UGI CORPORATION 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, and environmental matters, such as regulatory responses to climate change; (4) inability to timely recover costs through utility rate proceedings; (5) the impact of pending and future legal 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 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 inthe United States ,Europe and other foreign countries, including uncertainties related to the military conflict betweenRussia andUkraine , 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 andUtica Shale gas production; (19) the availability, timing and success of our acquisitions, commercial initiatives and investments to grow our businesses; (20) our ability to successfully integrate acquired businesses and achieve anticipated synergies; (21) the interruption, disruption, failure or malfunction of our information technology systems, and those of our third-party vendors or service providers, including due to cyber attack; (22) the inability to complete pending or future energy infrastructure projects; (23) our ability to achieve the operational benefits and cost efficiencies expected from the completion of pending and future business transformation initiatives, including the impact of customer service disruptions resulting in potential customer loss due to the transformation activities; (24) uncertainties related to a global pandemic, including the duration and/or impact of the COVID-19 pandemic; (25) the impact of proposed or future tax legislation, including the potential reversal of existing tax legislation that is beneficial to us; and (26) our ability to overcome supply chain issues that may result in delays or shortages in, as well as increased costs of, equipment, materials or other resources that are critical to our business operations.
These factors, and those factors set forth in Item 1A. Risk Factors in the
Company's 2021 Annual Report and the Quarterly Report on Form 10-Q for the
fiscal quarter ended
ANALYSIS OF RESULTS OF OPERATIONS
The following analyses compare the Company's results of operations for the 2022
three-month period with the 2021 three-month period and the 2022 nine-month
period with the 2021 nine-month period. Our analysis of results of operations
should be read in conjunction with the segment information included in Note 14
to Condensed Consolidated Financial Statements.
Because most of our businesses sell or distribute energy products used in large
part for heating purposes, our results are significantly influenced by
temperatures in our service territories, particularly during the heating-season
months of October through March. As a result, our operating results, excluding
the effects of gains and losses on derivative instruments not
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UGI CORPORATION AND SUBSIDIARIESassociated with current-period transactions as further discussed below, are significantly higher in our first and second fiscal quarters.
Non-GAAP Financial Measures
UGI management uses "adjusted net income attributable toUGI 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 toUGI 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. The following tables reflect the adjustments referred to above and reconcile net income attributable toUGI Corporation , the most directly comparable GAAP measure, to adjusted net income attributable toUGI Corporation , and reconcile diluted earnings per share, the most directly comparable GAAP measure, to adjusted diluted earnings per share: Adjusted net income attributable to UGI Three Months Ended Nine Months Ended Corporation June 30, June 30, (Dollars in millions) 2022 2021 2022 2021 AmeriGas Propane$ (37) $ (20) $ 135 $ 204 UGI International 15 31 161 222 Midstream & Marketing 23 8 132 107 Utilities 19 9 216 157 Corporate & Other (a) (27) 122 185 252 Net (loss) income attributable to UGI Corporation (7) 150 829 942 Net gains on commodity derivative instruments not associated with current-period transactions (net of tax of$5 ,$94 ,$98 and$147 , respectively) (12) (231) (255) (368) Unrealized (gains) losses on foreign currency derivative instruments (net of tax of$4 ,$(1) ,$5 , and$(2) , respectively) (10) - (14) 4 Loss on extinguishment of debt (net of tax of$0 ,$0 ,$(3) and$0 , respectively) - - 8 - Acquisition and integration expenses associated with the Mountaineer Acquisition (net of tax of$0 ,$0 ,$0 and$(1) , respectively) - 1 1 3 Business transformation expenses (net of tax of$(1) ,$(6) ,$(2) and$(15) , respectively) 1 15 4 42 Impact of change in Italian tax law - - - (23) Restructuring costs (net of tax of$(1) ,$0 ,$(6) and$0 , respectively) 4 - 17 - Impairments associated with certain equity method investments (net of tax of$(14) ,$0 ,$(14) ,$0 , respectively) 36 93 36 93 Total adjustments (a) (b) 19 (122) (203) (249) Adjusted net income attributable to UGI Corporation$ 12 $ 28 $ 626 $ 693 36
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Three Months Ended Nine Months Ended
June 30, June 30,
Adjusted diluted earnings per share 2022 2021 2022 2021
AmeriGas Propane $ (0.17) $ (0.10) $ 0.63 $ 0.97
UGI International 0.07 0.15 0.75 1.06
Midstream & Marketing 0.11 0.04 0.61 0.51
Utilities 0.08 0.04 1.00 0.75
Corporate & Other (a) (0.12) 0.58 0.85 1.19
(Loss) earnings per share - diluted (c) (0.03) 0.71 3.84 4.48
Net gains on commodity derivative
instruments not associated with
current-period transactions (0.06) (1.09) (1.18) (1.75)
Unrealized (gains) losses on foreign
currency derivative instruments (0.05) - (0.06) 0.03
Loss on extinguishment of debt - - 0.03 -
Acquisition and integration expenses
associated with the Mountaineer Acquisition - - - 0.01
Business transformation expenses 0.01 0.07 0.02 0.20
Impact of change in Italian tax law - - - (0.11)
Restructuring costs 0.02 - 0.08 -
Impairments associated with certain equity
method investments 0.17 0.44 0.17 0.44
Total adjustments (a) 0.09 (0.58) (0.94) (1.18)
Adjusted earnings per share - diluted (c) $ 0.06 $ 0.13 $ 2.90 $ 3.30
(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 14
to Condensed Consolidated Financial Statements for additional information
related to these adjustments, as well as other items included within Corporate &
Other.
(b)Income taxes associated with pre-tax adjustments determined using statutory
business unit tax rates.
(c)The loss per share for the three months ended June 30, 2022 , was determined
excluding the effect of 5.67 million dilutive shares as the impact of such
shares would have been antidilutive to the net loss for the period. Adjusted
earnings per share for the three months ended June 30, 2022 , was determined
based upon fully diluted shares of 215.89 million.
EXECUTIVE OVERVIEW
Recent Developments
Global Macroeconomic Conditions. During Fiscal 2021 and continuing into the current fiscal year, global commodity and labor markets have experienced significant inflationary pressures attributable to various economic and political factors, including: the economic recovery and evolving consumer patterns associated with the ongoing COVID-19 pandemic (see Note 17 to the Condensed Consolidated Financial Statements); supply chain issues associated with labor shortages; significant inflationary pressures on commodity prices; and political and regulatory conditions resulting from the ongoing military conflict betweenRussia andUkraine , among others. These factors have led to significant volatility across various consumer price indices during Fiscal 2021 and have continued during the 2022 three- and nine-month periods. 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 derivative instruments not associated with current-period activity. The ongoing strain on supply costs has resulted in increased inventory costs and certain distribution expenses across all of our businesses. It has also affected requirements around cash collateral and restricted cash associated with our outstanding derivatives. We cannot predict the duration or total magnitude of these factors and the total effects on our business, financial position, results of operations, liquidity or cash flows at this time. However, we continue to evaluate and react to these global economic and political conditions and remain focused on managing our financial condition and liquidity as these conditions continue to evolve. 37
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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.
Beginning in Fiscal 2020, we initiated a transformation project focused on our
corporate 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 function is at a
different stage of transformation and will undergo the required changes by the
end of Fiscal 2023. In connection with these activities, we expect to incur
approximately $40 million of non-recurring costs during that time resulting in
more than $15 million of ongoing annualized savings by the end of Fiscal 2023.
2022 three-month period compared with 2021 three-month period
Discussion. Net loss attributable toUGI Corporation for the 2022 three-month period was$7 million (equal to a$0.03 loss per diluted share) compared to net income attributable toUGI Corporation of$150 million (equal to$0.71 per diluted share) during the 2021 three-month period. These results include net gains from changes in unrealized commodity derivative instruments and certain foreign currency derivative instruments of$22 million and$231 million , respectively, during the 2022 and 2021 three-month periods. The 2022 and 2021 three-month periods also include impairments associated with certain equity method investments of$36 million and$93 million , respectively, and business transformation expenses of$1 million and$15 million , respectively. The 2022 three-month period also includes restructuring costs of$4 million largely attributable to a reduction in workforce and related costs, while the 2021 three-month period includes$1 million of integration expenses associated with Mountaineer. Adjusted net income attributable toUGI Corporation for the 2022 three-month period was$12 million (equal to$0.06 per diluted share) compared to$28 million (equal to$0.13 per diluted share) during the 2021 three-month period. The decrease in adjusted net income attributable toUGI Corporation during the 2022 three-month period reflects lower earnings contributions from our LPG businesses which were significantly impacted by the effects of commodity price volatility on current-period margins and related volumes. These factors were partially offset by higher earnings from our Utilities and Midstream & Marketing segments.AmeriGas Propane's adjusted net loss attributable toUGI Corporation increased$17 million in the 2022 three-month period. These results principally reflect lower retail propane margins and volumes sold, partially offset by lower operating and administrative expenses.
Midstream & Marketing's adjusted net income attributable to
Utilities' adjusted net income attributable toUGI Corporation increased$10 million in the 2022 three-month period compared to the prior-year period. The increase was largely related to an increase in DSIC rates atUGI Utilities and the impact of customer growth.
2022 nine-month period compared with 2021 nine-month period
Discussion. Net income attributable toUGI Corporation for the 2022 nine-month period was$829 million (equal to$3.84 per diluted share) compared to$942 million (equal to$4.48 per diluted share) during the 2021 nine-month period. These results include net gains from changes in unrealized commodity derivative instruments and certain foreign currency derivative instruments of$269 million and$364 million , respectively, during the 2022 and 2021 nine-month periods. Net income attributable toUGI Corporation during the 2022 and 2021 nine-month periods also includes impairments associated with certain equity method investments of$36 million and$93 million , respectively, business transformation expenses of$4 million and$42 million , respectively, and integration expenses associated with Mountaineer of$1 million and$3 million , respectively. The 2022 nine-month period also includes restructuring costs of$17 million largely attributable to a reduction in workforce and related costs and a loss on extinguishment of debt of$8 million associated with financing activities atUGI International , while 38
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the 2021 nine-month period includes a
Adjusted net income attributable toUGI Corporation for the 2022 nine-month period was$626 million (equal to$2.90 per diluted share) compared to$693 million (equal to$3.30 per diluted share) during the 2021 nine-month period. The decrease in adjusted net income attributable toUGI Corporation during the 2022 nine-month period reflects lower earnings contributions from our LPG businesses which were significantly impacted by the effects of commodity price volatility on current-period margins and related volumes. Results for the prior-year period also included a tax benefit under the CARES Act. These factors were partially offset by higher earnings from our Utilities and Midstream & Marketing segments, which include contributions attributable to recent acquisitions.AmeriGas Propane's adjusted net income attributable toUGI Corporation decreased$69 million in the 2022 nine-month period. This decrease principally reflects lower retail propane margin primarily attributable to lower volumes sold and higher operating and administrative expenses primarily attributable to increasing expenses resulting from inflationary pressures.UGI International's adjusted net income attributable toUGI Corporation decreased$61 million in the 2022 nine-month period principally reflecting lower total margin attributable to commodity price volatility and volumes attributable to warmer weather, and increasing expenses resulting from inflationary pressures. This decrease was partially offset by strong margin management efforts atUGI International's LPG business.
Midstream & Marketing's adjusted net income attributable to
Utilities' adjusted net income attributable toUGI Corporation increased$59 million in the 2022 nine-month period compared to the prior-year period. The increase was largely related to incremental earnings attributable to the Mountaineer Acquisition. The increase in both DSIC rates and base rates atUGI Utilities also contributed to the earnings improvement during the current-year period.
SEGMENT RESULTS OF OPERATIONS
2022 Three-Month Period Compared with the 2021 Three-Month Period
For the three months ended June 30, 2022 2021 Increase (Decrease) (Dollars in millions) Revenues$ 597 $ 526 $ 71 13 % Total margin (a)$ 227 $ 259 $ (32) (12) % Operating and administrative expenses$ 204 $ 212 $ (8) (4) %
Operating (loss) income/(loss) earnings
before interest expense and income taxes
(191) %
Retail gallons sold (millions) 173 184 (11) (6) %
Heating degree days-% colder than normal
(b) 16.5 % 2.5 % - -
(a)Total margin represents total revenues less total cost of sales.
(b)Deviation from average heating degree days is determined on a rolling 10-year
period utilizing volume-weighted weather data based on weather statistics
provided by
Average temperatures during the 2022 three-month period were 16.5% colder than normal and 22.8% colder than the prior-year period. Total retail gallons sold decreased 6% during the 2022 three-month period principally reflecting the continued impact of customer service challenges that occurred in Fiscal 2021, staffing shortages in key delivery related positions, increased price sensitivity in the higher commodity cost environment and the prior-year impact of COVID-19 on cylinder exchange and resale volumes. Average daily wholesale propane commodity prices during the 2022 three-month period atMont Belvieu, Texas , one of the major supply points in theU.S. , were approximately 46% higher than such prices during the 2021 three-month period. This increase in prices has impacted both total revenues and total costs of sales during the 2022 three-month period. Total revenues 39
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increased
Total cost of sales increased$103 million during the 2022 three-month period largely attributable to the higher average propane product costs ($119 million ). This increase was partially offset by the decrease in retail propane volumes sold ($12 million ). Total margin decreased$32 million in the 2022 three-month period largely attributable to the lower retail propane margins ($21 million ) and volumes ($13 million ). Operating income and earnings before interest expense and income taxes decreased$21 million during the 2022 three-month period primarily reflecting the decrease in total margin partially offset by lower operating and administrative expenses ($8 million ) compared to the prior-year period. The decrease in operating and administrative expenses reflects lower expenses associated with employee benefits and compensation ($18 million ), advertising ($4 million ) and vehicle leases ($2 million ) compared to the prior-year period. These decreases were partially offset by, among other things, increases related to the inflationary cost environment, which included higher expenses associated with bad debt reserves ($4 million ), vehicle fuel ($3 million ), insurance claims ($3 million ) and telecommunications ($2 million ) compared to the prior-year period.
For the three months ended June 30, 2022 2021 Increase (Decrease) (Dollars in millions) Revenues$ 738 $ 572 $ 166 29 % Total margin (a)$ 194 $ 217 $ (23) (11) % Operating and administrative expenses$ 143 $ 144 $ (1) (1) % Operating income$ 22 $ 40 $ (18) (45) % Earnings before interest expense and income taxes$ 26 $ 41 $ (15) (37) % LPG retail gallons sold (millions) 155 166 (11) (7) % Heating degree days-% (warmer) colder than normal (b) (9.1) % 24.4 % - -
(a)Total margin represents revenues less cost of sales.
(b)Deviation from average heating degree days is determined on a rolling 10-year
period utilizing volume-weighted weather data at locations in our
Average temperatures during the 2022 three-month period were 9.1% warmer than normal and 29.3% warmer than the prior-year period. Total LPG retail gallons sold during the 2022 three-month period decreased by 7% as compared to the prior-year period and was primarily attributable to the effects of weather that was warmer than the prior-year period. This decrease was partially offset by recovery of certain bulk and autogas volumes that were negatively impacted by COVID-19.UGI International base-currency results are translated into USD based upon exchange rates experienced during the reporting periods. The functional currency of a significant portion of ourUGI International results is the euro and, to a much lesser extent, the British pound sterling. During the 2022 and 2021 three-month periods, the average unweighted euro-to-USD translation rates were approximately$1.06 and$1.21 , respectively, and the average unweighted British pound sterling-to-USD translation rates were approximately$1.26 and$1.40 , 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 onUGI International's earnings before interest expense and income taxes resulted in a net gain of$2 million in the 2022 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 million and realized net losses of$1 million in the 2022 and 2021 three-month periods, respectively.UGI International revenues and cost of sales increased$166 million and$189 million , respectively, during the 2022 three-month period compared to the prior-year period. Average wholesale prices for propane and butane during the 2022 three-month period in northwestEurope were approximately 65% and 103% higher, respectively, compared with the prior-year period. The increase in revenues and cost of sales principally reflects the impact of significant increases and volatility in natural gas and power prices on our energy marketing business and the effects of these higher average propane and butane selling prices and product costs compared to the prior-year period. These increases were partially offset by the translation effects of weaker foreign currencies (approximately$127 million and$102 million , respectively). 40
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UGI International total margin decreased $23 million during the 2022 three-month
period primarily reflecting the translation effects of weaker foreign currencies
(approximately $25 million ), lower margin attributable to energy marketing
activities and the effects of weather that was significantly warmer than the
prior-year period. These impacts were partially offset by strong margin
management efforts within our LPG business implemented in response to the
previously mentioned significant increases in commodity prices as compared to
the prior-year period.
UGI International operating income and earnings before interest expense and
income taxes decreased $18 million and $15 million , respectively, during the
2022 three-month period compared to the prior-year period. The decrease in
operating income principally reflects the impact of the global inflationary cost
environment on our operating and administrative expenses. The net decrease in
operating and administrative expenses compared to the prior-year period was
driven by the effects of inflation on the underlying distribution, personnel and
maintenance costs offset by the translation effects of the weaker foreign
currencies (approximately $24 million ). The decrease in earnings before interest
expense and income taxes in the 2022 three-month period largely reflects the
decrease in operating income partially offset by higher realized gains on
foreign 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 ($3 million ).
Midstream & Marketing
For the three months ended June 30, 2022 2021 Increase (Decrease) (Dollars in millions) Revenues$ 525 $ 261 $ 264 101 % Total margin (a)$ 89 $ 65 $ 24 37 % Operating and administrative expenses$ 29 $ 31 $ (2) (6) % Operating income$ 38 $ 14 $ 24 171 % Earnings before interest expense and income taxes$ 44 $ 21 $ 23 110 %
(a)Total margin represents revenues less cost of sales.
Average temperatures across Midstream & Marketing's energy marketing territory during the 2022 three-month period were 5.2% warmer than normal and 5.8% warmer than the prior-year period. Midstream & Marketing revenues and cost of sales for the 2022 three-month period increased$264 million and$240 million , respectively, compared to the prior-year period. These increases were largely driven by natural gas marketing, including the effects of peaking and capacity management activities, which were impacted by significantly higher average natural gas prices compared to the prior-year period. As a result, revenues and cost of sales attributable to natural gas marketing activities increased$239 million and$236 million , respectively, during the 2022 three-month period. Midstream & Marketing total margin increased$24 million in the 2022 three-month period largely reflecting higher margin attributable to natural gas marketing activities ($19 million ) and incremental margin attributable to UGI Moraine East ($5 million ). The increase in margin related to natural gas marketing activities largely reflects the effects of capacity management including the positive impact of settlement timing of certain multi-year commodity storage hedge contracts during the 2022 three-month period. Midstream & Marketing operating income and earnings before interest expense and income taxes during the 2022 three-month period increased$24 million and$23 million , respectively, compared to the prior-year period. These improvements were largely attributable to the higher total margin including incremental contributions related to UGI Moraine East. 41
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Utilities
For the three months ended June 30, 2022 2021 Increase (Decrease)
(Dollars in millions)
Revenues $ 274 $ 181 $ 93 51 %
Total margin (a) $ 151 $ 113 $ 38 34 %
Operating and administrative expenses (a) $ 79 $ 59 $ 20 34 %
Operating income $ 38 $ 24 $ 14 58 %
Earnings before interest expense and income
taxes $ 40 $ 25 $ 15 60 %
Gas Utility system throughput-bcf
Core market 13 10 3 30 %
Total 74 62 12 19 %
Electric Utility distribution sales - gwh 220 223 (3) (1) %
Gas Utility heating degree days-% (warmer)
colder than normal (b) (3.0) % 5.0 % - -
(a)Total margin represents revenues less cost of sales and revenue-related taxes
(i.e., gross receipts and business and occupation taxes) of $2 million and $1
million , respectively, during the 2022 and 2021 three-month periods. For
financial statement purposes, revenue-related taxes are included in "Operating
and administrative expenses" on the Condensed Consolidated Statements of Income
(but are excluded from operating and administrative expenses presented above).
(b)Deviation from average heating degree days is determined on a 10-year period
utilizing volume-weighted weather data based on weather statistics provided by
NOAA for airports located within Gas Utility's service territories.
Temperatures in Gas Utility's service territories during the 2022 three-month
period were 3.0% warmer than normal and 11.0% warmer than the prior-year period.
The increase in Gas Utility core market and total volumes during the 2022
three-month period are largely related to incremental volumes attributable to
the acquisition of Mountaineer.
Utilities revenues increased $93 million in the 2022 three-month period
reflecting an $84 million increase in Gas Utility revenues and a $9 million
increase in Electric Utility revenues. The increase in Gas Utility revenues
largely reflects incremental revenues attributable to Mountaineer ($39 million ),
higher PGC rates compared to the prior-year period, higher pricing on off-system
sales and the effects of the increase in DSIC rates. The increase in Electric
Utility revenues during the 2022 three-month period reflects the increase in
base rates that went into effect in November 2021 and higher DS rates compared
to the prior-year period.
Utilities cost of sales (including revenue-related taxes) increased $55 million
compared to the prior-year period. The increase in Gas Utility cost of sales
($48 million ) during the 2022 three-month period reflects incremental cost
attributable to Mountaineer ($14 million ), higher PGC rates compared to the
prior-year period, and increased cost of sales associated with off-system sales.
Electric Utility cost of sales increased during the 2022 three-month period
largely reflecting the higher DS rates compared to the prior-year period.
Utilities total margin increased $38 million during the 2022 three-month period
largely reflecting incremental margin attributable to Mountaineer ($25 million ).
Gas Utility's total margin increase also includes higher natural gas margin
attributable to the increase in DSIC rates and higher margin from large delivery
service customers including the effects of customer growth compared to the
prior-year period. Electric Utility margin increased $2 million largely
attributable to the increase in base rates compared to the prior-year period.
Utilities operating income and earnings before interest expense and income taxes
increased $14 million and $15 million , respectively, during the 2022 three-month
period. These increases largely reflect the previously mentioned increase in
total margin partially offset by higher operating and administrative expenses
($20 million ) and higher depreciation expense ($8 million ) compared to the
prior-year period, both principally related to incremental expenses attributable
to Mountaineer. The higher depreciation expense compared to the prior-year
period also includes the effects of continued distribution system capital
expenditure activity. The increase in earnings before interest expense and
income taxes also includes a higher non-service pension benefit compared to the
prior-year period.
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UGI CORPORATION AND SUBSIDIARIESInterest Expense and Income Taxes
Our consolidated interest expense during the 2022 three-month period was$82 million compared to$77 million during the 2021 three-month period. This increase largely reflects the effects of incremental long-term debt outstanding during the current period, net of repayments, primarily related to theMountaineer Acquisition andUGI Utilities' issuance of senior notes during the second half of Fiscal 2021. The Company's effective income tax rate for the 2022 three-month period largely reflects the impact of discrete tax items on a small pre-tax loss during the prior year period. In addition, the absence of benefits under the CARES Act was largely offset by the net effects of a decrease in the concentration of foreign earnings reflecting foreign statutory tax rates that exceed theU.S. statutory rate. The Company continues to evaluate the elections available under current regulations and pending legislation. Accordingly, the impacts on the Company's income tax provisions and taxes payable or refundable related to these items are subject to change.
2022 Nine-Month Period Compared with the 2021 Nine-Month Period
For the nine months ended June 30, 2022 2021 Increase (Decrease) (Dollars in millions) Revenues$ 2,423 $ 2,132 $ 291 14 % Total margin (a)$ 1,090 $ 1,162 $ (72) (6) % Operating and administrative expenses$ 684 $ 666 $ 18 3 % Operating income/earnings before interest expense and income taxes$ 303 $ 391 $ (88) (23) % Retail gallons sold (millions) 743 815 (72) (9) % Heating degree days-% warmer than normal (b) (0.8) % (2.6) % - -
(a)Total margin represents total revenues less total cost of sales.
(b)Deviation from average heating degree days is determined on a rolling 10-year
period utilizing volume-weighted weather data based on weather statistics
provided by
Average temperatures during the 2022 nine-month period were relatively consistent with normal temperatures and temperatures during the prior-year period. Total retail gallons sold decreased 9% during the 2022 nine-month period reflecting the continued impact of customer service challenges that occurred in Fiscal 2021, staffing shortages in key delivery related positions, increased price sensitivity in the higher commodity cost environment and the prior-year impact of COVID-19 on cylinder exchange and resale volumes. Average daily wholesale propane commodity prices during the 2022 nine-month period atMont Belvieu, Texas , one of the major supply points in theU.S. , were approximately 63% higher than such prices during the 2021 nine-month period. This significant increase in prices has impacted both total revenues and total costs of sales during the 2022 nine-month period. Total revenues increased$291 million during the 2022 nine-month period largely reflecting higher average propane selling prices ($418 million ) and higher wholesale volumes sold ($27 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 ($162 million ). Total cost of sales increased$363 million during the 2022 nine-month period largely attributable to the higher average propane product costs ($405 million ) and higher wholesale propane volumes sold ($25 million ). These increases in cost of sales were partially offset by the decrease in retail propane volumes sold ($72 million ). Total margin decreased$72 million in the 2022 nine-month period largely attributable to the lower retail propane volumes ($90 million ) partially offset by higher average propane margins ($12 million ). Operating income and earnings before interest expense and income taxes decreased$88 million during the 2022 nine-month period primarily reflecting the decrease in total margin and higher operating and administrative expenses ($18 million ) compared to the prior-year period. The increase in operating and administrative expenses was impacted by the inflationary cost environment and reflects, among other things, higher expenses associated with general insurance and claims paid ($15 million ), bad debt reserves ($11 million ), vehicle fuel ($10 million ) and telecommunications ($7 million ) compared to the prior-year 43
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period. These increases were partially offset by lower expenses associated with
employee compensation and benefits ($24 million ) and vehicle leases ($5 million )
compared to the prior-year period.
For the nine months ended June 30, 2022 2021 Increase (Decrease) (Dollars in millions) Revenues$ 3,011 $ 2,106 $ 905 43 % Total margin (a)$ 744 $ 877 $ (133) (15) % Operating and administrative expenses$ 466 $ 465 $ 1 - % Operating income$ 211 $ 322 $ (111) (34) % Earnings before interest expense and income taxes$ 228 $ 326 $ (98) (30) % LPG retail gallons sold (millions) 651 644 7 1 % Heating degree days-% (warmer) colder than normal (b) (2.3) % 1.4 % - -
(a)Total margin represents revenues less cost of sales.
(b)Deviation from average heating degree days is determined on a rolling 10-year
period utilizing volume-weighted weather data at locations in our
Average temperatures during the 2022 nine-month period were 2.3% warmer than normal and 5.5% warmer than the prior-year period. Total LPG retail gallons sold during the 2022 nine-month period increased slightly compared to the prior-year period largely attributable to favorable crop drying campaigns and the recovery of certain bulk and autogas volumes that were negatively impacted by COVID-19.UGI International base-currency results are translated into USD based upon exchange rates experienced during the reporting periods. The functional currency of a significant portion of ourUGI International results is the euro and, to a much lesser extent, the British pound sterling. During the 2022 and 2021 nine-month periods, the average unweighted euro-to-USD translation rates were approximately$1.11 and$1.20 , respectively, and the average unweighted British pound sterling-to-USD translation rates were approximately$1.32 and$1.37 , 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 onUGI International's earnings before interest expense and income taxes resulted in a net loss of$9 million in the 2022 nine-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$12 million and$2 million in the 2022 and 2021 nine-month periods, respectively.UGI International revenues and cost of sales increased$905 million and$1,038 million , respectively, during the 2022 nine-month period compared to the prior-year period. Average wholesale prices for propane and butane during the 2022 nine-month period in northwestEurope were approximately 73% and 98% higher, respectively, compared with the prior-year period. The increase in revenues and cost of sales principally reflects the impact of significant increases and volatility in natural gas and power prices on our energy marketing business and the effects of these higher average propane and butane selling prices and product costs compared to the prior-year period. These increases were partially offset by the translation effects of weaker foreign currencies (approximately$252 million and$196 million , respectively).UGI International total margin decreased$133 million during the 2022 nine-month period primarily reflecting lower total margin from our energy marketing business (approximately$80 million ) and the translation effects of weaker foreign currencies (approximately$56 million ). These factors were partially offset by higher total margin from our LPG business attributable to strong margin management efforts despite the effects of the previously mentioned higher product costs. The lower total margin from our energy marketing business is largely due to the impact of significant volatility in commodity costs and its effects on the unit margins of certain customer contracts during the 2022 nine-month period. The effects of this volatility on such customer contracts were largely confined to the heating-season months of October through March.UGI International operating income and earnings before interest expense and income taxes decreased$111 million and$98 million , respectively, during the 2022 nine-month period compared to the prior-year period. The decrease in operating income principally reflects the previously mentioned decrease in total margin partially offset by higher gains associated with the sale of assets. The decrease in earnings before interest expense and income taxes in the 2022 nine-month period largely reflects the decrease in operating income partially offset by higher realized gains on foreign currency exchange contracts entered into in 44
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order to reduce volatility in
Midstream & Marketing
For the nine months ended June 30, 2022 2021 Increase (Decrease) (Dollars in millions) Revenues$ 1,731 $ 1,086 $ 645 59 % Total margin (a)$ 342 $ 310 $ 32 10 % Operating and administrative expenses$ 88 $ 91 $ (3) (3) % Operating income$ 197 $ 156 $ 41 26 % Earnings before interest expense and income taxes$ 216 $ 180 $ 36 20 %
(a)Total margin represents revenues less cost of sales.
Average temperatures across Midstream & Marketing's energy marketing territory during the 2022 nine-month period were 8.0% warmer than normal and 4.6% warmer than the prior-year period. Midstream & Marketing revenues and cost of sales for the 2022 nine-month period increased$645 million and$613 million , respectively, compared to the prior-year period. These increases were largely driven by natural gas marketing, including the effects of peaking and capacity management activities, which were impacted by significantly higher average natural gas prices compared to the prior-year period, partially offset by lower volumes attributable to the warmer weather. As a result, natural gas marketing revenues and cost of sales increased$592 million and$596 million , respectively, during the 2022 nine-month period. Higher retail power and generation revenues and cost of sales ($30 million and$26 million , respectively) also contributed to these increases during the 2022 nine-month period. Midstream & Marketing total margin increased$32 million in the 2022 nine-month period reflecting higher margin from peaking and capacity management activities ($14 million ) and increased total margin from renewable energy marketing activities ($9 million ) including the impact of increased volumes and average pricing related to environmental credits compared to the prior-year period. Incremental margin attributable to UGI Moraine East ($9 million ) also contributed to the improvement during the 2022 nine-month period. Midstream & Marketing operating income and earnings before interest expense and income taxes during the 2022 nine-month period increased$41 million and$36 million , respectively, compared to the prior-year period. The increase in operating income is largely attributable to the increase in total margin, the absence of a contingent consideration adjustment related to the GHI acquisition in the prior-year period, and lower operating and administrative expenses. The increase in earnings before interest expense and income taxes principally reflects the increase in operating income partially offset by lower income from equity-method investments compared to the prior-year period.
Utilities
For the nine months ended June 30, 2022 2021 Increase (Dollars in millions) Revenues$ 1,400 $ 923 $ 477 52 % Total margin (a)$ 681 $ 518 $ 163 31 % Operating and administrative expenses (a)$ 250 $ 186 $ 64 34 % Operating income$ 325 $ 243 $ 82 34 % Earnings before interest expense and income taxes$ 332 $ 245 $ 87 36 % Gas Utility system throughput-bcf Core market 94 72 22 31 % Total 290 245 45 18 % Electric Utility distribution sales - gwh 746 743 3 - % Gas Utility heating degree days-% warmer than normal (b) (7.6) % (7.3) % - - (a)Total margin represents revenues less cost of sales and revenue-related taxes (i.e., gross receipts and business and occupation taxes) of$18 million and$4 million , respectively, during the 2022 and 2021 nine-month periods. For financial 45
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statement purposes, revenue-related taxes are included in "Operating and
administrative expenses" on the Condensed Consolidated Statements of Income (but
are excluded from operating and administrative expenses presented above).
(b)Deviation from average heating degree days is determined on a 10-year period
utilizing volume-weighted weather data based on weather statistics provided by
NOAA for airports located within Gas Utility's service territories.
Temperatures in Gas Utility's service territories during the 2022 nine-month
period were 7.6% warmer than normal and slightly warmer compared to the
prior-year period. The increase in Gas Utility core market and total volumes
during the 2022 nine-month period is largely related to incremental volumes
attributable to the acquisition of Mountaineer.
Utilities revenues increased $477 million in the 2022 nine-month period
reflecting a $454 million increase in Gas Utility revenues and a $23 million
increase in Electric Utility revenues. The increase in Gas Utility revenues
largely reflects incremental revenues attributable to Mountaineer ($230
million ), higher PGC rates compared to the prior-year period, higher pricing on
off-system sales, increased DSIC rates, and the effects of the increase in base
rates that went into effect during Fiscal 2021. The increase in Electric Utility
revenues during the 2022 nine-month period reflects the increase in base rates
that went into effect in November 2021 and higher DS rates compared to the
prior-year period.
Utilities cost of sales (including revenue-related taxes) increased $314 million
in the 2022 nine-month period primarily attributable to Gas Utility ($298
million ) which reflects incremental cost attributable to Mountaineer ($120
million ), higher PGC rates compared to the prior-year period, and increased cost
of sales associated with off-system sales. Electric Utility cost of sales
increased during the 2022 nine-month period largely reflecting the higher DS
rates compared to the prior-year period.
Utilities total margin increased $163 million during the 2022 nine-month period
largely reflecting incremental margin attributable to Mountaineer ($110
million ). Gas Utility's total margin increase also includes higher natural gas
margin attributable to an increase in DSIC rates, the positive impacts of the
increase in base rates, and higher margin from large delivery service customers
including the effects of customer growth compared to the prior-year period.
Electric Utility margin increased $7 million largely attributable to the
increase in base rates compared to the prior-year period.
Utilities operating income and earnings before interest expense and income taxes
increased $82 million and $87 million , respectively, during the 2022 nine-month
period. These increases largely reflect the previously mentioned increase in
total margin partially offset by higher operating and administrative expenses
($64 million ) and higher depreciation expense ($21 million ) compared to the
prior-year period, both principally related to incremental expenses attributable
to Mountaineer. The higher depreciation expense compared to the prior-year
period also includes the effects of continued distribution system capital
expenditure activity. The increase in earnings before interest expense and
income taxes also includes a higher non-service pension benefit ($4 million )
compared to the prior-year period.
Interest Expense and Income Taxes
Our consolidated interest expense during the 2022 nine-month period was$245 million compared to$233 million during the 2021 nine-month period. This increase reflects the effects of incremental long-term debt outstanding during the current period, net of repayments, primarily related to theMountaineer Acquisition andUGI Utilities' issuance of senior notes during the second half of Fiscal 2021, and higher average short-term borrowings outstanding compared to the prior-year period. The Company's effective income tax rate for the 2022 nine-month period was relatively consistent with the prior-year period. The absence of benefits from the prior year related to an election made in connection with a tax law change inItaly and under the CARES Act were largely offset by the net effects of a decrease in the concentration of foreign earnings reflecting foreign statutory tax rates that exceed theU.S. statutory rate. The Company continues to evaluate the elections available under current regulations and pending legislation. Accordingly, the impacts on the Company's income tax provisions and taxes payable or refundable related to these items are subject to change. FINANCIAL CONDITION AND LIQUIDITY The Company expects to have sufficient liquidity, including cash on hand and available borrowing capacity, to continue to support long-term commitments and ongoing operations despite uncertainties associated with the COVID-19 pandemic, the inflationary cost environment 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$2.1 billion and$2.2 billion atJune 30, 2022 andSeptember 30, 2021 , respectively. Our total available liquidity atJune 30, 2022 was affected, in part, by$659 million of cash collateral received from derivative counterparties resulting from the impact of rising commodity prices and an accumulation of derivative assets associated with our commodity derivative instruments. The Company does not 46
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have any near-term senior note or term loan maturities. The Company cannot
predict the duration or magnitude that the COVID-19 pandemic and ongoing
commodity price volatility will have on its liquidity, debt covenants, financial
condition or the timing of capital expenditures. UGI and its subsidiaries were
in compliance with all debt covenants as of June 30, 2022 .
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 $670 million at June 30,
2022 , compared with $855 million at September 30, 2021 . The decrease in cash and
cash equivalents since September 30, 2021 is primarily attributable to commodity
price volatility experienced in the 2022 nine-month period and the seasonality
of our business as further described in "Cash Flows" below. Excluding cash and
cash equivalents that reside at UGI's operating subsidiaries, at June 30, 2022
and September 30, 2021 , UGI had $175 million and $172 million of cash and cash
equivalents, respectively. Such cash is available to pay dividends on UGI Common
Stock, to make quarterly payments on outstanding Purchase Contracts and for
investment purposes.
Long-term Debt and Credit Facilities
Long-term Debt
The Company's debt outstanding atJune 30, 2022 andSeptember 30, 2021 , comprises the following: September 30, June 30, 2022 2021 AmeriGas Midstream & Corp & (Millions of dollars) Propane UGI International Marketing Utilities Other Total Total Short-term borrowings$ 50 $ 1 $ -$ 225 $ -$ 276 $ 367 Long-term debt (including current maturities): Senior notes$ 2,575 $ 419 $ -$ 1,290 $ -$ 4,284 $ 4,270 Term loans - 315 679 137 765 1,896 1,938 Other long-term debt - 2 41 24 236 303 283 Unamortized debt issuance costs (13) (7) (8) (5) (4) (37) (42) Total long-term debt$ 2,562 $ 729 $ 712$ 1,446 $ 997 $ 6,446 $ 6,449 Total debt$ 2,612 $ 730 $ 712$ 1,671 $ 997 $ 6,722 $ 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 2021 Annual Report. 47
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