UGI (UGI) - 2021 Q4 - Annual Report

Part I Business and Properties UGI Corporation operates four main segments, focusing on reliable earnings growth, renewable energy, and portfolio rebalancing - UGI operates through four principal business segments: AmeriGas Propane, UGI International, Midstream & Marketing, and UGI Utilities[37][38][39] - The company's business strategy centers on reliable earnings growth, investing in renewable energy solutions, and rebalancing its portfolio towards natural gas and renewables[41][42] - In Fiscal 2021, UGI pledged to reduce its enterprise Scope 1 GHG emissions by 55% over the next five years, using Fiscal 2020 as a baseline[55] AmeriGas Propane AmeriGas, the largest U.S. retail propane distributor, serves nearly 1.4 million customers, distributing 1.1 billion gallons in FY2021 AmeriGas Propane FY2021 Retail Gallons Sold by Customer Type | Customer Type | Percentage of Retail Gallons Sold | | :--- | :--- | | Commercial/Industrial | 41% | | Residential | 32% | | Motor Fuel | 19% | | Agricultural | 4% | | Transport | 4% | - The AmeriGas Cylinder Exchange (ACE) program had cylinders available at over 50,000 retail locations as of September 30, 2021, with Cynch home delivery expanded into twenty-two cities[63] - Business transformation initiatives are substantially complete, expected to provide total annual benefits of more than $150 million by the end of Fiscal 2022[68][315] UGI International UGI International distributes LPG in 17 European countries, selling over 975 million gallons in FY2021, and invests in renewable energy projects UGI International FY2021 LPG Volume by Customer Type | Customer Type | Percentage of LPG Volume Sold | | :--- | :--- | | Commercial/Industrial | 45% | | Wholesale & Other (incl. autogas) | 25% | | Residential | 19% | | Agricultural | 11% | - The segment is pursuing renewable energy projects, including a partnership for bioLPG supply in Poland and a joint venture to produce renewable dimethyl ether (rDME), targeting 300 kilotons per year by 2027[103][107] - Business transformation activities are substantially complete and are expected to generate over €30 million of annual benefits by the end of Fiscal 2022[108][316] Midstream & Marketing This segment conducts energy marketing and operates midstream assets, with a key focus on expanding into Renewable Natural Gas (RNG) projects - The segment sells natural gas, RNG, liquid fuels, and electricity to approximately 12,600 customers at over 42,400 locations[115] - In Fiscal 2021, the segment made significant investments in RNG production projects, including joint ventures to develop dairy farm digesters in New York and South Dakota, and food waste digesters in Ohio and Kentucky[127][50] - The segment's assets include natural gas gathering systems with a total capacity of approximately 2,675,000 dekatherms per day and processing capacity of 240,000 dekatherms per day in the Appalachian Basin[123] UGI Utilities UGI Utilities operates regulated natural gas and electric businesses, serving nearly 900,000 customers, and focuses on infrastructure replacement - In September 2021, UGI completed the acquisition of Mountaineer Gas Company, the largest natural gas distribution company in West Virginia, serving nearly 214,000 customers[154][44] - Gas Utility serves approximately 672,000 customers in eastern and central Pennsylvania and is regulated by the PAPUC[137][138] - Gas Utility is on schedule to replace the cast iron portion of its gas mains by March 2027 and the bare steel portion by September 2041 to enhance safety and reduce emissions[139][54] Human Capital Management UGI focuses on attracting and retaining employees, emphasizing safety, diversity, and talent development through its BIDE initiative - The company introduced the Belonging, Inclusion, Diversity and Equity (BIDE) Initiative in Fiscal 2020 to promote diversity and inclusion[199] - Effective Fiscal 2021, all executives have a diversity and inclusion (D&I) component in their annual bonus plan to support the BIDE Initiative[204] Risk Factors The company faces risks from seasonality, climate change, competition, cybersecurity, international operations, and regulatory changes - The business is highly seasonal and dependent on weather, with a significant portion of earnings derived during the peak heating season of October through March, where warmer-than-normal weather adversely affects results[213] - The company's information technology systems are targets of cybersecurity attacks, where a successful breach could disrupt operations, harm reputation, and adversely affect internal controls[230][231][232] - The retail LPG business is a "margin-based" business, and profitability is subject to LPG pricing and inventory risk, potentially preventing timely pass-through of product cost increases to customers[242] - The COVID-19 pandemic and its variants could adversely impact business operations by affecting customer financial conditions, reducing energy consumption, and disrupting supply chains and infrastructure projects[278] Legal Proceedings No material legal proceedings are pending beyond those disclosed in Note 17 and ordinary course of business claims - No material legal proceedings are pending, other than those mentioned in Note 17 and ordinary course of business claims[294] Part II Market for Common Equity, Stockholder Matters, and Issuer Purchases UGI Common Stock trades on NYSE, with expected quarterly dividends and 5.85 million shares available for repurchase as of Sept 2021 - The company's Common Stock trades on the NYSE under the symbol "UGI"[300] - The company expects to continue paying quarterly dividends, subject to declaration by the Board of Directors[301] - As of September 30, 2021, 5.85 million shares of Common Stock were available for repurchase under a program authorized to repurchase up to 8 million shares, expiring in January 2022[303] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) UGI reported significantly increased net income in FY2021, driven by derivative gains and segment earnings, maintaining strong liquidity - On September 1, 2021, UGI acquired Mountaineer Gas Company, the largest natural gas distribution company in West Virginia, for a purchase price of $540 million[310] FY2021 vs. FY2020 Financial Performance | Metric | FY 2021 | FY 2020 | | :--- | :--- | :--- | | Net Income Attributable to UGI | $1,467 million | $532 million | | Diluted EPS | $6.92 | $2.54 | | Adjusted Net Income Attributable to UGI | $629 million | $561 million | | Adjusted Diluted EPS | $2.96 | $2.67 | - The company expects to have sufficient liquidity, with a total available balance of approximately $2.2 billion at September 30, 2021, to support long-term commitments and ongoing operations[358] Results of Operations All four segments reported increased adjusted net income in FY2021, driven by lower expenses, colder weather, and rate increases Segment Adjusted Net Income Attributable to UGI (FY2021 vs FY2020) | Segment | FY 2021 ($M) | FY 2020 ($M) | Change ($M) | | :--- | :--- | :--- | :--- | | AmeriGas Propane | 168 | 156 | +12 | | UGI International | 221 | 173 | +48 | | Midstream & Marketing | 107 | 92 | +15 | | UGI Utilities | 144 | 136 | +8 | Financial Condition and Liquidity Liquidity increased to $2.2 billion in FY2021, with operating cash flow up and estimated FY2022 capital expenditures at $990 million - Total available liquidity was approximately $2.2 billion at September 30, 2021, compared to $1.5 billion at September 30, 2020[358] - Cash flows from operating activities increased to $1,481 million in Fiscal 2021 from $1,102 million in Fiscal 2020[378] Capital Expenditures (in millions) | Segment | 2022 (estimate) | 2021 | 2020 | | :--- | :--- | :--- | :--- | | AmeriGas Propane | $160 | $130 | $135 | | UGI International | $140 | $107 | $89 | | Midstream & Marketing | $130 | $43 | $93 | | UGI Utilities | $545 | $394 | $348 | | Total | $990 | $674 | $665 | Critical Accounting Policies and Estimates Management identifies critical accounting policies requiring judgment, including goodwill impairment, loss contingencies, and regulatory accounting - Goodwill, totaling $3,770 million as of September 30, 2021, is tested for impairment at least annually at the reporting unit level, with no impairments recorded in the periods presented[413][414] - The accounting for rate-regulated utility businesses requires deferring certain costs as regulatory assets when future recovery through rates is probable, with regulatory assets totaling $397 million and regulatory liabilities totaling $388 million as of September 30, 2021[421] Controls and Procedures Disclosure controls and internal control over financial reporting were effective as of Sept 2021, excluding recent acquisitions - The CEO and CFO concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of September 30, 2021[429][430] - Management's assessment of internal control over financial reporting excluded the Mountaineer business (acquired Sept 1, 2021) and the Redeo Energies business (acquired June 30, 2021)[431] Part III Directors, Executive Officers, Compensation, and Corporate Governance Information for these items is incorporated by reference from the Proxy Statement, with a list of current executive officers provided - Most information for Part III is incorporated by reference from the company's Proxy Statement[444] Executive Officers | Name | Position | | :--- | :--- | | Roger Perreault | President and Chief Executive Officer | | Ted J. Jastrzebski | Chief Financial Officer | | Robert F. Beard, Jr. | Executive Vice President, Natural Gas... | | Monica M. Gaudiosi | Vice President, General Counsel and Secretary | | John Koerwer | Chief Information Officer | | Jean Felix Tematio Dontsop | Vice President - Chief Accounting Officer and Corporate Controller | | Judy A. Zagorski | Vice President - Chief Human Resources Officer | Part IV Exhibits and Financial Statement Schedules This section lists financial statements, schedules, and exhibits, including consolidated financials and various corporate agreements - This part includes the consolidated financial statements, schedules for Condensed Financial Information of Registrant and Valuation and Qualifying Accounts, and a list of all exhibits filed with the report[459][460][461] Financial Statements and Supplementary Data Consolidated Financial Statements UGI reported increased revenues and net income in FY2021, with total assets growing to $16.72 billion and equity to $5.53 billion Consolidated Statement of Income Highlights (in millions) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Revenues | $7,447 | $6,559 | | Operating Income | $2,350 | $982 | | Net Income Attributable to UGI | $1,467 | $532 | Consolidated Balance Sheet Highlights (in millions) | Metric | Sep 30, 2021 | Sep 30, 2020 | | :--- | :--- | :--- | | Total Assets | $16,723 | $13,985 | | Total Liabilities | $11,192 | $9,848 | | Total Equity | $5,531 | $4,137 | Notes to Consolidated Financial Statements Notes detail operations, accounting policies, the Mountaineer acquisition, $6.45 billion in long-term debt, and segment financial data - Note 5: The acquisition of Mountaineer on September 1, 2021, for a purchase price of $540 million, including the assumption of $140 million in debt, resulted in $255 million of goodwill allocated to the UGI Utilities segment[599][601][602] - Note 6: As of September 30, 2021, the company had $6.45 billion in total long-term debt, with AmeriGas Propane carrying the largest portion at $2.56 billion[631] Segment Financial Data for Fiscal Year 2021 (in millions) | Segment | Revenues from External Customers | Earnings before Interest and Income Taxes | Total Assets | | :--- | :--- | :--- | :--- | | AmeriGas Propane | $2,614 | $385 | $4,485 | | UGI International | $2,651 | $317 | $4,421 | | Midstream & Marketing | $1,182 | $190 | $3,010 | | UGI Utilities | $1,015 | $242 | $4,859 |