UGI Corp. 10-Q Summary: Quarter Ended March 31, 2010
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 2010, and the six-month period ended on that date. UGI Corporation is a holding company operating through subsidiaries in retail propane marketing (AmeriGas Propane), international LPG distribution (Antargaz, Flaga), natural gas and electric utilities (UGI Utilities), and energy marketing services (Energy Services). The filing notes the adoption of new accounting guidance effective October 1, 2009, regarding the presentation of noncontrolling interests, which are now classified within equity rather than between liabilities and equity.
Key Financial Metrics
| Metric | Three Months Ended Mar 31, 2010 | Six Months Ended Mar 31, 2010 |
|---|---|---|
| Revenues | $2,120.3 million | $3,739.1 million |
| Net Income (Total) | $232.8 million | $378.3 million |
| Net Income Attributable to UGI | $157.1 million | $255.5 million |
| Diluted EPS (UGI) | $1.43 | $2.32 |
| Operating Cash Flow (6mo) | $304.3 million | |
| Total Debt Outstanding | $2,229.7 million (Current: $607.1m; Long-term: $1,475.2m) | |
| Cash and Cash Equivalents | $270.7 million |
Material Changes vs. Prior Period
- Revenue: Three-month revenues decreased slightly by 0.8% ($17.5 million) compared to the prior year, while six-month revenues decreased by 4.5% ($177.2 million). The decline is attributed to lower retail volumes in AmeriGas Propane and lower core-market volumes in Gas Utility due to warmer weather and economic conditions, partially offset by higher commodity prices.
- Profitability: Net income attributable to UGI Corporation decreased by 0.7% in the three-month period and 6.4% in the six-month period compared to the prior year.
- Unusual Items: The current period includes a $12.2 million pre-tax loss (approx. $3.3 million after-tax) from the discontinuance of interest rate protection agreements (IRPAs) for AmeriGas Partners. The prior-year six-month period included a $39.9 million pre-tax gain from the sale of a California LPG storage facility.
- Segment Performance: Gas Utility and Energy Services showed improved operating income due to rate increases and higher margins. International Propane results were lower due to normalized margins compared to the abnormally high margins in the prior year caused by a sharp drop in commodity costs.
- Debt: Total debt decreased slightly from $2,296.2 million at September 30, 2009, to $2,229.7 million at March 31, 2010. Current maturities of long-term debt increased significantly to $607.1 million, primarily due to Antargaz's term loan due in March 2011.
Guidance, Outlook, and Risks
- Dividends: On April 27, 2010, the Board increased the quarterly dividend on UGI Common Stock to $0.25 per share (a 25% increase), effective July 1, 2010. AmeriGas Partners also increased its quarterly distribution to $0.705 per unit.
- Liquidity: Management believes internal cash flows and existing credit facilities (including a $200 million credit agreement for AmeriGas OLP and a $200 million receivables facility for Energy Services) are sufficient to meet projected cash needs for Fiscal 2010.
- Legal Proceedings:
- Antargaz Competition Authority: A Statement of Objections regarding anti-competitive practices in France (1999-2004) was issued. A report was issued in April 2010; management believes reserves are adequate but final resolution is uncertain.
- Environmental: Ongoing litigation regarding former Manufactured Gas Plants (MGPs) in South Carolina, Maine, New York, and Connecticut. Management believes it has good defenses but acknowledges potential for significant future costs if corporate form is disregarded.
- Propane Cylinder Litigation: Multiple class-action lawsuits regarding cylinder weight disclosure and filling practices in California and nationwide. Cases have been consolidated in the Western District of Missouri.
- Market Risks: Significant exposure to commodity price volatility (LPG, natural gas, electricity), interest rate fluctuations, and foreign currency exchange rates (Euro vs. USD). The company utilizes extensive derivative hedging programs to mitigate these risks.
Investor Verification Checklist
- Interest Rate Hedge Loss: Verify the impact of the $12.2 million loss from discontinued IRPAs on AmeriGas Partners' EBITDA and future interest expense.
- Antargaz Debt Maturity: Confirm the refinancing strategy for the €380 million ($513.3 million) Antargaz term loan maturing in March 2011.
- Legal Reserves: Review the adequacy of reserves for the French Competition Authority matter and MGP environmental liabilities, given the uncertainty of final outcomes.
- Weather Sensitivity: Assess the impact of warmer-than-normal weather on Q2 and Q3 heating demand, which historically drives the majority of earnings.
- Noncontrolling Interests: Ensure proper understanding of the new accounting presentation where noncontrolling interests (primarily AmeriGas Partners) are deducted from net income to arrive at UGI's net income.