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 MarchDecember 31, 2021
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 April 30, 2021,January 31, 2022, there were 208,702,316209,804,302 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”
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 UtilitiesWV Gas Utility
General Partner - AmeriGas Propane, Inc., the general partner of AmeriGas Partners
GHI - GHI Energy, LLC, which was acquired bya Houston-based renewable natural gas 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 - Pennant Midstream, LLC, a Delaware limited liability corporation
PennEast - PennEast Pipeline Company, LLC
Pine Run - Pine Run Gathering, LLC
Stonehenge - Stonehenge Appalachia, LLC, a midstream natural gas gathering business, which includes 47 miles of pipeline and associated compression assets
UGI - UGI Corporation or, collectively, UGI Corporation and its consolidated subsidiaries
UGI Appalachia - UGI Appalachia, LLC, a wholly owned subsidiary of Energy Services
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
2020 three-month period -Three months ended December 31, 2020
2021 Annual Report - UGI Annual Report on Form 10-K for the fiscal year ended September 30, 2020
2020 six-month period -Six months ended March 31, 2020
2020 three-month period -Three months ended March 31, 2020
2021 six-month period -Six months ended March 31, 2021
2021 three-month period - Three months ended MarchDecember 31, 2021
20212024 Purchase Contract - A forward stock purchase contract issued by UGI Corporation Senior Credit Facility - An amended unsecured senior facilities agreement entered into on May 4, 2021, by UGI which extended the maturity dateas a part of the previous three-year $300 million term loan facility included inissuance of Equity Units which obligates holders to purchase a number of shares of UGI common stock from the UGI Corporation Senior Credit Facility, now due in May 2025 and includes a new four-year $300 million term loan commitment
AFUDC - Allowance for Funds Used During ConstructionCompany on June 1, 2024
AOCI - Accumulated Other Comprehensive Income (Loss)
ASC - Accounting Standards Codification
ASC 606 - ASC 606, “Revenue from Contracts with Customers”
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,Preferred stock of UGI titled 0.125% series A cumulative perpetual convertible preferred stock without par value and having a 1,711-megawatt, coal-fired electricity generation station located near Johnstown, Pennsylvania
COVID-19 - A novel strain of coronavirus disease discovered in 2019
DS - Default service
DSIC - Distribution System Improvement Charge
Eighth Circuit - United States Court of Appeals for the Eighth Circuit
Energy Services Credit Agreement - Third 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 up to $50 million, scheduled to expire in March 2025
DSICEquity Unit Agreements - - Distribution System Improvement ChargeCollection 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
EBITDA - Earnings before interest, taxes, depreciation, and amortization
Eighth CircuitEquity Unit - United States CourtA corporate unit consisting of Appeals for the Eighth Circuita 2024 Purchase Contract and 1/10th 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
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
Stonehenge -Acquisition - Acquisition of Stonehenge Energy Resources III,Appalachia, LLC, a portfolio company of Energy Spectrum Partners VIII, L.P.
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 2.50% Senior Notes - An underwritten private placement of €400 million principal amount of senior unsecured notes due December 1, 2029, issued by UGI International, LLC
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
USD - U.S. dollar
Western Missouri District Court - The United States District Court for the Western District of Missouri
WHO - World Health Organization
WVPSC - 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)
| | | March 31,
2021 | | September 30,
2020 | | March 31,
2020 | | December 31,
2021 | | September 30,
2021 | | December 31,
2020 |
| ASSETS | ASSETS | | | | | | | ASSETS | | | | | | |
| Current assets: | Current assets: | | Current assets: | |
| Cash and cash equivalents | Cash and cash equivalents | | $ | 444 | | | $ | 336 | | | $ | 297 | | Cash and cash equivalents | | $ | 334 | | | $ | 855 | | | $ | 416 | |
| Restricted cash | Restricted cash | | 28 | | | 21 | | | 104 | | Restricted cash | | 24 | | | 22 | | | 30 | |
| Accounts receivable (less allowances for doubtful accounts of $52, $42 and $39, respectively) | | 1,183 | | | 652 | | | 1,016 | | |
| Accounts receivable (less allowances for doubtful accounts of $57, $53 and $46, respectively) | | Accounts receivable (less allowances for doubtful accounts of $57, $53 and $46, respectively) | | 1,461 | | | 880 | | | 1,030 | |
| Accrued utility revenues | Accrued utility revenues | | 32 | | | 14 | | | 39 | | Accrued utility revenues | | 95 | | | 15 | | | 61 | |
| Income taxes receivable | Income taxes receivable | | 127 | | | 80 | | | 0 | | Income taxes receivable | | 128 | | | 128 | | | 85 | |
| Inventories | Inventories | | 268 | | | 241 | | | 180 | | Inventories | | 548 | | | 469 | | | 279 | |
| | Derivative instruments | Derivative instruments | | 127 | | | 44 | | | 38 | | Derivative instruments | | 578 | | | 665 | | | 94 | |
| | Prepaid expenses and other current assets | Prepaid expenses and other current assets | | 175 | | | 155 | | | 204 | | Prepaid expenses and other current assets | | 263 | | | 236 | | | 185 | |
| Total current assets | Total current assets | | 2,384 | | | 1,543 | | | 1,878 | | Total current assets | | 3,431 | | | 3,270 | | | 2,180 | |
| Property, plant and equipment, (less accumulated depreciation of $3,869, $3,698 and $3,555, respectively) | | 7,020 | | | 6,960 | | | 6,805 | | |
| Property, plant and equipment, (less accumulated depreciation of $4,047, $3,950 and $3,822, respectively) | | Property, plant and equipment, (less accumulated depreciation of $4,047, $3,950 and $3,822, respectively) | | 7,597 | | | 7,558 | | | 7,054 | |
| Goodwill | Goodwill | | 3,524 | | | 3,518 | | | 3,466 | | Goodwill | | 3,748 | | | 3,770 | | | 3,564 | |
| Intangible assets, net | Intangible assets, net | | 640 | | | 677 | | | 688 | | Intangible assets, net | | 565 | | | 583 | | | 667 | |
| Utility regulatory assets | Utility regulatory assets | | 392 | | | 395 | | | 387 | | Utility regulatory assets | | 372 | | | 373 | | | 392 | |
| Derivative instruments | Derivative instruments | | 61 | | | 38 | | | 43 | | Derivative instruments | | 257 | | | 338 | | | 37 | |
| | Other assets | Other assets | | 924 | | | 854 | | | 869 | | Other assets | | 830 | | | 831 | | | 831 | |
| Total assets | Total assets | | $ | 14,945 | | | $ | 13,985 | | | $ | 14,136 | | Total assets | | $ | 16,800 | | | $ | 16,723 | | | $ | 14,725 | |
| 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 | | $ | 51 | | | $ | 53 | | | $ | 27 | | Current maturities of long-term debt | | $ | 123 | | | $ | 110 | | | $ | 21 | |
| | Short-term borrowings | Short-term borrowings | | 340 | | | 347 | | | 654 | | Short-term borrowings | | 579 | | | 367 | | | 568 | |
| Accounts payable | Accounts payable | | 627 | | | 475 | | | 465 | | Accounts payable | | 973 | | | 837 | | | 637 | |
| | Derivative instruments | Derivative instruments | | 42 | | | 64 | | | 185 | | Derivative instruments | | 53 | | | 60 | | | 43 | |
| Other current liabilities | Other current liabilities | | 832 | | | 816 | | | 785 | | Other current liabilities | | 853 | | | 923 | | | 828 | |
| Total current liabilities | Total current liabilities | | 1,892 | | | 1,755 | | | 2,116 | | Total current liabilities | | 2,581 | | | 2,297 | | | 2,097 | |
| Long-term debt | Long-term debt | | 5,953 | | | 5,981 | | | 5,800 | | Long-term debt | | 6,416 | | | 6,339 | | | 6,012 | |
| | Deferred income taxes | Deferred income taxes | | 833 | | | 640 | | | 580 | | Deferred income taxes | | 1,060 | | | 1,137 | | | 693 | |
| | Derivative instruments | Derivative instruments | | 46 | | | 59 | | | 106 | | Derivative instruments | | 33 | | | 38 | | | 56 | |
| Other noncurrent liabilities | Other noncurrent liabilities | | 1,393 | | | 1,413 | | | 1,444 | | Other noncurrent liabilities | | 1,351 | | | 1,381 | | | 1,421 | |
| Total liabilities | Total liabilities | | 10,117 | | | 9,848 | | | 10,046 | | Total liabilities | | 11,441 | | | 11,192 | | | 10,279 | |
| Commitments and contingencies (Note 8) | | 0 | | 0 | | 0 | |
| Commitments and contingencies (Note 9) | | Commitments and contingencies (Note 9) | | 0 | | 0 | | 0 |
| Equity: | Equity: | | Equity: | |
| UGI Corporation stockholders’ equity: | UGI Corporation stockholders’ equity: | | UGI Corporation stockholders’ equity: | |
| UGI Common Stock, without par value (authorized — 450,000,000 shares; issued — 209,636,619, 209,514,044 and 209,439,475 shares, respectively) | | 1,428 | | | 1,416 | | | 1,409 | | |
| 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) | | 214 | | | 213 | | | — | |
| UGI Common Stock, without par value (authorized — 450,000,000 shares; issued — 210,045,726, 209,843,296 and 209,545,847 shares, respectively) | | UGI Common Stock, without par value (authorized — 450,000,000 shares; issued — 210,045,726, 209,843,296 and 209,545,847 shares, respectively) | | 1,402 | | | 1,394 | | | 1,419 | |
| Retained earnings | Retained earnings | | 3,557 | | | 2,908 | | | 2,953 | | Retained earnings | | 3,908 | | | 4,081 | | | 3,139 | |
| Accumulated other comprehensive loss | Accumulated other comprehensive loss | | (126) | | | (147) | | | (230) | | Accumulated other comprehensive loss | | (156) | | | (140) | | | (79) | |
| Treasury stock, at cost | Treasury stock, at cost | | (40) | | | (49) | | | (51) | | Treasury stock, at cost | | (19) | | | (26) | | | (42) | |
| Total UGI Corporation stockholders’ equity | Total UGI Corporation stockholders’ equity | | 4,819 | | | 4,128 | | | 4,081 | | Total UGI Corporation stockholders’ equity | | 5,349 | | | 5,522 | | | 4,437 | |
| Noncontrolling interests | Noncontrolling interests | | 9 | | | 9 | | | 9 | | Noncontrolling interests | | 10 | | | 9 | | | 9 | |
| Total equity | Total equity | | 4,828 | | | 4,137 | | | 4,090 | | Total equity | | 5,359 | | | 5,531 | | | 4,446 | |
| Total liabilities and equity | Total liabilities and equity | | $ | 14,945 | | | $ | 13,985 | | | $ | 14,136 | | Total liabilities and equity | | $ | 16,800 | | | $ | 16,723 | | | $ | 14,725 | |
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
March 31, | | Six Months Ended
March 31, | | | Three Months Ended
December 31, |
| | | | 2021 | | 2020 | | 2021 | | 2020 | | | | 2021 | | 2020 |
| Revenues | Revenues | | $ | 2,581 | | | $ | 2,229 | | | $ | 4,513 | | | $ | 4,236 | | Revenues | | | $ | 2,673 | | | $ | 1,932 | |
| 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) | | 1,274 | | | 1,248 | | | 2,107 | | | 2,256 | | Cost of sales (excluding depreciation and amortization shown below) | | | 2,120 | | | 833 | |
| Operating and administrative expenses | Operating and administrative expenses | | 515 | | | 504 | | | 1,004 | | | 1,015 | | Operating and administrative expenses | | | 514 | | | 489 | |
| | Depreciation and amortization | Depreciation and amortization | | 126 | | | 121 | | | 250 | | | 240 | | Depreciation and amortization | | | 129 | | | 124 | |
| | Other operating income, net | Other operating income, net | | (5) | | | (6) | | | (21) | | | (14) | | Other operating income, net | | | (22) | | | (16) | |
| | 1,910 | | | 1,867 | | | 3,340 | | | 3,497 | | | | 2,741 | | | 1,430 | |
| Operating income | | 671 | | | 362 | | | 1,173 | | | 739 | | |
| Operating (loss) income | | Operating (loss) income | | | (68) | | | 502 | |
| Income from equity investees | Income from equity investees | | 10 | | | 8 | | | 17 | | | 15 | | Income from equity investees | | | 8 | | | 7 | |
| | Loss on extinguishment of debt | | Loss on extinguishment of debt | | | (11) | | | — | |
| | Other non-operating income (expense), net | Other non-operating income (expense), net | | 18 | | | 12 | | | (1) | | | 0 | | Other non-operating income (expense), net | | | 10 | | | (19) | |
| Interest expense | Interest expense | | (78) | | | (83) | | | (156) | | | (167) | | Interest expense | | | (81) | | | (78) | |
| Income before income taxes | | 621 | | | 299 | | | 1,033 | | | 587 | | |
| Income tax expense | | (132) | | | (73) | | | (241) | | | (149) | | |
| | Net income attributable to UGI Corporation | | $ | 489 | | | $ | 226 | | | $ | 792 | | | $ | 438 | | |
| Earnings per common share attributable to UGI Corporation stockholders: | | | | | | | | | |
| (Loss) income before income taxes | | (Loss) income before income taxes | | | (142) | | | 412 | |
| Income tax benefit (expense) | | Income tax benefit (expense) | | | 46 | | | (109) | |
| Net (loss) income including noncontrolling interests | | Net (loss) income including noncontrolling interests | | | (96) | | | 303 | |
| Deduct net income attributable to noncontrolling interests | | Deduct net income attributable to noncontrolling interests | | | (1) | | | — | |
| Net (loss) income attributable to UGI Corporation | | Net (loss) income attributable to UGI Corporation | | | $ | (97) | | | $ | 303 | |
| (Loss) earnings per common share attributable to UGI Corporation stockholders: | | (Loss) earnings per common share attributable to UGI Corporation stockholders: | | | | | |
| Basic | Basic | | $ | 2.34 | | | $ | 1.08 | | | $ | 3.79 | | | $ | 2.09 | | Basic | | | $ | (0.46) | | | $ | 1.45 | |
| Diluted | Diluted | | $ | 2.33 | | | $ | 1.07 | | | $ | 3.77 | | | $ | 2.08 | | Diluted | | | $ | (0.46) | | | $ | 1.44 | |
| Weighted-average common shares outstanding (thousands): | Weighted-average common shares outstanding (thousands): | | | | | | | | | Weighted-average common shares outstanding (thousands): | | | | | |
| Basic | Basic | | 208,930 | | | 208,941 | | | 208,849 | | | 209,151 | | Basic | | | 209,673 | | | 208,774 | |
| Diluted | Diluted | | 210,092 | | | 209,808 | | | 209,863 | | | 210,494 | | Diluted | | | 209,673 | | | 209,640 | |
|
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
March 31, | | Six Months Ended
March 31, |
| | 2021 | | 2020 | | 2021 | | 2020 |
| Net income attributable to UGI Corporation | $ | 489 | | | $ | 226 | | | $ | 792 | | | $ | 438 | |
| Other comprehensive income (loss): | | | | | | | |
| Net gains (losses) on derivative instruments (net of tax of $(2), $14, $(2) and $12, respectively) | 4 | | | (36) | | | 4 | | | (30) | |
| Reclassifications of net losses on derivative instruments (net of tax of $(2), $(1), $(4) and $(1), respectively) | 4 | | | 0 | | | 9 | | | 1 | |
| Foreign currency adjustments (net of tax of $(10), $(7), $2 and $0, respectively) | (56) | | | (33) | | | 7 | | | 14 | |
| Benefit plans (net of tax of $0, $(1), $0 and $(1), respectively) | 1 | | | 2 | | | 1 | | | 2 | |
| Other comprehensive (loss) income | (47) | | | (67) | | | 21 | | | (13) | |
| | | | | | | |
| | | | | | | |
| Comprehensive income attributable to UGI Corporation | $ | 442 | | | $ | 159 | | | $ | 813 | | | $ | 425 | |
| | | | | | | | | | | | | | | | | |
| | | Three Months Ended
December 31, |
| | | | | | 2021 | | 2020 |
| Net (loss) income including noncontrolling interests | | | | | $ | (96) | | | $ | 303 | |
| Other comprehensive income (loss): | | | | | | | |
| Net gains on derivative instruments (net of tax of $(2) and $0, respectively) | | | | | 10 | | | — | |
| Reclassifications of net losses on derivative instruments (net of tax of $(2) and $(2), respectively) | | | | | 4 | | | 5 | |
| Foreign currency adjustments (net of tax of $(4) and $12, respectively) | | | | | (32) | | | 63 | |
| Benefit plans (net of tax of $(1) and $0, respectively) | | | | | 2 | | | — | |
| Other comprehensive (loss) income | | | | | (16) | | | 68 | |
| Comprehensive (loss) income including noncontrolling interests | | | | | (112) | | | 371 | |
| Deduct comprehensive income attributable to noncontrolling interests | | | | | (1) | | | — | |
| Comprehensive (loss) income attributable to UGI Corporation | | | | | $ | (113) | | | $ | 371 | |
See accompanying notes to condensed consolidated financial statements.
UGI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(Millions of dollars)
| | | Six Months Ended
March 31, | | Three Months Ended
December 31, |
| | | | 2021 | | 2020 | | | 2021 | | 2020 |
| CASH FLOWS FROM OPERATING ACTIVITIES | CASH FLOWS FROM OPERATING ACTIVITIES | | | | | CASH FLOWS FROM OPERATING ACTIVITIES | | | | |
| Net income attributable to UGI Corporation | | $ | 792 | | | $ | 438 | | |
| Adjustments to reconcile net income attributable to UGI Corporation to net cash provided by operating activities: | | |
| Net (loss) income including noncontrolling interest | | Net (loss) income including noncontrolling interest | | $ | (96) | | | $ | 303 | |
| Adjustments to reconcile net (loss) income including noncontrolling interests to net cash (used) provided by operating activities: | | Adjustments to reconcile net (loss) income including noncontrolling interests to net cash (used) provided by operating activities: | |
| Depreciation and amortization | Depreciation and amortization | | 250 | | | 240 | | Depreciation and amortization | | 129 | | | 124 | |
| Deferred income tax expense (benefit), net | | 191 | | | (25) | | |
| Deferred income tax (benefit) expense, net | | Deferred income tax (benefit) expense, net | | (82) | | | 25 | |
| Provision for uncollectible accounts | Provision for uncollectible accounts | | 19 | | | 20 | | Provision for uncollectible accounts | | 12 | | | 8 | |
| | Changes in unrealized gains and losses on derivative instruments | Changes in unrealized gains and losses on derivative instruments | | (185) | | | 155 | | Changes in unrealized gains and losses on derivative instruments | | 397 | | | (96) | |
| | Loss on extinguishment of debt | | Loss on extinguishment of debt | | 11 | | | — | |
| Income from equity investees | Income from equity investees | | (17) | | | (15) | | Income from equity investees | | (8) | | | (7) | |
| | Other, net | Other, net | | 32 | | | (10) | | Other, net | | (33) | | | 12 | |
| Net change in: | Net change in: | | Net change in: | |
| Accounts receivable and accrued utility revenues | Accounts receivable and accrued utility revenues | | (573) | | | (436) | | Accounts receivable and accrued utility revenues | | (685) | | | (415) | |
| Income taxes receivable | | (47) | | | 0 | | |
| | Inventories | Inventories | | (27) | | | 49 | | Inventories | | (81) | | | (34) | |
| Utility deferred fuel and power costs, net of changes in unsettled derivatives | Utility deferred fuel and power costs, net of changes in unsettled derivatives | | (6) | | | 7 | | Utility deferred fuel and power costs, net of changes in unsettled derivatives | | (22) | | | 4 | |
| Accounts payable | Accounts payable | | 181 | | | 61 | | Accounts payable | | 154 | | | 187 | |
| Derivative instruments collateral deposits received (paid) | | 44 | | | (29) | | |
| Derivative instruments collateral deposits (paid) received | | Derivative instruments collateral deposits (paid) received | | (260) | | | 13 | |
| Other current assets | Other current assets | | (29) | | | (3) | | Other current assets | | 12 | | | (43) | |
| Other current liabilities | Other current liabilities | | 21 | | | 110 | | Other current liabilities | | (42) | | | 70 | |
| Net cash provided by operating activities | | 646 | | | 562 | | |
| Net cash (used) provided by operating activities | | Net cash (used) provided by operating activities | | (594) | | | 151 | |
| 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 | | (304) | | | (342) | | Expenditures for property, plant and equipment | | (186) | | | (187) | |
| Acquisitions of businesses and assets, net of cash and restricted cash acquired | Acquisitions of businesses and assets, net of cash and restricted cash acquired | | (12) | | | 0 | | Acquisitions of businesses and assets, net of cash and restricted cash acquired | | — | | | (12) | |
| Investments in equity method investees | | (61) | | | (1) | | |
| | Other, net | Other, net | | 20 | | | 16 | | Other, net | | 32 | | | 10 | |
| Net cash used by investing activities | Net cash used by investing activities | | (357) | | | (327) | | Net cash used by investing activities | | (154) | | | (189) | |
| 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 | | (138) | | | (136) | | Dividends on UGI Common Stock | | (72) | | | (69) | |
| | Issuances of long-term debt, net of issuance costs | Issuances of long-term debt, net of issuance costs | | 30 | | | 30 | | Issuances of long-term debt, net of issuance costs | | 614 | | | — | |
| Repayments of long-term debt and finance leases | | (65) | | | (60) | | |
| Decrease in short-term borrowings | | (5) | | | (139) | | |
| Receivables Facility net repayments | | (2) | | | (4) | | |
| Repayments of long-term debt and finance leases, including redemption premiums | | Repayments of long-term debt and finance leases, including redemption premiums | | (524) | | | (36) | |
| Increase in short-term borrowings | | Increase in short-term borrowings | | 212 | | | 165 | |
| Receivables Facility net borrowings | | Receivables Facility net borrowings | | — | | | 56 | |
| | Payments on Purchase Contracts | | Payments on Purchase Contracts | | (4) | | | — | |
| Issuances of UGI Common Stock | Issuances of UGI Common Stock | | 6 | | | 1 | | Issuances of UGI Common Stock | | 8 | | | 4 | |
| Repurchases of UGI Common Stock | | 0 | | | (38) | | |
| | Other, net | | 0 | | | (2) | | |
| Net cash used by financing activities | | (174) | | | (348) | | |
| | Net cash provided by financing activities | | Net cash provided by financing activities | | 234 | | | 120 | |
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | Effect of exchange rate changes on cash, cash equivalents and restricted cash | | 0 | | | 3 | | Effect of exchange rate changes on cash, cash equivalents and restricted cash | | (5) | | | 7 | |
| Cash, cash equivalents and restricted cash increase (decrease) | | $ | 115 | | | $ | (110) | | |
| Cash, cash equivalents and restricted cash (decrease) increase | | Cash, cash equivalents and restricted cash (decrease) increase | | $ | (519) | | | $ | 89 | |
| 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 | | $ | 472 | | | $ | 401 | | Cash, cash equivalents and restricted cash at end of period | | $ | 358 | | | $ | 446 | |
| 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 (decrease) | | $ | 115 | | | $ | (110) | | |
| Cash, cash equivalents and restricted cash (decrease) increase | | Cash, cash equivalents and restricted cash (decrease) increase | | $ | (519) | | | $ | 89 | |
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
March 31, | | Six Months Ended
March 31, | | | | Three Months Ended
December 31, |
| | | 2021 | | 2020 | | 2021 | | 2020 | | | | 2021 | | 2020 |
| Preferred stock, without par value | | Preferred stock, without par value | | | | | |
| Balance, beginning of period | | Balance, beginning of period | | | $ | 213 | | | $ | — | |
| Other | | Other | | | 1 | | | — | |
| Balance, end of period | | Balance, end of period | | | $ | 214 | | | $ | — | |
| Common stock, without par value | Common stock, without par value | | | | | | | | Common stock, without par value | | | | | |
| Balance, beginning of period | Balance, beginning of period | $ | 1,419 | | | $ | 1,398 | | | $ | 1,416 | | | $ | 1,397 | | Balance, beginning of period | | | $ | 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 | 2 | | | 2 | | | 3 | | | 2 | | Common Stock issued in connection with employee and director plans, net of tax withheld | | | 5 | | | 1 | |
| | Equity-based compensation expense | Equity-based compensation expense | 7 | | | 9 | | | 9 | | | 11 | | Equity-based compensation expense | | | 3 | | | 2 | |
| Other | — | | | — | | | — | | | (1) | | |
| | Balance, end of period | Balance, end of period | $ | 1,428 | | | $ | 1,409 | | | $ | 1,428 | | | $ | 1,409 | | Balance, end of period | | | $ | 1,402 | | | $ | 1,419 | |
| Retained earnings | Retained earnings | | | | | | | | Retained earnings | | | | | |
| Balance, beginning of period | Balance, beginning of period | $ | 3,139 | | | $ | 2,798 | | | $ | 2,908 | | | $ | 2,653 | | Balance, beginning of period | | | $ | 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 | | | (4) | | | (3) | |
| Net (loss) income attributable to UGI Corporation | | Net (loss) income attributable to UGI Corporation | | | (97) | | | 303 | |
| Cash dividends on UGI Common Stock ($0.345, and $0.330, respectively) | | Cash dividends on UGI Common Stock ($0.345, and $0.330, respectively) | | | (72) | | | (69) | |
| | Losses on common stock transactions in connection with employee and director plans | (2) | | | (3) | | | (5) | | | (3) | | |
| Net income attributable to UGI Corporation | 489 | | | 226 | | | 792 | | | 438 | | |
| Cash dividends on UGI Common Stock ($0.33, $0.325, $0.66, and $0.650, respectively) | (69) | | | (68) | | | (138) | | | (136) | | |
| Other | — | | | — | | | — | | | 1 | | |
| Balance, end of period | Balance, end of period | $ | 3,557 | | | $ | 2,953 | | | $ | 3,557 | | | $ | 2,953 | | Balance, end of period | | | $ | 3,908 | | | $ | 3,139 | |
| Accumulated other comprehensive income (loss) | Accumulated other comprehensive income (loss) | | | | | | | | Accumulated other comprehensive income (loss) | | | | | |
| Balance, beginning of period | Balance, beginning of period | $ | (79) | | | $ | (163) | | | $ | (147) | | | $ | (217) | | Balance, beginning of period | | | $ | (140) | | | $ | (147) | |
| | Net gains (losses) on derivative instruments | 4 | | | (36) | | | 4 | | | (30) | | |
| Net gains on derivative instruments | | Net gains on derivative instruments | | | 10 | | | — | |
| Reclassification of net losses on derivative instruments | Reclassification of net losses on derivative instruments | 4 | | | — | | | 9 | | | 1 | | Reclassification of net losses on derivative instruments | | | 4 | | | 5 | |
| Benefit plans | Benefit plans | 1 | | | 2 | | | 1 | | | 2 | | Benefit plans | | | 2 | | | — | |
| | Foreign currency adjustments | Foreign currency adjustments | (56) | | | (33) | | | 7 | | | 14 | | Foreign currency adjustments | | | (32) | | | 63 | |
| Balance, end of period | Balance, end of period | $ | (126) | | | $ | (230) | | | $ | (126) | | | $ | (230) | | Balance, end of period | | | $ | (156) | | | $ | (79) | |
| Treasury stock | Treasury stock | | | | | | | | Treasury stock | | | | | |
| Balance, beginning of period | Balance, beginning of period | $ | (42) | | | $ | (37) | | | $ | (49) | | | $ | (16) | | Balance, beginning of period | | | $ | (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 | 3 | | | 2 | | | 10 | | | 4 | | Common Stock issued in connection with employee and director plans, net of tax withheld | | | 7 | | | 7 | |
| | Repurchases of UGI Common Stock | — | | | (15) | | | — | | | (38) | | |
| Reacquired UGI Common Stock - employee and director plans | (1) | | | (1) | | | (1) | | | (1) | | |
| | | Balance, end of period | Balance, end of period | $ | (40) | | | $ | (51) | | | $ | (40) | | | $ | (51) | | Balance, end of period | | | $ | (19) | | | $ | (42) | |
| Total UGI stockholders’ equity | Total UGI stockholders’ equity | $ | 4,819 | | | $ | 4,081 | | | $ | 4,819 | | | $ | 4,081 | | Total UGI stockholders’ equity | | | $ | 5,349 | | | $ | 4,437 | |
| Noncontrolling interests | Noncontrolling interests | | | | | | | | Noncontrolling interests | | | | | |
| Balance, beginning of period | Balance, beginning of period | $ | 9 | | | $ | 9 | | | $ | 9 | | | $ | 10 | | Balance, beginning of period | | | $ | 9 | | | $ | 9 | |
| Net income attributable to noncontrolling interests | | Net income attributable to noncontrolling interests | | | 1 | | | — | |
| | Other | — | | | — | | | — | | | (1) | | |
| Balance, end of period | Balance, end of period | $ | 9 | | | $ | 9 | | | $ | 9 | | | $ | 9 | | Balance, end of period | | | $ | 10 | | | $ | 9 | |
| Total equity | Total equity | $ | 4,828 | | | $ | 4,090 | | | $ | 4,828 | | | $ | 4,090 | | Total equity | | | $ | 5,359 | | | $ | 4,446 | |
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 Mid-Atlanticeastern region of the U.S., eastern Ohio, and the panhandle of West Virginia.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 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 through the issuance of debt and/or equity-linked securities and existing liquidity.
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.
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.
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.
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
UGI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Currency in millions, except per share amounts and where indicated otherwise)
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 $57 as of March 31, 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. PennEast filed a petition for declaratory order with the FERC regarding interpretation of the Natural Gas Act; the FERC issued an order favorable to PennEast’s position on January 30, 2020. PennEast also filed a petition for a writ of certiorari to seek U.S. Supreme Court review of the Third Circuit decision on February 18, 2020. On February 3, 2021, the U.S. Supreme Court issued an order granting PennEast’s petition for a writ of certiorari. The case was argued before the U.S. Supreme Court on April 28, 2021. The ultimate outcome of these matters cannot be determined at this time, and could result in delays, additional costs, or the inability to move forward with the project, resulting in an impairment of all or a portion of our investment in PennEast.
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.
| | | March 31,
2021 | | March 31,
2020 | | September 30, 2020 | | September 30, 2019 | | December 31,
2021 | | December 31,
2020 |
| Cash and cash equivalents | Cash and cash equivalents | | $ | 444 | | | $ | 297 | | | $ | 336 | | | $ | 447 | | Cash and cash equivalents | | $ | 334 | | | $ | 416 | |
| Restricted cash | Restricted cash | | 28 | | | 104 | | | 21 | | | 64 | | Restricted cash | | 24 | | | 30 | |
| Cash, cash equivalents and restricted cash | Cash, cash equivalents and restricted cash | | $ | 472 | | | $ | 401 | | | $ | 357 | | | $ | 511 | | Cash, cash equivalents and restricted cash | | $ | 358 | | | $ | 446 | |
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
March 31, | | Six Months Ended
March 31, | | | Three Months Ended
December 31, |
| | | | 2021 | | 2020 | | 2021 | | 2020 | | | | 2021 | | 2020 |
| Denominator (thousands of shares): | Denominator (thousands of shares): | | | | | | | | | Denominator (thousands of shares): | | | | | |
| Weighted-average common shares outstanding — basic | Weighted-average common shares outstanding — basic | | 208,930 | | | 208,941 | | | 208,849 | | | 209,151 | | Weighted-average common shares outstanding — basic | | | 209,673 | | | 208,774 | |
| Incremental shares issuable for stock options and awards (a) | | 1,162 | | | 867 | | | 1,014 | | | 1,343 | | |
| 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) | | | — | | | 866 | |
| Weighted-average common shares outstanding — diluted | Weighted-average common shares outstanding — diluted | | 210,092 | | | 209,808 | | | 209,863 | | | 210,494 | | Weighted-average common shares outstanding — diluted | | | 209,673 | | | 209,640 | |
(a)For the three and six months ended MarchDecember 31, 2021, 6,486 of such shares have been excluded as these incremental shares would be antidilutive due to the net loss for the period. For the three months ended December 31, 2021 and 2020, there were 5,1023,347 and 8,0206,000 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.
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 11.12.
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.
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. The adoption of the new guidance did not have a material impact on our consolidated financial statements.
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, 20212022 (Fiscal 2022)2023). Early adoption is permitted; however,permitted. The amendments in this ASU may be adopted using the Company expects to adopt the new guidance in the first quarter of Fiscal 2022.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.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 March 31, 2021 | | Total | | Eliminations
(a) | | AmeriGas Propane | | UGI International | | Midstream & Marketing | | UGI Utilities | | Corporate & Other |
| Revenues from contracts with customers: | | | | | | | | | | | | | | |
| Utility: | | | | | | | | | | | | | | |
| Core Market: | | | | | | | | | | | | | | |
| Residential | | $ | 243 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 243 | | | $ | 0 | |
| Commercial & Industrial | | 96 | | | 0 | | | 0 | | | 0 | | | 0 | | | 96 | | | 0 | |
| Large delivery service | | 44 | | | 0 | | | 0 | | | 0 | | | 0 | | | 44 | | | 0 | |
| Off-system sales and capacity releases | | 22 | | | (25) | | | 0 | | | 0 | | | 0 | | | 47 | | | 0 | |
| Other | | 7 | | | 0 | | | 0 | | | 0 | | | 0 | | | 7 | | | 0 | |
| Total Utility | | 412 | | | (25) | | | 0 | | | 0 | | | 0 | | | 437 | | | 0 | |
| Non-Utility: | | | | | | | | | | | | | | |
| LPG: | | | | | | | | | | | | | | |
| Retail | | 1,395 | | | 0 | | | 833 | | | 562 | | | 0 | | | 0 | | | 0 | |
| Wholesale | | 99 | | | 0 | | | 38 | | | 61 | | | 0 | | | 0 | | | 0 | |
| Energy Marketing | | 514 | | | (39) | | | 0 | | | 186 | | | 367 | | | 0 | | | 0 | |
| Midstream: | | | | | | | | | | | | | | |
| Pipeline | | 48 | | | 0 | | | 0 | | | 0 | | | 48 | | | 0 | | | 0 | |
| Peaking | | 9 | | | (53) | | | 0 | | | 0 | | | 62 | | | 0 | | | 0 | |
| Other | | 2 | | | 0 | | | 0 | | | 0 | | | 2 | | | 0 | | | 0 | |
| Electricity Generation | | 3 | | | 0 | | | 0 | | | 0 | | | 3 | | | 0 | | | 0 | |
| Other | | 70 | | | 0 | | | 54 | | | 16 | | | 0 | | | 0 | | | 0 | |
| Total Non-Utility | | 2,140 | | | (92) | | | 925 | | | 825 | | | 482 | | | 0 | | | 0 | |
| Total revenues from contracts with customers | | 2,552 | | | (117) | | | 925 | | | 825 | | | 482 | | | 437 | | | 0 | |
| Other revenues (b) | | 29 | | | (1) | | | 15 | | | 9 | | | 2 | | | 5 | | | (1) | |
| Total revenues | | $ | 2,581 | | | $ | (118) | | | $ | 940 | | | $ | 834 | | | $ | 484 | | | $ | 442 | | | $ | (1) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| Three Months Ended December 31, 2021 | | Total | | Eliminations
(a) | | AmeriGas Propane | | UGI International | | Midstream & Marketing | | Utilities | | Corporate & Other |
| Revenues from contracts with customers: | | | | | | | | | | | | | | |
| Utility: | | | | | | | | | | | | | | |
| Core Market: | | | | | | | | | | | | | | |
| Residential | | $ | 234 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 234 | | | $ | — | |
| Commercial & Industrial | | 94 | | | — | | | — | | | — | | | — | | | 94 | | | — | |
| | | | | | | | | | | | | | |
| Large delivery service | | 43 | | | — | | | — | | | — | | | — | | | 43 | | | — | |
| Off-system sales and capacity releases | | 19 | | | (22) | | | — | | | — | | | — | | | 41 | | | — | |
| Other | | 5 | | | (1) | | | — | | | — | | | — | | | 6 | | | — | |
| Total Utility | | 395 | | | (23) | | | — | | | — | | | — | | | 418 | | | — | |
| Non-Utility: | | | | | | | | | | | | | | |
| LPG: | | | | | | | | | | | | | | |
| Retail | | 1,250 | | | — | | | 646 | | | 604 | | | — | | | — | | | — | |
| Wholesale | | 140 | | | — | | | 56 | | | 84 | | | — | | | — | | | — | |
| Energy Marketing | | 714 | | | (55) | | | — | | | 333 | | | 436 | | | — | | | — | |
| Midstream: | | | | | | | | | | | | | | |
| Pipeline | | 46 | | | — | | | — | | | — | | | 46 | | | — | | | — | |
| Peaking | | 6 | | | (39) | | | — | | | — | | | 45 | | | — | | | — | |
| Other | | 2 | | | — | | | — | | | — | | | 2 | | | — | | | — | |
| Electricity Generation | | 5 | | | — | | | — | | | — | | | 5 | | | — | | | — | |
| Other | | 78 | | | — | | | 58 | | | 20 | | | — | | | — | | | — | |
| Total Non-Utility | | 2,241 | | | (94) | | | 760 | | | 1,041 | | | 534 | | | — | | | — | |
| Total revenues from contracts with customers | | 2,636 | | | (117) | | | 760 | | | 1,041 | | | 534 | | | 418 | | | — | |
| Other revenues (b) | | 37 | | | (1) | | | 18 | | | 8 | | | 1 | | | 1 | | | 10 | |
| Total revenues | | $ | 2,673 | | | $ | (118) | | | $ | 778 | | | $ | 1,049 | | | $ | 535 | | | $ | 419 | | | $ | 10 | |
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 March 31, 2020 | | Total | | Eliminations
(a) | | AmeriGas Propane | | UGI International | | Midstream & Marketing | | UGI Utilities | | Corporate & Other |
| Revenues from contracts with customers: | | | | | | | | | | | | | | |
| Utility: | | | | | | | | | | | | | | |
| Core Market: | | | | | | | | | | | | | | |
| Residential | | $ | 212 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 212 | | | $ | 0 | |
| Commercial & Industrial | | 95 | | | 0 | | | 0 | | | 0 | | | 0 | | | 95 | | | 0 | |
| Large delivery service | | 42 | | | 0 | | | 0 | | | 0 | | | 0 | | | 42 | | | 0 | |
| Off-system sales and capacity releases | | 22 | | | (16) | | | 0 | | | 0 | | | 0 | | | 38 | | | 0 | |
| Other | | 5 | | | 0 | | | 0 | | | 0 | | | 0 | | | 5 | | | 0 | |
| Total Utility | | 376 | | | (16) | | | 0 | | | 0 | | | 0 | | | 392 | | | 0 | |
| Non-Utility: | | | | | | | | | | | | | | |
| LPG: | | | | | | | | | | | | | | |
| Retail | | 1,195 | | | 0 | | | 712 | | | 483 | | | 0 | | | 0 | | | 0 | |
| Wholesale | | 74 | | | 0 | | | 19 | | | 55 | | | 0 | | | 0 | | | 0 | |
| Energy Marketing | | 419 | | | (22) | | | 0 | | | 144 | | | 297 | | | 0 | | | 0 | |
| Midstream: | | | | | | | | | | | | | | |
| Pipeline | | 45 | | | 0 | | | 0 | | | 0 | | | 45 | | | 0 | | | 0 | |
| Peaking | | 3 | | | (54) | | | 0 | | | 0 | | | 57 | | | 0 | | | 0 | |
| Other | | 1 | | | 0 | | | 0 | | | 0 | | | 1 | | | 0 | | | 0 | |
| Electricity Generation | | 8 | | | 0 | | | 0 | | | 0 | | | 8 | | | 0 | | | 0 | |
| Other | | 82 | | | (2) | | | 56 | | | 18 | | | 10 | | | 0 | | | 0 | |
| Total Non-Utility | | 1,827 | | | (78) | | | 787 | | | 700 | | | 418 | | | 0 | | | 0 | |
| Total revenues from contracts with customers | | 2,203 | | | (94) | | | 787 | | | 700 | | | 418 | | | 392 | | | 0 | |
| Other revenues (b) | | 26 | | | 0 | | | 15 | | | 4 | | | 4 | | | 1 | | | 2 | |
| Total revenues | | $ | 2,229 | | | $ | (94) | | | $ | 802 | | | $ | 704 | | | $ | 422 | | | $ | 393 | | | $ | 2 | |
UGI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Currency in millions, except per share amounts and where indicated otherwise)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| Six Months Ended March 31, 2021 | | Total | | Eliminations
(a) | | AmeriGas Propane | | UGI International | | Midstream & Marketing | | UGI Utilities | | Corporate & Other |
| Revenues from contracts with customers: | | | | | | | | | | | | | | |
| Utility: | | | | | | | | | | | | | | |
| Core Market: | | | | | | | | | | | | | | |
| Residential | | $ | 408 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 408 | | | $ | 0 | |
| Commercial & Industrial | | 156 | | | 0 | | | 0 | | | 0 | | | 0 | | | 156 | | | 0 | |
| Large delivery service | | 84 | | | 0 | | | 0 | | | 0 | | | 0 | | | 84 | | | 0 | |
| Off-system sales and capacity releases | | 37 | | | (39) | | | 0 | | | 0 | | | 0 | | | 76 | | | 0 | |
| Other | | 11 | | | (1) | | | 0 | | | 0 | | | 0 | | | 12 | | | 0 | |
| Total Utility | | 696 | | | (40) | | | 0 | | | 0 | | | 0 | | | 736 | | | 0 | |
| Non-Utility: | | | | | | | | | | | | | | |
| LPG: | | | | | | | | | | | | | | |
| Retail | | 2,450 | | | 0 | | | 1,405 | | | 1,045 | | | 0 | | | 0 | | | 0 | |
| Wholesale | | 158 | | | 0 | | | 57 | | | 101 | | | 0 | | | 0 | | | 0 | |
| Energy Marketing | | 894 | | | (65) | | | 0 | | | 341 | | | 618 | | | 0 | | | 0 | |
| Midstream: | | | | | | | | | | | | | | |
| Pipeline | | 93 | | | 0 | | | 0 | | | 0 | | | 93 | | | 0 | | | 0 | |
| Peaking | | 11 | | | (89) | | | 0 | | | 0 | | | 100 | | | 0 | | | 0 | |
| Other | | 4 | | | 0 | | | 0 | | | 0 | | | 4 | | | — | | | 0 | |
| Electricity Generation | | 7 | | | 0 | | | 0 | | | 0 | | | 7 | | | 0 | | | 0 | |
| Other | | 142 | | | 0 | | | 110 | | | 32 | | | 0 | | | 0 | | | 0 | |
| Total Non-Utility | | 3,759 | | | (154) | | | 1,572 | | | 1,519 | | | 822 | | | 0 | | | 0 | |
| Total revenues from contracts with customers | | 4,455 | | | (194) | | | 1,572 | | | 1,519 | | | 822 | | | 736 | | | 0 | |
| Other revenues (b) | | 58 | | | (2) | | | 34 | | | 15 | | | 3 | | | 6 | | | 2 | |
| Total revenues | | $ | 4,513 | | | $ | (196) | | | $ | 1,606 | | | $ | 1,534 | | | $ | 825 | | | $ | 742 | | | $ | 2 | |
UGI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Currency in millions, except per share amounts and where indicated otherwise)
| | | Six Months Ended March 31, 2020 | | Total | | Eliminations
(a) | | AmeriGas Propane | | UGI International | | Midstream & Marketing | | UGI Utilities | | Corporate & Other | |
| Three Months Ended December 31, 2020 | | Three Months Ended December 31, 2020 | | 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 | | $ | 396 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 396 | | | $ | 0 | | Residential | | $ | 165 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 165 | | | $ | — | |
| Commercial & Industrial | Commercial & Industrial | | 163 | | | 0 | | | 0 | | | 0 | | | 0 | | | 163 | | | 0 | | Commercial & Industrial | | 60 | | | — | | | — | | | — | | | — | | | 60 | | | — | |
| Large delivery service | Large delivery service | | 83 | | | 0 | | | 0 | | | 0 | | | 0 | | | 83 | | | 0 | | Large delivery service | | 40 | | | — | | | — | | | — | | | — | | | 40 | | | — | |
| Off-system sales and capacity releases | Off-system sales and capacity releases | | 39 | | | (30) | | | 0 | | | 0 | | | 0 | | | 69 | | | 0 | | Off-system sales and capacity releases | | 15 | | | (14) | | | — | | | — | | | — | | | 29 | | | — | |
| Other | Other | | 9 | | | (1) | | | 0 | | | 0 | | | 0 | | | 10 | | | 0 | | Other | | 4 | | | (1) | | | — | | | — | | | — | | | 5 | | | — | |
| Total Utility | Total Utility | | 690 | | | (31) | | | 0 | | | 0 | | | 0 | | | 721 | | | 0 | | Total Utility | | 284 | | | (15) | | | — | | | — | | | — | | | 299 | | | — | |
| Non-Utility: | Non-Utility: | | | | | | | | | | | | | | | Non-Utility: | | | | | | | | | | | | | | |
| LPG: | LPG: | | LPG: | |
| Retail | Retail | | 2,289 | | | 0 | | | 1,343 | | | 946 | | | 0 | | | 0 | | | 0 | | Retail | | 1,055 | | | — | | | 572 | | | 483 | | | — | | | — | | | — | |
| Wholesale | Wholesale | | 140 | | | 0 | | | 41 | | | 99 | | | 0 | | | 0 | | | 0 | | Wholesale | | 59 | | | — | | | 19 | | | 40 | | | — | | | — | | | — | |
| Energy Marketing | Energy Marketing | | 782 | | | (48) | | | 0 | | | 268 | | | 562 | | | 0 | | | 0 | | Energy Marketing | | 380 | | | (26) | | | — | | | 155 | | | 251 | | | — | | | — | |
| Midstream: | Midstream: | | Midstream: | |
| Pipeline | Pipeline | | 88 | | | 0 | | | 0 | | | 0 | | | 88 | | | 0 | | | 0 | | Pipeline | | 45 | | | — | | | — | | | — | | | 45 | | | — | | | — | |
| Peaking | Peaking | | 7 | | | (92) | | | 0 | | | 0 | | | 99 | | | 0 | | | 0 | | Peaking | | 2 | | | (36) | | | — | | | — | | | 38 | | | — | | | — | |
| Other | Other | | 3 | | | 0 | | | 0 | | | 0 | | | 3 | | | 0 | | | 0 | | Other | | 2 | | | — | | | — | | | — | | | 2 | | | — | | | — | |
| Electricity Generation | Electricity Generation | | 17 | | | 0 | | | 0 | | | 0 | | | 17 | | | 0 | | | 0 | | Electricity Generation | | 4 | | | — | | | — | | | — | | | 4 | | | — | | | — | |
| Other | Other | | 162 | | | (2) | | | 115 | | | 30 | | | 19 | | | 0 | | | 0 | | Other | | 72 | | | — | | | 56 | | | 16 | | | — | | | — | | | — | |
| Total Non-Utility | Total Non-Utility | | 3,488 | | | (142) | | | 1,499 | | | 1,343 | | | 788 | | | 0 | | | 0 | | Total Non-Utility | | 1,619 | | | (62) | | | 647 | | | 694 | | | 340 | | | — | | | — | |
| Total revenues from contracts with customers | Total revenues from contracts with customers | | 4,178 | | | (173) | | | 1,499 | | | 1,343 | | | 788 | | | 721 | | | 0 | | Total revenues from contracts with customers | | 1,903 | | | (77) | | | 647 | | | 694 | | | 340 | | | 299 | | | — | |
| Other revenues (b) | Other revenues (b) | | 58 | | | (1) | | | 33 | | | 12 | | | 7 | | | 1 | | | 6 | | Other revenues (b) | | 29 | | | (1) | | | 19 | | | 6 | | | 1 | | | 1 | | | 3 | |
| Total revenues | Total revenues | | $ | 4,236 | | | $ | (174) | | | $ | 1,532 | | | $ | 1,355 | | | $ | 795 | | | $ | 722 | | | $ | 6 | | Total revenues | | $ | 1,932 | | | $ | (78) | | | $ | 666 | | | $ | 700 | | | $ | 341 | | | $ | 300 | | | $ | 3 | |
(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 $93, $161$129, $149 and $88$138 at MarchDecember 31, 2021, September 30, 20202021 and MarchDecember 31, 2020, respectively, and are included in “Other current liabilities” and “Other noncurrent liabilities” on the Condensed Consolidated Balance Sheets. Revenues recognized for the sixthree months ended MarchDecember 31, 2021 and 2020, from the amounts included in contract liabilities at September 30, 2021 and 2020, were $70 and 2019, were $131 and $116,$83, 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 MarchDecember 31, 2021, Midstream & Marketing and UGI Utilities expect to record approximately $2.1$2.2 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
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 three months ended December 31, 2021, the Company recorded an adjustment to decrease goodwill by $5 primarily reflecting an adjustment to a valuation allowance on certain deferred income taxes. At December 31, 2021, the allocation of the purchase price is complete except for the finalization of the evaluation of certain regulatory assets. The purchase price allocation will be finalized once this item has been resolved. Accordingly, the fair value estimates presented below relating to this item, which is included in “Other current assets” below, is subject to change within the measurement period not to exceed one year from the date of 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 preliminary 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 months ended December 31, 2020.
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:
| | | March 31,
2021 | | September 30,
2020 | | March 31,
2020 | | December 31,
2021 | | September 30,
2021 | | December 31,
2020 |
| Non-utility LPG and natural gas | Non-utility LPG and natural gas | | $ | 179 | | | $ | 164 | | | $ | 110 | | Non-utility LPG and natural gas | | $ | 352 | | | $ | 278 | | | $ | 181 | |
| Gas Utility natural gas | Gas Utility natural gas | | 3 | | | 20 | | | 3 | | Gas Utility natural gas | | 65 | | | 68 | | | 19 | |
| Energy certificates | | Energy certificates | | 60 | | | 53 | | | 3 | |
| Materials, supplies and other | Materials, supplies and other | | 86 | | | 57 | | | 67 | | Materials, supplies and other | | 71 | | | 70 | | | 76 | |
| Total inventories | Total inventories | | $ | 268 | | | $ | 241 | | | $ | 180 | | Total inventories | | $ | 548 | | | $ | 469 | | | $ | 279 | |
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:
| | | March 31,
2021 | | September 30,
2020 | | March 31,
2020 | | December 31,
2021 | | September 30,
2021 | | December 31,
2020 |
| Regulatory assets (a): | Regulatory assets (a): | | | | | | | Regulatory assets (a): | | | | | | |
| Income taxes recoverable | Income taxes recoverable | | $ | 128 | | | $ | 124 | | | $ | 127 | | Income taxes recoverable | | $ | 145 | | | $ | 143 | | | $ | 126 | |
| Underfunded pension and postretirement plans | Underfunded pension and postretirement plans | | 169 | | | 175 | | | 172 | | Underfunded pension and postretirement plans | | 106 | | | 108 | | | 172 | |
| Environmental costs | Environmental costs | | 59 | | | 61 | | | 57 | | Environmental costs | | 57 | | | 58 | | | 59 | |
| | Deferred fuel and power costs | | Deferred fuel and power costs | | 29 | | | 11 | | | — | |
| Removal costs, net | Removal costs, net | | 24 | | | 26 | | | 25 | | Removal costs, net | | 23 | | | 24 | | | 24 | |
| Other | Other | | 18 | | | 11 | | | 10 | | Other | | 52 | | | 53 | | | 14 | |
| Total regulatory assets | Total regulatory assets | | $ | 398 | | | $ | 397 | | | $ | 391 | | Total regulatory assets | | $ | 412 | | | $ | 397 | | | $ | 395 | |
| Regulatory liabilities (a): | Regulatory liabilities (a): | | | | | | | Regulatory liabilities (a): | | | | | | |
| Postretirement benefit overcollections | Postretirement benefit overcollections | | $ | 12 | | | $ | 13 | | | $ | 14 | | Postretirement benefit overcollections | | $ | 13 | | | $ | 13 | | | $ | 13 | |
| | Deferred fuel and power refunds | Deferred fuel and power refunds | | 17 | | | 29 | | | 11 | | Deferred fuel and power refunds | | 1 | | | 36 | | | 24 | |
| State tax benefits — distribution system repairs | State tax benefits — distribution system repairs | | 29 | | | 28 | | | 28 | | State tax benefits — distribution system repairs | | 33 | | | 32 | | | 28 | |
| PAPUC Temporary Rates Order | | 2 | | | 7 | | | 15 | | |
| | Excess federal deferred income taxes | Excess federal deferred income taxes | | 270 | | | 274 | | | 277 | | Excess federal deferred income taxes | | 285 | | | 287 | | | 272 | |
| Other | Other | | 5 | | | 2 | | | 1 | | Other | | 14 | | | 20 | | | 9 | |
| Total regulatory liabilities | Total regulatory liabilities | | $ | 335 | | | $ | 353 | | | $ | 346 | | Total regulatory liabilities | | $ | 346 | | | $ | 388 | | | $ | 346 | |
(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 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 (losses) on such contracts at MarchDecember 31, 2021, September 30, 20202021 and MarchDecember 31, 2020 were $1, $8$2, $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. However, the PAPUC typically suspends the effective date for general base rate proceedings for a period not to exceed nine months after the filing date to allow for investigation and public hearings. We 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.On October 28, 2021, the PAPUC issued a final order approving a settlement that permitted Electric Utility, requested that the new electric rates become effective AprilNovember 9, 2021. The PAPUC entered an Order on March 11, 2021, suspending the effective date for the rateto increase to allow for investigation and public hearings. Unless a settlement is reached sooner, this 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.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
Subsequent Events
UGI Corporation Senior Credit Facility.International. On April 29,December 7, 2021, UGI International, LLC issued, in an underwritten private placement, €400 principal amount of the Company repaid $30UGI International 2.50% Senior Notes due December 1, 2029. The UGI International 2.50% Senior Notes rank equal in right of borrowings on its five-year $300 revolving credit facilitypayment with indebtedness issued under the UGI Corporation SeniorInternational Credit Facility. As a result of this repayment, the Company classified these repayments as “Current maturities of long-term debt” on the March 31, 2021 Condensed Consolidated Balance Sheet. The remaining $245 of outstanding borrowings on this revolving credit facility are classified as “Long-term debt” on the March 31, 2021 Condensed Consolidated Balance Sheet as management intends to maintain a substantial portion of these borrowings beyond twelve months from balance sheet date.Facilities Agreement.
Also, on May 4, 2021, UGI amended the existing UGI Corporation Senior Credit Facility. The 2021 UGI Corporation Senior Credit Facility (1) extends the maturity date of the previous three-year $300 term loan included in the existing UGI Corporation Senior Credit Facility, which is now due in May 2025; and (2) includes a new four-year $300 term loan commitment. Proceeds
UGI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Currency in millions, except per share amounts and where indicated otherwise)
from new borrowings under the 2021 UGI Corporation Senior Credit Facility may be used to finance a portion of the Mountaineer Acquisition and 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.
The 2021net proceeds from the UGI CorporationInternational 2.50% Senior Credit Facility restricts the ability of UGINotes were used (1) 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 asrepay all of the last dayUGI International 3.25% Senior Notes due November 1, 2025 and associated fees and expenses and (2) for general corporate purposes. We have designated the UGI International 2.50% Senior Notes as a net investment hedge. In connection with this early repayment of each fiscal quarterdebt, UGI International recognized a pre-tax loss of 4.50 to 1.00$11, which is reflected in “Loss on extinguishment of debt” on the Condensed Consolidated Statements of Income, and raised to 4.75 to 1.00 during an Acquisition Period, as defined byprimarily comprises the agreement. Under certain circumstances relating to UGI’s credit ratings, UGI may also be required to maintain a ratiowrite-off 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.unamortized debt issuance costs and early redemption premiums.
Note 89 — 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 MarchDecember 31, 2021, September 30, 20202021 and MarchDecember 31, 2020, our aggregate estimated accrued liabilities for environmental investigation and remediation costs related to the current COA and the predecessor agreements totaled $50, $53$50 and $49, 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
UGI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Currency in millions, except per share amounts and where indicated otherwise)
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.
The NYDEC commenced implementation of the remediation plan in the spring of 2018. Based on our evaluation of the available information as of MarchDecember 31, 2021, 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.
UGI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Currency in millions, except per share amounts and where indicated otherwise)
Note 910 — 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
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 UGI 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 March 31, | | 2021 | | 2020 | |
| | | | | | | | |
| Three Months Ended December 31, | | Three Months Ended December 31, | | 2021 | | 2020 |
| Service cost | Service cost | | $ | 3 | | | $ | 3 | | Service cost | | $ | 4 | | | $ | 3 | |
| Interest cost | Interest cost | | 6 | | | 6 | | Interest cost | | 6 | | | 5 | |
| Expected return on assets | Expected return on assets | | (10) | | | (9) | | Expected return on assets | | (12) | | | (10) | |
| Curtailment gain | | 0 | | | (1) | | |
| | Amortization of: | Amortization of: | | Amortization of: | |
| | Actuarial loss | Actuarial loss | | 3 | | | 3 | | Actuarial loss | | 2 | | | 4 | |
| Net cost | Net cost | | $ | 2 | | | $ | 2 | | Net cost | | $ | — | | | $ | 2 | |
| | | | | | | |
| Six Months Ended March 31, | | 2021 | | 2020 | |
| Service cost | | $ | 6 | | | $ | 6 | | |
| Interest cost | | 11 | | | 12 | | |
| Expected return on assets | | (20) | | | (19) | | |
| Curtailment gain | | 0 | | | (1) | | |
| Amortization of: | | |
| | Actuarial loss | | 7 | | | 7 | | |
| Net cost | | $ | 4 | | | $ | 5 | | |
UGI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Currency in millions, except per share amounts and where indicated otherwise)
Note 1011 — 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 |
| March 31, 2021: | | | | | | | | | |
| December 31, 2021: | | December 31, 2021: | | | | | | | | |
| Derivative instruments: | | Derivative instruments: | |
| Assets: | | Assets: | |
| Commodity contracts | | Commodity contracts | | $ | 411 | | | $ | 711 | | | $ | — | | | $ | 1,122 | |
| Foreign currency contracts | | Foreign currency contracts | | $ | — | | | $ | 29 | | | $ | — | | | $ | 29 | |
| Interest rate contracts | | Interest rate contracts | | $ | — | | | $ | 5 | | | $ | — | | | $ | 5 | |
| | Liabilities: | | Liabilities: | |
| Commodity contracts | | Commodity contracts | | $ | (160) | | | $ | (18) | | | $ | — | | | $ | (178) | |
| Foreign currency contracts | | Foreign currency contracts | | $ | — | | | $ | (7) | | | $ | — | | | $ | (7) | |
| Interest rate contracts | | Interest rate contracts | | $ | — | | | $ | (17) | | | $ | — | | | $ | (17) | |
| | Non-qualified supplemental postretirement grantor trust investments (a) | | Non-qualified supplemental postretirement grantor trust investments (a) | | $ | 52 | | | $ | — | | | $ | — | | | $ | 52 | |
| September 30, 2021: | | September 30, 2021: | |
| Derivative instruments: | Derivative instruments: | | Derivative instruments: | |
| Assets: | Assets: | | Assets: | |
| Commodity contracts | Commodity contracts | | $ | 73 | | | $ | 162 | | | $ | 0 | | | $ | 235 | | Commodity contracts | | $ | 641 | | | $ | 1,008 | | | $ | — | | | $ | 1,649 | |
| Foreign currency contracts | Foreign currency contracts | | $ | 0 | | | $ | 25 | | | $ | 0 | | | $ | 25 | | Foreign currency contracts | | $ | — | | | $ | 38 | | | $ | — | | | $ | 38 | |
| | Liabilities: | Liabilities: | | Liabilities: | |
| Commodity contracts | Commodity contracts | | $ | (63) | | | $ | (9) | | | $ | 0 | | | $ | (72) | | Commodity contracts | | $ | (264) | | | $ | (16) | | | $ | — | | | $ | (280) | |
| Foreign currency contracts | Foreign currency contracts | | $ | 0 | | | $ | (12) | | | $ | 0 | | | $ | (12) | | Foreign currency contracts | | $ | — | | | $ | (8) | | | $ | — | | | $ | (8) | |
| Interest rate contracts | Interest rate contracts | | $ | 0 | | | $ | (39) | | | $ | 0 | | | $ | (39) | | Interest rate contracts | | $ | — | | | $ | (29) | | | $ | — | | | $ | (29) | |
| | Non-qualified supplemental postretirement grantor trust investments (a) | Non-qualified supplemental postretirement grantor trust investments (a) | | $ | 40 | | | $ | 0 | | | $ | 0 | | | $ | 40 | | Non-qualified supplemental postretirement grantor trust investments (a) | | $ | 53 | | | $ | — | | | $ | — | | | $ | 53 | |
| September 30, 2020: | | |
| December 31, 2020: | | December 31, 2020: | |
| Derivative instruments: | Derivative instruments: | | Derivative instruments: | |
| Assets: | Assets: | | Assets: | |
| Commodity contracts | Commodity contracts | | $ | 68 | | | $ | 39 | | | $ | 0 | | | $ | 107 | | Commodity contracts | | $ | 60 | | | $ | 111 | | | $ | — | | | $ | 171 | |
| Foreign currency contracts | Foreign currency contracts | | $ | 0 | | | $ | 32 | | | $ | 0 | | | $ | 32 | | Foreign currency contracts | | $ | — | | | $ | 14 | | | $ | — | | | $ | 14 | |
| | Liabilities: | Liabilities: | | Liabilities: | |
| Commodity contracts | Commodity contracts | | $ | (54) | | | $ | (64) | | | $ | 0 | | | $ | (118) | | Commodity contracts | | $ | (58) | | | $ | (14) | | | $ | — | | | $ | (72) | |
| Foreign currency contracts | Foreign currency contracts | | $ | 0 | | | $ | (14) | | | $ | 0 | | | $ | (14) | | Foreign currency contracts | | $ | — | | | $ | (25) | | | $ | — | | | $ | (25) | |
| Interest rate contracts | Interest rate contracts | | $ | 0 | | | $ | (55) | | | $ | 0 | | | $ | (55) | | Interest rate contracts | | $ | — | | | $ | (50) | | | $ | — | | | $ | (50) | |
| | 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) | | $ | 46 | | | $ | — | | | $ | — | | | $ | 46 | |
| March 31, 2020: | | |
| Derivative instruments: | | |
| Assets: | | |
| Commodity contracts | | $ | 36 | | | $ | 12 | | | $ | 0 | | | $ | 48 | | |
| Foreign currency contracts | | $ | 0 | | | $ | 59 | | | $ | 0 | | | $ | 59 | | |
| | Liabilities: | | |
| Commodity contracts | | $ | (92) | | | $ | (222) | | | $ | 0 | | | $ | (314) | | |
| Foreign currency contracts | | $ | 0 | | | $ | (7) | | | $ | 0 | | | $ | (7) | | |
| Interest rate contracts | | $ | 0 | | | $ | (54) | | | $ | 0 | | | $ | (54) | | |
| | Non-qualified supplemental postretirement grantor trust investments (a) | | $ | 39 | | | $ | 0 | | | $ | 0 | | | $ | 39 | | |
(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:
| | | March 31, 2021 | | September 30, 2020 | | March 31, 2020 | | December 31, 2021 | | September 30, 2021 | | December 31, 2020 |
| Carrying amount | Carrying amount | $ | 6,046 | | | $ | 6,081 | | | $ | 5,879 | | Carrying amount | $ | 6,580 | | | $ | 6,491 | | | $ | 6,078 | |
| Estimated fair value | Estimated fair value | $ | 6,362 | | | $ | 6,504 | | | $ | 5,736 | | Estimated fair value | $ | 7,048 | | | $ | 6,996 | | | $ | 6,581 | |
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 11.12.
Note 1112 — 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.
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 MarchDecember 31, 2021, 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.
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.
Our euro-denominated long-term debt has also been designated as net investment hedges of a portion of our UGI International euro-denominated net investment. We recognized pre-tax gains (losses) associated with these net investment hedges in the
UGI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Currency in millions, except per share amounts and where indicated otherwise)
Concurrent with the repayment of UGI International’s 3.25% Senior Notes on December 7, 2021, we terminated an associated net investment hedge having a notional value of €93. Cash flows from this termination are included in cash flows from investing activities on the Condensed Consolidated Statements of Cash Flows.
Our euro-denominated long-term debt has also been designated as net investment hedges, representing a portion of our UGI International euro-denominated net investment. We recognized pre-tax gains (losses) associated with these net investment hedges in the cumulative translation adjustment component in AOCI of $31$13 and $11$(32) during the three months ended March 31, 2021 and 2020, respectively, $(1) and $(9) during the six months ended MarchDecember 31, 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 MarchDecember 31, 2021, September 30, 20202021 and MarchDecember 31, 2020, and the final settlement dates of the Company's open derivative contracts as of MarchDecember 31, 2021, excluding those derivatives that qualified for the NPNS exception:
| | | Notional Amounts
(in millions) | | Notional Amounts
(in millions) |
| Type | Type | | Units | | Settlements Extending Through | | March 31, 2021 | | September 30, 2020 | | March 31, 2020 | Type | | Units | | Settlements Extending Through | | December 31, 2021 | | September 30, 2021 | | December 31, 2020 |
| 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 | | | 11 | | |
| PA Gas Utility NYMEX natural gas futures and option contracts | | PA Gas Utility NYMEX natural gas futures and option contracts | | Dekatherms | | September 2022 | | 14 | | | 20 | | | 16 | |
| | Non-utility Operations | Non-utility Operations | | Non-utility Operations | |
| LPG swaps | LPG swaps | | Gallons | | September 2023 | | 557 | | | 846 | | | 816 | | LPG swaps | | Gallons | | September 2024 | | 732 | | | 708 | | | 719 | |
| Natural gas futures, forward, basis swap, options and pipeline contracts | Natural gas futures, forward, basis swap, options and pipeline contracts | | Dekatherms | | September 2025 | | 338 | | | 339 | | | 343 | | Natural gas futures, forward, basis swap, options and pipeline contracts | | Dekatherms | | September 2026 | | 382 | | | 355 | | | 342 | |
| | Electricity forward and futures contracts | Electricity forward and futures contracts | | Kilowatt hours | | December 2024 | | 4,773 | | | 4,705 | | | 3,663 | | Electricity forward and futures contracts | | Kilowatt hours | | January 2026 | | 4,261 | | | 4,302 | | | 4,816 | |
| | 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 | | July 2024 | | $ | 1,302 | | | $ | 1,344 | | | $ | 1,351 | | Interest rate swaps | | USD | | September 2024 | | $ | 1,418 | | | $ | 1,421 | | | $ | 1,306 | |
| | 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 | | January 2024 | | $ | 384 | | | $ | 511 | | | $ | 460 | | Forward foreign currency exchange contracts | | USD | | September 2024 | | $ | 415 | | | $ | 509 | | | $ | 457 | |
| 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 December 31, 2021, 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 $1,156. In general, many of theour over-the-counter derivative instruments was not material at March 31, 2021. Certain ofand all exchange contracts call for 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 March 31, 2021, 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
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 December 31, 2021, we had received cash collateral from derivative instrument counterparties totaling $205. In addition, we may have offsetting derivative liabilities and certain accounts payable balances with certain of these counterparties, which further mitigates the previously mentioned maximum amount of losses. Certain of the Partnership’s derivative contracts have credit-risk-related contingent features that may require the posting of additional collateral in the event of a downgrade of the Partnership’s debt rating. At December 31, 2021, 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:
| | | March 31,
2021 | | September 30,
2020 | | March 31,
2020 | | December 31,
2021 | | September 30,
2021 | | December 31,
2020 |
| 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 | | $ | 16 | | | $ | 17 | | | $ | 28 | | Foreign currency contracts | | $ | 10 | | | $ | 20 | | | $ | 8 | |
| | Interest rate contracts | | Interest rate contracts | | 5 | | | — | | | — | |
| | | 15 | | | 20 | | | 8 | |
| 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 | | 2 | | | 7 | | | 1 | | Commodity contracts | | 10 | | | 58 | | | 1 | |
| Derivatives not designated as hedging instruments: | Derivatives not designated as hedging instruments: | | | | | Derivatives not designated as hedging instruments: | | | | |
| Commodity contracts | Commodity contracts | | 233 | | | 100 | | | 47 | | Commodity contracts | | 1,112 | | | 1,591 | | | 170 | |
| Foreign currency contracts | Foreign currency contracts | | 9 | | | 15 | | | 31 | | Foreign currency contracts | | 19 | | | 18 | | | 6 | |
| | 242 | | | 115 | | | 78 | | | 1,131 | | | 1,609 | | | 176 | |
| Total derivative assets — gross | Total derivative assets — gross | | 260 | | | 139 | | | 107 | | Total derivative assets — gross | | 1,156 | | | 1,687 | | | 185 | |
| Gross amounts offset in the balance sheet | Gross amounts offset in the balance sheet | | (35) | | | (57) | | | (26) | | Gross amounts offset in the balance sheet | | (116) | | | (216) | | | (48) | |
| Cash collateral received | Cash collateral received | | (37) | | | 0 | | | 0 | | Cash collateral received | | (205) | | | (468) | | | (6) | |
| Total derivative assets — net | Total derivative assets — net | | $ | 188 | | | $ | 82 | | | $ | 81 | | Total derivative assets — net | | $ | 835 | | | $ | 1,003 | | | $ | 131 | |
| Derivative liabilities: | Derivative liabilities: | | | | | | | Derivative liabilities: | | | | | | |
| Derivatives designated as hedging instruments: | Derivatives designated as hedging instruments: | | Derivatives designated as hedging instruments: | |
| | Foreign currency contracts | | Foreign currency contracts | | $ | (3) | | | $ | — | | | $ | — | |
| | Interest rate contracts | Interest rate contracts | | $ | (39) | | | $ | (55) | | | $ | (54) | | Interest rate contracts | | (17) | | | (29) | | | (50) | |
| | | (20) | | | (29) | | | (50) | |
| 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 | | (1) | | | 0 | | | (2) | | Commodity contracts | | (7) | | | (23) | | | (2) | |
| Derivatives not designated as hedging instruments: | Derivatives not designated as hedging instruments: | | Derivatives not designated as hedging instruments: | |
| Commodity contracts | Commodity contracts | | (71) | | | (118) | | | (312) | | Commodity contracts | | (171) | | | (257) | | | (70) | |
| Foreign currency contracts | Foreign currency contracts | | (12) | | | (14) | | | (7) | | Foreign currency contracts | | (4) | | | (8) | | | (25) | |
| | (83) | | | (132) | | | (319) | | | (175) | | | (265) | | | (95) | |
| Total derivative liabilities — gross | Total derivative liabilities — gross | | (123) | | | (187) | | | (375) | | Total derivative liabilities — gross | | (202) | | | (317) | | | (147) | |
| Gross amounts offset in the balance sheet | Gross amounts offset in the balance sheet | | 35 | | | 57 | | | 26 | | Gross amounts offset in the balance sheet | | 116 | | | 216 | | | 48 | |
| Cash collateral pledged | Cash collateral pledged | | 0 | | | 7 | | | 58 | | Cash collateral pledged | | — | | | 3 | | | — | |
| Total derivative liabilities — net | Total derivative liabilities — net | | $ | (88) | | | $ | (123) | | | $ | (291) | | Total derivative liabilities — net | | $ | (86) | | | $ | (98) | | | $ | (99) | |
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 March 31,: | | |
| | | | | | | | Three Months Ended December 31,: | | Three Months Ended December 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: | | 2021 | | 2020 | | 2021 | | 2020 | |
| | Interest rate contracts | Interest rate contracts | | 6 | | | (50) | | | (6) | | | (1) | | | Interest expense | Interest rate contracts | | $ | 12 | | | $ | — | | | $ | (6) | | | $ | (7) | | | Interest expense |
| | | Net Investment Hedges: | Net Investment Hedges: | | Net Investment Hedges: | |
| Foreign currency contracts | Foreign currency contracts | | $ | 7 | | | $ | 14 | | | Foreign currency contracts | | $ | — | | | $ | (8) | | |
| | | 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: | | 2021 | | 2020 | | Location of Gain (Loss) Recognized in Income |
| Commodity contracts | Commodity contracts | | $ | (2) | | | $ | 6 | | | Revenues | Commodity contracts | | $ | 8 | | | $ | 3 | | | Revenues |
| Commodity contracts | Commodity contracts | | 135 | | | (206) | | | Cost of sales | Commodity contracts | | (273) | | | 103 | | | Cost of sales |
| Commodity contracts | Commodity contracts | | (2) | | | 0 | | | Operating and administrative expenses | Commodity contracts | | — | | | 2 | | | Operating and administrative expenses |
| Foreign currency contracts | | 17 | | | 11 | | | Other non-operating income (expense), net | |
| Total | | $ | 148 | | | $ | (189) | | | |
| | Six Months Ended March 31,: | | |
| Gain (Loss)
Recognized in
AOCI | | Loss
Reclassified from
AOCI into Income | | Location of Loss Reclassified from
AOCI into Income | |
| Cash Flow Hedges: | | 2021 | | 2020 | | 2021 | | 2020 | | |
| | Interest rate contracts | | $ | 6 | | | $ | (42) | | | $ | (13) | | | $ | (2) | | | Interest expense | |
| | | Net Investment Hedges: | | |
| Foreign currency contracts | | $ | (1) | | | $ | 10 | | | |
| | Gain (Loss)
Recognized in Income | | | | |
| Derivatives Not Designated as Hedging Instruments: | | 2021 | | 2020 | | Location of Gain (Loss) Recognized in Income | |
| Commodity contracts | | $ | 1 | | | $ | 8 | | | Revenues | |
| Commodity contracts | | 238 | | | (239) | | | Cost of sales | |
| | Commodity contracts | Commodity contracts | | 5 | | | 0 | | | Other operating income, net | Commodity contracts | | — | | | 5 | | | Other operating income, net |
| Foreign currency contracts | Foreign currency contracts | | (3) | | | 0 | | | Other non-operating income (expense), net | Foreign currency contracts | | 8 | | | (20) | | | Other non-operating income (expense), net |
| Total | Total | | $ | 241 | | | $ | (231) | | | Total | | $ | (257) | | | $ | 93 | | |
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 1213 — Accumulated Other Comprehensive Income (Loss)
The tables below present changes in AOCI, net of tax:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| 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 | | 0 | | | 4 | | | (56) | | | (52) | |
| Amounts reclassified from AOCI | | 1 | | | 4 | | | 0 | | | 5 | |
| Other comprehensive income (loss) attributable to UGI | | 1 | | | 8 | | | (56) | | | (47) | |
| AOCI — March 31, 2021 | | $ | (25) | | | $ | (41) | | | $ | (60) | | | $ | (126) | |
| | | | | | | | |
| Three Months Ended March 31, 2020 | | Postretirement Benefit Plans | | Derivative Instruments | | Foreign Currency | | Total |
| AOCI — December 31, 2019 | | $ | (26) | | | $ | (18) | | | $ | (119) | | | $ | (163) | |
| Other comprehensive loss before reclassification adjustments | | 0 | | | (36) | | | (33) | | | (69) | |
| Amounts reclassified from AOCI | | 2 | | | 0 | | | 0 | | | 2 | |
| Other comprehensive income (loss) attributable to UGI | | 2 | | | (36) | | | (33) | | | (67) | |
| AOCI — March 31, 2020 | | $ | (24) | | | $ | (54) | | | $ | (152) | | | $ | (230) | |
| | Six Months Ended March 31, 2021 | | Postretirement Benefit Plans | | Derivative Instruments | | Foreign Currency | | Total | |
| Three Months Ended December 31, 2021 | | Three Months Ended December 31, 2021 | | 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 | | — | | | 10 | | | (32) | | | (22) | |
| Amounts reclassified from AOCI | | Amounts reclassified from AOCI | | 2 | | | 4 | | | — | | | 6 | |
| Other comprehensive income (loss) attributable to UGI | | Other comprehensive income (loss) attributable to UGI | | 2 | | | 14 | | | (32) | | | (16) | |
| AOCI — December 31, 2021 | | AOCI — December 31, 2021 | | $ | (15) | | | $ | (19) | | | $ | (122) | | | $ | (156) | |
| | Three Months Ended December 31, 2020 | | Three Months Ended December 31, 2020 | | 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 | | | 7 | | | 11 | | Other comprehensive income before reclassification adjustments | | — | | | — | | | 63 | | | 63 | |
| Amounts reclassified from AOCI | Amounts reclassified from AOCI | | 1 | | | 9 | | | 0 | | | 10 | | Amounts reclassified from AOCI | | — | | | 5 | | | — | | | 5 | |
| | Other comprehensive income attributable to UGI | Other comprehensive income attributable to UGI | | 1 | | | 13 | | | 7 | | | 21 | | Other comprehensive income attributable to UGI | | — | | | 5 | | | 63 | | | 68 | |
| | AOCI — March 31, 2021 | | $ | (25) | | | $ | (41) | | | $ | (60) | | | $ | (126) | | |
| | Six Months Ended March 31, 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 | | | (30) | | | 14 | | | (16) | | |
| Amounts reclassified from AOCI | | 2 | | | 1 | | | 0 | | | 3 | | |
| | Other comprehensive income (loss) attributable to UGI | | 2 | | | (29) | | | 14 | | | (13) | | |
| AOCI — March 31, 2020 | | $ | (24) | | | $ | (54) | | | $ | (152) | | | $ | (230) | | |
| AOCI — December 31, 2020 | | AOCI — December 31, 2020 | | $ | (26) | | | $ | (49) | | | $ | (4) | | | $ | (79) | |
Note 1314 — 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 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.
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 March 31, 2021 | | Total | | Eliminations | | AmeriGas
Propane | | UGI International | | Midstream & Marketing | | UGI
Utilities | | Corporate
& Other (a) | |
| Three Months Ended December 31, 2021 | | Three Months Ended December 31, 2021 | | Total | | Eliminations | | AmeriGas
Propane | | UGI International | | Midstream & Marketing | | Utilities | | Corporate
& Other (a) |
| Revenues from external customers | Revenues from external customers | | $ | 2,581 | | | $ | — | | | $ | 940 | | | $ | 834 | | | $ | 392 | | | $ | 417 | | | $ | (2) | | Revenues from external customers | | $ | 2,673 | | | $ | — | | | $ | 778 | | | $ | 1,049 | | | $ | 441 | | | $ | 396 | | | $ | 9 | |
| Intersegment revenues | Intersegment revenues | | $ | — | | | $ | (118) | | (b) | $ | 0 | | | $ | 0 | | | $ | 92 | | | $ | 25 | | | $ | 1 | | Intersegment revenues | | $ | — | | | $ | (118) | | (b) | $ | — | | | $ | — | | | $ | 94 | | | $ | 23 | | | $ | 1 | |
| Cost of sales | Cost of sales | | $ | 1,274 | | | $ | (117) | | (b) | $ | 431 | | | $ | 491 | | | $ | 343 | | | $ | 202 | | | $ | (76) | | Cost of sales | | $ | 2,120 | | | $ | (117) | | (b) | $ | 418 | | | $ | 793 | | | $ | 413 | | | $ | 200 | | | $ | 413 | |
| Operating income | | $ | 671 | | | $ | 0 | | | $ | 239 | | | $ | 147 | | | $ | 90 | | | $ | 142 | | | $ | 53 | | |
| Operating (loss) income | | Operating (loss) income | | $ | (68) | | | $ | — | | | $ | 86 | | | $ | 78 | | | $ | 74 | | | $ | 96 | | | $ | (402) | |
| Income from equity investees | Income from equity investees | | 10 | | | 0 | | | 0 | | | 0 | | | 10 | | (c) | 0 | | | 0 | | Income from equity investees | | 8 | | | — | | | — | | | — | | | 8 | | | — | | | — | |
| | Loss on extinguishments of debt | | Loss on extinguishments of debt | | (11) | | | — | | | — | | | — | | | — | | | — | | | (11) | |
| Other non-operating income, net | Other non-operating income, net | | 18 | | | 0 | | | 0 | | | 2 | | | 0 | | | 0 | | | 16 | | Other non-operating income, net | | 10 | | | — | | | — | | | 4 | | | — | | | 2 | | | 4 | |
| Earnings before interest expense and income taxes | | 699 | | | 0 | | | 239 | | | 149 | | | 100 | | | 142 | | | 69 | | |
| (Loss) earnings before interest expense and income taxes | | (Loss) earnings before interest expense and income taxes | | (61) | | | — | | | 86 | | | 82 | | | 82 | | | 98 | | | (409) | |
| Interest expense | Interest expense | | (78) | | | 0 | | | (40) | | | (6) | | | (11) | | | (14) | | | (7) | | Interest expense | | (81) | | | — | | | (41) | | | (7) | | | (10) | | | (16) | | | (7) | |
| Income before income taxes | | $ | 621 | | | $ | 0 | | | $ | 199 | | | $ | 143 | | | $ | 89 | | | $ | 128 | | | $ | 62 | | |
| (Loss) income before income taxes | | (Loss) income before income taxes | | $ | (142) | | | $ | — | | | $ | 45 | | | $ | 75 | | | $ | 72 | | | $ | 82 | | | $ | (416) | |
| | Depreciation and amortization | Depreciation and amortization | | $ | 126 | | | $ | 0 | | | $ | 44 | | | $ | 34 | | | $ | 19 | | | $ | 29 | | | $ | 0 | | Depreciation and amortization | | $ | 129 | | | $ | — | | | $ | 44 | | | $ | 31 | | | $ | 19 | | | $ | 35 | | | $ | — | |
| Capital expenditures (including the effects of accruals) | Capital expenditures (including the effects of accruals) | | $ | 124 | | | $ | 0 | | | $ | 30 | | | $ | 18 | | | $ | 12 | | | $ | 64 | | | $ | 0 | | Capital expenditures (including the effects of accruals) | | $ | 175 | | | $ | — | | | $ | 35 | | | $ | 23 | | | $ | 6 | | | $ | 111 | | | $ | — | |
| As of December 31, 2021 | | As of December 31, 2021 | |
| Total assets | | Total assets | | $ | 16,800 | | | $ | (269) | | | $ | 4,614 | | | $ | 4,197 | | | $ | 2,999 | | | $ | 5,071 | | | $ | 188 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| Three Months Ended March 31, 2020 | | Total | | Eliminations | | AmeriGas
Propane | | UGI International | | Midstream & Marketing | | UGI
Utilities | | Corporate
& Other (a) |
| Revenues from external customers | | $ | 2,229 | | | $ | — | | | $ | 802 | | | $ | 704 | | | $ | 344 | | | $ | 377 | | | $ | 2 | |
| Intersegment revenues | | $ | — | | | $ | (94) | | (b) | $ | 0 | | | $ | 0 | | | $ | 78 | | | $ | 16 | | | $ | 0 | |
| Cost of sales | | $ | 1,248 | | | $ | (94) | | (b) | $ | 325 | | | $ | 402 | | | $ | 299 | | | $ | 185 | | | $ | 131 | |
| Operating income (loss) | | $ | 362 | | | $ | 0 | | | $ | 206 | | | $ | 117 | | | $ | 71 | | | $ | 116 | | | $ | (148) | |
| | | | | | | | | | | | | | |
| Income from equity investees | | 8 | | | 0 | | | 0 | | | 0 | | | 8 | | (c) | 0 | | | 0 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| Other non-operating income, net | | 12 | | | 0 | | | 0 | | | 9 | | | 0 | | | 0 | | | 3 | |
| Earnings (loss) before interest expense and income taxes | | 382 | | | 0 | | | 206 | | | 126 | | | 79 | | | 116 | | | (145) | |
| Interest expense | | (83) | | | 0 | | | (41) | | | (8) | | | (11) | | | (13) | | | (10) | |
| Income (loss) before income taxes | | $ | 299 | | | $ | 0 | | | $ | 165 | | | $ | 118 | | | $ | 68 | | | $ | 103 | | | $ | (155) | |
| | | | | | | | | | | | | | |
| Depreciation and amortization | | $ | 121 | | | $ | 0 | | | $ | 45 | | | $ | 31 | | | $ | 19 | | | $ | 26 | | | $ | 0 | |
| Capital expenditures (including the effects of accruals) | | $ | 158 | | | $ | 0 | | | $ | 35 | | | $ | 22 | | | $ | 23 | | | $ | 78 | | | $ | 0 | |
| | Six Months Ended March 31, 2021 | | Total | | Eliminations | | AmeriGas
Propane | | UGI International | | Midstream & Marketing | | UGI
Utilities | | Corporate
& Other (a) | |
| Three Months Ended December 31, 2020 | | Three Months Ended December 31, 2020 | | Total | | Eliminations | | AmeriGas
Propane | | UGI International | | Midstream & Marketing | | Utilities | | Corporate
& Other (a) |
| Revenues from external customers | Revenues from external customers | | $ | 4,513 | | | $ | — | | | $ | 1,606 | | | $ | 1,534 | | | $ | 671 | | | $ | 702 | | | $ | 0 | | Revenues from external customers | | $ | 1,932 | | | $ | — | | | $ | 666 | | | $ | 700 | | | $ | 279 | | | $ | 285 | | | $ | 2 | |
| Intersegment revenues | Intersegment revenues | | $ | — | | | $ | (196) | | (b) | $ | 0 | | | $ | 0 | | | $ | 154 | | | $ | 40 | | | $ | 2 | | Intersegment revenues | | $ | — | | | $ | (78) | | (b) | $ | — | | | $ | — | | | $ | 62 | | | $ | 15 | | | $ | 1 | |
| Cost of sales | Cost of sales | | $ | 2,107 | | | $ | (194) | | (b) | $ | 703 | | | $ | 874 | | | $ | 580 | | | $ | 334 | | | $ | (190) | | Cost of sales | | $ | 833 | | | $ | (77) | | (b) | $ | 272 | | | $ | 383 | | | $ | 237 | | | $ | 132 | | | $ | (114) | |
| Operating income | Operating income | | $ | 1,173 | | | $ | 0 | | | $ | 380 | | | $ | 282 | | | $ | 142 | | | $ | 219 | | | $ | 150 | | Operating income | | $ | 502 | | | $ | — | | | $ | 141 | | | $ | 135 | | | $ | 52 | | | $ | 77 | | | $ | 97 | |
| Income from equity investees | Income from equity investees | | 17 | | | 0 | | | 0 | | | 0 | | | 17 | | (c) | 0 | | | 0 | | Income from equity investees | | 7 | | | — | | | — | | | — | | | 7 | | | — | | | — | |
| | Other non-operating (expense) income, net | Other non-operating (expense) income, net | | (1) | | | 0 | | | 0 | | | 3 | | | 0 | | | 1 | | | (5) | | Other non-operating (expense) income, net | | (19) | | | — | | | — | | | 1 | | | — | | | 1 | | | (21) | |
| Earnings before interest expense and income taxes | Earnings before interest expense and income taxes | | 1,189 | | | 0 | | | 380 | | | 285 | | | 159 | | | 220 | | | 145 | | Earnings before interest expense and income taxes | | 490 | | | — | | | 141 | | | 136 | | | 59 | | | 78 | | | 76 | |
| Interest expense | Interest expense | | (156) | | | 0 | | | (80) | | | (13) | | | (21) | | | (28) | | | (14) | | Interest expense | | (78) | | | — | | | (40) | | | (7) | | | (10) | | | (14) | | | (7) | |
| Income before income taxes | Income before income taxes | | $ | 1,033 | | | $ | 0 | | | $ | 300 | | | $ | 272 | | | $ | 138 | | | $ | 192 | | | $ | 131 | | Income before income taxes | | $ | 412 | | | $ | — | | | $ | 101 | | | $ | 129 | | | $ | 49 | | | $ | 64 | | | $ | 69 | |
| | Depreciation and amortization | Depreciation and amortization | | $ | 250 | | | $ | 0 | | | $ | 87 | | | $ | 67 | | | $ | 37 | | | $ | 58 | | | $ | 1 | | Depreciation and amortization | | $ | 124 | | | $ | — | | | $ | 43 | | | $ | 33 | | | $ | 18 | | | $ | 29 | | | $ | 1 | |
| Capital expenditures (including the effects of accruals) | Capital expenditures (including the effects of accruals) | | $ | 276 | | | $ | 0 | | | $ | 57 | | | $ | 47 | | | $ | 29 | | | $ | 143 | | | $ | 0 | | Capital expenditures (including the effects of accruals) | | $ | 152 | | | $ | — | | | $ | 27 | | | $ | 29 | | | $ | 17 | | | $ | 79 | | | $ | — | |
| As of March 31, 2021 | | |
| As of December 31, 2020 | | As of December 31, 2020 | |
| Total assets | Total assets | | $ | 14,945 | | | $ | (227) | | | $ | 4,515 | | | $ | 3,576 | | | $ | 2,893 | | | $ | 3,982 | | | $ | 206 | | Total assets | | $ | 14,725 | | | $ | (353) | | | $ | 4,471 | | | $ | 3,564 | | | $ | 2,851 | | | $ | 3,959 | | | $ | 233 | |
|
UGI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Currency in millions, except per share amounts and where indicated otherwise)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended March 31, 2020 | | Total | | Eliminations | | AmeriGas
Propane | | UGI International | | Midstream & Marketing | | UGI
Utilities | | Corporate
& Other (a) |
| Revenues from external customers | | $ | 4,236 | | | $ | — | | | $ | 1,532 | | | $ | 1,355 | | | $ | 653 | | | $ | 691 | | | $ | 5 | |
| Intersegment revenues | | $ | — | | | $ | (174) | | (b) | $ | 0 | | | $ | 0 | | | $ | 142 | | | $ | 31 | | | $ | 1 | |
| Cost of sales | | $ | 2,256 | | | $ | (173) | | (b) | $ | 614 | | | $ | 770 | | | $ | 563 | | | $ | 336 | | | $ | 146 | |
| Operating income (loss) | | $ | 739 | | | $ | 0 | | | $ | 371 | | | $ | 213 | | | $ | 126 | | | $ | 208 | | | $ | (179) | |
| Income from equity investees | | 15 | | | 0 | | | 0 | | | 0 | | | 15 | | (c) | 0 | | | 0 | |
| | | | | | | | | | | | | | |
| Other non-operating income (expense), net | | 0 | | | 0 | | | 0 | | | 13 | | | 0 | | | 0 | | | (13) | |
| Earnings (loss) before interest expense and income taxes | | 754 | | | 0 | | | 371 | | | 226 | | | 141 | | | 208 | | | (192) | |
| Interest expense | | (167) | | | 0 | | | (83) | | | (15) | | | (23) | | | (27) | | | (19) | |
| Income (loss) before income taxes | | $ | 587 | | | $ | 0 | | | $ | 288 | | | $ | 211 | | | $ | 118 | | | $ | 181 | | | $ | (211) | |
| | | | | | | | | | | | | | |
| Depreciation and amortization | | $ | 240 | | | $ | 0 | | | $ | 89 | | | $ | 62 | | | $ | 37 | | | $ | 52 | | | $ | 0 | |
| Capital expenditures (including the effects of accruals) | | $ | 311 | | | $ | 0 | | | $ | 74 | | | $ | 42 | | | $ | 46 | | | $ | 149 | | | $ | 0 | |
| As of March 31, 2020 | | | | | | | | | | | | | | |
| Total assets | | $ | 14,136 | | | $ | (370) | | | $ | 4,509 | | | $ | 3,227 | | | $ | 2,824 | | | $ | 3,730 | | | $ | 216 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
UGI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Currency in millions, except per share amounts and where indicated otherwise)
(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 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 | | $ | 0 | | | $ | 0 | | | $ | (2) | | | |
| Net gains on commodity derivative instruments not associated with current-period transactions | | Cost of sales | | $ | 27 | | | $ | 48 | | | $ | 1 | | | |
| Unrealized gains on foreign currency derivative instruments | | Other non-operating income (expense), net | | $ | 0 | | | $ | 15 | | | $ | 0 | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Business transformation expenses | | Operating and administrative expenses | | $ | (14) | | | $ | (3) | | | $ | 0 | | | |
| | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 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 (losses) gains on commodity derivative instruments not associated with current-period transactions | | Cost of sales | | $ | (21) | | | $ | (118) | | | $ | 6 | | | |
| Unrealized gains on foreign currency derivative instruments | | Other non-operating income (expense), net | | $ | 0 | | | $ | 2 | | | $ | 0 | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Acquisition and integration expenses associated with the CMG Acquisition | | Operating and administrative expenses | | $ | 0 | | | $ | 0 | | | $ | (1) | | | |
| Business transformation expenses | | Operating and administrative expenses | | $ | (13) | | | $ | (6) | | | $ | 0 | | | |
| | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 | | $ | 0 | | | $ | (5) | | | $ | 0 | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Business transformation expenses | | Operating and administrative expenses | | $ | (26) | | | $ | (6) | | | $ | 0 | | | |
| | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended December 31, 2021 | | Location on Income Statement | | AmeriGas Propane | | UGI International | | Midstream & Marketing | | |
| Net gains on commodity derivative instruments not associated with current-period transactions | | Revenues | | $ | — | | | $ | 3 | | | $ | 7 | | | |
| Net losses on commodity derivative instruments not associated with current-period transactions | | Cost of sales | | $ | (69) | | | $ | (212) | | | $ | (132) | | | |
| Unrealized gains on foreign currency derivative instruments | | Other non-operating income (expense), net | | $ | — | | | $ | 6 | | | $ | — | | | |
| Loss on extinguishment of debt | | Loss on extinguishment of debt | | $ | — | | | $ | (11) | | | $ | — | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | Six Months Ended March 31, 2020 | | Location on Income Statement | | AmeriGas Propane | | UGI International | | Midstream & Marketing | | |
| Three Months Ended December 31, 2020 | | Three Months Ended December 31, 2020 | | Location on Income Statement | | AmeriGas Propane | | UGI International | | Midstream & Marketing | |
| Net gains on commodity derivative instruments not associated with current-period transactions | Net gains on commodity derivative instruments not associated with current-period transactions | | Revenues | | $ | 0 | | | $ | 0 | | | $ | 5 | | | Net gains on commodity derivative instruments not associated with current-period transactions | | Revenues | | $ | — | | | $ | — | | | $ | 2 | | |
| Net losses on commodity derivative instruments not associated with current-period transactions | | Cost of sales | | $ | (12) | | | $ | (132) | | | $ | (3) | | | |
| Net gains (losses) on commodity derivative instruments not associated with current-period transactions | | Net gains (losses) on commodity derivative instruments not associated with current-period transactions | | Cost of sales | | $ | 37 | | | $ | 106 | | | $ | (29) | | |
| Unrealized losses on foreign currency derivative instruments | Unrealized losses on foreign currency derivative instruments | | Other non-operating income (expense), net | | $ | 0 | | | $ | (13) | | | $ | 0 | | | Unrealized losses on foreign currency derivative instruments | | Other non-operating income (expense), net | | $ | — | | | $ | (20) | | | $ | — | | |
| Acquisition and integration expenses associated with the CMG Acquisition | | Operating and administrative expenses | | $ | 0 | | | $ | 0 | | | $ | (2) | | | |
| | Business transformation expenses | Business transformation expenses | | Operating and administrative expenses | | $ | (24) | | | $ | (12) | | | $ | 0 | | | Business transformation expenses | | Operating and administrative expenses | | $ | (12) | | | $ | (3) | | | $ | — | | |
|
(b)Represents the elimination of intersegment transactions principally among Midstream & Marketing, UGI Utilities and AmeriGas Propane.
UGI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Currency in millions, except per share amounts and where indicated otherwise)
(c)Includes AFUDC associated with PennEast and equity income primarily from Pennant and Pine Run.
Note 1415 — 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, we recognized expenses of $17 and $19 duringDuring the three months ended MarchDecember 31, 2021 and 2020, respectively, and $32 and $36 during the six months ended March 31, 2021 and 2020, respectively. These expenseswe incurred $15 of costs 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. Amounts reflected in “Operating and administrative expenses” on the Condensed Consolidated Statement of Income in connection with this initiative during the three and six months ended MarchDecember 31, 2021 and 2020, were not material.
Note 1516 — 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-placeshelter-in-
UGI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Currency in millions, except per share amounts and where indicated otherwise)
place orders, quarantines and similar restrictions, the Company implemented a variety of procedures to protect our 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 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; 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, the 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.
Note 17 — Subsequent Event
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 $190. The Stonehenge business includes a natural gas gathering system, located in Western Pennsylvania, includes 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 with borrowings on the Energy Services Credit Agreement and cash on hand. We expect to refinance these borrowings on a long-term basis in the near future.
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 the current conflicts in the Middle East and the withdrawal of the United Kingdom from the European Union, 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; and (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, including the potential reversal of existing tax legislation that is beneficial to us; and whether such benefits will remain available(26) our ability to overcome supply chain issues that may result in the future.delays or shortages in, as well as increased costs of, equipment, materials or other resources that are critical to our business operations.
These factors, and those factors set forth in Item 1A. Risk Factors in 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 2021 three-month period with the 2020 three-month period and the 2021 six-month period with the 2020 six-month period. Our analysesanalysis of results of operations should be read in conjunction with the segment information included in Note 1314 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
UGI CORPORATION AND SUBSIDIARIES
through March. As a result, our operating results, excluding the effects of gains and losses on commodity derivative
UGI CORPORATION AND SUBSIDIARIES
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 through the issuance of debt and/or equity-linked securities and existing liquidity.
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 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
UGI CORPORATION AND SUBSIDIARIES
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 (loss) income attributable to UGI Corporation, the most directly comparable GAAP measure, to adjusted net income attributable to UGI Corporation, and reconcile diluted (loss) earnings per share, the most directly comparable GAAP measure, to adjusted diluted earnings per share:
UGI CORPORATION AND SUBSIDIARIES
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Adjusted net income attributable to UGI Corporation | | Three Months Ended
March 31, | | Six Months Ended
March 31, |
| (Dollars in millions) | | 2021 | | 2020 | | 2021 | | 2020 |
| AmeriGas Propane | | $ | 150 | | | $ | 122 | | | $ | 224 | | | $ | 213 | |
| UGI International | | 99 | | | 75 | | | 191 | | | 148 | |
| Midstream & Marketing | | 64 | | | 50 | | | 99 | | | 86 | |
| UGI Utilities | | 99 | | | 82 | | | 148 | | | 143 | |
| Corporate & Other (a) | | 77 | | | (103) | | | 130 | | | (152) | |
| Net income attributable to UGI Corporation | | 489 | | | 226 | | | 792 | | | 438 | |
| Net (gains) losses on commodity derivative instruments not associated with current-period transactions (net of tax of $22, $(41), $53, and $(43), respectively) | | (52) | | | 89 | | | (137) | | | 99 | |
| Unrealized (gains) losses on foreign currency derivative instruments (net of tax of $4, $1, $(1), and $(3), respectively) | | (11) | | | (1) | | | 4 | | | 10 | |
| | | | | | | | |
| | | | | | | | |
| Acquisition and integration expenses associated with the CMG Acquisition (net of tax of $0, $(1), $0, and $(1), respectively) | | — | | | — | | | — | | | 1 | |
| Acquisition expenses associated with the pending Mountaineer Acquisition (net of tax of $0, $0, $(1), and $0, respectively) | | 1 | | | — | | | 2 | | | — | |
| Business transformation expenses (net of tax of $(5), $(5), $(9), and $(10), respectively) | | 14 | | | 14 | | | 27 | | | 26 | |
| Impact of change in Italian tax law (b) | | (23) | | | — | | | (23) | | | — | |
| | | | | | | | |
| Total adjustments (a) (c) | | (71) | | | 102 | | | (127) | | | 136 | |
| Adjusted net income attributable to UGI Corporation | | $ | 418 | | | $ | 328 | | | $ | 665 | | | $ | 574 | |
| | | | | | | | |
| | Three Months Ended
March 31, | | Six Months Ended
March 31, |
| Adjusted diluted earnings per share | | 2021 | | 2020 | | 2021 | | 2020 |
| AmeriGas Propane | | $ | 0.71 | | | $ | 0.58 | | | $ | 1.07 | | | $ | 1.01 | |
| UGI International | | 0.47 | | | 0.36 | | | 0.91 | | | 0.70 | |
| Midstream & Marketing | | 0.31 | | | 0.24 | | | 0.47 | | | 0.41 | |
| UGI Utilities | | 0.47 | | | 0.39 | | | 0.71 | | | 0.68 | |
| Corporate & Other (a) | | 0.37 | | | (0.50) | | | 0.61 | | | (0.72) | |
| Earnings per share - diluted | | 2.33 | | | 1.07 | | | 3.77 | | | 2.08 | |
| Net (gains) losses on commodity derivative instruments not associated with current-period transactions | | (0.25) | | | 0.43 | | | (0.65) | | | 0.47 | |
| Unrealized (gains) losses on foreign currency derivative instruments | | (0.05) | | | (0.01) | | | 0.02 | | | 0.05 | |
| | | | | | | | |
| | | | | | | | |
| 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 | | | 0.07 | | | 0.13 | | | 0.12 | |
| Impact of change in Italian tax law (b) | | (0.11) | | | — | | | (0.11) | | | — | |
| | | | | | | | |
| Total adjustments (a) | | (0.34) | | | 0.49 | | | (0.60) | | | 0.65 | |
| Adjusted earnings per share - diluted | | $ | 1.99 | | | $ | 1.56 | | | $ | 3.17 | | | $ | 2.73 | |
| | | | | | | | | | | | | | | | | | |
| Adjusted net income attributable to UGI Corporation | | | | Three Months Ended
December 31, |
| (Dollars in millions) | | | | | | 2021 | | 2020 |
| AmeriGas Propane | | | | | | $ | 34 | | | $ | 74 | |
| UGI International | | | | | | 57 | | | 92 | |
| Midstream & Marketing | | | | | | 51 | | | 35 | |
| Utilities | | | | | | 63 | | | 49 | |
| Corporate & Other (a) | | | | | | (302) | | | 53 | |
| Net (loss) income attributable to UGI Corporation | | | | | | (97) | | | 303 | |
| Net losses (gains) on commodity derivative instruments not associated with current-period transactions (net of tax of $(111) and $31, respectively) | | | | | | 292 | | | (85) | |
| Unrealized (gains) losses on foreign currency derivative instruments (net of tax of $2 and $(5), respectively) | | | | | | (4) | | | 15 | |
| Loss on extinguishment of debt (net of tax of $(3) and $0, respectively) | | | | | | 8 | | | — | |
| Acquisition and integration expenses associated with the Mountaineer Acquisition (net of tax of $0 and $(1), respectively) | | | | | | 1 | | | 1 | |
| Business transformation expenses (net of tax of $(1) and $(4), respectively) | | | | | | 1 | | | 13 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Total adjustments (a) (b) | | | | | | 298 | | | (56) | |
| Adjusted net income attributable to UGI Corporation | | | | | | $ | 201 | | | $ | 247 | |
| | | | | | | | |
| | | | Three Months Ended
December 31, |
| Adjusted diluted earnings per share | | | | | | 2021 | | 2020 |
| AmeriGas Propane | | | | | | $ | 0.16 | | | $ | 0.35 | |
| UGI International | | | | | | 0.26 | | | 0.44 | |
| Midstream & Marketing | | | | | | 0.24 | | | 0.17 | |
| Utilities | | | | | | 0.29 | | | 0.23 | |
| Corporate & Other (a) | | | | | | (1.41) | | | 0.25 | |
| (Loss) earnings per share - diluted (c) | | | | | | (0.46) | | | 1.44 | |
| Net losses (gains) on commodity derivative instruments not associated with current-period transactions | | | | | | 1.37 | | | (0.40) | |
| Unrealized (gains) losses on foreign currency derivative instruments | | | | | | (0.02) | | | 0.07 | |
| Loss on extinguishment of debt | | | | | | 0.03 | | | — | |
| Acquisition and integration expenses associated with the Mountaineer Acquisition | | | | | | — | | | 0.01 | |
| Business transformation expenses | | | | | | 0.01 | | | 0.06 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Total adjustments (a) | | | | | | 1.39 | | | (0.26) | |
| Adjusted earnings per share - diluted (c) | | | | | | $ | 0.93 | | | $ | 1.18 | |
(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 CODM in assessing segment performance and allocating resources. See Note 1314 to Condensed Consolidated Financial
UGI CORPORATION AND SUBSIDIARIES
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.
(c)The loss per share for the three months ended December 31, 2021, was determined excluding the effect of 6.49 million dilutive shares as the impact of such shares would have been antidilutive to the net loss for the period.Adjusted earnings per share for the three months ended December 31, 2021, was determined based upon fully diluted shares of 216.16 million.
UGI CORPORATION AND SUBSIDIARIES
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 2021 three-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 and its resulting impact on the valuation of certain derivatives 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 these external factors and the associated extreme cost volatility are temporary and their impact will be mitigated by our continued margin management efforts, expense 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 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, 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; 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.
2021 three-month period compared with 2020 three-month period
Discussion. Net incomeThe net loss attributable to UGI Corporation for the 2021 three-month period was $489$97 million (equal to $2.33$0.46 loss per diluted share) compared to $226net income attributable to UGI Corporation of $303 million (equal to $1.07$1.44 per diluted share) during the 2020 three-month period. Net income attributable to UGI Corporation in the 2021 three-month period reflects net gainsperiod. These results include losses from changes in unrealized commodity derivative instruments and certain foreign currency derivative instruments of $288 million during the 2021 three-month period compared to net losses on comparable instruments ingains of $70 million during the prior-year2020 three-month period. Net (loss) income attributable to UGI Corporation also reflects business transformation expenses of $14$1 million and $13 million, respectively, in both the 2021 and 2020 three-month periods, as well as a $23acquisition and integration expenses associated with Mountaineer of $1 million tax benefit in the during both periods. The 2021 three-month period related to an election made in connectionalso includes a loss on extinguishment of debt of $8 million associated with a tax law change in Italy. financing activities at UGI International.
UGI CORPORATION AND SUBSIDIARIES
Adjusted net income attributable to UGI Corporation for the 2021 three-month period was $418$201 million (equal to $1.99$0.93 per diluted share) compared to $328$247 million (equal to $1.56$1.18 per diluted share) during the 2020 three-month period.period. The increasedecrease in adjusted net income attributable to UGI Corporation during the 2021 three-month period largely reflects higherlower earnings contributions from each of our business segmentsLPG businesses which benefited from colderwere impacted by warmer weather in the U.S. compared to the prior-year period higher average LPG unit margins including effective margin management efforts, and the increase in UGIeffects of commodity price volatility on current-period margins. Results for the 2020 three-month period were also affected by a tax benefit under the CARES Act. These factors were partially offset by improved earnings from Utilities base rates that went into effect on January 1, 2021.
AmeriGas Propane’s adjusted net income attributable to UGI Corporation increased $28decreased $40 million in the 2021 three-month period. This increase was largelydecrease principally reflects lower retail propane margin primarily attributable to higher total margin on improved retaillower volumes reflecting colder weather compared to the prior-year periodsold and higher average unit margins dueoperating and administrative expenses primarily attributable to effective margin management efforts.
UGI International’s adjusted net income attributable to UGI Corporation increased $24decreased $35 million in the 2021 three-month period principally reflecting higherlower total margin which benefited from our energy marketing business, lower average LPG unit margins associated with increased commodity costs, and higher distribution and packaging costs associated with higher LPG retail volumes. This decrease was partially offset by colder weather compared to the prior-year period, improvedresulting in higher retail LPG volumes and average unit margins including effective margin management efforts, andsold, as well as, higher other operating income associated with the translation effectssale of stronger foreign currenciesassets.
Midstream & Marketing’s adjusted net income attributable to UGI Corporation increased $16 million in the 2021 three-month period. These positive factors were partially offset by lower realized gains on foreign currency exchange contractsperiod primarily attributable to higher margins related to renewable energy marketing activities and higher operating and administrative expensescapacity management compared to the prior-year period.
Midstream & Marketing’sUtilities’ adjusted net income attributable to UGI Corporation increased $14 million in the 2021 three-month period reflecting higher earnings attributable to natural gas and renewable energy activities including the impact of acquisitions and new assets placed into service, favorable capacity management margin, and lower operating and administrative expenses compared to the prior-year period.
UGI Utilities’ adjusted net income attributable to UGI Corporation increased $17 million in the 2021 three-month period compared to the prior-year period. The increase was largely related to incremental earnings attributable to higher Gas Utility margin reflecting the effectsacquisition of colder weather compared to the prior-year period and theMountaineer. The increase in base rates that went into effect on January 1, 2021. These positive factors were partially offset by higher depreciation expenses related to continued capital improvement activities compared toand the prior-year period.
2021 six-month period compared with 2020 six-month period
Discussion. Net income attributable to UGI Corporation for the 2021 six-month period was $792 million (equal to $3.77 per diluted share) compared to $438 million (equal to $2.08 per diluted share) during the 2020 six-month period. Net income attributable to UGI Corporation in the 2021 six-month period reflects net gains from changes in unrealized commodity derivative instruments and certain foreign currency derivative instruments compared to net losses on comparable instruments in the prior-year period. Net income attributable to UGI Corporation also reflects business transformation expensesimplementation of $27 million and $26 million, respectively, in the 2021 and 2020 six-month periods, as well as a $23 million tax benefit in the 2021 six-month period related to an election made in connection with a tax law change in Italy.
Adjusted net income attributable to UGI Corporation for the 2021 six-month period was $665 million (equal to $3.17 per diluted share) compared to $574 million (equal to $2.73 per diluted share) during the 2020 six-month period. The increase in adjusted net income attributable to UGI Corporation during the 2021 six-month period reflects higher earnings contributions from each of our business segments which benefited from colder weather compared to the prior-year period, effective expense
UGI CORPORATION AND SUBSIDIARIES
management efforts, the increase in base ratesDSIC at UGI Utilities, that went into effect on January 1,both effective during Fiscal 2021, and the effects of acquisitions and assets placed into service. These positive impacts were partially offset by the effects of COVID-19 comparedalso contributed to the prior-yearearnings improvement during the current-year period.
AmeriGas Propane’s adjusted net income attributable to UGI Corporation increased $11 million in the 2021 six-month period. This increase principally reflects lower operating and administrative expenses, including partial benefits related to ongoing transformation initiatives, 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.UGI International’s adjusted net income attributable to UGI Corporation increased $43 million in the 2021 six-month period principally reflecting higher total margin due to higher bulk and heating-related LPG retail volumes on colder weather compared to the prior-year period, and higher average LPG unit margins including effective margin management efforts. These positive factors were partially offset by higher operating and administrative expenses principally reflecting the translation effects of stronger foreign currencies compared to the prior-year period.Midstream & Marketing’s adjusted net income attributable to UGI Corporation increased $13 million in the 2021 six-month period largely driven by higher total margin attributable to capacity management, natural gas, and renewable energy activities compared to the prior-year period. These positive factors were partially offset by the absence of earnings contributions from assets divested in the prior year.UGI Utilities’ adjusted net income attributable to UGI Corporation increased $5 million in the 2021 six-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 the effects of colder weather compared to the prior-year period. These positive factors were largely offset by higher depreciation expense related to continued capital improvement activities, and slightly higher operating and administrative expenses compared to the prior-year period.
SEGMENT RESULTS OF OPERATIONS
2021 Three-Month Period Compared with the 2020 Three-Month Period
AmeriGas Propane
| | | For the three months ended March 31, | | 2021 | | 2020 | | Increase | |
| For the three months ended December 31, | | For the three months ended December 31, | | 2021 | | 2020 | | Increase (Decrease) |
| (Dollars in millions) | (Dollars in millions) | | | | | | | | | (Dollars in millions) | | | | | | | | |
| Revenues | Revenues | | $ | 940 | | | $ | 802 | | | $ | 138 | | | 17 | % | Revenues | | $ | 778 | | | $ | 666 | | | $ | 112 | | | 17 | % |
| Total margin (a) | Total margin (a) | | $ | 509 | | | $ | 477 | | | $ | 32 | | | 7 | % | Total margin (a) | | $ | 360 | | | $ | 394 | | | $ | (34) | | | (9) | % |
| Operating and administrative expenses | Operating and administrative expenses | | $ | 233 | | | $ | 231 | | | $ | 2 | | | 1 | % | Operating and administrative expenses | | $ | 240 | | | $ | 221 | | | $ | 19 | | | 9 | % |
| Operating income/earnings before interest expense and income taxes | Operating income/earnings before interest expense and income taxes | | $ | 239 | | | $ | 206 | | | $ | 33 | | | 16 | % | Operating income/earnings before interest expense and income taxes | | $ | 86 | | | $ | 141 | | | $ | (55) | | | (39) | % |
| Retail gallons sold (millions) | Retail gallons sold (millions) | | 356 | | | 340 | | | 16 | | | 5 | % | Retail gallons sold (millions) | | 241 | | | 276 | | | (35) | | | (13) | % |
| Heating degree days—% warmer than normal (b) | Heating degree days—% warmer than normal (b) | | (2.2) | % | | (10.7) | % | | — | | | — | | Heating degree days—% warmer than normal (b) | | (9.9) | % | | (4.6) | % | | — | | | — | |
(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 three-month period were 2.2%9.9% warmer than normal but 8.4% colderand 6.2% warmer than the prior-year period. Total retail gallons sold decreased 13% during the 2021 three-month period were 5% higher principally reflecting higher residential and resale volumesthe impacts of weather that was warmer than the prior-year period. The decrease in retail gallons sold was also partially attributable to colder weather compared to the prior-year period and pandemic-related usage. These increases were partially offset byeffect of higher commodity prices on customer usage, the effectsimpact from certain challenges associated with the implementation of structural conservation and other residual volume lossour new operating business model in the prior year and the continued impact of COVID-19 on commercialcylinder exchange and motor fuelresale volumes.
UGI CORPORATION AND SUBSIDIARIES
Total revenues increased $138$112 million during the 2021 three-month period largely reflecting higher average retail and wholesale propane selling prices ($104170 million) and the higher retail propanewholesale volumes sold ($3314 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 ($72 million). Average daily wholesale propane commodity prices during the 2021 three-month period at Mont Belvieu, Texas, one of the major supply points in the U.S., were significantlyapproximately 125% higher during the 2021 three-month period (approximately 143%) compared tothan such prices during the prior-year2020 three-month period.
Total cost of sales increased $106$146 million during the 2021 three-month period principally reflectinglargely attributable to the higher average total propane product costs ($88160 million) and higher totalwholesale propane volumes sold ($1713 million).
UGI CORPORATION AND SUBSIDIARIES
AmeriGas Propane totalsales were partially offset by the decrease in retail propane volumes sold ($29 million). Total margin increased $32decreased $34 million in the 2021 three-month period reflectinglargely attributable to the higherlower retail propane volumes ($2043 million) and higher average retail unit margins including ($15 million) compared to the prior-year period due to effective margin management efforts. These positive impacts were partially offset by lower non-propane margin attributable to fees and serviceshigher average propane selling prices ($310 million).
Operating income and earnings before interest expense and income taxes both increased $33decreased $55 million during the 2021 three-month period principallyprimarily reflecting the increasedecrease in total margin. Operatingmargin and higher operating and administrative expenses were slightly higher($19 million) compared to the prior-year period. The increase in the 2021 three-month period reflecting,operating and administrative expenses reflects, among other things, higher employee related cost primarily attributable to incentive compensationexpenses associated with general insurance ($6 million), vehicle fuel ($3 million), increasedbad debt reserves ($3 million), advertising costsexpenses ($2 million) and higher telecommunications expenses ($2 million) partially offset by lower general insurance costs ($5 million). Operating and administrative expenses continue to reflect the partial benefits relatedcompared to the previously mentioned ongoing business transformation initiatives.prior-year period. The increase in these expenses were driven, in part, by the inflationary cost environment.
UGI International
| | | For the three months ended March 31, | | 2021 | | 2020 | | Increase | |
| For the three months ended December 31, | | For the three months ended December 31, | | 2021 | | 2020 | | Increase (Decrease) |
| (Dollars in millions) | (Dollars in millions) | | | | | | | | | (Dollars in millions) | | | | | | | | |
| Revenues | Revenues | | $ | 834 | | | $ | 704 | | | $ | 130 | | | 18 | % | Revenues | | $ | 1,049 | | | $ | 700 | | | $ | 349 | | | 50 | % |
| Total margin (a) | Total margin (a) | | $ | 343 | | | $ | 295 | | | $ | 48 | | | 16 | % | Total margin (a) | | $ | 256 | | | $ | 317 | | | $ | (61) | | | (19) | % |
| Operating and administrative expenses | Operating and administrative expenses | | $ | 164 | | | $ | 147 | | | $ | 17 | | | 12 | % | Operating and administrative expenses | | $ | 161 | | | $ | 157 | | | $ | 4 | | | 3 | % |
| Operating income | Operating income | | $ | 147 | | | $ | 117 | | | $ | 30 | | | 26 | % | Operating income | | $ | 78 | | | $ | 135 | | | $ | (57) | | | (42) | % |
| Earnings before interest expense and income taxes | Earnings before interest expense and income taxes | | $ | 149 | | | $ | 126 | | | $ | 23 | | | 18 | % | Earnings before interest expense and income taxes | | $ | 82 | | | $ | 136 | | | $ | (54) | | | (40) | % |
| LPG retail gallons sold (millions) | LPG retail gallons sold (millions) | | 242 | | | 230 | | | 12 | | | 5 | % | LPG retail gallons sold (millions) | | 249 | | | 236 | | | 13 | | | 6 | % |
| Heating degree days—% warmer than normal (b) | | (3.4) | % | | (14.7) | % | | — | | | — | | |
| Heating degree days—% colder (warmer) than normal (b) | | Heating degree days—% colder (warmer) than normal (b) | | 5.0 | % | | (2.0) | % | | — | | | — | |
(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 2021 three-month period were 3.4% warmer5.0% colder than normal but 11.8%and 6.6% colder than the prior-year period. Total LPG retail gallons sold during the 2021 three-month period increased 5% reflecting higher bulk volumes attributable to increased heating-related bulk sales related to colder weather and higher cylinder volumes6% compared to the prior-year period. These volume improvementsperiod largely attributable to the colder weather which positively impacted heating-related bulk volumes, favorable crop drying campaigns and the recovery of certain autogas volumes that were partially offsetnegatively impacted by the continued impact of COVID-19 on certain commercial and industrial volumes.COVID-19. Average wholesale prices for propane and butane during the 2021 three-month period in northwest Europe were approximately 47%100% and 13%97% higher, respectively, compared with 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 2021 and 2020 three-month periods, the average unweighted euro-to-dollar translation rates were approximately $1.21$1.14 and $1.10,$1.19, respectively, and the average unweighted British pound sterling-to-dollar translation rates were approximately $1.38$1.35 and $1.28,$1.32, 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 $13$4 million in the 2021 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 realized net gains of $2$4 million and $9$1 million respectively, in the 2021 and 2020 three-month periods.periods, respectively.
UGI International revenues and cost of sales increased $130$349 million and $82$410 million, respectively, during the 2021 three-month period compared to the prior-year period. The increase in both revenues and cost of sales principally reflects the translation effects of stronger foreign currencies (approximately $69 million and $40 million, respectively), the effects of higher average LPGbutane and propane selling prices and product costs compared to the prior-year period and the previously mentioned increase in retail LPG volumes. Energy marketing activitiesimpact of
UGI CORPORATION AND SUBSIDIARIES
during the 2021 three-month period also contributed to the increased revenuessignificant increases and cost of sales largely related to highervolatility in natural gas volumes compared toand power prices on our energy marketing business. These increases were slightly offset by the prior-year period.translation effects of weaker foreign currencies (approximately $37 million and $26 million, respectively).
UGI International total margin increased $48decreased $61 million during the 2021 three-month period primarily reflecting lower total margin from our energy marketing business and lower average LPG unit margins which reflect the effects of higher costs of energy conservation certificates, higher product costs and a higher concentration of low margin medium and large bulk volumes compared to the prior-year period. The lower total margin from our energy marketing business is largely due to the impact of increasing commodity costs associated with higher-than-anticipated volumes purchased by certain customers through fixed price sales contracts. Portions of this margin decrease will be recovered in future periods as their effect was amplified by the significant commodity price volatility experienced within the 2021 three-month period. These impacts were partially mitigated by the translation effects of strongerweaker foreign currencies (approximately $29$11 million), higher average LPG unit margins and the previously mentioned increase in bulk and cylinder volumes. These positive impacts were partially offset by lower autogas and other low-margin volumes. The increase in average LPG unit margins includes the continued effects of margin management efforts..
UGI International operating income and earnings before interest expense and income taxes increased $30decreased $57 million and $23$54 million, respectively, during the 2021 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 byand higher operating and administrative expenses ($174 million) largely attributable topartially offset by higher other operating income associated with gains on the effectssale of stronger foreign currencies (approximately $13 million) compared to the prior-year period. Higher maintenance and distribution costs related to the increased volumes also contributed to theassets. The increase in operating and administrative expenses substantially offset by lower employeeis primarily attributable to distribution and packaging costs travel and entertainment expenses and uncollectible accounts expense.associated with higher retail LPG volumes sold. The increasedecrease in earnings before interest expense and income taxes in the 2021 three-month period largely reflects the higherdecrease in operating income and was 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 ($73 million).
Midstream & Marketing
| | | For the three months ended March 31, | | 2021 | | 2020 | | Increase (Decrease) | |
| For the three months ended December 31, | | For the three months ended December 31, | | 2021 | | 2020 | | Increase (Decrease) |
| (Dollars in millions) | (Dollars in millions) | | | | | | | | | (Dollars in millions) | | | | | | | | |
| Revenues | Revenues | | $ | 484 | | | $ | 422 | | | $ | 62 | | | 15 | % | Revenues | | $ | 535 | | | $ | 341 | | | $ | 194 | | | 57 | % |
| Total margin (a) | Total margin (a) | | $ | 141 | | | $ | 123 | | | $ | 18 | | | 15 | % | Total margin (a) | | $ | 122 | | | $ | 104 | | | $ | 18 | | | 17 | % |
| Operating and administrative expenses | Operating and administrative expenses | | $ | 28 | | | $ | 34 | | | $ | (6) | | | (18) | % | Operating and administrative expenses | | $ | 29 | | | $ | 32 | | | $ | (3) | | | (9) | % |
| Operating income | Operating income | | $ | 90 | | | $ | 71 | | | $ | 19 | | | 27 | % | Operating income | | $ | 74 | | | $ | 52 | | | $ | 22 | | | 42 | % |
| Earnings before interest expense and income taxes | Earnings before interest expense and income taxes | | $ | 100 | | | $ | 79 | | | $ | 21 | | | 27 | % | Earnings before interest expense and income taxes | | $ | 82 | | | $ | 59 | | | $ | 23 | | | 39 | % |
(a)Total margin represents revenues less cost of sales.
Average temperatures across Midstream & Marketing’s energy marketing territory during the 2021 three-month period were 5.8%15.8% warmer than normal but 11.7% colderand 11.4% 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 for the 2021 three-month period were $62increased $194 million higher thancompared to the prior-year period principallylargely reflecting increased revenues from natural gas marketing activities ($50166 million),. Higher revenues attributable to renewable energy marketing activities ($1510 million), peaking ($7 million), and capacity management activities ($65 million). These revenue increases were partially offset by also contributed to improvement in the absence of revenues attributable to its former HVAC business and ownership interest in Conemaugh ($14 million).current period. Midstream & Marketing cost of sales were $343$413 million in the 2021 three-month period compared to $299$237 million in the prior-year period. This $44The $176 million increase largelyprincipally reflects increasedhigher cost of sales attributablerelated to natural gas ($40 million) and renewable energy ($9 million) marketing activities partially offset by the absence of costs attributable to HVAC and Conemaugh ($7170 million). The significant increases in both natural gas revenues and cost of sales during the 2021 three-month period are largely attributable to highera significant increase in average natural gas prices compared to the prior-year period.period partially offset by lower volumes attributable to the warmer weather.
Midstream & Marketing total margin increased $18 million in the 2021 three-month period largely reflecting higher margin from natural gasrenewable energy marketing activities ($1012 million) including the impact of increased volumes and average pricing related to environmental credits compared to the prior-year period. Improved margins from capacity management ($5 million) and renewable energypeaking contracts ($63 million) marketing activities, improved capacity management margin ($6 million), and higheralso contributed to the increase in the current period. These positive impacts were partially offset by lower margin from natural gas gatheringmarketing activities ($4 million). These margin improvements include which includes the of effects of warmer weather and the impact of acquisitions and new assets placed into service since March 31, 2020, and were partially offset byhigher commodity prices compared to the absence of margins attributable to HVAC and Conemaugh ($7 million) in 2021 three-monthprior-year period.
Midstream & Marketing operating income and earnings before interest expense and income taxes during the 2021 three-month period increased $19$22 million and $21$23 million, respectively, compared to the prior-year period. The increase in operating income principally reflectsThese improvements primarily reflect the increase in total margin and lower operating and administrative expenses ($63 million) compared to the prior-year period, partially offset byand the absence of an adjustment to the contingent consideration related to the GHI acquisition ($4 million).in the prior-year period. The decrease in operating and administrative expenses was largely relatedreflects, among other things, lower wages and benefits compared to the absence of the previously mentioned divested assets partially offset by increases related to acquisitions and new assets placed into service. The increase in earnings beforeprior-year period.
UGI CORPORATION AND SUBSIDIARIES
interest expense and income taxes reflects the increase in operating income and incremental equity method earnings related to the investment in Pine Run.
UGI Utilities
| | | For the three months ended March 31, | | 2021 | | 2020 | | Increase | |
| For the three months ended December 31, | | For the three months ended December 31, | | 2021 | | 2020 | | Increase (Decrease) |
| (Dollars in millions) | (Dollars in millions) | | | | | | | | | (Dollars in millions) | | | | | | | | |
| Revenues | Revenues | | $ | 442 | | | $ | 393 | | | $ | 49 | | | 12 | % | Revenues | | $ | 419 | | | $ | 300 | | | $ | 119 | | | 40 | % |
| Total margin (a) | Total margin (a) | | $ | 238 | | | $ | 207 | | | $ | 31 | | | 15 | % | Total margin (a) | | $ | 213 | | | $ | 167 | | | $ | 46 | | | 28 | % |
| Operating and administrative expenses (a) | Operating and administrative expenses (a) | | $ | 67 | | | $ | 66 | | | $ | 1 | | | 2 | % | Operating and administrative expenses (a) | | $ | 80 | | | $ | 60 | | | $ | 20 | | | 33 | % |
| Operating income | Operating income | | $ | 142 | | | $ | 116 | | | $ | 26 | | | 22 | % | Operating income | | $ | 96 | | | $ | 77 | | | $ | 19 | | | 25 | % |
| Earnings before interest expense and income taxes | Earnings before interest expense and income taxes | | $ | 142 | | | $ | 116 | | | $ | 26 | | | 22 | % | Earnings before interest expense and income taxes | | $ | 98 | | | $ | 78 | | | $ | 20 | | | 26 | % |
| Gas Utility system throughput—bcf | Gas Utility system throughput—bcf | | Gas Utility system throughput—bcf | |
| Core market | Core market | | 38 | | | 33 | | | 5 | | | 15 | % | Core market | | 29 | | | 23 | | | 6 | | | 26 | % |
| Total | Total | | 100 | | | 98 | | | 2 | | | 2 | % | Total | | 93 | | | 83 | | | 10 | | | 12 | % |
| Electric Utility distribution sales - gwh | Electric Utility distribution sales - gwh | | 276 | | | 259 | | | 17 | | | 7 | % | Electric Utility distribution sales - gwh | | 242 | | | 244 | | | (2) | | | (1) | % |
| Gas Utility heating degree days—% warmer than normal (b) | Gas Utility heating degree days—% warmer than normal (b) | | (8.1) | % | | (18.9) | % | | — | | | — | | Gas Utility heating degree days—% warmer than normal (b) | | (15.1) | % | | (9.8) | % | | — | | | — | |
(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 $2$6 million and $1 million, respectively, during the 2021 and 2020 three-month periods, respectively.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.
Temperatures in Gas Utility’s service territoryterritories during the 2021 three-month period were 8.1%15.1% warmer than normal but 13.3% colderand 7.9% warmer than the prior-year period. The increase in Gas Utility core market and total volumes increased 15% (5 bcf) during the 2021 three-month period primarilyare largely related to incremental volumes attributable to the effectsacquisition of colder weather compared with the prior-year period and growth in the number of core market customers. Total Gas Utility distribution system throughput increased during the 2021 three-month period (2 bcf) reflecting the increased core market volumes and higher large firm delivery service volumes, partially offset by a decrease in interruptible delivery service volumes.Mountaineer. Electric Utility distribution sales volumes increased during the 2021 three-month period largely related to the colder weather comparedwere comparable to the prior-year period.
UGI Utilities revenues increased $49$119 million in the 2021 three-month period reflecting a $47$115 million increase in Gas Utility revenues and a slight$4 million increase in Electric Utility revenues. The increase in Gas Utility revenues principally reflects higher core marketincremental revenues ($35 million) attributable to Mountaineer ($70 million), the increase in base rates that went into effect on January 1,during Fiscal 2021, and higher pricing on off system sales and higher PGC rates compared to the higher core market volumes.prior-year period. The increase in Electric Utility revenues during the 2021 three-month period reflects the increase in sales volumesbase rates that went into effect in November 2021 and slightly higher DS rates compared to the prior-year period.
UGI Utilities cost of sales was $202increased $73 million in the 2021 three-month period compared with $185 million into the prior-year period. The increase is largely attributable to higherin Gas Utility cost of sales ($16 million) whichduring the 2021 three-month period reflects incremental cost attributable to Mountaineer ($37 million), higher PGC rates compared to the effectsprior-year period, and increased cost of sales associated with off system sales. Electric Utility cost of sales increased during the increased core market volumes partially offset by lower PGC2021 three-month period largely reflecting the higher DS rates compared to the prior-year period.
UGI Utilities total margin increased $31$46 million during the 2021 three-month period primarilylargely reflecting higherincremental margin fromattributable to Mountaineer ($33 million). The Gas Utility ($30 million). This increase largely reflectsalso includes higher natural gas margin from core market customers ($26 million) primarily attributable to the previously mentioned increase in core market volumes and the increase in base rates that went into effect on Januaryduring Fiscal 2021, the positive impact of the implementation of a DSIC effective April 1, 2021. Customer growth and increased sales volumes related to2021, higher margin from large firm delivery service ($3 million)customers, and the effects of customer growth compared to the prior-year period also contributedperiod. Electric Utility margin increased $2 million largely attributable to the increase.increase in base rates compared to the prior-year period.
UGI Utilities operating income and earnings before interest expense and income taxes both increased $26$19 million and $20 million, respectively, during the 2021 three-month period. These improvementsincreases largely reflect the previously mentioned increase in total margin partially offset by higher depreciation expense ($3 million) and slightly higher operating and administrative expenses ($120 million) and higher depreciation expense ($6 million) compared to the prior-year period.period, both principally related to incremental expenses attributable to Mountaineer. The increase inhigher depreciation expense relates to continued distribution system and IT capital expenditure activity. The slight increase in operating and administrative expenses reflect, among other things, higher allocation of corporate expenses partially offset by lower professional services costs compared to the prior-year period.period also includes the effects of continued distribution system capital expenditure activity.
UGI CORPORATION AND SUBSIDIARIES
Interest Expense and Income Taxes
Our consolidated interest expense during the 2021 three-month period was $78$81 million compared to $83$78 million during the 2020 three-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 Utilities issuance of senior notes during Fiscal 2021, and higher average short-term borrowings outstanding compared to the prior-year period.
The lowerincrease in the Company’s effective income tax rate for the 2021 three-month period is largely attributablewas principally related to higher discrete benefitsthe impact of significant losses on commodity derivative instruments compared to the prior-year period and the absence of a benefit under the CARES Act during the 2021 three-month period. This positive impact was largely related to an election made available under a tax law change in Italy which allowed the Company to step up its tax basis on certain assets in exchange for paying a three percent substitute tax in connection with such election. This resulted in a $23 million net benefit in the current period resulting in incremental tax basis that will be deductible in future periods. Also contributing to the decreased effective rate was lower 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. These reductionsimpacts were partially offset by a lower NOL carryback benefit underdecrease in the CARES Act compared toconcentration of foreign earnings reflecting foreign statutory tax rates that exceed the prior-year period.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. Accordingly, the impacts on the Company’s income tax provisions and taxes payable or refundable related to these items are subject to change.
2021 Six-Month Period Compared with the 2020 Six-Month Period
AmeriGas Propane
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the six months ended March 31, | | 2021 | | 2020 | | Increase (Decrease) |
| (Dollars in millions) | | | | | | | | |
| Revenues | | $ | 1,606 | | | $ | 1,532 | | | $ | 74 | | | 5 | % |
| Total margin (a) | | $ | 903 | | | $ | 918 | | | $ | (15) | | | (2) | % |
| Operating and administrative expenses | | $ | 454 | | | $ | 471 | | | $ | (17) | | | (4) | % |
| Operating income/earnings before interest expense and income taxes | | $ | 380 | | | $ | 371 | | | $ | 9 | | | 2 | % |
| Retail gallons sold (millions) | | 631 | | | 644 | | | (13) | | | (2) | % |
| Heating degree days—% warmer than normal (b) | | (3.3) | % | | (4.6) | % | | — | | | — | |
(a)Total margin represents total revenues less total cost of sales.
(b)Beginning in Fiscal 2021, deviation from average heating degree days is determined on a rolling 10-year period utilizing volume-weighted weather data based on weather statistics provided by NOAA for 344 regions in the United States, excluding Alaska and Hawaii. Prior-period amounts have been restated to conform to the current-period presentation.
Average temperatures during the 2021 six-month period were 3.3% warmer than normal and relatively consistent with the prior-year period (0.7% colder). Total retail gallons sold during the 2021 six-month period were 2% lower than the prior-year period principally reflecting structural conservation and other residual volume loss and the continued impact of COVID-19 on commercial and motor fuel volumes. These decreases were partially offset by higher resale and cylinder exchange volumes attributable to growth and pandemic-related usage.
Total revenues increased $74 million during the 2021 six-month period largely reflecting higher average propane selling prices ($104 million) partially offset by the lower retail propane volumes ($27 million) compared to the prior-year period. Average daily wholesale propane commodity prices during the 2021 six-month period at Mont Belvieu, Texas, one of the major supply points in the U.S., were approximately 70% higher than such prices during the 2020 six-month period. Total cost of sales increased $89 million during the 2021 six-month period principally reflecting the higher average propane product costs ($96 million) partially offset by the lower retail propane volumes ($11 million).
AmeriGas Propane total margin decreased $15 million in the 2021 six-month period largely attributable to the lower retail propane volumes ($16 million) and decreased non-propane margin ($6 million) principally reflecting lower fees and services partially offset by increased cylinder sales. The effects of these decreases were partially offset by slight improvements in average retail propane unit margins ($8 million) compared to the prior-year period due to effective margin management efforts.
Operating income and earnings before interest expense and income taxes increased $9 million during the 2021 six-month period reflecting lower operating and administrative expenses ($17 million) compared to the prior-year period and gains on the early settlement of certain commodity derivative instruments ($5 million) during the 2021 six-month period. These positive impacts
UGI CORPORATION AND SUBSIDIARIES
were partially offset by the previously mentioned decrease in total margin ($15 million). The decrease in operating and administrative expenses in the 2021 six-month period reflects, among other things, lower employee compensation and benefits-related costs ($8 million), decreased vehicle and equipment operating and maintenance expenses ($7 million), lower general insurance costs ($8 million), and lower employee travel expenses ($3 million). These decreases were partially offset by increased advertising expenses ($3 million), higher allocated corporate costs ($2 million), and higher telecommunications expenses ($2 million) compared to the prior-year period. The lower operating and administrative expenses reflect the partial benefits related to the previously mentioned ongoing business transformation initiatives.
UGI International
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the six months ended March 31, | | 2021 | | 2020 | | Increase |
| (Dollars in millions) | | | | | | | | |
| Revenues | | $ | 1,534 | | | $ | 1,355 | | | $ | 179 | | | 13 | % |
| Total margin (a) | | $ | 660 | | | $ | 571 | | | $ | 89 | | | 16 | % |
| Operating and administrative expenses | | $ | 321 | | | $ | 298 | | | $ | 23 | | | 8 | % |
| Operating income | | $ | 282 | | | $ | 213 | | | $ | 69 | | | 32 | % |
| Earnings before interest expense and income taxes | | $ | 285 | | | $ | 226 | | | $ | 59 | | | 26 | % |
| LPG retail gallons sold (millions) | | 478 | | | 477 | | | 1 | | | — | % |
| Heating degree days—% warmer than normal (b) | | (2.8) | % | | (11.9) | % | | — | | | — | |
(a)Total margin represents revenues less cost of sales and, in the 2020 six-month period, LPG cylinder filling costs of $14 million. For financial statement purposes, LPG cylinder filling costs in the 2020 six-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.
(b)Beginning in Fiscal 2021, deviation from average heating degree days is determined on a rolling 10-year period utilizing volume-weighted weather data at locations in our UGI International service territories. Prior-period amounts have been restated to conform to the current-period presentation.
Average temperatures during the 2021 six-month period were 2.8% warmer than normal but 8.7% colder than the prior-year period. Total LPG retail gallons sold during the 2021 six-month period increased slightly reflecting the effects of higher bulk volumes attributable to increased heating-related bulk sales related to colder weather, crop drying volumes and higher cylinder volumes compared to the prior-year period. These volume improvements were partially offset by the termination of a high-volume, low-margin autogas contract in Italy during the prior year and the continued impact of COVID-19 on certain commercial and industrial volumes. Average wholesale prices for propane in northwest Europe were approximately 17% higher during the 2021 six-month period compared with the prior-year period, while average butane prices were relatively constant during both periods.
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 2021 and 2020 six-month periods, the average unweighted euro-to-dollar translation rates were approximately $1.20 and $1.10, respectively, and the average unweighted British pound sterling-to-dollar translation rates were approximately $1.35 and $1.28, 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 benefit of $22 million in the 2021 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 $2 million and $13 million, respectively, in the 2021 and 2020 six-month periods.
UGI International revenues and cost of sales increased $179 million and $90 million, respectively, during the 2021 six-month period compared to the prior-year period. The increase in revenues and cost of sales principally reflects the translation effects of stronger foreign currencies (approximately $113 million and $63 million, respectively), the effects of higher average butane selling prices compared to the prior-year period, and the previously mentioned increases in bulk, crop drying and cylinder volumes. Energy marketing activities during the 2021 six-month period also contributed to the increased revenues and cost of sales largely related to higher natural gas volumes.
UGI CORPORATION AND SUBSIDIARIES
UGI International total margin increased $89 million during the 2021 six-month period reflecting the translation effects of stronger foreign currencies (approximately $50 million), higher average LPG unit margins including the continued effects of margin management efforts, lower costs associated with energy conservation certificates including adjustments related to the current compliance period, and the previously mentioned increase in crop drying and bulk volumes. Higher margin from energy marketing activities also contributed to the increase including increased natural gas volumes and average margins. These margin improvements were partially offset by lower autogas and other low-margin volumes and the effects of COVID-19 compared with the prior-year period.
UGI International operating income and earnings before interest expense and income taxes increased $69 million and $59 million, respectively, during the 2021 six-month period compared to the prior-year period. The increase in operating income principally reflects the increase in total margin partially offset by higher operating and administrative expenses ($23 million) which was largely attributable to the effects of stronger foreign currencies compared to the prior-year period. The increase in earnings before interest expense and income taxes in the 2021 six-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 ($11 million).
Midstream & Marketing
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the six months ended March 31, | | 2021 | | 2020 | | Increase (Decrease) |
| (Dollars in millions) | | | | | | | | |
| Revenues | | $ | 825 | | | $ | 795 | | | $ | 30 | | | 4 | % |
| Total margin (a) | | $ | 245 | | | $ | 232 | | | $ | 13 | | | 6 | % |
| Operating and administrative expenses | | $ | 60 | | | $ | 69 | | | $ | (9) | | | (13) | % |
| Operating income | | $ | 142 | | | $ | 126 | | | $ | 16 | | | 13 | % |
| Earnings before interest expense and income taxes | | $ | 159 | | | $ | 141 | | | $ | 18 | | | 13 | % |
(a)Total margin represents revenues less cost of sales.
Average temperatures across Midstream & Marketing’s energy marketing territory during the 2021 six-month period were 7.1% warmer than normal but 1.4% colder 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 for the 2021 six-month period increased $30 million compared to the prior-year period principally reflecting increased revenues from natural gas ($21 million) and renewable energy ($22 million) marketing activities, higher capacity management revenues ($14 million), and higher natural gas gathering revenues ($5 million). These revenue increases were partially offset by the absence of revenues attributable to its former HVAC business and ownership interest in Conemaugh ($30 million). Midstream & Marketing cost of sales were $580 million in the 2021 six-month period compared to $563 million in the prior-year period. The $17 million increase principally reflects higher cost of sales related to natural gas ($14 million) and renewable energy marketing activities ($17 million), partially offset by the absence of costs attributable to HVAC and Conemaugh ($16 million). The increases in both natural gas revenues and cost of sales during the 2021 six-month period are largely attributable to higher average natural gas prices compared to the prior-year period.
Midstream & Marketing total margin increased $13 million in the 2021 six-month period reflecting improved capacity management margin ($14 million), higher margin from natural gas ($7 million) and renewable energy ($5 million) marketing activities, and higher margin from natural gas gathering activities ($5 million). These margin improvements include the impact of acquisitions and new assets placed into service since March 31, 2020, and were partially offset by the absence of margins attributable to HVAC and Conemaugh ($14 million).
Midstream & Marketing operating income and earnings before interest expense and income taxes during the 2021 six-month period increased $16 million and $18 million, respectively, compared to the prior-year period. The improvement in operating income reflects 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 the contingent consideration related to the GHI acquisition ($6 million). The decrease in operating and administrative expenses was largely related to the absence of the previously mentioned divested assets partially offset by increases related to new assets placed into service and acquisitions. The increase in earnings before interest expense and income taxes reflects the improvement in operating income and incremental equity method earnings related to the investment in Pine Run.
UGI CORPORATION AND SUBSIDIARIES
UGI Utilities
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the six months ended March 31, | | 2021 | | 2020 | | Increase |
| (Dollars in millions) | | | | | | | | |
| Revenues | | $ | 742 | | | $ | 722 | | | $ | 20 | | | 3 | % |
| Total margin (a) | | $ | 405 | | | $ | 384 | | | $ | 21 | | | 5 | % |
| Operating and administrative expenses (a) | | $ | 127 | | | $ | 124 | | | $ | 3 | | | 2 | % |
| Operating income | | $ | 219 | | | $ | 208 | | | $ | 11 | | | 5 | % |
| Earnings before interest expense and income taxes | | $ | 220 | | | $ | 208 | | | $ | 12 | | | 6 | % |
| Gas Utility system throughput—bcf | | | | | | | | |
| Core market | | 62 | | | 59 | | | 3 | | | 5 | % |
| Total | | 183 | | | 182 | | | 1 | | | 1 | % |
| Electric Utility distribution sales - gwh | | 520 | | | 505 | | | 15 | | | 3 | % |
| Gas Utility heating degree days—% warmer than normal (b) | | (8.8) | % | | (11.2) | % | | — | | | — | |
(a)Total margin represents revenues less cost of sales and revenue-related taxes (i.e., Electric Utility gross receipts taxes) of $3 million and $2 million during the 2021 and 2020 six-month periods, respectively. 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, deviation from average heating degree days is determined on a rolling 10-year period utilizing volume-weighted weather data based on weather statistics provided by NOAA for airports located within Gas Utility’s service territory. Prior-period amounts have been restated to conform to the current-period presentation.
Temperatures in Gas Utility’s service territory during the 2021 six-month period were 8.8% warmer than normal but 2.7% colder than the prior-year period. Gas Utility core market volumes increased during the 2021 six-month period (3 bcf) reflecting the effects of colder weather compared to the prior-year period and growth in the number of core market customers. Total Gas Utility distribution system throughput reflects a slight increase (1 bcf) during the 2021 six-month period attributable to the increased core market volumes and higher large firm delivery service volumes, partially offset by a decrease in interruptible delivery service volumes and the continued impact of COVID-19 on commercial and industrial volumes. Electric Utility distribution sales volumes increase during the 2021 six-month period primarily attributable to the colder weather compared to the prior-year period.
UGI Utilities revenues increased $20 million in the 2021 six-month period reflecting increases of $16 million and $4 million attributable to Gas Utility and Electric Utility, respectively. The increase in Gas Utility revenues principally reflects higher core market revenues ($7 million) largely attributable to the increase in base rates that went into effect on January 1, 2021, and the increased core market volumes, slightly offset by lower PGC rates compared to the prior-year period. Higher off system sales ($5 million), and higher large firm delivery service sales ($3 million) also contributed to the increase. The increase in Electric Utility revenues during the 2021 six-month period reflects higher sales volumes and DS rates compared to the prior-year period.
UGI Utilities cost of sales was $334 million in the 2021 six-month period compared with $336 million in the prior-year period. Gas Utility cost of sales decreased during the 2021 six-month period ($5 million) reflecting lower PGC rates partially offset by the increase in core market volumes and higher cost of sales associated with off system sales. Electric Utility cost of sales increased during the 2021 six-month period ($3 million) reflecting the increased volumes and higher average DS rates compared to the prior-year period.
UGI Utilities total margin increased $21 million during the 2021 six-month period principally reflecting higher margin from Gas Utility. This increase largely reflects higher margin from core market customers ($18 million) primarily attributable to the increase in base rates that went into effect on January 1, 2021, and the previously mentioned increase in core market volumes. Customer growth and increased sales volumes related to large firm delivery service ($3 million) compared to the prior-year period also contributed to the increase.
UGI Utilities operating income and earnings before interest expense and income taxes increased $11 million and $12 million, respectively, during the 2021 six-month period. These increases largely reflect the previously mentioned increase in total margin partially offset by higher depreciation expense ($6 million) and higher operating and administrative expenses ($3
UGI CORPORATION AND SUBSIDIARIES
million) compared to the prior-year period. The increase in depreciation expense relates to continued distribution system and IT capital expenditure activity. The increase in operating and administrative expenses reflect, among other things, higher employee compensation and benefits-related costs and higher allocations of corporate expenses. These increases were partially offset by lower professional services costs and contracted labor compared to the prior-year period.
Interest Expense and Income Taxes
Our consolidated interest expense during the 2021 six-month period was $156 million compared to $167 million during the 2020 six-month period. The decrease in interest expense principally reflects lower average short-term borrowings outstanding compared to the prior-year period.
The lower effective income tax rate for the 2021 six-month period is largely attributable to higher discrete benefits compared to the prior-year period. This positive impact was largely related to an election made available under a tax law change in Italy which allowed the Company to step up its tax basis on certain assets in exchange for paying a three percent substitute tax in connection with such election. This resulted in a $23 million net benefit in the current period resulting in incremental tax basis that will be deductible in future periods. Also contributing to the decreased effective rate was lower 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. These reductions were partially offset by a lower NOL carryback benefit under the CARES Act compared to the prior-year period.
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 outbreak and continued spread of COVID-19.COVID-19 and ongoing commodity price volatility. Our total available liquidity balance, comprising cash and cash equivalents and available borrowing capacity on our revolving credit facilities, totaled approximately $1.6$1.5 billion and $1.5$2.2 billion at MarchDecember 31, 2021 and September 30, 2020,2021, respectively. The Company does not have any near-term senior note or term loan maturities.maturities, other than the UGI Utilities variable-rate term loan, which is set to mature in October 2022. While the Company’s operations and financial performance has beencontinue to be impacted by COVID-19, in the 2021 three- and six-month periods, it is a rapidly evolving situation and the Company cannot predict the ultimate impact that COVID-19 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 MarchDecember 31, 2021.
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 $444$334 million at MarchDecember 31, 2021, compared with $336$855 million at September 30, 2020.2021. The significant decrease in cash and cash equivalents since September 30, 2021 is primarily attributable to commodity price volatility experienced in the 2021 three-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 MarchDecember 31, 2021 and September 30, 2020,2021, UGI had $83$66 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 MarchDecember 31, 2021 and September 30, 2020,2021, comprises the following:
| | | March 31, 2021 | | September 30, 2020 | | December 31, 2021 | | 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 | $ | 130 | | | $ | — | | | $ | 17 | | | $ | 193 | | | $ | — | | | $ | 340 | | | $ | 347 | | Short-term borrowings | $ | 205 | | | $ | 55 | | | $ | — | | | $ | 319 | | | $ | — | | | $ | 579 | | | $ | 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 | | | $ | 411 | | | $ | — | | | $ | 975 | | | $ | — | | | $ | 3,961 | | | $ | 3,960 | | Senior notes | $ | 2,575 | | | $ | 455 | | | $ | — | | | $ | 1,290 | | | $ | — | | | $ | 4,320 | | | $ | 4,270 | |
| Term loans | Term loans | — | | | 352 | | | 688 | | | 144 | | | 550 | | | 1,734 | | | 1,741 | | Term loans | — | | | 341 | | | 683 | | | 140 | | | 765 | | | 1,929 | | | 1,938 | |
| Other long-term debt | Other long-term debt | 4 | | | 23 | | | 41 | | | 2 | | | 281 | | | 351 | | | 380 | | Other long-term debt | 1 | | | 2 | | | 40 | | | 26 | | | 262 | | | 331 | | | 283 | |
| Unamortized debt issuance costs | Unamortized debt issuance costs | (18) | | | (6) | | | (11) | | | (5) | | | (2) | | | (42) | | | (47) | | Unamortized debt issuance costs | (15) | | | (7) | | | (9) | | | (6) | | | (4) | | | (41) | | | (42) | |
| Total long-term debt | Total long-term debt | $ | 2,561 | | | $ | 780 | | | $ | 718 | | | $ | 1,116 | | | $ | 829 | | | $ | 6,004 | | | $ | 6,034 | | Total long-term debt | $ | 2,561 | | | $ | 791 | | | $ | 714 | | | $ | 1,450 | | | $ | 1,023 | | | $ | 6,539 | | | $ | 6,449 | |
| Total debt | Total debt | $ | 2,691 | | | $ | 780 | | | $ | 735 | | | $ | 1,309 | | | $ | 829 | | | $ | 6,344 | | | $ | 6,381 | | Total debt | $ | 2,766 | | | $ | 846 | | | $ | 714 | | | $ | 1,769 | | | $ | 1,023 | | | $ | 7,118 | | | $ | 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.
Information about the Company’s principal credit agreements (excluding the Energy Services Receivables Facility discussed below) as of MarchDecember 31, 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 March 31, 2021 | | | | | | | | | |
| As of December 31, 2021 | | As of December 31, 2021 | | | | | | | | |
| AmeriGas OLP | AmeriGas OLP | | $ | 600 | | | $ | 130 | | | $ | 60 | | | $ | 410 | | AmeriGas OLP | | $ | 600 | | | $ | 205 | | | $ | 3 | | | $ | 392 | |
| UGI International, LLC (a) | UGI International, LLC (a) | | € | 300 | | | € | — | | | € | — | | | € | 300 | | UGI International, LLC (a) | | € | 300 | | | € | — | | | € | — | | | € | 300 | |
| Energy Services | Energy Services | | $ | 260 | | | $ | — | | | $ | — | | | $ | 260 | | Energy Services | | $ | 260 | | | $ | — | | | $ | — | | | $ | 260 | |
| UGI Utilities | UGI Utilities | | $ | 350 | | | $ | 193 | | | $ | — | | | $ | 157 | | UGI Utilities | | $ | 350 | | | $ | 253 | | | $ | — | | | $ | 97 | |
| Mountaineer | | Mountaineer | | $ | 100 | | | $ | 66 | | | $ | — | | | $ | 34 | |
| UGI Corporation (b) | UGI Corporation (b) | | $ | 300 | | | $ | 275 | | | $ | — | | | $ | 25 | | UGI Corporation (b) | | $ | 300 | | | $ | 255 | | | $ | — | | | $ | 45 | |
| As of March 31, 2020 | | |
| As of December 31, 2020 | | As of December 31, 2020 | |
| AmeriGas OLP | AmeriGas OLP | | $ | 600 | | | $ | 201 | | | $ | 63 | | | $ | 336 | | AmeriGas OLP | | $ | 600 | | | $ | 222 | | | $ | 60 | | | $ | 318 | |
| UGI International, LLC (a) | UGI International, LLC (a) | | € | 300 | | | € | 163 | | | € | — | | | € | 137 | | UGI International, LLC (a) | | € | 300 | | | € | — | | | € | — | | | € | 300 | |
| | Energy Services | Energy Services | | $ | 260 | | | $ | — | | | $ | — | | | $ | 260 | | Energy Services | | $ | 260 | | | $ | 4 | | | $ | — | | | $ | 256 | |
| UGI Utilities | UGI Utilities | | $ | 350 | | | $ | 224 | | | $ | — | | | $ | 126 | | UGI Utilities | | $ | 350 | | | $ | 266 | | | $ | — | | | $ | 84 | |
| | UGI Corporation (b) | UGI Corporation (b) | | $ | 300 | | | $ | 280 | | | $ | — | | | $ | 20 | | UGI Corporation (b) | | $ | 300 | | | $ | 270 | | | $ | — | | | $ | 30 | |
(a)Permits UGI International, LLC to borrow in euros or dollars. At March 31, 2020, the amountIn January 2022, UGI International, LLC borrowed consisted of USD-denominated borrowings of $180 million.€250 million under this revolving credit facility to support short-term liquidity targets associated with its operating subsidiaries.
(b)Borrowings outstanding have been classified as “Long-term debt” on the Condensed Consolidated Balance Sheets. In April 2021, the Company repaid $30 million of such borrowings and classified these repayments as “Current maturities of long-term debt” on the March 31, 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 six months ended | | For the six months ended | | For the three months ended | | For the three months ended |
| | March 31, 2021 | | March 31, 2020 | | December 31, 2021 | | December 31, 2020 |
| (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 | | $ | 212 | | | $ | 293 | | | $ | 294 | | | $ | 359 | | AmeriGas OLP | | $ | 275 | | | $ | 388 | | | $ | 224 | | | $ | 266 | |
| UGI International, LLC | UGI International, LLC | | € | — | | | € | — | | | € | 177 | | | € | 190 | | UGI International, LLC | | € | 13 | | | € | 40 | | | € | — | | | € | — | |
| | Energy Services | Energy Services | | $ | 7 | | | $ | 32 | | | $ | 23 | | | $ | 77 | | Energy Services | | $ | — | | | $ | — | | | $ | 14 | | | $ | 32 | |
| UGI Utilities | UGI Utilities | | $ | 228 | | | $ | 279 | | | $ | 240 | | | $ | 290 | | UGI Utilities | | $ | 190 | | | $ | 258 | | | $ | 209 | | | $ | 275 | |
| Mountaineer | | Mountaineer | | $ | 61 | | | $ | 80 | | | $ | — | | | $ | — | |
| UGI Corporation | UGI Corporation | | $ | 265 | | | $ | 300 | | | $ | 290 | | | $ | 300 | | UGI Corporation | | $ | 125 | | | $ | 255 | | | $ | 273 | | | $ | 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 MarchDecember 31, 2021, the outstanding balance of ESFC trade receivables was $81$115 million, none of which $17 million waswere sold to the bank. At MarchDecember 31, 2020, the outstanding balance of ESFC trade receivables was $86$83 million, of which $43$75 million was sold to the bank. Amounts sold to the bank are reflected as “Short-term borrowings” on the Condensed Consolidated Balance Sheets. There were no sales of receivables under the Receivables Facility during the three months ended December 31, 2021. During the sixthree months ended MarchDecember 31, 2021 and 2020, peak sales of receivables were $87 million and $97 million, respectively, and average daily amounts sold were $38$75 million and $55$28 million, respectively.
Subsequent EventSignificant Financing Activities
UGI Corporation Senior Credit Facility.International. On May 4,December 7, 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 the existing UGI Corporation Senior Credit Facility, which is now due in May 2025; and (2) includes a new four-year $300 million term loan commitment. Proceeds from new borrowingsright of payment with indebtedness issued under the 2021 UGI CorporationInternational Credit Facilities Agreement. The net proceeds from the UGI International 2.50% Senior Credit Facility may beNotes were used (1) to finance a portionrepay all of the Mountaineer AcquisitionUGI International 3.25% Senior Notes 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 marginDividends and are due in their entirety at the maturity date. The applicable margin on the new borrowings, which is dependent upon a ratioRepurchases 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.
DividendsCommon Stock
On May 5,November 18, 2021, UGI’s Board of Directors approved an increase in the quarterlydeclared a cash dividend rate on UGI Common Stockequal to $0.345 per Common Share, or $1.38common share. The dividend was paid on an annual basis. The new dividend rate reflects an approximate 4.5% increase from the previous quarterly rate of $0.33. The new quarterly dividend rate is effective with the dividend payable on JulyJanuary 1, 2021,2022, to shareholders of record on JuneDecember 15, 2021. On February 2, 2022, UGI’s Board of Director’s declared a quarterly dividend of $0.345 per common share. The dividend is payable April 1, 2022, to shareholders of record on March 15, 2022.
On February 2, 2022, UGI’s Board of Directors authorized an extension of an existing share repurchase program for up to 8 million shares of 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 used by operating activities was $594 million in the 2021 three-month period compared to cash provided by operating activities was $646 million in the 2021 six-month period compared to $562of $151 million in the 2020 six-monththree-month period. Cash flow from operating activities before changes in operating working capital was $1,082$330 million in the 2021 six-monththree-month period compared to $803$369 million in the 2020 six-monththree-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.International. Cash used to fund changes in operating working capital totaled $436$924 million in the 2021 six-monththree-month period compared to $241cash used of $218 million in the 2020 six-monththree-month period. Changes in operating working capital during the 2021 six-monththree-month period reflects,reflect, among other things, an increaseincreases in cash requiredused to fund changes in accounts receivable, inventory, accounts payable and other current liabilities, principally due to increases in commodity prices during the 2021 three-month period. Additionally, the 2021 three-month period includes $260 million of cash collateral repaid to derivative counterparties
UGI CORPORATION AND SUBSIDIARIES
inventories dueas compared to rising commodity prices during$13 million of cash collateral received in the prior-year period. The 2021 six-monththree-month period as well asincludes net refunds of deferred fuel and power costs of $22 million compared to net recoveries of $4 million in the prior-year period. These increases in cash requiredused to fund changes in income taxes receivable, other current assets and other current liabilities. These changesworking capital were partially offset by cash generated frominflows associated with other current assets. The impact of commodity price volatility and increasing supply chain costs are pervasive throughout these changes in accounts payable and cash received for commodity derivative instrument collateral deposits in the 2021 six-month period as compared to cash collateral paid in the 2020 six-month period.working capital.
Investing Activities. Cash flow used by investing activities was $357 million in the 2021 three-month period compared to $327 million in the 2020 six-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 $154 million in the 2021 three-month period compared to $189 million in the 2020 three-month period. Cash expenditures for property, plant and equipment were $304$186 million in the 2021 six-monththree-month period compared with $342$187 million in the 2020 six-monththree-month period. Cash used for acquisitions of businesses and assets in the 2021 six-month2020 three-month period reflects UGI International’s acquisition of an LPG retail business in Europe. Cash used for investments in equity method investees ininflows associated with investing activities during the 2021 six-monththree-month period includes contributions to Pine Runcash 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. Cash flow used to fund financing activities was $174 million in the 2021 six-month period compared with $348 million in the 2020 six-month period. 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; quarterly payments on outstanding Purchase Contracts; and issuances and repurchases of UGI Common Stock.equity instruments.
Cash flow provided by financing activities was $234 million in the 2021 three-month period compared with $120 million of cash used in the 2020 three-month period. The change in cash flows used to fundprovided by financing activities is primarily attributable to $7 millionthe issuance of net repayments on revolving facility agreementsUGI International’s 2.50% Senior Notes and concurrent repayment of the Receivables Facility inUGI International 3.25% Senior Notes during the 2021 six-month period as compared to $143 million in the 2020 six-monththree-month period. Cash used to fund changes in financing activities in the 2020 six-month period includes $38 million of cash paid to repurchase UGI Common Stock.
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. However, the PAPUC typically suspends the effective date for general base rate proceedings for a period not to exceed nine months after the filing date to allow for investigation and public hearings. We 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.On October 28, 2021, the PAPUC issued a final order approving a settlement that permitted Electric Utility, requested that the new electric rates become effective AprilNovember 9, 2021. The PAPUC entered an Order on March 11, 2021, suspending the effective date for the rateto 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.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.
Our variable-rate debt at MarchDecember 31, 2021, 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 MarchDecember 31, 2021, combined borrowings outstanding under variable-rate debt agreements, excluding the previously mentioned effectively fixed-rate debt, totaled $655$1,089 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 MarchDecember 31, 2021, by approximately $130$120 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 March 31, 2021, we had received cash collateral from derivative instrument counterparties totaling $37 million. Additionally, our commodity exchange-traded futures contracts generally require cash deposits in margin accounts. At March 31, 2021, restricted cash in brokerage accounts totaled $28 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 December 31, 2021, 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 March$1,156 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 December 31, 2021.2021, we had received cash collateral from derivative instrument counterparties totaling $205 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 MarchDecember 31, 2021, if the credit-risk-related contingent features were triggered, the amount of collateral required to be posted would not be material.
The following table summarizes the fair values of unsettled market risk sensitive derivative instrument assets (liabilities) held at MarchDecember 31, 2021 and changes in their fair values due to market risks. Certain of UGI Utilities’ commodity derivative
UGI CORPORATION AND SUBSIDIARIES
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 |
| March 31, 2021 | | | | | |
| December 31, 2021 | | December 31, 2021 | | | | |
| Commodity price risk (1) | Commodity price risk (1) | | $ | 162 | | | $ | (129) | | Commodity price risk (1) | | $ | 941 | | | $ | (255) | |
| Interest rate risk (2) | Interest rate risk (2) | | $ | (39) | | | $ | (8) | | Interest rate risk (2) | | $ | (12) | | | $ | (13) | |
| Foreign currency exchange rate risk (3) | Foreign currency exchange rate risk (3) | | $ | 13 | | | $ | (39) | | Foreign currency exchange rate risk (3) | | $ | 22 | | | $ | (40) | |
(1) Change in fair value represents a 10% adverse change in the market prices of certain commodities
(2) Change in fair value represents a 50 basis point adverse change in prevailing market interest rates
(3) Change in fair value represents a 10% adverse change in the value of the Euro and the British pound sterling versus the U.S. dollar.
UGI CORPORATION AND SUBSIDIARIES
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 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.
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 |
| | | | | | | | |
10.1 | | | | | | | | |
| | | | | | | | |
10.2 | | | | | | | | |
| | | | | | | | |
10.3 | | | | | | | | |
| | | | | | | | |
10.4 | | | | | | | | |
| | | | | | | | |
10.5 | | | | | | | | |
| | | | | | | | |
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) | | | | | | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Exhibit
No. | | Exhibit | | Registrant | | Filing | | Exhibit |
| | | | | | | | |
| | | | | | | | |
| 4.1 | | Indenture, dated as of December 7, 2021, by and among UGI International, LLC, the guarantors named therein, U.S. Bank National Association, as trustee, Elavon Financial Services DAC, as registrar and transfer agent, and Elavon Financial Services DAC, UK Branch, as paying agent (including the form of Note). | | UGI | | Form 8-K
(12/7/21) | | 4.1 |
| | | | | | | | |
| 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 | | |
| | |
| 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: | May 6, 2021February 3, 2022 | By: | /s/ Ted J. Jastrzebski |
| | | Ted J. Jastrzebski |
| | | Chief Financial Officer |
| | | |
| | | |
| Date: | May 6, 2021February 3, 2022 | By: | /s/ Laurie A. BergmanJean Felix Tematio Dontsop |
| | | Laurie A. BergmanJean Felix Tematio Dontsop |
| | | Vice President, Chief Accounting Officer |
| | | and Corporate Controller |