month period in northwest Europe were approximately 59% and 94% higher, respectively, compared with the prior-year period. The increase in both revenues and cost of sales principally reflects the translation effectsimpact of stronger foreign currencies (approximately $53 millionsignificant increases and $33 million, respectively),volatility in natural gas and power prices on our energy marketing business and the effects of these higher average LPGpropane and butane selling prices and product costs compared to the prior-year period,period. These increases were partially offset by the translation effects of weaker foreign currencies (approximately $88 million and the previously mentioned increase in both retail and wholesale LPG volumes compared to the prior-year period. Energy marketing activities also contributed to the increased revenues and cost of sales during the 2021 three-month period due to higher natural gas volumes resulting from the colder weather and the recovery of certain volumes decreases attributable to COVID-19 during the prior-year period.$68 million, respectively).
UGI International total margin increased $51decreased $49 million during the 20212022 three-month period largelyprimarily reflecting lower total margin from our energy marketing business and the translation effects of strongerweaker foreign currencies (approximately $20 million). This decrease was partially offset by higher total margin from our LPG business attributable to strong margin management efforts despite the effects of the previously mentioned higher product costs and the increase in bulk and cylinder volumes compared toweather that was warmer than the prior-year period. These positive impacts were partially offset by a slight decreaseThe lower total margin from our energy marketing business is largely due to the impact of significant volatility in average LPGcommodity costs and its effects on the unit margins.margins of certain customer contracts during the 2022 three-month period. The effects of this volatility on such customer contracts are expected to be largely confined to the primary heating season.
UGI International operating income and earnings before interest expense and income taxes increased $23decreased $36 million and $20$29 million, respectively, during the 20212022 three-month period compared to the prior-year period. The increasedecrease in operating income principally reflects the increasepreviously mentioned decrease in total margin partially offset by higher other operating income related to gains on the sale of assets and slightly lower operating and administrative expenses ($23 million) which reflects, among other things,includes the effectsimpact of strongerweaker foreign currencies (approximately $13 million) compared toin the 2022 three-month period. The decrease in earnings before interest expense and income taxes in the 2022 three-month period largely reflects the decrease in operating income partially offset by higher realized gains on foreign
UGI CORPORATION AND SUBSIDIARIES
prior-year period, higher maintenance and distribution costs related to the increased volumes, and increased employee costs. The increase in earnings before interest expense and income taxes in the 2021 three-month period largely reflects the higher operating income partially offset by 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 ($25 million).
Midstream & Marketing
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| For the three months ended June 30, | | 2021 | | 2020 | | Increase |
| (Dollars in millions) | | | | | | | | |
| Revenues | | $ | 261 | | | $ | 222 | | | $ | 39 | | | 18 | % |
| Total margin (a) | | $ | 65 | | | $ | 64 | | | $ | 1 | | | 2 | % |
| Operating and administrative expenses | | $ | 31 | | | $ | 31 | | | $ | — | | | — | % |
| Operating income | | $ | 14 | | | $ | 13 | | | $ | 1 | | | 8 | % |
| Earnings before interest expense and income taxes | | $ | 21 | | | $ | 20 | | | $ | 1 | | | 5 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| For the three months ended March 31, | | 2022 | | 2021 | | Increase (Decrease) |
| (Dollars in millions) | | | | | | | | |
| Revenues | | $ | 671 | | | $ | 484 | | | $ | 187 | | | 39 | % |
| Total margin (a) | | $ | 131 | | | $ | 141 | | | $ | (10) | | | (7) | % |
| Operating and administrative expenses | | $ | 30 | | | $ | 28 | | | $ | 2 | | | 7 | % |
| Operating income | | $ | 85 | | | $ | 90 | | | $ | (5) | | | (6) | % |
| Earnings before interest expense and income taxes | | $ | 90 | | | $ | 100 | | | $ | (10) | | | (10) | % |
(a)Total margin represents revenues less cost of sales.
Average temperatures across Midstream & Marketing’s energy marketing territory during the 20212022 three-month period were 1.5%2.8% warmer than normal and 18.6% warmer thanrelatively consistent with the prior-year period. Beginning in Fiscal 2021, deviation from average heating degree days is determined on a rolling 10-year period utilizing volume-weighted weather data. Prior-period amounts have been restated to conform to the current-period presentation. Midstream & Marketing’s prior year results include contributions from its HVAC business and ownership interest in Conemaugh, both of which were sold in September 2020.
Midstream & Marketing revenues and cost of sales for the 20212022 three-month period were $39increased $187 million higher thanand $197 million, respectively, compared to the prior-year period principally reflecting increased revenues fromperiod. These increases were largely driven by natural gas marketing, and gathering activities ($37 million), renewable energy marketing activities ($5 million),including the effects of peaking and capacity management activities, ($4 million). These revenue increaseswhich were partially offsetimpacted by the absence of revenues attributable to its former HVAC business and ownership interest in Conemaugh ($14 million). Midstream & Marketing cost of sales were $196 million in the 2021 three-month period compared to $158 million in the prior-year period. This $38 million increase largely reflects increased cost of sales attributable to natural gas ($34 million) and renewable energy ($4 million) marketing activities, partially offset by the absence of costs attributable to HVAC and Conemaugh ($6 million). The significant increases in both natural gas revenues and cost of sales during the 2021 three-month period are largely attributable tosignificantly higher average natural gas prices compared to the prior-year period, partially offset by lower volumes. As a result, natural gas revenues and cost of sales increased $183 million and $186 million, respectively, during the 2022 three-month period.
Midstream & Marketing total margin increased slightlydecreased $10 million in the 20212022 three-month period largely reflecting among other things, improvedlower margin from capacity management gas gathering,contracts ($15 million) and renewable energynatural gas marketing activities ($3 million). Capacity management margin was negatively impacted by the settlement timing of certain multi-year commodity storage hedge contracts during the 2022 three-month period. These impacts were partially offset by improved margin from peaking contracts ($6 million) compared to the prior-year period. These positive factors, which include the impact of acquisitionsperiod and new assets placed into service since June 30, 2020, were largely offset by the absence of marginsincremental margin attributable to HVAC and Conemaugh in 2021 three-month period.the Stonehenge Acquisition ($4 million).
Midstream & Marketing operating income and earnings before interest expense and income taxes both increased slightly during the 20212022 three-month period principally reflecting the increase in total margindecreased $5 million and $10 million, respectively, compared to the prior-year periodperiod. The decrease in operating income primarily reflects the lower total margin and with regardhigher operating and administrative expenses ($2 million), partially offset by the absence of a contingent consideration adjustment related to the GHI acquisition in the prior-year period. The decrease in earnings before interest expense and income taxes incremental equityreflects the decrease in operating income and lower income from its 2021 investment in Pine Run. Operating and administrative expenses were consistent with the prior-year period as the absence of expenses related to the previously mentioned divested assets was largely offset by increased employee and benefits-related costsequity-method investments compared to the prior-year period and higher expenses attributable to acquisitions and new assets placed into service.period.
UGI CORPORATION AND SUBSIDIARIES
UGI Utilities
| | | For the three months ended June 30, | | 2021 | | 2020 | | Increase (Decrease) | |
| For the three months ended March 31, | | For the three months ended March 31, | | 2022 | | 2021 | | Increase |
| (Dollars in millions) | (Dollars in millions) | | | | | | | | | (Dollars in millions) | | | | | | | | |
| Revenues | Revenues | | $ | 181 | | | $ | 179 | | | $ | 2 | | | 1 | % | Revenues | | $ | 707 | | | $ | 442 | | | $ | 265 | | | 60 | % |
| Total margin (a) | Total margin (a) | | $ | 113 | | | $ | 110 | | | $ | 3 | | | 3 | % | Total margin (a) | | $ | 317 | | | $ | 238 | | | $ | 79 | | | 33 | % |
| Operating and administrative expenses (a) | Operating and administrative expenses (a) | | $ | 59 | | | $ | 61 | | | $ | (2) | | | (3) | % | Operating and administrative expenses (a) | | $ | 91 | | | $ | 67 | | | $ | 24 | | | 36 | % |
| Operating income | Operating income | | $ | 24 | | | $ | 21 | | | $ | 3 | | | 14 | % | Operating income | | $ | 191 | | | $ | 142 | | | $ | 49 | | | 35 | % |
| Earnings before interest expense and income taxes | Earnings before interest expense and income taxes | | $ | 25 | | | $ | 21 | | | $ | 4 | | | 19 | % | Earnings before interest expense and income taxes | | $ | 194 | | | $ | 142 | | | $ | 52 | | | 37 | % |
| Gas Utility system throughput—bcf | Gas Utility system throughput—bcf | | Gas Utility system throughput—bcf | |
| Core market | Core market | | 10 | | | 12 | | | (2) | | | (17) | % | Core market | | 52 | | | 38 | | | 14 | | | 37 | % |
| Total | Total | | 62 | | | 61 | | | 1 | | | 2 | % | Total | | 123 | | | 100 | | | 23 | | | 23 | % |
| Electric Utility distribution sales - gwh | Electric Utility distribution sales - gwh | | 223 | | | 219 | | | 4 | | | 2 | % | Electric Utility distribution sales - gwh | | 284 | | | 276 | | | 8 | | | 3 | % |
| Gas Utility heating degree days—% colder than normal (b) | | 5.0 | % | | 25.4 | % | | — | | | — | | |
| Natural gas heating degree days—% warmer than normal (b) | | Natural gas heating degree days—% warmer than normal (b) | | (3.4) | % | | (8.1) | % | | — | | | — | |
(a)Total margin represents revenues less cost of sales and revenue-related taxes (i.e., Electric Utility gross receipts and business and occupation taxes) of $1$10 million and $2 million, respectively, during both the 20212022 and 20202021 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)Beginning in Fiscal 2021, deviationDeviation 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 airports located within Gas Utility’s service territory. Prior-period amounts have been restated to conform to the current-period presentation.territories.
Temperatures in Gas Utility’s service territoryterritories during the 20212022 three-month period were 5.0% colder3.4% warmer than normal but 16.2% warmer3.7% colder than the prior-year period. The increase in Gas Utility core market and total volumes decreased 17% (2 bcf) during the 20212022 three-month period are largely related to incremental volumes attributable to the acquisition of Mountaineer and the effects of warmercolder weather compared withto the prior-year period, partially offset by growthperiod. The increase in the number of core market customers. Total Gas Utility distribution system throughput increased slightly during the 2021 three-month period (1 bcf) reflecting higher large delivery services volumes largely offset by the decreased core market volumes. Electric Utility distribution sales volumes increased during the 2021 three-month period largely relatedwas also attributable to warmercolder weather during the cooling season.current-year period.
UGI Utilities revenues increased $2$265 million in the 20212022 three-month period primarilyreflecting a $255 million increase in Gas Utility revenues and a $10 million increase in Electric Utility revenues. The increase in Gas Utility revenues principally reflects incremental revenues attributable to anMountaineer ($121 million), higher PGC rates compared to the prior-year period, higher pricing on off system sales and higher volumes attributable to the colder weather. The increase in Electric Utility revenues due to the increased distribution sales volumes compared to the prior-year period. Gas Utility revenues were consistent with the prior-year period as higher revenues associated with off-system sales, large delivery service sales, and the increase in base rates that went into effect on January 1, 2021 were offset by the decrease in core market volumes.
UGI Utilities cost of sales was $67 million in the 2021 three-month period compared with $68 million in the prior-year period. The slight decrease reflects lower Gas Utility core market volumes partially offset by higher costs associated with off-system sales.
UGI Utilities total margin increased $3 million during the 20212022 three-month period reflecting slight improvements in both Gas Utility and Electric Utility margins compared to the prior-year period. This increase in Gas Utility margin reflects the increase in base rates that went into effect on January 1,in November 2021 and higher customer account fees, partially offset bysales volumes and DS rates compared to the decrease in core market volumes.prior-year period.
Utilities cost of sales increased $186 million compared to the prior-year period. The increase in Gas Utility cost of sales ($179 million) during the 2022 three-month period reflects incremental cost attributable to Mountaineer ($69 million), higher PGC rates compared to the prior-year period, increased cost of sales associated with off-system sales, and the increase in volumes. Electric Utility cost of sales increased during the 2022 three-month period largely reflecting the higher volumes and DS rates compared to the prior-year period.
Utilities total margin increased $79 million during the 2022 three-month period largely reflecting incremental margin attributable to Mountaineer ($52 million). The implementation of a DSIC, higher margin from large delivery service customers including the effects of customer growth compared to the prior-year period, and higher volumes also contributed to the increase in Gas Utility margin. Electric Utility margin isincreased $3 million largely attributable to the increase in distribution salesbase rates and higher volumes compared to the prior-year period.
UGI Utilities operating income and earnings before interest expense and income taxes increased $3$49 million and $4$52 million, respectively, during the 20212022 three-month period. These improvementsincreases largely reflect the previously mentioned increase in total margin and lowerpartially offset by higher operating and administrative expenses ($224 million), partially offset by and higher depreciation expense ($37 million) compared to the prior-year period.period, both principally related to incremental expenses attributable to Mountaineer. The increase inhigher depreciation expense relatescompared to the prior-year period also includes the effects of continued distribution system and IT capital expenditure activity. The decreaseincrease in operatingearnings before interest expense and administrative expenses reflects, among other things, lower uncollectible accounts expense, lower payrollincome taxes and lower environmental expensesalso includes a higher non-service pension benefit compared to the prior-year period. These positive impacts were partially offset by higher contracted labor costs.
UGI CORPORATION AND SUBSIDIARIES
Interest Expense and Income Taxes
Our consolidated interest expense during the 20212022 three-month period was $77$82 million compared to $80$78 million during the 20202021 three-month period. The decrease in interest expense principallyThis increase largely reflects lower average short-term borrowingsthe effects of incremental long-term debt outstanding comparedduring the current period, net of repayments, primarily related to the prior-year period.Mountaineer Acquisition and UGI Utilities’ issuance of senior notes during the second half of Fiscal 2021.
The higherincrease in the Company’s effective income tax rate for the 20212022 three-month period is largely attributablereflects the absence of benefits from the prior-year period related to an election made in connection with a lower NOL carryback benefittax law change in Italy and under the CARES ActAct. These items were partially offset by the net effects of a decrease in the concentration of foreign earnings, including the effects of higher gains on commodity derivative instruments compared to the prior-year period, and an increase inreflecting foreign rate differential due to a shift in domestic versus foreign earnings, partially offset by lowerstatutory tax rates that exceed the U.S. tax on foreign source income including the effects of regulations issued in July 2020 related to the high-tax exception on GILTI income. The increase in the effective income tax rate also reflects the effects of discrete tax items on lower pre-tax income during the prior year period.statutory rate.
The Company continues to evaluate the elections available under current regulations recent government stimulus efforts including the anticipated benefits mentioned above related to the election made in connection with the tax law change in Italy, the modified GILTI provisions, and the CARES Act.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.
2021 Nine-Month
UGI CORPORATION AND SUBSIDIARIES
2022 Six-Month Period Compared with the 2020 Nine-Month2021 Six-Month Period
AmeriGas Propane
| | For the nine months ended June 30, | | 2021 | | 2020 | | Increase (Decrease) | |
| For the six months ended March 31, | | For the six months ended March 31, | | 2022 | | 2021 | | Increase (Decrease) |
| (Dollars in millions) | (Dollars in millions) | | | | | | | | | (Dollars in millions) | | | | | | | | |
| Revenues | Revenues | | $ | 2,132 | | | $ | 1,983 | | | $ | 149 | | | 8 | % | Revenues | | $ | 1,826 | | | $ | 1,606 | | | $ | 220 | | | 14 | % |
| Total margin (a) | Total margin (a) | | $ | 1,162 | | | $ | 1,191 | | | $ | (29) | | | (2) | % | Total margin (a) | | $ | 863 | | | $ | 903 | | | $ | (40) | | | (4) | % |
| Operating and administrative expenses | Operating and administrative expenses | | $ | 666 | | | $ | 680 | | | $ | (14) | | | (2) | % | Operating and administrative expenses | | $ | 480 | | | $ | 454 | | | $ | 26 | | | 6 | % |
| Operating income/earnings before interest expense and income taxes | Operating income/earnings before interest expense and income taxes | | $ | 391 | | | $ | 390 | | | $ | 1 | | | — | % | Operating income/earnings before interest expense and income taxes | | $ | 313 | | | $ | 380 | | | $ | (67) | | | (18) | % |
| Retail gallons sold (millions) | Retail gallons sold (millions) | | 815 | | | 827 | | | (12) | | | (1) | % | Retail gallons sold (millions) | | 570 | | | 631 | | | (61) | | | (10) | % |
| Heating degree days—% warmer than normal (b) | Heating degree days—% warmer than normal (b) | | (2.6) | % | | (1.5) | % | | — | | | — | | Heating degree days—% warmer than normal (b) | | (2.7) | % | | (3.3) | % | | — | | | — | |
(a)Total margin represents total revenues less total cost of sales.
(b)Beginning in Fiscal 2021, deviationDeviation 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. Prior-period amounts have been restated to conform to the current-period presentation.
Average temperatures during the 2021 nine-month2022 six-month period were 2.6%2.7% warmer than normal and 1.6% warmer thanrelatively consistent with the prior-year period. Total retail gallons sold decreased slightly10% during the 2022 six-month period reflecting the continued impact of customer service challenges that occurred in Fiscal 2021, nine-month period principally reflecting structural conservation and other residual volume lossincreased price sensitivity in the higher commodity cost environment and the greaterprior-year impact of COVID-19 on commercial volumes compared to the prior-year period. These decreases were partially offset by highercylinder exchange and resale and motor fuel volumes during the 2021 nine-month period.volumes.
Total revenues increased $149 million during the 2021 nine-month period largely reflecting higher average propane selling prices ($165 million) partially offset by the lower retail propane volumes ($24 million) compared to the prior-year period. Average daily wholesale propane commodity prices during the 2021 nine-month2022 six-month period at Mont Belvieu, Texas, one of the major supply points in the U.S., were approximately 83%73% higher than such prices during the 2020 nine-month2021 six-month period. This significant increase in prices has impacted both total revenues and total costs of sales during the 2022 six-month period. Total revenues increased $220 million during the 2022 six-month period largely reflecting higher average propane selling prices ($323 million) and higher wholesale volumes sold ($29 million) compared to the prior-year period. These positive impacts were partially offset by the effects of the previously mentioned decrease in retail propane volumes sold ($136 million).
Total cost of sales increased $178$260 million during the 2021 nine-month2022 six-month period largely attributable to the higher average propane product costs ($172286 million) and higher wholesale propane volumes sold ($1227 million).
AmeriGas Propane total These increases in cost of sales were partially offset by the decrease in retail propane volumes sold ($59 million). Total margin decreased $29$40 million in the 2021 nine-month2022 six-month period largely attributable to the lower retail propane volumes ($1477 million), lower average retail unit margins ($6 million) and decreased non-propane margin ($9 million) principally reflecting lower fees and services partially offset by increased cylinder sales. Total margin for the current-year period also includes the continued impact of effective margin management efforts.higher average propane margins ($37 million).
Operating income and earnings before interest expense and income taxes increased slightlydecreased $67 million during the 2021 nine-month2022 six-month period primarily reflecting lowerthe decrease in total margin and higher operating and administrative expenses ($14 million) compared to the prior-year period, higher other income ($12 million) attributable to customer fees and gains on the early settlement of certain commodity derivative instruments during the 2021 nine-month period, and lower depreciation and amortization expense ($4 million). These positive impacts were
UGI CORPORATION AND SUBSIDIARIES
largely offset by the previously mentioned decrease in total margin ($29 million). The decrease in operating and administrative expenses in the 2021 nine-month period reflects, among other things, lower employee compensation and benefits-related costs ($11 million), decreased vehicle and equipment operating and maintenance expenses ($8 million), and lower general insurance costs ($7 million) compared to the prior-year period. These decreases were partially offset by increased advertising expenses ($4 million), higher telecommunications expenses ($4 million), and higher allocated corporate costs ($326 million) compared to the prior-year period. The lowerincrease in operating and administrative expenses reflectwas impacted by the partial benefits relatedinflationary cost environment and reflects, among other things, higher expenses associated with general insurance ($8 million), vehicle fuel ($7 million), bad debt reserves ($7 million) and telecommunications ($5 million) compared to the previously mentioned ongoing business transformation initiatives.prior-year period.
UGI International
| | For the nine months ended June 30, | | 2021 | | 2020 | | Increase | |
| For the six months ended March 31, | | For the six months ended March 31, | | 2022 | | 2021 | | Increase (Decrease) |
| (Dollars in millions) | (Dollars in millions) | | | | | | | | | (Dollars in millions) | | | | | | | | |
| Revenues | Revenues | | $ | 2,106 | | | $ | 1,726 | | | $ | 380 | | | 22 | % | Revenues | | $ | 2,273 | | | $ | 1,534 | | | $ | 739 | | | 48 | % |
| Total margin (a) | Total margin (a) | | $ | 877 | | | $ | 737 | | | $ | 140 | | | 19 | % | Total margin (a) | | $ | 550 | | | $ | 660 | | | $ | (110) | | | (17) | % |
| Operating and administrative expenses | Operating and administrative expenses | | $ | 465 | | | $ | 419 | | | $ | 46 | | | 11 | % | Operating and administrative expenses | | $ | 323 | | | $ | 321 | | | $ | 2 | | | 1 | % |
| Operating income | Operating income | | $ | 322 | | | $ | 230 | | | $ | 92 | | | 40 | % | Operating income | | $ | 189 | | | $ | 282 | | | $ | (93) | | | (33) | % |
| Earnings before interest expense and income taxes | Earnings before interest expense and income taxes | | $ | 326 | | | $ | 247 | | | $ | 79 | | | 32 | % | Earnings before interest expense and income taxes | | $ | 202 | | | $ | 285 | | | $ | (83) | | | (29) | % |
| LPG retail gallons sold (millions) | LPG retail gallons sold (millions) | | 644 | | | 614 | | | 30 | | | 5 | % | LPG retail gallons sold (millions) | | 496 | | | 478 | | | 18 | | | 4 | % |
| Heating degree days—% colder (warmer) than normal (b) | | 1.4 | % | | (12.7) | % | | — | | | — | | |
| Heating degree days—% warmer than normal (b) | | Heating degree days—% warmer than normal (b) | | (1.1) | % | | (2.8) | % | | — | | | — | |
(a)Total margin represents revenues less cost of sales and, in the 2020 nine-month period, LPG cylinder filling costs of $21 million. For financial statement purposes, LPG cylinder filling costs in the 2020 nine-month period are included in “Operating and administrative expenses” on the 2020 Condensed Consolidated Statement of Income (but are excluded from operating and administrative expenses presented above). LPG cylinder filling costs are included in “Cost of sales” on the 2021 Condensed Consolidated Statement of Income.sales.
(b)Beginning in Fiscal 2021, deviationDeviation 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. Prior-period amounts have been restated to conform to the current-period presentation.
UGI CORPORATION AND SUBSIDIARIES
Average temperatures during the 2021 nine-month2022 six-month period were 1.4% colder1.1% warmer than normal and 15.2% colder thanrelatively consistent with the prior-year period. Total LPG retail gallons sold during the 2021 nine-month2022 six-month period increased 5%4% compared to the prior-year period largely attributable to higher bulk volumes reflecting the effects of the colder weather on heating-related bulk sales,favorable crop drying volumes,campaigns and cylinder volumes compared to the prior-year period. These volume improvements also reflect the recovery of certain volume decreases attributable to COVID-19 during the prior-year period,bulk and autogas volumes that were partially offsetnegatively impacted by the termination of a high-volume, low-margin autogas contract in Italy during the prior year. Average wholesale prices for propane and butane during the 2021 nine-month period in northwest Europe were approximately 34% and 17% higher, respectively, compared with the prior-year period.COVID-19.
UGI International base-currency results are translated into U.S. dollars 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 2022 and 2021 and 2020 nine-monthsix-month periods, the average unweighted euro-to-dollar translation rates were approximately $1.20$1.13 and $1.10,$1.20, respectively, and the average unweighted British pound sterling-to-dollar translation rates wererate was approximately $1.37 and $1.27, respectively.$1.35 in both periods. Fluctuations in these foreign currency exchange rates can have a significant impact on the individual financial statement components discussed below. The net effect of changes in foreign currency exchange rates on UGI International’s earnings before interest expense and income taxes resulted in a net benefitloss of $26$11 million in the 2021 nine-month2022 six-month period. However, the impact of these changes is mitigated by the effects of forward foreign currency exchange contracts entered into over a multi-year period intended to substantially offset this volatility. These forward foreign currency exchange contracts resulted in realized net gains of $10 million and $2 million and $15 million, respectively, in the 2022 and 2021 and 2020 nine-month periods.six-month periods, respectively.
UGI International revenues and cost of sales increased $380$739 million and $240$849 million, respectively, during the 2021 nine-month2022 six-month period compared to the prior-year period. Average wholesale prices for propane and butane during the 2022 six-month period in northwest Europe were approximately 76% and 96% higher, respectively, compared with the prior-year period. The increase in revenues and cost of sales principally reflects the translation effectsimpact of stronger foreign currencies (approximately $166 millionsignificant increases and $96 million, respectively),volatility in natural gas and power prices on our energy marketing business and the effects of these higher average butanepropane and propanebutane selling prices and product costs compared to the prior-year period,period. These increases were partially offset by the translation effects of weaker foreign currencies (approximately $125 million and the previously mentioned increases in bulk, crop drying and cylinder volumes. Energy marketing activities also contributed to the increased revenues and cost of sales during the 2021 nine-month period largely related to higher natural gas volumes and prices.$94 million, respectively).
UGI CORPORATION AND SUBSIDIARIES
UGI International total margin increased $140decreased $110 million during the 2021 nine-month2022 six-month period primarily reflecting lower total margin from our energy marketing business and the translation effects of strongerweaker foreign currencies (approximately $70$31 million),. This decrease was partially offset by higher total margin from our LPG business attributable to strong margin management efforts despite the effects of the previously mentioned increase inhigher product costs. The lower total LPG volumes, lower costs associated withmargin from our energy conservation certificates including adjustments relatedmarketing business is largely due to the current compliance period, and higher average LPG unit margins including the continued effects of margin management efforts. These margin improvements include the impact of LPG assets acquiredsignificant volatility in commodity costs and its effects on the current-year period and higher margin from energy marketing activities principally reflecting increased natural gas volumes.unit margins of certain customer contracts during the 2022 six-month period. The effects of this volatility on such customer contracts are expected to be largely confined to the primary heating season.
UGI International operating income and earnings before interest expense and income taxes increased $92decreased $93 million and $79$83 million, respectively, during the 2021 nine-month2022 six-month period compared to the prior-year period. The increasedecrease in operating income principally reflects the increasepreviously mentioned decrease in total margin partially offset byand slightly higher operating and administrative expenses ($462 million) which was largely attributablepartially offset by higher other operating income related to gains on the effectssale of stronger foreign currencies ($36 million) compared to the prior-year period.assets. The slight increase in operating and administrative expenses also reflects higher maintenancedistribution, packaging and distributionpersonnel costs attributable toassociated with higher retail LPG volumes sold and the increased volumes.inflationary cost environment, largely offset by the impact of weaker foreign currencies in the 2022 six-month period ($18 million). The increasedecrease in earnings before interest expense and income taxes in the 2021 nine-month2022 six-month period largely reflects the increasedecrease in operating income partially offset by lowerhigher 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 ($138 million).
UGI CORPORATION AND SUBSIDIARIES
Midstream & Marketing
| | For the nine months ended June 30, | | 2021 | | 2020 | | Increase (Decrease) | |
| For the six months ended March 31, | | For the six months ended March 31, | | 2022 | | 2021 | | Increase (Decrease) |
| (Dollars in millions) | (Dollars in millions) | | | | | | | | | (Dollars in millions) | | | | | | | | |
| Revenues | Revenues | | $ | 1,086 | | | $ | 1,017 | | | $ | 69 | | | 7 | % | Revenues | | $ | 1,206 | | | $ | 825 | | | $ | 381 | | | 46 | % |
| Total margin (a) | Total margin (a) | | $ | 310 | | | $ | 296 | | | $ | 14 | | | 5 | % | Total margin (a) | | $ | 253 | | | $ | 245 | | | $ | 8 | | | 3 | % |
| Operating and administrative expenses | Operating and administrative expenses | | $ | 91 | | | $ | 100 | | | $ | (9) | | | (9) | % | Operating and administrative expenses | | $ | 59 | | | $ | 60 | | | $ | (1) | | | (2) | % |
| Operating income | Operating income | | $ | 156 | | | $ | 139 | | | $ | 17 | | | 12 | % | Operating income | | $ | 159 | | | $ | 142 | | | $ | 17 | | | 12 | % |
| Earnings before interest expense and income taxes | Earnings before interest expense and income taxes | | $ | 180 | | | $ | 161 | | | $ | 19 | | | 12 | % | Earnings before interest expense and income taxes | | $ | 172 | | | $ | 159 | | | $ | 13 | | | 8 | % |
(a)Total margin represents revenues less cost of sales.
Average temperatures across Midstream & Marketing’s energy marketing territory during the 2021 nine-month2022 six-month period were 6.4%8.4% warmer than normal and 1.8%4.5% warmer than the prior-year period. Beginning in Fiscal 2021, deviation from average heating degree days is determined on a rolling 10-year period utilizing volume-weighted weather data. Prior-period amounts have been restated to conform to the current-period presentation. Midstream & Marketing’s prior year results include contributions from its HVAC business and ownership interest in Conemaugh, both of which were sold in September 2020.
Midstream & Marketing revenues and cost of sales for the 2021 nine-month2022 six-month period increased $69$381 million and $373 million, respectively, compared to the prior-year period principally reflecting increased revenues fromperiod. These increases were largely driven by natural gas ($53 million)marketing, including the effects of peaking and renewable energy ($27 million) marketing activities, higher capacity management revenues ($18 million), and higher natural gas gathering revenues ($10 million). These revenue increasesactivities, which were partially offsetimpacted by the absence of revenues attributable to its former HVAC business and ownership interest in Conemaugh ($44 million). Midstream & Marketing cost of sales were $776 million in the 2021 nine-month period compared to $721 million in the prior-year period. The $55 million increase principally reflects higher cost of sales related to natural gas ($48 million) and renewable energy marketing activities ($21 million), partially offset by the absence of costs attributable to HVAC and Conemaugh ($22 million). The increases in both natural gas revenues and cost of sales during the 2021 nine-month period are largely attributable tosignificantly higher average natural gas prices compared to the prior-year period, partially offset by lower volumes attributable to weather that wasthe warmer thanweather. As a result, natural gas marketing revenues and cost of sales increased $353 million and $360 million, respectively, during the prior-year2022 six-month period.
Midstream & Marketing total margin increased $14$8 million in the 2021 nine-month2022 six-month period reflecting improved capacity management margin ($18 million), higher margin from renewable energy marketing activities ($611 million) including the impact of increased volumes and average pricing related to environmental credits compared to the prior-year period, improved margin from peaking activities ($9 million) and incremental margin attributable to the Stonehenge Acquisition ($4 million). These positive impacts were partially offset by lower margin from capacity management contracts ($10 million) and natural gas ($5 million) marketing activities and higher margin from natural gas gathering activities ($57 million). These margin improvements include which includes the impacteffects of acquisitions and new assets placed into service since June 30, 2020, and were partially offset bylower volumes due to warmer weather compared to the absence of margins attributable to HVAC and Conemaugh ($22 million).prior-year period.
Midstream & Marketing operating income and earnings before interest expense and income taxes during the 2021 nine-month2022 six-month period increased $17 million and $19$13 million, respectively, compared to the prior-year period. The improvementincrease in operating income reflectsis largely attributable to the increase in total margin and lower operating and administrative expenses ($9 million) compared to the prior-year period, partially offset by an adjustment to theabsence of a contingent consideration adjustment related to the GHI acquisition ($8 million). The decrease in operating and administrative expenses was largely related to the absence of the previously mentioned divested assets partially offset by an increase in employee and benefits-related costs and increases related to new assets placed into
UGI CORPORATION AND SUBSIDIARIES
service.prior-year period. The increase in earnings before interest expense and income taxes principally reflects the improvementincrease in operating income and incremental equity method earnings related to the investment in Pine Run.partially offset by lower income from equity-method investments ($3 million).
UGI Utilities
| | For the nine months ended June 30, | | 2021 | | 2020 | | Increase | |
| For the six months ended March 31, | | For the six months ended March 31, | | 2022 | | 2021 | | Increase |
| (Dollars in millions) | (Dollars in millions) | | | | | | | | | (Dollars in millions) | | | | | | | | |
| Revenues | Revenues | | $ | 923 | | | $ | 901 | | | $ | 22 | | | 2 | % | Revenues | | $ | 1,126 | | | $ | 742 | | | $ | 384 | | | 52 | % |
| Total margin (a) | Total margin (a) | | $ | 518 | | | $ | 494 | | | $ | 24 | | | 5 | % | Total margin (a) | | $ | 530 | | | $ | 405 | | | $ | 125 | | | 31 | % |
| Operating and administrative expenses (a) | Operating and administrative expenses (a) | | $ | 186 | | | $ | 185 | | | $ | 1 | | | 1 | % | Operating and administrative expenses (a) | | $ | 171 | | | $ | 127 | | | $ | 44 | | | 35 | % |
| Operating income | Operating income | | $ | 243 | | | $ | 229 | | | $ | 14 | | | 6 | % | Operating income | | $ | 287 | | | $ | 219 | | | $ | 68 | | | 31 | % |
| Earnings before interest expense and income taxes | Earnings before interest expense and income taxes | | $ | 245 | | | $ | 229 | | | $ | 16 | | | 7 | % | Earnings before interest expense and income taxes | | $ | 292 | | | $ | 220 | | | $ | 72 | | | 33 | % |
| Gas Utility system throughput—bcf | Gas Utility system throughput—bcf | | Gas Utility system throughput—bcf | |
| Core market | Core market | | 72 | | | 71 | | | 1 | | | 1 | % | Core market | | 81 | | | 62 | | | 19 | | | 31 | % |
| Total | Total | | 245 | | | 243 | | | 2 | | | 1 | % | Total | | 216 | | | 183 | | | 33 | | | 18 | % |
| Electric Utility distribution sales - gwh | Electric Utility distribution sales - gwh | | 743 | | | 724 | | | 19 | | | 3 | % | Electric Utility distribution sales - gwh | | 526 | | | 520 | | | 6 | | | 1 | % |
| Gas Utility heating degree days—% warmer than normal (b) | Gas Utility heating degree days—% warmer than normal (b) | | (7.3) | % | | (7.1) | % | | — | | | — | | Gas Utility heating degree days—% warmer than normal (b) | | (8.1) | % | | (8.8) | % | | — | | | — | |
(a)Total margin represents revenues less cost of sales and revenue-related taxes (i.e., Electric Utility gross receipts and business and occupation taxes) of $4$16 million and $3 million, respectively, during the 2022 and 2021 and 2020 nine-month periods, respectively.six-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)Beginning in Fiscal 2021, deviationDeviation 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 airports located within Gas Utility’s service territory. Prior-period amounts have been restated to conform to the current-period presentation.territories.
UGI CORPORATION AND SUBSIDIARIES
Temperatures in Gas Utility’s service territoryterritories during the 2021 nine-month2022 six-month period were 7.3%8.1% warmer than normal and comparableslightly warmer compared to temperatures in the prior-year period. The increase in Gas Utility core market and total volumes increased slightly during the 2021 nine-month2022 six-month period (1 bcf) reflecting growth in the number of core market customers. Total Gas Utility distribution system throughput also reflects a slight increase (2 bcf) during the 2021 nine-month periodare largely related to incremental volumes attributable to the increased core market volumes and higher large delivery service volumes. Electric Utility distribution sales volumes increased during the 2021 nine-month period primarily attributable to warmer weather during the cooling season.acquisition of Mountaineer.
UGI Utilities revenues increased $22$384 million in the 2021 nine-month2022 six-month period reflecting increases of $16a $370 million and $6 million attributable toincrease in Gas Utility revenues and a $14 million increase in Electric Utility respectively.revenues. The increase in Gas Utility revenues principally reflects incremental revenues attributable to Mountaineer ($191 million), higher PGC rates compared to the prior-year period, the effects of the increase in base rates that went into effect during the second quarter of Fiscal 2021, and higher pricing on off-system sales. The increase in Electric Utility revenues during the 2022 six-month period reflects the increase in base rates that went into effect on January 1,in November 2021 higher off system sales, and higher large delivery service sales, partially offset by lower PGC rates compared to the prior-year period. The increase in Electric Utility revenues during the 2021 nine-month period reflects the increased distribution sales volumes and higher DS rates compared to the prior-year period.
UGI Utilities cost of sales was $401increased $259 million in the 2021 nine-month2022 six-month period largely attributable to Gas Utility ($250 million) which reflects incremental cost attributable to Mountaineer ($106 million), higher PGC rates compared with $404 million into the prior-year period. Gas Utility cost of sales decreased during the 2021 nine-month period, ($6 million) reflecting lower PGC rates partially offset by higherand increased cost of sales associated with off systemoff-system sales. Electric Utility cost of sales increased during the 2021 nine-month2022 six-month period ($3 million)largely reflecting the increased volumes and higher average DS rates compared to the prior-year period.
UGI Utilities total margin increased $24$125 million during the 2021 nine-month2022 six-month period principallylargely reflecting incremental margin attributable to Mountaineer ($85 million). Gas Utility’s total margin increase also includes higher natural gas margin attributable to the positive impacts of the increase in base rates, implementation of a DSIC and higher margin from Gaslarge delivery service customers including the effects of customer growth compared to the prior-year period. Electric Utility ($22 million). This increasemargin increased $5 million largely reflects higher margin from core market customers ($15 million) primarily attributable to the increase in base rates that went into effect on January 1, 2021, as well as increased margin related to large delivery service customer growth and higher customer account fees. The increase in Electric Utility margin is largely attributable to the increase in distribution sales volumes compared to the prior-year period.
UGI Utilities operating income and earnings before interest expense and income taxes increased $14$68 million and $16$72 million, respectively, during the 2021 nine-month2022 six-month period. These increases largely reflect the previously mentioned increase in total margin partially offset by higher depreciation expense ($9 million) and slightly higher operating and administrative expenses ($44 million) and higher depreciation expense ($13 million) compared to the prior-year period, both principally related to incremental expenses attributable to Mountaineer. The higher depreciation expense compared to the prior-year period also includes the effects of continued distribution system capital expenditure activity. The increase in earnings before interest expense and income taxes also includes a higher non-service pension benefit compared to the prior-year period. The increase in depreciation expense relates to continued distribution system and IT capital expenditure activity. The slight increase in operating and administrative expenses reflects, among other things, higher allocations of corporate expenses largely offset by lower uncollectible accounts expense and payroll taxes compared to the prior-year period.
UGI CORPORATION AND SUBSIDIARIES
Interest Expense and Income Taxes
Our consolidated interest expense during the 2021 nine-month2022 six-month period was $233$163 million compared to $247$156 million during the 2020 nine-month2021 six-month period. The decrease in interest expense principallyThis increase reflects lowerthe effects of incremental long-term debt outstanding during the current period, net of repayments, primarily related to the Mountaineer Acquisition and UGI Utilities’ issuance of senior notes during the second half of Fiscal 2021, and higher average short-term borrowings outstanding compared to the prior-year period.
The increase in the Company’s effective income tax rate for the 2021 nine-month2022 six-month period increased slightly compared toreflects the prior-year period. This increase was impacted by a lower NOL carryback benefit under the CARES Act and an increase in foreign rate differential due to a shift in domestic versus foreign earnings compared to the prior-year period. These items were largely offset by lower U.S. tax on foreign source income attributable to regulations issued in July 2020 related to the high-tax exception on GILTI income not available inabsence of benefits from the prior-year period andrelated to an election made available underin connection with a tax law change in Italy which allowedand under the Company to step up its tax basis on certain assets in exchange for payingCARES Act. These items were partially offset by the net effects of a three percent substitute tax in connection with such election. This election resulted in a $23 million net benefitdecrease in the currentconcentration of foreign earnings, including the effects of higher gains on commodity derivative instruments compared to the prior-year period, resulting in incrementalreflecting foreign statutory tax basisrates that will be deductible in future periods.exceed the U.S. statutory rate.
The Company continues to evaluate the elections available under current regulations recent government stimulus efforts including the anticipated benefits mentioned above related to the election made in connection with the tax law change in Italy, the modified GILTI provisions, and the CARES Act.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 the outbreakCOVID-19 pandemic and continued spread of COVID-19.ongoing commodity price volatility. Our total available liquidity balance, comprising cash and cash equivalents undrawn upon senior note and term loan commitments, and available borrowing capacity on our revolving credit facilities, totaled approximately $2.4$1.9 billion and $1.5$2.2 billion at June 30, 2021March 31, 2022 and September 30, 2020,2021, respectively. Our total available liquidity at March 31, 2022 was affected, in part, by $603 million of cash collateral received from derivative counterparties resulting from the impact of rising commodity prices and an accumulation of derivative assets associated with our commodity derivative instruments. The Company does not have any near-term senior note or term loan maturities. Whilematurities, other than the Company’s operations and financial performance has been impacted by COVID-19UGI Utilities variable-rate term loan, which is set to mature in the 2021 three- and nine-month periods, it is a rapidly evolving situation and theOctober 2022. The Company cannot predict the ultimate impactduration or magnitude that the COVID-19 pandemic and ongoing commodity price volatility 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, 2021.March 31, 2022.
UGI CORPORATION AND SUBSIDIARIES
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 Receivables Facility 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 $545$718 million at June 30, 2021,March 31, 2022, compared with $336$855 million at September 30, 2020.2021. The decrease in cash and cash equivalents since September 30, 2021 is primarily attributable to commodity price volatility experienced in the 2022 six-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 June 30, 2021March 31, 2022 and September 30, 2020,2021, UGI had $134$222 million and $112$172 million of cash and cash equivalents, respectively. Such cash is available to pay dividends on UGI Common Stock, to make quarterly payments on outstanding Purchase Contracts and for investment purposes.
UGI CORPORATION AND SUBSIDIARIES
Long-term Debt and Credit Facilities
Long-term Debt
The Company’s debt outstanding at June 30, 2021March 31, 2022 and September 30, 2020,2021, comprises the following:
| | | June 30, 2021 | | September 30, 2020 | | March 31, 2022 | | September 30, 2021 |
| (Millions of dollars) | (Millions of dollars) | AmeriGas Propane | | UGI International | | Midstream & Marketing | | UGI Utilities | | Corp & Other | | Total | | Total | (Millions of dollars) | AmeriGas Propane | | UGI International | | Midstream & Marketing | | Utilities | | Corp & Other | | Total | | Total |
| Short-term borrowings | Short-term borrowings | $ | 107 | | | $ | — | | | $ | — | | | $ | 100 | | | $ | — | | | $ | 207 | | | $ | 347 | | Short-term borrowings | $ | 30 | | | $ | 189 | | | $ | — | | | $ | 228 | | | $ | — | | | $ | 447 | | | $ | 367 | |
| | Long-term debt (including current maturities): | Long-term debt (including current maturities): | | Long-term debt (including current maturities): | |
| Senior notes | Senior notes | $ | 2,575 | | | $ | 415 | | | $ | — | | | $ | 1,075 | | | $ | — | | | $ | 4,065 | | | $ | 3,960 | | Senior notes | $ | 2,575 | | | $ | 443 | | | $ | — | | | $ | 1,290 | | | $ | — | | | $ | 4,308 | | | $ | 4,270 | |
| Term loans | Term loans | — | | | 356 | | | 686 | | | 143 | | | 550 | | | 1,735 | | | 1,741 | | Term loans | — | | | 332 | | | 681 | | | 138 | | | 765 | | | 1,916 | | | 1,938 | |
| Other long-term debt | Other long-term debt | 3 | | | 23 | | | 42 | | | 1 | | | 21 | | | 90 | | | 380 | | Other long-term debt | 1 | | | 2 | | | 41 | | | 26 | | | 265 | | | 335 | | | 283 | |
| Unamortized debt issuance costs | Unamortized debt issuance costs | (17) | | | (6) | | | (11) | | | (5) | | | (4) | | | (43) | | | (47) | | Unamortized debt issuance costs | (14) | | | (7) | | | (9) | | | (5) | | | (4) | | | (39) | | | (42) | |
| Total long-term debt | Total long-term debt | $ | 2,561 | | | $ | 788 | | | $ | 717 | | | $ | 1,214 | | | $ | 567 | | | $ | 5,847 | | | $ | 6,034 | | Total long-term debt | $ | 2,562 | | | $ | 770 | | | $ | 713 | | | $ | 1,449 | | | $ | 1,026 | | | $ | 6,520 | | | $ | 6,449 | |
| Total debt | Total debt | $ | 2,668 | | | $ | 788 | | | $ | 717 | | | $ | 1,314 | | | $ | 567 | | | $ | 6,054 | | | $ | 6,381 | | Total debt | $ | 2,592 | | | $ | 959 | | | $ | 713 | | | $ | 1,677 | | | $ | 1,026 | | | $ | 6,967 | | | $ | 6,816 | |
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 6 to Consolidated Financial Statements in the Company’s 20202021 Annual Report.
UGI CORPORATION AND SUBSIDIARIES
Information about the Company’s principal credit agreements (excluding the Energy Services Receivables Facility discussed below) as of June 30,March 31, 2022 and 2021, and 2020, is presented in the table below.
| | (Currency in millions) | (Currency in millions) | | Total Capacity | | Borrowings Outstanding | | Letters of Credit and Guarantees Outstanding | | Available Borrowing Capacity | (Currency in millions) | | Total Capacity | | Borrowings Outstanding | | Letters of Credit and Guarantees Outstanding | | Available Borrowing Capacity |
| As of June 30, 2021 | | | | | | | | | |
| As of March 31, 2022 | | As of March 31, 2022 | | | | | | | | |
| AmeriGas OLP | AmeriGas OLP | | $ | 600 | | | $ | 107 | | | $ | 60 | | | $ | 433 | | AmeriGas OLP | | $ | 600 | | | $ | 30 | | | $ | 3 | | | $ | 567 | |
| UGI International, LLC (a) | UGI International, LLC (a) | | € | 300 | | | € | — | | | € | — | | | € | 300 | | UGI International, LLC (a) | | € | 300 | | | € | 170 | | | € | — | | | € | 130 | |
| Energy Services | Energy Services | | $ | 260 | | | $ | — | | | $ | — | | | $ | 260 | | Energy Services | | $ | 260 | | | $ | — | | | $ | — | | | $ | 260 | |
| UGI Utilities | UGI Utilities | | $ | 350 | | | $ | 100 | | | $ | — | | | $ | 250 | | UGI Utilities | | $ | 350 | | | $ | 192 | | | $ | — | | | $ | 158 | |
| Mountaineer | | Mountaineer | | $ | 100 | | | $ | 36 | | | $ | — | | | $ | 64 | |
| UGI Corporation (b) | UGI Corporation (b) | | $ | 300 | | | $ | 15 | | | $ | — | | | $ | 285 | | UGI Corporation (b) | | $ | 300 | | | $ | 260 | | | $ | — | | | $ | 40 | |
| As of June 30, 2020 | | |
| As of March 31, 2021 | | As of March 31, 2021 | |
| AmeriGas OLP | AmeriGas OLP | | $ | 600 | | | $ | 162 | | | $ | 63 | | | $ | 375 | | AmeriGas OLP | | $ | 600 | | | $ | 130 | | | $ | 60 | | | $ | 410 | |
| UGI International, LLC (a) | UGI International, LLC (a) | | € | 300 | | | € | 160 | | | € | — | | | € | 140 | | UGI International, LLC (a) | | € | 300 | | | € | — | | | € | — | | | € | 300 | |
| | Energy Services | Energy Services | | $ | 260 | | | $ | — | | | $ | — | | | $ | 260 | | Energy Services | | $ | 260 | | | $ | — | | | $ | — | | | $ | 260 | |
| UGI Utilities | UGI Utilities | | $ | 350 | | | $ | 40 | | | $ | — | | | $ | 310 | | UGI Utilities | | $ | 350 | | | $ | 193 | | | $ | — | | | $ | 157 | |
| | UGI Corporation (b) | UGI Corporation (b) | | $ | 300 | | | $ | 280 | | | $ | — | | | $ | 20 | | UGI Corporation (b) | | $ | 300 | | | $ | 275 | | | $ | — | | | $ | 25 | |
(a)Permits UGI International, LLC to borrow in euros or dollars. At June 30, 2020,March 31, 2022, the amount borrowed consisted ofcomprised USD-denominated borrowings of $180$188 million, equal to €170 million.
(b)Borrowings outstanding have been classified as “Long-term debt” on the Condensed Consolidated Balance Sheets. In July 2021, the Company repaid $15 million of such borrowings and classified these repayments as “Current maturities of long-term debt” on the June 30, 2021 Condensed Consolidated Balance Sheet.
UGI CORPORATION AND SUBSIDIARIES
The average daily and peak short-term borrowings under the Company’s principal credit agreements are as follows:
| | | For the nine months ended | | For the nine months ended | | For the six months ended | | For the six months ended |
| | June 30, 2021 | | June 30, 2020 | | March 31, 2022 | | March 31, 2021 |
| (Millions of dollars or euros) | (Millions of dollars or euros) | | Average | | Peak | | Average | | Peak | (Millions of dollars or euros) | | Average | | Peak | | Average | | Peak |
| AmeriGas OLP | AmeriGas OLP | | $ | 177 | | | $ | 293 | | | $ | 266 | | | $ | 359 | | AmeriGas OLP | | $ | 220 | | | $ | 388 | | | $ | 212 | | | $ | 293 | |
| UGI International, LLC | UGI International, LLC | | € | — | | | € | — | | | € | 169 | | | € | 187 | | UGI International, LLC | | € | 119 | | | € | 250 | | | € | — | | | € | — | |
| | Energy Services | Energy Services | | $ | 5 | | | $ | 32 | | | $ | 20 | | | $ | 77 | | Energy Services | | $ | — | | | $ | — | | | $ | 7 | | | $ | 32 | |
| UGI Utilities | UGI Utilities | | $ | 206 | | | $ | 279 | | | $ | 215 | | | $ | 324 | | UGI Utilities | | $ | 208 | | | $ | 270 | | | $ | 228 | | | $ | 279 | |
| Mountaineer | | Mountaineer | | $ | 58 | | | $ | 80 | | | $ | — | | | $ | — | |
| UGI Corporation | UGI Corporation | | $ | 243 | | | $ | 300 | | | $ | 287 | | | $ | 300 | | UGI Corporation | | $ | 185 | | | $ | 260 | | | $ | 265 | | | $ | 300 | |
Receivables Facility. Energy Services has a Receivables Facility with an issuer of receivables-backed commercial paper currently scheduled to expire in October 22, 2021.21, 2022. At June 30,March 31, 2022, the outstanding balance of ESFC trade receivables was $120 million, none of which were sold to the bank. At March 31, 2021, the outstanding balance of ESFC trade receivables was $48 million, none of which was sold to the bank. At June 30, 2020, the outstanding balance of ESFC trade receivables was $86$81 million, of which $43$17 million was sold to the bank. Amounts sold to the bank are reflected as “Short-term borrowings” on the Condensed Consolidated Balance Sheets. During the ninesix months ended June 30,March 31, 2022 and 2021, and 2020, peak sales of receivables were $87$98 million and $97$87 million, respectively, and average daily amounts sold were $27$4 million and $55$38 million, respectively.
Significant Financing Activities
UGI International. On December 7, 2021, UGI Corporation Senior Credit Facility. On May 4, 2021, UGI amended the existing UGI Corporation Senior Credit Facility. The 2021 UGI Corporation Senior Credit Facility (1) extends the maturity dateInternational, LLC issued, in an underwritten private placement, €400 million principal amount of the previous three-year $300 million term loan includedUGI International 2.50% Senior Notes due December 1, 2029. The UGI International 2.50% Senior Notes rank equal in right of payment with indebtedness issued under the existing UGI CorporationInternational Credit Facilities Agreement. The net proceeds from the UGI International 2.50% Senior Credit Facility, which is now due in May 2025; and (2) includes a new four-year term loan commitment, which effective June 9, 2021, was reduced from $300 millionNotes were used (1) to $215 million pursuant to the termsrepay all of the 2021 UGI CorporationInternational 3.25% Senior Credit Facility. Proceeds from new borrowings under the 2021 UGI Corporation Senior Credit Facility may be used to finance a portion of the Mountaineer AcquisitionNotes due November 1, 2025 and associated fees and expenses and (2) for general corporate purposes.
New borrowings under the 2021 UGI Corporation Senior Credit Facility bear interest subject to our election, at either (1) the associated prime rate plus a margin or (2) an adjusted LIBOR or an alternate benchmark rate plus a margin and are due in their entirety at the maturity date. The applicable margin on the new borrowings, which is dependent upon a ratio of consolidated net indebtedness to consolidated EBITDA, as defined, or UGI’s credit ratings, ranges from 0.125% to 1.50% if the prime rate option is elected and 1.125% to 2.50% if the LIBOR option is elected.
During the nine months ended June 30, 2021, the Company repaid $285 million of borrowings on its five-year $300 million revolving credit facility under the 2021 UGI Corporation Senior Credit Facility. A portion of these repayments were funded by the proceeds from the issuance of Equity Units discussed in Note 8. In July 2021, the Company repaid the remaining $15 million of borrowings outstanding on this revolving credit facility. As a result of this repayment in July, the Company classified these repayments as “Current maturities of long-term debt” on the June 30, 2021 Condensed Consolidated Balance Sheet. The Company intends to draw upon this revolving credit facility concurrent with the closing of the pending Mountaineer Acquisition.
UGI Utilities Senior Notes. On May 7, 2021, UGI Utilities entered into a Note Purchase Agreement which provides for the private placement of (1) $100 million aggregate principal amount of 1.59% Senior Notes due June 15, 2026 and (2) $75 million aggregate principal amount of 1.64% Senior Notes due September 15, 2026. On June 15, 2021, UGI Utilities issued $100 million aggregate principal amount of 1.59% Senior Notes pursuant to the Note Purchase Agreement. The net proceeds from the issuance of the 1.59% Senior Notes were used to repay short-term borrowings. The 1.64% Senior Notes are expected to be issued in September 2021. UGI Utilities expects to use the net proceeds from the issuance of the 1.64% Senior Notes to reduce short-term borrowings and for general corporate purposes.
Issuance of Equity Units. On May 25, 2021, the Company issued 2.2 million Equity Units with a total notional value of $220 million. Each Equity Unit has a stated amount of $100 and consists of 1) a 10% undivided beneficial ownership interest in one share of Convertible Preferred Stock with a liquidation preference of $1,000 per share and 2) a 2024 Purchase Contract. The Company received approximately $213 million in proceeds from the issuance of the Equity Units, net of offering expenses and underwriting costs and commissions, and issued 220,000 shares of Convertible Preferred Stock, recording $213 million in “Preferred stock” on the accompanying Condensed Consolidated Balance Sheet. The proceeds were used to repay borrowings on the Company’s five-year $300 million revolving credit facility under the 2021 UGI Corporation Senior Credit Facility.
UGI CORPORATION AND SUBSIDIARIES
Concurrent with the closingDividends and Repurchases of the pending Mountaineer Acquisition, the Company intends to draw upon this revolving credit facility to pay a portion of the purchase price and related fees and expenses, and for general corporate purposes.
DividendsCommon Stock
On November 18, 2021, UGI’s Board of Directors declared a cash dividend equal to $0.345 per common share. The dividend was paid on January 1, 2022, to shareholders of record on December 15, 2021. On February 2, 2022, UGI’s Board of Directors declared a quarterly dividend of $0.345 per common share. The dividend was paid on April 1, 2022, to shareholders of record on March 15, 2022. On May 5, 2021,4, 2022, UGI’s Board of Directors approved an increase in the quarterly dividend rate on UGI Common Stock to $0.345$0.36 per Common Share,common share, or $1.38$1.44 on an annual basis. The new dividend rate reflects an approximate 4.5%4% increase from the previous quarterly rate of $0.33.$0.345. The new quarterly dividend was paidrate is effective with the dividend payable on July 1, 2021,2022, to shareholders of record on June 15, 2021. 2022.
On August 4, 2021,February 2, 2022, UGI’s Board of Directors declared a quarterly dividendauthorized an extension of $0.345 per common share. The dividend is payable October 1, 2021,an existing share repurchase program for up to shareholders8 million shares of record on September 15, 2021.UGI Corporation Common Stock for an additional four-year period, expiring in February 2026.
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 $1,047$400 million in the 2022 six-month period compared to $646 million in the 2021 nine-month period compared to $963 million in the 2020 nine-monthsix-month period. Cash flow from operating activities before changes in operating working capital was $1,179$960 million in the 2022 six-month period compared to $1,082 million in the 2021 nine-month period compared to $928 million in the 2020 nine-month period.six-month period. The higherlower cash flow from operating activities before changes in working capital reflects, in large part, higher cash flow before changes inlower operating working capital fromresults at AmeriGas Propane and UGI International and Midstream & Marketing attributable to higher earnings contributions as compared to the prior-year period.International. Cash used to fund changes in operating working capital totaled $132$560 million in the 2022 six-month period compared to $436 million in the 2021 nine-month period compared to cash provided of $35 million in the 2020 nine-monthsix-month period. Changes in operating working capital during the 2021 nine-month2022 six-month period reflect, among other things, an increaseincreases in cash requiredused to fund accounts receivable and accounts payable, principally due to increases in commodity prices during the 2022 six-month period. These increases in cash used to fund changes in accounts receivable and inventories due to rising commodity prices during the 2021 nine-month period, net refunds of deferred fuel and power costs compared to net recoveries during the 2020 nine-month period, as well as increases inworking capital were partially offset by cash required to fund changes ininflows associated with income taxes receivable, inventories, other current assets and other current liabilities. These changes were partially offset byAdditionally, the 2022 six-month period includes $138 million of cash generatedcollateral received from changes in accounts payable and higher cash received for commodity derivative instrument collateral deposits in the 2021 nine-month periodcounterparties as compared to $44 million of cash collateral received in the 2020 nine-monthprior-year period. The impact of commodity price volatility and increasing supply chain costs are pervasive throughout these changes in working capital.
Investing Activities. Cash flow used by investing activities was $505 million in the 2021 nine-month period compared to $450 million in the 2020 nine-month period. Investing activity cash flow is principally affected by cash expenditures for property, plant and equipment; cash paid for acquisitions of businesses and assets; investments in investees; and proceeds from sales of assets and businesses. Cash flow used by investing activities was $515 million in the 2022 six-month period compared to $357 million in the 2021 six-month period. Cash expenditures for property, plant and equipment were $460$355 million in the 2022 six-month period compared with $304 million in the 2021 nine-month period compared with $471 million in the 2020 nine-monthsix-month period. Cash used for acquisitions of businesses and assets reflects the Stonehenge Acquisition in the 2022 six-month period and UGI International’s acquisition of an LPG retail business in Europe in the 2021 nine-month period reflects UGI International’s acquisitions of two LPG retail businesses and an energy marketing business in Europe. Cash used for investmentssix-month period. Investments in equity method investeesinvestments in the 2021 nine-monthsix-month period includes contributions toour investment in Pine RunRun. Cash inflows associated with investing activities during the 2022 six-month period includes cash received from the termination of $56 million to funda forward foreign currency contract previously designated at a net investment hedge associated with the acquisition of Pine Run Midstream, LLC.UGI International 3.25% Senior Notes.
Financing Activities. Changes in cash flow from financing activities are primarily due to issuances and repayments of long-term debt; net short-term borrowings/repayments; dividends on UGI Common Stock; issuances of Equity Unitsquarterly payments on outstanding Purchase Contracts; and UGI Common Stock;issuances and repurchases of UGI Common Stock.equity instruments.
Cash flow used to fundprovided by financing activities was $321$25 million in the 2021 nine-month2022 six-month period compared with $501$174 million of cash used in the 2020 nine-month2021 six-month period. During the 2021 nine-month period, the Company received $213 million in net cash proceeds from the issuance of Equity Units. These funds were used during the period to reduce borrowings on the five-year $300 million revolving credit facility under the 2021 UGI Corporation Senior Credit Facility. Also during the 2021 and 2020 nine-month periods, UGI Utilities issued $100 million of senior notes due June 2026 and $150 million of senior notes due April 2050, respectively. The change in cash flows used to fundprovided by financing activities is primarily attributable to lowerthe issuance of UGI International’s 2.50% Senior Notes and concurrent repayment of the UGI International 3.25% Senior Notes during the 2022 six-month period. Additionally, the 2022 six-month period includes net repaymentsborrowings on revolving facility agreements and the Receivables Facility in the 2021 nine-month periodcredit facilities as compared to the 2020 nine-month period. Cash used to fund changes in financing activitiesnet repayments in the 2020 nine-month period includes $38 million of cash paid to repurchase UGI Common Stock.prior-year period.
UGI CORPORATION AND SUBSIDIARIES
UTILITY REGULATORY MATTERS
Base Rate Filings. On January 28, 2022, PA Gas Utility filed a request with the PAPUC to increase its base operating revenues for residential, commercial and industrial customers by $83 million annually. The increased revenues would fund ongoing system improvements and operations necessary to maintain safe and reliable natural gas service and continue to fund programs designed to promote and reward customers’ efforts to increase efficient use of natural gas. PA Gas Utility requested that the new gas rates become effective March 29, 2022. The PAPUC entered an Order on February 24, 2022, suspending the effective date for the rate increase to allow for investigation and public hearings. Unless a settlement is reached sooner, the review process is expected to last up to nine months from the date of filing. The Company cannot predict the timing or the ultimate outcome of the rate case review process.
On February 8, 2021, Electric Utility filed a rate request with the PAPUC to increase its annual base distribution revenues by $9 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 April 9, 2021. The PAPUC entered an Order on March 11,On October 28, 2021, suspending the effective date for the rate increase to allow for investigation and public hearings. On July 19, 2021, a Joint Petition for Approval of Settlement of all issues supported by all active parties was filed with the PAPUC providing for a $6 million annual base distribution rate increase for Electric Utility. The Joint Petition is subject to receipt of a recommended decision by a PAPUC administrative law judge and an order of the PAPUC approving the settlement. Unless the PAPUC issuesissued a final order prior to the end of the statutory suspension period, the initial proposed rate increase will becomeapproving a settlement that permitted Electric Utility, effective on or before November 9, 2021, subject to refund and a subsequent PAPUC order. The Company cannot predict the timing or the ultimate outcome of the rate case review process.increase its base distribution revenues by $6 million.
On January 28, 2020, PA Gas Utility filed a request with the PAPUC to increase its annual base distribution operating revenues by $75 million annually. On October 8, 2020, the PAPUC issued a final Order approving a settlement that permitspermitted PA Gas Utility to increase its annual base distribution rates by $20 million, through a phased approach, with $10 million beginning January 1, 2021 and an additional $10 million beginning July 1, 2021. Additionally, PA Gas Utility was authorized to implement a DSIC once Gas Utility total property, plant and equipment less accumulated depreciation reached $2,875 million. This threshold was achieved in December 2020, and PA Gas Utility implemented a DSIC effective on April 1, 2021. The PAPUC’s final Order also includesincluded enhanced COVID-19 customer assistance measures, including the establishment of an Emergency Relief Program for a defined set of payment troubled customers (“ERP”). Additionally, the PAPUC’s final Order permitsorder permitted PA Gas Utility to establish a regulatory asset for certain incremental expenses attributable to the ongoing COVID-19 pandemic, most notably expenses related to the ERP and uncollectible accounts expense, through the effective date of rates in the next PA Gas Utility base rate case, to be recovered and amortized over a 10-year period. In accordance with the terms of the PAPUC’s final Order,Joint Petition, PA Gas Utility iswas not permitted to file a rate case prior to January 1, 2022.
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 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.
Gas Utility'sUGI Utilities’ tariffs contain clauses that permit recovery of all 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 billed to customers through PGC 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.
In order to manage market price risk relating to substantially all of Midstream & Marketing’s fixed-price sale 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.
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 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.
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.
As previously mentioned in Note 7, on May 4, 2021, UGI entered into the 2021 UGI Corporation Senior Credit Facility, which, as amended, includes a new term loan commitment of up to $215 million. Borrowings on this commitment will bear interest at a rate indexed to short-term market rates. In June 2021, UGI entered into two forward starting, pay-fixed, receive-variable interest rate swap agreements, commencing in January 2022. These swaps generally fix the underlying variable interest rate on $125 million of future borrowings at 0.69% through September 2024. We have designated these interest rate swaps as a cash flow hedges.
UGI CORPORATION AND SUBSIDIARIES
Our variable-rate debt at June 30, 2021,March 31, 2022, includes revolving credit facility borrowings and variable-rate term loans at UGI International, UGI Utilities, Energy Services and UGI Corporation. These debt agreements have interest rates that are generally indexed to short-term market interest rates. We have entered into pay-fixed, receive-variable interest rate swap agreements on all or a significant portion of the term loans’ principal balances and all or a significant portion of the term loans’ tenor. We have designated these interest rate swaps as cash flow hedges. At June 30, 2021,March 31, 2022, combined borrowings outstanding under variable-rate debt agreements, excluding the previously mentioned effectively fixed-rate debt, totaled $262$837 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.
Foreign Currency Exchange Rate Risk
Our primary currency exchange rate risk is associated with the U.S. dollar versus the euro and, to a lesser extent, the U.S. dollar versus the British pound sterling. The U.S. dollar 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.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. dollar would reduce their aggregate net book value at June 30, 2021,March 31, 2022, by approximately $140$170 million, which amount would be reflected in other comprehensive income. We have designated certain euro-denominated borrowings as net investment hedges.
In order to reduce the volatility in net income associated with our foreign operations, principally as a result of changes in the U.S. dollar exchange rate between the euro and British pound sterling, we enter into forward foreign currency exchange contracts. We layer in these foreign currency exchange contracts over a multi-year period to eventually equal approximately 90% of 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. At June 30, 2021, we had received cash collateral from derivative instrument counterparties totaling $105 million. Additionally, our commodity exchange-traded futures contracts generally require cash deposits in margin accounts. At June 30, 2021, restricted cash in brokerage accounts totaled $31 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 March 31, 2022, 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 June 30, 2021.$2,035 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 March 31, 2022, we had received cash collateral from derivative instrument counterparties totaling $603 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 June 30, 2021,March 31, 2022, if the credit-risk-related contingent features were triggered, the amount of collateral required to be posted would not be material.
UGI CORPORATION AND SUBSIDIARIES
The following table summarizes the fair values of unsettled market risk sensitive derivative instrument assets (liabilities) held at June 30, 2021March 31, 2022 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.
| | | Asset (Liability) | | Asset (Liability) |
| (Millions of dollars) | (Millions of dollars) | | Fair Value | | Change in
Fair Value | (Millions of dollars) | | Fair Value | | Change in
Fair Value |
| June 30, 2021 | | | | | |
| March 31, 2022 | | March 31, 2022 | | | | |
| Commodity price risk (1) | Commodity price risk (1) | | $ | 484 | | | $ | (185) | | Commodity price risk (1) | | $ | 1,627 | | | $ | (309) | |
| Interest rate risk (2) | Interest rate risk (2) | | $ | (35) | | | $ | (9) | | Interest rate risk (2) | | $ | 30 | | | $ | (13) | |
| Foreign currency exchange rate risk (3) | Foreign currency exchange rate risk (3) | | $ | 11 | | | $ | (51) | | Foreign currency exchange rate risk (3) | | $ | 33 | | | $ | (32) | |
(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
UGI CORPORATION AND SUBSIDIARIES
(3) Change in fair value represents a 10% adverse change in the value of the Euro and the British pound sterling versus the U.S. dollar.
ITEM 4. 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, were effective at the reasonable assurance level.
(b)Change in Internal Control over Financial Reporting
No
On September 1, 2021, UGI acquired Mountaineer and on June 30, 2021, UGI International acquired Redeo Energies. The Company is currently in the process of integrating the processes and internal controls of Mountaineer and Redeo Energies with the rest of the Company.
Other than the foregoing, 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 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 20202021 Annual Report, which could materially affect our business, financial condition or future results. The risks described below and in our 20202021 Annual Report are not the only risks facing the Company. Other unknown or unpredictable factors could also have material adverse effects on future results.
PaymentThe risk of natural disasters, pandemics and settlementcatastrophic events, including terrorism and military conflict, may adversely affect the economy and the price, volatility and availability of LPG, other refined fuels and natural gas.
Natural disasters, pandemics and catastrophic events, such as fires, earthquakes, explosions, floods, tornadoes, hurricanes, terrorist attacks, military conflict, political unrest and other similar occurrences, may adversely impact the componentsdemand for, price and availability of LPG (including propane), other refined fuels and natural gas, which could adversely impact our financial condition and results of operations, our ability to raise capital and our future growth. The impact that the foregoing may have on our industries in general, and on us in particular, is not known at this time. A natural disaster, pandemic, act of terror, or military conflict could result in disruptions of crude oil or natural gas supplies and markets (the sources of LPG), cause price volatility in the cost of LPG, fuel oil and natural gas, and our infrastructure facilities could be directly or indirectly impacted. Additionally, if our means of supply transportation, such as rail, truck or pipeline, are delayed or temporarily unavailable due to a natural disaster, pandemic, terrorist activity, or military conflict, we may be unable to transport LPG and other refined fuels in a timely manner or at all. A lower level of economic activity could result in a decline in energy consumption, which could adversely affect our revenues or restrict our future growth. Instability in the financial markets as a result of a natural disaster, pandemic, terrorism, or military conflict could also affect our ability to raise capital. We have opted to purchase insurance coverage for natural disasters and terrorist acts within our property and casualty insurance programs, but we can give no assurance that our insurance coverage would be adequate to fully compensate us for any losses to our business or property resulting from natural disasters or terrorist acts.
In February 2022, military conflict escalated between Russia and Ukraine which could adversely impact price, volatility and availability of energy products in parts of our Equity Units mayEuropean market, customer and supplier relationships, and result in substantial dilutionsupply chain issues, heightened economic sanctions, embargoes and regional instability. It is not possible to holdersestimate the impact on our business of our Common Stock.a continued military conflict in Ukraine.
On May 25, 2021, the Company issued 2,200,000 Equity Units generally consisting of Purchase Contracts and Convertible Preferred Stock.Our international operations could be subject to increased risks, which may These underlying components ofnegatively affect our Equity Units could have significant negative consequences for our security holders by, among other things, diluting the interests of our existing stockholders as a result of issuing shares of our Common Stock. The Purchase Contracts will be settled in shares of our Common Stock, which will result in dilution to our common stockholders. The Convertible Preferred Stock may also be settled in shares of our Common Stock. Additionally, we may elect to pay contract adjustment payments on the Purchase Contracts, and dividends on the Convertible Preferred Stock, in shares of our Common Stock. Any such issuances of our Common Stock would dilute the interests of our existing stockholders.business results.
Our information technology systemsWe operate LPG distribution and thoseenergy marketing businesses in Europe through our subsidiaries and we continue to explore the expansion of our third-party vendors or service providers have been the target of cyber-security attacksinternational businesses. As a result, we face risks in the past. Ifconducting business abroad that we are unable to protectdo not face domestically. Certain aspects inherent in transacting business internationally could negatively impact our information technology systems against future service interruption, misappropriation of data, or breaches of security resulting from cyber-security attacks or other events, or if we encounter other unforeseen difficulties in the design, implementation or operation of our information technology systems, or if our third-party vendors or service providers experience compromises to their information technology systems, our operations could be disrupted, our business and reputation may suffer, and our internal controls could be adversely affected.operating results, including:
In•costs and difficulties in staffing and managing international operations;
•potentially adverse tax consequences, including restrictions on repatriating earnings, the ordinary coursethreat of business, we rely on information technology systems,“double taxation,” and potential increases to corporate income taxes (including the proposed OECD framework that aims to reform international taxation rules with the goal of ensuring that multinational corporations pay adequate taxes in the jurisdictions in which they operate and other similar proposals);
•fluctuations in currency exchange rates, particularly the euro, which can affect demand for our products, increase our costs and adversely affect our profitability and reported results;
•new or revised regulatory requirements, including European competition laws that may adversely affect the Internet and third-party hosted services, to support a varietyterms of business processes and activities and to store sensitive data,contracts with customers, including (i) intellectual property, (ii) our proprietary business information and that of our suppliers and business partners, (iii) personally identifiable information of our customers and employees, and (iv) data with respect to invoicingexclusive supply rights, and stricter regulations applicable to the collectionstorage and handling of payments, accounting, procurement,LPG;
•economic and supply chain activities. political uncertainty relating to the United Kingdom’s withdrawal from the EU, commonly known as “Brexit,” which may result in, among other things, increased regulatory costs and challenges, greater volatility in the British pound sterling and euro, business disruptions and increased tariffs;
•In addition, we relynew and inconsistently enforced industry regulatory requirements, which can have an adverse effect on our information technology systems to process financial informationcompetitive position;
•tariffs and resultsother trade barriers;
•difficulties in enforcing contractual rights;
•longer payment cycles;
•local political and economic conditions as well as geopolitical conditions that could cause instability and adversely impact the global economy or specific markets, such as the military conflict between Russia and Ukraine; and
UGI CORPORATION AND SUBSIDIARIES
•potential violations of federal regulatory requirements, including anti-bribery, anti-corruption, and to comply with financial reporting, legal,anti-money laundering law, economic sanctions, the Foreign Corrupt Practices Act of 1977, as amended, and tax requirements.EU regulatory requirements, including the GDPR and Sapin II.
Cyber-security incidents have recently increasedIn particular, certain legal and regulatory risks are associated with international business operations. We are subject to various anti-corruption, economic sanctions and trade compliance laws, rules and regulations. For example, the U.S. government imposes restrictions and prohibitions on transactions in both frequencycertain foreign countries, including restrictions directed at oil and magnitudegas activities in Russia. U.S. laws also prohibit the improper offer, payment, promise to pay, or authorization of the payment of money or anything of value to any foreign official or political party, or to any person, knowing that all or a portion of it will be used to influence a foreign official in his or her official duties or to secure an improper advantage. Ensuring compliance with all relevant laws, rules and have involved malicious software and attemptsregulations is a complex task. Violation of one or more of these laws, rules or regulations could lead to gain unauthorized access to data and systems, including ransomware attacks where a target’s access to its information systems is blocked until a ransom has been paid. Despite our security measures, our technologies, systems, and networks have been and may continue to be the target of cyber-security attacks or information security breaches that could result in the unauthorized release, misuse, loss or destruction of proprietary and other information, or other disruption of our business operations.Similarly, our third-party vendors or service providers have been impacted by cyber-security incidents and could sustain the same risks and disruptions as described above. A loss of import or export privileges, civil or criminal penalties for us or our information technology systems,employees, or temporary interruptions in the operation of our information technology systems, or those of our third-party vendors or service providers, or any other misappropriation of data, or breaches of securitypotential reputational harm, which could have a material adverse impact on earnings, cash flows and financial condition.
Changes in and volatility of commodity market prices may have a significant negative effect on our business, financial condition, results of operations,liquidity and reputation. In addition, a cyber-security attack could provide a cyber-intruder with the ability to control or alter our pipeline operations. Such an act could result in critical pipeline failures.operating results.
The efficient executionDepending on the terms of our contracts with suppliers as well as our use of financial instruments to reduce volatility in the Company’s businessescost of LPG and natural gas, changes in the market price of LPG and natural gas can create margin payment obligations for us and expose us to increased liquidity risk. In addition, increased demand for domestically produced LPG and natural gas overseas may, depending on production volumes in the U.S., result in higher domestic prices and expose us to additional liquidity risks.
It is dependent upondifficult to predict future commodity costs and our hedging program includes inherent assumptions about consumption and pricing. As a result, there is risk that actual consumption and pricing may be different than contemplated by the proper design, implementationprogram and, functioning of its current and future internal systems, such as the information technology systemsfurther, that support the Company’s underlying business processes. Any significant failuresharp increases in commodity prices, particularly when coupled with rapid or malfunction of such information technology systemsunexpected increases in customer consumption, may result in disruptionsa risk of our operations. In addition, the effectiveness of our internal controls could be adversely affected if we encountersignificant unforeseen problems with respect to the operation of our information technology systems.
costs in performing fixed price and full requirement contracts. While we haveemploy an active and robust hedging program, any shortfalls resulting from the risks associated with fixed price and full requirement programs will reduce our overall profitability. During Fiscal 2022, our UGI International energy marketing margins were negatively impacted by significant increases and unprecedented volatility in natural gas commodity prices exacerbated by higher-than-anticipated volumes purchased cyber-security insurance, there are no assurances that the coverage would be adequate in relation to any incurred losses.Moreover, as cyber incidents increase in frequencyby certain customers under fixed price and magnitude, we may be unable to obtain cyber-security insurance in amounts and on terms we view as adequate for our operations, including the agreement to certain indemnification provisions by our insurance providers.
UGI CORPORATION AND SUBSIDIARIES
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
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Exhibit
No. | | Exhibit | | Registrant | | Filing | | Exhibit |
| | | | | | | | |
| 3.1 | | | | UGI | | Form 8-K
(5/25/21) | | 3.1 |
| | | | | | (5/25/21) | | |
| 3.2 | | | | UGI | | Form 8-K
(5/25/21) | | 3.2 |
| | | | | | | | |
| 4.1 | | | | UGI | | Form 8-K
(5/4/21) | | 4.1 |
| | | | | | | | |
| 4.2 | | | | UGI | | Form 8-K
(5/25/21) | | 4.1 |
| | | | | | | | |
| 4.3 | | | | UGI | | Form 8-K
(5/25/21) | | 4.2 |
| | | | | | | | |
| 4.4 | | | | UGI | | Form 8-K
(5/25/21) | | 4.3 |
| | | | | | | | |
| 4.5 | | | | UGI | | Form 8-K
(5/25/21) | | 4.4 |
| | | | | | | | |
| 4.6 | | | | UGI | | Form 8-K
(5/25/21) | | 4.5 |
| | | | | | | | |
| 4.7 | | | | UGI | | Form 8-K
(5/25/21) | | 4.6 |
| | | | | | | | |
| 10.1 | | | | | | | | |
| | | | | | | | |
| 10.2 | | | | | | | | |
| | | | | | | | |
| 10.3 | | | | | | | | |
| | | | | | | | |
| 10.4 | | | | | | | | |
| | | | | | | | |
| 10.5 | | | | | | | | |
| | | | | | | | |
| 10.6 | | | | | | | | |
| | | | | | | | |
| 10.7 | | Amended and Restated Credit Agreement, dated as of May 4, 2021, by and among UGI Corporation and JPMorgan Chase Bank, N.A., as administrative agent, Citizens Bank, N.A., PNC Bank, National Association and Wells Fargo Bank, National Association, as co-documentation agents, and the other financial institutions from time to time party thereto. | | UGI | | Form 8-K
(5/4/21) | | 10.1 |
| | | | | | | | |
UGI CORPORATION AND SUBSIDIARIES
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Exhibit
No. | | Exhibit | | Registrant | | Filing | | Exhibit |
| | | | | | | | |
| 31.1 | | | | | | | | |
| | | | | | | | |
| 31.2 | | | | | | | | |
| | | | | | | | |
| 32 | | | | | | | | |
| | | | | | | | |
| 101.INS | | XBRL Instance - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | | | | | | |
| | | | | | | | |
| 101.SCH | | XBRL Taxonomy Extension Schema | | | | | | |
| | | | | | | | |
| 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase | | | | | | |
| | | | | | | | |
| 101.DEF | | XBRL Taxonomy Extension Definition Linkbase | | | | | | |
| | | | | | | | |
| 101.LAB | | XBRL Taxonomy Extension Labels Linkbase | | | | | | |
| | | | | | | | |
| 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase | | | | | | |
| 104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | | | | | | |
| | | | | | | | |
UGI CORPORATION AND SUBSIDIARIES
EXHIBIT INDEX
| | | | | | | | |
| | |
| | |
10.1 | | |
| | |
10.2 | | |
| | |
10.3 | | |
| | |
10.4 | | |
| | |
10.5 | | |
| | |
10.6 | | |
| | |
| 31.1 | | |
| | |
| 31.2 | | |
| | |
| 32 | | |
| | |
| 101.INS | | XBRL Instance - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
| | |
| 101.SCH | | XBRL Taxonomy Extension Schema |
| | |
| 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase |
| | |
| 101.DEF | | XBRL Taxonomy Extension Definition Linkbase |
| | |
| 101.LAB | | XBRL Taxonomy Extension Labels Linkbase |
| | |
| 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase |
| 104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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.
| | | | | | | | | | | |
| | UGI Corporation |
| | (Registrant) |
| | | |
| Date: | AugustMay 5, 20212022 | By: | /s/ Ted J. Jastrzebski |
| | | Ted J. Jastrzebski |
| | | Chief Financial Officer (Principal Financial Officer) |
| | | |
| | | |
| Date: | May 5, 2022 | By: | /s/ Jean Felix Tematio Dontsop |
| | | Jean Felix Tematio Dontsop |
| | | Vice President, Chief Accounting Officer |
| | | and Corporate Controller |