UGI Corporation — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended June 30, 2013; comparative periods ended June 30, 2012. Amounts are in millions of dollars except per-share data. UGI distributes and markets propane and other energy products, operates natural gas and electric utilities, and conducts midstream, energy marketing and power generation businesses. Results are seasonal, with earnings generally strongest in the first and second fiscal quarters.
Financial results and liquidity
| Metric | Three months 2013 | Three months 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Revenue | $1,372.3 | $1,277.2 | $5,932.6 | $5,393.5 |
| Operating income (loss) | $53.1 | $(19.2) | $835.4 | $549.9 |
| Net income attributable to UGI | $14.7 | $(6.3) | $289.2 | $214.1 |
| Diluted earnings per share | $0.13 | $(0.06) | $2.51 | $1.89 |
| Net cash provided by operating activities | Not reported separately | Not reported separately | $686.4 | $566.2 |
- Margins: Reported cost of sales was $827.9 million for the quarter and $3,547.3 million year to date. Revenue less cost of sales was therefore $544.4 million and $2,385.3 million, respectively; the filing does not present these as consolidated gross-margin measures. Segment total-margin comparisons are discussed below.
- Cash flow and investment: Year-to-date capital expenditures were $291.6 million, versus $236.0 million. Cash flow from operations less capital expenditures was $394.8 million, compared with $330.2 million. Investing cash outflow was $316.7 million, far below the prior-year $1,800.0 million, which included major acquisitions.
- Cash and debt: Cash was $401.8 million at June 30, 2013. Total debt was $3,629.7 million, including $195.6 million of current maturities and $135.9 million of bank loans; debt was $3,679.4 million at September 30, 2012. Current assets of $1,562.0 million exceeded current liabilities of $1,325.7 million. UGI reported that business units had liquidity from cash, operating cash flow and available facilities, while noting capital-market financing may not be available on acceptable terms.
- Shareholder distributions: Year-to-date UGI common dividends were $93.4 million. The quarterly dividend was raised 4.6% to $0.2825 per share, or $1.13 annualized. AmeriGas Partners raised its quarterly distribution 5% to $0.84 per unit.
Material changes versus prior periods
- Quarterly UGI-attributable income improved by $21.0 million, from a loss of $6.3 million to income of $14.7 million. Management attributed the improvement principally to higher International Propane earnings and a substantially smaller seasonal AmeriGas Propane loss.
- Year-to-date UGI-attributable income increased $75.1 million, or 35.1%. Management cited colder weather than the prior year, the full-period contribution of Heritage Propane (acquired January 2012), and improved results across business units.
- AmeriGas Propane quarterly Partnership EBITDA was $59.1 million versus $1.8 million; year-to-date it was $550.5 million versus $310.0 million. The quarter benefited from higher retail volumes and margins and lower operating costs, including integration benefits. These EBITDA figures are non-GAAP segment measures.
- International Propane quarterly operating income rose to $21.0 million from $1.2 million; year-to-date operating income rose to $160.4 million from $113.1 million. Gas Utility year-to-date operating income increased to $191.6 million from $168.7 million, while its quarterly operating income fell to $16.1 million from $22.5 million, mainly due to higher operating expenses.
- Midstream and Marketing year-to-date operating income increased to $79.7 million from $59.4 million, reflecting higher natural gas marketing and electric generation margins. Consolidated interest expense rose $17.0 million year to date, principally because of AmeriGas debt used to finance the Heritage acquisition.
Management commentary, outlook, risks and unusual items
- Weather and outlook: Management emphasized the businesses’ sensitivity to heating-season weather. The filing provides no specific earnings guidance or quantified full-year outlook. Interim results are not necessarily indicative of full-year results.
- Acquisition and subsequent event: Heritage Propane was acquired by AmeriGas Partners in January 2012. On July 1, 2013, after quarter-end, AmeriGas OLP and Heritage Operating merged. In July, ETP sold 7.5 million AmeriGas units; AmeriGas Partners received no proceeds.
- Accounting correction: AmeriGas changed its accounting for customer credits beginning January 1, 2013, to estimate credits when propane revenue is recorded. The filing says prior-period effects were not material. The correction decreased nine-month revenue and accounts receivable by $5.1 million and UGI-attributable income by $0.9 million; for the June quarter it increased revenue and receivables by $3.6 million and attributable income by $0.6 million.
- Facilities and refinancing: Energy Services’ $100 million receivables facility was scheduled to expire in November 2013 and could terminate earlier if backup-purchaser commitments ended. Management intended to extend it. UGI Utilities planned to refinance $133 million of notes maturing late in fiscal 2013. Flaga expected to extend a working-capital facility due to expire in September 2013.
- Legal and regulatory matters: Following the 2011 Allentown gas explosion that caused five deaths, the PUC ordered a $0.5 million civil penalty, a pilot leak-detection program and additional pipeline-program reporting. UGI said the compliance costs would not materially affect consolidated results or cash flow. The BP lawsuit was settled and dismissed in June 2013, with no material expected impact. Other environmental and legal claims remain; some could be resolved unfavorably, and potential losses beyond recorded amounts could not be estimated.
- Market and operating risks: Commodity-price, interest-rate and foreign-exchange exposures are managed with derivatives, not for speculative purposes. A hypothetical 10% adverse commodity-price move would increase the fair-value loss on specified unsettled commodity derivatives by approximately $35.2 million. Other cited risks include weather, ability to pass through energy-cost increases, regulation, customer and counterparty defaults, environmental liabilities, capital access, and acquisition integration.
Most important facts for investors to verify
- Whether earnings improvement persists when weather normalizes, particularly given the strong seasonal influence on propane and gas demand.
- AmeriGas’ post-merger operating performance, Heritage integration costs and realized synergies, and the effect of its debt burden and distributions.
- Renewal or replacement of the Energy Services receivables facility and refinancing of UGI Utilities’ maturing notes.
- Developments in the outstanding environmental, consumer-protection and other legal matters, including any changes to estimated exposures.
- The effect of the customer-credit accounting change and subsequent-period credit estimates on revenue, receivables and earnings.