UGI Corp: Form 10-Q for the period ended Jun 30, 2024

Forward-Looking Statements

Information contained in this Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements use forward-looking words such as “believe,” “plan,” “anticipate,” “continue,” “estimate,” “expect,” “may,” or other similar words and terms of similar meaning, although not all forward-looking statements contain such words. These statements discuss plans, strategies, events or developments that we expect or anticipate will or may occur in the future. All forward-looking statements made in this Quarterly Report on Form 10-Q rely upon the safe harbor protections provided under the Private Securities Litigation Reform Act of 1995.

A forward-looking statement may include a statement of the assumptions or bases underlying the forward-looking statement. We believe that we have chosen these assumptions or bases in good faith and that they are reasonable. However, we caution you against relying on any forward-looking statement as these statements are subject to risks and uncertainties that may cause actual results to vary from assumed facts or bases, and the differences between actual results and assumed facts or bases can be material, depending on the circumstances. When considering forward-looking statements, you should keep in mind those factors set forth in Item 1A. Risk Factors in the Company’s 2023 Annual Report and the following important factors that could affect our future results and could cause those results to differ materially from those expressed in our forward-looking statements: (1) weather conditions, including increasingly uncertain weather patterns due to climate change, resulting in reduced demand, the seasonal nature of our business, and disruptions in our operations and supply chain; (2) cost volatility and availability of energy products, including propane and other LPG, electricity, and natural gas, as well as the availability of LPG cylinders, and the capacity to transport product to our customers; (3) changes in domestic and foreign laws and regulations, including safety, health, tax, transportation, consumer protection, data privacy, accounting, and environmental matters, such as regulatory responses to climate change; (4) inability to timely recover costs through utility rate proceedings; (5) the impact of pending and future legal or regulatory proceedings, inquiries or investigations; (6) competitive pressures from the same and alternative energy sources; (7) failure to acquire new customers or retain current customers thereby reducing or limiting any increase in revenues; (8) liability for environmental claims; (9) increased customer conservation measures due to high energy prices and improvements in energy efficiency and technology resulting in reduced demand; (10) adverse labor relations and our ability to address existing or potential workforce shortages; (11) customer, counterparty, supplier, or vendor defaults; (12) liability for uninsured claims and for claims in excess of insurance coverage, including those for personal injury and property damage arising from explosions, acts of war, terrorism, natural disasters, pandemics, and other catastrophic events that may result from operating hazards and risks incidental to generating and distributing electricity and transporting, storing and distributing natural gas and LPG in all forms; (13) transmission or distribution system service interruptions; (14) political, regulatory and economic conditions in the United States, Europe and other foreign countries, including uncertainties related to the war between Russia and Ukraine, the conflict in the Middle East, the European energy crisis, and foreign currency exchange rate fluctuations, particularly the euro; (15) credit and capital market conditions, including reduced access to capital markets and interest rate fluctuations; (16) changes in commodity market prices resulting in significantly higher cash collateral requirements; (17) impacts of our indebtedness and the restrictive covenants in our debt agreements; (18) reduced distributions from subsidiaries impacting the ability to pay dividends or service debt; (19) changes in Marcellus and Utica Shale gas production; (20) the availability, timing and success of our acquisitions, commercial initiatives and investments to grow our businesses; (21) our ability to successfully integrate acquired businesses and achieve anticipated synergies; (22) the interruption, disruption, failure, malfunction, or breach of our information technology systems, and those of our third-party vendors or service providers, including due to cyber attack; (23) the inability to complete pending or future energy infrastructure projects; (24) our ability to achieve the operational benefits and cost efficiencies expected from the completion of pending and future business transformation initiatives, including the impact of customer service disruptions resulting in potential customer loss due to the transformation activities; (25) our ability to attract, develop, retain and engage key employees; (26) uncertainties related to global pandemics; (27) the impact of proposed or future tax legislation; (28) the impact of declines in the stock market or bond market, and a low interest rate environment, on our pension liability; (29) our ability to protect our intellectual property; (30) our ability to overcome supply chain issues that may result in delays or shortages in, as well as increased costs of, equipment, materials or other resources that are critical to our business operations; and (31) our ability to control operating costs and realize cost savings.

These factors, and those factors set forth in Item 1A. Risk Factors in the Company’s 2023 Annual Report, are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors could also have material adverse effects on future results. Any forward-looking statement speaks only as of the date on which such statement is made. We undertake no obligation (and expressly disclaim any obligation) to update publicly any forward-looking statement, whether as a result of new information or future events, except as required by the federal securities laws.

ANALYSIS OF RESULTS OF OPERATIONS

The following analyses compare the Company’s results of operations for the 2024 three-month period with the 2023 three-month period and the 2024 nine-month period with the 2023 nine-month period. Our analysis of results of operations should be read in conjunction with the segment information included in Note 15 to Condensed Consolidated Financial Statements.

Because most of our businesses sell or distribute energy products used in large part for heating purposes, our results are significantly influenced by temperatures in our service territories, particularly during the heating-season months of October through March. As a result, our results of operations, after adjusting for the effects of gains and losses on derivative instruments not associated with current-period transactions as further discussed below, are significantly higher in our first and second fiscal quarters.

EXECUTIVE OVERVIEW

Recent Developments

Review of Strategic Alternatives

In August 2023, the Company announced the commencement of a strategic review of the LPG businesses, primarily focused on AmeriGas Propane, with the intent to unlock and maximize shareholder value. The Company explored a full range of options with the goal of reducing UGI’s earnings volatility and strengthening its balance sheet. During the review, the Company and its financial advisors evaluated several value creation opportunities including a potential sale, spin, and joint venture of AmeriGas. While the Company conducted due diligence with multiple strategic and financial parties, the Board of Directors decided that in the current market, the Company should focus on a restructuring and operational improvement plan for AmeriGas. The review concluded that disciplined execution of a revised operational strategy and optimization of UGI’s diverse mix of strategically located assets best positions the Company to create long-term shareholder value.

UGI International Energy Marketing Transactions

As of the end of the first quarter of Fiscal 2024, pursuant to its previously announced decision, the Company had exited substantially all of its European energy marketing business which primarily marketed natural gas and electricity to customers through third-party distribution systems in France, Belgium, the Netherlands, and the United Kingdom.

France. In October 2023, UGI International, through a wholly-owned subsidiary, sold substantially all of its energy marketing business located in France for a net cash payment to the buyer of $29 million. In conjunction with the sale, during the nine months ended June 30, 2024, the Company recorded a pre-tax loss of $29 million, which amount principally represents the net payment to the buyer. The carrying values of the assets and liabilities associated with this business, principally comprising certain commodity derivative instruments, energy certificates and certain working capital, were not material.

Belgium. In September 2023, UGI International, through a wholly-owned subsidiary, sold its energy marketing business located in Belgium for a net cash payment to the buyer of $3 million. Pursuant to the sale agreement, the Company transferred to the buyer certain assets, principally comprising customer and energy broker contracts. In conjunction with the sale, during the fourth quarter of Fiscal 2023, the Company recorded a pre-tax loss of $6 million which includes the net payment to the buyer, the write-off of certain prepaid energy broker payments and associated transaction costs and fees.

United Kingdom. In October 2022, UGI International, through a wholly-owned subsidiary, sold its natural gas marketing business located in the U.K. for a net cash payment to the buyer of $19 million which includes certain working capital adjustments. In conjunction with the sale, during the first quarter of Fiscal 2023, the Company recorded a pre-tax loss of $215 million substantially all of which was due to the non-cash transfer of commodity derivative instruments associated with the business.

Netherlands. In September 2023, a substantial number of DVEP’s customers agreed to modify their energy marketing contracts whereby the Company would continue to provide the delivery of electricity and natural gas at fixed prices through December 31, 2023, with the Company’s obligations to provide future services terminated effective January 1, 2024. As consideration for the early termination of such contracts, the Company agreed to make cash payments to the customers equal to the fair values of specific commodity derivative instruments associated with periods after December 31, 2023. During the first quarter of Fiscal 2024, the Company settled the commodity derivative instruments for a gain of $46 million, which represented the fair value of the specific commodity derivative instruments associated with periods after December 31, 2023; and reduced its revenues from these customers by $42 million, which represented the pro-rated performance obligation from October 1, 2023 through December 31, 2023.

In conjunction with the wind-down of its European energy marketing business, in December 2023, DVEP completed a sale of a substantial portion of its power purchase agreements to a third party for a total consideration to the buyer of $5 million. In conjunction with the sale, the Company recorded a pre-tax loss of $5 million.

During the first quarter of Fiscal 2023, the Company recorded a $19 million pre-tax impairment charge to reduce the carrying values of certain assets associated with its energy marketing business in the Netherlands, comprising property, plant and equipment and intangible assets.

See Note 5 to Condensed Consolidated Financial Statements for additional information.

Global Macroeconomic Conditions

Beginning in Fiscal 2021 and continuing through June 30, 2024, global commodity and labor markets have experienced significant inflationary pressures attributable to various economic and geopolitical factors, including but not limited to: supply chain disruptions including those associated with labor shortages; significant volatility in energy commodity prices; changes in consumer behavior; and geopolitical and regulatory conditions resulting from the war between Russia and Ukraine. These adverse macroeconomic factors continue to contribute to inflationary pressures as evidenced by increases in various consumer price indices. In an effort to curb these inflationary pressures, central banks in the U.S. and Europe began raising interest rates in Fiscal 2022. In addition, during the last several years, we have experienced significant volatility in energy commodity prices, particularly in LPG, natural gas and electricity prices, which have resulted in substantial fluctuations in the fair values of our commodity derivative instruments. Although these inflationary pressures and commodity price volatility have moderated more recently, they continue to result in, among other things, fluctuations in the cost of our inventory and associated cost of sales, increases in certain operating and distribution expenses and higher interest expense across all of our businesses. We cannot predict the duration or ultimate magnitude of these conditions and the effects such conditions may have on our future business, financial results, financial position, liquidity and cash flows. However, we believe that the Company is well positioned to address the challenges resulting from these global economic and geopolitical conditions as they continue to evolve.

Non-GAAP Financial Measures

UGI management uses “adjusted net income attributable to UGI Corporation” and “adjusted diluted earnings per share,” both of which are non-GAAP financial measures, when evaluating UGI’s overall performance. Management believes that these non-GAAP measures provide meaningful information to investors about UGI’s performance because they eliminate gains and losses on commodity and certain foreign currency derivative instruments not associated with current-period transactions and other significant discrete items that can affect the comparison of period-over-period results.

UGI does not designate its commodity and certain foreign currency derivative instruments as hedges under GAAP. Volatility in net income (loss) attributable to UGI Corporation can occur as a result of gains and losses on such derivative instruments not associated with current-period transactions. These gains and losses result principally from recording changes in unrealized gains and losses on unsettled commodity and certain foreign currency derivative instruments and, to a much lesser extent, certain realized gains and losses on settled commodity derivative instruments that are not associated with current-period transactions. However, because these derivative instruments economically hedge anticipated future purchases or sales of energy commodities, or in the case of certain foreign currency derivatives reduce volatility in anticipated future earnings associated with our foreign operations, we expect that such gains or losses will be largely offset by gains or losses on anticipated future energy commodity transactions or mitigate volatility in anticipated future earnings. Non-GAAP financial measures are not in accordance with, or an alternative to, GAAP and should be considered in addition to, and not as a substitute for, the comparable GAAP measures.

The following tables reflect the adjustments referred to above and reconcile net income (loss) attributable to UGI Corporation, the most directly comparable GAAP measure, to adjusted net income (loss) attributable to UGI Corporation, and reconcile diluted (loss) earnings per share, the most directly comparable GAAP measure, to adjusted diluted earnings per share:

(Dollars in millions)

43

UGI CORPORATION AND SUBSIDIARIES

(a) Corporate & Other includes certain adjustments made to our reporting segments in arriving at net income (loss) attributable to UGI Corporation. These adjustments have been excluded from the segment results to align with the measure used by our CODM in assessing segment performance and allocating resources. See Note 15 to Condensed Consolidated Financial Statements for additional information related to these adjustments, as well as other items included within Corporate & Other.

(b) Income taxes associated with pre-tax adjustments determined using statutory business unit tax rates.

(c) The loss per share for the three months ended June 30, 2024 and nine months ended June 30, 2023, was determined excluding the effect of 3.82 million and 6.22 million dilutive shares, respectively, as the impact of such shares would have been antidilutive due to the net loss for the periods. The adjusted earnings per share for the three months ended June 30, 2024 and nine months ended June 30, 2023, was determined based upon fully diluted shares of 214.50 million and 216.03 million, respectively.

2024 three-month period compared with 2023 three-month period

Discussion. Net loss attributable to UGI Corporation for the 2024 three-month period was $48 million (equal to $0.23 loss per diluted share) compared to $789 million (equal to $3.76 loss per diluted share) for the 2023 three-month period. These results include net gains (losses) from changes in unrealized commodity derivative instruments and certain foreign currency derivative instruments of $33 million and $(116) million during the 2024 and 2023 three-month periods, respectively. The higher gains from changes in commodity derivative instruments during the 2024 three-month period principally reflects significantly less volatility in commodity energy prices following unprecedented volatility in such prices during the 2023 three-month period and the effects of significantly lower energy marketing activities in Europe resulting from the exit of substantially all of UGI International’s energy marketing business.

Net loss attributable to UGI Corporation during the 2024 three-month period also includes (1) a $45 million impairment of assets held-for-sale associated with UGID; (2) a $25 million impairment associated with equity method investments at UGI International; (3) external advisory fees of $9 million associated with AmeriGas operations enhancement for growth project; (4) restructuring costs of $7 million, largely attributable to a reduction in workforce and related costs, primarily at UGI

International; (5) loss on extinguishments of debt of $5 million, primarily at AmeriGas Propane; and (6) $2 million of costs associated with the exit of our UGI International energy marketing business in Europe.

Net loss attributable to UGI Corporation during the 2023 three-month period also includes (1) a $660 million loss associated with impairment of AmeriGas Propane goodwill; (2) loss on extinguishments of debt of $7 million at AmeriGas Propane; (3) external advisory fees of $4 million associated with AmeriGas operations enhancement for growth project; and (4) business transformation expenses of $1 million associated with corporate support functions.

Adjusted net income attributable to UGI Corporation for the 2024 three-month period was $12 million (equal to $0.06 per diluted share) compared to adjusted net loss of $1 million (equal to $0.00 per diluted share) for the 2023 three-month period. The increase in adjusted net income attributable to UGI Corporation during the 2024 three-month period reflects higher earnings contributions primarily from our UGI International segment and, to a much lesser extent, our Utilities segment. The earnings contribution from the Midstream & Marketing and AmeriGas Propane segments were comparable to the prior-year period. During the 2024 three-month period, temperatures in most of our segments were significantly warmer than the prior-year period.

Utilities’ adjusted net income attributable to UGI Corporation increased $3 million in the 2024 three-month period compared to the prior-year period. The increase was largely attributable to higher total margin due in large part to increases in base rates at PA Gas Utility, Mountaineer and Electric Utility during Fiscal 2024.

Midstream & Marketing’s adjusted net income attributable to UGI Corporation in the 2024 three-month period was comparable to the prior-year period as slightly lower total margin was largely offset by lower operating and administrative expenses.

UGI International’s adjusted net income attributable to UGI Corporation increased $26 million in the 2024 three-month period, reflecting higher total margin from our LPG business that benefited from higher average unit margin attributable to strong margin management efforts, lower operating and administrative expenses and higher other income.

AmeriGas Propane’s adjusted net loss attributable to UGI Corporation increased $1 million in the 2024 three-month period as lower total margin, primarily resulting from lower retail propane volumes sold and lower average retail propane unit margins, was largely offset by lower operating and administrative expenses.

2024 nine-month period compared with 2023 nine-month period

Discussion. Net income attributable to UGI Corporation for the 2024 nine-month period was $542 million (equal to $2.52 per diluted share) compared to net loss attributable to UGI Corporation of $1,633 million (equal to $7.78 loss per diluted share) for the 2023 nine-month period. These results include net gains (losses) from changes in unrealized commodity derivative instruments and certain foreign currency derivative instruments of $53 million and $(1,386) million during the 2024 and 2023 nine-month periods, respectively. The higher gains from changes in commodity derivative instruments during the 2024 nine-month period, principally reflects significantly less volatility in commodity energy prices in Europe following unprecedented volatility in such prices during the 2023 nine-month period and the effects of significantly lower energy marketing activities in Europe resulting from the exit of substantially all of UGI International’s energy marketing business.

Net income attributable to UGI Corporation during the 2024 nine-month period also includes (1) $68 million of costs associated with the exit of our UGI International energy marketing business in Europe, principally reflecting wind-down activities in the Netherlands and the loss on the sale of the energy marketing business located in France; (2) a $45 million impairment of assets held for sale associated with UGID; (3) restructuring costs of $37 million largely attributable to a reduction in workforce and related costs, primarily at UGI International; (4) a $25 million impairment associated with equity method investments at UGI International; (5) external advisory fees of $19 million associated with AmeriGas operations enhancement for growth project; (6) loss on extinguishments of debt of $5 million, primarily at AmeriGas Propane; and (7) an impairment of assets of $5 million at UGI International.

Net loss attributable to UGI Corporation during the 2023 nine-month period also includes (1) a $660 million loss associated with impairment of AmeriGas Propane goodwill; (2) $170 million of costs associated with the exit of our UGI International energy marketing business in Europe, principally reflecting the loss on the sale of the energy marketing business located in the U.K. and an impairment of assets; (3) external advisory fees of $14 million associated with AmeriGas operations enhancement for growth project; (4) loss on extinguishments of debt of $7 million at AmeriGas Propane; and (5) business transformation expenses of $4 million associated with corporate support functions.

Adjusted net income attributable to UGI Corporation for the 2024 nine-month period was $693 million (equal to $3.22 per diluted share) compared to $608 million (equal to $2.81 per diluted share) for the 2023 nine-month period. The increase in adjusted net income attributable to UGI Corporation for the 2024 nine-month period reflects higher earnings contributions from the Midstream & Marketing, UGI International and Utilities segments, partially offset by lower earnings contributions from the AmeriGas Propane segment. During the 2024 nine-month period, temperatures in all of our segments were warmer than the prior-year period.

Utilities’ adjusted net income attributable to UGI Corporation increased $20 million in the 2024 nine-month period. The increase was largely attributable to higher total margin due in large part to increases in base rates at PA Gas Utility, Mountaineer and Electric Utility during Fiscal 2024, increases in DSIC revenues and the implementation of the weather normalization adjustments for PA Gas Utility (effective November 2022).

Midstream & Marketing’s adjusted net income attributable to UGI Corporation increased $69 million in the 2024 nine-month period. The increase is primarily attributable to higher total margin from natural gas marketing activities and lower income taxes reflecting higher investment tax credits in the 2024 nine-month period.

UGI International’s adjusted net income attributable to UGI Corporation increased $63 million in the 2024 nine-month period. The increase is mainly attributable to higher margin contributions from our LPG business, principally reflecting the benefit from higher average unit margins attributable to strong margin management efforts and lower operating and administrative expenses.

AmeriGas Propane’s adjusted net income attributable to UGI Corporation decreased $70 million in the 2024 nine-month period. The decrease principally reflects lower total margin, largely attributable to lower retail propane volumes sold, partially offset by the benefit of higher average retail propane unit margins, and lower operating and administrative expenses in the 2024 nine-month period.

SEGMENT RESULTS OF OPERATIONS

2024 Three-Month Period Compared with the 2023 Three-Month Period

Utilities

(Dollars in millions)

(a) Total margin represents revenues less cost of sales and revenue-related taxes (i.e., gross receipts and business and occupation taxes) of $4 million each during the 2024 and 2023 three-month periods. For financial statement purposes, revenue-related taxes are included in “Operating and administrative expenses” on the Condensed Consolidated Statements of Income (but are excluded from operating and administrative expenses presented above).

(b) Deviation from average heating degree days is determined on a 10-year period utilizing volume-weighted weather data based on weather statistics provided by NOAA for airports located within Gas Utility’s service territories.

Temperatures in Gas Utility’s service territories during the 2024 three-month period were 26.1% warmer than normal and 16.6% warmer than the prior-year period. Gas Utility core market volumes during the 2024 three-month period were comparable to the prior-year period as growth in the core market customers were largely offset by the impact from the significantly warmer weather. Total Gas Utility volume increased 1% during the 2024 three-month period, primarily reflecting higher large firm delivery service volumes. The increase in Electric Utility distribution sales volumes is primarily attributable to an increase in cooling degree days during the 2024 three-month period and, to a lesser extent, customer growth.

Utilities revenues decreased $21 million in the 2024 three-month period substantially due to lower Gas Utility revenues. The decrease in Gas Utility revenues was largely attributable to lower PGC and PGA rates reflecting lower natural gas costs. These decreases were partially offset by the effects of increases in base rates for PA Gas Utility (effective October 1, 2023) and Mountaineer (effective January 1, 2024) and increase in DSIC revenues. Electric Utility revenues increased slightly during the 2024 three-month period, largely reflecting higher base rates and sales volumes, partially offset by lower DS rates.

Utilities cost of sales decreased $29 million in the 2024 three-month period substantially due to lower Gas Utility cost of sales, reflecting lower PGC and PGA rates. Electric Utility cost of sales during the 2024 three-month period was comparable to the prior-year period as the effects of the higher sales volumes were offset by the lower DS rates.

Utilities total margin increased $8 million during the 2024 three-month period primarily attributable to higher Gas Utility total margin ($5 million), mainly reflecting the effects of increases in base rates for PA Gas Utility (effective October 1, 2023) and Mountaineer (effective January 1, 2024), increases in DSIC revenue and the impacts from growth in the core market customers. Electric Utility margin increased $3 million during the 2024 three-month period mainly reflecting the increase in base rates effective October 1, 2023 and, to a lesser extent, the higher sales volumes.

Utilities operating income and earnings before interest expense and income taxes each increased $5 million during the 2024 three-month period. These increases largely reflect the previously mentioned increase in total margin ($8 million), partially offset by higher depreciation expense ($4 million). Operating and administrative expenses were slightly lower compared to the prior-year period, reflecting lower uncollectible accounts expenses and contract labor costs. The higher depreciation expense compared to the prior-year period reflects the effects of continued distribution system capital expenditure activity.

Midstream & Marketing

(Dollars in millions)

(a) Total margin represents revenues less cost of sales.

Average temperatures across Midstream & Marketing’s energy marketing territory during the 2024 three-month period were 23.5% warmer than normal and 18.3% warmer than the prior-year period.

Midstream & Marketing revenues decreased $26 million compared to the prior-year period, primarily reflecting lower revenues from natural gas marketing activities ($29 million), including the effects of peaking and capacity management activities, that were primarily impacted by lower natural gas prices. The decrease was slightly offset by lower revenues related to retail power marketing activities.

Midstream & Marketing cost of sales decreased $25 million compared to the prior-year period, primarily reflecting lower natural gas costs ($22 million) related to the previously mentioned natural gas marketing activities.

Midstream & Marketing total margin was comparable to the prior-year period as higher storage and natural gas pipeline gathering margin was offset by lower total margin from natural gas marketing activities, reflecting the effects of lower capacity management margin.

Midstream & Marketing operating income and earnings before interest expense and income taxes during the 2024 three-month period were comparable to the prior-year period as slightly lower total margin was more than offset by slightly lower operating and administrative expenses and other operating income.

UGI International

(Dollars in millions)

(a) Total margin represents revenues less cost of sales.

(b) Deviation from average heating degree days is determined on a rolling 10-year period utilizing volume-weighted weather data at locations in our UGI International service territories.

Average temperatures during the 2024 three-month period were 10.0% warmer than normal and 2.8% warmer than the prior-year period. Total LPG retail gallons sold during the 2024 three-month period were 4% lower than in the prior-year period largely due to the effects of the warmer weather and lower growth from natural gas conversions to LPG.

UGI International base-currency results are translated into USD based upon exchange rates experienced during the reporting periods. The functional currency of a significant portion of our UGI International results is the euro and, to a much lesser extent, the British pound sterling. During the 2024 and 2023 three-month periods, the average unweighted euro-to-USD translation rates were approximately $1.08 and $1.09, respectively, and the average unweighted British pound sterling-to-USD translation rates were approximately $1.26 and $1.25, respectively. Fluctuations in these foreign currency exchange rates can have a significant impact on the individual financial statement components discussed below. The Company uses forward foreign currency exchange contracts entered into over multi-year periods to reduce the volatility in earnings that may result from such changes in foreign currency exchange rates. Net realized gains (losses) on these forward foreign currency exchange contracts did not have a material impact on either of the three-month periods.

Average wholesale prices for propane and butane during the 2024 three-month period in northwest Europe were each approximately 16% higher compared with the prior-year period. UGI International revenues and cost of sales decreased $156 million and $174 million, respectively, during the 2024 three-month period compared to the prior-year period. The decrease in revenues and cost of sales principally reflects significantly lower energy marketing activities during the 2024 three-month period resulting from the exit of substantially all of UGI International’s energy marketing business in Belgium, France and the Netherlands. The decrease in revenues from the energy marketing business was partially offset by the effects of LPG price increases across Europe. The decrease in cost of sales was also attributable to lower LPG volumes sold.

UGI International total margin increased $18 million during the 2024 three-month period primarily reflecting higher margin contributions from our LPG business and, to a lesser extent, our energy marketing activities. The higher margin contribution from our LPG business reflects the effects of higher average unit margins attributable to strong margin management efforts. The higher margin contributions from our energy marketing activities result from the impact of the aforementioned exit of substantially all of UGI International’s energy marketing business.

UGI International operating income and earnings before interest expense and income taxes increased $36 million and $35 million, respectively, during the 2024 three-month period. The increase in operating income principally reflects lower operating and administrative expenses ($19 million), the previously mentioned $18 million increase in total margin and higher gains associated with sales of assets ($6 million), partially offset by lower other operating income ($5 million). The lower operating and administrative expenses in the 2024 three-month period primarily reflects lower personnel and maintenance expenses, partially offset by the effects of inflationary increases. The increase in earnings before interest expense and income taxes in the 2024 three-month period largely reflects the $36 million increase in operating income.

AmeriGas Propane

(Dollars in millions)

(a) Total margin represents total revenues less total cost of sales.

(b) Deviation from average heating degree days is determined on a rolling 10-year period utilizing volume-weighted weather data based on weather statistics provided by NOAA for 344 regions in the U.S., excluding Alaska and Hawaii.

Average temperatures during the 2024 three-month period were 5.5% warmer than normal and 8.7% warmer than the prior-year period. Total retail gallons sold decreased 13% during the 2024 three-month period primarily due to continuing customer attrition and the effects of the warmer weather.

Average daily wholesale propane commodity prices during the 2024 three-month period at Mont Belvieu, Texas, one of the major supply points in the U.S., were approximately 12% higher than such prices during the 2023 three-month period. Total revenues decreased $69 million during the 2024 three-month period largely reflecting the lower retail volumes sold ($55 million), lower wholesale revenues ($6 million) and the effects of lower average retail propane selling prices ($5 million).

Total cost of sales decreased $34 million during the 2024 three-month period largely reflecting the lower retail propane volumes sold ($26 million) and the lower wholesale cost of sales ($5 million).

Total margin decreased $35 million in the 2024 three-month period largely attributable to the lower retail propane volumes sold ($28 million) and lower average retail propane unit margins ($5 million).

Operating loss and loss before interest expense and income taxes increased $19 million during the 2023 three-month period, primarily reflecting the decrease in total margin ($35 million), partially offset by lower operating and administrative expenses ($17 million). The decrease in operating and administrative expenses reflects, among other things, lower compensation expenses and advertising expenses.

Interest Expense and Income Taxes

Our consolidated interest expense during the 2024 three-month period was comparable to the prior-year period as the impact from lower average credit agreement borrowings outstanding during the 2024 three-month period was largely offset by slightly higher total interest expense on long-term debt.

The increase in the Company’s income tax rate for the 2024 three-month period was principally related to the effects of establishing a full valuation allowance against current year losses in the Netherlands, partially offset by an increase in investment tax credits mainly at our Midstream & Marketing segment.

The Company continues to evaluate the elections available under current regulations and pending legislation. Accordingly, the impacts on the Company’s income tax provisions and taxes payable or refundable related to these items are subject to change.

2024 Nine-Month Period Compared with the 2023 Nine-Month Period

Utilities

(Dollars in millions)

(a) Total margin represents revenues less cost of sales and revenue-related taxes (i.e., gross receipts and business and occupation taxes) of $20 million and $21 million during the 2024 and 2023 nine-month periods, respectively. For financial statement purposes, revenue-related taxes are included in “Operating and administrative expenses” on the Condensed Consolidated Statements of Income (but are excluded from operating and administrative expenses presented above).

(b) Deviation from average heating degree days is determined on a 10-year period utilizing volume-weighted weather data based on weather statistics provided by NOAA for airports located within Gas Utility’s service territories.

Temperatures in Gas Utility’s service territories during the 2024 nine-month period were 15.5% warmer than normal and 4.1% warmer than the prior-year period. The decrease in Gas Utility core market volumes during the 2024 nine-month period is largely related to the warmer weather, partially offset by growth in the core market customers. Total Gas Utility volume increased 2% during the 2024 nine-month period, notwithstanding the decrease in core market volumes, primarily reflecting higher large firm delivery service volumes. The increase in Electric Utility distribution sales volumes is primarily attributable to customer growth.

Utilities revenues decreased $248 million in the 2024 nine-month period, reflecting lower Gas Utility revenues. The decrease in Gas Utility revenues was largely attributable to lower PGC and PGA rates reflecting lower natural gas costs and, to a lesser extent, the lower core market volumes and lower off-system sales. These decreases were partially offset by the effects of increases in base rates for PA Gas Utility (effective October 1, 2023) and Mountaineer (effective January 1, 2024) and the effects of the weather normalization adjustments for PA Gas Utility (effective November 1, 2022). Electric Utility revenues slightly increased during the 2024 nine-month period, largely reflecting higher base rates and sales volumes, partially offset by lower DS rates.

Utilities cost of sales decreased $290 million in the 2024 nine-month period primarily attributable to Gas Utility ($283 million) mainly reflecting lower PGC and PGA rates, the lower core market volumes and, to a lesser extent, lower cost of sales associated with off-system sales. Electric Utility cost of sales decreased $7 million during the 2024 nine-month period largely reflecting the lower DS rates, partially offset by higher sales volumes.

Utilities total margin increased $42 million during the 2024 nine-month period primarily attributable to higher Gas Utility total margin ($33 million), notwithstanding the warmer weather, mainly reflecting the increases in DSIC revenues, the effects of increases in base rates for PA Gas Utility (effective October 1, 2023) and Mountaineer (effective January 1, 2024) and the effects of the weather normalization adjustments for PA Gas Utility (effective November 1, 2022) and the impacts from growth in the core market customers. Electric Utility margin increased $9 million during the 2024 nine-month period, mainly reflecting the increase in base rates effective October 1, 2023 and the higher sales volumes.

Utilities operating income and earnings before interest expense and income taxes increased $35 million and $33 million, respectively, during the 2024 nine-month period. These increases largely reflect the previously mentioned increase in total margin ($42 million) and, to a lesser extent, lower operating and administrative expenses ($4 million), partially offset by higher depreciation expense ($12 million). The slightly lower operating and administrative expenses principally reflect lower uncollectible accounts expenses, contract labor costs and maintenance expenses. The higher depreciation expense compared to the prior-year period reflects the effects of continued distribution system capital expenditure activity.

Midstream & Marketing

(Dollars in millions)

(a) Total margin represents revenues less cost of sales.

Average temperatures across Midstream & Marketing’s energy marketing territory during the 2024 nine-month period were 13.2% warmer than normal and 4.8% warmer than the prior-year period.

Midstream & Marketing revenues decreased $456 million compared to the prior-year period, primarily reflecting lower revenues from natural gas marketing activities ($439 million), including the effects of peaking and capacity management activities, that were primarily impacted by lower natural gas prices and lower volumes resulting from the warmer weather. The decrease also reflects, to a much lesser extent, lower revenues from renewable energy ($18 million).

Midstream & Marketing cost of sales decreased $496 million compared to the prior-year period, primarily reflecting lower natural gas costs ($483 million) related to the previously mentioned natural gas marketing activities and, to a much lesser extent, lower cost of sales related to renewable energy ($11 million).

Midstream & Marketing total margin increased $40 million compared to the prior-year period, primarily reflecting higher margins from natural gas marketing activities ($44 million), mainly resulting from the effects of higher capacity management activities, partially offset by lower total margin from renewable energy ($7 million).

Midstream & Marketing operating income and earnings before interest expense and income taxes during the 2024 nine-month period increased $42 million and $45 million, respectively, compared to the prior-year period. The increase in operating income is largely attributable to the higher total margin and, to a lesser extent, lower operating and administrative expense ($5 million). The lower operating and administrative expenses during the 2024 nine-month period primarily reflects lower salary and benefits expenses and maintenance expenses. The increase in earnings before interest expense and income taxes principally reflects the increase in operating income and, to a much lesser extent, slightly higher income from equity investees ($3 million).

UGI International

(Dollars in millions)

(a) Total margin represents revenues less cost of sales.

(b) Deviation from average heating degree days is determined on a rolling 10-year period utilizing volume-weighted weather data at locations in our UGI International service territories.

Average temperatures during the 2024 nine-month period were 12.3% warmer than normal and 4.1% warmer than the prior-year period. Notwithstanding the warmer weather, total LPG retail gallons sold during the 2024 nine-month period slightly increased compared to the prior-year period, largely attributable to growth from natural gas conversions to LPG and higher auto gas volumes sold, partially offset by warmer weather and lower cylinder volumes.

UGI International base-currency results are translated into USD based upon exchange rates experienced during the reporting periods. The functional currency of a significant portion of our UGI International results is the euro and, to a much lesser extent, the British pound sterling. During the 2024 and 2023 nine-month periods, the average unweighted euro-to-USD translation rates were approximately $1.08 and $1.06, respectively, and the average unweighted British pound sterling-to-USD translation rates were approximately $1.26 and $1.21, respectively. Fluctuations in these foreign currency exchange rates can have a significant impact on the individual financial statement components discussed below. The Company uses forward foreign currency exchange contracts entered into over multi-year periods to reduce the volatility in earnings that may result from such changes in foreign currency exchange rates. These forward foreign currency exchange contracts resulted in net realized gains of $12 million and $16 million in the 2024 and 2023 nine-month periods, respectively.

Average wholesale prices for propane and butane during the 2024 nine-month period in northwest Europe were approximately 6% and 8% lower, respectively, compared with the prior-year period. UGI International revenues and cost of sales decreased $583 million and $655 million, respectively, during the 2024 nine-month period compared to the prior-year period. The decrease in revenues and cost of sales principally reflects significantly lower energy marketing activities during the 2024 nine-month period resulting from the exit of substantially all of UGI International’s energy marketing business in Belgium, France and the Netherlands in Fiscal 2024. The decrease in revenues from the energy marketing activities was partially offset by the translation effects of the stronger foreign currencies (approximately $46 million) and LPG price increases across Europe. The decrease in cost of sales was also attributable to lower LPG product costs, partially offset by the translation effects of the stronger foreign currencies (approximately $28 million).

UGI International total margin increased $72 million during the 2024 nine-month period primarily reflecting higher margin contributions primarily from our LPG business, the translation effects of the stronger foreign currencies (approximately $18 million) and, to a much lesser extent, higher margin contributions from our energy marketing activities. The higher margin from our LPG business reflects the effects of higher average unit margins attributable to strong margin management efforts. The slightly higher margin from our energy marketing activities primarily reflects the impact of the aforementioned exit of substantially all of UGI International’s energy marketing business.

UGI International operating income and earnings before interest expense and income taxes increased $97 million and $89 million, respectively, during the 2024 nine-month period. The increase in operating income principally reflects the previously mentioned $72 million increase in total margin and lower operating and administrative expenses ($31 million), partially offset by lower foreign currency transaction gains ($8 million). The lower operating and administrative expenses in the 2024 nine-month period primarily reflects lower personnel and maintenance expenses in our LPG business and a decline in energy marketing-related operating expenses, partially offset by the effects of inflationary increases and the translation effects of the stronger foreign currencies (approximately $10 million). The increase in earnings before interest expense and income taxes in the 2024 nine-month period largely reflects the $97 million increase in operating income, partially offset by lower realized gains on foreign currency exchange contracts entered into in order to reduce volatility in UGI International earnings resulting from the effects of changes in foreign currency exchange rates ($4 million).

AmeriGas Propane

(Dollars in millions)

(a) Total margin represents total revenues less total cost of sales.

(b) Deviation from average heating degree days is determined on a rolling 10-year period utilizing volume-weighted weather data based on weather statistics provided by NOAA for 344 regions in the U.S., excluding Alaska and Hawaii.

Average temperatures during the 2024 nine-month period were 7.8% warmer than normal and 7.8% warmer than the prior-year period. Total retail gallons sold decreased 10% during the 2024 nine-month period primarily due to continuing customer attrition and the effects of the warmer weather.

Average daily wholesale propane commodity prices during the 2024 nine-month period at Mont Belvieu, Texas, one of the major supply points in the U.S., were approximately 1% lower than such prices during the 2023 nine-month period. Total revenues decreased $278 million during the 2024 nine-month period largely reflecting the lower retail volumes sold ($184 million), lower wholesale revenues ($51 million) and the effects of lower average retail propane selling prices ($34 million).

Total cost of sales decreased $205 million during the 2024 nine-month period largely reflecting the lower retail propane volumes sold ($90 million), the lower retail propane product costs ($53 million) and lower wholesale cost of sales ($49 million).

Total margin decreased $73 million in the 2024 nine-month period largely attributable to the lower retail propane volumes sold ($95 million), partially offset by higher average retail propane unit margins ($20 million).

Operating income and earnings before interest expense and income taxes each decreased $58 million during the 2024 nine-month period primarily reflecting the decrease in total margin ($73 million), partially offset by lower operating and administrative expenses ($14 million). The decrease in operating and administrative expenses reflects, among other things, lower advertising expenses and lower compensation expenses, partially offset by higher vehicle expenses.

Interest Expense and Income Taxes

Our consolidated interest expense during the 2024 nine-month period was $296 million compared to $281 million during the 2023 nine-month period. The increase largely reflects higher total long-term debt interest expense including the effects of higher average long-term debt outstanding at Utilities and Midstream & Marketing and a higher average interest rate on UGI International long-term debt, partially offset by lower average long-term debt outstanding at AmeriGas Propane. The increase in long-term debt interest expense was partially offset by lower short-term debt interest expense principally reflecting the effects of lower average credit agreement borrowings during the 2024 nine-month period.

The increase in the Company’s income tax rate for the 2024 nine-month period was principally related to the effects of establishing a full valuation allowance against current year losses in the Netherlands, partially offset by an increase in investment tax credits mainly at our Midstream & Marketing segment.

The Company continues to evaluate the elections available under current regulations and pending legislation. Accordingly, the impacts on the Company’s income tax provisions and taxes payable or refundable related to these items are subject to change.

FINANCIAL CONDITION AND LIQUIDITY

The Company expects to have sufficient liquidity including cash on hand and available borrowing capacity, to continue to support long-term commitments and ongoing operations despite uncertainties associated with the previously mentioned ongoing global macroeconomic conditions. Our total available liquidity balance, comprising cash and cash equivalents and available borrowing capacity on our revolving credit facilities, totaled approximately $1.9 billion and $1.6 billion at June 30, 2024 and September 30, 2023, respectively. As of June 30, 2024, “Current maturities of long-term debt” on the Condensed Consolidated Balance Sheet principally comprises (1) $218 million outstanding principal balance of the AmeriGas Partners, 5.50% Senior Notes, maturing May 2025 and (2) $51 million outstanding principal balance representing a portion of borrowings outstanding under the UGI Corporation Credit Facility Agreement, maturing May 2025. Except as noted, the Company does not have any senior notes or term loans maturing in the next twelve months. The Company cannot predict the duration or total magnitude of the uncertain macroeconomic conditions mentioned above and the total effects they will have on its liquidity, debt covenants, financial condition or the timing of capital expenditures. UGI and its subsidiaries were in compliance with its debt covenants as of June 30, 2024.

We depend on both internal and external sources of liquidity to provide funds for working capital and to fund capital requirements. Our short-term cash requirements not met by cash from operations are generally satisfied with borrowings under credit facilities and, in the case of Midstream & Marketing, also from a Receivables Facility. Long-term cash requirements are generally met through the issuance of long-term debt or equity securities. We believe that each of our business units has sufficient liquidity in the forms of cash and cash equivalents on hand; cash expected to be generated from operations; credit facility and Receivables Facility borrowing capacity; and the ability to obtain long-term financing to meet anticipated contractual and projected cash commitments. Issuances of debt and equity securities in the capital markets and additional credit facilities may not, however, be available to us on acceptable terms.

The primary sources of UGI’s cash and cash equivalents are the dividends and other cash payments made to UGI or its corporate subsidiaries by its principal business units. Our cash and cash equivalents totaled $183 million at June 30, 2024, compared with $241 million at September 30, 2023. Excluding cash and cash equivalents that reside at UGI’s operating subsidiaries, at June 30, 2024 and September 30, 2023, UGI had $80 million and $51 million of cash and cash equivalents, respectively. Such cash is available to pay dividends and interest on long-term debt and for investment purposes.

Long-term Debt and Credit Facilities

Long-term Debt

The Company’s debt outstanding at June 30, 2024 and September 30, 2023, comprises the following:

Credit Facilities

Additional information related to the Company’s credit agreements can be found in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and Note 6 to Consolidated Financial Statements in the Company’s 2023 Annual Report.

Information about the Company’s principal credit agreements (excluding the Receivables Facility discussed below) as of June 30, 2024 and 2023, is presented in the table below.

(Currency in millions)

(a) Permits UGI International, LLC to borrow in euros or USD. At June 30, 2024 and 2023, the amount borrowed consisted of euro-denominated borrowings equivalent to $198 million and $245 million, respectively.

(b) Borrowings outstanding have been classified as “Long-term debt” on the Condensed Consolidated Balance Sheets.

(c) Terminated in August 2024, concurrent with entering into the AmeriGas Senior Secured Revolving Credit Facility (see additional information below under AmeriGas Senior Secured Revolving Credit Facility).

The average daily and peak short-term borrowings under the Company’s principal credit agreements are as follows:

Receivables Facility. Energy Services has a Receivables Facility with an issuer of receivables-backed commercial paper currently scheduled to expire on October 18, 2024. The Receivables Facility provides Energy Services with the ability to borrow up to $200 million of eligible receivables during the period October 20, 2023 to April 30, 2024, and up to $100 million of eligible receivables during the period May 1, 2024 to October 18, 2024. 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 Condensed Consolidated Balance 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.

At June 30, 2024, the outstanding balance of ESFC trade receivables was $54 million, none of which were sold to the bank. At June 30, 2023, the outstanding balance of ESFC trade receivables was $62 million, $45 million of which was sold to the bank. During the nine months ended June 30, 2024 and 2023, peak sales of receivables were $97 million and $150 million, respectively, and average daily amounts sold were $29 million and $44 million, respectively.

Significant Financing Activities

The following significant financing activities occurred during Fiscal 2024. See Note 8 to Condensed Consolidated Financial Statements for additional information on these transactions.

Utilities

Mountaineer Credit Agreement. In April 2024, Mountaineer entered into the fourth amendment to the Mountaineer Credit Agreement, which extends the maturity date of the agreement from November 2024 to December 2025.

UGI Utilities Senior Notes. In November 2023, UGI Utilities entered into a Note Purchase Agreement with a consortium of lenders. Pursuant to the Note Purchase Agreement, UGI Utilities issued (1) $25 million aggregate principal amount of 6.02% Senior Notes due November 30, 2030; (2) $150 million aggregate principal amount of 6.10% Senior Notes due November 30, 2033; and (3) $75 million aggregate principal amount of 6.40% Senior Notes due November 30, 2053. The net proceeds from these issuances were used to reduce short-term borrowings and for general corporate purposes.

UGI Utilities 2023 Credit Agreement. In November 2023, UGI Utilities entered into the UGI Utilities 2023 Credit Agreement providing for borrowings up to $375 million (including a $50 million sublimit for letters of credit and a $38 million sublimit for swingline loans). UGI Utilities may request an increase in the amount of loan commitments under the credit agreement to a maximum aggregate amount of $125 million. The credit agreement is scheduled to expire November 2028. Borrowings under the credit agreement may be used to refinance UGI Utilities existing indebtedness and for general corporate purposes and ongoing working capital needs of UGI Utilities.

Midstream & Marketing

Energy Services Term Loan Credit Agreement. In June 2024, Energy Services entered into the second amendment to the Energy Services Term Loan Credit Agreement. The Energy Services Term Loan Credit Agreement was amended primarily to amend the applicable margins on borrowings to 2.50% per annum for Term SOFR loans and 1.50% per annum for base rate loans.

Energy Services Credit Agreement. In May 2024, Energy Services entered into the fourth amendment to the UGI Energy Services Credit Agreement. The amended credit agreement provides for borrowings up to $300 million, including a $50 million sublimit for letters of credit. Borrowings under the credit agreement can be used for general corporate purposes and ongoing working capital needs of Energy Services and is scheduled to expire in May 2028.

UGI International

UGI International 2023 Credit Agreement. In June 2024, UGI International, LLC and its indirect wholly-owned subsidiary, UGI International Holdings B.V., entered into the first amendment to the UGI International 2023 Credit Agreement, which provides for the establishment and incorporation of specific key performance indicators with respect to Environmental, Social and Governance targets, whereby based on UGI International, LLC’s performance against the key performance indicators, certain adjustments of up to 0.05% in total to the applicable margin may be made.

AmeriGas Propane

AmeriGas Senior Secured Revolving Credit Facility. In August 2024, AmeriGas OLP entered into the AmeriGas Senior Secured Revolving Credit Facility, a five-year senior secured revolving credit facility maturing August 2029, providing for borrowings up to $200 million (including a $20 million sublimit for letters of credit). AmeriGas OLP may request an increase in the amount of loan commitments up to a maximum aggregate amount of $150 million. Borrowings under this credit facility were used to pay off borrowings under the 2022 AmeriGas OLP Credit Agreement and are available for general corporate purposes and ongoing working capital needs of AmeriGas OLP. Concurrently with entering into AmeriGas Senior Secured

Revolving Credit Facility, AmeriGas OLP terminated the 2022 AmeriGas OLP Credit Agreement and with it, eliminated the debt to EBITDA covenant ratio.

AmeriGas Partners Senior Notes. In June 2024, pursuant to an early tender offer, AmeriGas Partners and AmeriGas Finance Corp, repurchased $475 million aggregate principal amount of the 5.50% Senior Notes due May 2025. Cash on hand, a $315 million cash contribution from the Company and other sources of liquidity were used for the repurchase. Following the repurchase, $218 million aggregate principal amount of these senior notes remain outstanding at June 30, 2024.

In March 2024, AmeriGas Partners and AmeriGas Finance Corp entered into separate, privately negotiated repurchase agreements with a limited number of holders of the outstanding senior notes to repurchase $38 million aggregate principal amount of the senior notes. AmeriGas Partners and AmeriGas Finance Corp repurchased $7 million, $11 million, $13 million, and $7 million par value of its issued and outstanding 5.50% Senior Notes, 5.875% Senior Notes, 5.75% Senior Notes, and 9.375% Senior Notes, respectively.

UGI Corporation

UGI Corporation Senior Notes. In June 2024, UGI issued, in an underwritten private placement, an aggregate $700 million principal amount of 5.00% UGI Corporation Senior Notes due June 2028. The UGI Corporation Senior Notes are senior, unsecured obligations and rank equal in right of payment with our existing and future senior, unsecured indebtedness. Interest is payable semi-annually on June 1 and December 1 of each year, beginning on December 1, 2024, and will mature on June 1, 2028, unless earlier repurchased or converted. The net proceeds from the issuance of the UGI Corporation Senior Notes of approximately $682 million, after underwriters fees and other debt issuance costs, were used (1) to repay a portion of borrowings under the UGI Corporation Credit Facilities; (2) to make cash contribution of $315 million to the Partnership to repay a portion of its 5.50% Senior Notes as described above; and (3) for general corporate purposes.

The UGI Corporation Senior Notes are convertible subject to the occurrence of certain events and circumstances. Before March 1, 2028, noteholders will have the right to convert their notes only upon the occurrence of certain events. From and after March 1, 2028, holders of the UGI Corporation Senior Notes may convert their notes at any time at their election until the close of business on the second scheduled trading day immediately before the maturity date. As of June 30, 2024, none of the events permitting the noteholders to convert their notes early occurred. Accordingly, the UGI Corporation Senior Notes are classified as “Long-term debt” on the Condensed Consolidated Balance Sheet at June 30, 2024.

Upon conversion, the Company will pay cash up to the aggregate principal amount of the UGI Corporation Senior notes. For the remainder of the amount in excess of the aggregate principal amount, if applicable, the Company will have the sole right to elect the settlement method upon conversion which can be either entirely in cash or in a combination of cash and shares of its common stock. The default settlement method as defined in the agreement is combination settlement with a specified dollar amount of $1,000 per $1,000 principal of the UGI Corporation Senior Notes, and any incremental value settled in shares of the Company’s common stock. The initial conversion rate is 36.2319 shares of the Company’s common stock per $1,000 principal amount of the UGI Corporation Senior Notes, which represents an initial conversion price of approximately $27.60 per share of the Company’s common stock. The conversion rate and conversion price will be subject to customary adjustments upon the occurrence of certain events. In addition, if certain corporate events that constitute a “Make-Whole Fundamental Change” (as defined in the Indenture) occur, then the conversion rate will, in certain circumstances, be increased for a specified period of time.

The Company may not redeem the UGI Corporation Senior Notes at its option before maturity.

UGI Corporation Credit Facility Agreement. In April 2024, UGI entered into the fourth amendment to the UGI Corporation Credit Facility Agreement which, among other things, extends the maturity date of a substantial portion of the (1) $215 million delayed draw term loan facility, (2) $300 million term loan facility, (3) $250 million term loan facility, and (4) $300 million revolving credit facility to August 29, 2025.

Equity Units. In May 2021, the Company issued 2.2 million Equity Units with a total notional value of $220 million. Each Equity Unit had a stated amount of $100 and consisted of (i) a 10% undivided beneficial ownership interest in one share of Convertible Preferred Stock with a liquidation preference of $1,000 per share and (ii) a 2024 Purchase Contract. See Note 13 to the Consolidated Financial Statements in the Company’s 2023 Annual Report for additional information on the issuance of the Equity Units.

Pursuant to the terms of the Equity Units, in May 2024, the Company announced the unsuccessful final remarketing of its Convertible Preferred Stock. As a result, each holder of an Equity Unit received 2.2973 shares of UGI common stock, without par value, with cash paid in lieu of any fractional shares. During the third quarter of Fiscal 2024, the Company (i) made the final contract adjustment payment to settle the 2024 Purchase Contract in full; (ii) canceled the Convertible Preferred Stock; and (iii) in a non-cash transaction, converted the Equity Units into 5,054,030 shares of UGI Common Stock and issued the shares to the holders of the Equity Units under the 2024 Purchase Contract.

Dividends

On November 16, 2023, UGI’s Board of Directors declared a quarterly dividend equal to $0.375 per common share. The dividend was paid on January 1, 2024, to shareholders of record on December 15, 2023. On January 31, 2024, UGI’s Board of Directors declared a quarterly dividend of $0.375 per common share. The dividend was paid on April 1, 2024, to shareholders of record on March 15, 2024. On April 29, 2024, UGI’s Board of Directors declared a quarterly dividend of $0.375 per common share. The dividend was paid July 1, 2024, to shareholders of record on June 14, 2024. On August 7, 2024, UGI’s Board of Directors declared a quarterly dividend of $0.375 per common share. The dividend is payable October 1, 2024, to shareholders of record on September 16, 2024.

Cash Flows

Due to the seasonal nature of the Company’s businesses, cash flows from operating activities are generally strongest during the second and third fiscal quarters when customers pay for natural gas, LPG, electricity and other energy products and services consumed during the peak heating season months. Conversely, operating cash flows are generally at their lowest levels during the fourth and first fiscal quarters when the Company’s investment in working capital, principally inventories and accounts receivable, is generally greatest.

Operating Activities. Year-to-year variations in our cash flows from operating activities can be significantly affected by changes in operating working capital, especially during periods with significant changes in energy commodity prices. Cash flow provided by operating activities was $1,031 million in the 2024 nine-month period compared to cash provided by operating activities of $857 million in the 2023 nine-month period. Cash flow provided by operating activities before changes in operating working capital was $1,181 million in the 2024 nine-month period compared to $1,209 million in the 2023 nine-month period. Cash used to fund changes in operating working capital totaled $150 million in the 2024 nine-month period, a significant decrease compared to the $352 million of cash used to fund changes in operating working capital in the 2023 nine-month period. The prior-year period includes $489 million of derivative instrument collateral deposit net repayments principally at our UGI International and Midstream & Marketing segments compared to $7 million of such repayments in the 2024 nine-month period. The unusually high prior-year collateral deposit repayments were the result of significant declines in commodity energy prices during that period. The decrease in cash flow required to fund changes in operating working capital in the 2023 nine-month period also reflects, among other things, significantly lower cash from changes in inventories and accounts receivable largely offset by lower cash required to fund changes in accounts payable. These changes in operating working capital also reflect in part the impact on the prior-year amounts of significant declines in commodity energy prices in the prior-year period.

Investing Activities. Investing activity cash flow is principally affected by cash expenditures for property, plant and equipment; cash paid for acquisitions of businesses and assets; investments in equity method investees; and cash activity associated with dispositions of businesses and assets. Cash flow used by investing activities was $551 million in the 2024 nine-month period compared to $761 million in the 2023 nine-month period. Cash expenditures for property, plant and equipment were $530 million in the 2024 nine-month period compared with $670 million in the 2023 nine-month period principally reflecting lower cash capital expenditures at our Utilities segment and, to a lesser extent, at UGI International and AmeriGas Propane. Investments in equity method investments during the 2024 nine-month period principally reflects our continuing investments in renewable energy projects principally at Midstream & Marketing.

Financing Activities. Changes in cash flow from financing activities are primarily due to issuances and repayments of long-term debt; net short-term borrowings; dividends on UGI Common Stock; quarterly payments on outstanding Purchase Contracts; and issuances and repurchases of equity instruments.

Cash flow used by financing activities was $608 million in the 2024 nine-month period compared to cash flow used of $244 million in the 2023 nine-month period. The 2024 nine-month period includes the June 2024 issuance by UGI Corporation of the previously mentioned $700 million of the UGI Corporation Senior Notes and UGI Utilities issuance of $250 million principal amount of senior notes. Proceeds from the UGI Corporation Senior Notes were used to reduce amounts outstanding under UGI Corporation’s revolving credit facility, to repay its outstanding variable-rate amortizing term loan in the amount of $194 million, and to fund a capital contribution to the Partnership in the amount of $315 million which, along with other sources of liquidity, AmeriGas Partners used to repurchase $475 million aggregate principal amount of its 5.50% Senior Notes. Proceeds From the issuance of UGI Utilities’ senior notes in the 2024 nine-month period were used by UGI Utilities to reduce short-term borrowings and for general corporate purposes. The 2023 nine-month period includes the cash flow effects from entering into the UGI International 2023 Credit Agreement and the concurrent repayment of borrowings under the UGI International Credit Agreement (a predecessor agreement). The 2023 nine-month period cash flows from financing activities also includes the cash proceeds from the Energy Services Amended Term Loan Agreement entered into in February 2023 and the concurrent repayment of amounts outstanding under the Energy Services variable rate term loan, and the May 2023 issuance of $500 million principal amount of AmeriGas Partners 9.375% Senior Notes and the repayment of $675 million aggregate principal balance of AmeriGas Partners 5.625% Senior Notes.

UTILITY REGULATORY MATTERS

UGI Utilities. On January 27, 2023, Electric Utility filed a request with the PAPUC to increase its annual base distribution revenues by $11 million. On September 21, 2023, the PAPUC issued a final order approving a settlement providing for a $9 million annual base distribution rate increase for Electric Utility, effective October 1, 2023.

On January 28, 2022, PA Gas Utility filed a request with the PAPUC to increase its base operating revenues for residential, commercial and industrial customers by $83 million annually. On September 15, 2022, the PAPUC issued a final order approving a settlement providing for a $49 million annual base distribution rate increase for PA Gas Utility, through a phased approach, with $38 million beginning October 29, 2022 and an additional $11 million beginning October 1, 2023. In accordance with the terms of the final order, PA Gas Utility was not permitted to file a rate case prior to January 1, 2024. Also in accordance with the terms of the final order, PA Gas Utility was authorized to implement a weather normalization adjustment rider as a five-year pilot program beginning on November 1, 2022. Under this rider, when weather deviates from normal by more than 3%, for bills rendered during the period of October 1 through May 31, residential and small commercial customer billings for distribution services are adjusted monthly for weather related impacts exceeding the 3% threshold. Additionally, under the terms of the final order, PA Gas Utility was authorized to implement a DSIC once its total property, plant and equipment less accumulated depreciation reached $3,368 million (which threshold was achieved in September 2022).

Mountaineer. On July 31, 2024, Mountaineer submitted its 2024 IREP filing to the WVPSC requesting recovery of $19 million, which includes $3 million of prior year under-recovery, for costs associated with capital investments after December 31, 2022, that total $197 million, including $74 million in calendar year 2025. The filing included capital investments totaling $418 million over the 2025 - 2029 period.

On July 31, 2023, Mountaineer submitted its 2023 IREP filing to the WVPSC requesting recovery of $10 million for costs associated with capital investments after December 31, 2022, that total $131 million, including $67 million in calendar year 2024. The filing included capital investments totaling $383 million over the 2024 - 2028 period. On December 20, 2023, the WVPSC issued a final order approving a settlement effective January 1, 2024.

On March 6, 2023, Mountaineer submitted a base rate case filing with the WVPSC seeking a net revenue increase of $20 million, which consists of an increase in base rates of $38 million and a decrease in the IREP rates of $18 million annually. On October 6, 2023, Mountaineer filed a joint stipulation and agreement for settlement of the base rate case, which included a $14 million net revenue increase, effective January 1, 2024. On December 21, 2023, the WVPSC issued a final order approving the joint stipulation and agreement, except the WVPSC authorized Mountaineer to implement a weather normalization adjustment rider as a five-year pilot program beginning on October 1, 2024. On April 11, 2024 the WVPSC approved the calculation methodology submitted by Mountaineer on March 28, 2024. Under this rider, when weather deviates from normal by more than 2%, for service rendered during the period of October 1 through May 31, residential and small commercial customer billings for distribution services are adjusted for weather related impacts exceeding the 2% threshold.

On July 29, 2022, Mountaineer submitted its 2022 IREP filing to the WVPSC requesting recovery of costs associated with capital investments totaling $354 million over the 2023 - 2027 period, including $64 million in calendar year 2023. On December 21, 2022, the WVPSC issued a final order approving a settlement for $22 million in cumulative revenue, effective January 1, 2023.

OTHER MATTERS

West Reading, Pennsylvania Explosion. On March 24, 2023, an explosion occurred in West Reading, Pennsylvania which resulted in seven fatalities, significant injuries to eleven others, and extensive property damage to buildings owned by R.M. Palmer, a local chocolate manufacturer, and other neighboring structures. The NTSB and the PAPUC are investigating the West Reading incident. On July 18, 2023, the NTSB issued an Investigative Update in its ongoing investigation and on February 22, 2024 it released its investigation docket including factual reports and detailed incident documentation. The NTSB report identified a fracture in a retired UGI Utilities gas service tee and a fracture in a nearby steam system, but it does not address causation of the fractures or the explosion. The NTSB investigative team includes representatives from the Company, the PAPUC, the local fire department and the Pipeline and Hazardous Materials Safety Administration. The Company is cooperating with the investigation. The NTSB may invite other parties to participate. In September 2023, OSHA closed their investigation of this matter, without any finding pertaining to UGI Utilities.

While the investigation into this incident is still underway and the cause of the explosion has not been determined, the Company has received claims as a result of the explosion and is involved in lawsuits relative to the incident. The Company maintains liability insurance for personal injury, property and casualty damages and believes that third-party claims associated with the explosion, in excess of the Company’s deductible, are recoverable through the Company’s insurance. The Company cannot predict the result of these pending or future claims and legal actions at this time.

Regarding these pending claims and legal actions, the Company does not believe, at this early stage, that there is sufficient information available to reasonably estimate a range of loss, if any, or conclude that the final outcome of these matters will or will not have a material effect on our financial statements.

Our primary market risk exposures are (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 price risk associated with forecasted transactions, we do not use derivative financial and commodity instruments for speculative or trading purposes.

Commodity Price Risk

The risk associated with fluctuations in the prices the Partnership and our UGI International operations pay for LPG is principally a result of market forces reflecting changes in supply and demand for LPG and other energy commodities. Their profitability is sensitive to changes in LPG supply costs. Increases in supply costs are generally passed on to customers. The Partnership and UGI International may not, however, always be able to pass through product cost increases fully or on a timely basis, particularly when product costs rise rapidly. In order to reduce the volatility of LPG market price risk, the Partnership uses contracts for the forward purchase or sale of propane, propane fixed-price supply agreements and over-the-counter derivative commodity instruments including price swap and option contracts. Our UGI International operations use over-the-counter derivative commodity instruments and may from time to time enter into other derivative contracts, similar to those used by the Partnership, to reduce market risk associated with a portion of their LPG purchases. Over-the-counter derivative commodity instruments used to economically hedge forecasted purchases of LPG are generally settled at expiration of the contract.

Utilities’ tariffs contain clauses that permit recovery of all prudently incurred costs of natural gas it sells to its retail core-market customers, including the cost of financial instruments used to hedge purchased gas costs. The recovery clauses provide for periodic adjustments for the difference between the total amounts actually billed to customers through PGC and PGA rates and the recoverable costs incurred. Because of this ratemaking mechanism, there is limited commodity price risk associated with our Utilities operations. PA Gas Utility uses derivative financial instruments, including natural gas futures and option contracts traded on the NYMEX, to reduce volatility in the cost of gas it purchases for its retail core-market customers. The cost of these derivative financial instruments, net of any associated gains or losses, is included in PA Gas Utility's PGC recovery mechanism.

In order to manage market price risk relating to substantially all of Midstream & Marketing’s fixed-price sale contracts for physical natural gas and electricity, Midstream & Marketing enters into NYMEX, ICE and over-the-counter natural gas and electricity futures and option contracts, and natural gas basis swap contracts or enters into fixed-price supply arrangements. Midstream & Marketing also uses NYMEX and over-the-counter electricity futures contracts to economically hedge a portion of its anticipated sales of electricity from its electricity generation facilities. Although Midstream & Marketing’s fixed-price supply arrangements mitigate most risks associated with its fixed-price sales contracts, should any of the suppliers under these arrangements fail to perform, increases, if any, in the cost of replacement natural gas or electricity would adversely impact Midstream & Marketing’s results. In order to reduce this risk of supplier nonperformance, Midstream & Marketing has diversified its purchases across a number of suppliers. UGI International’s natural gas and electricity marketing businesses also use natural gas and electricity futures and forward contracts to economically hedge market risk associated with a substantial portion of anticipated volumes under fixed-price sales and purchase contracts. See Note 5 to Condensed Consolidated Financial Statements for information on the exit of substantially all of the Company’s European energy marketing business.

Midstream & Marketing has entered into fixed-price sales agreements for a portion of the electricity expected to be generated by its electric generation assets. In the event that these generation assets would not be able to produce all of the electricity needed to supply electricity under these agreements, Midstream & Marketing would be required to purchase electricity on the spot market or under contract with other electricity suppliers. Accordingly, increases in the cost of replacement power could negatively impact Midstream & Marketing’s results.

Interest Rate Risk

We have both fixed-rate and variable-rate debt. Changes in interest rates impact the cash flows of variable-rate debt but generally do not impact their fair value. Conversely, changes in interest rates impact the fair value of fixed-rate debt but do not impact their cash flows.

Our variable-rate debt at June 30, 2024, includes revolving credit facility borrowings and variable-rate term loans at UGI International, Utilities, Energy Services and UGI Corporation. These debt agreements have interest rates that are generally indexed to short-term market interest rates. We have entered into pay-fixed, receive-variable interest rate swap agreements on a significant portion of the term loans’ principal balances and a significant portion of the term loans’ tenor. We have designated these interest rate swaps as cash flow hedges. At June 30, 2024, combined borrowings outstanding under variable-rate debt agreements, excluding the previously mentioned effectively fixed-rate debt, totaled $515 million.

Long-term debt associated with our domestic businesses is typically issued at fixed rates of interest based upon market rates for debt with similar terms and credit ratings. As these long-term debt issues mature, we may refinance such debt with new debt having interest rates reflecting then-current market conditions. In order to reduce interest rate risk associated with near- to medium-term forecasted issuances of fixed rate debt, from time to time we enter into IRPAs.

Foreign Currency Exchange Rate Risk

Our primary currency exchange rate risk is associated with the USD versus the euro and, to a lesser extent, the USD versus the British pound sterling. The USD value of our foreign currency denominated assets and liabilities will fluctuate with changes in the associated foreign currency exchange rates. From time to time, we use derivative instruments to hedge portions of our net investments in foreign subsidiaries, including anticipated foreign currency denominated dividends. Gains or losses on these net investment hedges remain in AOCI until such foreign operations are sold or liquidated. With respect to our net investments in our UGI International operations, a 10% decline in the value of the associated foreign currencies versus the USD would reduce their aggregate net book value at June 30, 2024, by approximately $70 million, which amount would be reflected in other comprehensive income. We have designated certain euro-denominated borrowings as net investment hedges.

In order to reduce the volatility in net income associated with our foreign operations, principally as a result of changes in the USD exchange rate between 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 foreign currency earnings before income taxes.

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.

We have concentrations of credit risk associated with derivative instruments and we evaluate the creditworthiness of our derivative counterparties on an ongoing basis. As of June 30, 2024, the maximum amount of loss, based upon the gross fair values of the derivative instruments, we would incur if these counterparties failed to perform according to the terms of their contracts was $162 million. In general, many of our over-the-counter derivative instruments and all exchange contracts call for the posting of collateral by the counterparty or by the Company in the forms of letters of credit, parental guarantees or cash. At June 30, 2024, we had received cash collateral from derivative instrument counterparties totaling $12 million. In addition, we may have offsetting derivative liabilities and certain accounts payable balances with certain of these counterparties, which further mitigates the previously mentioned maximum amount of losses. 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 June 30, 2024, if the credit-risk-related contingent features were triggered, the amount of collateral required to be posted would not be material.

The following table summarizes the fair values of unsettled market risk sensitive derivative instrument assets (liabilities) held at June 30, 2024 and changes in their fair values due to market risks. Certain of UGI Utilities’ commodity derivative instruments are excluded from the table below because any associated net gains or losses are refundable to or recoverable from customers in accordance with UGI Utilities ratemaking.

(1) Change in fair value represents a 10% adverse change in the market prices of certain commodities.

(2) Change in fair value represents a 50 basis point adverse change in prevailing market interest rates.

(3) Change in fair value represents a 10% adverse change in the value of the Euro and the British pound sterling versus the USD.

(a) Evaluation of Disclosure Controls and Procedures

The Company's disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by the Company in reports filed or submitted under the Securities Exchange Act of 1934, as amended, is (i) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to our management, including the Interim Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. The Company's management, with the participation of the Company’s Interim Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company's disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Interim Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures, as of the end of the period covered by this report, were effective at the reasonable assurance level.

(b) Change in Internal Control over Financial Reporting

No change in the Company’s internal control over financial reporting occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

In addition to the information presented in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our 2023 Annual Report, which could materially affect our business, financial condition or future results. The risks described in our 2023 Annual Report are not the only risks facing the Company. Other unknown or unpredictable factors could also have material adverse effects on future results.