UGI Corporation — Form 10-Q Summary
Reporting period: Fiscal first quarter, three months ended December 31, 2010; comparisons are with the three months ended December 31, 2009. Amounts are in U.S. dollars unless noted. The businesses are seasonal, and interim results are not necessarily indicative of full-year results.
Financial performance
- Revenue: $1,765.6 million, up 9.1% from $1,618.8 million. Cost of sales rose to $1,162.6 million from $1,026.8 million.
- Operating income: $252.3 million, up from $243.2 million. Operating margin was approximately 14.3%, compared with 15.0%.
- Net income: $155.0 million, compared with $145.5 million. Net income attributable to UGI was $113.1 million, or $1.01 diluted EPS, versus $98.4 million, or $0.90 diluted EPS.
- Cash flow: Operating activities used $36.0 million, versus providing $17.1 million. Investing activities used $104.1 million; financing activities provided $22.2 million. Cash and cash equivalents fell $121.3 million to $139.4 million.
- Liquidity and debt: At December 31, 2010, total debt was $2,270.3 million, including $548.3 million of current maturities and $273.6 million of bank loans. Total debt was $2,206.2 million at September 30, 2010. Current assets were $1,635.1 million and current liabilities $2,024.1 million.
- Dividend: $0.25 per common share declared, compared with $0.20 in the prior-year quarter.
Material changes and business drivers
- AmeriGas Propane: Revenue increased 6.6% to $700.2 million, but retail gallons sold declined 4.1% and Partnership EBITDA fell 7.9% to $113.3 million. Warmer-than-normal weather, conservation and lower crop-drying demand weighed on volumes; higher propane costs increased selling prices and expenses.
- International Propane: Colder weather and acquisitions lifted volumes and revenue. Rapidly rising LPG costs compressed retail unit margins, while the stronger U.S. dollar reduced translated results. Segment net income also benefited from a $9.4 million Antargaz reserve reversal.
- Gas Utility: Operating income rose to $75.1 million from $63.7 million, supported by colder weather, higher throughput and lower operating expenses. Lower gas prices reduced reported revenue, with purchased-gas costs generally recovered through rates.
- Electric Utility: Operating income declined to $3.6 million from $5.4 million, largely because electric-generation margin was absent beginning January 1, 2010 and some customers switched suppliers.
- Midstream & Marketing: Operating income was broadly flat at $27.5 million. Lower generation and the prior sale of Atlantic Energy were substantially offset by stronger retail power, natural gas marketing and peaking contributions.
Outlook, risks and unusual items
- Management said operating units had liquidity available through cash, revolving facilities and, for Energy Services, its receivables facility to fund Fiscal 2011 needs. This outlook depends in part on renewing or extending facilities scheduled to expire in 2011.
- Antargaz had a €380 million term loan maturing in March 2011; Flaga also had term-loan maturities during Fiscal 2011. Both expected to refinance, subject to market conditions. AmeriGas and UGI Utilities also planned to renew credit facilities, and Energy Services intended to extend its receivables facility.
- After quarter-end, AmeriGas Partners issued $470 million of 6.50% senior notes due 2021 to refinance notes bearing 7.25% and 8.875%. The Partnership expected to record an approximately $19.0 million loss in the next quarter, reducing UGI-attributable net income by approximately $5.0 million.
- CPG filed for a proposed $16.5 million annual base-revenue increase. The PUC review was expected to delay implementation until around late October 2011; approval and timing were uncertain.
- Operating cash flow was affected by seasonal working-capital needs, including receivables and inventory increases. Management cited risks from weather, commodity prices and supply, timely rate recovery, competition, customer conservation, foreign exchange, capital markets, counterparties, environmental claims and litigation.
- Environmental and other claims remain pending. Management said some matters could be resolved unfavorably and losses could be material to results or cash flows, although it could not estimate possible losses beyond recorded amounts. The Antargaz competition matter was dismissed, and the related $9.4 million nontaxable accrual was reversed.
- The company adopted new receivables-transfer accounting effective October 1, 2010. Receivables sold under the Energy Services facility now remain on the balance sheet with a corresponding liability; related borrowings and repayments are classified as financing cash flows.
Investor verification priorities
- Separate recurring operating performance from the $9.4 million Antargaz reserve reversal and assess its effect on earnings and taxes.
- Review the drivers and sustainability of the sharp working-capital cash use and the quarter’s increase in total debt.
- Confirm refinancing and renewal outcomes for Antargaz, Flaga, AmeriGas, UGI Utilities and Energy Services facilities, including the terms and costs.
- Track AmeriGas propane volumes, margins and expenses, as well as International Propane cost pass-throughs, acquisition integration and currency effects.
- Monitor the expected AmeriGas refinancing loss, the CPG rate-case decision, and the status and potential financial effects of litigation and environmental matters.