UGI (US:UGI)2020-11-20 22:06Part I Items 1 and 2. Business and Properties UGI Corporation operates four energy segments, focusing on growth, acquisitions, and renewable energy, with key FY2020 strategic initiatives Corporate Overview UGI Corporation is a holding company focused on energy distribution and marketing, pursuing growth through core competencies and strategic acquisitions - UGI Corporation is a holding company that distributes, stores, transports, and markets energy products through four principal business segments: AmeriGas Propane, UGI International, Midstream & Marketing, and UGI Utilities39 - The company's business strategy is to grow by focusing on its core competencies in energy distribution and marketing, accelerating both organic growth and acquisitions in existing and complementary businesses44 - In Fiscal 2020, UGI advanced its renewable energy strategy by acquiring GHI Energy, LLC, a renewable natural gas marketing company, and reduced its direct carbon emissions by over 30% through the sale of its ownership in the Conemaugh coal-fired power generation facility45 - Business transformation initiatives at AmeriGas Propane and UGI International yielded over $40 million and approximately €7 million in benefits, respectively, in Fiscal 2020, with plans to continue these efforts in Fiscal 202149 AmeriGas Propane AmeriGas Propane is the largest U.S. retail propane distributor, serving over 1.5 million customers nationwide with seasonal sales - AmeriGas Propane is the largest retail propane distributor in the U.S., serving over 1.5 million customers in all 50 states from more than 1,800 distribution locations4053 AmeriGas Propane FY2020 Retail Gallons Sold by Customer Type | Customer Type | Percentage of Retail Gallons Sold | | :--- | :--- | | Commercial/Industrial | 41% | | Residential | 33% | | Motor Fuel | 18% | | Agricultural | 4% | | Transport | 4% | - The AmeriGas Cylinder Exchange (ACE) program is a key business element, with cylinders available at over 61,000 retail locations, and the Cynch propane home delivery service is expanding, available in thirteen cities as of September 30, 202056 - The business is highly seasonal, with approximately 65% of retail sales volume occurring during the peak heating season from October through March76 - In Fiscal 2020, approximately 98% of propane supply was purchased under one- to three-year agreements, with the top three suppliers being Enterprise Products Operating LLC (13%), Targa Liquids Marketing and Trade (10%), and Crestwood Services, LLC (10%)62 UGI International UGI International operates LPG distribution and energy marketing across 17 European countries, holding leading market positions in several - UGI International conducts an LPG distribution business in 17 European countries and an energy marketing business in four countries, being the largest LPG distributor in France, Austria, Belgium, Denmark, Luxembourg, and Norway88 UGI International FY2020 LPG Volume by Customer Type | Customer Type | Percentage of LPG Volume | | :--- | :--- | | Commercial & Industrial | 48% | | Wholesale & Other | 21% | | Residential | 19% | | Agricultural | 12% | - The business is seasonal, with approximately 63% of retail sales volume occurring during the peak heating season from October through March100 - In the second half of Fiscal 2020, propane and butane production was reduced at refineries due to COVID-19 related demand decreases for primary fuels like jet fuel, gasoline, and diesel95 Midstream & Marketing This segment markets natural gas, liquid fuels, and electricity, managing midstream assets and expanding into renewable natural gas - The segment sells natural gas, renewable natural gas, liquid fuels, and electricity to nearly 14,000 customers at over 45,000 locations across 12 states and the District of Columbia107 - Midstream assets include natural gas liquefaction, storage, and vaporization facilities, propane-air mixing stations, gathering systems, and pipelines, primarily in the Marcellus and Utica Shale regions109112114 - In July 2020, the segment acquired GHI Energy, LLC, a Houston-based company that markets renewable natural gas in California, to expand its presence in the renewable energy space121 - On September 30, 2020, the segment completed the sale of its ownership stake in the Conemaugh coal-fired power generation facility120 - The PennEast Pipeline project faced a legal setback from the U.S. Court of Appeals for the Third Circuit regarding eminent domain against the State of New Jersey, with PennEast seeking U.S. Supreme Court review117118 UGI Utilities UGI Utilities provides regulated natural gas and electric distribution services in Pennsylvania and Maryland, with ongoing infrastructure upgrades - The Gas Utility serves approximately 670,000 customers in 46 Pennsylvania counties and over 500 customers in one Maryland county, committed to replacing all cast iron mains by March 2027 and all bare steel mains by September 2041132133 - In Fiscal 2020, Gas Utility's system throughput was approximately 310 Bcf, with transported gas for customers buying from third parties accounting for nearly 82% of this volume134 - On October 8, 2020, the PAPUC approved a settlement for the Gas Utility to increase base distribution revenue by $20 million, phased in during 2021149 - The Electric Utility serves over 62,500 customers in northeastern Pennsylvania through a system of over 2,500 miles of lines and 14 substations159 Human Capital Initiatives The company's human capital strategy prioritizes COVID-19 response, workplace safety, diversity, and talent management - The company's human capital strategy focuses on four key areas: COVID-19 response, workplace safety, Belonging, Inclusion, Diversity, and Equity (BIDE), and talent management174 - In response to COVID-19, UGI implemented a work-from-home plan for over 4,000 office-based employees and revised work practices for over 7,400 field-based employees globally to ensure safety and service continuity175 - Workplace safety is a strategic initiative, with oversight from the Board's Safety, Environmental, and Regulatory Compliance (SERC) Committee and inclusion as a component in annual bonus calculations177178 - The company launched a BIDE Initiative to promote diversity and inclusion, expanding partnerships with organizations that support underrepresented populations180 Item 1A. Risk Factors The company faces risks from demand, operations, international business, supply chain, and regulatory changes, including pandemic effects - Demand Risk: The business is highly seasonal and adversely affected by warmer-than-normal heating season weather, with 60-70% of volume for most segments typically sold between October and March186 - Operational Risk: The company faces risks in integrating acquired businesses, such as assuming liabilities and assimilating different cultures, and potential disruptions from ongoing business transformation initiatives designed to create efficiencies192200 - Cybersecurity Risk: Information technology systems are vulnerable to cyber-attacks, which could disrupt operations, lead to misappropriation of sensitive data, and adversely affect internal controls202 - International Risk: Operations in Europe face risks from currency fluctuations (particularly the euro), political and economic uncertainty related to Brexit, and complex regulatory requirements such as GDPR and anti-corruption laws205206210 - Supply Chain Risk: The company is dependent on a limited number of principal LPG suppliers; in FY2020, AmeriGas Propane purchased approximately 84% of its propane from 20 suppliers, and in certain regions, a single supplier may provide over 50% of requirements208 - Regulatory Risk: The company is subject to extensive governmental regulations, including rate approvals for UGI Utilities and complex environmental, safety, and climate change regulations (e.g., GHG emission limits) that could increase costs215216219 - Pandemic Risk: The COVID-19 outbreak presents significant uncertainty, with potential adverse impacts on customer financial health, energy demand, project timelines, and workforce availability233 Item 1B. Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - There are no unresolved staff comments247 Item 3. Legal Proceedings The company states that, other than matters disclosed in Note 17 to the Consolidated Financial Statements and ordinary course claims, there are no material pending legal proceedings - No material legal proceedings are pending outside of those mentioned in Note 17 to the financial statements and claims arising in the ordinary course of business248 Item 4. Mine Safety Disclosures The company reports no mine safety disclosures - There are no mine safety disclosures to report249 Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities UGI Common Stock trades on the NYSE, with the company continuing quarterly dividends and a share repurchase program in place - UGI Common Stock is traded on the NYSE under the symbol 'UGI'253 - The company did not repurchase any shares of its Common Stock in the fourth quarter of Fiscal 2020; as of September 30, 2020, 5.85 million shares were available for repurchase under a program authorized through January 2022256 Item 6. Selected Financial Data This section provides a five-year summary of UGI Corporation's key financial data, including income statement, balance sheet, and per-share metrics Selected Financial Data (FY2016-FY2020) | (Millions of dollars, except per share) | 2020 | 2019 | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | :--- | :--- | | Revenues | $6,559 | $7,320 | $7,651 | $6,121 | $5,686 | | Net income attributable to UGI | $532 | $256 | $719 | $437 | $365 | | Diluted EPS | $2.54 | $1.41 | $4.06 | $2.46 | $2.08 | | Cash dividends declared per share | $1.310 | $1.145 | $1.020 | $0.975 | $0.930 | | Total assets | $13,985 | $13,347 | $11,981 | $11,582 | $10,847 | | Total debt | $6,381 | $6,600 | $4,590 | $4,539 | $4,087 | Reconciliation to Adjusted Diluted EPS (Non-GAAP) | (per share) | 2020 | 2019 | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | :--- | :--- | | Diluted EPS (GAAP) | $2.54 | $1.41 | $4.06 | $2.46 | $2.08 | | Total Adjustments | $0.13 | $0.87 | ($1.32) | ($0.17) | ($0.03) | | Adjusted Diluted EPS (Non-GAAP) | $2.67 | $2.28 | $2.74 | $2.29 | $2.05 | Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses FY2020 financial results, including increased net income, liquidity, and the impacts of strategic initiatives and the pandemic Executive Overview The executive overview highlights the impact of COVID-19, CARES Act benefits, and ongoing business transformation initiatives - The COVID-19 pandemic negatively impacted Fiscal 2020 results, but the company continued to provide essential services, with the full future impact remaining uncertain267 - The CARES Act, enacted in March 2020, provided tax benefits by modifying Net Operating Loss (NOL) carryback rules, which positively impacted FY2020 results268 - AmeriGas Propane's transformation initiatives resulted in over $40 million of benefits in FY2020 and are expected to provide over $140 million in annual savings once completed, at a total estimated cost of approximately $200 million271272 - UGI International's 'Project Alliance' transformation initiative resulted in approximately €7 million of savings in FY2020 and is expected to generate over €30 million in annual savings once completed, at a total estimated cost of €55 million273 Results of Operations This section details the financial performance of each segment for FY2020 compared to FY2019, highlighting key drivers of change FY2020 vs. FY2019 Performance Summary | Metric | FY2020 | FY2019 | | :--- | :--- | :--- | | Net Income attributable to UGI | $532M | $256M | | Diluted EPS | $2.54 | $1.41 | | Adjusted Net Income attributable to UGI | $561M | $413M | | Adjusted Diluted EPS | $2.67 | $2.28 | - AmeriGas Propane's operating income decreased by $31 million, driven by a $70 million drop in total margin from lower retail volumes due to warmer weather (4.6% warmer than prior year) and COVID-19 impacts, partially offset by a $39 million reduction in operating expenses287289291292 - UGI International's earnings before interest and taxes increased by $25 million, primarily due to lower operating expenses and higher realized gains on foreign currency contracts, which offset lower total margin from significantly warmer weather (6.7% warmer than prior year) and COVID-19 impacts293295299 - Midstream & Marketing's earnings before interest and taxes rose by $54 million, mainly due to incremental income from the UGI Appalachia (formerly CMG) acquisition, which contributed to an $80 million increase in total margin300303304 - UGI Utilities' earnings before interest and taxes increased by $3 million, as higher total margin from a Gas Utility base rate increase effective October 2019 was mostly offset by the effects of warmer weather (5.8% warmer than prior year) and higher depreciation expense306308311312 Financial Condition and Liquidity The company maintains strong liquidity, with detailed capital expenditure plans and contractual cash obligations outlined - The company expects to have sufficient liquidity, with a total available balance of approximately $1.5 billion at September 30, 2020, up from $1.1 billion at September 30, 2019316 - Cash flow from operating activities was $1,102 million in FY2020, a slight increase from $1,078 million in FY2019335 Capital Expenditures (Excluding Acquisitions) | (Millions of dollars) | 2021 (estimate) | 2020 | 2019 | | :--- | :--- | :--- | :--- | | AmeriGas Propane | $175 | $135 | $107 | | UGI International | $135 | $89 | $106 | | Midstream & Marketing | $110 | $93 | $138 | | UGI Utilities | $430 | $348 | $355 | | Total | $850 | $665 | $706 | Contractual Cash Obligations as of Sept 30, 2020 | (Millions of dollars) | Total | Fiscal 2021 | Fiscal 2022-2023 | Fiscal 2024-2025 | Thereafter | | :--- | :--- | :--- | :--- | :--- | :--- | | Long-term debt | $6,081 | $53 | $486 | $2,223 | $3,319 | | Interest on long-term fixed-rate debt | $2,147 | $279 | $539 | $425 | $904 | | Operating leases | $481 | $102 | $159 | $111 | $109 | | Supply & other contracts | $1,265 | $750 | $375 | $96 | $44 | | Total | $9,974 | $1,184 | $1,559 | $2,855 | $4,376 | Critical Accounting Policies and Estimates This section outlines critical accounting policies and estimates, including goodwill impairment, loss contingencies, regulatory assets, and business combination allocations - Goodwill Impairment Evaluation: Goodwill is tested at least annually for impairment at the reporting unit level, with fair value determined using income (discounted cash flows) and market approaches, and no impairments recorded in the periods presented371372 - Loss Contingencies and Environmental Liabilities: Reserves are established for probable losses that can be reasonably estimated, including litigation, self-insured claims, and environmental remediation, with estimates based on management judgment and reviewed quarterly374375376377 - Regulatory Assets and Liabilities: For regulated utility operations, costs probable of future recovery through rates are deferred as regulatory assets, and obligations for future customer refunds are recorded as regulatory liabilities378379 - Business Combination Purchase Price Allocations: The purchase price of acquisitions is allocated to assets and liabilities at their estimated fair value, requiring significant management judgment, especially for intangible assets like customer relationships and trade names381 Item 7A. Quantitative and Qualitative Disclosures About Market Risk This section incorporates market risk disclosures by reference from Item 7, detailing exposures to commodity, interest rate, and foreign currency risks - The disclosures for this item are incorporated by reference from the "Market Risk Disclosures" section within Item 7 of the report384 Item 8. Financial Statements and Supplementary Data This section incorporates the company's audited consolidated financial statements, supplementary data, and internal control report by reference - This item incorporates by reference Management's Annual Report on Internal Control Over Financial Reporting and the financial statements and schedules indexed on page F-2385 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None reported386 Item 9A. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2020, with no material changes to internal control over financial reporting - Management concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level as of September 30, 2020389 - No material changes in internal control over financial reporting occurred during the fourth fiscal quarter389 Item 9B. Other Information The company reports no other information for this item - None reported388 Part III Items 10-14. Directors, Executive Officers, Corporate Governance, Compensation, Security Ownership, and Principal Accountant Fees This section incorporates information from the upcoming Proxy Statement regarding directors, executive officers, governance, compensation, and security ownership - Information required for Items 10, 11, 12, 13, and 14 is incorporated by reference from UGI's Proxy Statement, to be filed by December 31, 2020390 Equity Compensation Plan Information (as of Sept 30, 2020) | Plan Category | Securities to be issued upon exercise (options, warrants, rights) | Weighted-average exercise price | Securities remaining available for future issuance | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 10,820,808 | $38.58 | 6,105,754 | - A list of ten executive officers, including their age and position, is provided, with John L. Walsh serving as President and Chief Executive Officer397 Part IV Item 15. Exhibits and Financial Statement Schedules This section lists all financial statements, schedules, and exhibits filed as part of the Form 10-K report - This item lists the financial statements, financial statement schedules, and exhibits filed with the report409411 Item 16. Form 10-K Summary The company reports no Form 10-K summary for this item - None provided422 Financial Statements Consolidated Financial Statements The audited consolidated financial statements for FY2020 detail revenues, net income, assets, and debt, reflecting key acquisitions and tax impacts Consolidated Statement of Income Highlights (FY2020 vs. FY2019) | (Millions of dollars) | 2020 | 2019 | | :--- | :--- | :--- | | Revenues | $6,559 | $7,320 | | Operating income | $982 | $617 | | Interest expense | ($322) | ($258) | | Income before income taxes | $667 | $401 | | Net income attributable to UGI | $532 | $256 | Consolidated Balance Sheet Highlights (as of Sept 30) | (Millions of dollars) | 2020 | 2019 | | :--- | :--- | | Total current assets | $1,543 | $1,566 | | Net property, plant, and equipment | $6,960 | $6,688 | | Goodwill | $3,518 | $3,456 | | Total assets | $13,985 | $13,347 | | Total current liabilities | $1,755 | $2,028 | | Long-term debt | $5,981 | $5,780 | | Total liabilities | $9,848 | $9,520 | | Total UGI Corporation stockholders' equity | $4,128 | $3,817 | Consolidated Statement of Cash Flows Highlights (FY2020 vs. FY2019) | (Millions of dollars) | 2020 | 2019 | | :--- | :--- | | Net cash provided by operating activities | $1,102 | $1,078 | | Net cash used by investing activities | ($649) | ($2,055) | | Net cash (used) provided by financing activities | ($635) | $1,042 | | Cash and cash equivalents (decrease) increase | ($154) | $49 | - The August 2019 AmeriGas Merger was accounted for as an equity transaction, with UGI issuing 34.6 million shares and paying $529 million in cash, resulting in a deferred tax asset of $512 million due to the step-up in tax basis569571 - The August 2019 acquisition of Columbia Midstream Group (CMG) for $1.284 billion was accounted for using the acquisition method, recognizing $614 million in property, plant and equipment, $250 million in intangible assets, and $324 million in goodwill572573 - The CARES Act, enacted in March 2020, allowed the company to carry back its FY2020 U.S. federal tax loss to FY2015, generating an incremental tax benefit of $32 million603