UGI Corporation — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended June 30, 2011. Amounts are in millions of U.S. dollars, except per-share data and where noted. Results are unaudited. UGI distributes and markets propane and other energy products, and operates regulated gas and electric utilities, energy marketing, midstream and related businesses. Its results are seasonal, with earnings generally strongest in the first and second fiscal quarters.
Financial performance
| Metric | Three months ended June 30, 2011 | Prior-year quarter | Nine months ended June 30, 2011 | Prior-year nine months |
|---|---|---|---|---|
| Revenue | $1,105.4 | $961.9 | $5,052.0 | $4,701.0 |
| Operating income | $17.2 | $31.2 | $626.5 | $640.4 |
| Net income (loss), consolidated | $(13.5) | $(4.2) | $357.1 | $374.1 |
| Net income (loss) attributable to UGI | $(7.2) | $3.4 | $255.3 | $258.9 |
| Diluted EPS attributable to UGI | $(0.06) | $0.03 | $2.26 | $2.35 |
| Operating cash flow | Not separately reported | Not separately reported | $467.2 | $516.7 |
- Margins: Consolidated operating margin was approximately 1.6% for the quarter versus 3.2% a year earlier, and 12.4% for the nine months versus 13.6%. Management’s AmeriGas segment measure, Partnership EBITDA, was $31.1 for the quarter versus $27.2 and $301.9 year to date versus $323.7.
- Cash flow and investment: Nine-month operating cash flow was $467.2; investing cash outflow was $272.0, including $245.3 of capital expenditures and $49.6 for acquisitions. Financing cash outflow was $138.6. Cash and cash equivalents increased $57.1 to $317.8.
- Balance sheet and liquidity: At June 30, total assets were $6,673.7, total liabilities $4,292.8 and total equity $2,380.9. Debt was $2,284.1, including $206.1 of bank loans and $38.5 of current maturities, compared with $2,206.2 at September 30, 2010. UGI reported $10.2 of restricted cash. AmeriGas had $113.3 of available borrowing capacity under its new facility; UGI Utilities had no borrowings under its $300 facility. The $200 Energy Services receivables facility had no receivables sold to the conduit at period-end.
- Dividends: UGI declared $0.76 per common share for the nine-month period, versus $0.65 in the prior-year period. The quarterly rate was raised to $0.26 per share, or $1.04 annualized.
Changes versus prior comparable periods
- The quarterly attributable result shifted to a $7.2 loss from $3.4 of income. International Propane’s attributable loss widened to $14.8 from $3.5, primarily due to exceptionally warm weather in Antargaz’s service area and reduced customer usage amid high LPG prices. Gas Utility improved, while AmeriGas reported a smaller seasonal loss.
- For nine months, revenue rose 7.5%, but UGI-attributable income declined 1.4%. Gas Utility income attributable to UGI increased to $102.1 from $83.5, while International Propane declined to $53.7 from $70.5 and AmeriGas declined to $50.6 from $56.5.
- AmeriGas nine-month retail gallons fell 2.5%; higher selling prices largely offset lower volumes in total margin. International Propane revenue growth reflected higher prices and acquisitions, but margin pressure, weather and currency effects weighed on earnings. Gas Utility throughput rose 14.9% year to date, benefiting from colder weather and an improving economy. Electric Utility results weakened amid customer switching to alternative electricity suppliers.
- Midstream & Marketing revenue declined 9.7% year to date, principally due to the 2010 sale of Atlantic Energy and lower natural gas prices; total margin was approximately flat.
- Cash from operations fell $49.5 year over year. Management attributed the decline to lower cash flow before working-capital changes and higher working-capital requirements.
Outlook, commentary, risks and unusual items
- Outlook: The filing provides no consolidated earnings guidance. Management said operating units had liquidity expected to cover fiscal 2011 needs, relying on operating cash, credit facilities and, where applicable, refinancing. Flaga planned to refinance term debt due in 2011 and arrange replacement working-capital facilities.
- Weather, prices and currency: Management emphasized weather-sensitive demand, customer conservation, LPG and other commodity cost volatility, and the risk that cost increases may not be passed through promptly or fully. Currency movements also affected International Propane results.
- Debt refinancing: AmeriGas issued $470 of 6.50% notes due 2021 and used proceeds to refinance higher-coupon debt; it recorded an $18.8 extinguishment loss, reducing UGI-attributable nine-month income by $5.2. Antargaz refinanced its facilities with a five-year variable-rate loan. Subsequent to quarter-end, AmeriGas announced a proposed $450 issue of 6.25% notes due 2019 to fund a tender offer for $350 of notes due 2016 and other purposes; it expected an approximately $20 loss, reducing UGI-attributable income by about $6 in fiscal Q4.
- Other unusual item: A $9.4 nontaxable reserve reversal at Antargaz increased nine-month income after the French Competition Authority dismissed its objections and the appeal period expired.
- Regulatory and legal matters: CPG’s proposed rate settlement would provide $8.0 of annual base-rate revenue and $0.9 annually for an efficiency program, subject to PUC approval. Environmental claims and other litigation remain, including a new BP claim against AmeriGas seeking unspecified damages; management said potential loss could not yet be reasonably estimated. The filing warns that some matters could adversely affect future results or cash flows.
- Market and operating risks: Disclosed risks include adverse weather, supply and transport constraints, regulation and rate recovery, competition, customer or counterparty defaults, environmental exposure, catastrophic incidents, interest and currency changes, collateral requirements, and acquisition execution. Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether warmer weather, customer conservation and higher LPG prices continue to depress propane volumes and margins, particularly at Antargaz.
- Completion, final pricing and accounting impact of the announced AmeriGas refinancing, and Flaga’s planned debt and working-capital refinancing.
- PUC approval and timing of CPG’s rate settlement, and whether utility cost-recovery mechanisms continue to support margins.
- Developments in environmental and other legal proceedings, including the BP complaint, and any change in management’s assessment of possible losses.
- How operating cash flow, working-capital needs, debt levels and available credit capacity evolve through the heating season.