UGI

UGI Corp. 10-Q Summary: Quarter Ended June 30, 2001

Business Context and Reporting Period

This is a Quarterly Report (Form 10-Q) for UGI Corporation, a holding company operating gas and electric utilities, propane distribution, and energy marketing businesses. The report covers the three and nine-month periods ended June 30, 2001. The company's primary segments include AmeriGas Propane, UGI Utilities (Gas and Electric), Energy Services, and International Propane operations.

Key Financial Metrics

Note: The nine-month net income includes a $4.5 million cumulative effect of accounting changes.

Material Changes vs. Prior Period

• Revenue Growth: Revenues increased 22.6% for the three months and 48.1% for the nine months compared to the prior year. This was driven by higher commodity prices (propane and natural gas) and increased sales volumes in AmeriGas Propane and Energy Services.
• Profitability: The company reported a net loss of $4.3 million for the quarter, compared to a loss of $4.7 million in the prior year. For the nine months, net income rose to $72.8 million from $55.2 million.
• Segment Performance:
  • AmeriGas Propane: Retail gallons sold decreased 1.6% in the quarter due to warmer weather but increased 6.6% over nine months due to colder weather and acquisitions. EBITDA increased 32.4% over nine months.
  • UGI Utilities: Gas Utility revenues rose 42.5% in the quarter due to higher purchased gas costs passed to customers. Electric Utility margins declined due to higher purchased power costs.
  • Energy Services: Revenues surged 79.6% in the quarter and 198.4% over nine months, driven by higher natural gas prices and volumes.
• Debt and Liquidity: Total debt decreased slightly to $1.21 billion from $1.25 billion at the end of the prior fiscal year. Cash and cash equivalents declined to $52.1 million from $93.9 million at the start of the fiscal year, reflecting seasonal working capital needs and capital expenditures.

Guidance, Outlook, and Risks

• Accounting Changes: The company adopted SFAS 133 (Derivatives), SAB 101 (Revenue Recognition), and changed the accounting for tank installation costs effective October 1, 2000. These changes resulted in a net $4.5 million increase to nine-month net income.
• Acquisitions:
  • Columbia Propane: Signed an agreement to acquire Columbia Propane for approximately $202 million, expected to close by August 31, 2001. Funding will include $161 million in new long-term debt.
  • Antargaz: Acquired a 19.5% equity interest in Antargaz (France) for $26.6 million in March 2001.
• Market Risks: Primary risks include fluctuations in propane, natural gas, and electricity prices; interest rate changes on floating-rate debt; and foreign currency exchange rates (specifically the EURO). The company uses derivative instruments to hedge these risks.
• Regulatory: The Pennsylvania Public Utility Commission approved a gas restructuring plan that makes operating results more sensitive to weather. A transfer of LNG and propane air facilities to Energy Services is expected to occur by September 30, 2001.
• Dividends: The Board increased the quarterly dividend to $0.40 per share in April 2001.

Investor Verification Checklist

• Verify the closing of the $202 million Columbia Propane acquisition and the associated $161 million debt issuance.
• Monitor the impact of the new accounting standards (SFAS 133, SFAS 142) on future earnings and goodwill amortization.
• Assess the performance of the Antargaz investment and the impact of EURO exchange rate fluctuations.
• Review the status of the Hearth USA business, which management is evaluating for potential restructuring or closure.
• Track the company's ability to maintain the AmeriGas Partners minimum quarterly distribution ($0.55) given seasonal cash flow variations.