UGI Corporation — FY2010 Form 10-K
Reporting period: Fiscal year ended September 30, 2010. This is an annual filing, not a standalone fourth-quarter report. UGI distributes and markets propane and other energy products, operates regulated natural gas and electric utilities, and has midstream, energy marketing, power generation, and HVAC/R businesses.
Financial performance and liquidity
| Metric | FY2010 | FY2009 |
|---|---|---|
| Revenue | $5,591.4 million | $5,737.8 million |
| Operating income | $659.2 million | $685.3 million |
| Net income | $355.7 million | $382.0 million |
| Net income attributable to UGI | $261.0 million | $258.5 million |
| Diluted EPS | $2.36 | $2.36 |
| Cash flow from operations | $598.8 million | $665.0 million |
| Capital expenditures | $352.9 million | $301.7 million |
| Total debt | $2,206.2 million | $2,296.2 million |
| Cash and cash equivalents | $260.7 million | $280.1 million |
- Revenue declined about 2.5%, while net income attributable to UGI increased about 1%; reported diluted EPS was unchanged. Consolidated operating income was lower year over year.
- Operating cash flow decreased $66.2 million, principally reflecting working-capital outflows as LPG prices rose; cash flow before working-capital changes increased to $663.8 million from $611.7 million.
- Cash flow used in investing was $399.3 million, including $347.3 million of property and equipment spending and $83.0 million for acquisitions, partly offset by $66.6 million of Atlantic Energy sale proceeds. Financing activities used $213.6 million.
- Debt declined overall, but current maturities of long-term debt rose to $573.6 million, largely due to Antargaz’s €380 million term loan due in March 2011. The filing says management intended to refinance it. Restricted cash was $34.8 million and is not freely available.
- UGI reported $306.7 million of utility regulatory assets, including $142.4 million associated with the regulated pension plan. Pension plans were underfunded by $177.1 million; expected FY2011 contributions were approximately $20 million.
Material changes and segment results
- Midstream & Marketing: UGI-attributable segment income rose $30.1 million to $68.2 million. Higher natural gas and power marketing margins and a $17.2 million after-tax gain on the Atlantic Energy sale contributed.
- Gas Utility: UGI-attributable income rose $12.8 million to $83.1 million, benefiting from a full year of PNG and CPG rate increases and lower operating expenses. Throughput increased 2.8%, although core-market volumes fell 9.0% amid warmer weather, conservation, and a sluggish economy.
- AmeriGas Propane: UGI-attributable income fell $17.7 million to $47.3 million. Retail gallons declined 3.7%, total margin fell 1.9%, and EBITDA fell 15.8%; FY2009 had included a $39.9 million pretax gain on a storage-facility sale.
- International Propane: UGI-attributable income fell $19.5 million to $58.8 million. The prior year benefited from unusually high Antargaz margins after a sharp LPG cost decline; FY2010 margins were pressured as commodity costs rose.
- Electric Utility: UGI-attributable income declined $1.2 million to $6.8 million, reflecting lower margins under the new default-service cost-recovery arrangement and customer switching.
- FY2010 included a $12.2 million pretax loss from discontinued AmeriGas interest-rate hedge accounting and a $7.0 million litigation accrual increase. The Atlantic Energy gain partly offset these items. The company also adopted new accounting presentation for noncontrolling interests; prior periods were adjusted and EPS was unaffected.
Outlook, risks, and contingencies
- Management identified FY2011 results as dependent on winter temperatures, U.S. and European economic conditions, continued LPG competition and conservation, and commodity-price levels and volatility. No specific consolidated earnings or EPS guidance is provided in the supplied filing text.
- Management expected to fund FY2011 operations through operating cash, revolving credit facilities, cash on hand, and—in Energy Services—receivables financing. Major facilities and debt required renewal or refinancing in 2011, including Antargaz debt and credit agreements for AmeriGas, UGI Utilities, Flaga, and Energy Services.
- Estimated FY2011 capital expenditures were $405.6 million. UGI announced plans to invest approximately $300 million over two years in Marcellus Shale infrastructure, subject to production timing, market conditions, regulatory approvals, and construction schedules. The Temple LNG expansion was expected to finish in FY2012; a new 125-megawatt Hunlock gas-fired plant was expected in late FY2011.
- UGI raised its quarterly common-stock dividend 25% to $0.25 per share in FY2010. Management said future annual increases were expected to be closer to its long-term goal of approximately 4%.
- Key risks include weather-sensitive demand; inability to pass through rapid LPG cost increases; supplier or counterparty failures; commodity-related collateral needs; competition and customer conservation; utility rate-recovery timing; acquisition and construction execution; foreign exchange and capital-market exposure; pension funding; environmental claims; and safety or litigation losses exceeding insurance.
- Antargaz had a French competition-authority proceeding concerning alleged cylinder-market practices from 1999–2004. UGI maintained a $10 million reserve, but the final outcome and any penalty were uncertain. Environmental and manufactured-gas-plant claims also remained, with some potential losses above recorded amounts not estimable. The filing states that AmeriGas class-action cylinder claims had reached final settlement approval in October 2010.
Investor verification priorities
- Verify the status, terms, and cost of refinancing Antargaz’s €380 million loan due March 2011 and other near-term facility renewals.
- Assess whether recurring segment earnings support FY2010 results after excluding the $17.2 million Atlantic Energy gain and considering the prior-year AmeriGas asset-sale gain and FY2010 hedge loss.
- Track AmeriGas retail volumes, unit margins, litigation exposure, and the ability to pass through higher propane costs.
- Review execution, funding, and expected returns for the announced Marcellus investments, Hunlock conversion, and Temple facility expansion.
- Monitor the French competition proceeding, environmental/MGP cases, pension funding, and the effect of the new receivables-facility accounting treatment beginning October 1, 2010.