Notes to Consolidated Financial Statements
(Currency in millions, except per share amounts and where indicated otherwise)
Index to Notes
Note 1 — Nature of Operations
Note 2 — Summary of Significant Accounting Policies
Note 3 — Accounting Changes
Note 4 — Revenue from Contracts with Customers
Note 5 — AmeriGas Merger, Acquisitions and Dispositions
Note 6 — Debt
Note 7 — Income Taxes
Note 8 — Employee Retirement Plans
Note 9 — Utility Regulatory Assets and Liabilities and Regulatory Matters
Note 10 — Inventories
Note 11 — Property, Plant and Equipment
Note 12 — Goodwill and Intangible Assets
Note 13 — Series Preferred Stock
Note 14 — Common Stock and Equity-Based Compensation
Note 15 — Partnership Distributions
Note 16 — Leases
Note 17 — Commitments and Contingencies
Note 18 — Fair Value Measurements
Note 19 — Derivative Instruments and Hedging Activities
Note 20 — Accumulated Other Comprehensive Income (Loss)
Note 21 — Other Operating Income, Net and Other Non-Operating (Expense) Income, Net
Note 22 — Quarterly Data (unaudited)
Note 23 — Segment Information
Note 24 — Global LPG Business Transformation Initiatives
Note 25 — Impact of Global Pandemic
Note 1 — Nature of Operations
UGI is a holding company that, through subsidiaries and affiliates, distributes, stores, transports and markets energy products and related services. In the United States, we own and operate (1) a retail propane marketing and distribution business; (2) natural gas and electric distribution utilities; and (3) an energy marketing, midstream infrastructure, storage, natural gas gathering and processing, natural gas production, electricity generation and energy services businesses. In Europe, we market and distribute propane and other LPG and market other energy products and services.
We conduct a domestic propane marketing and distribution business through AmeriGas Partners. AmeriGas Partners conducts a national propane distribution business through its principal operating subsidiary AmeriGas OLP. AmeriGas Partners and AmeriGas OLP are Delaware limited partnerships. UGI’s wholly owned second-tier subsidiary, AmeriGas Propane, Inc., serves as the general partner of AmeriGas Partners. On August 21, 2019, we completed the AmeriGas Merger pursuant to which we issued 34.6 million shares of UGI Common Stock and paid $529 in cash to acquire all of the outstanding Common Units in AmeriGas Partners not already held by UGI or its subsidiaries, with the Partnership surviving as a wholly owned subsidiary of UGI. Prior to the AmeriGas Merger, UGI controlled the Partnership through its ownership of the General Partner, which held a 1% general partner interest (which included IDRs) and approximately 25.5% of the outstanding Common Units, and held an effective 27% ownership interest in AmeriGas OLP. The IDRs held by the General Partner prior to the AmeriGas Merger entitled it to receive distributions from AmeriGas Partners in excess of its general partner interest under certain circumstances (see Note 15). For additional information on the AmeriGas Merger, see Note 5.
UGI International, through subsidiaries and affiliates, conducts (1) an LPG distribution business throughout much of Europe and (2) an energy marketing business in France, Belgium, the Netherlands and the United Kingdom. These businesses are conducted principally through our subsidiaries, UGI France, Flaga, AvantiGas, DVEP and UniverGas.
UGI Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Currency in millions, except per share amounts and where indicated otherwise)
Energy Services conducts, directly and through subsidiaries, energy marketing, midstream transmission, LNG storage, natural gas gathering and processing, natural gas production, electricity generation and energy services businesses primarily in the Mid-Atlantic region of the U.S., eastern Ohio and the panhandle of West Virginia. In July 2020, Energy Services acquired GHI, which is primarily focused on providing vehicle fleets with renewable natural gas by coordinating supply from a portfolio of sources throughout the country. UGID owns electricity generation facilities principally located in Pennsylvania. Energy Services and its subsidiaries’ storage, LNG and portions of its midstream transmission operations are subject to regulation by the FERC.
UGI Utilities directly owns and operates Gas Utility, a natural gas distribution utility business in eastern and central Pennsylvania and in a portion of one Maryland county. Gas Utility is subject to regulation by the PAPUC, the FERC, and, with respect to a small service territory in one Maryland county, the MDPSC. UGI Utilities also owns and operates Electric Utility, an electric distribution utility located in northeastern Pennsylvania. Electric Utility is subject to regulation by the PAPUC and the FERC.
Note 2 — Summary of Significant Accounting Policies
Basis of Presentation
Our consolidated financial statements are prepared in accordance with GAAP. The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and costs. These estimates are based on management’s knowledge of current events, historical experience and various other assumptions that are believed to be reasonable under the circumstances. Accordingly, actual results may be different from these estimates and assumptions.
Certain prior-year amounts have been reclassified to conform to the current-year presentation.
Principles of Consolidation
The consolidated financial statements include the accounts of UGI and its controlled subsidiary companies which are majority owned. We report outside ownership interests in other consolidated but less than 100%-owned subsidiaries, as noncontrolling interests. Prior to the AmeriGas Merger, we also reported the public’s interest in the Partnership as a noncontrolling interest. We eliminate intercompany accounts and transactions when we consolidate.
We account for privately held equity securities of entities without readily determinable fair values in which we do not have control, but have significant influence over operating and financial policies, under the equity method. Investments in equity securities related to entities in which we do not have significant influence over operating and financial policies are valued at their cost less impairment (if any). Our investments in such entities totaled $256 and $242 at September 30, 2020 and 2019, respectively, and are included in “Other assets” on the Consolidated Balance Sheets. Our equity method investments primarily comprise PennEast and Pennant.
Equity Method Investments
Pennant. During Fiscal 2019, Energy Services completed the CMG Acquisition including CMG’s approximately 47% interest in Pennant. Pennant is accounted for as an equity method investment as we have the ability to exercise significant influence, but not control, over Pennant. Our investment in Pennant at September 30, 2020 and 2019 totaled $94 and $91, respectively. For additional information regarding the CMG Acquisition, see Note 5.
PennEast. UGI PennEast, LLC, and four other members comprising wholly owned subsidiaries of Southern Company, New Jersey Resources, South Jersey Industries, and Enbridge, Inc., each hold a 20% membership interest in PennEast. PennEast was formed to construct an approximate 120-mile natural gas pipeline from Luzerne County, Pennsylvania to the Trenton-Woodbury interconnection in New Jersey. Affiliates of all members plan to be customers of the pipeline under 15-year contracts. PennEast is accounted for as an equity method investment as we have the ability to exercise significant influence, but not control, over PennEast. We are obligated to provide capital contributions based upon our ownership percentage. Our investment in PennEast at September 30, 2020 and 2019 totaled $96 and $85, respectively.
In September 2019, a panel of the U.S. Court of Appeals for the Third Circuit ruled that New Jersey’s Eleventh Amendment immunity barred PennEast from bringing an eminent domain lawsuit in federal court, under the Natural Gas Act, against New Jersey or its agencies. The Third Circuit subsequently denied PennEast’s petition for rehearing en banc. PennEast also filed a
UGI Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Currency in millions, except per share amounts and where indicated otherwise)
petition for declaratory order with the FERC regarding interpretation of the Natural Gas Act; the FERC issued an order favorable to PennEast’s position on January 30, 2020. PennEast filed a petition for a writ of certiorari to seek U.S. Supreme Court review of the Third Circuit decision on February 18, 2020. On June 29, 2020, the U.S. Supreme Court invited the U.S. Solicitor General to file a brief in the case expressing the views of the U.S. The ultimate outcome of these matters cannot be determined at this time, and could result in delays, additional costs, or the inability to move forward with the project, resulting in an impairment of all or a portion of our investment in PennEast.
Effects of Regulation
UGI Utilities accounts for the financial effects of regulation in accordance with the FASB’s guidance in ASC 980. In accordance with this guidance, incurred costs and estimated future expenditures that would otherwise be charged to expense are capitalized and recorded as regulatory assets when it is probable that the incurred costs or estimated future expenditures will be recovered through rates in the future. Similarly, we recognize regulatory liabilities when it is probable that regulators will require customer refunds through future rates or when revenue is collected from customers for expenditures that have not yet been incurred. Regulatory assets and liabilities are classified as current if, upon initial recognition, the entire amount related to that item will be recovered or refunded within a year of the balance sheet date. Generally, regulatory assets and regulatory liabilities are amortized into expense and income over the periods authorized by the regulator. For additional information regarding the effects of rate regulation on our utility operations, see Note 9.
Fair Value Measurements
The Company applies fair value measurements on a recurring and, as otherwise required under ASC 820, on a nonrecurring basis. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. Fair value measurements performed on a recurring basis principally relate to derivative instruments and investments held in supplemental executive retirement plan grantor trusts.
ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels. The hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). A level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
We use the following fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels:
•Level 1 — Quoted prices (unadjusted) in active markets for identical assets and liabilities that we have the ability to access at the measurement date.
•Level 2 — Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable for the asset or liability, including quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability, and inputs that are derived from observable market data by correlation or other means.
•Level 3 — Unobservable inputs for the asset or liability including situations where there is little, if any, market activity for the asset or liability.
Fair value is based upon assumptions that market participants would use when pricing an asset or liability, including assumptions about risk and risks inherent in valuation techniques and inputs to valuations. This includes not only the credit standing of counterparties and credit enhancements but also the impact of our own nonperformance risk on our liabilities. We evaluate the need for credit adjustments to our derivative instrument fair values. These credit adjustments were not material to the fair values of our derivative instruments.
Derivative Instruments
Derivative instruments are reported on the Consolidated Balance Sheets at their fair values, unless the NPNS exception is elected. The accounting for changes in fair value depends upon the purpose of the derivative instrument, whether it is subject to regulatory ratemaking mechanisms or if it qualifies and is designated as a hedge for accounting purposes.
UGI Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Currency in millions, except per share amounts and where indicated otherwise)
Certain of our derivative instruments qualify and are designated as cash flow hedges. For cash flow hedges, changes in the fair values of the derivative instruments are recorded in AOCI, to the extent effective at offsetting changes in the hedged item, until earnings are affected by the hedged item. We discontinue cash flow hedge accounting if occurrence of the forecasted transaction is determined to be no longer probable. Hedge accounting is also discontinued for derivatives that cease to be highly effective. We do not designate our commodity and certain foreign currency derivative instruments as hedges under GAAP. Changes in the fair values of these derivative instruments are reflected in net income. Gains and losses on substantially all of the commodity derivative instruments used by UGI Utilities are included in regulatory assets or liabilities because it is probable such gains or losses will be recoverable from, or refundable to, customers. From time to time, we also enter into net investment hedges. Gains and losses on net investment hedges that relate to our foreign operations are included in the cumulative translation adjustment component in AOCI until such foreign net investment is sold or liquidated.
Cash flows from derivative instruments, other than certain cross-currency swaps and net investment hedges, if any, are included in cash flows from operating activities on the Consolidated Statements of Cash Flows. Cash flows from the interest portion of our cross-currency hedges, if any, are included in cash flows from operating activities while cash flows from the currency portion of such hedges, if any, are included in cash flows from financing activities. Cash flows from net investment hedges, if any, are included in cash flows from investing activities on the Consolidated Statements of Cash Flows.
For a more detailed description of the derivative instruments we use, our accounting for derivatives, our objectives for using them and other information, see Note 19.
Business Combination Purchase Price Allocations
From time to time, the Company enters into material business combinations. The purchase price is allocated to the various assets acquired and liabilities assumed at their estimated fair value as of the acquisition date with the residual of the purchase price allocated to goodwill. Fair values of assets acquired and liabilities assumed are based upon available information. Estimating fair values is generally subject to significant judgment, estimates and assumptions especially with respect to intangible assets. The allocation of the purchase price may be modified up to one year after the acquisition date, under certain circumstances, as more information is obtained about the fair value of assets acquired and liabilities assumed.
Foreign Currency Translation
Balance sheets of international subsidiaries are translated into U.S. dollars using the exchange rate at the balance sheet date. Income statements and equity investee results are translated into U.S. dollars using an average exchange rate for each reporting period. Where the local currency is the functional currency, translation adjustments are recorded in other comprehensive income. Transactions denominated in currencies other than the functional currency are recorded based on exchange rates at the time such transactions arise with the impact of subsequent changes in such rates reflected in the income statement. The functional currency of a significant portion of our international operations is the euro.
Revenue Recognition
In accordance with ASC 606, the Company recognizes revenue when control of promised goods or services is transferred to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. Certain revenues such as revenue from leases, financial instruments and other revenues are not within the scope of ASC 606 because they are not from contracts with customers. Such revenues are accounted for in accordance with other GAAP. Revenue-related taxes collected on behalf of customers and remitted to taxing authorities, principally sales and use taxes, are not included in revenues. Gross receipts taxes at Midstream & Marketing and Electric Utility are presented on a gross basis. The Company has elected to use the practical expedient to expense the costs to obtain contracts when incurred for contracts that have a term less than one year. The costs incurred to obtain contracts that have durations of longer than one year are not material. See Note 4 for additional disclosures regarding the Company’s revenue from contracts with customers.
Accounts Receivable
Accounts receivable are reported on the Consolidated Balance Sheets at the gross outstanding amount adjusted for an allowance for doubtful accounts. Accounts receivable that are acquired are initially recorded at fair value on the date of acquisition. Provisions for uncollectible accounts are established based upon our collection experience and the assessment of the collectability of specific amounts. Accounts receivable are written off in the period in which the receivable is deemed uncollectible.
UGI Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Currency in millions, except per share amounts and where indicated otherwise)
LPG Delivery Expenses
Expenses associated with the delivery of LPG to customers of the Partnership and our UGI International operations (including vehicle expenses, expenses of delivery personnel, vehicle repair and maintenance and general liability expenses) are classified as “Operating and administrative expenses” on the Consolidated Statements of Income. Depreciation expense associated with the Partnership and UGI International delivery vehicles is classified in “Depreciation and amortization” on the Consolidated Statements of Income.
Income Taxes
AmeriGas Partners and AmeriGas OLP are not directly subject to federal income taxes. Instead, their taxable income or loss is allocated to the individual partners which, prior to the AmeriGas Merger, included public holders of AmeriGas Partners Common Units. We record income taxes on (1) our share of the Partnership’s current taxable income or loss and (2) the differences between the book and tax basis of our investment in the Partnership. AmeriGas OLP has subsidiaries which operate in corporate form and are directly subject to federal and state income taxes. Legislation in certain states allows for taxation of partnership income and the accompanying financial statements reflect state income taxes resulting from such legislation. For additional information regarding the tax effects of the AmeriGas Merger, see Note 7.
UGI Utilities records deferred income taxes in the Consolidated Statements of Income resulting from the use of accelerated tax depreciation methods based upon amounts recognized for ratemaking purposes. UGI Utilities also records a deferred income tax liability for tax benefits, principally the result of accelerated tax depreciation for state income tax purposes, that are flowed through to ratepayers when temporary differences originate and records a regulatory income tax asset for the probable increase in future revenues that will result when the temporary differences reverse.
We record interest on underpayments and overpayments of income taxes, and income tax penalties, in “Income tax expense” on the Consolidated Statements of Income. Interest income or expense recognized in “Income tax expense” on the Consolidated Statements of Income was not material for all periods presented.
The TCJA was enacted on December 22, 2017, and included a broad range of tax reform provisions affecting the Company, including, among other things, changes in the U.S. corporate income tax rate. The TCJA reduced the corporate income tax rate from 35% to 21% for tax years beginning after December 31, 2017. We were subject to a 24.5% blended U.S. federal income tax rate for Fiscal 2018 because our fiscal year contained the effective date of the rate change from 35% to 21%. In accordance with GAAP, at the date of enactment of the TCJA our federal deferred income taxes, including deferred income taxes related to items included in AOCI, were remeasured based upon the new corporate income tax rate. For our non-utility businesses, existing deferred income tax assets or liabilities were adjusted for the reduction in the corporate income tax rate and the adjustment recorded in the provision for income taxes. Our utility businesses were also required to adjust deferred income tax assets and liabilities for the change in income tax rates. However, because it was probable that the effect of the change in income tax rates on deferred income tax balances would be recovered or refunded in future rates, our rate-regulated utility businesses recorded a regulatory asset or liability associated with these deferred income tax assets and liabilities. For additional information regarding the impact of the TCJA and associated regulatory effects, see Notes 7 and 9.
Earnings Per Common Share
Basic earnings per share attributable to UGI Corporation stockholders reflect the weighted-average number of common shares outstanding. Diluted earnings per share attributable to UGI Corporation include the effects of dilutive stock options and common stock awards. Shares used in computing basic and diluted earnings per share are as follows:
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(Thousands of shares)
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2020
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2019
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2018
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Weighted-average common shares outstanding for basic computation (a)
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208,928
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178,417
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173,908
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Incremental shares issuable for stock options and common stock awards (b)
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941
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|
|
2,694
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|
|
2,997
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|
Weighted-average common shares outstanding for diluted computation
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|
209,869
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|
|
181,111
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|
|
176,905
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|
(a)Fiscal 2019 includes the partial-year impact from the August 2019 issuance of 34,613 shares of UGI Common Stock in connection with the AmeriGas Merger (see Note 5).
(b)For Fiscal 2020 and Fiscal 2019, there were 7,056 shares and 1,162 shares, respectively, associated with outstanding stock option awards that were not included in the computation of diluted earnings per share because their effect was antidilutive.
UGI Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Currency in millions, except per share amounts and where indicated otherwise)
Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents include cash on hand, cash in banks and highly liquid investments with maturities of three months or less when purchased. Restricted cash principally represents those cash balances in our commodity futures brokerage accounts that are restricted from withdrawal.
The following table provides a reconciliation of the total cash, cash equivalents and restricted cash reported on the Consolidated Balance Sheets to the corresponding amounts reported on the Consolidated Statements of Cash Flows.
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2020
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2019
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2018
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2017
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Cash and cash equivalents
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$
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336
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|
$
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447
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$
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452
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$
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558
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Restricted cash
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21
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|
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64
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|
|
10
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|
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11
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|
Cash, cash equivalents and restricted cash
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$
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357
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$
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511
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$
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462
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$
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569
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Inventories
Our inventories are stated at the lower of cost or net realizable value. We determine cost using an average cost method for non-utility LPG and natural gas and Gas Utility and Electric Utility inventories; specific identification for appliances; and the FIFO method for all other inventories.
Property, Plant and Equipment and Related Depreciation
We record property, plant and equipment at the lower of original cost or fair value, if impaired. Capitalized costs include labor, materials and other direct and indirect costs, and for certain operations subject to cost-of-service rate regulation, AFUDC. We also include in property, plant and equipment costs associated with computer software we develop or obtain for use in our business. The amounts assigned to property, plant and equipment of acquired businesses are based upon estimated fair value at date of acquisition. When we retire or otherwise dispose of non-utility plant and equipment, we eliminate the associated cost and accumulated depreciation and recognize any resulting gain or loss in "Other operating income, net" on the Consolidated Statements of Income.
We record depreciation expense on non-utility plant and equipment on a straight-line basis over estimated economic useful lives. At September 30, 2020, estimated useful lives by asset type were as follows:
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Asset Type
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Minimum Estimated Useful Life
(in years)
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Maximum Estimated Useful Life
(in years)
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Buildings and improvements
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10
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40
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Equipment, primarily cylinders and tanks
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5
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30
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Electricity generation facilities
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25
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40
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Pipeline and related assets
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25
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40
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Transportation equipment and office furniture and fixtures
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3
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10
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Computer software
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1
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10
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We record depreciation expense for UGI Utilities’ plant and equipment on a straight-line basis based upon the projected service lives of the various classes of its depreciable property. The average composite depreciation rates at our Gas Utility and Electric Utility were as follows:
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2020
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2019
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2018
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Gas Utility
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2.5
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%
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2.2
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%
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|
2.3
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%
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Electric Utility
|
2.2
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%
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|
2.1
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%
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|
2.2
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%
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UGI Utilities’ IT costs associated with major IT system installations, conversions and improvements, such as software training, data conversion, business process reengineering costs, preliminary project stage costs and cloud computing, are deferred as a regulatory asset and included as a component of property, plant and equipment. As of September 30, 2020 and 2019, such costs included as a component of property, plant and equipment and not yet requested in a rate proceeding were not material. UGI
UGI Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Currency in millions, except per share amounts and where indicated otherwise)
Utilities amortizes computer software and related IT system installation costs on a straight-line basis over expected periods of benefit not exceeding 15 years once the installed software is ready for its intended use.
We classify amortization of computer software and related IT system installation costs included in property, plant and equipment as depreciation expense. Depreciation expense totaled $416, $389 and $397 for Fiscal 2020, Fiscal 2019 and Fiscal 2018, respectively.
For property subject to cost of service rate regulation including substantially all of UGI Utilities depreciable utility plant and equipment, upon retirement we charge the original cost to accumulated depreciation for financial accounting purposes. Costs incurred to retire utility plant and equipment, net of salvage, are recorded in regulatory assets and amortized over five years, consistent with prior ratemaking treatment.
No depreciation expense is included in cost of sales on the Consolidated Statements of Income.
Goodwill and Intangible Assets
Intangible Assets. We amortize intangible assets over their estimated useful lives unless we determine their lives to be indefinite. Estimated useful lives of definite-lived intangible assets, primarily consisting of customer relationships (other than customer relationships acquired in the CMG Acquisition), certain tradenames and noncompete agreements, generally do not exceed 15 years. The estimated useful lives of customer relationships acquired in the CMG Acquisition is 35 years (see Note 5). We test definite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the associated carrying amounts may be impaired. Determining whether an impairment loss occurred requires comparing the carrying amount to the estimated fair value of the asset in accordance with ASC 820. Intangible assets with indefinite lives are not amortized but are tested for impairment annually (and more frequently if events or changes in circumstances between annual tests indicate that it is more likely than not that they are impaired) and written down to fair value, if impaired.
In April 2018, the Partnership’s senior management approved a plan to discontinue the use of indefinite-lived tradenames and trademarks associated with the Partnership’s January 2012 acquisition of Heritage Propane over a period of approximately three years. As a result, the Partnership recorded a non-cash, pre-tax impairment charge of $75 during Fiscal 2018 which is reflected in “Impairment of Partnership tradenames and trademarks” on the 2018 Consolidated Statement of Income, and is amortizing the remaining fair value of these tradenames and trademarks of $8 over their estimated period of benefit of three years.
Goodwill. We do not amortize goodwill, but test it at least annually for impairment at the reporting unit level. A reporting unit is an operating segment, or one level below an operating segment (a component) if it constitutes a business for which discrete financial information is available and regularly reviewed by segment management. Components are aggregated into a single reporting unit if they have similar economic characteristics. Each of our reporting units with goodwill is required to perform impairment tests annually or whenever events or circumstances indicate that the value of goodwill may be impaired.
For certain of our reporting units with goodwill, we assess qualitative factors to determine whether it is more likely than not that the fair value of such reporting unit is less than its carrying amount. For our other reporting units with goodwill, we bypass the qualitative assessment and perform the quantitative assessment by comparing the fair values of the reporting units with their carrying amounts, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to such excess but not to exceed the total amount of the goodwill of the reporting unit.
There were no accumulated goodwill impairment losses at September 30, 2020 and 2019, and no provisions for goodwill impairments were recognized for all periods presented. For further information on our goodwill and intangible assets, see Note 12.
Impairment of Long-Lived Assets
Impairment testing for long-lived assets (or an asset group) is required when circumstances indicate that such assets may be impaired. If it is determined that a triggering event has occurred, we perform a recoverability test based upon estimated undiscounted cash flow projections expected to be realized over the remaining useful life of the long-lived asset. If the undiscounted cash flows used in the recoverability test are less than the long-lived asset's carrying amount, we determine its fair value. If the fair value is determined to be less than its carrying amount, the long-lived asset is reduced to its estimated fair value and an impairment loss is recognized in an amount equal to such shortfall. When determining whether a long-lived asset has been impaired, management groups assets at the lowest level that has identifiable cash flows.
UGI Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Currency in millions, except per share amounts and where indicated otherwise)
No material provisions for impairments of long-lived assets were recorded during Fiscal 2019 or Fiscal 2018. See Note 5 for further information on the losses associated with the dispositions of Conemaugh and HVAC during Fiscal 2020.
Debt Issuance Costs
We defer and amortize debt issuance costs and debt premiums and discounts over the expected lives of the respective debt issues considering maturity dates. Deferred debt issuance costs associated with long-term debt are reflected as a direct deduction from the carrying amount of such debt. Deferred debt issuance costs associated with revolving credit facilities reflected as short-term borrowings are classified as “Other assets” on our Consolidated Balance Sheets. Amortization of debt issuance costs is reported as interest expense. Unamortized costs associated with redemptions of debt prior to their stated maturity are generally recognized and recorded in “Loss on extinguishments of debt” on the Consolidated Statements of Income. As permitted by regulatory authorities, gains or losses resulting from refinancings of UGI Utilities’ debt are deferred and amortized over the lives of the new issuances.
Leases
Effective October 1, 2019, the Company adopted ASU No. 2016-02, "Leases," which, as amended, is included in ASC 842. This new accounting guidance supersedes previous lease accounting guidance in ASC 840 and requires entities that lease assets to recognize the assets and liabilities for the rights and obligations created by those leases on its balance sheet. The new guidance also requires additional disclosures about the amount, timing and uncertainty of cash flows from leases.
We adopted this new guidance using the modified retrospective transition method. Amounts and disclosures related to periods prior to October 1, 2019 have not been restated and continue to be reported in accordance with ASC 840. We elected to apply the following practical expedients in accordance with the guidance upon adoption:
•Short-term leases: We did not recognize short-term leases (term of 12 months or less) on the balance sheet;
•Easements: We did not re-evaluate existing land easements that were not previously accounted for as leases; and
•Other: We did not reassess the classification of expired or existing contracts or determine whether they are or contain a lease. We also did not reassess whether initial direct costs qualify for capitalization under ASC 842.
Upon adoption, we recorded ROU assets and lease liabilities of $452 related to our operating leases. Our accounting for finance leases remained substantially unchanged. There were no cumulative-effect adjustments made to retained earnings as of October 1, 2019. The adoption did not have a significant impact on our consolidated statements of income or cash flows. See Note 16 for additional disclosures regarding our leases.
Refundable Tank and Cylinder Deposits
Included in “Other noncurrent liabilities” on our Consolidated Balance Sheets are customer paid deposits on tanks and cylinders primarily owned by subsidiaries of UGI France of $300 and $280 at September 30, 2020 and 2019, respectively. Deposits are refundable to customers when the tanks or cylinders are returned in accordance with contract terms.
Environmental Matters
We are subject to environmental laws and regulations intended to mitigate or remove the effects of past operations and improve or maintain the quality of the environment. These laws and regulations require the removal or remedy of the effect on the environment of the disposal or release of certain specified hazardous substances at current or former operating sites.
Environmental reserves are accrued when assessments indicate that it is probable that a liability has been incurred and an amount can be reasonably estimated. Amounts recorded as environmental liabilities on the Consolidated Balance Sheets represent our best estimate of costs expected to be incurred or, if no best estimate can be made, the minimum liability associated with a range of expected environmental investigation and remediation costs. These estimates are based upon a number of factors including whether the Company will be responsible for such remediation, the scope and cost of the remediation work to be performed, the portion of costs that will be shared with other potentially responsible parties, the timing of the remediation and possible impact of changes in technology, and the regulations and requirements of local governmental authorities. Our estimated liability for environmental contamination is reduced to reflect anticipated participation of other responsible parties but is not reduced for possible recovery from insurance carriers. Under GAAP, if the amount and timing of cash payments associated with environmental investigation and cleanup are reliably determinable, such liabilities are discounted to reflect the
UGI Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Currency in millions, except per share amounts and where indicated otherwise)
time value of money. We intend to pursue recovery of incurred costs through all appropriate means, including regulatory relief. UGI Utilities receives ratemaking recognition of environmental investigation and remediation costs associated with in-state environmental sites. This ratemaking recognition balances the accumulated difference between historical costs and rate recoveries with an estimate of future costs associated with the sites. For further information, see Note 17.
Loss Contingencies Subject to Insurance
We are subject to risk of loss for general, automobile and product liability, and workers’ compensation claims for which we obtain insurance coverage under insurance policies that are subject to self-insured retentions or deductibles. In accordance with GAAP, we record accruals when it is probable that a liability exists and the amount or range of amounts can be reasonably estimated. When no amount within a range of possible loss is a better estimate than any other amount within the range, liabilities recorded are based upon the low end of the range. For litigation and pending claims including those covered by insurance policies, the analysis of probable loss is performed on a case by case basis and includes an evaluation of the nature of the claim, the procedural status of the matter, the probability or likelihood of success in prosecuting or defending the claim, the information available with respect to the claim, the opinions and views of outside counsel and other advisors, and past experience in similar matters. With respect to unasserted claims arising from unreported incidents, we may use the work of specialists to estimate the ultimate losses to be incurred using actuarially determined loss development factors applied to actual claims data. Our estimated reserves for loss contingencies may differ materially from the ultimate liability and such reserves may change materially as more information becomes available and estimated reserves are adjusted. We maintain insurance coverage such that our net exposure for claims covered by insurance would be limited to the self-insured retentions or deductibles, claims above which would be paid by the insurance carrier. For such claims, we record a receivable related to the amount of the liability expected to be paid by insurance.
Employee Retirement Plans
We use a market-related value of plan assets and an expected long-term rate of return to determine the expected return on assets of our U.S. pension and other postretirement plans. The market-related value of plan assets, other than equity investments, is based upon fair values. The market-related value of equity investments is calculated by rolling forward the prior-year’s market-related value with contributions, disbursements and the expected return on plan assets. One third of the difference between the expected and the actual value is then added to or subtracted from the expected value to determine the new market-related value (see Note 8).
Equity-Based Compensation
All of our equity-based compensation, principally comprising UGI stock options, grants of UGI stock-based equity instruments and, prior to the AmeriGas Merger, grants of AmeriGas Partners equity instruments (together with UGI stock-based equity instruments, “Units” or “Unit Awards”), are measured at fair value on the grant date, date of modification or end of the period, as applicable. Compensation expense is recognized on a straight-line basis over the requisite service period. Depending upon the settlement terms of the awards, all or a portion of the fair value of equity-based awards may be presented as a liability or as equity on our Consolidated Balance Sheets. Equity-based compensation costs associated with the portion of Unit Awards classified as equity are measured based upon their estimated fair value on the date of grant or modification. Equity-based compensation costs associated with all or a portion of Unit Awards classified as liabilities are measured based upon their estimated fair value at the grant date and remeasured as of the end of each period.
We record deferred tax assets for awards that we expect will result in deductions on our income tax returns based on the amount of compensation cost recognized and the statutory tax rate in the jurisdiction in which we will receive a deduction. Differences between the deferred tax assets recognized for financial reporting purposes and the actual tax benefit received on the income tax return are recorded on the Consolidated Statements of Income.
Excess tax benefits and tax deficiencies associated with employee share-based awards that vest or are exercised are recognized as income tax benefit or expense in the reporting period in which they occur, and assumed proceeds under the treasury stock method used for computing diluted shares outstanding do not include windfall tax benefits in the diluted shares calculation. We account for forfeitures of share-based payments when they occur.
For additional information on our equity-based compensation plans and related disclosures, see Note 14.
UGI Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Currency in millions, except per share amounts and where indicated otherwise)
Note 3 — Accounting Changes
New Accounting Standards Adopted in Fiscal 2020
Derivatives and Hedging. Effective October 1, 2019, the Company adopted ASU No. 2017-12, “Targeted Improvements to Accounting for Hedging Activities.” This ASU amends and simplifies existing guidance to allow companies to more accurately present the economic effects of risk management activities in the financial statements. For cash flow and net investment hedges as of the adoption date, the guidance required a modified retrospective approach. The amended presentation and disclosure guidance was required prospectively. The adoption of the new guidance did not have a material impact on our consolidated financial statements.
Leases. Effective October 1, 2019, the Company adopted new accounting guidance for leases in accordance with ASC 842. See Notes 2 and 16 for a detailed description of the impact of the new guidance and related disclosures.
Reference Rate Reform. In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” This ASU provides entities with temporary optional guidance to ease potential accounting burdens to transition away from LIBOR or other reference rates that are expected to be discontinued and replaced with alternative reference rates. This ASU applies to all entities that have contracts, hedging relationships and other transactions affected by reference rate reform. The provisions in this ASU, among other things, simplify contract modification accounting and allow hedging relationships affected by reference rate reform to continue. ASU 2020-04 is effective upon issuance and entities are able to apply the amendments prospectively through December 31, 2022. During the third quarter of Fiscal 2020, the Company elected certain optional expedients related to all outstanding cash flow hedging relationships and such elections did not have a material impact on our consolidated financial statements.
New Accounting Standard Adopted Effective October 1, 2020
Credit Losses. In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments.” This ASU, as subsequently amended, requires entities to estimate lifetime expected credit losses for financial instruments not measured at fair value through net income, including trade and other receivables, net investments in leases, financial receivables, debt securities, and other financial instruments. Further, the new current expected credit loss model affects how entities estimate their allowance for losses related to receivables that are current with respect to their payment terms. Effective October 1, 2020, the Company adopted this ASU, as updated, using a modified retrospective transition approach. The adoption of the new guidance did not have a material impact on our consolidated financial statements.
Accounting Standard Not Yet Adopted
Income Taxes. In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” This ASU simplifies the accounting for income taxes by eliminating certain exceptions within the existing guidance for recognizing deferred taxes for equity method investments, performing intraperiod allocations and calculating income taxes in interim periods. Further, this ASU clarifies existing guidance related to, among other things, recognizing deferred taxes for goodwill and allocated taxes to members of a consolidated group. This new guidance is effective for the Company for interim and annual periods beginning October 1, 2021 (Fiscal 2022). Early adoption is permitted. The Company is in the process of assessing the impact on our consolidated financial statements from the adoption of the new guidance and determining the period in which the new guidance will be adopted.
Note 4 — Revenue from Contracts with Customers
The Company recognizes revenue when control of promised goods or services is transferred to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. The Company generally has the right to consideration from a customer in an amount that corresponds directly with the value to the customer for performance completed to date. As such, we have elected to recognize revenue in the amount to which we have a right to invoice except in the case of certain of UGI Utilities’ large delivery service customers and Midstream & Marketing’s peaking contracts for which we recognize revenue on a straight-line basis over the term of the contract, consistent with when the performance obligations are satisfied by the Company.
UGI Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Currency in millions, except per share amounts and where indicated otherwise)
We do not have a significant financing component in our contracts because we receive payment shortly before, at, or shortly after the transfer of control of the good or service. Because the period between the time the performance obligation is satisfied and payment is received is generally one year or less, the Company has elected to apply the significant financing component practical expedient and no amount of consideration has been allocated as a financing component.
The Company’s revenues from contracts with customers are discussed below.
Utility Revenues
UGI Utilities supplies natural gas and electricity and provides distribution services of natural gas and electricity to residential, commercial, and industrial customers who are generally billed at standard regulated tariff rates approved by the PAPUC through the ratemaking process. Tariff rates include a component that provides for a reasonable opportunity to recover operating costs and expenses and to earn a return on net investment, and a component that provides for the recovery, subject to reasonableness reviews, of PGC and DS costs.
Customers may choose to purchase their natural gas and electricity from Gas Utility or Electric Utility, or, alternatively, may contract separately with alternate suppliers. Accordingly, our contracts with customers comprise two promised goods or services: (1) delivery service of natural gas and electricity through the Company’s utility distribution systems and (2) the natural gas or electricity commodity itself for those customers who choose to purchase the natural gas or electricity directly from the Company. Revenue is not recorded for the sale of natural gas or electricity to customers who have contracted separately with alternate suppliers. For those customers who choose to purchase their natural gas or electricity from the Company, the performance obligation includes both the supply of the commodity and the delivery service.
The terms of our core market customer contracts are generally considered day-to-day as customers can discontinue service at any time without penalty. Performance obligations are generally satisfied over time as the natural gas or electricity is delivered to customers, at which point the customers simultaneously receive and consume the benefits provided by the delivery service and, when applicable, the commodity. Amounts are billed to customers based upon the reading of a customer’s meter, which occurs on a cycle basis throughout each reporting period. An unbilled amount is recorded at the end of each reporting period based upon estimated amounts of natural gas or electricity delivered to customers since the date of the last meter reading. These unbilled estimates consider various factors such as historical customer usage patterns, customer rates and weather.
UGI Utilities has certain fixed-term contracts with large commercial and industrial customers to provide natural gas delivery services at contracted rates and at volumes generally based on the customer’s needs. The performance obligation to provide the contracted delivery service for these large commercial and industrial customers is satisfied over time and revenue is generally recognized on a straight-line basis.
UGI Utilities makes off-system sales whereby natural gas delivered to our system in excess of amounts needed to fulfill our distribution system needs is sold to other customers, primarily other distributors of natural gas, based on an agreed-upon price and volume between the Company and the counterparty. Gas Utility also sells excess capacity whereby interstate pipeline capacity in excess of amounts needed to meet our customer obligations is sold to other distributors of natural gas based upon an agreed-upon rate. Off-system sales and capacity releases are generally entered into one month at a time and comprise the sale of a specific volume of gas or pipeline capacity at a specific delivery point or points over a specific time. As such, performance obligations associated with off-system sales and capacity release customers are satisfied, and associated revenue is recorded, when the agreed upon volume of natural gas is delivered or capacity is provided, and title is transferred, in accordance with the contract terms.
Electric Utility provides transmission services to PJM by allowing PJM to access Electric Utility’s electricity transmission facilities. In exchange for providing access, PJM pays Electric Utility consideration determined by a formula-based rate approved by FERC. The formula-based rate, which is updated annually, allows recovery of costs incurred to provide transmission services and return on transmission-related net investment. We recognize revenue over time as we provide transmission service.
Other Utility revenues represent revenues from other ancillary services provided to customers and are generally recorded as the service is provided to customers.
UGI Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Currency in millions, except per share amounts and where indicated otherwise)
Non-Utility Revenues
LPG. AmeriGas Propane and UGI International record revenue principally from the sale of LPG to retail and wholesale customers. The primary performance obligation associated with the sale of LPG is the delivery of propane to (1) the customer’s point of delivery for retail customers and (2) the customer’s specified location where LPG is picked up by wholesale customers, at which point control of the propane is transferred to the customer, the performance obligation is satisfied, and the associated revenue is recognized. For contracts with retail customers that consume LPG from a metered tank, we recognize revenue as LPG is consumed, at which point we have the right to invoice, and generally invoice monthly based on consumption.
Contracts with customers comprise different types of contracts with varying length terms, fixed or variable prices, and fixed or variable quantities. Contracts with our residential customers, which comprise a substantial number of our customer contracts, are generally one year or less. Customer contracts for the sale of LPG include fixed-price, fixed-quantity contracts under which LPG is provided to customers at a fixed price and a fixed volume, and contracts that provide for the sale of propane at market prices at date of delivery with no fixed volumes. AmeriGas Propane offers contracts that permit customers to lock in a fixed price for their volumes for a fee and also provide customers with the option to pre-buy a fixed amount of propane at a fixed price. Amounts received under pre-buy arrangements are recorded as a contract liability when received and recorded as revenue when LPG is delivered and control is transferred to the customer. Fees associated with fixed-price contracts are recorded as contract liabilities and recorded ratably over the contract period.
AmeriGas Propane and UGI International also distribute LPG to customers in portable cylinders. Under certain contracts, filled cylinders are delivered, and control is transferred, to a reseller. In such instances, the reseller is our customer and we record revenue upon delivery to the reseller. Under other contracts, filled cylinders are delivered to a reseller, but the Company retains control of the cylinders. In such instances, we record revenue at the time the reseller transfers control of the cylinder to the end user.
Certain retail LPG customers for AmeriGas Propane receive credits which we account for as variable consideration. We estimate these credits based upon past practices and historical customer experience and we reduce our revenues recognized for these credits.
Energy Marketing. Midstream & Marketing and UGI International operate energy marketing businesses that sell energy commodities, principally natural gas and electricity, to residential, commercial, industrial and wholesale customers. In addition, UGI International provides system balancing and procurement services to other energy marketers in the Netherlands.
Midstream & Marketing and UGI International market natural gas and electricity on full-requirements or agreed-upon volume bases under contracts with varying length terms and at fixed or floating prices that are based on market indices adjusted for differences in price between the market location and delivery locations. Performance obligations associated with these contracts primarily comprise the delivery of the natural gas and electricity over a contractual period of time. Performance obligations also include other energy-related ancillary services provided to customers such as capacity. For performance obligations that are satisfied at a point in time such as the delivery of natural gas, revenue is recorded when customers take control of the natural gas. Revenue is recorded for performance obligations that qualify as a series, when customers consume the natural gas or electricity is delivered, which corresponds to the amount invoiced to the customer. For transactions where the price or volume is not fixed, the transaction price is not determined until delivery occurs. The billed amount, and the revenue recorded, is based upon consumption by the customer.
In addition to providing natural gas and electricity to end-user customers, our energy marketing business in the Netherlands has contracts with third-party natural gas and electricity marketers to provide BRP services in the electricity and natural gas markets in the Netherlands. These contracts are typically multi-year agreements and include full BRP services that include, among other things, estimating, procuring and scheduling all energy requirements to meet third-party marketers’ needs, or provide more limited system procurement and balancing services. The amount of revenue recognized from our BRP customers is based upon the amount of energy delivered with respect to these agreements, and the level of BRP services provided. We typically receive payments from our BRP customers one month in advance of our performing the related services. Amounts received in advance are deferred on the balance sheet as contract liabilities. Based upon an evaluation of the terms and conditions of the BRP contracts and our ability to control the goods or services provided to the third-party marketers, in addition to other factors, we are considered a principal in these contracts and are required to record the revenue associated with the sale of energy to the third-party energy marketers on a gross basis. We record the associated revenue ratably over time, typically monthly, as the performance obligations are satisfied.
UGI Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Currency in millions, except per share amounts and where indicated otherwise)
Midstream. Midstream & Marketing provides natural gas pipeline transportation, natural gas gathering, natural gas processing and natural gas underground storage services, which generally contain a performance obligation for the Company to have availability to transport or store a product. Additionally, the Company provides stand-ready services to sell supplemental energy products and related services, primarily LNG and propane-air mixtures during periods of high demand that typically result from cold weather. The Company also sells LNG to end-user customers for use by trucks, drilling rigs and other motored vehicles and equipment, and facilities that are located off the natural gas grid.
Contracts for natural gas transportation and gathering services are typically long-term contracts with terms of up to 30 years, while contracts for storage are typically for one-year or multiple storage season periods. Contracts to provide natural gas during periods of high demand have terms of up to 15 years. Contracts to sell LNG for trucks, drilling rigs and other motor vehicles and facilities are typically short-term (less than one year). Depending on the type of services provided or goods sold, midstream revenues may consist of demand rates, commodity rates, and transportation rates and may include other fees for ancillary services. Pipeline transportation, natural gas gathering and storage services provided and services to stand ready to sell supplemental energy products and services each are considered to have a single performance obligation satisfied through the passage of time ratably based upon providing a stand-ready service generally on a monthly basis. Contracts to sell LNG to end-user customers contain performance obligations to deliver LNG over the term of the contract and revenue is recognized at a point in time when the control of the energy products is transferred to the customer. The price in the contract corresponds to our efforts to satisfy the performance obligation and reflects the consideration we expect to receive for the satisfied performance obligation, and, therefore, the revenue is recognized based on the volume delivered and the price within the contract. In cases where shipping and handling occurs prior to the LNG being delivered to the customer’s storage vessel, we have elected to treat this as a cost of fulfillment and not a separate performance obligation. Revenues are typically billed and payment received monthly. Advance fees received from customers for stand-ready services are deferred as contract liabilities and revenue is recognized ratably over time as the performance obligation is satisfied over a period less than one year.
Electricity Generation. Midstream & Marketing sells power generated from electricity generation assets in the wholesale electricity markets administered by PJM regional transmission organization. Power contracts with PJM consist of the sale of power, capacity and ancillary services, all of which are considered a bundle of various services. Performance obligations are satisfied over time, generally on a daily basis, as electricity is delivered to and simultaneously consumed by the customer. As such, the Company has elected to recognize revenue in the amount to which we have a right to invoice which is based on market prices at the time of the delivery of the electricity to the customers.
Other. Other revenues from contracts with customers are generated primarily from services and products provided by Midstream & Marketing’s HVAC business, prior to its sale in September 2020, and AmeriGas Propane’s parts and services business. The performance obligations of these businesses include installation, repair and warranty agreements associated with HVAC equipment and installation services provided for combined heat and power and solar panel installations. For installation and repair goods and services, the performance obligations under these contracts are satisfied, and revenue is recognized, as control of the product is transferred or the services are rendered. For warranty services, revenue is recorded ratably over the warranty period. Other LPG revenues from contracts with customers are generated primarily from certain fees AmeriGas Partners and UGI International charge associated with the delivery of LPG, including hazmat safety compliance, inspection, metering, installation, fuel recovery and certain other services. Revenues from fees are typically recorded when the LPG is delivered to the customer or the associated service is completed.
Contract Balances
The timing of revenue recognition may differ from the timing of invoicing to customers or cash receipts. Contract assets represent our right to consideration after the performance obligations have been satisfied when such right is conditioned on something other than the passage of time. Contract assets were not material at September 30, 2020 and 2019. Substantially all of our receivables are unconditional rights to consideration and are included in “Accounts receivable” and, in the case of UGI Utilities, “Accrued utility revenues” on the Consolidated Balance Sheets. Amounts billed are generally due within the following month.
Contract liabilities arise when payment from a customer is received before the performance obligations have been satisfied and represent the Company’s obligations to transfer goods or services to a customer for which we have received consideration. The balances of contract liabilities were $115 and $114 at September 30, 2020 and 2019, respectively, and are primarily included in “Deposits and Advances” on the Consolidated Balance Sheets. Revenue recognized during Fiscal 2020 and Fiscal 2019 from the amount included in contract liabilities at September 30, 2019 and October 1, 2018 was $89 and $91, respectively.
UGI Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Currency in millions, except per share amounts and where indicated otherwise)
Revenue Disaggregation
The following table presents our disaggregated revenues by reportable segment during Fiscal 2020 and Fiscal 2019:
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
2020
|
|
Total
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|
Eliminations
(a)
|
|
AmeriGas Propane
|
|
UGI International
|
|
Midstream & Marketing
|
|
UGI Utilities
|
|
Corporate & Other
|
Revenues from contracts with customers:
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|
|
|
|
|
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|
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|
|
|
|
Utility:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core Market:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
563
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
563
|
|
|
$
|
—
|
|
Commercial & Industrial
|
|
215
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
215
|
|
|
—
|
|
Large delivery service
|
|
142
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|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
142
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|
|
—
|
|
Off-system sales and capacity releases
|
|
48
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|
|
(45)
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|
|
—
|
|
|
—
|
|
|
—
|
|
|
93
|
|
|
—
|
|
Other
|
|
14
|
|
|
(2)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
16
|
|
|
—
|
|
Total Utility
|
|
982
|
|
|
(47)
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|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,029
|
|
|
—
|
|
Non-Utility:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
LPG:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
|
3,499
|
|
|
—
|
|
|
2,037
|
|
|
1,462
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Wholesale
|
|
211
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|
|
—
|
|
|
63
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|
|
148
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|
|
—
|
|
|
—
|
|
|
—
|
|
Energy Marketing
|
|
1,233
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|
|
(79)
|
|
|
—
|
|
|
434
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|
|
878
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|
|
—
|
|
|
—
|
|
Midstream:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pipeline
|
|
168
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|
|
—
|
|
|
—
|
|
|
—
|
|
|
168
|
|
|
—
|
|
|
—
|
|
Peaking
|
|
6
|
|
|
(100)
|
|
|
—
|
|
|
—
|
|
|
106
|
|
|
—
|
|
|
—
|
|
Other
|
|
7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7
|
|
|
—
|
|
|
—
|
|
Electricity Generation
|
|
34
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
34
|
|
|
—
|
|
|
—
|
|
Other
|
|
312
|
|
|
(3)
|
|
|
215
|
|
|
60
|
|
|
40
|
|
|
—
|
|
|
—
|
|
Total Non-Utility
|
|
5,470
|
|
|
(182)
|
|
|
2,315
|
|
|
2,104
|
|
|
1,233
|
|
|
—
|
|
|
—
|
|
Total revenues from contracts with customers
|
|
6,452
|
|
|
(229)
|
|
|
2,315
|
|
|
2,104
|
|
|
1,233
|
|
|
1,029
|
|
|
—
|
|
Other revenues (b)
|
|
107
|
|
|
(3)
|
|
|
66
|
|
|
23
|
|
|
14
|
|
|
1
|
|
|
6
|
|
Total revenues
|
|
$
|
6,559
|
|
|
$
|
(232)
|
|
|
$
|
2,381
|
|
|
$
|
2,127
|
|
|
$
|
1,247
|
|
|
$
|
1,030
|
|
|
$
|
6
|
|
UGI Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Currency in millions, except per share amounts and where indicated otherwise)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
Total
|
|
Eliminations
(a)
|
|
AmeriGas Propane
|
|
UGI International
|
|
Midstream & Marketing
|
|
UGI Utilities
|
|
Corporate & Other
|
Revenues from contracts with customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utility:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core Market:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
553
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
553
|
|
|
$
|
—
|
|
Commercial & Industrial
|
|
226
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
226
|
|
|
—
|
|
Large delivery service
|
|
138
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
138
|
|
|
—
|
|
Off-system sales and capacity releases
|
|
46
|
|
|
(65)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
111
|
|
|
—
|
|
Other (c)
|
|
15
|
|
|
(3)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
18
|
|
|
—
|
|
Total Utility
|
|
978
|
|
|
(68)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,046
|
|
|
—
|
|
Non-Utility:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LPG:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
|
4,008
|
|
|
—
|
|
|
2,341
|
|
|
1,667
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Wholesale
|
|
233
|
|
|
—
|
|
|
64
|
|
|
169
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Energy Marketing
|
|
1,521
|
|
|
(134)
|
|
|
—
|
|
|
448
|
|
|
1,207
|
|
|
—
|
|
|
—
|
|
Midstream:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pipeline
|
|
95
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
95
|
|
|
—
|
|
|
—
|
|
Peaking
|
|
17
|
|
|
(97)
|
|
|
—
|
|
|
—
|
|
|
114
|
|
|
—
|
|
|
—
|
|
Other
|
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
—
|
|
Electricity Generation
|
|
43
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
43
|
|
|
—
|
|
|
—
|
|
Other
|
|
314
|
|
|
(3)
|
|
|
213
|
|
|
55
|
|
|
49
|
|
|
—
|
|
|
—
|
|
Total Non-Utility
|
|
6,233
|
|
|
(234)
|
|
|
2,618
|
|
|
2,339
|
|
|
1,510
|
|
|
—
|
|
|
—
|
|
Total revenues from contracts with customers
|
|
7,211
|
|
|
(302)
|
|
|
2,618
|
|
|
2,339
|
|
|
1,510
|
|
|
1,046
|
|
|
—
|
|
Other revenues (b)
|
|
109
|
|
|
(4)
|
|
|
64
|
|
|
33
|
|
|
6
|
|
|
3
|
|
|
7
|
|
Total revenues
|
|
$
|
7,320
|
|
|
$
|
(306)
|
|
|
$
|
2,682
|
|
|
$
|
2,372
|
|
|
$
|
1,516
|
|
|
$
|
1,049
|
|
|
$
|
7
|
|
(a)Includes intersegment revenues principally among Midstream & Marketing, UGI Utilities and AmeriGas Propane.
(b)Primarily represents revenues from tank rentals at AmeriGas Propane and UGI International, revenues from certain gathering assets at Midstream & Marketing, and gains and losses on commodity derivative instruments not associated with current-period transactions reflected in Corporate & Other, none of which are within the scope of ASC 606 and are accounted for in accordance with other GAAP.
(c)UGI Utilities includes an unallocated negative surcharge revenue reduction of $(6) during Fiscal 2019 as a result of a PAPUC Order issued May 17, 2018, related to the TCJA (see Note 9).
Remaining Performance Obligations
The Company excludes disclosures related to the aggregate amount of the transaction price allocated to certain performance obligations that are unsatisfied as of the end of the reporting period because these contracts have an initial expected term of one year or less, or we have a right to bill the customer in an amount that corresponds directly with the value of services provided to the customer to date. Certain contracts with customers at Midstream & Marketing and UGI Utilities contain minimum future performance obligations through 2047 and 2053, respectively. At September 30, 2020, Midstream & Marketing and UGI Utilities expect to record approximately $1.9 billion and $0.2 billion of revenues, respectively, related to the minimum future performance obligations over the remaining terms of the related contracts.
UGI Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Currency in millions, except per share amounts and where indicated otherwise)
Note 5 — AmeriGas Merger, Acquisitions and Dispositions
AmeriGas Merger
On August 21, 2019, the AmeriGas Merger was completed in accordance with the terms of the Merger Agreement entered into on April 1, 2019. Under the terms of the Merger Agreement, the Partnership was merged with and into Merger Sub, with the Partnership surviving as an indirect wholly owned subsidiary of UGI. Each outstanding Common Unit other than the Common Units owned by UGI was automatically converted at the effective time of the AmeriGas Merger into the right to receive, at the election of each holder of such Common Units, one of the following forms of merger consideration (subject to proration designed to ensure the number of shares of UGI Common Stock issued would equal approximately 34.6 million):
(i)0.6378 shares of UGI Common Stock (the “Share Multiplier”);
(ii)$7.63 in cash, without interest, and 0.500 shares of UGI Common Stock; or
(iii)$35.325 in cash, without interest.
Pursuant to the terms of the Merger Agreement, effective on August 21, 2019, we issued 34,612,847 shares of UGI Common Stock and paid $529 in cash to the holders of Common Units other than UGI, for a total implied consideration of $2,228. In addition, the incentive distribution rights in the Partnership previously owned by the General Partner were canceled. After-tax transaction costs directly attributable to the transaction that were incurred by UGI totaling $8 were recorded as a reduction to UGI stockholders’ equity. Transaction costs incurred by the Partnership totaling $6 are reflected in “Operating and administrative expenses” on the 2019 Consolidated Statement of Income. The tax effects of the AmeriGas Merger resulting from the step-up in tax bases of the underlying assets resulted in the recording of a deferred tax asset in the amount of $512. This deferred tax asset is included in “Deferred income taxes” on the September 30, 2019 Consolidated Balance Sheet.
Effective upon completion of the AmeriGas Merger, Common Units are no longer publicly traded. Also pursuant to the Merger Agreement, Partnership equity-based awards were canceled and replaced with cash-settled restricted stock units relating to UGI Common Stock using the Share Multiplier ratio. For further information on the effects of the AmeriGas Merger on equity-based awards, see Note 14.
The AmeriGas Merger was accounted for in accordance with ASC 810, Consolidation - Overall - Changes in a Parent’s Ownership Interest in a Subsidiary. Because UGI controlled AmeriGas Partners before and after the merger, the changes in UGI’s ownership interest in the Partnership resulting from the merger were accounted for as an equity transaction. Accordingly, no gain or loss was recognized in UGI’s consolidated income statement and the carrying amounts of the Partnership’s assets and liabilities were not adjusted. The tax effects of the AmeriGas Merger were reported as adjustments to deferred income taxes and UGI stockholders’ equity. For additional information on the tax effects of the AmeriGas Merger, see Note 7.
CMG Acquisition
On August 1, 2019, UGI through its wholly owned indirect subsidiary, Energy Services, completed the CMG Acquisition in which Energy Services acquired all of the equity interests in CMG and CMG’s approximately 47% interest in Pennant, for total cash consideration of $1,284. The CMG Acquisition was consummated pursuant to the CMG Acquisition Agreements. CMG and Pennant provide natural gas gathering and processing services through five discrete systems located in western Pennsylvania, eastern Ohio and the panhandle of West Virginia. The CMG Acquisition is consistent with our growth strategies, including expanding our midstream natural gas gathering and processing assets within the Marcellus and Utica Shale production regions. The CMG Acquisition was funded with cash from borrowings under the Energy Services Term Loan and the UGI Corporation Senior Credit Facility and cash on hand. We refer to CMG and its equity interest in Pennant as “UGI Appalachia.”
UGI Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Currency in millions, except per share amounts and where indicated otherwise)
The Company has accounted for the CMG Acquisition using the acquisition method. The components of the final CMG purchase price allocations are as follows:
|
|
|
|
|
|
Assets acquired:
|
|
|
|
Accounts receivable
|
$
|
10
|
|
Prepaid expenses and other current assets
|
1
|
|
|
|
Property, plant and equipment
|
614
|
|
Investment in Pennant
|
88
|
|
Intangible assets (a)
|
250
|
|
|
|
Total assets acquired
|
$
|
963
|
|
|
|
Liabilities assumed:
|
|
Accounts payable
|
$
|
3
|
|
|
|
|
|
|
|
Total liabilities assumed
|
3
|
|
Goodwill
|
324
|
|
Net consideration transferred (including working capital adjustments)
|
$
|
1,284
|
|
(a)Represents customer relationships having an average amortization period of 35 years.
We allocated the purchase price of the acquisition to identifiable intangible assets and property, plant and equipment based on estimated fair values as follows:
•Customer relationships were valued using a multi-period, excess earnings method. Key assumptions used in this method include discount rates, growth rates and cash flow projections. These assumptions are most sensitive and susceptible to change as they require significant management judgment; and
•Property, plant and equipment were valued based on estimated fair values primarily using depreciated replacement cost and market value methods.
The excess of the purchase price for the CMG Acquisition over the fair values of the assets acquired and liabilities assumed has been reflected as goodwill, assigned to the Midstream & Marketing reportable segment, and results principally from anticipated future capital investment opportunities and value creation resulting from new natural gas processing assets in the Marcellus and Utica Shale production regions. The goodwill recognized from the CMG Acquisition is deductible for income tax purposes.
The Company recognized $15 of direct transaction-related costs associated with the CMG Acquisition during Fiscal 2019, which costs are reflected in “Operating and administrative expenses” on the 2019 Consolidated Statement of Income. The CMG Acquisition did not have a material impact on the Company’s revenues or net income attributable to UGI for Fiscal 2019. In addition, the impact of the CMG Acquisition on a pro forma basis as if the CMG Acquisition had occurred on October 1, 2017 was not material to the Company’s revenues or net income for Fiscal 2019 and Fiscal 2018.
Other Acquisitions
As previously mentioned, in July 2020, Energy Services acquired GHI, a Houston, Texas-based renewable natural gas company currently doing business in California. During Fiscal 2019, UGI International acquired several retail LPG distribution businesses, and Midstream & Marketing acquired a natural gas marketing business. During Fiscal 2018, UGI International acquired UniverGas, an LPG distribution business with operations in northern and central regions of Italy, and AmeriGas Propane acquired two retail propane distribution businesses.
UGI Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Currency in millions, except per share amounts and where indicated otherwise)
Total cash paid and liabilities incurred in connection with these acquisitions were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
Midstream & Marketing
|
|
UGI International
|
|
Midstream & Marketing
|
|
AmeriGas Propane
|
|
UGI International
|
Total cash paid
|
|
|
|
$
|
16
|
|
|
$
|
49
|
|
|
$
|
15
|
|
|
$
|
10
|
|
|
$
|
122
|
|
Liabilities incurred
|
|
|
|
7
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|
—
|
|
Total purchase price
|
|
|
|
$
|
23
|
|
|
$
|
49
|
|
|
$
|
15
|
|
|
$
|
13
|
|
|
$
|
122
|
|
Acquisitions of Assets
During Fiscal 2019, Midstream & Marketing acquired 21 miles of natural gas gathering lines and related dehydration and compression equipment located in northern Pennsylvania for cash consideration of $20. During Fiscal 2018, Midstream & Marketing acquired (1) 60 miles of natural gas gathering lines and related dehydration and compression equipment, and a smaller natural gas gathering system, both located in northern Pennsylvania and (2) a 44-megawatt, natural gas-fired peaking turbine located on its Hunlock Station site in northeast Pennsylvania, for total cash consideration of $70.
Disposals of Conemaugh and HVAC
Conemaugh. In July 2020, Energy Services, through a wholly owned subsidiary, entered into an agreement to sell its approximate 5.97% ownership interest in Conemaugh. As a result, the Company reduced the carrying amount of these assets to their fair values during the third quarter of Fiscal 2020. The fair value of such assets was based upon the agreed upon sales price, and was determined to be a Level 2 measurement within the fair value hierarchy. During the third quarter of Fiscal 2020, we recognized a non-cash, pre-tax impairment charge of $52 which amount is reflected in “Loss on disposals of Conemaugh and HVAC” on the 2020 Consolidated Statement of Income. The sale was completed on September 30, 2020.
HVAC. In September 2020, Enterprises entered into an agreement to sell the HVAC business. As a result, the Company reduced the carrying amount of these assets to their fair values during the fourth quarter of Fiscal 2020. The fair value of such assets was based upon the agreed upon sales price, and was determined to be a Level 2 measurement within the fair value hierarchy. During the fourth quarter of Fiscal 2020, we recognized a non-cash, pre-tax loss on disposal of $2 which amount is reflected in “Loss on disposals of Conemaugh and HVAC” on the 2020 Consolidated Statement of Income. The sale was completed on September 30, 2020.
Note 6 — Debt
Significant Financing Activities during Fiscal 2020
Energy Services. On March 6, 2020, Energy Services entered into the Energy Services 2020 Credit Agreement, as borrower, with a group of lenders. The Energy Services 2020 Credit Agreement amends and restates the Energy Services Credit Agreement. The Energy Services 2020 Credit Agreement provides for borrowings up to $260, including a $50 sublimit for letters of credit. Energy Services may request an increase in the amount of loan commitments under the Energy Services 2020 Credit Agreement to a maximum aggregate amount of $325, subject to certain terms and conditions. Borrowings under the Energy Services 2020 Credit Agreement can be used to fund acquisitions and investments and for general corporate purposes. The Energy Services 2020 Credit Agreement is scheduled to expire in March 2025.
Borrowings under the Energy Services 2020 Credit Agreement bear interest at either (i) the Alternate Base Rate plus a margin or (ii) the Adjusted LIBOR plus a margin. The Alternate Base Rate, as defined, is the highest of (a) the prime rate, (b) the federal funds rate plus 0.50%, and (c) the Adjusted LIBOR for a one-month interest period plus 1% but in no event shall the Alternative Base Rate be less than 1%. The margins on borrowings ranges from 0.75% to 2.75% and are dependent upon Energy Services’ ratio of Consolidated Total Indebtedness to Consolidated EBITDA, as defined. The initial margin on the Alternate Base Rate and Adjusted LIBOR on borrowings under the Energy Services 2020 Credit Agreement were 1.50% and 2.50%, respectively. The Energy Services 2020 Credit Agreement includes customary provisions with respect to the replacement of LIBOR.
UGI Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Currency in millions, except per share amounts and where indicated otherwise)
UGI Utilities. On April 16, 2020, UGI Utilities issued in a private placement $150 of UGI Utilities 3.12% Senior Notes due April 16, 2050 pursuant to a Note Purchase Agreement dated March 19, 2020, between UGI Utilities and certain note purchasers. The UGI Utilities 3.12% Senior Notes are unsecured and rank equally with UGI Utilities’ existing outstanding senior debt. The net proceeds from the issuance of the UGI Utilities 3.12% Senior Notes were used to reduce short-term borrowings and for general corporate purposes.
Credit Facilities and Short-term Borrowings
Information about the Company’s principal credit agreements (excluding the Energy Services Receivables Facility, which is discussed below) as of September 30, 2020 and 2019, is presented in the following table. Borrowings on these credit agreements bear interest at rates indexed to short-term market rates. Borrowings outstanding under these agreements (other than the UGI Corporation Senior Credit Facility) are classified as “Short-term borrowings” on the Consolidated Balance Sheets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expiration Date
|
|
Total Capacity
|
|
Borrowings Outstanding
|
|
Letters of Credit and Guarantees Outstanding
|
|
Available Borrowing Capacity
|
|
Weighted Average Interest Rate - End of Year
|
September 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
AmeriGas OLP (a)
|
|
December 2022
|
|
$
|
600
|
|
|
$
|
186
|
|
|
$
|
62
|
|
|
$
|
352
|
|
|
2.61
|
%
|
UGI International, LLC (b)
|
|
October 2023
|
|
€
|
300
|
|
|
€
|
—
|
|
|
€
|
—
|
|
|
€
|
300
|
|
|
N.A.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy Services (c)
|
|
March 2025
|
|
$
|
260
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
260
|
|
|
N.A.
|
UGI Utilities (d)
|
|
June 2024
|
|
$
|
350
|
|
|
$
|
141
|
|
|
$
|
—
|
|
|
$
|
209
|
|
|
1.12
|
%
|
UGI Corporation (e)
|
|
August 2024
|
|
$
|
300
|
|
|
$
|
300
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
2.41
|
%
|
September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
AmeriGas OLP (a)
|
|
December 2022
|
|
$
|
600
|
|
|
$
|
328
|
|
|
$
|
63
|
|
|
$
|
209
|
|
|
4.50
|
%
|
UGI International, LLC (b)
|
|
October 2023
|
|
€
|
300
|
|
|
€
|
193
|
|
|
€
|
—
|
|
|
€
|
107
|
|
|
3.64
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy Services (c)
|
|
March 2021
|
|
$
|
200
|
|
|
$
|
45
|
|
|
$
|
—
|
|
|
$
|
155
|
|
|
6.25
|
%
|
UGI Utilities (d)
|
|
June 2024
|
|
$
|
350
|
|
|
$
|
166
|
|
|
$
|
—
|
|
|
$
|
184
|
|
|
3.00
|
%
|
UGI Corporation (e)
|
|
August 2024
|
|
$
|
300
|
|
|
$
|
300
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
4.55
|
%
|
(a)The AmeriGas OLP Credit Agreement includes a $150 sublimit for letters of credit
(b)The UGI International Credit Facilities Agreement permits UGI International, LLC to borrow in euros or dollars. UGI International repaid all borrowings outstanding on this facility in September 2020. At September 30, 2019, the amount outstanding consisted of USD-denominated borrowings of $210.
(c)The Energy Services 2020 Credit Agreement includes a $50 sublimit for letters of credit and is guaranteed by certain subsidiaries of Energy Services. This credit agreement is collateralized by substantially all of the assets of Energy Services, subject to certain exceptions and carveouts including, but not limited to, accounts receivables and certain real property.
(d)UGI Utilities Credit Agreement includes a $100 sublimit for letters of credit.
(e)At September 30, 2020 and 2019, management intended to maintain a substantial portion of amounts outstanding under the UGI Corporation Senior Credit Facility beyond twelve months from the respective balance sheet dates. As such, borrowings outstanding are classified as “Long-term debt” on the Consolidated Balance Sheets. In October 2020, the Company repaid $30 of such borrowings and classified these repayments as “Current maturities of long-term debt” on the 2020 Consolidated Balance Sheet. The UGI Corporation Senior Credit Facility includes a $10 sublimit for letters of credit.
Energy Services Receivables Facility. Energy Services has a Receivables Facility with an issuer of receivables-backed commercial paper currently scheduled to expire in October 2021. The Receivables Facility, as amended, provides Energy Services with the ability to borrow up to $150 of eligible receivables during the period November to April, and up to $75 of eligible receivables during the period May to October. Energy Services uses the Receivables Facility to fund working capital, margin calls under commodity futures contracts, capital expenditures, dividends and for general corporate purposes.
Under the Receivables Facility, Energy Services transfers, on an ongoing basis and without recourse, its trade accounts receivable to its wholly owned, special purpose subsidiary, ESFC, which is consolidated for financial statement purposes. ESFC, in turn, has sold and, subject to certain conditions, may from time to time sell, an undivided interest in some or all of the receivables to a major bank. Amounts sold to the bank are reflected as “Short-term borrowings” on the Consolidated Balance
UGI Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Currency in millions, except per share amounts and where indicated otherwise)
Sheets. ESFC was created and has been structured to isolate its assets from creditors of Energy Services and its affiliates, including UGI. Trade receivables sold to the bank remain on the Company’s balance sheet and the Company reflects a liability equal to the amount advanced by the bank. The Company records interest expense on amounts owed to the bank. Energy Services continues to service, administer and collect trade receivables on behalf of the bank, as applicable.
Information regarding the amounts of trade receivables transferred to ESFC and the amounts sold to the bank are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Trade receivables transferred to ESFC during the year
|
|
$
|
1,046
|
|
|
$
|
1,373
|
|
|
$
|
1,280
|
|
ESFC trade receivables sold to the bank during the year
|
|
$
|
182
|
|
|
$
|
179
|
|
|
$
|
193
|
|
ESFC trade receivables - end of year (a)
|
|
$
|
50
|
|
|
$
|
55
|
|
|
$
|
65
|
|
(a)At September 30, 2020 and 2019, the amounts of ESFC trade receivables sold to the bank were $19 and $46, respectively, and are reflected as “Short-term borrowings” on the Consolidated Balance Sheets.
UGI Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Currency in millions, except per share amounts and where indicated otherwise)
Long-term Debt
Long-term debt comprises the following at September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
AmeriGas Propane:
|
|
|
|
AmeriGas Partners Senior Notes:
|
|
|
|
5.50% due May 2025
|
$
|
700
|
|
|
$
|
700
|
|
5.875% due August 2026
|
675
|
|
|
675
|
|
5.625% due May 2024
|
675
|
|
|
675
|
|
5.75% due May 2027
|
525
|
|
|
525
|
|
|
|
|
|
Other (a)
|
5
|
|
|
14
|
|
Unamortized debt issuance costs
|
(20)
|
|
|
(24)
|
|
Total AmeriGas Propane
|
2,560
|
|
|
2,565
|
|
UGI International:
|
|
|
|
3.25% Senior Notes due November 2025
|
410
|
|
|
382
|
|
UGI International, LLC variable-rate term loan due October 2023 (b)
|
352
|
|
|
327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
23
|
|
|
18
|
|
Unamortized debt issuance costs
|
(7)
|
|
|
(8)
|
|
Total UGI International
|
778
|
|
|
719
|
|
Midstream & Marketing:
|
|
|
|
Energy Services variable-rate term loan due through August 2026 (c)
|
691
|
|
|
698
|
|
Other (d)
|
41
|
|
|
1
|
|
Unamortized discount and debt issuance costs
|
(12)
|
|
|
(12)
|
|
Total Energy Services
|
720
|
|
|
687
|
|
UGI Utilities:
|
|
|
|
Senior Notes:
|
|
|
|
4.12%, due September 2046
|
200
|
|
|
200
|
|
4.98%, due March 2044
|
175
|
|
|
175
|
|
3.12% due April 2050
|
150
|
|
|
—
|
|
4.55%, due February 2049
|
150
|
|
|
150
|
|
4.12%, due October 2046
|
100
|
|
|
100
|
|
6.21%, due September 2036
|
100
|
|
|
100
|
|
2.95%, due June 2026
|
100
|
|
|
100
|
|
Medium-Term Notes:
|
|
|
|
6.13%, due October 2034
|
20
|
|
|
20
|
|
6.50%, due August 2033
|
20
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable-rate term loan due through October 2022 (e)
|
108
|
|
|
114
|
|
Other
|
3
|
|
|
5
|
|
Unamortized debt issuance costs
|
(5)
|
|
|
(5)
|
|
Total UGI Utilities
|
1,121
|
|
|
979
|
|
UGI Corporation:
|
|
|
|
UGI Corporation revolving credit facility maturing August 2024 (f)
|
300
|
|
|
300
|
|
UGI Corporation variable-rate term loan due August 2022 (g)
|
300
|
|
|
300
|
|
UGI Corporation variable-rate term loan due through August 2024 (h)
|
250
|
|
|
250
|
|
Unamortized debt issuance costs
|
(3)
|
|
|
(4)
|
|
Total UGI Corporation
|
847
|
|
|
846
|
|
Other
|
8
|
|
|
8
|
|
Total long-term debt
|
6,034
|
|
|
5,804
|
|
Less: current maturities
|
(53)
|
|
|
(24)
|
|
Total long-term debt due after one year
|
$
|
5,981
|
|
|
$
|
5,780
|
|
(a)At September 30, 2019, such amount includes Heritage Operating, L.P. Senior Secured Notes. The effective interest rate on the Heritage Operating, L.P. Senior Secured Notes was 6.75%. These notes were collateralized by AmeriGas OLP’s receivables, contracts, equipment, inventory, general intangibles and cash.
(b)The effective interest rate on the term loan was 2.04% at both September 30, 2020 and 2019. We have entered into pay fixed, receive variable interest rate swaps to effectively fix the underlying variable rate on these borrowings.
UGI Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Currency in millions, except per share amounts and where indicated otherwise)
(c)At September 30, 2020 and 2019, the effective interest rates on the term loan were 5.30% and 5.79%, respectively. This term loan is collateralized by substantially all of the assets of Energy Services, subject to certain exceptions and carveouts including, but not limited to, accounts receivable and certain real property. We have entered into a pay-fixed, receive variable interest rate swap to effectively fix the underlying variable rate on these borrowings. Term loan borrowings are due in equal quarterly installments of $2, with the balance of the principal being due in full at maturity. Under certain circumstances, Energy Services is required to make additional principal payments if the consolidated total leverage ratio, as defined, is greater than defined thresholds.
(d)Amounts include finance lease liabilities recognized as a result of the adoption of ASU No. 2016-02. For additional information, see Note 2 and Note 16 to the Consolidated Financial Statements.
(e)At September 30, 2020 and 2019, the effective interest rates on this term loan were 4.00% and 3.05%, respectively. We have entered into a pay-fixed, receive variable interest rate swap to effectively fix the underlying variable rate on these borrowings. Term loan borrowings are due in equal quarterly installments of $2, with the balance of the principal being due in full at maturity.
(f)At September 30, 2020 and 2019, the effective interest rates on credit facility borrowings were 2.41% and 4.55%, respectively. We have entered into pay-fixed, receive variable interest rate swaps to effectively fix the underlying variable rate on a portion of these borrowings.
(g)At September 30, 2020 and 2019, the effective interest rate on this term loan 3.51% and 4.30%, respectively. We have entered into pay-fixed, receive variable interest rate swaps to effectively fix the underlying variable rate on these borrowings.
(h)At September 30, 2020 and 2019, the effective interest rates on this term loan were 3.50% and 4.55%, respectively. We have entered into pay-fixed, receive variable interest rate swaps to effectively fix the underlying variable rate on a portion of these borrowings. Term loan borrowings are due in equal quarterly installments of $9, commencing December 2022, with the balance of the principal being due in full at maturity.
Scheduled principal repayments of long-term debt for each of the next five fiscal years ending September 30 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2022
|
|
2023
|
|
2024
|
|
2025
|
AmeriGas Propane
|
$
|
3
|
|
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
675
|
|
|
$
|
700
|
|
UGI International
|
1
|
|
|
22
|
|
|
—
|
|
|
352
|
|
|
—
|
|
Midstream & Marketing
|
10
|
|
|
7
|
|
|
7
|
|
|
7
|
|
|
7
|
|
UGI Utilities
|
8
|
|
|
7
|
|
|
96
|
|
|
—
|
|
|
—
|
|
UGI Corporation (a)
|
30
|
|
|
300
|
|
|
38
|
|
|
482
|
|
|
—
|
|
Other
|
1
|
|
|
1
|
|
|
6
|
|
|
—
|
|
|
—
|
|
Total
|
$
|
53
|
|
|
$
|
339
|
|
|
$
|
147
|
|
|
$
|
1,516
|
|
|
$
|
707
|
|
(a)In October 2020, the Company repaid $30 of such borrowings and has classified these repayments as “Current maturities of long-term debt” on the 2020 Consolidated Balance Sheet.
Restrictive Covenants
Our long-term debt and credit facility agreements generally contain customary covenants and default provisions which may include, among other things, restrictions on the incurrence of additional indebtedness and also restrict liens, guarantees, investments, loans and advances, payments, mergers, consolidations, asset transfers, transactions with affiliates, sales of assets, acquisitions and other transactions.
AmeriGas Propane. The AmeriGas Propane OLP Credit Agreement requires that AmeriGas OLP and AmeriGas Partners maintain ratios of total indebtedness to EBITDA, as defined, below certain thresholds. In addition, the Partnership must maintain a minimum ratio of EBITDA to interest expense, as defined and as calculated on a rolling four-quarter basis. Generally, as long as no default exists or would result therefrom, AmeriGas OLP is permitted to make cash distributions not more frequently than quarterly in an amount not to exceed available cash, as defined, for the immediately preceding calendar quarter.
Under the AmeriGas Partners Senior Notes Indentures, AmeriGas Partners is generally permitted to make cash distributions equal to available cash, as defined, as of the end of the immediately preceding quarter, if certain conditions are met. At September 30, 2020, these restrictions did not limit the amount of Available Cash. See Note 15 for the definition of Available Cash included in the Partnership Agreement.
UGI Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Currency in millions, except per share amounts and where indicated otherwise)
UGI International. The UGI International Credit Facilities Agreement requires UGI International not to exceed a ratio of consolidated total net indebtedness to consolidated EBITDA, as defined, of 3.85 to 1.00.
Energy Services. The Energy Services Term Loan requires that Energy Services and subsidiaries maintain a minimum ratio of consolidated EBITDA to debt service, as defined, of 1.10 to 1.00.
The Energy Services 2020 Credit Agreement requires Energy Services and subsidiaries not to exceed a ratio of total indebtedness to EBITDA, as defined, of 4.00 to 1.00 and maintain a minimum ratio of Consolidated EBITDA to Consolidated Interest Expense, as defined and as calculated on a quarterly basis, of 3.50 to 1.00.
UGI Utilities. The UGI Utilities Credit Agreement, certain of UGI Utilities’ Senior Notes and the Utilities Term Loan require UGI Utilities not to exceed a ratio of consolidated debt to consolidated total capital, as defined, of 0.65 to 1.00.
UGI Corporation. The UGI Corporation Senior Credit Facility requires that UGI maintain a ratio of consolidated EBITDA to consolidated interest expense, as defined and as calculated on a rolling four-quarter basis, above 3.50 to 1.00. In addition, UGI may not exceed a ratio of consolidated net indebtedness to consolidated EBITDA, as defined and as calculated on a rolling four-quarter basis, of 4.50 to 1.00 (declining over time to 4.00 to 1.00).
Restricted Net Assets
At September 30, 2020, the amount of net assets of UGI’s consolidated subsidiaries that were restricted from transfer to UGI under debt agreements, subsidiary partnership agreements and regulatory requirements under foreign laws totaled approximately $2,200.
Note 7 — Income Taxes
Income before income taxes comprises the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Domestic
|
$
|
424
|
|
|
$
|
330
|
|
|
$
|
576
|
|
Foreign
|
243
|
|
|
71
|
|
|
279
|
|
Total income before income taxes
|
$
|
667
|
|
|
$
|
401
|
|
|
$
|
855
|
|
The provisions for income taxes consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Current expense (benefit):
|
|
|
|
|
|
Federal
|
$
|
(85)
|
|
|
$
|
52
|
|
|
$
|
(2)
|
|
State
|
4
|
|
|
14
|
|
|
26
|
|
Foreign
|
70
|
|
|
70
|
|
|
78
|
|
|
|
|
|
|
|
Total current (benefit) expense
|
(11)
|
|
|
136
|
|
|
102
|
|
Deferred expense (benefit):
|
|
|
|
|
|
Federal
|
135
|
|
|
3
|
|
|
(78)
|
|
State
|
19
|
|
|
4
|
|
|
7
|
|
Foreign
|
(8)
|
|
|
(50)
|
|
|
2
|
|
|
|
|
|
|
|
Total deferred expense (benefit)
|
146
|
|
|
(43)
|
|
|
(69)
|
|
Total income tax expense
|
$
|
135
|
|
|
$
|
93
|
|
|
$
|
33
|
|
Federal income taxes for Fiscal 2019 and Fiscal 2018 are net of foreign tax credits of $10 and $13, respectively. There were no foreign tax credits utilized in Fiscal 2020.
UGI Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Currency in millions, except per share amounts and where indicated otherwise)
A reconciliation from the U.S. federal statutory tax rate to our effective tax rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
U.S. federal statutory tax rate
|
21.0
|
%
|
|
21.0
|
%
|
|
24.5
|
%
|
Difference in tax rate due to:
|
|
|
|
|
|
Effect of U.S. tax legislation
|
(4.7)
|
|
|
0.2
|
|
|
(20.9)
|
|
Effect of tax rate changes - International
|
0.3
|
|
|
(0.5)
|
|
|
(2.1)
|
|
Noncontrolling interests not subject to tax
|
—
|
|
|
(2.7)
|
|
|
(3.0)
|
|
State income taxes, net of federal benefit
|
2.8
|
|
|
3.6
|
|
|
2.9
|
|
Valuation allowance adjustments
|
—
|
|
|
—
|
|
|
1.1
|
|
Effects of foreign operations
|
1.3
|
|
|
1.8
|
|
|
3.1
|
|
|
|
|
|
|
|
Excess tax benefits on share-based payments
|
(0.2)
|
|
|
(1.0)
|
|
|
(1.1)
|
|
Other, net
|
(0.3)
|
|
|
0.7
|
|
|
(0.7)
|
|
Effective tax rate
|
20.2
|
%
|
|
23.1
|
%
|
|
3.8
|
%
|
On March 27, 2020 the CARES Act was enacted into law. The primary impact of the legislation was the change in federal net operating loss carryback rules which allowed the Company’s U.S. federal tax loss generated in Fiscal 2020 to be carried back to Fiscal 2015. The carryback of our Fiscal 2020 U.S. federal tax loss in a 21% rate environment to offset taxable income in Fiscal 2015 in a 35% rate environment generated an incremental $32 benefit in the current year. The expected $80 refund is included in “Income taxes receivable” on the 2020 Consolidated Balance Sheet. On July 20, 2020 the Treasury Department issued final regulations under IRC Section 951A permitting a taxpayer to elect to exclude from its inclusion of GILTI items of income subject to a high effective rate of foreign tax. The impact of these final regulations reduced U.S. tax of foreign source income in Fiscal 2020.
On December 22, 2017, the TCJA was enacted into law. Among the significant changes resulting from the law, the TCJA reduced the U.S. federal income tax rate from 35% to 21%, effective January 1, 2018, created a territorial tax system with a one-time mandatory “toll tax” on previously un-repatriated foreign earnings, and allowed for immediate capital expensing of certain qualified property. It also applied restrictions on the deductibility of interest expense, eliminated bonus depreciation for regulated utilities and certain FERC-regulated property beginning in Fiscal 2019 and applied a broader application of compensation limitations.
As a result of the TCJA, we reduced our net deferred income tax liabilities in Fiscal 2018 by $384 due to the remeasuring of our existing federal deferred income tax assets and liabilities as of the date of the enactment of the TCJA on December 22, 2017. Because most of the reduction to UGI Utilities’ net deferred income taxes related to regulated utility plant assets, most of UGI Utilities’ reduction in deferred income taxes was not recognized immediately in income tax expense.
In accordance with GAAP as determined by ASC 740, we are required to record the effects of tax law changes in the period enacted. Our results for Fiscal 2018 contained provisional estimates of the impact of the TCJA as such amounts used estimates for tax returns that had not yet been filed and because estimated amounts could have been impacted by future regulatory and accounting guidance if and when issued. As permitted by SEC Staff Bulletin No. 118, adjustments to provisional amounts recorded in prior periods were made during Fiscal 2019 and were not material.
In Fiscal 2018, we were subject to a blended federal tax rate of 24.5% because our fiscal year contained the effective date of the rate change from 35% to 21%. The effects of the tax law changes on Fiscal 2018 results (excluding the remeasurement impact described above) decreased income tax by $52.
In Fiscal 2018, earnings of the Company’s foreign subsidiaries were generally subject to U.S. taxation upon repatriation to the U.S. and the Company’s tax provisions reflected the related incremental U.S. tax except for certain foreign subsidiaries whose unremitted earnings were considered to be indefinitely reinvested. No deferred tax liability had been recognized with regard to remittance of those earnings because of the availability of U.S. foreign tax credits made it likely that no U.S. tax would be due if such earnings were repatriated. Upon enactment of the TCJA, substantially all prior unrepatriated earnings were subjected to U.S. tax under the transition tax rules. The transition tax was immaterial to the Company and we generally expect to have the ability to repatriate prior unrepatriated earnings without material U.S. federal tax cost.
UGI Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Currency in millions, except per share amounts and where indicated otherwise)
Our Fiscal 2020 and Fiscal 2019 effective tax rate was subject to the impact of changes to the taxation of foreign source income made by the TCJA and the high tax exception regulations issued in July 2020. Fiscal 2020 and Fiscal 2019 tax expense includes $2 and $4, respectively, of GILTI and Branch taxes that are treated as current period costs and carry no related deferred taxes.
Pennsylvania utility ratemaking practice permits the flow through to ratepayers of state tax benefits resulting from accelerated tax depreciation. For Fiscal 2020, Fiscal 2019 and Fiscal 2018, the beneficial effects of state tax flow through of accelerated depreciation reduced income tax expense by $11, $7 and $4, respectively.
Deferred tax liabilities (assets) comprise the following at September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
Excess book basis over tax basis of property, plant and equipment
|
$
|
830
|
|
|
$
|
805
|
|
|
|
|
|
Utility regulatory assets
|
112
|
|
|
108
|
|
Intangible assets and goodwill
|
107
|
|
|
71
|
|
|
|
|
|
|
|
|
|
Other
|
32
|
|
|
7
|
|
Gross deferred tax liabilities
|
1,081
|
|
|
991
|
|
|
|
|
|
Investment in AmeriGas Partners
|
(216)
|
|
|
(304)
|
|
Pension plan liabilities
|
(48)
|
|
|
(50)
|
|
Employee-related benefits
|
(46)
|
|
|
(44)
|
|
Operating loss carryforwards
|
(34)
|
|
|
(21)
|
|
Foreign tax credit carryforwards
|
(81)
|
|
|
(81)
|
|
Utility regulatory liabilities
|
(94)
|
|
|
(94)
|
|
|
|
|
|
Derivative instruments
|
(26)
|
|
|
(15)
|
|
Utility environmental liabilities
|
(16)
|
|
|
(15)
|
|
Other
|
(54)
|
|
|
(34)
|
|
Gross deferred tax assets
|
(615)
|
|
|
(658)
|
|
Deferred tax assets valuation allowance
|
105
|
|
|
91
|
|
Net deferred tax liabilities
|
$
|
571
|
|
|
$
|
424
|
|
As a result of the AmeriGas Merger in Fiscal 2019, we acquired all of the equity interests of AmeriGas Partners. In exchange for the interest acquired from the public, we issued stock and paid cash having a total implied fair value of $2,228. The transaction represents a taxable exchange for which we received a step-up in the tax basis in the underlying assets acquired. A gross deferred tax asset of $2,030 related to the book tax basis difference in this investment was recorded in Fiscal 2019 through equity in accordance with ASC 810. We evaluated the realizability of the resulting net deferred tax asset position of $512 assessing the available positive and negative evidence. As the taxable temporary differences of the Partnership’s tax depreciation in excess of book depreciation reverses, the associated deferred taxes are expected to be fully realized.
In December 2017, the French Parliament approved the December 2017 French Finance Bills. One impact of the December 2017 French Finance Bills was an increase in the Fiscal 2018 corporate income tax rate in France from 34.4% to 39.4%. The December 2017 French Finance Bills also included measures to gradually reduce the corporate income tax rate to 25.8%, effective for fiscal years starting after January 1, 2022 (Fiscal 2023). In July 2019, the French Parliament enacted legislation retroactively increasing the corporate income tax rate for tax years beginning in 2019 that had previously been reduced by the December 2017 French Finance Bills. As a result, the Fiscal 2020 tax rate remained at 34.43% for Fiscal 2019. The impact on deferred income tax liabilities increased income tax expense by $2 during Fiscal 2019. In December 2019, the French Parliament enacted additional legislation revising the rates enacted for Fiscal 2021 and Fiscal 2022, but retained the corporate income tax rate of 25.8%, effective for fiscal years starting after January 1, 2022 (Fiscal 2023). The impact on deferred income tax liabilities was not material during Fiscal 2020.
As a result of the December 2017 French Finance Bills, during Fiscal 2018, the Company reduced its net French deferred income tax liabilities and recognized an estimated deferred tax benefit of $12 to reflect the estimated impact of the corporate income tax rate reductions that will be implemented through Fiscal 2023. The Company’s Fiscal 2018 effective income tax rate
UGI Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Currency in millions, except per share amounts and where indicated otherwise)
reflects the impact of the higher Fiscal 2018 income tax rate in France as a result of the December 2017 French Finance Bills, which increased income tax expense for the year by approximately $1.
At September 30, 2020, foreign net operating loss carryforwards principally relating to Flaga and certain subsidiaries of UGI France totaled $11 and $14, respectively, with no expiration dates. We have state net operating loss carryforwards primarily relating to certain subsidiaries that approximate $393 and expire through 2040. We also have federal operating loss carryforwards of $12 for certain operations of AmeriGas Propane that expire through 2036. At September 30, 2020, deferred tax assets relating to operating loss carryforwards include $2 for Flaga, $5 for certain subsidiaries of UGI France, $2 for AmeriGas Propane and $25 for certain other subsidiaries.
Valuation allowances against deferred tax assets exist for foreign tax credit carryforwards, net operating loss carryforwards of foreign subsidiaries and a notional interest deduction. The valuation allowance for all deferred tax assets increased by $14 in Fiscal 2020 largely related to a $16 increase in a notional interest deduction carryover.
The valuation allowance for deferred tax assets decreased by $26 in Fiscal 2019 consisting primarily of the release of $25 of valuation allowances on foreign tax credits that expired in Fiscal 2019.
We conduct business and file tax returns in the U.S., numerous states, local jurisdictions and in France and certain other European countries. Our U.S. federal income tax returns are settled through the 2017 tax year, our French tax returns are settled through the 2016 tax year, our Austrian tax returns are settled through 2016 and our other European tax returns are effectively settled for various years from 2012 to 2016. State and other income tax returns in the U.S. are generally subject to examination for a period of three to five years after the filing of the respective returns.
As of September 30, 2020, we have unrecognized income tax benefits totaling $4 including related accrued interest. If these unrecognized tax benefits were subsequently recognized, $4 would be recorded as a benefit to income taxes on the Consolidated Statement of Income and, therefore, would impact the reported effective tax rate. Generally, a net reduction in unrecognized tax benefits could occur because of the expiration of the statute of limitations in certain jurisdictions or as a result of settlements with tax authorities. The expected change in unrecognized tax benefits and related interest in the next twelve months as the result of the expiration of certain statutes of limitation is not material.
A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Unrecognized tax benefits — beginning of year
|
$
|
11
|
|
|
$
|
12
|
|
|
$
|
12
|
|
Additions for tax positions of the current year
|
2
|
|
|
1
|
|
|
2
|
|
Additions for tax positions taken in prior years
|
—
|
|
|
—
|
|
|
1
|
|
Settlements with tax authorities/statute lapses
|
(9)
|
|
|
(2)
|
|
|
(3)
|
|
Unrecognized tax benefits — end of year
|
$
|
4
|
|
|
$
|
11
|
|
|
$
|
12
|
|
Note 8 — Employee Retirement Plans
Defined Benefit Pension and Other Postretirement Plans
The U.S. Pension Plan is a defined benefit pension plan for employees hired prior to January 1, 2009, of UGI, UGI Utilities, and certain of UGI’s other domestic wholly owned subsidiaries. U.S. Pension Plan benefits are based on years of service, age and employee compensation.
We also provide postretirement health care benefits to certain retirees and postretirement life insurance benefits to certain U.S. active and retired employees. In addition, certain UGI International employees in France and Belgium are covered by defined benefit pension and postretirement plans. Although the disclosures in the tables below include amounts related to the UGI International plans, such amounts are not material.
The following table provides a reconciliation of the PBOs of our pension plans (the U.S. Pension Plan and the UGI International pension plans), the ABOs of our other postretirement benefit plans, plan assets, and the funded status of pension and other postretirement plans as of September 30, 2020 and 2019. ABO is the present value of benefits earned to date with benefits based upon current compensation levels. PBO is ABO increased to reflect estimated future compensation.
UGI Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Currency in millions, except per share amounts and where indicated otherwise)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
Benefits
|
|
Other Postretirement
Benefits
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Change in benefit obligations:
|
|
|
|
|
|
|
|
Benefit obligations — beginning of year
|
$
|
750
|
|
|
$
|
669
|
|
|
$
|
23
|
|
|
$
|
19
|
|
Service cost
|
11
|
|
|
10
|
|
|
—
|
|
|
—
|
|
Interest cost
|
23
|
|
|
27
|
|
|
1
|
|
|
1
|
|
Actuarial loss
|
27
|
|
|
89
|
|
|
1
|
|
|
4
|
|
|
|
|
|
|
|
|
|
Curtailments
|
(2)
|
|
|
(1)
|
|
|
—
|
|
|
—
|
|
Settlements
|
—
|
|
|
(13)
|
|
|
—
|
|
|
—
|
|
Foreign currency
|
3
|
|
|
(3)
|
|
|
—
|
|
|
—
|
|
Benefits paid
|
(30)
|
|
|
(28)
|
|
|
(1)
|
|
|
(1)
|
|
Benefit obligations — end of year
|
$
|
782
|
|
|
$
|
750
|
|
|
$
|
24
|
|
|
$
|
23
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
Fair value of plan assets — beginning of year
|
$
|
547
|
|
|
$
|
563
|
|
|
$
|
16
|
|
|
$
|
15
|
|
Actual gain on plan assets
|
53
|
|
|
13
|
|
|
2
|
|
|
1
|
|
Foreign currency
|
1
|
|
|
(1)
|
|
|
—
|
|
|
—
|
|
Employer contributions
|
13
|
|
|
12
|
|
|
—
|
|
|
—
|
|
Settlements
|
—
|
|
|
(13)
|
|
|
—
|
|
|
—
|
|
Benefits paid
|
(29)
|
|
|
(27)
|
|
|
(1)
|
|
|
—
|
|
Fair value of plan assets — end of year
|
$
|
585
|
|
|
$
|
547
|
|
|
$
|
17
|
|
|
$
|
16
|
|
Funded status of the plans — end of year
|
$
|
(197)
|
|
|
$
|
(203)
|
|
|
$
|
(7)
|
|
|
$
|
(7)
|
|
Assets (liabilities) recorded in the balance sheet:
|
|
|
|
|
|
|
|
Assets in excess of liabilities — included in other noncurrent assets
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3
|
|
|
$
|
3
|
|
|
|
|
|
|
|
|
|
Unfunded liabilities — included in other noncurrent liabilities
|
(197)
|
|
|
(203)
|
|
|
(10)
|
|
|
(10)
|
|
Net amount recognized
|
$
|
(197)
|
|
|
$
|
(203)
|
|
|
$
|
(7)
|
|
|
$
|
(7)
|
|
Amounts recorded in UGI Corporation stockholders’ equity (pre-tax):
|
|
|
|
|
|
|
|
Prior service cost (benefit)
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
(1)
|
|
|
$
|
(1)
|
|
Net actuarial loss
|
24
|
|
|
26
|
|
|
—
|
|
|
—
|
|
Total
|
$
|
25
|
|
|
$
|
27
|
|
|
$
|
(1)
|
|
|
$
|
(1)
|
|
Amounts recorded in regulatory assets and liabilities (pre-tax):
|
|
|
|
|
|
|
|
Prior service cost
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Net actuarial loss
|
174
|
|
|
177
|
|
|
1
|
|
|
1
|
|
Total
|
$
|
174
|
|
|
$
|
178
|
|
|
$
|
1
|
|
|
$
|
1
|
|
In Fiscal 2020 and Fiscal 2019, the change in the pension plans’ PBO due to actuarial gains and losses is principally the result of changes in discount rates. The change in the pension plans’ PBO in Fiscal 2019 also reflects a settlement resulting from the conversion of a defined benefit pension plan to a defined contribution plan in the Netherlands. In Fiscal 2021, the estimated amount that will be amortized from UGI Stockholders’ equity and regulatory assets into net periodic benefit cost is approximately $15, the majority of which represents net actuarial losses, primarily associated with the U.S. Pension Plan.
Actuarial assumptions for our U.S. plans are described below. The discount rate assumption was determined by selecting a hypothetical portfolio of high quality corporate bonds appropriate to provide for the projected benefit payments of the plans. The discount rate was then developed as the single rate that equates the market value of the bonds purchased to the discounted
UGI Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Currency in millions, except per share amounts and where indicated otherwise)
value of the plans’ benefit payments. The expected rate of return on assets assumption is based on current and expected asset allocations as well as historical and expected returns on various categories of plan assets (as further described below).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plan
|
|
Other Postretirement Benefits
|
|
2020
|
|
2019
|
|
2018
|
|
2020
|
|
2019
|
|
2018
|
Weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate – benefit obligations
|
2.90
|
%
|
|
3.30
|
%
|
|
4.40
|
%
|
|
3.00
|
%
|
|
3.30
|
%
|
|
4.40
|
%
|
Discount rate – benefit cost
|
3.30
|
%
|
|
4.40
|
%
|
|
4.00
|
%
|
|
3.30
|
%
|
|
4.40
|
%
|
|
4.00
|
%
|
Expected return on plan assets
|
7.20
|
%
|
|
7.30
|
%
|
|
7.40
|
%
|
|
5.00
|
%
|
|
5.00
|
%
|
|
5.00
|
%
|
Rate of increase in salary levels
|
3.25
|
%
|
|
3.25
|
%
|
|
3.25
|
%
|
|
3.25
|
%
|
|
3.25
|
%
|
|
3.25
|
%
|
The ABO for the U.S. Pension Plan was $687 and $659 as of September 30, 2020 and 2019, respectively.
The service cost component of our pension and other postretirement plans, net of amounts capitalized, are reflected in “Operating and administrative expenses” on the Consolidated Statements of Income. The non-service cost components, net of amounts capitalized by UGI Utilities as a regulatory asset, are reflected in “Other non-operating (expense) income, net” on the Consolidated Statements of Income. Other postretirement benefit cost was not material for all periods presented. Net periodic pension cost include the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
Service cost
|
$
|
11
|
|
|
$
|
10
|
|
|
$
|
11
|
|
|
|
|
|
|
|
Interest cost
|
23
|
|
|
27
|
|
|
26
|
|
|
|
|
|
|
|
Expected return on assets
|
(38)
|
|
|
(36)
|
|
|
(35)
|
|
|
|
|
|
|
|
Curtailment gain
|
(1)
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of:
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost
|
1
|
|
|
—
|
|
|
1
|
|
|
|
|
|
|
|
Actuarial loss
|
15
|
|
|
8
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cost
|
$
|
11
|
|
|
$
|
9
|
|
|
$
|
16
|
|
|
|
|
|
|
|
It is our general policy to fund amounts for U.S. Pension Plan benefits equal to at least the minimum required contribution set forth in applicable employee benefit laws. From time to time, we may, at our discretion, contribute additional amounts. During Fiscal 2020, Fiscal 2019 and Fiscal 2018, we made cash contributions to the U.S. Pension Plan of $13, $12 and $15, respectively. The minimum required contributions in Fiscal 2021 are not expected to be material.
UGI Utilities has established a VEBA trust to pay retiree health care and life insurance benefits by depositing into the VEBA the annual amount of postretirement benefits costs, if any. We do not expect to be required to make any contributions to the VEBA during Fiscal 2021.
UGI Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Currency in millions, except per share amounts and where indicated otherwise)
Expected payments for postretirement benefits over the next 10 years are not material. Expected payments for pension benefits are as follows:
|
|
|
|
|
|
|
|
|
Pension
Benefits
|
|
|
Fiscal 2021
|
$
|
33
|
|
|
|
Fiscal 2022
|
$
|
32
|
|
|
|
Fiscal 2023
|
$
|
34
|
|
|
|
Fiscal 2024
|
$
|
36
|
|
|
|
Fiscal 2025
|
$
|
38
|
|
|
|
Fiscal 2026 - 2030
|
$
|
203
|
|
|
|
We also sponsor unfunded and non-qualified supplemental executive defined benefit retirement plans. At September 30, 2020 and 2019, the PBOs of these plans, including obligations for amounts held in grantor trusts, totaled $59 and $53, respectively. Costs associated with these plans were not material for all periods presents and are excluded from the tables above. Amounts recorded in UGI’s stockholders’ equity for these plans include pre-tax losses of $12 and $9 at September 30, 2020 and 2019, respectively, principally representing unrecognized actuarial losses. In Fiscal 2021, the estimated amount that will be amortized from such pre-tax actuarial losses into retiree benefit cost is not material. During Fiscal 2020, Fiscal 2019 and Fiscal 2018, the payments the Company made with respect to the supplemental executive defined benefit retirement plans were not material. The total fair value of the grantor trust investment assets associated with the supplemental executive defined benefit retirement plans, which are included in “Other assets” on the Consolidated Balance Sheets, totaled $35 and $34 at September 30, 2020 and 2019, respectively.
U.S. Pension Plan Assets
The assets of the U.S. Pension Plan are held in trust. The investment policies and asset allocation strategies for the assets in these trusts are determined by an investment committee comprising officers of UGI and UGI Utilities. In Fiscal 2020, the Company transitioned its investment strategy to minimize projected funded status volatility by more closely aligning the duration of the U.S. Pension Plan’s fixed income portfolio to the duration of its liabilities. The proportion of plan assets allocated to fixed income investments will increase as the funded status increases. To achieve the stated objective, beginning in October 2019, investments are made principally in common collective trust funds that consists of equity index investments, bond index investments and a short-term investments, and, to a much less extent, UGI Common Stock. Previously, investments were made principally in publicly traded, diversified equity and fixed income index mutual funds. Assets associated with the VEBA and the UGI International plans are excluded from the tables below as such assets are not material.
The targets, target ranges and actual allocations for the U.S. Pension Plan trust assets at September 30 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
Target Asset Allocation
|
|
Permitted Range
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
September 30, 2020
|
Equity investments:
|
|
|
|
|
|
|
|
|
|
U.S. equities
|
26.5
|
%
|
|
54.8
|
%
|
|
29.0
|
%
|
|
52.5
|
%
|
|
24.0% - 34.0%
|
Non-U.S. equities
|
25.0
|
%
|
|
11.8
|
%
|
|
24.5
|
%
|
|
12.5
|
%
|
|
19.5% - 29.5%
|
Global equities (a)
|
12.3
|
%
|
|
—
|
%
|
|
11.5
|
%
|
|
—
|
%
|
|
6.5% - 16.5%
|
Total
|
63.8
|
%
|
|
66.6
|
%
|
|
65.0
|
%
|
|
65.0
|
%
|
|
60.0% - 70.0%
|
Fixed income funds & cash equivalents
|
36.2
|
%
|
|
33.4
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
|
30.0% - 40.0%
|
Total
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
|
(a) Comprises investment funds that consist of a mix of U.S. and Non-U.S. equity securities.
UGI Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Currency in millions, except per share amounts and where indicated otherwise)
Common collective trust funds in the U.S. Pension Plan primarily include investments in U.S., Non-U.S. and global (a mix of U.S. and Non-U.S.) equities, fixed income and short-term investments. The fair values of common collective trust funds and cash equivalents are valued at NAV of units of the collective trusts. The NAVs, as provided by the trustee, are used as a practical expedient to estimate fair value based on the fair values of the underlying investments held by the funds less their liabilities. The fair values of the U.S. Pension Plan trust assets by asset class and level within the fair value hierarchy, as described in Note 2, as of September 30, 2020 and 2019 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension Plan
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Other (a)
|
|
Total
|
September 30, 2020:
|
|
|
|
|
|
|
|
|
|
Domestic equity investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UGI Corporation Common Stock
|
$
|
27
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
27
|
|
Total domestic equity investments
|
27
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common collective trust funds:
|
|
|
|
|
|
|
|
|
|
U.S. equity index investments
|
—
|
|
|
—
|
|
|
—
|
|
|
123
|
|
|
123
|
|
Non-U.S. equity index investments
|
—
|
|
|
—
|
|
|
—
|
|
|
141
|
|
|
141
|
|
Global equity index investments
|
—
|
|
|
—
|
|
|
—
|
|
|
70
|
|
|
70
|
|
Bond index investments
|
—
|
|
|
—
|
|
|
—
|
|
|
200
|
|
|
200
|
|
Cash equivalents
|
—
|
|
|
—
|
|
|
—
|
|
|
5
|
|
|
5
|
|
Total common collective trust funds
|
—
|
|
|
—
|
|
|
—
|
|
|
539
|
|
|
539
|
|
Total
|
$
|
27
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
539
|
|
|
$
|
566
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019:
|
|
|
|
|
|
|
|
|
|
Domestic equity investments:
|
|
|
|
|
|
|
|
|
|
S&P 500 Index equity mutual funds
|
$
|
176
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
176
|
|
Small and midcap equity mutual funds
|
73
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
73
|
|
|
|
|
|
|
|
|
|
|
|
UGI Corporation Common Stock
|
41
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
41
|
|
Total domestic equity investments
|
290
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
290
|
|
International index equity mutual funds
|
62
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
62
|
|
Fixed income investments:
|
|
|
|
|
|
|
|
|
|
Bond index mutual funds
|
171
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
171
|
|
Cash equivalents
|
—
|
|
|
—
|
|
|
—
|
|
|
6
|
|
|
6
|
|
Total fixed income investments
|
171
|
|
|
—
|
|
|
—
|
|
|
6
|
|
|
177
|
|
Total
|
$
|
523
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6
|
|
|
$
|
529
|
|
(a) Assets measured at NAV and therefore excluded from the fair value hierarchy.
The expected long-term rates of return on U.S. Pension Plan trust assets have been developed using a best estimate of expected returns, volatilities and correlations for each asset class. The estimates are based on historical capital market performance data and future expectations provided by independent consultants. Future expectations are determined by using simulations that provide a wide range of scenarios of future market performance. The market conditions in these simulations consider the long-term relationships between equities and fixed income as well as current market conditions at the start of the simulation. The expected rate begins with a risk-free rate of return with other factors being added such as inflation, duration, credit spreads and equity risk premiums. The rates of return derived from this process are applied to our target asset allocation to develop a reasonable return assumption.
UGI Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Currency in millions, except per share amounts and where indicated otherwise)
Defined Contribution Plans
We sponsor 401(k) savings plans for eligible employees of UGI and certain of UGI’s domestic subsidiaries. Generally, participants in these plans may contribute a portion of their compensation on either a before-tax basis, or on both a before-tax and after-tax basis. These plans also provide for employer matching contributions at various rates. The cost of benefits under the savings plans totaled $21 in Fiscal 2020, $19 in Fiscal 2019 and $17 in Fiscal 2018. The Company also sponsors certain nonqualified supplemental defined contribution executive retirement plans. These plans generally provide supplemental benefits to certain executives that would otherwise be provided under retirement plans but are prohibited due to limitations imposed by the IRC. The Company makes payments to self-directed grantor trusts with respect to these supplemental defined contribution plans. Such payments during Fiscal 2020, Fiscal 2019 and Fiscal 2018 were not material. At September 30, 2020 and 2019, the total fair values of these grantor trust investment assets, which amounts are included in “Other assets” on the Consolidated Balance Sheets, were $7 and $6, respectively.
Note 9 — Utility Regulatory Assets and Liabilities and Regulatory Matters
The following regulatory assets and liabilities associated with UGI Utilities are included in our Consolidated Balance Sheets at September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
Regulatory assets (a):
|
|
|
|
Income taxes recoverable
|
$
|
124
|
|
|
$
|
115
|
|
Underfunded pension and postretirement plans
|
175
|
|
|
179
|
|
Environmental costs
|
61
|
|
|
60
|
|
|
|
|
|
Removal costs, net
|
26
|
|
|
28
|
|
Other
|
11
|
|
|
14
|
|
Total regulatory assets
|
$
|
397
|
|
|
$
|
396
|
|
Regulatory liabilities (a):
|
|
|
|
Postretirement benefit overcollections
|
$
|
13
|
|
|
$
|
15
|
|
|
|
|
|
Deferred fuel and power refunds
|
29
|
|
|
6
|
|
State income tax benefits — distribution system repairs
|
28
|
|
|
25
|
|
PAPUC Temporary Rates Order
|
7
|
|
|
31
|
|
Excess federal deferred income taxes
|
274
|
|
|
280
|
|
Other
|
2
|
|
|
2
|
|
Total regulatory liabilities
|
$
|
353
|
|
|
$
|
359
|
|
(a) Current regulatory assets are recorded in “Other current assets” on the Consolidated Balance Sheets. Regulatory liabilities are recorded in “Other current liabilities” and “Other noncurrent liabilities” on the Consolidated Balance Sheets.
Other than removal costs, UGI Utilities currently does not recover a rate of return on the regulatory assets included in the table above.
Income taxes recoverable. This regulatory asset is the result of recording deferred tax liabilities pertaining to temporary tax differences principally as a result of the pass through to ratepayers of the tax benefit on accelerated tax depreciation for state income tax purposes, and the flow through of accelerated tax depreciation for federal income tax purposes for certain years prior to 1981. These deferred taxes have been reduced by deferred tax assets pertaining to utility deferred investment tax credits. UGI Utilities has recorded regulatory income tax assets related to these deferred tax liabilities representing future revenues recoverable through the ratemaking process over the average remaining depreciable lives of the associated property ranging from 1 to approximately 65 years.
Underfunded pension and other postretirement plans. This regulatory asset represents the portion of net actuarial losses and prior service costs (credits) associated with pension and other postretirement benefits which are probable of being recovered through future rates based upon established regulatory practices. These regulatory assets are adjusted annually or more frequently under certain circumstances when the funded status of the plans is remeasured in accordance with GAAP. These costs are amortized over the average remaining future service lives of plan participants.
UGI Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Currency in millions, except per share amounts and where indicated otherwise)
Environmental costs. Environmental costs principally represent estimated probable future environmental remediation and investigation costs that Gas Utility expects to incur, primarily at MGP sites in Pennsylvania, in conjunction with three remediation COAs with the PADEP, which were consolidated into one COA effective October 1, 2020. Pursuant to base rate orders, Gas Utility receives ratemaking recognition of its estimated environmental investigation and remediation costs associated with their environmental sites. This ratemaking recognition balances the accumulated difference between historical costs and rate recoveries with an estimate of future costs associated with the sites. At September 30, 2020, the period over which Gas Utility expects to recover these costs will depend upon future remediation activity. For additional information on environmental costs, see Note 17.
Removal costs, net. This regulatory asset represents costs incurred, net of salvage, associated with the retirement of depreciable utility plant. As required by PAPUC ratemaking, removal costs include actual costs incurred associated with asset retirement obligations. Consistent with prior ratemaking treatment, UGI Utilities expects to recover these costs over five years.
Postretirement benefit overcollections. This regulatory liability represents the difference between amounts recovered through rates by Gas Utility and Electric Utility and actual costs incurred in accordance with accounting for postretirement benefits. With respect to Gas Utility, postretirement benefit overcollections are generally being refunded to customers over a ten-year period beginning October 19, 2016. With respect to Electric Utility, the overcollections are being refunded to ratepayers over a 20-year period effective October 27, 2018.
Deferred fuel and power refunds. Gas Utility’s and Electric Utility’s tariffs contain clauses that permit recovery of all prudently incurred purchased gas and power costs through the application of PGC rates in the case of Gas Utility and DS tariffs in the case of Electric Utility. These clauses provide for periodic adjustments to PGC and DS rates for differences between the total amount of purchased gas and electric generation supply costs collected from customers and recoverable costs incurred. Net undercollected costs are classified as a regulatory asset and net overcollections are classified as a regulatory liability.
Gas Utility uses derivative instruments to reduce volatility in the cost of gas it purchases for retail core-market customers. Realized and unrealized gains or losses on natural gas derivative instruments are included in deferred fuel and power costs or refunds. Net unrealized gains and (losses) on such contracts at September 30, 2020 and 2019 were $8 and $(2), respectively.
State income tax benefits — distribution system repairs. This regulatory liability represents Pennsylvania state income tax benefits, net of federal benefit, resulting from the deduction for income tax purposes of repair and maintenance costs associated with Gas Utility or Electric Utility assets that are capitalized for regulatory and GAAP reporting. The tax benefits associated with these repair and maintenance deductions will be reflected as a reduction to income tax expense over the remaining tax lives of the related book assets.
PAPUC Temporary Rates Order. On May 17, 2018, the PAPUC ordered each regulated utility currently not in a general base rate case proceeding, including UGI Gas, PNG and CPG, to reduce their rates to credit customers any tax savings as a result of the TCJA through the establishment of a negative surcharge. These negative surcharges applied to bills rendered on or after July 1, 2018 and remained in effect until October 11, 2019, the effective date of Gas Utility’s new base rates, subject to a final reconciliation of any over- or under-crediting of the tax savings. The remaining regulatory liability will be returned to customers through an additional temporary negative surcharge from January 1, 2021 through October 10, 2021
In its May 17, 2018 Order, the PAPUC also required Pennsylvania utilities to establish a regulatory liability for tax benefits that accrued during the period January 1, 2018 through June 30, 2018, resulting from the reduced federal tax rate. The rate treatment of this regulatory liability was addressed in Gas Utility’s base rate proceeding filed January 28, 2019 (see “Base Rate Filings” below for further information).
For Pennsylvania utilities that were in a general base rate proceeding, including Electric Utility, no negative surcharge applied. The tax benefits that accrued during the period January 1, 2018 through October 26, 2018, the date before Electric Utility’s base rate case became effective were refunded to Electric Utility ratepayers through a one-time bill credit.
Excess federal deferred income taxes. This regulatory liability is the result of remeasuring UGI Utilities’ federal deferred income tax liabilities on utility plant due to the enactment of the TCJA on December 22, 2017. In order for our utility assets to continue to be eligible for accelerated tax depreciation, current law requires that excess federal deferred income taxes resulting from the remeasurement be amortized no more rapidly than over the remaining lives of the assets that gave rise to the excess federal deferred income taxes, ranging from 1 year to approximately 65 years. This regulatory liability has been increased to
UGI Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Currency in millions, except per share amounts and where indicated otherwise)
reflect the tax benefit generated by the amortization of the excess deferred federal income taxes and is being amortized and credited to tax expense.
Other. Other regulatory assets and liabilities comprise a number of deferred items including, among others, certain incremental expenses attributable to the ongoing COVID-19 pandemic, certain information technology costs, energy efficiency conservation costs and rate case expenses.
Other Regulatory Matters
Base Rate Filings. On January 28, 2020, Gas Utility filed a request with the PAPUC to increase its annual base distribution operating revenues by $75 annually. On October 8, 2020, the PAPUC issued a final Order approving a previously filed Joint Petition for Approval of Settlement of all issues (the “Joint Petition”). Under the terms of the Joint Petition, Gas Utility will be permitted to increase its annual base distribution rates by $20, through a phased approach, with $10 beginning January 1, 2021 and an additional $10 beginning July 1, 2021. Additionally, Gas Utility will be authorized to implement a DSIC once Gas Utility total property, plant and equipment less accumulated depreciation reaches $2,875, with this threshold being unchanged from Gas Utility’s 2019 base rate case. The Joint Petition also includes enhanced COVID-19 customer assistance measures, including the establishment of an Emergency Relief Program for a defined set of payment troubled customers (“ERP”). Additionally, the Joint Petition will permit the Gas Utility to establish a regulatory asset for certain incremental expenses attributable to the ongoing COVID-19 pandemic, most notably expenses related to the ERP and uncollectible accounts expense, through the effective date of rates in the next Gas Utility base rate case, to be recovered and amortized over a 10-year period. In accordance with the terms of the Joint Petition, Gas Utility will not be permitted to file a rate case prior to January 1, 2022.
On January 28, 2019, Gas Utility filed a rate request with the PAPUC to increase the base operating revenues for residential, commercial, and industrial customers throughout its Pennsylvania service territory by an aggregate $71. On October 4, 2019, the PAPUC issued a final Order approving a settlement that permitted Gas Utility, effective October 11, 2019, to increase its base distribution revenues by $30 under a single consolidated tariff, approved a plan for uniform class rates, and permitted Gas Utility to extend its Energy Efficiency and Conservation and Growth Extension Tariff programs by an additional term of five years. The PAPUC’s final Order approved a negative surcharge, to return to customers $24 of tax benefits experienced by Gas Utility over the period January 1, 2018 to June 30, 2018, plus applicable interest, in accordance with the May 17, 2018 PAPUC Order, which became effective for a twelve-month period beginning on October 11, 2019, the effective date of Gas Utility’s new base rates, subject to final reconciliation of any over- or under-crediting of the tax savings.
On October 25, 2018, the PAPUC approved a final order providing for a $3 annual base distribution rate increase for Electric Utility, effective October 27, 2018. As part of the final PAPUC Order, Electric Utility provided customers with a one-time billing credit associated with 2018 TCJA tax benefits. On November 26, 2018, the Pennsylvania Office of Consumer Advocate filed an appeal to the Pennsylvania Commonwealth Court challenging the PAPUC’s acceptance of UGI Utilities’ use of a fully projected future test year and handling of consolidated federal income tax benefits. On January 15, 2020, the Pennsylvania Commonwealth Court issued a decision affirming the PAPUC Order adopting UGI Utilities’ position on both issues. No party exercised their right to seek an appeal of the Commonwealth Court decision.
Note 10 — Inventories
Inventories comprise the following at September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
Non-utility LPG and natural gas
|
$
|
164
|
|
|
$
|
150
|
|
Gas Utility natural gas
|
20
|
|
|
27
|
|
Materials, supplies and other
|
57
|
|
|
53
|
|
Total inventories
|
$
|
241
|
|
|
$
|
230
|
|
At September 30, 2020, UGI Utilities was a party to three SCAAs with terms up to three years. Pursuant to the SCAAs, UGI Utilities has, among other things, released certain natural gas storage and transportation contracts for the terms of the SCAAs. UGI Utilities also transferred certain associated natural gas storage inventories upon commencement of the SCAAs, will receive a transfer of storage inventories at the end of the SCAAs, and makes payments associated with refilling storage inventories during the terms of the SCAAs. The historical cost of natural gas storage inventories released under the SCAAs, which represents a portion of Gas Utility’s total natural gas storage inventories, and any exchange receivable (representing amounts of
UGI Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Currency in millions, except per share amounts and where indicated otherwise)
natural gas inventories used by the other parties to the agreement but not yet replenished for which UGI Utilities has the rights), are included in the caption “Gas Utility natural gas” in the table above.
As of September 30, 2020 and 2019, all of UGI Utilities’ SCAAs were with Energy Services, the effects of which are eliminated in consolidation.
Note 11 — Property, Plant and Equipment
Property, plant and equipment comprise the following at September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
Utility:
|
|
|
|
Distribution
|
$
|
3,630
|
|
|
$
|
3,366
|
|
Transmission
|
111
|
|
|
106
|
|
General and other
|
425
|
|
|
389
|
|
Work in process
|
99
|
|
|
77
|
|
Total Utility
|
4,265
|
|
|
3,938
|
|
|
|
|
|
Non-utility:
|
|
|
|
Land
|
191
|
|
|
184
|
|
Buildings and improvements
|
431
|
|
|
404
|
|
Transportation equipment
|
248
|
|
|
258
|
|
Equipment, primarily cylinders and tanks
|
3,712
|
|
|
3,455
|
|
Electric generation
|
211
|
|
|
327
|
|
Pipeline and related assets
|
1,098
|
|
|
1,150
|
|
Other
|
306
|
|
|
255
|
|
Work in process
|
196
|
|
|
102
|
|
Total non-utility
|
6,393
|
|
|
6,135
|
|
Total property, plant and equipment
|
$
|
10,658
|
|
|
$
|
10,073
|
|
Note 12 — Goodwill and Intangible Assets
Changes in the carrying amount of goodwill by reportable segment are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AmeriGas
Propane
|
|
UGI International
|
|
Midstream & Marketing
|
|
UGI Utilities
|
|
Total
|
Balance September 30, 2018
|
$
|
2,004
|
|
|
$
|
964
|
|
|
$
|
10
|
|
|
$
|
182
|
|
|
$
|
3,160
|
|
Acquisitions
|
—
|
|
|
26
|
|
|
330
|
|
|
—
|
|
|
356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
—
|
|
|
(60)
|
|
|
—
|
|
|
—
|
|
|
(60)
|
|
Balance September 30, 2019
|
2,004
|
|
|
930
|
|
|
340
|
|
|
182
|
|
|
3,456
|
|
|
|
|
|
|
|
|
|
|
|
Dispositions
|
—
|
|
|
—
|
|
|
(5)
|
|
|
—
|
|
|
(5)
|
|
Purchase accounting adjustments
|
—
|
|
|
(2)
|
|
|
—
|
|
|
—
|
|
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
—
|
|
|
69
|
|
|
—
|
|
|
—
|
|
|
69
|
|
Balance September 30, 2020
|
$
|
2,004
|
|
|
$
|
997
|
|
|
$
|
335
|
|
|
$
|
182
|
|
|
$
|
3,518
|
|
UGI Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Currency in millions, except per share amounts and where indicated otherwise)
Intangible assets comprise the following at September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
Customer relationships
|
$
|
1,083
|
|
|
$
|
1,038
|
|
Trademarks and tradenames
|
12
|
|
|
16
|
|
Noncompete agreements and other
|
76
|
|
|
48
|
|
Accumulated amortization
|
(543)
|
|
|
(442)
|
|
Intangible assets, net (definite-lived)
|
628
|
|
|
660
|
|
Trademarks and tradenames (indefinite-lived)
|
49
|
|
|
49
|
|
Total intangible assets, net
|
$
|
677
|
|
|
$
|
709
|
|
Changes in amounts above include the effects of currency translation. Amortization expense of intangible assets was $83, $59 and $58 for Fiscal 2020, Fiscal 2019 and Fiscal 2018, respectively. Estimated amortization expense of intangible assets during the next five fiscal years is as follows: Fiscal 2021 — $76; Fiscal 2022 — $65; Fiscal 2023 — $61; Fiscal 2024 — $59; Fiscal 2025 — $57.
Note 13 — Series Preferred Stock
UGI has 10,000,000 shares of UGI Series Preferred Stock authorized for issuance, including both series subject to and series not subject to mandatory redemption. UGI had no shares of UGI Series Preferred Stock outstanding at September 30, 2020 or 2019.
UGI Utilities has 2,000,000 shares of UGI Utilities Series Preferred Stock authorized for issuance, including both series subject to and series not subject to mandatory redemption. At September 30, 2020 and 2019, there were no shares of UGI Utilities Series Preferred Stock outstanding.
Note 14 — Common Stock and Equity-Based Compensation
Common Stock
On January 25, 2018, UGI’s Board of Directors authorized the repurchase of up to 8,000,000 shares of UGI Corporation Common Stock over a four-year period. Pursuant to these authorizations, during Fiscal 2020, Fiscal 2019 and Fiscal 2018, the Company purchased and placed in treasury stock 950,000, 300,000 and 1,200,000 shares at a total cost of $38, $17 and $60, respectively.
UGI Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Currency in millions, except per share amounts and where indicated otherwise)
UGI Common Stock share activity for Fiscal 2020, Fiscal 2019 and Fiscal 2018 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued
|
|
Treasury
|
|
Outstanding
|
Balance at September 30, 2017
|
173,987,691
|
|
|
(843,954)
|
|
|
173,143,737
|
|
Issued:
|
|
|
|
|
|
Employee and director plans
|
155,306
|
|
|
1,804,712
|
|
|
1,960,018
|
|
|
|
|
|
|
|
Repurchases of common stock
|
—
|
|
|
(1,200,000)
|
|
|
(1,200,000)
|
|
Reacquired common stock – employee and director plans
|
—
|
|
|
(154,780)
|
|
|
(154,780)
|
|
Balance at September 30, 2018
|
174,142,997
|
|
|
(394,022)
|
|
|
173,748,975
|
|
Issued:
|
|
|
|
|
|
Employee and director plans
|
548,285
|
|
|
430,847
|
|
|
979,132
|
|
AmeriGas Merger
|
34,612,847
|
|
|
—
|
|
|
34,612,847
|
|
Sale of reacquired common stock
|
—
|
|
|
15,759
|
|
|
15,759
|
|
Repurchases of common stock
|
—
|
|
|
(300,000)
|
|
|
(300,000)
|
|
Reacquired common stock – employee and director plans
|
—
|
|
|
(51,924)
|
|
|
(51,924)
|
|
Balance at September 30, 2019
|
209,304,129
|
|
|
(299,340)
|
|
|
209,004,789
|
|
Issued:
|
|
|
|
|
|
Employee and director plans
|
209,915
|
|
|
180,050
|
|
|
389,965
|
|
|
|
|
|
|
|
Repurchases of common stock
|
—
|
|
|
(950,000)
|
|
|
(950,000)
|
|
Reacquired common stock – employee and director plans
|
—
|
|
|
(90,316)
|
|
|
(90,316)
|
|
Balance at September 30, 2020
|
209,514,044
|
|
|
(1,159,606)
|
|
|
208,354,438
|
|
Equity-Based Compensation
The Company grants equity-based awards to employees and non-employee directors comprising UGI stock options, UGI Common Stock-based equity instruments and, prior to the AmeriGas Merger, AmeriGas Partners Common Unit-based equity instruments as further described below. We recognized total pre-tax equity-based compensation expense of $15 ($11 after-tax), $18 ($13 after-tax) and $23 ($16 after-tax) in Fiscal 2020, Fiscal 2019 and Fiscal 2018, respectively.
UGI Equity-Based Compensation Plans and Awards. Under the UGI Corporation 2013 OICP, we may grant options to acquire shares of UGI Common Stock, SARs, UGI Units (comprising “Stock Units” and “UGI Performance Units”), other equity-based awards and cash to employees and non-employee directors. The exercise price for options may not be less than the fair market value on the grant date. Awards granted under the 2013 OICP may vest immediately or ratably over a period of years, and stock options can be exercised no later than ten years from the grant date. In addition, the 2013 OICP provides that awards of UGI Units may also provide for the crediting of dividend equivalents to participants’ accounts. Except in the event of retirement, death or disability, each unvested grant will terminate when the participant ceases to be employed. There are certain change of control and retirement eligibility conditions that, if met, generally result in accelerated vesting or elimination of further service requirements.
Under the 2013 OICP, awards representing up to 21,750,000 shares of UGI Common Stock may be granted. Dividend equivalents on UGI Unit Awards to employees will be paid in cash. Dividend equivalents on non-employee director awards are accumulated in additional Stock Units. UGI Unit Awards granted to employees and non-employee directors are settled in shares of UGI Common Stock and cash. Substantially all UGI Unit Awards granted to UGI France employees are settled in shares of UGI Common Stock and do not accrue dividend equivalents. With respect to UGI Performance Unit awards, the actual number of shares (or their cash equivalent) ultimately issued, and the actual amount of dividend equivalents paid, is generally dependent upon the achievement of market performance goals and service conditions. Beginning in Fiscal 2019, we began issuing shares of UGI Common Stock to satisfy substantially all option exercises and UGI Unit Awards. Prior to Fiscal 2019, we issued treasury shares to satisfy substantially all option exercises and UGI Unit Awards. Stock options may be net exercised whereby shares equal to the option price and the grantee’s applicable payroll tax withholding are withheld from the number of shares payable (“net exercise”). We record shares withheld pursuant to a net exercise as shares reacquired. Pursuant to the AmeriGas Merger Agreement, all holders of AmeriGas Partners equity-based compensation awards received replacement awards
UGI Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Currency in millions, except per share amounts and where indicated otherwise)
comprising UGI cash-settled restricted stock units. See discussion below under “AmeriGas Partners Equity-Based Compensation Plans and Awards” for additional information.
UGI Stock Option Awards. Stock option transactions under equity-based compensation plans during Fiscal 2020, Fiscal 2019 and Fiscal 2018 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted -
Average
Option Price
|
|
Total
Intrinsic
Value
|
|
Weighted -
Average
Contract Term
(Years)
|
Shares under option — September 30, 2017
|
8,781,748
|
|
|
$
|
30.20
|
|
|
$
|
147
|
|
|
6.3
|
Granted
|
1,401,400
|
|
|
$
|
47.85
|
|
|
|
|
|
Canceled
|
(152,017)
|
|
|
$
|
42.14
|
|
|
|
|
|
Expired
|
(1,666)
|
|
|
$
|
35.80
|
|
|
|
|
|
Exercised
|
(1,832,396)
|
|
|
$
|
26.00
|
|
|
$
|
45
|
|
|
|
Shares under option — September 30, 2018
|
8,197,069
|
|
|
$
|
33.93
|
|
|
$
|
177
|
|
|
6.2
|
Granted
|
1,197,100
|
|
|
$
|
53.27
|
|
|
|
|
|
Canceled
|
(123,012)
|
|
|
$
|
48.69
|
|
|
|
|
|
Expired
|
(13,699)
|
|
|
$
|
47.49
|
|
|
|
|
|
Exercised
|
(779,353)
|
|
|
$
|
25.75
|
|
|
$
|
23
|
|
|
|
Shares under option — September 30, 2019
|
8,478,105
|
|
|
$
|
37.18
|
|
|
$
|
115
|
|
|
5.9
|
Granted
|
1,893,700
|
|
|
$
|
43.20
|
|
|
|
|
|
Canceled
|
(57,668)
|
|
|
$
|
49.69
|
|
|
|
|
|
Expired
|
(93,728)
|
|
|
$
|
37.81
|
|
|
|
|
|
Exercised
|
(230,875)
|
|
|
$
|
22.65
|
|
|
$
|
3
|
|
|
|
Shares under option — September 30, 2020
|
9,989,534
|
|
|
$
|
38.58
|
|
|
$
|
26
|
|
|
5.8
|
Options exercisable — September 30, 2018
|
5,498,330
|
|
|
$
|
28.63
|
|
|
|
|
|
Options exercisable — September 30, 2019
|
5,963,530
|
|
|
$
|
32.02
|
|
|
|
|
|
Options exercisable — September 30, 2020
|
6,898,251
|
|
|
$
|
35.06
|
|
|
$
|
26
|
|
|
4.5
|
Options not exercisable — September 30, 2020
|
3,091,283
|
|
|
$
|
46.45
|
|
|
$
|
—
|
|
|
8.6
|
Cash received from stock option exercises and associated tax benefits were $2 and $1, $20 and $5, and $43 and $13 in Fiscal 2020, Fiscal 2019 and Fiscal 2018, respectively. As of September 30, 2020, there was $8 of unrecognized compensation cost associated with unvested stock options that is expected to be recognized over a weighted-average period of 1.9 years.
The following table presents additional information relating to stock options outstanding and exercisable at September 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range of exercise prices
|
|
Under
$30.00
|
|
$30.00 –
$35.00
|
|
$35.01 –
$40.00
|
|
$40.01 – $45.00
|
|
Over $45.01
|
Options outstanding at September 30, 2020:
|
|
|
|
|
|
|
|
|
|
Number of options
|
2,672,041
|
|
|
1,297,358
|
|
|
858,565
|
|
|
177,947
|
|
|
4,983,623
|
|
Weighted average remaining contractual life (in years)
|
2.2
|
|
5.9
|
|
4.2
|
|
7.9
|
|
7.8
|
Weighted average exercise price
|
$
|
23.46
|
|
|
$
|
33.30
|
|
|
$
|
37.82
|
|
|
$
|
44.07
|
|
|
$
|
48.00
|
|
Options exercisable at September 30, 2020:
|
|
|
|
|
|
|
|
|
|
Number of options
|
2,669,481
|
|
|
1,041,488
|
|
|
858,565
|
|
|
172,497
|
|
|
2,156,220
|
|
Weighted average exercise price
|
$
|
23.45
|
|
|
$
|
33.65
|
|
|
$
|
37.82
|
|
|
$
|
44.12
|
|
|
$
|
48.28
|
|
UGI Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Currency in millions, except per share amounts and where indicated otherwise)
UGI Stock Option Fair Value Information. The per share weighted-average fair value of stock options granted under our option plans was $5.58 in Fiscal 2020, $8.70 in Fiscal 2019 and $7.51 in Fiscal 2018. These amounts were determined using a Black-Scholes option pricing model that values options based on the stock price at the grant date, the expected life of the option, the estimated volatility of the stock, expected dividend payments and the risk-free interest rate over the expected life of the option. The expected life of option awards represents the period of time during which option grants are expected to be outstanding and is derived from historical exercise patterns. Expected volatility is based on historical volatility of the price of UGI’s Common Stock. Expected dividend yield is based on historical UGI dividend rates. The risk free interest rate is based on U.S. Treasury bonds with terms comparable to the options in effect on the date of grant.
The assumptions we used for valuing option grants during Fiscal 2020, Fiscal 2019 and Fiscal 2018 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Expected life of option
|
6 years
|
|
6 years
|
|
6 years
|
Weighted-average volatility
|
19.6%
|
|
17.2%
|
|
17.5%
|
Weighted-average dividend yield
|
3.0%
|
|
1.8%
|
|
2.1%
|
Expected volatility
|
19.6%
|
|
17.2%
|
|
17.5%
|
Expected dividend yield
|
3.0%
|
|
1.8%
|
|
2.1%
|
Risk free rate
|
0.3% - 1.7%
|
|
1.5% - 2.6%
|
|
2.2% - 2.9%
|
UGI Unit Awards. UGI Stock Unit and UGI Performance Unit awards entitle the grantee to shares of UGI Common Stock or cash once the service condition is met and, with respect to UGI Performance Unit awards, subject to market performance conditions. UGI Performance Unit grant recipients are awarded a target number of UGI Performance Units. The number of UGI Performance Units ultimately paid at the end of the performance period (generally three years) may be higher or lower than the target amount, or even zero, based on UGI’s TSR percentile rank relative to the UGI comparator group. Grantees may receive 0% to 200% of the target award granted. For such grants, if UGI’s TSR ranks below the 25th percentile compared to the UGI comparator group, the employee will not be paid. At the 25th percentile, the employee will be paid an award equal to 25% of the target award; at the 40th percentile, 70%; at the 50th percentile, 100%; and at the 90th percentile and above, 200%. The actual amount of the award is interpolated between these percentile rankings. Dividend equivalents are paid in cash only on UGI Performance Units that eventually vest.
The fair value of UGI Stock Units on the grant date is equal to the market price of UGI Stock on the grant date plus the fair value of dividend equivalents if applicable. Under GAAP, UGI Performance Units are equity awards with a market-based condition which, if settled in shares, result in the recognition of compensation cost over the requisite employee service period regardless of whether the market-based condition is satisfied. The fair values of UGI Performance Units are estimated using a Monte Carlo valuation model. The fair value associated with the target award is accounted for as equity and the fair value of the award over the target, as well as all dividend equivalents, is accounted for as a liability. The expected term of the UGI Performance Unit awards is three years based on the performance period. Expected volatility is based on the historical volatility of UGI Common Stock over a three-year period. The risk-free interest rate is based on the yields on U.S. Treasury bonds at the time of grant. Volatility for all companies in the UGI comparator groups is based on historical volatility.
The following table summarizes the weighted-average assumptions used to determine the fair value of UGI Performance Unit awards and related compensation costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grants Awarded in Fiscal Year
|
|
2020
|
|
2019
|
|
2018
|
Risk free rate
|
1.6%
|
|
2.5%
|
|
2.0%
|
Expected life
|
3 years
|
|
3 years
|
|
3 years
|
Expected volatility
|
18.6%
|
|
17.7%
|
|
18.9%
|
Dividend yield
|
2.9%
|
|
1.9%
|
|
2.1%
|
The weighted-average grant date fair value of UGI Performance Unit awards was estimated to be $41.85 for Units granted in Fiscal 2020, $55.40 for Units granted in Fiscal 2019 and $55.26 for Units granted in Fiscal 2018.
UGI Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Currency in millions, except per share amounts and where indicated otherwise)
The following table summarizes UGI Unit award activity for Fiscal 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UGI Units
|
|
Weighted-Average
Grant-Date Fair Value
(per Unit)
|
Total UGI Units at September 30, 2019 (a)
|
893,820
|
|
|
$
|
36.39
|
|
UGI Performance Units:
|
|
|
|
Granted
|
222,410
|
|
|
$
|
41.85
|
|
Forfeited
|
(13,734)
|
|
|
$
|
40.01
|
|
Performance criteria not met
|
(121,948)
|
|
|
$
|
46.76
|
|
|
|
|
|
UGI Stock Units:
|
|
|
|
Granted (b)
|
77,951
|
|
|
$
|
40.38
|
|
|
|
|
|
Unit awards paid
|
(227,225)
|
|
|
$
|
24.31
|
|
Total UGI Units at September 30, 2020 (a)
|
831,274
|
|
|
$
|
39.95
|
|
(a)Total UGI Units includes UGI Stock Units issued to non-employee directors, which vest on the grant date, and UGI Performance Units and UGI Stock Units issued to retirement-eligible employees that vest on an accelerated basis. Total vested restricted units at September 30, 2020 and 2019 were 441,498 and 616,319, respectively.
(b)Generally, shares granted under UGI Stock Unit awards are paid approximately 70% in shares. UGI Stock Unit awards granted in Fiscal 2019 and Fiscal 2018 were 29,784 and 52,314, respectively.
During Fiscal 2020, Fiscal 2019 and Fiscal 2018, the Company paid UGI Performance Unit and UGI Stock Unit awards in shares and cash as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
UGI Performance Unit awards:
|
|
|
|
|
|
Number of original awards granted, net of forfeitures
|
121,948
|
|
|
144,521
|
|
|
136,621
|
|
Performance period beginning January 1:
|
2017
|
|
2016
|
|
2015
|
Payment of awards:
|
|
|
|
|
|
Shares of UGI Common Stock issued, net of shares withheld for taxes
|
—
|
|
|
116,950
|
|
|
69,680
|
|
Cash paid
|
$
|
—
|
|
|
$
|
10
|
|
|
$
|
2
|
|
UGI Stock Unit awards:
|
|
|
|
|
|
Number of original awards granted, net of forfeitures
|
227,721
|
|
|
50,985
|
|
|
39,680
|
|
Payment of awards:
|
|
|
|
|
|
Shares of UGI Common Stock issued, net of shares withheld for taxes
|
148,477
|
|
|
43,479
|
|
|
29,095
|
|
Cash paid
|
$
|
3
|
|
|
$
|
1
|
|
|
$
|
1
|
|
During Fiscal 2020, Fiscal 2019 and Fiscal 2018, we granted UGI Unit awards representing 300,361, 158,694 and 196,114 shares, respectively, having weighted-average grant date fair values per Unit of $41.50, $55.40 and $53.36, respectively.
As of September 30, 2020, there was a total of $8 unrecognized compensation cost associated with 831,274 UGI Unit awards outstanding that is expected to be recognized over a weighted-average period of 2.0 years. The total grant-date fair values of outstanding UGI Units that vested during Fiscal 2020, Fiscal 2019 and Fiscal 2018 were $5, $5 and $7, respectively. As of September 30, 2020 and 2019, total liabilities of $5 and $10, respectively, associated with UGI Unit awards are reflected in “Employee compensation and benefits accrued” and “Other noncurrent liabilities” on the Consolidated Balance Sheets.
At September 30, 2020, 6,105,754 shares of Common Stock were available for future grants under the 2013 OICP, which includes the number of AmeriGas Common Units available for grant under the 2010 Propane Plan that were converted to UGI Units as further described below.
UGI Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Currency in millions, except per share amounts and where indicated otherwise)
AmeriGas Partners Equity-Based Compensation Plans and Awards. Prior to the AmeriGas Merger, under the 2010 Propane Plan on behalf of AmeriGas Partners, L.P., the General Partner could award to employees and non-employee directors of the General Partner grants of AmeriGas Partners Units (comprising “AmeriGas Stock Units” and “AmeriGas Performance Units”), options, phantom units, unit appreciation rights and other Common Unit-based awards that, depending on the award, vested immediately or ratable over a period of time subject to other conditions under the plan related to termination, retirement, death or disability (all as defined). Participants were eligible to receive Common Unit distribution equivalents under the terms of certain awards (ultimately paid in cash only on awards that vested). Effective with the AmeriGas Merger, all outstanding AmeriGas Stock Units and AmeriGas Performance Units were canceled and converted to cash-settled restricted stock units relating to UGI Common Stock (see “Impact of AmeriGas Merger on AmeriGas Unit Awards” below).
AmeriGas Stock Unit and AmeriGas Performance Unit awards entitled the grantee to AmeriGas Partners Common Units or cash once the service condition was met and, with respect to AmeriGas Performance Units, subject to market performance conditions or actual net customer acquisition and retention performance (as defined in the applicable awards). Recipients were awarded a target number of AmeriGas Performance Units, and the number of AmeriGas Performance Units ultimately paid at the end of the performance period (generally three years) ranging from 0% to 200% of the target number, subject to the performance conditions as defined for the applicable award. Pursuant to the terms of the AmeriGas Merger Agreement, the performance periods for AmeriGas TUR Performance Units outstanding immediately prior to the AmeriGas Merger ended on August 20, 2019, the last trading day of the Common Units prior to the completion of the AmeriGas Merger.
Under GAAP, AmeriGas TUR Performance Units awards were recorded as equity awards to the extent they were to be settled in Common Units. This resulted in the recognition of compensation cost equal to the fair value of such award estimated using a Monte Carlo valuation model, over the requisite employee service period regardless of whether the market-based conditions were satisfied. The fair value associated with the target awards, which were to be paid in Common Units, was accounted for as equity and the fair value of the award over the target, as well as all Common Unit distribution equivalents, which were to be paid in cash, was accounted for as a liability.
Impact of AmeriGas Merger on AmeriGas Unit Awards. Effective with the AmeriGas Merger on August 21, 2019, each outstanding award of AmeriGas Stock Units and AmeriGas Performance Units, including awards subject to market performance conditions, was canceled and converted into a number of cash-settled restricted stock units relating to UGI Common Stock determined by multiplying the number of such AmeriGas Unit awards by 0.6378.
With respect to outstanding AmeriGas TUR Performance Units and AmeriGas Performance Units, the number of such awards canceled and converted to UGI restricted stock units was determined by multiplying the target number of such awards, including dividend equivalents, times the performance multiplier as determined based upon a shortened performance period ending August 20, 2019, the last full trading day of the Common Units prior to the AmeriGas Merger, subject to other performance conditions as defined in the award agreement and the AmeriGas Merger Agreement. The resulting number of cash-settled restricted stock units relating to UGI Common Stock could be more, but not less, than the associated target number of AmeriGas TUR Performance Unit awards. These restricted stock units vest on the originally scheduled AmeriGas TUR Performance Unit award vesting dates with the only condition being employment with the Company at the time of vesting.
The converted awards remain subject to the same terms, conditions and restrictions as applied to the corresponding AmeriGas Unit awards immediately prior to the conversion including vesting terms, forfeitures, and distribution equivalent rights except that distribution equivalent rights will be based upon UGI dividends subsequent to the conversion.
Pursuant to the terms of the AmeriGas Unit conversions described above, effective on August 21, 2019, 137,472 AmeriGas Performance Units and 126,089 AmeriGas Stock Units were converted into 215,957 of cash-settled restricted stock units relating to UGI Common Stock.
The unrecognized compensation cost and total liabilities associated with UGI cash-settled restricted stock units that remain outstanding, including costs resulting from modifications and settlements resulting from the conversion of certain awards in connection with the AmeriGas Merger, was not material for Fiscal 2020 and Fiscal 2019.
UGI assumed the obligations of the General Partner and the Partnership under the 2010 Propane Plan, and the 2010 Propane Plan was deemed amended to conform to all of the terms and form of the 2013 OICP and combined with the 2013 OICP. At the time of the merger, the number of Common Units that remained available for grant under the 2010 Propane Plan were converted to 1,420,949 UGI awards available for future grant and delivery based upon a conversion ratio of 0.6378:1. These available converted awards may be granted only to those individuals who were eligible to receive awards under the 2010
UGI Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Currency in millions, except per share amounts and where indicated otherwise)
Propane Plan immediately before the AmeriGas Merger, including any such eligible individuals hired after the AmeriGas Merger, and are included in the UGI stock option transactions and UGI Unit award activity in the tables above.
Note 15 — Partnership Distributions
In accordance with the Partnership Agreement, the Partnership makes distributions to its partners approximately 45 days after the end of each fiscal quarter in a total amount equal to its Available Cash (as defined in the Partnership Agreement) for such quarter. Available Cash is generally defined as:
1.all cash on hand at the end of such quarter, plus
2.all additional cash on hand as of the date of determination resulting from borrowings after the end of such quarter, less
3.the amount of cash reserves established by the General Partner in its reasonable discretion.
The General Partner may establish reserves for the proper conduct of the Partnership’s business and for distributions during the next four quarters.
Prior to the AmeriGas Merger, distributions of Available Cash were made 98% to limited partners and 2% to the General Partner (representing a 1% General Partner interest in AmeriGas Partners and 1.01% interest in AmeriGas OLP) until Available Cash exceeded the Minimum Quarterly Distribution of $0.55 and the First Target Distribution of $0.055 per Common Unit (or a total of $0.605 per Common Unit). When Available Cash exceeded $0.605 per Common Unit in any quarter, the General Partner would receive a greater percentage of the total Partnership distribution (the “incentive distribution”) but only with respect to the amount by which the distribution per Common Unit to limited partners exceeded $0.605.
During Fiscal 2019 (prior to the AmeriGas Merger) and Fiscal 2018, the Partnership made quarterly distributions to Common Unitholders in excess of $0.605 per limited partner unit. As a result, the General Partner received a greater percentage of the total Partnership distribution than its aggregate 2% general partner interest in AmeriGas OLP and AmeriGas Partners. During Fiscal 2019 and Fiscal 2018, distributions received by the General Partner with respect to its aggregate 2% general partner ownership interests totaled $55 in each period, which included incentive distributions of $45 in each period.
Note 16 — Leases
Lessee
We lease various buildings and other facilities, real estate, vehicles, rail cars and other equipment, the majority of which are operating leases. We determine if a contract is or contains a lease by evaluating whether the contract explicitly or implicitly identifies an asset, whether we have the right to obtain substantially all of the economic benefits of the identified leased asset and to direct its use.
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. We recognize ROU assets at the lease commencement date at the value of the lease liability adjusted for any prepayments, lease incentives received, and initial direct costs incurred. Lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. These payments are discounted using the discount rate implicit in the lease, when available. We apply an incremental borrowing rate, which is developed utilizing a credit notching approach based on information available at the lease commencement date, to substantially all of our leases as the implicit rate is often not available.
Lease expense is recognized on a straight-line basis over the expected lease term. Renewal and termination options are not included in the lease term unless we are reasonably certain that such options will be exercised. Leases with an original lease term of one year or less, including consideration of any renewal options assumed to be exercised, are not included in the Consolidated Balance Sheets.
Certain lease arrangements, primarily fleet vehicle leases with lease terms of one to ten years, contain purchase options. The Company generally excludes purchase options in evaluating its leases unless it is reasonably certain that such options will be exercised. Additionally, leases of fleet vehicles often contain residual value guarantees that are due at the end of the lease. Such amounts are included in the determination of lease liabilities when we are reasonably certain that they will be owed.
UGI Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Currency in millions, except per share amounts and where indicated otherwise)
Certain leasing arrangements require variable payments that are dependent on asset usage or are based on changes in index rates, such as the Consumer Price Index. The variable payments component of such leases cannot be determined at lease commencement and is not recognized in the measurement of ROU assets or lease liabilities, but is recognized in earnings in the period in which the obligation occurs.
ROU assets and lease liabilities recorded in the Consolidated Balance Sheet as of September 30 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
Location on the Balance Sheet
|
ROU assets:
|
|
|
|
Operating lease ROU assets
|
$
|
415
|
|
|
Other assets
|
Finance lease ROU assets
|
52
|
|
|
Property, plant and equipment
|
Total ROU assets
|
$
|
467
|
|
|
|
|
|
|
|
Lease liabilities:
|
|
|
|
Operating lease liabilities — current
|
$
|
87
|
|
|
Other current liabilities
|
Operating lease liabilities — noncurrent
|
334
|
|
|
Other noncurrent liabilities
|
Finance lease liabilities — current
|
5
|
|
|
Current maturities of long-term debt
|
Finance lease liabilities — noncurrent
|
41
|
|
|
Long-term debt
|
Total lease liabilities
|
$
|
467
|
|
|
|
The components of lease cost for Fiscal 2020 are as follows:
|
|
|
|
|
|
|
2020
|
Operating lease cost
|
$
|
102
|
|
Finance lease cost:
|
|
Amortization of ROU assets
|
5
|
|
Interest on lease liabilities
|
3
|
|
Variable lease cost
|
5
|
|
Short-term lease cost
|
3
|
|
Total lease cost
|
$
|
118
|
|
The following table presents the cash and non-cash activity related to lease liabilities included in the Consolidated Statement of Cash Flows during Fiscal 2020:
|
|
|
|
|
|
|
2020
|
Cash paid related to lease liabilities:
|
|
Operating cash flows — operating leases
|
$
|
103
|
|
Operating cash flows — finance leases
|
$
|
3
|
|
Financing cash flows — finance leases
|
$
|
4
|
|
|
|
Non-cash lease liability activities:
|
|
ROU assets obtained in exchange for operating lease liabilities (including the impact upon adoption)
|
$
|
506
|
|
ROU assets obtained in exchange for finance lease liabilities
|
$
|
22
|
|
UGI Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Currency in millions, except per share amounts and where indicated otherwise)
The following table presents the weighted-average remaining lease term and weighted-average discount rate as of September 30, 2020:
|
|
|
|
|
|
|
|
|
Weighted-average remaining lease term
|
|
In years
|
Operating leases
|
|
6.2
|
Finance leases
|
|
2.4
|
|
|
|
Weighted-average discount rate
|
|
%
|
Operating leases
|
|
3.8%
|
Finance leases
|
|
1.9%
|
Expected annual lease payments based on maturities of operating and finance leases, as well as a reconciliation to the lease liabilities on the Consolidated Balance Sheet, as of September 30, 2020, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2022
|
|
2023
|
|
2024
|
|
2025
|
|
After 2025
|
|
Total Lease Payments
|
|
Imputed Interest
|
|
Lease Liabilities
|
Operating leases
|
$
|
102
|
|
|
$
|
86
|
|
|
$
|
73
|
|
|
$
|
63
|
|
|
$
|
48
|
|
|
$
|
109
|
|
|
$
|
481
|
|
|
$
|
(60)
|
|
|
$
|
421
|
|
Finance leases
|
$
|
5
|
|
|
$
|
4
|
|
|
$
|
4
|
|
|
$
|
3
|
|
|
$
|
3
|
|
|
$
|
83
|
|
|
$
|
102
|
|
|
$
|
(56)
|
|
|
$
|
46
|
|
Approximately 85% of the operating lease liabilities presented above relate to AmeriGas Propane.
At September 30, 2020, operating and finance leases that had not yet commenced were not material.
Disclosures Related to Periods Prior to Adoption of ASC 842
As discussed above, the Company adopted ASC 842 effective October 1, 2019, using a modified retrospective approach. As required, the following disclosure is provided for periods prior to adoption. The Company’s future minimum payments under non-cancelable operating leases at September 30, 2019, which were accounted for under ASC 840, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
2024
|
|
After
2024
|
Minimum operating lease payments
|
$
|
100
|
|
|
$
|
86
|
|
|
$
|
71
|
|
|
$
|
62
|
|
|
$
|
54
|
|
|
$
|
139
|
|
Lessor
We enter into lessor arrangements for the purposes of storing, gathering or distributing natural gas and LPG. AmeriGas Propane and UGI International have lessor arrangements that grant customers the right to use small, medium and large storage tanks, which we classify as operating leases. These agreements contain renewal options for periods up to nine years and certain agreements at UGI International contain a purchase option. Energy Services leases certain natural gas gathering assets to customers, which we classify as operating leases. Lease income is generally recognized on a straight-line basis over the lease term and included in “Revenues” on the Consolidated Statements of Income (see Note 4).
Note 17 — Commitments and Contingencies
Environmental Matters
UGI Utilities
From the late 1800s through the mid-1900s, UGI Utilities and its former subsidiaries owned and operated a number of MGPs prior to the general availability of natural gas. Some constituents of coal tars and other residues of the manufactured gas process are today considered hazardous substances under the Superfund Law and may be present on the sites of former MGPs. Between 1882 and 1953, UGI Utilities owned the stock of subsidiary gas companies in Pennsylvania and elsewhere and also operated the businesses of some gas companies under agreement. By the early 1950s, UGI Utilities divested all of its utility operations other than certain gas and electric operations. Beginning in 2006 and 2008, UGI Utilities also owned and operated two acquired subsidiaries (CPG and PNG), with similar histories of owning, and in some cases operating, MGPs in Pennsylvania. CPG and PNG merged into UGI Utilities effective October 1, 2018.
UGI Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Currency in millions, except per share amounts and where indicated otherwise)
Prior to the Utility Merger, each of UGI Utilities and its subsidiaries, CPG and PNG, were subject to COAs with the PADEP to address the remediation of specified former MGP sites in Pennsylvania. In accordance with the COAs, as amended to recognize the Utility Merger, UGI Utilities, as the successor to CPG and PNG, was required to either obtain a certain number of points per calendar year based on defined eligible environmental investigatory and/or remedial activities at the MGPs and in the case of one COA, an additional obligation to plug specific natural gas wells, or make expenditures for such activities in an amount equal to an annual environmental cost cap (i.e. minimum expenditure threshold). The annual cost cap of the three COAs, in the aggregate, was $5. Effective October 1, 2020, the three COAs were consolidated into one agreement that superseded the existing agreements without modifications to the aggregate annual cost cap, and is scheduled to expire at the end of 2031. At September 30, 2020 and 2019, our aggregate estimated accrued liabilities for environmental investigation and remediation costs related to the COAs totaled $53 and $50, respectively.
We do not expect the costs for investigation and remediation of hazardous substances at Pennsylvania MGP sites to be material to UGI Utilities’ results of operations because UGI Utilities receives ratemaking recovery of actual environmental investigation and remediation costs associated with the sites covered by the COAs. This ratemaking recognition reconciles the accumulated difference between historical costs and rate recoveries with an estimate of future costs associated with the sites. As such, UGI Utilities has recorded an associated regulatory asset for these costs because recovery of these costs from customers is probable (see Note 9).
From time to time, UGI Utilities is notified of sites outside Pennsylvania on which private parties allege MGPs were formerly owned or operated by UGI Utilities or owned or operated by a former subsidiary. Such parties generally investigate the extent of environmental contamination or perform environmental remediation. Management believes that under applicable law UGI Utilities should not be liable in those instances in which a former subsidiary owned or operated an MGP. There could be, however, significant future costs of an uncertain amount associated with environmental damage caused by MGPs outside Pennsylvania that UGI Utilities directly operated, or that were owned or operated by a former subsidiary of UGI Utilities if a court were to conclude that (1) the subsidiary’s separate corporate form should be disregarded, or (2) UGI Utilities should be considered to have been an operator because of its conduct with respect to its subsidiary’s MGP. At September 30, 2020 and 2019, neither the undiscounted nor the accrued liability for environmental investigation and cleanup costs for UGI Utilities’ MGP sites outside Pennsylvania was material.
AmeriGas Propane
AmeriGas OLP Saranac Lake. In 2008, the NYDEC notified AmeriGas OLP that the NYDEC had placed property purportedly owned by AmeriGas OLP in Saranac Lake, New York on the New York State Registry of Inactive Hazardous Waste Disposal Sites. A site characterization study performed by the NYDEC disclosed contamination related to a former MGP. AmeriGas OLP responded to the NYDEC in 2009 to dispute the contention it was a PRP as it did not operate the MGP and appeared to only own a portion of the site. In 2017, the NYDEC communicated to AmeriGas OLP that the NYDEC had previously issued three RODs related to remediation of the site totaling approximately $28 and requested additional information regarding AmeriGas OLP’s purported ownership. AmeriGas OLP renewed its challenge to designation as a PRP and identified potential defenses. The NYDEC subsequently identified a third party PRP with respect to the site.
The NYDEC commenced implementation of the remediation plan in the spring of 2018. Based on our evaluation of the available information as of September 30, 2020, the Partnership has an undiscounted environmental remediation liability of $8 related to the site. Our share of the actual remediation costs could be significantly more or less than the accrued amount.
Other Matters
Purported Class Action Lawsuits. Between May and October of 2014, purported class action lawsuits were filed in multiple jurisdictions against the Partnership/UGI and a competitor by certain of their direct and indirect customers. The class action lawsuits allege, among other things, that the Partnership and its competitor colluded, beginning in 2008, to reduce the fill level of portable propane cylinders from 17 pounds to 15 pounds and combined to persuade their common customer, Walmart Stores, Inc., to accept that fill reduction, resulting in increased cylinder costs to retailers and end-user customers in violation of federal and certain state antitrust laws. The claims seek treble damages, injunctive relief, attorneys’ fees and costs on behalf of the putative classes.
On October 16, 2014, the United States Judicial Panel on Multidistrict Litigation transferred all of these purported class action cases to the Western Missouri District Court. As the result of rulings on a series of procedural filings, including petitions filed
UGI Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Currency in millions, except per share amounts and where indicated otherwise)
with the Eighth Circuit and the U.S. Supreme Court, both the federal and state law claims of the direct customer plaintiffs and the state law claims of the indirect customer plaintiffs were remanded to the Western Missouri District Court. The decision of the Western Missouri District Court to dismiss the federal antitrust claims of the indirect customer plaintiffs was upheld by the Eighth Circuit. On April 15, 2019, the Western Missouri District Court ruled that it has jurisdiction over the indirect purchasers’ state law claims and that the indirect customer plaintiffs have standing to pursue those claims. On August 21, 2019, the District Court partially granted the Company’s motion for judgment on the pleadings and dismissed the claims of indirect customer plaintiffs from ten states and the District of Columbia.
On October 2, 2019, the Partnership reached an agreement to resolve the claims of the direct purchaser class of plaintiffs; the agreement received final court approval on June 18, 2020. On September 18, 2020, the Partnership and counsel for the indirect purchaser plaintiffs filed a joint statement with the court that they had reached an agreement in principle to settle the claims of the remaining classes and plaintiffs, subject to court approval.
Although we cannot predict the final results of these pending claims and legal actions, we believe, after consultation with counsel, that the final outcome of these matters will not have a material effect on our financial statements.
In addition to the matters described above, there are other pending claims and legal actions arising in the normal course of our businesses. Although we cannot predict the final results of these pending claims and legal actions, we believe, after consultation with counsel, that the final outcome of these matters will not have a material effect on our financial statements.
UGI Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Currency in millions, except per share amounts and where indicated otherwise)
Note 18 — Fair Value Measurements
Recurring Fair Value Measurements
The following table presents, on a gross basis, our financial assets and liabilities including both current and noncurrent portions, that are measured at fair value on a recurring basis within the fair value hierarchy as described in Note 2:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset (Liability)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
September 30, 2020:
|
|
|
|
|
|
|
|
Derivative instruments:
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
Commodity contracts
|
$
|
68
|
|
|
$
|
39
|
|
|
$
|
—
|
|
|
$
|
107
|
|
Foreign currency contracts
|
$
|
—
|
|
|
$
|
32
|
|
|
$
|
—
|
|
|
$
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
Commodity contracts
|
$
|
(54)
|
|
|
$
|
(64)
|
|
|
$
|
—
|
|
|
$
|
(118)
|
|
Foreign currency contracts
|
$
|
—
|
|
|
$
|
(14)
|
|
|
$
|
—
|
|
|
$
|
(14)
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
$
|
—
|
|
|
$
|
(55)
|
|
|
$
|
—
|
|
|
$
|
(55)
|
|
|
|
|
|
|
|
|
|
Non-qualified supplemental postretirement grantor trust investments (a)
|
$
|
42
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
42
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
|
|
|
|
|
|
Derivative instruments:
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
Commodity contracts
|
$
|
32
|
|
|
$
|
10
|
|
|
$
|
—
|
|
|
$
|
42
|
|
Foreign currency contracts
|
$
|
—
|
|
|
$
|
59
|
|
|
$
|
—
|
|
|
$
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
Commodity contracts
|
$
|
(62)
|
|
|
$
|
(113)
|
|
|
$
|
—
|
|
|
$
|
(175)
|
|
Foreign currency contracts
|
$
|
—
|
|
|
$
|
(4)
|
|
|
$
|
—
|
|
|
$
|
(4)
|
|
Interest rate contracts
|
$
|
—
|
|
|
$
|
(12)
|
|
|
$
|
—
|
|
|
$
|
(12)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-qualified supplemental postretirement grantor trust investments (a)
|
$
|
40
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
40
|
|
(a)Consists primarily of mutual fund investments held in grantor trusts associated with non-qualified supplemental retirement plans (see Note 8).
The fair values of our Level 1 exchange-traded commodity futures and option contracts and non-exchange-traded commodity futures and forward contracts are based upon actively quoted market prices for identical assets and liabilities. The remainder of our derivative instruments are designated as Level 2. The fair values of certain non-exchange-traded commodity derivatives designated as Level 2 are based upon indicative price quotations available through brokers, industry price publications or recent market transactions and related market indicators. The fair values of our Level 2 interest rate contracts and foreign currency contracts are based upon third-party quotes or indicative values based on recent market transactions. The fair values of investments held in grantor trusts are derived from quoted market prices as substantially all of the investments in these trusts have active markets.
Other Financial Instruments
The carrying amounts of other financial instruments included in current assets and current liabilities (except for current maturities of long-term debt) approximate their fair values because of their short-term nature. We estimate the fair value of long-term debt by using current market rates and by discounting future cash flows using rates available for similar type debt
UGI Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Currency in millions, except per share amounts and where indicated otherwise)
(Level 2). The carrying amounts and estimated fair values of our long-term debt (including current maturities but excluding unamortized debt issuance costs) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
Carrying amount
|
$
|
6,081
|
|
|
$
|
5,857
|
|
Estimated fair value
|
$
|
6,504
|
|
|
$
|
6,189
|
|
Financial instruments other than derivative instruments, such as short-term investments and trade accounts receivable, could expose us to concentrations of credit risk. We limit credit risk from short-term investments by investing only in investment-grade commercial paper, money market mutual funds, securities guaranteed by the U.S. Government or its agencies and FDIC insured bank deposits. The credit risk arising from concentrations of trade accounts receivable is limited because we have a large customer base that extends across many different U.S. markets and a number of foreign countries. For information regarding concentrations of credit risk associated with our derivative instruments, see Note 19.
Note 19 — Derivative Instruments and Hedging Activities
We are exposed to certain market risks related to our ongoing business operations. Management uses derivative financial and commodity instruments, among other things, to manage: (1) commodity price risk; (2) interest rate risk; and (3) foreign currency exchange rate risk. Although we use derivative financial and commodity instruments to reduce market risk associated with forecasted transactions, we do not use derivative financial and commodity instruments for speculative or trading purposes. The use of derivative instruments is controlled by our risk management and credit policies, which govern, among other things, the derivative instruments we can use, counterparty credit limits and contract authorization limits. Although our commodity derivative instruments extend over a number of years, a significant portion of our commodity derivative instruments economically hedge commodity price risk during the next twelve months. For information on the accounting for our derivative instruments, see Note 2.
The following summarizes the types of derivative instruments used by the Company to manage certain market risks:
Commodity Price Risk
Regulated Utility Operations
Natural Gas
Gas Utility’s tariffs contain clauses that permit recovery of all prudently incurred costs of natural gas it sells to retail core-market customers, including the cost of financial instruments used to hedge purchased gas costs. As permitted and agreed to by the PAPUC pursuant to Gas Utility’s annual PGC filings, Gas Utility currently uses NYMEX natural gas futures and option contracts to reduce commodity price volatility associated with a portion of the natural gas it purchases for its retail core-market customers. See Note 9 for further information on the regulatory accounting treatment for these derivatives instruments.
Non-utility Operations
LPG
In order to manage market price risk associated with the Partnership’s fixed-price programs and to reduce the effects of short-term commodity price volatility, the Partnership uses over-the-counter derivative commodity instruments, principally price swap contracts. In addition, the Partnership and our UGI International operations also use over-the-counter price swap contracts to reduce commodity price volatility associated with a portion of their forecasted LPG purchases.
Natural Gas
In order to manage market price risk relating to fixed-price sales contracts for physical natural gas, Midstream & Marketing enters into NYMEX and over-the-counter natural gas futures and over-the-counter and ICE natural gas basis swap contracts. In addition, Midstream & Marketing uses NYMEX and over-the-counter futures and options contracts to economically hedge price volatility associated with the gross margin derived from the purchase and anticipated later near-term sale of natural gas storage inventories. Outside of the financial market, Midstream & Marketing also uses ICE and over-the-counter forward physical contracts. UGI International also uses natural gas futures and forward contracts to economically hedge market price risk associated with fixed-price sales contracts with its customers.
UGI Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Currency in millions, except per share amounts and where indicated otherwise)
Electricity
In order to manage market price risk relating to fixed-price sales contracts for electricity, Midstream & Marketing enters into electricity futures and forward contracts. Midstream & Marketing also uses NYMEX and over-the-counter electricity futures contracts to economically hedge the price of a portion of its anticipated future sales of electricity from its electric generation facilities. UGI International also uses electricity futures and forward contracts to economically hedge market price risk associated with fixed-price sales and purchase contracts for electricity.
Interest Rate Risk
Certain of our long-term debt agreements have interest rates that are generally indexed to short-term market interest rates. In order to fix the underlying short-term market interest rates, we may enter into pay-fixed, receive-variable interest rate swap agreements and designate such swaps as cash flow hedges.
The remainder of our long-term debt is typically issued at fixed rates of interest. As this long-term debt matures, we typically refinance such debt with new debt having interest rates reflecting then-current market conditions. In order to reduce market rate risk on the underlying benchmark rate of interest associated with near- to medium-term forecasted issuances of fixed-rate debt, from time to time we enter into IRPAs. We account for IRPAs as cash flow hedges. There were no unsettled IRPAs during any of the periods presented. At September 30, 2020, the amount of pre-tax net losses associated with interest rate hedges (excluding pay-fixed, receive-variable interest rate swaps) expected to be reclassified into earnings during the next twelve months is $4.
Foreign Currency Exchange Rate Risk
Forward Foreign Currency Exchange Contracts
In order to reduce the volatility in net income associated with our foreign operations, principally as a result of changes in the U.S. dollar exchange rate to the euro and British pound sterling, we enter into forward foreign currency exchange contracts. We layer in these foreign currency exchange contracts over a multi-year period to eventually equal approximately 90% of anticipated UGI International local currency earnings before income taxes. Because these contracts are not designated as hedging instruments, realized and unrealized gains and losses on these contracts are recorded in “Other non-operating (expense) income, net” on the Consolidated Statements of Income.
In order to reduce exposure to foreign exchange rate volatility related to our foreign LPG operations, we previously entered into forward foreign currency exchange contracts to hedge a portion of anticipated U.S. dollar-denominated LPG product purchases primarily during the heating-season months of October through March. The last such contracts expired in September 2019. We accounted for these foreign currency exchange contracts as cash flow hedges.
Net Investment Hedges
From time to time we also enter into certain forward foreign currency exchange contracts to reduce the volatility of the U.S. dollar value of a portion of our UGI International euro-denominated net investments. We account for these foreign currency exchange contracts as net investment hedges and all changes in the fair value of these contracts are reported in the cumulative translation adjustment component in AOCI. During Fiscal 2020, we changed the method used for measuring ineffectiveness of our net investment hedges from the forward rate method to the spot rate method and the income statement impact of the change was not material.
Our euro-denominated long-term debt has also been designated as net investment hedges of a portion of our UGI International euro-denominated net investment. We recognized pre-tax (losses) gains associated with these net investment hedges in the cumulative translation adjustment component in AOCI of $(53) and $31 during Fiscal 2020 and 2019, respectively.
Cross Currency Contracts
Prior to the repayment of its U.S. dollar denominated variable-rate term loan during Fiscal 2019, Flaga used cross-currency contracts to hedge its exposure to the variability in expected future cash flows associated with the foreign currency and interest rate risk associated with this debt. These cross-currency contracts included initial and final exchanges of principal from a fixed euro denomination to a fixed U.S. dollar-denominated amount, to be exchanged at a specified rate, which was determined by the market spot rate on the date of issuance. These cross-currency contracts also included interest rate swaps of a floating U.S.
UGI Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Currency in millions, except per share amounts and where indicated otherwise)
dollar-denominated interest rate to a fixed euro-denominated interest rate. We designated these cross-currency contracts as cash flow hedges. These cross-currency contracts were settled concurrent with the repayment of this debt during Fiscal 2019.
Quantitative Disclosures Related to Derivative Instruments
The following table summarizes by derivative type the gross notional amounts related to open derivative contracts at September 30, 2020 and 2019 and the final settlement dates of the Company's open derivative contracts as of September 30, 2020, excluding those derivatives that qualified for the NPNS exception:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Amounts
(in millions)
|
|
|
|
|
|
|
September 30,
|
Type
|
|
Units
|
|
Settlements Extending Through
|
|
2020
|
|
2019
|
Commodity Price Risk:
|
|
|
|
|
|
|
|
|
Regulated Utility Operations
|
|
|
|
|
|
|
|
|
Gas Utility NYMEX natural gas futures and option contracts
|
|
Dekatherms
|
|
October 2021
|
|
22
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-utility Operations
|
|
|
|
|
|
|
|
|
LPG swaps
|
|
Gallons
|
|
February 2023
|
|
846
|
|
|
800
|
|
Natural gas futures, forward, basis swap, options and pipeline contracts
|
|
Dekatherms
|
|
December 2024
|
|
339
|
|
|
329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electricity long forward and futures contracts
|
|
Kilowatt hours
|
|
January 2024
|
|
4,517
|
|
|
3,098
|
|
Electricity short forward and futures contracts
|
|
Kilowatt hours
|
|
April 2024
|
|
188
|
|
|
367
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Risk:
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
Euro
|
|
October 2022
|
|
€
|
300
|
|
|
€
|
300
|
|
Interest rate swaps
|
|
USD
|
|
July 2024
|
|
$
|
1,344
|
|
|
$
|
1,357
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Exchange Rate Risk:
|
|
|
|
|
|
|
|
|
Forward foreign exchange contracts
|
|
USD
|
|
September 2023
|
|
$
|
511
|
|
|
$
|
516
|
|
Net investment hedge forward foreign exchange contracts
|
|
Euro
|
|
October 2024
|
|
€
|
173
|
|
|
€
|
173
|
|
|
|
|
|
|
|
|
|
|
Derivative Instrument Credit Risk
We are exposed to risk of loss in the event of nonperformance by our derivative instrument counterparties. Our derivative instrument counterparties principally comprise large energy companies and major U.S. and international financial institutions. We maintain credit policies with regard to our counterparties that we believe reduce overall credit risk. These policies include evaluating and monitoring our counterparties’ financial condition, including their credit ratings, and entering into agreements with counterparties that govern credit limits or entering into netting agreements that allow for offsetting counterparty receivable and payable balances for certain financial transactions, as deemed appropriate. Certain of these agreements call for the posting of collateral by the counterparty or by the Company in the forms of letters of credit, parental guarantees or cash. Additionally, our commodity exchange-traded futures contracts generally require cash deposits in margin accounts. Restricted cash in brokerage accounts is reported in “Restricted cash” on the Consolidated Balance Sheets. Although we have concentrations of credit risk associated with derivative instruments, the maximum amount of loss we would incur if these counterparties failed to perform according to the terms of their contracts, based upon the gross fair values of the derivative instruments, was not material at September 30, 2020. Certain of the Partnership’s derivative contracts have credit-risk-related contingent features that may require the posting of additional collateral in the event of a downgrade of the Partnership’s debt rating. At September 30, 2020, if the credit-risk-related contingent features were triggered, the amount of collateral required to be posted would not be material.
UGI Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Currency in millions, except per share amounts and where indicated otherwise)
Offsetting Derivative Assets and Liabilities
Derivative assets and liabilities are presented net by counterparty on the Consolidated Balance Sheets if the right of offset exists. We offset amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral against amounts recognized for derivative instruments executed with the same counterparty. Our derivative instruments include both those that are executed on an exchange through brokers and centrally cleared and over-the-counter transactions. Exchange contracts utilize a financial intermediary, exchange, or clearinghouse to enter, execute, or clear the transactions. Over-the-counter contracts are bilateral contracts that are transacted directly with a third party. Certain over-the-counter and exchange contracts contain contractual rights of offset through master netting arrangements, derivative clearing agreements, and contract default provisions. In addition, the contracts are subject to conditional rights of offset through counterparty nonperformance, insolvency or other conditions.
In general, most of our over-the-counter transactions and all exchange contracts are subject to collateral requirements. Types of collateral generally include cash or letters of credit. Cash collateral paid by us to our over-the-counter derivative counterparties, if any, is reflected in the table below to offset derivative liabilities. Cash collateral received by us from our over-the-counter derivative counterparties, if any, is reflected in the table below to offset derivative assets. Certain other accounts receivable and accounts payable balances recognized on the Consolidated Balance Sheets with our derivative counterparties are not included in the table below but could reduce our net exposure to such counterparties because such balances are subject to master netting or similar arrangements.
UGI Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Currency in millions, except per share amounts and where indicated otherwise)
Fair Value of Derivative Instruments
The following table presents the Company’s derivative assets and liabilities by type, as well as the effects of offsetting, as of September 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
Derivative assets:
|
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
Foreign currency contracts
|
$
|
17
|
|
|
$
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives subject to PGC and DS mechanisms:
|
|
|
|
Commodity contracts
|
7
|
|
|
1
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
Commodity contracts
|
100
|
|
|
41
|
|
Foreign currency contracts
|
15
|
|
|
42
|
|
|
115
|
|
|
83
|
|
Total derivative assets – gross
|
139
|
|
|
101
|
|
Gross amounts offset in the balance sheet
|
(57)
|
|
|
(29)
|
|
|
|
|
|
Total derivative assets – net
|
$
|
82
|
|
|
$
|
72
|
|
|
|
|
|
Derivative liabilities:
|
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
$
|
(55)
|
|
|
$
|
(12)
|
|
|
|
|
|
Derivatives subject to PGC and DS mechanisms:
|
|
|
|
Commodity contracts
|
—
|
|
|
(4)
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
Commodity contracts
|
(118)
|
|
|
(171)
|
|
Foreign currency contracts
|
(14)
|
|
|
(4)
|
|
|
(132)
|
|
|
(175)
|
|
Total derivative liabilities – gross
|
(187)
|
|
|
(191)
|
|
Gross amounts offset in the balance sheet
|
57
|
|
|
29
|
|
Cash collateral pledged
|
7
|
|
|
29
|
|
Total derivative liabilities – net
|
$
|
(123)
|
|
|
$
|
(133)
|
|
UGI Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Currency in millions, except per share amounts and where indicated otherwise)
Effects of Derivative Instruments
The following tables provide information on the effects of derivative instruments on the Consolidated Statements of Income and changes in AOCI for Fiscal 2020, Fiscal 2019 and Fiscal 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss)
Recognized in
AOCI
|
|
Gain (Loss)
Reclassified from
AOCI into Income
|
|
Location of Gain (Loss) Reclassified from
AOCI into Income
|
|
2020
|
|
2019
|
|
2018
|
|
2020
|
|
2019
|
|
2018
|
|
Cash Flow Hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2
|
|
|
$
|
(3)
|
|
|
Cost of sales
|
Cross-currency contracts
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
Interest expense /other operating income, net
|
Interest rate contracts
|
(53)
|
|
|
(11)
|
|
|
—
|
|
|
(13)
|
|
|
(6)
|
|
|
(5)
|
|
|
Interest expense
|
Total
|
$
|
(53)
|
|
|
$
|
(10)
|
|
|
$
|
2
|
|
|
$
|
(13)
|
|
|
$
|
(4)
|
|
|
$
|
(7)
|
|
|
|
Net Investment Hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts
|
$
|
(1)
|
|
|
$
|
17
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss)
Recognized in Income
|
|
Location of
Gain (Loss)
Recognized in Income
|
|
|
2020
|
|
2019
|
|
2018
|
|
Derivatives Not Designated as Hedging Instruments:
|
|
|
|
|
|
|
|
|
Commodity contracts
|
$
|
(32)
|
|
|
$
|
(344)
|
|
|
$
|
155
|
|
|
Cost of sales
|
|
Commodity contracts
|
10
|
|
|
7
|
|
|
(5)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts
|
(20)
|
|
|
38
|
|
|
16
|
|
|
Other non-operating (expense) income, net
|
|
Total
|
$
|
(42)
|
|
|
$
|
(299)
|
|
|
$
|
166
|
|
|
|
|
We are also a party to a number of other contracts that have elements of a derivative instrument. However, these contracts qualify for NPNS exception accounting because they provide for the delivery of products or services in quantities that are expected to be used in the normal course of operating our business and the price in the contract is based on an underlying that is directly associated with the price of the product or service being purchased or sold. These contracts include, among others, binding purchase orders, contracts that provide for the purchase and delivery, or sale, of energy products, and service contracts that require the counterparty to provide commodity storage, transportation or capacity service to meet our normal sales commitments.
Note 20 — Accumulated Other Comprehensive Income (Loss)
Other comprehensive income (loss) principally comprises (1) gains and losses on derivative instruments qualifying as cash flow hedges, net of reclassifications to net income; (2) actuarial gains and losses on postretirement benefit plans, net of associated amortization; and (3) foreign currency translation and long-term intra-company transaction adjustments.
UGI Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Currency in millions, except per share amounts and where indicated otherwise)
Changes in AOCI during Fiscal 2020, Fiscal 2019 and Fiscal 2018 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement
Benefit
Plans
|
|
Derivative
Instruments
|
|
Foreign
Currency
|
|
Total
|
AOCI - September 30, 2017
|
$
|
(19)
|
|
|
$
|
(21)
|
|
|
$
|
(53)
|
|
|
$
|
(93)
|
|
Other comprehensive income (loss) before reclassification adjustments (after-tax)
|
10
|
|
|
1
|
|
|
(30)
|
|
|
(19)
|
|
Amounts reclassified from AOCI:
|
|
|
|
|
|
|
|
Reclassification adjustments (pre-tax)
|
(3)
|
|
|
7
|
|
|
—
|
|
|
4
|
|
Reclassification adjustments tax expense (benefit)
|
1
|
|
|
(3)
|
|
|
—
|
|
|
(2)
|
|
Reclassification adjustments (after-tax)
|
(2)
|
|
|
4
|
|
|
—
|
|
|
2
|
|
Other comprehensive income (loss) attributable to UGI
|
8
|
|
|
5
|
|
|
(30)
|
|
|
(17)
|
|
AOCI - September 30, 2018
|
$
|
(11)
|
|
|
$
|
(16)
|
|
|
$
|
(83)
|
|
|
$
|
(110)
|
|
Other comprehensive loss before reclassification adjustments (after-tax)
|
(13)
|
|
|
(7)
|
|
|
(83)
|
|
|
(103)
|
|
Amounts reclassified from AOCI:
|
|
|
|
|
|
|
|
Reclassification adjustments (pre-tax)
|
2
|
|
|
4
|
|
|
—
|
|
|
6
|
|
Reclassification adjustments tax benefit
|
(1)
|
|
|
(2)
|
|
|
—
|
|
|
(3)
|
|
Reclassification adjustments (after-tax)
|
1
|
|
|
2
|
|
|
—
|
|
|
3
|
|
Other comprehensive loss attributable to UGI
|
(12)
|
|
|
(5)
|
|
|
(83)
|
|
|
(100)
|
|
Reclassification of stranded income tax effects related to TCJA
|
$
|
(3)
|
|
|
$
|
(4)
|
|
|
$
|
—
|
|
|
$
|
(7)
|
|
AOCI - September 30, 2019
|
$
|
(26)
|
|
|
$
|
(25)
|
|
|
$
|
(166)
|
|
|
$
|
(217)
|
|
Other comprehensive (loss) income before reclassification adjustments (after-tax)
|
(3)
|
|
|
(38)
|
|
|
99
|
|
|
58
|
|
Amounts reclassified from AOCI:
|
|
|
|
|
|
|
|
Reclassification adjustments (pre-tax)
|
4
|
|
|
13
|
|
|
—
|
|
|
17
|
|
Reclassification adjustments tax benefit
|
(1)
|
|
|
(4)
|
|
|
—
|
|
|
(5)
|
|
Reclassification adjustments (after-tax)
|
3
|
|
|
9
|
|
|
—
|
|
|
12
|
|
Other comprehensive (loss) income attributable to UGI
|
—
|
|
|
(29)
|
|
|
99
|
|
|
70
|
|
|
|
|
|
|
|
|
|
AOCI - September 30, 2020
|
$
|
(26)
|
|
|
$
|
(54)
|
|
|
$
|
(67)
|
|
|
$
|
(147)
|
|
For additional information on amounts reclassified from AOCI relating to derivative instruments, see Note 19.
Note 21 — Other Operating Income, Net and Other Non-Operating (Expense) Income, Net
Other Operating Income, Net
Other operating income, net, for Fiscal 2020, Fiscal 2019 and Fiscal 2018 comprises the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Finance charges
|
$
|
9
|
|
|
$
|
17
|
|
|
$
|
16
|
|
|
|
|
|
|
|
Interest and interest-related income
|
2
|
|
|
6
|
|
|
3
|
|
Utility non-tariff service income
|
—
|
|
|
1
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains on sales of fixed assets, net
|
5
|
|
|
3
|
|
|
5
|
|
Other, net
|
5
|
|
|
4
|
|
|
5
|
|
Total other operating income, net
|
$
|
21
|
|
|
$
|
31
|
|
|
$
|
32
|
|
UGI Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Currency in millions, except per share amounts and where indicated otherwise)
Other Non-Operating (Expense) Income, Net
Other non-operating (expense) income, net for Fiscal 2020, Fiscal 2019 and Fiscal 2018 comprises the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
(Losses) gains on foreign currency contracts, net
|
$
|
(20)
|
|
|
$
|
38
|
|
|
$
|
16
|
|
|
|
|
|
|
|
Pension and other postretirement plans non-service income, net
|
—
|
|
|
1
|
|
|
—
|
|
Total other non-operating (expense) income, net
|
$
|
(20)
|
|
|
$
|
39
|
|
|
$
|
16
|
|
Note 22 — Quarterly Data (unaudited)
The following unaudited quarterly data includes adjustments (consisting only of normal recurring adjustments with the exception of those indicated below) that we consider necessary for a fair presentation unless otherwise indicated. Our quarterly results fluctuate primarily because of the seasonal nature of our businesses and the effects of unrealized gains and losses on commodity and certain foreign currency derivative instruments (see Note 19) and other significant discrete items that can affect the comparison of period-over-period results.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
March 31,
|
|
June 30,
|
|
September 30,
|
|
2019
|
|
2018
(a)
|
|
2020
|
|
2019
|
|
2020
(b)
|
|
2019
|
|
2020
|
|
2019
(c)
|
Revenues
|
$
|
2,007
|
|
|
$
|
2,200
|
|
|
$
|
2,229
|
|
|
$
|
2,606
|
|
|
$
|
1,199
|
|
|
$
|
1,364
|
|
|
$
|
1,124
|
|
|
$
|
1,150
|
|
Operating income (loss)
|
$
|
377
|
|
|
$
|
168
|
|
|
$
|
362
|
|
|
$
|
539
|
|
|
$
|
174
|
|
|
$
|
9
|
|
|
$
|
69
|
|
|
$
|
(99)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) including noncontrolling interests
|
$
|
212
|
|
|
$
|
89
|
|
|
$
|
226
|
|
|
$
|
396
|
|
|
$
|
84
|
|
|
$
|
(46)
|
|
|
$
|
10
|
|
|
$
|
(131)
|
|
Net income (loss) attributable to UGI Corporation
|
$
|
212
|
|
|
$
|
64
|
|
|
$
|
226
|
|
|
$
|
246
|
|
|
$
|
85
|
|
|
$
|
(2)
|
|
|
$
|
9
|
|
|
$
|
(52)
|
|
Earnings (loss) per common share attributable to UGI Corporation stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
1.01
|
|
|
$
|
0.37
|
|
|
$
|
1.08
|
|
|
$
|
1.41
|
|
|
$
|
0.41
|
|
|
$
|
(0.01)
|
|
|
$
|
0.05
|
|
|
$
|
(0.27)
|
|
Diluted
|
$
|
1.00
|
|
|
$
|
0.36
|
|
|
$
|
1.07
|
|
|
$
|
1.38
|
|
|
$
|
0.41
|
|
|
$
|
(0.01)
|
|
|
$
|
0.05
|
|
|
$
|
(0.27)
|
|
Weighted-average common shares outstanding (thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
209,439
|
|
|
174,413
|
|
|
208,941
|
|
|
174,501
|
|
|
208,598
|
|
|
174,759
|
|
|
208,655
|
|
|
189,905
|
|
Diluted
|
211,258
|
|
|
177,566
|
|
|
209,808
|
|
|
177,318
|
|
|
208,975
|
|
|
174,759
|
|
|
209,357
|
|
|
189,905
|
|
(a)Includes loss on extinguishments of debt at UGI International which reduced net income attributable to UGI by $4.
(b)Includes impairment of Conemaugh assets held-for-sale at Midstream & Marketing which reduced net income attributable to UGI by $37 (see Note 5).
(c)Weighted-average common shares outstanding includes the impact from the August 2019 issuance of 34,613 thousand shares of UGI Common Stock in connection with the AmeriGas Merger (see Note 5).
Note 23 — Segment Information
Our operations comprise four reportable segments generally based upon products or services sold, geographic location and regulatory environment: (1) AmeriGas Propane; (2) UGI International; (3) Midstream & Marketing; and (4) UGI Utilities.
AmeriGas Propane derives its revenues principally from the sale of propane and related equipment and supplies to retail customers in all 50 states. UGI International derives its revenues principally from the distribution of LPG to retail customers in France and in northern, central and eastern European countries. In addition, UGI International derives revenue from natural gas marketing businesses in France, Belgium and the United Kingdom and a natural gas and electricity marketing business in the Netherlands. Midstream & Marketing derives its revenues principally from the sale of natural gas, liquid fuels and electricity as well as revenues and fees from storage, pipeline transportation, natural gas gathering and natural gas production activities primarily in the Mid-Atlantic region of the U.S. eastern Ohio and the panhandle of West Virginia. Midstream & Marketing also
UGI Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Currency in millions, except per share amounts and where indicated otherwise)
derives revenues from the sale of electricity through PJM, a regional electricity transmission organization in the eastern U.S., and, prior to its sale on September 30, 2020, also from contracting services provided by HVAC to customers in portions of eastern and central Pennsylvania (see Note 5). UGI Utilities derives its revenues principally from the sale and distribution of natural gas to customers in eastern and central Pennsylvania and, to a lesser extent, from the sale and distribution of electricity in two northeastern Pennsylvania counties.
Corporate & Other includes certain items that are excluded from our CODM’s assessment of segment performance (see below for further details on these items). Corporate & Other also includes the net expenses of UGI’s captive general liability insurance company, UGI’s corporate headquarters facility and UGI’s unallocated corporate and general expenses as well as interest expense on debt incurred by UGI Corporation that is not allocated. Corporate & Other assets principally comprise cash and cash equivalents of UGI and its captive insurance company, and UGI corporate headquarters’ assets.
The accounting policies of our reportable segments are the same as those described in Note 2. Our CODM evaluates the performance of all of our reportable segments based upon earnings before interest expense and income taxes, excluding the items noted below.
No single customer represents more than ten percent of our consolidated revenues. In addition, all of our reportable segments’ revenues, other than those of UGI International, are derived from sources within the United States, and all of our reportable segments’ long-lived assets, other than those of UGI International, are located in the United States. The amounts of revenues and long-lived assets associated with our operations in France represent approximately 20% and 10% of the respective consolidated amounts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Elim-
inations
|
|
AmeriGas
Propane
|
|
UGI International
|
|
Midstream
& Marketing
|
|
UGI Utilities
|
|
Corporate &
Other (a)
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
$
|
6,559
|
|
|
$
|
—
|
|
|
$
|
2,381
|
|
|
$
|
2,127
|
|
|
$
|
1,065
|
|
|
$
|
983
|
|
|
$
|
3
|
|
Intersegment revenues
|
$
|
—
|
|
|
$
|
(232)
|
|
(b)
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
182
|
|
|
$
|
47
|
|
|
$
|
3
|
|
Cost of sales
|
$
|
3,149
|
|
|
$
|
(229)
|
|
(b)
|
$
|
960
|
|
|
$
|
1,191
|
|
|
$
|
892
|
|
|
$
|
448
|
|
|
$
|
(113)
|
|
Operating income (loss)
|
$
|
982
|
|
|
$
|
—
|
|
|
$
|
373
|
|
|
$
|
241
|
|
(c)
|
$
|
140
|
|
|
$
|
229
|
|
|
$
|
(1)
|
|
Income from equity investees
|
27
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
27
|
|
(d)
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other non-operating (expense) income, net
|
(20)
|
|
|
—
|
|
|
—
|
|
|
18
|
|
|
1
|
|
|
—
|
|
|
(39)
|
|
Earnings (losses) before interest expense and income taxes
|
989
|
|
|
—
|
|
|
373
|
|
|
259
|
|
|
168
|
|
|
229
|
|
|
(40)
|
|
Interest expense
|
(322)
|
|
|
—
|
|
|
(164)
|
|
|
(31)
|
|
|
(42)
|
|
|
(54)
|
|
|
(31)
|
|
Income tax (expense) benefit
|
(135)
|
|
|
—
|
|
|
(53)
|
|
|
(55)
|
|
|
(34)
|
|
|
(39)
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to UGI
|
$
|
532
|
|
|
$
|
—
|
|
|
$
|
156
|
|
|
$
|
173
|
|
|
$
|
92
|
|
|
$
|
136
|
|
|
$
|
(25)
|
|
Depreciation and amortization
|
$
|
484
|
|
|
$
|
—
|
|
|
$
|
178
|
|
|
$
|
125
|
|
|
$
|
75
|
|
|
$
|
105
|
|
|
$
|
1
|
|
Total assets
|
$
|
13,985
|
|
|
$
|
(282)
|
|
|
$
|
4,327
|
|
|
$
|
3,123
|
|
|
$
|
2,775
|
|
|
$
|
3,809
|
|
|
$
|
233
|
|
Short-term borrowings
|
$
|
347
|
|
|
$
|
—
|
|
|
$
|
186
|
|
|
$
|
1
|
|
|
$
|
19
|
|
|
$
|
141
|
|
|
$
|
—
|
|
Capital expenditures (including the effects of accruals)
|
$
|
665
|
|
|
$
|
—
|
|
|
$
|
135
|
|
|
$
|
89
|
|
|
$
|
93
|
|
|
$
|
348
|
|
|
$
|
—
|
|
Investments in equity investees
|
$
|
200
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
10
|
|
|
$
|
190
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
$
|
7,320
|
|
|
$
|
—
|
|
|
$
|
2,682
|
|
|
$
|
2,372
|
|
|
$
|
1,281
|
|
|
$
|
981
|
|
|
$
|
4
|
|
Intersegment revenues
|
$
|
—
|
|
|
$
|
(306)
|
|
(b)
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
235
|
|
|
$
|
68
|
|
|
$
|
3
|
|
Cost of sales
|
$
|
4,323
|
|
|
$
|
(301)
|
|
(b)
|
$
|
1,191
|
|
|
$
|
1,416
|
|
|
$
|
1,241
|
|
|
$
|
481
|
|
|
$
|
295
|
|
Operating income (loss)
|
$
|
617
|
|
|
$
|
—
|
|
|
$
|
404
|
|
|
$
|
229
|
|
|
$
|
105
|
|
|
$
|
224
|
|
|
$
|
(345)
|
|
Income from equity investees
|
9
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9
|
|
(d)
|
—
|
|
|
—
|
|
Loss on extinguishments of debt
|
(6)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6)
|
|
Other non-operating income (expense), net
|
39
|
|
|
(1)
|
|
|
—
|
|
|
5
|
|
|
—
|
|
|
2
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (losses) before interest expense and income taxes
|
659
|
|
|
(1)
|
|
|
404
|
|
|
234
|
|
|
114
|
|
|
226
|
|
|
(318)
|
|
Interest expense
|
(258)
|
|
|
—
|
|
|
(167)
|
|
|
(25)
|
|
|
(9)
|
|
|
(50)
|
|
|
(7)
|
|
Income tax (expense) benefit
|
(93)
|
|
|
—
|
|
|
(26)
|
|
|
(64)
|
|
|
(27)
|
|
|
(43)
|
|
|
67
|
|
Noncontrolling interests’ net (income) loss
|
(52)
|
|
|
—
|
|
|
(143)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
91
|
|
Net income (loss) attributable to UGI
|
$
|
256
|
|
|
$
|
(1)
|
|
|
$
|
68
|
|
|
$
|
145
|
|
|
$
|
78
|
|
|
$
|
133
|
|
|
$
|
(167)
|
|
UGI Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Currency in millions, except per share amounts and where indicated otherwise)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Elim-
inations
|
|
AmeriGas
Propane
|
|
UGI International
|
|
Midstream
& Marketing
|
|
UGI Utilities
|
|
Corporate &
Other (a)
|
Depreciation and amortization
|
$
|
448
|
|
|
$
|
—
|
|
|
$
|
179
|
|
|
$
|
124
|
|
|
$
|
51
|
|
|
$
|
93
|
|
|
$
|
1
|
|
Total assets
|
$
|
13,347
|
|
|
$
|
(353)
|
|
|
$
|
4,095
|
|
|
$
|
2,975
|
|
|
$
|
2,745
|
|
|
$
|
3,560
|
|
|
$
|
325
|
|
Short-term borrowings
|
$
|
796
|
|
|
$
|
—
|
|
|
$
|
328
|
|
|
$
|
211
|
|
|
$
|
91
|
|
|
$
|
166
|
|
|
$
|
—
|
|
Capital expenditures (including the effects of accruals)
|
$
|
707
|
|
|
$
|
—
|
|
|
$
|
107
|
|
|
$
|
106
|
|
|
$
|
138
|
|
|
$
|
355
|
|
|
$
|
1
|
|
Investments in equity investees
|
$
|
190
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
12
|
|
|
$
|
178
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
$
|
7,651
|
|
|
$
|
—
|
|
|
$
|
2,823
|
|
|
$
|
2,684
|
|
|
$
|
1,149
|
|
|
$
|
998
|
|
|
$
|
(3)
|
|
Intersegment revenues
|
$
|
—
|
|
|
$
|
(371)
|
|
(b)
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
273
|
|
|
$
|
94
|
|
|
$
|
4
|
|
Cost of sales
|
$
|
4,075
|
|
|
$
|
(367)
|
|
(b)
|
$
|
1,315
|
|
|
$
|
1,620
|
|
|
$
|
1,091
|
|
|
$
|
523
|
|
|
$
|
(107)
|
|
Operating income (loss)
|
$
|
1,065
|
|
|
$
|
1
|
|
|
$
|
422
|
|
|
$
|
248
|
|
|
$
|
175
|
|
|
$
|
240
|
|
|
$
|
(21)
|
|
Income (loss) from equity investees
|
4
|
|
|
—
|
|
|
—
|
|
|
(1)
|
|
|
5
|
|
(d)
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other non-operating income (expense), net
|
16
|
|
|
(1)
|
|
|
—
|
|
|
(7)
|
|
|
(1)
|
|
|
(2)
|
|
|
27
|
|
Earnings before interest expense and income taxes
|
1,085
|
|
|
—
|
|
|
422
|
|
|
240
|
|
|
179
|
|
|
238
|
|
|
6
|
|
Interest expense
|
(230)
|
|
|
—
|
|
|
(163)
|
|
|
(21)
|
|
|
(2)
|
|
|
(43)
|
|
|
(1)
|
|
Income tax (expense) benefit (e)
|
(33)
|
|
|
(1)
|
|
|
(31)
|
|
|
(69)
|
|
|
(50)
|
|
|
(54)
|
|
|
172
|
|
Noncontrolling interests’ net (income) loss
|
(103)
|
|
|
—
|
|
|
(152)
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
46
|
|
Net income (loss) attributable to UGI
|
$
|
719
|
|
|
$
|
(1)
|
|
|
$
|
76
|
|
|
$
|
153
|
|
|
$
|
127
|
|
|
$
|
141
|
|
|
$
|
223
|
|
Depreciation and amortization
|
$
|
455
|
|
|
$
|
—
|
|
|
$
|
186
|
|
|
$
|
141
|
|
|
$
|
43
|
|
|
$
|
85
|
|
|
$
|
—
|
|
Total assets
|
$
|
11,981
|
|
|
$
|
(125)
|
|
|
$
|
3,934
|
|
|
$
|
3,279
|
|
|
$
|
1,329
|
|
|
$
|
3,266
|
|
|
$
|
298
|
|
Short-term borrowings
|
$
|
425
|
|
|
$
|
—
|
|
|
$
|
232
|
|
|
$
|
1
|
|
|
$
|
2
|
|
|
$
|
190
|
|
|
$
|
—
|
|
Capital expenditures (including the effects of accruals)
|
$
|
597
|
|
|
$
|
—
|
|
|
$
|
101
|
|
|
$
|
111
|
|
|
$
|
43
|
|
|
$
|
339
|
|
|
$
|
3
|
|
Investments in equity investees
|
$
|
88
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
13
|
|
|
$
|
75
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UGI Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Currency in millions, except per share amounts and where indicated otherwise)
(a)Corporate & Other includes specific items attributable to our reportable segments that are not included in the segment profit measures used by our CODM in assessing our reportable segments’ performance or allocating resources. The following table presents such pre-tax gains (losses) which have been included in Corporate & Other, and the reportable segments to which they relate, for Fiscal 2020, Fiscal 2019 and Fiscal 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location on Income Statement
|
|
AmeriGas Propane
|
|
UGI International
|
|
Midstream & Marketing
|
2020
|
|
|
|
|
|
|
|
|
Net gains on commodity derivative instruments not associated with current-period transactions
|
|
Revenues
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3
|
|
Net gains on commodity derivative instruments not associated with current-period transactions
|
|
Cost of Sales
|
|
$
|
72
|
|
|
$
|
—
|
|
|
$
|
42
|
|
Unrealized losses on foreign currency derivative instruments
|
|
Other non-operating (expense) income, net
|
|
$
|
—
|
|
|
$
|
(36)
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition and integration expenses associated with the CMG Acquisition
|
|
Operating and administrative expenses
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(2)
|
|
LPG business transformation expenses
|
|
Operating and administrative expenses
|
|
$
|
(44)
|
|
|
$
|
(18)
|
|
|
$
|
—
|
|
Loss on disposals of Conemaugh and HVAC
|
|
Loss on disposals of Conemaugh and HVAC
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(54)
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
|
|
|
|
|
Net gains on commodity derivative instruments not associated with current-period transactions
|
|
Revenues
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4
|
|
Net losses on commodity derivative instruments not associated with current-period transactions
|
|
Cost of sales
|
|
$
|
(117)
|
|
|
$
|
(143)
|
|
|
$
|
(35)
|
|
Unrealized gains on foreign currency derivative instruments
|
|
Other non-operating (expense) income, net
|
|
$
|
—
|
|
|
$
|
32
|
|
|
$
|
—
|
|
Loss on extinguishments of debt
|
|
Loss on extinguishment of debt
|
|
$
|
—
|
|
|
$
|
(6)
|
|
|
$
|
—
|
|
AmeriGas Merger expenses
|
|
Operating and administrative expenses
|
|
$
|
(6)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Acquisition and integration expenses associated with the CMG Acquisition
|
|
Operating and administrative expenses
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(16)
|
|
LPG business transformation expenses
|
|
Operating and administrative expenses
|
|
$
|
(15)
|
|
|
$
|
(9)
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
|
|
|
|
|
|
Net gains on commodity derivative instruments not associated with current-period transactions
|
|
Revenues
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(4)
|
|
Net gains (losses) on commodity derivative instruments not associated with current-period transactions
|
|
Cost of Sales
|
|
$
|
13
|
|
|
$
|
93
|
|
|
$
|
2
|
|
Unrealized gains on foreign currency derivative instruments
|
|
Other non-operating (expense) income, net
|
|
$
|
—
|
|
|
$
|
29
|
|
|
$
|
—
|
|
Integration expenses associated with Finagaz
|
|
Operating and administrative expenses
|
|
$
|
—
|
|
|
$
|
(31)
|
|
|
$
|
—
|
|
Impairment of Partnership tradenames and trademarks
|
|
Impairment of Partnership tradenames and trademarks
|
|
$
|
(75)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
(b)Represents the elimination of intersegment transactions principally among Midstream & Marketing, UGI Utilities and AmeriGas Propane.
(c)Beginning October 1, 2019, UGI International is allocated a portion of indirect corporate expenses. Prior to October 1, 2019, these expenses were billed to its parent company, which is included in Corporate & Other.
(d)Fiscal 2020 and Fiscal 2019 also includes income from Pennant subsequent to the CMG Acquisition (see Note 5). Includes AFUDC associated with PennEast (see Note 2).
UGI Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Currency in millions, except per share amounts and where indicated otherwise)
(e)Fiscal 2018 results include impacts from the TCJA in the U.S. See Notes 7 and 9 for additional information. For Fiscal 2018, the remeasurement impacts from the TCJA and, for UGI International, the December 2017 French Finance Bills, were allocated from each of AmeriGas Propane, UGI International, Midstream & Marketing and UGI Utilities to Corporate & Other in amounts of $113, $4, $70 and $8, respectively.
Note 24 — Global LPG Business Transformation Initiatives
During the fourth quarter of Fiscal 2019, we began executing on multi-year business transformation initiatives at our AmeriGas Propane and UGI International business segments. These initiatives are designed to improve long-term operational performance by, among other things, reducing costs and improving efficiency in the areas of sales and marketing, supply and logistics, operations, purchasing, and administration. In addition, these business transformation initiatives focus on enhancing the customer experience through, among other things, enhanced customer relationship management and an improved digital customer experience. In connection with these initiatives, during Fiscal 2020 and 2019 we incurred $62 and $24, respectively, of costs principally comprising consulting, advisory, marketing and employee-related costs. These costs are primarily reflected in “Operating and administrative expenses” on the Consolidated Statements of Income.
Note 25 — Impact of Global Pandemic
In March 2020, the WHO declared a global pandemic attributable to the outbreak and continued spread of COVID-19 that has had a significant impact throughout the global economy. In connection with the mitigation and containment procedures recommended by the WHO, the CDC, and as imposed by federal, state, and local governmental authorities, including shelter-in-place orders, quarantines and similar restrictions, the Company implemented a variety of procedures to protect its employees, third-party business partners, and customers worldwide. The Company continues to provide essential products and services to its global customers in a safe and reliable manner, and will continue to do so in compliance with mandated restrictions presented by each of the markets it serves. The Company continues to evaluate and react to the potential effects of a prolonged disruption and the continued impact on its results of operations. These items may include, but are not limited to: the financial condition of its customers; decreased availability and demand for its products and services; realization of accounts receivable; impairment considerations related to certain current assets, long-lived assets and goodwill; delays related to current and future projects; and the effects of government stimulus efforts including tax legislation in response to COVID-19. While its operations and financial performance have been significantly impacted by COVID-19 in Fiscal 2020, the Company cannot predict the duration or magnitude of the outbreak and the total effects on its business, financial position, results of operations, liquidity or cash flows at this time.
In March 2020, the CARES Act was enacted in response to the COVID-19 pandemic. Among other things, the CARES Act includes provisions which modify the NOL limitation and carryback rules including a five-year carryback for NOLs and the temporary removal of the 80 percent limitation on NOL utilization for taxable years beginning before January 1, 2021. See Note 7 for additional information on the effects of these provisions on the Company's income tax expense for Fiscal 2020.
UGI CORPORATION
SCHEDULE I — CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY)
BALANCE SHEETS
(Millions of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
2020
|
|
2019
|
ASSETS
|
|
|
|
Current assets:
|
|
|
|
Cash and cash equivalents
|
$
|
67
|
|
|
$
|
54
|
|
Accounts receivable – related parties
|
11
|
|
|
5
|
|
Prepaid expenses and other current assets
|
15
|
|
|
23
|
|
Total current assets
|
93
|
|
|
82
|
|
Property, plant and equipment, net
|
2
|
|
|
3
|
|
Investments in subsidiaries
|
4,898
|
|
|
4,585
|
|
|
|
|
|
Other assets
|
87
|
|
|
77
|
|
Total assets
|
$
|
5,080
|
|
|
$
|
4,747
|
|
LIABILITIES AND COMMON STOCKHOLDERS’ EQUITY
|
|
|
|
Current liabilities:
|
|
|
|
Current maturities of long-term debt
|
$
|
30
|
|
|
$
|
—
|
|
Accounts and notes payable
|
15
|
|
|
15
|
|
|
|
|
|
Accrued liabilities
|
29
|
|
|
9
|
|
Total current liabilities
|
74
|
|
|
24
|
|
Long-term debt
|
817
|
|
|
846
|
|
Other noncurrent liabilities
|
61
|
|
|
60
|
|
Total liabilities
|
952
|
|
|
930
|
|
Commitments and contingencies (Note 1)
|
|
|
|
Common stockholders’ equity:
|
|
|
|
Common Stock, without par value (authorized – 450,000,000 shares; issued – 209,514,044 and 209,304,129 shares, respectively)
|
1,416
|
|
|
1,397
|
|
Retained earnings
|
2,908
|
|
|
2,653
|
|
Accumulated other comprehensive loss
|
(147)
|
|
|
(217)
|
|
Treasury stock, at cost
|
(49)
|
|
|
(16)
|
|
Total common stockholders’ equity
|
4,128
|
|
|
3,817
|
|
Total liabilities and common stockholders’ equity
|
$
|
5,080
|
|
|
$
|
4,747
|
|
Note 1 — Commitments and Contingencies:
At September 30, 2020, UGI Corporation had agreed to indemnify the issuers of $80 of surety bonds issued on behalf of certain UGI subsidiaries. UGI Corporation is authorized to guarantee up to $475 of obligations to suppliers and customers of Energy Services and subsidiaries of which $396 of such obligations were outstanding as of September 30, 2020.
Scheduled principal repayments of long-term debt during the next five fiscal years include $30 in Fiscal 2021, $300 in Fiscal 2022, $38 in Fiscal 2023 and $482 in Fiscal 2024.
UGI CORPORATION
SCHEDULE I — CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY)
STATEMENTS OF INCOME
(Millions of dollars, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
2020
|
|
2019
|
|
2018
|
Revenues
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Costs and expenses:
|
|
|
|
|
|
Operating and administrative expenses
|
56
|
|
|
50
|
|
|
63
|
|
Other operating income, net (a)
|
(54)
|
|
|
(50)
|
|
|
(52)
|
|
|
2
|
|
|
—
|
|
|
11
|
|
Operating loss
|
(2)
|
|
|
—
|
|
|
(11)
|
|
Pension and other postretirement plans non-service expense
|
—
|
|
|
(1)
|
|
|
(1)
|
|
Interest expense
|
(32)
|
|
|
(6)
|
|
|
—
|
|
|
|
|
|
|
|
Loss before income taxes
|
(34)
|
|
|
(7)
|
|
|
(12)
|
|
Income tax expense (benefit)
|
17
|
|
|
(3)
|
|
|
6
|
|
Loss before equity in income of unconsolidated subsidiaries
|
(51)
|
|
|
(4)
|
|
|
(18)
|
|
Equity in income of unconsolidated subsidiaries
|
583
|
|
|
260
|
|
|
737
|
|
Net income attributable to UGI Corporation
|
$
|
532
|
|
|
$
|
256
|
|
|
$
|
719
|
|
Other comprehensive (loss) income
|
(12)
|
|
|
(3)
|
|
|
3
|
|
Equity in other comprehensive income (loss) of unconsolidated subsidiaries
|
82
|
|
|
(97)
|
|
|
(20)
|
|
Comprehensive income attributable to UGI Corporation
|
$
|
602
|
|
|
$
|
156
|
|
|
$
|
702
|
|
Earnings per common share attributable to UGI Corporation stockholders:
|
|
|
|
|
|
Basic
|
$
|
2.55
|
|
|
$
|
1.44
|
|
|
$
|
4.13
|
|
Diluted
|
$
|
2.54
|
|
|
$
|
1.41
|
|
|
$
|
4.06
|
|
Weighted - average common shares outstanding (thousands):
|
|
|
|
|
|
Basic
|
208,928
|
|
|
178,417
|
|
|
173,908
|
|
Diluted
|
209,869
|
|
|
181,111
|
|
|
176,905
|
|
(a)UGI provides certain financial and administrative services to certain of its subsidiaries. UGI bills these subsidiaries monthly for all direct expenses incurred by UGI on behalf of its subsidiaries as well as allocated shares of indirect corporate expense incurred or paid with respect to services provided by UGI. The allocation of indirect UGI corporate expenses to certain of its subsidiaries utilizes a weighted, three-component formula comprising revenues, operating expenses, and net assets employed and considers the relative percentage of such items for each subsidiary to the total of such items for all UGI operating subsidiaries for which general and administrative services are provided. Management believes that this allocation method is reasonable and equitable to its subsidiaries. These billed expenses are classified as “Other operating income, net” in the Statements of Income above.
UGI CORPORATION
SCHEDULE I — CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY)
STATEMENTS OF CASH FLOWS
(Millions of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
2020
|
|
2019
|
|
2018
|
NET CASH PROVIDED BY OPERATING ACTIVITIES (a)
|
$
|
322
|
|
|
$
|
170
|
|
|
$
|
208
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
Expenditures for property, plant and equipment
|
—
|
|
|
—
|
|
|
(2)
|
|
Net investments in unconsolidated subsidiaries
|
—
|
|
|
(768)
|
|
|
(7)
|
|
Net cash used by investing activities
|
—
|
|
|
(768)
|
|
|
(9)
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
Payment of dividends on Common Stock
|
(273)
|
|
|
(200)
|
|
|
(177)
|
|
Issuances of debt, net of issuance costs
|
60
|
|
|
846
|
|
|
—
|
|
Repayments of long-term debt
|
(60)
|
|
|
—
|
|
|
—
|
|
Issuances of Common Stock
|
2
|
|
|
17
|
|
|
35
|
|
Repurchases of UGI Common Stock
|
(38)
|
|
|
(17)
|
|
|
(60)
|
|
|
|
|
|
|
|
Other
|
—
|
|
|
(7)
|
|
|
—
|
|
Net cash (used) provided by financing activities
|
(309)
|
|
|
639
|
|
|
(202)
|
|
Cash and cash equivalents increase (decrease)
|
$
|
13
|
|
|
$
|
41
|
|
|
$
|
(3)
|
|
Cash and cash equivalents:
|
|
|
|
|
|
End of year
|
$
|
67
|
|
|
$
|
54
|
|
|
$
|
13
|
|
Beginning of year
|
54
|
|
|
13
|
|
|
16
|
|
Cash and cash equivalents increase (decrease)
|
$
|
13
|
|
|
$
|
41
|
|
|
$
|
(3)
|
|
(a)Includes dividends received from unconsolidated subsidiaries of $352, $163 and $191 for the years ended September 30, 2020, 2019 and 2018, respectively.
UGI CORPORATION AND SUBSIDIARIES
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
(Millions of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
beginning
of year
|
|
Charged
(credited)
to costs and
expenses
|
|
Other
|
|
Balance at
end of
year
|
|
Year Ended September 30, 2020
|
|
|
|
|
|
|
|
|
Reserves deducted from assets in the consolidated balance sheet:
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
$
|
32
|
|
|
$
|
32
|
|
|
$
|
(22)
|
|
(1)
|
$
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other reserves:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets valuation allowance
|
$
|
91
|
|
|
$
|
—
|
|
|
$
|
14
|
|
(2)
|
$
|
105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, 2019
|
|
|
|
|
|
|
|
|
Reserves deducted from assets in the consolidated balance sheet:
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
$
|
35
|
|
|
$
|
29
|
|
|
$
|
(32)
|
|
(1)
|
$
|
32
|
|
|
|
|
|
|
|
|
|
|
|
Other reserves:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets valuation allowance
|
$
|
117
|
|
|
$
|
(26)
|
|
|
$
|
—
|
|
|
$
|
91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, 2018
|
|
|
|
|
|
|
|
|
Reserves deducted from assets in the consolidated balance sheet:
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
$
|
27
|
|
|
$
|
36
|
|
|
$
|
(28)
|
|
(1)
|
$
|
35
|
|
|
|
|
|
|
|
|
|
|
|
Other reserves:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets valuation allowance
|
$
|
107
|
|
|
$
|
10
|
|
|
$
|
—
|
|
|
$
|
117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)Uncollectible accounts written off, net of recoveries.
(2)Primarily a notional interest deduction valuation allowance adjustment.