Business context and reporting period
UGI Corporation distributes and markets propane, natural gas, electricity and related energy services in the United States and internationally. This unaudited Form 10-Q covers the quarter and nine months ended June 30, 2010, the company’s fiscal third quarter. Results are seasonal; earnings are generally higher in the October–March heating season.
Key financial metrics
| Metric | Three months ended June 30, 2010 | Nine months ended June 30, 2010 | Prior comparable period |
|---|---|---|---|
| Revenue | $961.9 million | $4,701.0 million | $962.2 million and $4,878.5 million, respectively |
| Operating income | $31.2 million | $640.4 million | $28.8 million and $693.0 million |
| Net income (loss), consolidated | $(4.2) million | $374.1 million | $(12.2) million and $413.5 million |
| Net income attributable to UGI | $3.4 million | $258.9 million | $(3.6) million and $269.5 million |
| Diluted earnings per share | $0.03 | $2.35 | $(0.03) and $2.47 |
| Cash from operating activities | Not provided for the quarter | $516.7 million | $593.3 million for nine months |
At June 30, cash and cash equivalents were $241.8 million, with an additional $22.9 million of restricted cash. Total debt was $2,064.9 million, including $572.9 million of current maturities; debt at September 30, 2009 was $2,296.2 million, including $94.5 million current. Current assets were $1,111.6 million and current liabilities $1,333.5 million. Nine-month capital expenditures were $228.8 million.
Material changes versus the prior comparable period
- Quarterly revenue was essentially flat; UGI-attributable income improved to $3.4 million from a $3.6 million loss. The filing attributes much of the comparison to the absence of the prior-year Antargaz Competition Authority charge; excluding that item, current-quarter results were lower, principally due to International Propane.
- For nine months, revenue declined 3.6% and UGI-attributable income fell 3.9%. Operating income decreased $52.6 million.
- International Propane’s nine-month operating income declined to $127.6 million from $154.1 million, primarily reflecting lower unit margins after unusually high prior-year margins and lower Antargaz retail volumes.
- Gas Utility nine-month operating income rose to $168.6 million from $149.8 million, helped by lower operating expenses and August 2009 base-rate increases. Energy Services operating income increased to $75.4 million from $60.0 million. Electric Utility operating income declined to $11.1 million from $13.8 million, partly due to lower default-service rates.
- AmeriGas nine-month EBITDA was $323.7 million versus $376.7 million. The comparison includes a $39.9 million prior-year gain on a storage-facility sale and a $12.2 million current-year loss from discontinuing interest-rate hedge accounting, as well as lower current-year margin.
- Operating cash flow was lower year over year, although cash flow before working-capital changes increased to $656.6 million from $527.1 million. Working capital used $139.9 million of cash in 2010, compared with providing $66.2 million in 2009.
Outlook, commentary, risks and unusual items
- Management cites weather, energy demand and prices, customer conservation, competition, regulation, cost recovery, currency movements, capital-market access, counterparty performance and legal or environmental matters as factors that could affect results. The filing gives no quantified earnings guidance.
- Antargaz’s €380 million term loan matures in March 2011. Management intends to refinance it on a long-term basis, subject to market conditions. AmeriGas repaid $80 million of notes due July 2010 using its revolving credit facility. Management said AmeriGas expected to meet fiscal 2010 commitments and cash needs using operating cash, cash balances and available credit.
- Available AmeriGas borrowing capacity was $224.3 million at June 30. UGI Utilities had no borrowings under its $350 million revolving credit agreement; its facility expires in August 2011. Energy Services’ $200 million receivables facility was scheduled to expire in April 2011 and could terminate earlier if back-up purchaser commitments end.
- UGI increased its quarterly dividend 25%, from $0.20 to $0.25 per share, effective with the July 1, 2010 payment. On July 30, 2010, Energy Services sold Atlantic Energy for $49.0 million cash plus working capital and inventory consideration; UGI expected an after-tax gain of approximately $16.0 million in the quarter ending September 30, 2010.
- Notable contingencies include Antargaz competition proceedings, for which management said the reserve was adequate but the final payment could differ significantly; AmeriGas cylinder class actions and related California investigations; and environmental claims involving former manufactured-gas plant sites. The filing says potential losses beyond recorded amounts cannot be estimated and could affect future operating results or cash flows.
- Beginning October 1, 2010, new accounting for transfers of financial assets is expected to keep receivables transferred under Energy Services’ facility on the balance sheet and record a corresponding liability and interest expense.
Important facts for investors to verify
- Progress and terms for refinancing Antargaz’s €380 million March 2011 maturity, and the status of related credit facilities.
- Subsequent-period operating results and whether International Propane margins and volumes recover from the reported decline.
- Final outcomes and financial exposure for the Antargaz competition matter, AmeriGas cylinder litigation and investigations, and environmental claims.
- The actual gain and cash proceeds from the Atlantic Energy sale, including working-capital and inventory adjustments.
- Cash-flow conversion, working-capital requirements and the impact of the new receivables accounting treatment.