UGI (UGI) - 2023 Q1 - Quarterly Report

Part I Financial Information Financial Statements UGI Corporation's Q4 2022 unaudited financials report a $954 million net loss, largely due to a $215 million pre-tax loss on its U.K. energy marketing business disposal and derivative losses Condensed Consolidated Statements of Income (Three Months Ended Dec 31) | (Millions of dollars, except per share) | 2022 | 2021 | | :--- | :--- | :--- | | Revenues | $2,759 | $2,673 | | Operating loss | $(1,204) | $(68) | | Loss before income taxes | $(1,323) | $(142) | | Net loss attributable to UGI Corporation | $(954) | $(97) | | Diluted Loss per common share | $(4.54) | $(0.46) | Condensed Consolidated Balance Sheets Highlights | (Millions of dollars) | Dec 31, 2022 | Sep 30, 2022 | | :--- | :--- | :--- | | Total current assets | $3,456 | $3,802 | | Total assets | $17,128 | $17,575 | | Total current liabilities | $3,380 | $2,444 | | Long-term debt | $6,323 | $6,483 | | Total liabilities | $11,940 | $11,501 | | Total equity | $5,188 | $6,074 | Condensed Consolidated Statements of Cash Flows (Three Months Ended Dec 31) | (Millions of dollars) | 2022 | 2021 | | :--- | :--- | :--- | | Net cash used by operating activities | $(240) | $(594) | | Net cash used by investing activities | $(271) | $(154) | | Net cash provided by financing activities | $548 | $234 | | Cash, cash equivalents and restricted cash increase (decrease) | $75 | $(519) | - On October 21, 2022, UGI International sold its U.K. natural gas marketing business, recording a pre-tax loss of $215 million, primarily due to the non-cash transfer of associated commodity derivative instruments[63] Note 4: Revenue from Contracts with Customers Total revenues from contracts with customers reached $2.72 billion for the three months ended December 31, 2022, primarily driven by Non-Utility LPG retail and Energy Marketing segments Disaggregated Revenues by Segment (Three Months Ended Dec 31, 2022) | (Millions of dollars) | AmeriGas Propane | UGI International | Midstream & Marketing | Utilities | Total (after eliminations) | | :--- | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $766 | $877 | $669 | $592 | $2,759 | Note 8: Debt The company amended key credit agreements, increasing UGI Utilities' borrowing capacity to $425 million and Mountaineer's to $150 million (with an option to $250 million), while replacing LIBOR with SOFR - UGI Utilities amended its credit agreement, increasing borrowing capacity from $350 million to $425 million and replacing LIBOR with SOFR as the benchmark interest rate[76] - Mountaineer entered into an amended credit agreement providing for borrowings up to $150 million, with an option to increase to $250 million, to finance working capital and for general corporate purposes[78] Note 12: Derivative Instruments and Hedging Activities The company utilizes derivative instruments to manage commodity price, interest rate, and foreign currency risks, with gross fair values of $772 million in assets and $453 million in liabilities as of December 31, 2022 - The company is exposed to a maximum loss of $772 million from derivative instrument counterparties in the event of nonperformance, based on gross fair values as of December 31, 2022[107] Notional Amounts of Open Derivative Contracts (as of Dec 31, 2022) | Type | Units | Notional Amount (millions) | | :--- | :--- | :--- | | LPG swaps | Gallons | 844 | | Natural gas contracts | Dekatherms | 371 | | Electricity contracts | Kilowatt hours | 2,270 | | Interest rate swaps | USD | $1,354 | | Forward foreign currency contracts | USD | $390 | | Net investment hedge contracts | Euro | €331 | Note 14: Segment Information For Q4 2022, Utilities reported the highest operating income at $126 million, while Corporate & Other incurred a significant $1.6 billion operating loss primarily from unallocated unrealized commodity derivative losses Segment Performance (Three Months Ended Dec 31, 2022) | (Millions of dollars) | AmeriGas Propane | UGI International | Midstream & Marketing | Utilities | Corporate & Other | | :--- | :--- | :--- | :--- | :--- | :--- | | Revenues | $766 | $877 | $554 | $559 | $3 | | Operating (loss) income | $110 | $56 | $106 | $126 | $(1,603) | | (Loss) income before income taxes | $67 | $59 | $96 | $107 | $(1,653) | Management's Discussion and Analysis (MD&A) Management highlights a $954 million GAAP net loss for the quarter, but adjusted net income increased to $246 million from $201 million, reflecting strong segment performance despite the U.K. energy marketing business sale Reconciliation of GAAP Net Loss to Adjusted Net Income (Three Months Ended Dec 31) | (Millions of dollars) | 2022 | 2021 | | :--- | :--- | :--- | | Net loss attributable to UGI Corporation | $(954) | $(97) | | Net losses on commodity derivative instruments | $999 | $292 | | Loss on disposal of U.K. energy marketing business | $151 | $— | | Other adjustments | $50 | $5 | | Adjusted net income attributable to UGI Corporation | $246 | $201 | - The company expects to have sufficient liquidity to support operations, with approximately $1.2 billion in available liquidity as of December 31, 2022, despite volatility in commodity prices and inflationary pressures[174] - The UGI International Credit Facilities Agreement, including a €300 million term loan, matures in October 2023[174] - The company expects to refinance this facility during the first half of Fiscal 2023[174] Analysis of Results of Operations Adjusted net income increased to $246 million from $201 million year-over-year, driven by stronger performance in Midstream & Marketing, Utilities, and AmeriGas Propane, partially offset by UGI International's decline AmeriGas Propane Performance (Q1 FY23 vs Q1 FY22) | Metric | Q1 2022 | Q1 2021 | Change | | :--- | :--- | :--- | :--- | | Total margin | $380M | $360M | +6% | | Operating income | $110M | $86M | +28% | | Retail gallons sold | 236M | 241M | -2% | UGI International Performance (Q1 FY23 vs Q1 FY22) | Metric | Q1 2022 | Q1 2021 | Change | | :--- | :--- | :--- | :--- | | Total margin | $215M | $256M | -16% | | Operating income | $56M | $78M | -28% | | LPG retail gallons sold | 205M | 249M | -18% | Midstream & Marketing Performance (Q1 FY23 vs Q1 FY22) | Metric | Q1 2022 | Q1 2021 | Change | | :--- | :--- | :--- | :--- | | Total margin | $155M | $122M | +27% | | Operating income | $106M | $74M | +43% | Utilities Performance (Q1 FY23 vs Q1 FY22) | Metric | Q1 2022 | Q1 2021 | Change | | :--- | :--- | :--- | :--- | | Total margin | $256M | $213M | +20% | | Operating income | $126M | $96M | +31% | | Gas Utility core throughput | 34 bcf | 29 bcf | +17% | Financial Condition and Liquidity The company maintains strong liquidity with $1.2 billion available and total debt at $7.7 billion, while cash flow used by operations improved to $240 million from $594 million year-over-year Total Debt Outstanding (Millions of dollars) | Segment | Dec 31, 2022 | Sep 30, 2022 | | :--- | :--- | :--- | | AmeriGas Propane | $2,712 | $2,564 | | UGI International | $1,073 | $746 | | Midstream & Marketing | $830 | $709 | | Utilities | $2,051 | $1,656 | | Corp & Other | $1,050 | $1,050 | | Total Debt | $7,716 | $7,000 | - Cash flow used by operating activities improved to $240 million from $594 million year-over-year, mainly due to lower cash required for accounts receivable and inventories, partially offset by higher cash collateral payments for derivatives[196][198] - During the quarter, the company repurchased 0.3 million shares for approximately $12 million and paid a quarterly dividend of $0.36 per share[193][194] Quantitative and Qualitative Disclosures About Market Risk The company manages primary market risks including commodity price, interest rate, and foreign currency exchange rate through derivatives, with a 10% adverse commodity price change potentially impacting fair value by $214 million - The company manages commodity price risk through forward contracts and derivatives[208] - Profitability is sensitive to LPG supply costs, but these are generally passed to customers[209] - Utilities' commodity risk is limited due to cost recovery mechanisms[209] - Primary foreign currency risk is the USD vs the euro[216] - A 10% decline in associated foreign currencies would reduce the net book value of UGI International operations by approximately $105 million[216] Market Risk Sensitivity Analysis (as of Dec 31, 2022) | Risk Type | Fair Value of Derivatives | Change in Fair Value (Adverse Scenario) | | :--- | :--- | :--- | | Commodity price risk | $242M | $(214)M | | Interest rate risk | $63M | $(9)M | | Foreign currency risk | $31M | $(43)M | Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of December 31, 2022, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[223] - No changes in internal control over financial reporting occurred during the most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, the company's internal controls[224] Part II Other Information Legal Proceedings Information regarding legal proceedings is incorporated by reference from Note 9, 'Commitments and Contingencies,' within the Condensed Consolidated Financial Statements section - Details on legal proceedings are found in Note 9 of the financial statements[227] Risk Factors The European energy marketing business faces significant risk from extreme price volatility and supply disruptions due to the war in Ukraine, leading to the sale of its U.K. business and planned exits from other European operations - The European energy marketing business is severely impacted by extreme price volatility and supply issues stemming from the war in Ukraine and reduced Russian gas imports[229] - UGI is actively restructuring its European energy marketing portfolio, having sold its U.K. business and intending to exit or wind down its businesses in France, Belgium, and the Netherlands[229] Share Repurchases During Q4 2022, the company repurchased 300,000 shares of common stock at an average price of $38.85 per share, with 6.80 million shares remaining under the authorized program Common Stock Repurchases (Quarter Ended Dec 31, 2022) | Period | Total Shares Purchased | Average Price Paid per Share | Shares Remaining in Program | | :--- | :--- | :--- | :--- | | Dec 1 - Dec 31, 2022 | 300,000 | $38.85 | 6.80 million | Exhibits This section lists exhibits filed with the Form 10-Q, including an amendment to the UGI Utilities credit agreement and CEO/CFO certifications under the Sarbanes-Oxley Act of 2002 - Key exhibits filed include the First Amendment to the UGI Utilities Credit Agreement and CEO/CFO certifications under Sarbanes-Oxley Sections 302 and 906[233]