UGI Corp: Form 10-Q for the period ended Dec 31, 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 2024 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 success of our strategic initiatives and investments intended to advance our business strategy; (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 attract, develop, retain and engage key employees; (25) uncertainties related to global pandemics; (26) the impact of a material impairment of our assets, (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 2024 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. 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. Accordingly, 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.

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 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 attributable to UGI Corporation, the most directly comparable GAAP measure, to adjusted net income attributable to UGI Corporation, and reconcile diluted earnings per share, the most directly comparable GAAP measure, to adjusted diluted earnings per share:

(Dollars in millions)

(a) Corporate & Other includes certain adjustments made to our reporting segments in arriving at net income 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.

Executive Overview

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

Net income attributable to UGI Corporation for the 2024 three-month period was $375 million (equal to $1.74 per diluted share) compared to $94 million (equal to $0.44 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 $80 million and $(91) million during the 2024 and 2023 three-month periods, respectively.

Net income attributable to UGI Corporation during the 2023 three-month period also includes (1) $65 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) external advisory fees of $5 million associated with AmeriGas operations enhancement for growth project; and (3) restructuring costs of $3 million largely attributable to a reduction in workforce and related costs.

Adjusted net income attributable to UGI Corporation for the 2024 three-month period was $295 million (equal to $1.37 per diluted share) compared to $258 million (equal to $1.20 per diluted share) for the 2023 three-month period. The increase in adjusted net income attributable to UGI Corporation for the 2024 three-month period reflects higher earnings contributions from the UGI International and, to a much lesser extent, Utilities segments, offset by lower earnings contributions from the AmeriGas Propane and, to a much lesser extent, Midstream & Marketing segments. In addition, the increase in adjusted net income during the 2024 three-month period also reflects significantly lower income tax expenses primarily related to an increase in investment tax credits in our Midstream & Marketing segment and the release of a valuation allowance on deferred tax assets expected to be utilized in the current year in our UGI International segment. During the 2024 three-month period, temperatures in all of our segments were colder than the prior-year period, with significantly colder temperatures during the peak heating season month of December 2024.

Utilities’ adjusted net income attributable to UGI Corporation increased $3 million in the 2024 three-month period. The increase was largely attributable to higher total margin due in large part to increases in base rates at WV Gas Utility effective January 2024 and the impacts from growth in the core market customers.

Midstream & Marketing’s adjusted net income attributable to UGI Corporation decreased $3 million in the 2024 three-month period. The decrease is primarily attributable to lower total margin from natural gas marketing activities, partially offset by lower income tax expenses, reflecting higher investment tax credits in the 2024 three-month period.

UGI International’s adjusted net income attributable to UGI Corporation increased $17 million in the 2024 three-month period. The increase is mainly attributable to lower income tax expenses and lower operating and administrative expenses, partially offset by lower margin contributions primarily from our energy marketing activities, reflecting the exit of substantially all of UGI International’s energy marketing business in Fiscal 2024.

AmeriGas Propane’s adjusted net income attributable to UGI Corporation decreased $62 million in the 2024 three-month period. The decrease principally reflects higher income tax expenses, partially offset by lower operating and administrative expenses in the 2024 three-month period.

Analysis of Segment Results

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 $7 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 3.2% warmer than normal and 3.1% colder than the prior-year period. The slight increase in Gas Utility core market volumes during the 2024 three-month period is largely related to the colder weather compared to the prior-year period. Total Gas Utility volume decreased 6% during the 2024 three-month period, notwithstanding the increase in core market volumes, primarily reflecting lower large firm delivery service volumes. Electric Utility distribution sales volumes were comparable to the prior-year period.

Utilities revenues decreased $8 million in the 2024 three-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 effects of the weather normalization adjustments for Gas Utility. These decreases were partially offset by the effects of increases in base rates for WV Gas Utility effective January 1, 2024, the slightly higher core market volumes and higher off-system sales. Electric Utility revenues were comparable to the prior-year period.

Utilities cost of sales decreased $17 million in the 2024 three-month period, reflecting lower Gas Utility cost of sales. The decrease in Gas Utility cost of sales was mainly attributable to lower PGC and PGA rates, partially offset by the slightly higher core market volumes and higher cost of sales associated with off-system sales. Electric Utility cost of sales was comparable to the prior-year period.

Utilities total margin increased $9 million during the 2024 three-month period, reflecting higher Gas Utility total margin. The increase in Gas Utility total margin mainly reflects the effects of increases in base rates for WV Gas Utility effective January 1, 2024 and the impacts from growth in the core market customers, partially offset by the effects of the weather normalization adjustments for Gas Utility. Electric Utility margin was comparable to the prior-year period.

Utilities operating income and earnings before interest expense and income taxes increased $4 million and $6 million, respectively, during the 2024 three-month period. These increases largely reflect the previously mentioned increase in total margin ($9 million), partially offset by higher operating and administrative expenses ($3 million) and higher depreciation expense ($3 million). The higher operating and administrative expenses reflect, among other things, higher personnel expenses and higher uncollectible accounts 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 three-month period were 3.9% warmer than normal and 4.2% colder than the prior-year period.

Midstream & Marketing revenues decreased $27 million compared to the prior-year period, primarily reflecting (1) lower revenues from natural gas marketing activities ($13 million) that were primarily impacted by lower natural gas prices; (2) lower midstream revenues ($10 million), mainly from lower natural gas gathering and processing activities; and (3) absence of revenues from UGID that was sold in September 2024 ($9 million). The decrease in revenues was partially offset by higher revenues from renewable energy ($5 million).

Midstream & Marketing cost of sales decreased $10 million compared to the prior-year period, primarily reflecting lower natural gas costs ($8 million) related to the previously mentioned natural gas marketing activities and absence of cost of sales from UGID that was sold in September 2024 ($5 million), partially offset by higher cost of sales from renewable energy ($4 million).

Midstream & Marketing total margin decreased $17 million compared to the prior-year period, primarily reflecting (1) lower midstream margins ($10 million) mainly from lower natural gas gathering and processing activities, (2) absence of margins from UGID that was sold in September 2024 ($4 million) and (3) lower margins from capacity management activities.

Midstream & Marketing operating income and earnings before interest expense and income taxes during the 2024 three-month period decreased $8 million and $7 million, respectively, compared to the prior-year period. The decrease in operating income is largely attributable to the lower total margin, partially offset by higher other operating income ($5 million), slightly lower operating and administrative expenses ($2 million) and depreciation and amortization expense ($2 million). The decrease in earnings before interest expense and income taxes principally reflects the decrease in 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 3.5% warmer than normal and 8.2% colder than the prior-year period. Total LPG retail gallons sold during the 2024 three-month period slightly increased compared to the prior-year period, largely attributable to higher crop drying campaigns and colder weather, partially offset by lower 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 $1.07 and $1.08, respectively, and the average unweighted British pound sterling-to-USD translation rates were approximately $1.28 and $1.24, 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 realized net gains of $4 million each in the 2024 and 2023 three-month periods.

Average wholesale prices for propane and butane during the 2024 three-month period in northwest Europe were approximately 13.5% and 5.3% higher, respectively, compared with the prior-year period. UGI International revenues and cost of sales decreased $87 million and $72 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 in Fiscal 2024. The decrease in revenues from the energy marketing activities was partially offset by LPG price increases across Europe. The decrease in cost of sales from the energy marketing activities was partially offset by higher LPG product costs.

UGI International total margin decreased $15 million during the 2024 three-month period reflecting lower margin contributions primarily from our energy marketing activities and, to a much lesser extent, lower margin contributions from our LPG business. The lower margin from our energy marketing activities reflects the impact of the aforementioned exit of substantially all of UGI International’s energy marketing business. The slightly lower margin from our LPG business primarily reflects the effects of lower average unit margins in the 2024 three-month period.

UGI International operating income and earnings before interest expense and income taxes decreased $7 million each during the 2024 three-month period. The decrease in operating income principally reflects the previously mentioned $15 million decrease in total margin and lower foreign currency transaction gains ($2 million), partially offset by lower operating and administrative expenses ($13 million). The lower operating and administrative expenses in the 2024 three-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. The decrease in earnings before interest expense and income taxes in the 2024 three-month period largely reflects the $7 million decrease 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 6.3% warmer than normal and comparable to the prior-year period. Although average temperatures during the 2024 three-month period were comparable to the prior-year period, we experienced significantly colder temperatures during the peak heating season month of December 2024. Total retail gallons sold decreased 1% during the 2024 three-month period, primarily due to continuing customer attrition.

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 14.9% higher than such prices during the 2023 three-month period. Total revenues decreased $2 million during the 2024 three-month period reflecting the lower retail volumes sold ($5 million) and slightly lower fee income that was largely offset by the effects of higher average retail propane selling prices ($6 million).

Total cost of sales decreased $3 million during the 2024 three-month period largely reflecting the lower retail propane volumes sold.

Total margin increased $1 million in the 2024 three-month period reflecting higher average retail propane unit margins ($7 million) that was largely offset by the lower retail propane volumes sold ($3 million) and slightly lower fee income.

Operating income and earnings before interest expense and income taxes each increased $3 million during the 2024 three-month period primarily reflecting lower operating and administrative expenses ($7 million), partially offset by slightly lower gains on asset sales. The decrease in operating and administrative expenses primarily reflects lower compensation expenses.

Interest Expense and Income Taxes

Our consolidated interest expense during the 2024 three-month period was $102 million compared to $100 million during the 2023 three-month period. The slight increase in interest expense reflects the effects of higher average long-term debt outstanding at Utilities and UGI Corporation, substantially offset by lower interest expense from lower average long-term debt outstanding at AmeriGas Propane and lower average credit agreement borrowings during the 2024 three-month period.

The decrease in the Company’s income tax rate for the 2024 three-month period principally reflects an increase in investment tax credits in our Midstream & Marketing segment and the release of a valuation allowance on deferred tax assets expected to be utilized by our UGI International segment.

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. Our total available liquidity balance, comprising cash and cash equivalents and available borrowing capacity on our revolving credit facilities, totaled approximately $1.5 billion at December 31, 2024 and September 30, 2024.

On February 4, 2025, UGI International borrowed $221 million under its revolving credit facility. The proceeds from these borrowings were subsequently used to fund an intercompany loan of $221 million to AmeriGas Partners. AmeriGas Partners expects to use the proceeds from the intercompany loan to redeem the outstanding principal balance of the 5.50% Senior Notes maturing in May 2025. Concurrent with the intercompany loan agreement, on February 5, 2025, AmeriGas Partners issued a notice of early redemption for the remaining 5.50% Senior Notes maturing in May 2025, having an aggregate principal balance of $218 million, plus accrued and unpaid interest.

As of December 31, 2024, except for $218 million outstanding principal balance of AmeriGas Partners 5.50% Senior Notes maturing in May 2025, the Company does not have any senior notes or term loans maturing in the next twelve months. UGI and its subsidiaries were in compliance with all of its debt covenants as of December 31, 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 linked 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 $240 million at December 31, 2024, compared with $213 million at September 30, 2024. Excluding cash and cash equivalents that reside at UGI’s operating subsidiaries, at December 31, 2024 and September 30, 2024, UGI had $102 million and $72 million of cash and cash equivalents, respectively. Such cash is available to pay dividends on UGI Common Stock and for investment purposes.

Long-term Debt and Credit Facilities

Long-term Debt

The Company’s debt outstanding at December 31, 2024 and September 30, 2024, comprises the following:

Significant Financing Activities

The following significant financing activities occurred during the 2024 three-month period. See Note 8 to Condensed Consolidated Financial Statements for additional information on these transactions.

UGI Utilities Senior Notes. In November 2024, UGI Utilities entered into a Note Purchase Agreement with a consortium of lenders. Pursuant to the Note Purchase Agreement, UGI Utilities issued $50 million aggregate principal amount of 5.24% Senior Notes due November 30, 2029, and $125 million aggregate principal amount of 5.52% Senior Notes due November 30, 2034. The net proceeds from these issuances were used to reduce short-term borrowings and for general corporate purposes.

AmeriGas Senior Secured Revolving Credit Facility. In October 2024, AmeriGas OLP amended the AmeriGas Senior Secured Revolving Credit Facility to increase total commitments from $200 million to a total of $300 million.

UGI Corporation 2025 Credit Agreement. In October 2024, UGI entered into the UGI Corporation 2025 Credit Agreement, providing a $475 million revolving credit facility, including a $10 million sublimit for letters of credit, and a $400 million term loan facility. Borrowings under the credit agreement can be used for general corporate purposes, including refinancing a portion of the UGI Corporation Credit Facility Agreement and ongoing working capital needs of the Company. The revolving credit facility is scheduled to expire in October 2028, and the term loan facility is scheduled to mature in October 2027. In connection with entering into the UGI Corporation 2025 Credit Agreement, the Company paid off in full and terminated the UGI Corporation Credit Facility Agreement.

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 2024 Annual Report.

Information about the Company’s principal credit agreements (excluding the Receivables Facility discussed below) as of December 31, 2024 and 2023, is presented in the table below.

(a) The maximum amount available for borrowing at any time under the AmeriGas Senior Secured Revolving Credit Facility is limited to the borrowing base valuation, as defined by the agreement.

(b) Permits UGI International, LLC or UGI International Holdings B.V. to borrow in euros or USD. At December 31, 2024 and 2023, the amount borrowed consisted of euro-denominated borrowings equivalent to $114 million and $182 million, respectively.

(c) Borrowings outstanding have been classified as “Long-term debt” on the Condensed Consolidated Balance Sheets. Subsequent to December 31, 2024, the Company made a net repayment of $17 million of such borrowings and classified these net repayments as “Current maturities of long-term debt” on the December 31, 2024 Condensed Consolidated Balance Sheet.

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. In October 2024, the expiration date of the Receivables Facility was extended to October 2025. The Receivables Facility provides Energy Services with the ability to borrow up to $150 million of eligible receivables during the period October 18, 2024 to April 30, 2025, and up to $75 million of eligible receivables during the period May 1, 2025 to October 17, 2025, with the option to request an increase of $50 million. The interest rate of the Receivables Facility was replaced with a term SOFR based interest rate effective with the extension in October 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 December 31, 2024, the outstanding balance of ESFC trade receivables was $82 million, none of which were sold to the bank. At December 31, 2023, the outstanding balance of ESFC trade receivables was $95 million, $60 million of which was sold to the bank. There were no sales of receivables under the Receivables Facility during the three months ended December 31, 2024. During the three months ended December 31, 2023, peak sales of receivables and average daily amounts sold were $70 million and $45 million, respectively.

Dividends

On November 20, 2024, UGI’s Board of Directors declared a cash dividend equal to $0.375 per common share. The dividend was paid on January 1, 2025, to shareholders of record on December 16, 2024. On February 5, 2025, UGI’s Board of Directors declared a cash dividend equal to $0.375 per common share. The dividend will be payable on April 1, 2025, to shareholders of record on March 17, 2025.

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 $164 million in the 2024 three-month period compared to cash provided by operating activities of $119 million in the 2023 three-month period. Cash flow provided by operating activities before changes in operating working capital was $427 million in the 2024 three-month period compared to $376 million in the 2023 three-month period. Cash used to fund changes in operating working capital totaled $263 million in the 2024 three-month period, as compared to the $257 million of cash used to fund changes in operating working capital in the 2023 three-month period. The prior-year period includes $35 million of derivative instrument collateral deposit net repayments principally at our UGI International and Midstream & Marketing segments compared to collateral received of $47 million in the 2024 three-month period. The 2024 three-month period includes net refunds of deferred fuel and power costs of $2 million compared to net recoveries of $26 million in the prior-year period. Changes in operating working capital during the 2024 three-month period reflect, among other things, increases in cash used to fund accounts receivable and accounts payable offset by increased cash from changes in inventory.

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 $232 million in the 2024 three-month period compared to $165 million in the 2023 three-month period. Cash expenditures for property, plant and equipment were $211 million in the 2024 three-month period compared with $156 million in the 2023 three-month period principally reflecting higher cash capital expenditures at our Midstream & Marketing and Utilities segments. Investments in equity method investments during the 2024 three-month period principally reflects our continuing investments in renewable energy projects at our Midstream & Marketing segment.

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 provided by financing activities was $95 million in the 2024 three-month period compared to $3 million in the 2023 three-month period. The 2024 three-month period includes the issuance by UGI Utilities of $50 million and $125 million principal amount of senior notes. The 2023 three-month period includes the issuance by UGI Utilities of $250 million principal amount of senior notes. The net proceeds from these issuances were used to reduce short-term borrowings and for general corporate purposes. The 2024 three-month period activities also include, among other things, entering into the UGI Corporation

2025 Credit Agreement consisting of (1) a $475 million revolving credit facility and (2) a $400 million variable-rate term loan. Proceeds from the UGI Corporation 2025 Credit Agreement were used to prepay all borrowings under the UGI Corporation Credit Facility Agreement due August 29, 2025 and, concurrent with such repayment, terminated the agreement.

UTILITY REGULATORY MATTERS

UGI Utilities. On January 27, 2025, PA Gas Utility filed a request with the PAPUC to increase its base operating revenues for residential, commercial and industrial customers by $110 million annually. The increased revenues would fund ongoing system improvements and operations necessary to maintain safe and reliable natural gas service. PA Gas Utility requested the new gas rates become effective March 28, 2025. However, the PAPUC typically suspends the effective date for general base rate proceedings for a period not to exceed nine months after the filing date to allow for investigation and public hearings. We cannot predict the timing or the ultimate outcome of the rate case review process.

Mountaineer. On July 31, 2024, WV Gas Utility 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 October 28, 2024, the WVPSC issued an order approving WV Gas Utility’s request, with new rates effective January 1, 2025.

On July 31, 2023, WV Gas Utility submitted its 2023 IREP filing to the WVPSC requesting recovery of $10 million, an increase of $6 million, for costs associated with capital investments after December 31, 2022, that total $131 million, including $67 million in calendar year 2024. With new base rates expected to be effective January 1, 2024, revenues from IREP rates would decrease by $12 million. 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, WV Gas Utility submitted a base rate case filing with the WVPSC seeking a net revenue increase of $20 million, which consisted of an increase in base rates of $38 million and a decrease in the IREP rates of $18 million annually to be effective on April 5, 2023. On March 31, 2023, the WVPSC suspended the effective date of the requested rate change increase until January 1, 2024 to allow for a full review of the filing. On October 6, 2023, WV Gas Utility filed a joint stipulation and agreement for settlement of the base rate case, which included a $14 million net revenue increase. On December 21, 2023, the WVPSC issued a final order approving the joint stipulation and agreement, except the WVPSC authorized WV Gas Utility to implement a weather normalization adjustment rider as a five-year pilot program beginning on October 1, 2024. The new rates went into effect on January 1, 2024. On April 11, 2024, the WVPSC approved the calculation methodology submitted by WV Gas Utility on March 28, 2024. Under this rider, when weather deviates from normal by more than 2%, for service rendered during the period October 1 through May 31, residential and small commercial customer billings for distribution services are adjusted for weather related impacts exceeding the 2% threshold.

OTHER MATTERS

West Reading, Pennsylvania Explosion. On March 24, 2023, an explosion occurred in West Reading, Pennsylvania which resulted in seven fatalities, injuries to at least ten others, and extensive property damage to buildings owned by R.M. Palmer, a local chocolate manufacturer, and neighboring structures. The NTSB and the PAPUC are investigating the West Reading incident. On July 18, 2023, the NTSB issued an Investigative Update which identified a fracture in a retired UGI gas service tee and a fracture in a nearby R.M. Palmer steam system. The NTSB investigative team includes representatives from the Company, the local fire department and the Pipeline and Hazardous Materials Safety Administration. The Company is cooperating with the investigation. In September 2023, OSHA closed their investigation of this matter, without any finding pertaining to UGI Utilities. On December 10, 2024, the NTSB staff presented its draft findings to the NTSB Board.

While awaiting the final NTSB report, 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.

In addition to the matters described above, there are other pending claims and legal actions arising in the normal course of our businesses. Although we cannot predict the final results of these pending claims and legal actions, including those described above, we believe, after consultation with counsel, that the final outcome of these matters 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.

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 December 31, 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 December 31, 2024, combined borrowings outstanding under variable-rate debt agreements, excluding the previously mentioned effectively fixed-rate debt, totaled $734 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 December 31, 2024, by approximately $75 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 December 31, 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 $201 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 December 31, 2024, we had received cash collateral from derivative instrument counterparties totaling $31 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 December 31, 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 December 31, 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 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 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 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 not effective because of the material weakness in our internal control over financial reporting that was previously disclosed in our Annual Report on Form 10-K for the year ended September 30, 2024.

Notwithstanding the material weakness, we have concluded that the Company’s unaudited interim consolidated financial statements included in this report are fairly stated in all material respects in accordance with U.S. generally accepted accounting principles for each of the periods presented.

Internal Control over Financial Reporting

As previously disclosed in our Annual Report on Form 10-K for the year ended September 30, 2024, management concluded that our internal control over financial reporting was not effective due to the material weakness. As of December 31, 2024, management is in the process of designing and implementing additional controls to timely validate cash flows used in the goodwill impairment test, including the engagement of a third-party specialist, to assist in developing valuation models and establishing sound and reasonable assumptions.

The material weakness identified in our Annual Report on Form 10-K for the year ended September 30, 2024, cannot be considered remediated until the applicable controls have operated for a sufficient period of time and management has concluded, through testing, that these controls are designed and operating effectively. Accordingly, we will continue to monitor and evaluate the effectiveness of our internal control over financial reporting.

(b) Change in Internal Control over Financial Reporting

Except for the material weakness as described above, during the most recent fiscal quarter, no change in the Company’s internal control over financial reporting occurred 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 2024 Annual Report, which could materially affect our business, financial condition or future results. The risks described in our 2024 Annual Report are not the only risks facing the Company. Other unknown or unpredictable factors could also have material adverse effects on future results.