UGI Corp Q3 6.30.2013 10-Q
Table of Contents

 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
 
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2013
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from  ________ to ________            
Commission file number 1-11071

UGI CORPORATION
(Exact name of registrant as specified in its charter)
 
Pennsylvania
 
23-2668356
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
460 North Gulph Road, King of Prussia, PA
 
19406
(Address of principal executive offices)
 
(Zip Code)
(610) 337-1000
(Registrant’s telephone number, including area code)
______________________________________ 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
ý
Accelerated filer
¨
Non-accelerated filer
¨
Smaller reporting company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý
At July 31, 2013, there were 114,098,006 shares of UGI Corporation Common Stock, without par value, outstanding.
 
 
 
 
 


Table of Contents

UGI CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
 
 
PAGES
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
46 
 
 
 
 
 

- i -

Table of Contents
UGI CORPORATION AND SUBSIDIARIES

 
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(Millions of dollars)
 
 
June 30,
2013
 
September 30,
2012
 
June 30,
2012
ASSETS
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
Cash and cash equivalents
 
$
401.8

 
$
319.9

 
$
436.5

Restricted cash
 
6.0

 
3.0

 
7.6

Accounts receivable (less allowances for doubtful accounts of $48.0, $36.1 and $45.7, respectively)
 
752.6

 
632.6

 
624.9

Accrued utility revenues
 
11.8

 
16.9

 
15.0

Inventories
 
304.0

 
356.9

 
317.3

Deferred income taxes
 
27.3

 
56.8

 
52.3

Utility regulatory assets
 
3.7

 
6.5

 
2.7

Derivative financial instruments
 
18.7

 
13.2

 
21.6

Prepaid expenses and other current assets
 
36.1

 
98.7

 
59.4

Total current assets
 
1,562.0

 
1,504.5

 
1,537.3

Property, plant and equipment, at cost (less accumulated depreciation and amortization of $2,495.4, $2,286.0 and $2,226.8, respectively)
 
4,325.0

 
4,233.1

 
4,188.9

Goodwill
 
2,834.0

 
2,818.3

 
2,756.0

Intangible assets, net
 
608.6

 
658.2

 
717.7

Other assets
 
499.2

 
495.6

 
452.3

Total assets
 
$
9,828.8

 
$
9,709.7

 
$
9,652.2

LIABILITIES AND EQUITY
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
Current maturities of long-term debt
 
$
195.6

 
$
166.7

 
$
86.1

Bank loans
 
135.9

 
165.1

 
187.3

Accounts payable
 
384.5

 
411.3

 
346.0

Derivative financial instruments
 
56.8

 
100.9

 
116.5

Other current liabilities
 
552.9

 
643.0

 
577.4

Total current liabilities
 
1,325.7

 
1,487.0

 
1,313.3

Long-term debt
 
3,298.2

 
3,347.6

 
3,475.1

Deferred income taxes
 
956.9

 
935.0

 
832.8

Deferred investment tax credits
 
4.4

 
4.6

 
4.7

Other noncurrent liabilities
 
613.5

 
616.7

 
589.5

Total liabilities
 
6,198.7

 
6,390.9

 
6,215.4

Commitments and contingencies (note 11)
 

 

 

Equity:
 
 
 
 
 
 
UGI Corporation stockholders’ equity:
 
 
 
 
 
 
UGI Common Stock, without par value (authorized—300,000,000 shares; issued — 115,759,694, 115,624,594 and 115,623,094 shares, respectively)
 
1,192.9

 
1,157.7

 
1,148.8

Retained earnings
 
1,361.9

 
1,166.1

 
1,211.2

Accumulated other comprehensive loss
 
(30.7
)
 
(62.0
)
 
(77.7
)
Treasury stock, at cost
 
(26.2
)
 
(28.7
)
 
(24.3
)
Total UGI Corporation stockholders’ equity
 
2,497.9

 
2,233.1

 
2,258.0

Noncontrolling interests, principally in AmeriGas Partners
 
1,132.2

 
1,085.7

 
1,178.8

Total equity
 
3,630.1

 
3,318.8

 
3,436.8

Total liabilities and equity
 
$
9,828.8

 
$
9,709.7

 
$
9,652.2

See accompanying notes to condensed consolidated financial statements.

- 1 -

Table of Contents
UGI CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(Millions of dollars, except per share amounts)
 
 
 
Three Months Ended
June 30,
 
Nine Months Ended
June 30,
 
 
2013
 
2012
 
2013
 
2012
Revenues
 
$
1,372.3

 
$
1,277.2

 
$
5,932.6

 
$
5,393.5

Costs and expenses:
 
 
 
 
 
 
 
 
Cost of sales (excluding depreciation shown below)
 
827.9

 
810.2

 
3,547.3

 
3,438.6

Operating and administrative expenses
 
404.7

 
405.8

 
1,297.4

 
1,191.5

Utility taxes other than income taxes
 
3.7

 
3.9

 
12.7

 
12.9

Depreciation
 
76.5

 
69.5

 
220.0

 
191.0

Amortization
 
15.4

 
15.1

 
46.3

 
36.7

Other income, net
 
(9.0
)
 
(8.1
)
 
(26.5
)
 
(27.1
)
 
 
1,319.2

 
1,296.4

 
5,097.2

 
4,843.6

Operating income (loss)
 
53.1

 
(19.2
)
 
835.4

 
549.9

(Loss) income from equity investees
 

 
(0.1
)
 
0.1

 
(0.2
)
Gain (loss) on extinguishments of debt
 

 
0.1

 

 
(13.3
)
Interest expense
 
(59.2
)
 
(61.3
)
 
(179.6
)
 
(162.6
)
(Loss) income before income taxes
 
(6.1
)
 
(80.5
)
 
655.9

 
373.8

Income tax (expense) benefit
 
(9.0
)
 
4.0

 
(174.1
)
 
(113.2
)
Net (loss) income
 
(15.1
)
 
(76.5
)
 
481.8

 
260.6

Add net loss (deduct net income) attributable to noncontrolling interests, principally in AmeriGas Partners
 
29.8

 
70.2

 
(192.6
)
 
(46.5
)
Net income (loss) attributable to UGI Corporation
 
$
14.7

 
$
(6.3
)
 
$
289.2

 
$
214.1

Earnings (loss) per common share attributable to UGI Corporation stockholders:
 
 
 
 
 
 
 
 
Basic
 
$
0.13

 
$
(0.06
)
 
$
2.54

 
$
1.90

Diluted
 
$
0.13

 
$
(0.06
)
 
$
2.51

 
$
1.89

Average common shares outstanding (thousands):
 
 
 
 
 
 
 
 
Basic
 
114,240

 
112,726

 
113,693

 
112,484

Diluted
 
116,196

 
112,726

 
115,275

 
113,295

Dividends declared per common share
 
$
0.2825

 
$
0.27

 
$
0.8225

 
$
0.79

See accompanying notes to condensed consolidated financial statements.


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Table of Contents
UGI CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
(Millions of dollars)
 
 
 
Three Months Ended
June 30,
 
Nine Months Ended
June 30,
 
 
2013
 
2012
 
2013
 
2012
Net (loss) income
 
$
(15.1
)
 
$
(76.5
)
 
$
481.8

 
$
260.6

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
Net losses on derivative instruments (net of tax of $(1.9), $9.3, $(4.5) and $48.6, respectively)
 
(11.0
)
 
(63.2
)
 
(11.1
)
 
(143.9
)
Reclassifications of net losses on derivative instruments (net of tax of $(1.6), $(9.5), $(15.1) and $(31.3), respectively)
 
8.9

 
24.8

 
59.7

 
69.5

Foreign currency adjustments (net of tax of $(2.4), $11.2, $1.8 and $9.7, respectively)
 
8.8

 
(35.6
)
 
1.3

 
(33.9
)
Benefit plans (net of tax of $(0.2), $(0.0), $(0.7) and $(0.2), respectively)
 
0.3

 
0.1

 
1.1

 
0.3

Other comprehensive income (loss)
 
7.0

 
(73.9
)
 
51.0

 
(108.0
)
Comprehensive (loss) income
 
(8.1
)
 
(150.4
)
 
532.8

 
152.6

Add comprehensive loss (deduct comprehensive income) attributable to noncontrolling interests, principally in AmeriGas Partners
 
37.8

 
107.3

 
(212.2
)
 
(0.4
)
Comprehensive income (loss) attributable to UGI Corporation
 
$
29.7

 
$
(43.1
)
 
$
320.6

 
$
152.2

See accompanying notes to condensed consolidated financial statements.


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Table of Contents
UGI CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(Millions of dollars)
 
 
Nine Months Ended
June 30,
 
 
2013
 
2012
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
 
Net income
 
$
481.8

 
$
260.6

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
266.3

 
227.7

Deferred income taxes, net
 
35.5

 
9.9

Provision for uncollectible accounts
 
23.9

 
21.3

Net change in realized gains and losses deferred as cash flow hedges
 
5.0

 
(11.7
)
Loss on extinguishments of debt, net
 

 
13.3

Other, net
 
(11.3
)
 
2.6

Net change in:
 
 
 
 
Accounts receivable and accrued utility revenues
 
(141.1
)
 
71.2

Inventories
 
54.1

 
128.1

Utility deferred fuel costs, net of changes in unsettled derivatives
 
20.5

 
8.1

Accounts payable
 
(26.9
)
 
(132.2
)
Other current assets
 
52.4

 
22.8

Other current liabilities
 
(73.8
)
 
(55.5
)
Net cash provided by operating activities
 
686.4

 
566.2

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
 
Expenditures for property, plant and equipment
 
(291.6
)
 
(236.0
)
Acquisitions of businesses, net of cash acquired
 
(24.3
)
 
(1,573.7
)
(Increase) decrease in restricted cash
 
(3.0
)
 
9.6

Other, net
 
2.2

 
0.1

Net cash used by investing activities
 
(316.7
)
 
(1,800.0
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
 
Dividends on UGI Common Stock
 
(93.4
)
 
(88.7
)
Distributions on AmeriGas Partners Common Units
 
(168.5
)
 
(126.5
)
Issuances of debt
 

 
1,550.4

Repayments of debt
 
(28.5
)
 
(240.1
)
(Decrease) increase in bank loans
 
(39.0
)
 
54.2

Receivables Facility net borrowings (repayments)
 
9.5

 
(4.3
)
Issuances of UGI Common Stock
 
28.5

 
12.7

Issuance of AmeriGas Partners Common Units
 

 
276.6

Other
 
5.4

 
0.5

Net cash (used) provided by financing activities
 
(286.0
)
 
1,434.8

EFFECT OF EXCHANGE RATE CHANGES ON CASH
 
(1.8
)
 
(3.0
)
Cash and cash equivalents increase
 
$
81.9

 
$
198.0

Cash and cash equivalents:
 
 
 
 
End of period
 
$
401.8

 
$
436.5

Beginning of period
 
319.9

 
238.5

Increase
 
$
81.9

 
$
198.0

See accompanying notes to condensed consolidated financial statements.

- 4 -

Table of Contents
UGI CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(unaudited)
(Millions of dollars)

 
Nine Months Ended June 30,
 
2013
 
2012
Common stock, without par value
 
 
 
Balance, beginning of period
$
1,157.7

 
$
937.4

Common Stock issued in connection with employee and director plans, net of tax withheld
19.7

 
7.6

Dividend reinvestment plan
1.4

 
1.6

Excess tax benefits realized on equity-based compensation
5.7

 
0.8

Stock-based compensation expense
8.4

 
7.0

Adjustments to reflect change in ownership of AmeriGas Partners, net of tax

 
194.4

Balance, end of period
$
1,192.9

 
$
1,148.8

Retained earnings
 
 
 
Balance, beginning of period
$
1,166.1

 
$
1,085.8

Net income attributable to UGI Corporation
289.2

 
214.1

Cash dividends on Common Stock
(93.4
)
 
(88.7
)
Balance, end of period
$
1,361.9

 
$
1,211.2

Accumulated other comprehensive income (loss)
 
 
 
Balance, beginning of period
$
(62.0
)
 
$
(17.7
)
Net gains (losses) on derivative instruments, net of tax
6.6

 
(74.1
)
Reclassification of net losses on derivative instruments, net of tax
22.3

 
45.8

Benefit plans, net of tax
1.1

 
0.3

Adjustments to reflect change in ownership of AmeriGas Partners, net of tax

 
1.9

Foreign currency, net of tax
1.3

 
(33.9
)
Balance, end of period
$
(30.7
)
 
$
(77.7
)
Treasury stock
 
 
 
Balance, beginning of period
$
(28.7
)
 
$
(27.8
)
Common Stock issued in connection with employee and director plans, net of tax withheld
20.8

 
2.9

Dividend reinvestment plan
0.8

 
0.6

Reacquired common stock - employee and director plans
(19.1
)
 

Balance, end of period
$
(26.2
)
 
$
(24.3
)
Total UGI Corporation stockholders’ equity
$
2,497.9

 
$
2,258.0

Noncontrolling interests
 
 
 
Balance, beginning of period
$
1,085.7

 
$
213.4

Net income attributable to noncontrolling interests, principally in AmeriGas Partners
192.6

 
46.5

Net losses on derivative instruments
(17.8
)
 
(69.8
)
Reclassification of net losses on derivative instruments
37.4

 
23.7

Dividends and distributions
(168.7
)
 
(126.8
)
AmeriGas Partners Common Unit public offering

 
276.6

AmeriGas Partners Common Units issued for Heritage Acquisition

 
1,132.6

Adjustments to reflect change in ownership of AmeriGas Partners

 
(321.4
)
Other
3.0

 
4.0

Balance, end of period
$
1,132.2

 
$
1,178.8

Total equity
$
3,630.1

 
$
3,436.8


See accompanying notes to condensed consolidated financial statements.


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Table of Contents
UGI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Millions of dollars and euros, except per share amounts)


1.
Nature of Operations

UGI Corporation (“UGI”) is a holding company that, through subsidiaries and affiliates, distributes and markets energy products and related services. In the United States, we (1) are the general partner and own limited partner interests in a retail propane marketing and distribution business; (2) own and operate natural gas and electric distribution utilities; (3) own all or a portion of electricity generation facilities; and (4) own and operate an energy marketing, midstream infrastructure, storage, natural gas gathering and energy services business. Internationally, we market and distribute propane and other liquefied petroleum gases (“LPG”) in Europe and China. We refer to UGI and its consolidated subsidiaries collectively as the “Company” or “we.”
We conduct a domestic retail propane marketing and distribution business through AmeriGas Partners, L.P. (“AmeriGas Partners”). AmeriGas Partners is a publicly traded limited partnership that conducts a national propane distribution business through its principal operating subsidiary AmeriGas Propane, L.P. (“AmeriGas OLP”) and prior to its merger with AmeriGas OLP on July 1, 2013 (the “Merger”), AmeriGas OLP’s principal operating subsidiary Heritage Operating, L.P. (“HOLP”). AmeriGas OLP and HOLP, prior to the Merger are collectively referred to herein as the “Operating Partnership.” AmeriGas Partners and AmeriGas OLP are Delaware limited partnerships. UGI’s wholly owned second-tier subsidiary, AmeriGas Propane, Inc. (the “General Partner”), serves as the general partner of AmeriGas Partners and AmeriGas OLP. We refer to AmeriGas Partners and its subsidiaries together as the “Partnership” and the General Partner and its subsidiaries, including the Partnership, as “AmeriGas Propane.” At June 30, 2013, the General Partner held a 1% general partner interest and 25.3% limited partner interest in AmeriGas Partners and an effective 27.1% ownership interest in AmeriGas OLP. Our limited partnership interest in AmeriGas Partners comprises 23,756,882 AmeriGas Partners Common Units (“Common Units”). The remaining 73.7% interest in AmeriGas Partners comprises 39,492,279 publicly held Common Units and 29,567,362 Common Units held by a subsidiary of Energy Transfer Partners, L.P. (“ETP”) as a result of the January 12, 2012, acquisition of substantially all of ETP's propane operations (“Heritage Propane”). In July 2013, ETP sold 7,500,000 of the Common Units it held in an underwritten public offering. AmeriGas Partners did not receive any proceeds from the sale of the Common Units by ETP.
Our wholly owned subsidiary, UGI Enterprises, Inc. (“Enterprises”), through subsidiaries conducts (1) an LPG distribution business in France, Belgium, the Netherlands and Luxembourg (“Antargaz”); (2) an LPG distribution business in central, northern and eastern Europe (“Flaga”); (3) an LPG distribution business in the United Kingdom (“AvantiGas”); and (4) an LPG distribution business in the Nantong region of China. We refer to our foreign LPG operations collectively as “International Propane.”
Enterprises, through UGI Energy Services, Inc. (“Energy Services”) and its subsidiaries, conducts an energy marketing, midstream infrastructure, storage, natural gas gathering and energy services business primarily in the Mid-Atlantic region of the United States. In addition, Energy Services’ wholly owned subsidiary, UGI Development Company (“UGID”), owns all or a portion of electricity generation facilities located in Pennsylvania. These businesses are referred to herein collectively as “Midstream & Marketing.” Enterprises also conducts heating, ventilation, air-conditioning, refrigeration and electrical contracting businesses in the Mid-Atlantic region through a first-tier subsidiary. 
Our natural gas and electric distribution utility businesses are conducted through our wholly owned subsidiary, UGI Utilities, Inc. (“UGI Utilities”), and its subsidiaries UGI Penn Natural Gas, Inc. (“PNG”) and UGI Central Penn Gas, Inc. (“CPG”). UGI Utilities, PNG and CPG own and operate natural gas distribution utilities in eastern, northeastern and central Pennsylvania and in a portion of one Maryland county. UGI Utilities also owns and operates an electric distribution utility in northeastern Pennsylvania (“Electric Utility”). UGI Utilities’ natural gas distribution utility is referred to as “UGI Gas.” UGI Gas, PNG and CPG are collectively referred to as “Gas Utility.” Gas Utility is subject to regulation by the Pennsylvania Public Utility Commission (“PUC”) and, with respect to a small service territory in one Maryland county, the Maryland Public Service Commission, and Electric Utility is subject to regulation by the PUC. Gas Utility and Electric Utility are collectively referred to as “Utilities.”


2.
Significant Accounting Policies

Our condensed consolidated financial statements include the accounts of UGI and its controlled subsidiary companies which, except for the Partnership, are majority owned. We report the public’s and ETP’s limited partner interests in the Partnership, and outside ownership interests in other consolidated but less than 100%-owned subsidiaries, as noncontrolling interests.We eliminate all significant intercompany accounts and transactions when we consolidate. Entities in which we do not have control but have significant influence over operating and financial policies are accounted for by the equity method.

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Table of Contents
UGI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Millions of dollars and euros, except per share amounts)

The accompanying condensed consolidated financial statements are unaudited and have been prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). They include all adjustments that we consider necessary for a fair statement of the results for the interim periods presented. Such adjustments consisted only of normal recurring items unless otherwise disclosed. The September 30, 2012, condensed consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”).
These financial statements should be read in conjunction with the financial statements and related notes included in our Annual Report on Form 10-K for the year ended September 30, 2012 (“Company’s 2012 Annual Financial Statements and Notes”). Due to the seasonal nature of our businesses, the results of operations for interim periods are not necessarily indicative of the results to be expected for a full year.
Restricted Cash. Restricted cash represents those cash balances in our commodity futures brokerage accounts that are restricted from withdrawal.
Earnings Per Common Share. Basic earnings per share attributable to UGI Corporation shareholders reflect the weighted-average number of common shares outstanding. Diluted earnings per share attributable to UGI Corporation include the effects of dilutive stock options and common stock awards.
 
Shares used in computing basic and diluted earnings per share are as follows:
 
 
 
Three Months Ended
June 30,
 
Nine Months Ended
June 30,
 
 
2013
 
2012
 
2013
 
2012
Denominator (thousands of shares):
 
 
 
 
 
 
 
 
Average common shares outstanding for basic computation
 
114,240

 
112,726

 
113,693

 
112,484

Incremental shares issuable for stock options and awards
 
1,956

 

 
1,582

 
811

Average common shares outstanding for diluted computation
 
116,196

 
112,726

 
115,275

 
113,295

Comprehensive Income. Comprehensive income (loss) comprises net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) principally comprises (1) gains and losses on derivative instruments qualifying as cash flow hedges, net of reclassifications to net income; (2) actuarial gains and losses on postretirement benefit plans, net of associated amortization; and (3) foreign currency translation and intracompany transaction adjustments.
Reclassifications. We have reclassified certain prior-year period balances to conform to the current-period presentation.
Income Taxes. During the three months ended December 31, 2011, the Company changed the U.S. tax status of a foreign entity. As a result of the change in tax status, we concluded that it was more likely than not that a portion of our foreign tax credits would be utilized and, accordingly, adjusted our foreign tax credit valuation allowance which reduced income tax expense by $4.7 for the nine months ended June 30, 2012.
Use of Estimates. The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and costs. These estimates are based on management’s knowledge of current events, historical experience and various other assumptions that are believed to be reasonable under the circumstances. Accordingly, actual results may be different from these estimates and assumptions.
 

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Table of Contents
UGI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Millions of dollars and euros, except per share amounts)

3.
Accounting Changes
New Accounting Standards Not Yet Adopted
Disclosures about Reclassifications Out of Accumulated Other Comprehensive Income. In February 2013, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance regarding disclosures for items reclassified out of accumulated other comprehensive income (“AOCI”). The new disclosure guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2012. The new disclosures are to be applied prospectively, and early adoption is permitted. We expect to adopt the new guidance in Fiscal 2014. As this guidance provides only disclosure requirements, the adoption of this standard will not impact our results of operations, cash flows or financial position.
Disclosures about Offsetting Assets and Liabilities. In December 2011 (and amended in January 2013), the FASB issued new accounting guidance requiring entities to disclose both gross and net information about recognized derivative instruments that are offset on the balance sheet or subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset on the balance sheet. The new guidance is effective for annual reporting periods beginning on or after January 1, 2013 (Fiscal 2014) and interim periods within those annual periods, and is required to be applied retrospectively. As this guidance provides only disclosure requirements, the adoption of this standard will not impact our results of operations, cash flows or financial position.

4.
Partnership Acquisition of Heritage Propane

On January 12, 2012, AmeriGas Partners completed the acquisition of Heritage Propane from ETP for total consideration of $2,604.8 comprising $1,472.2 in cash and 29,567,362 AmeriGas Partners Common Units with a fair value of approximately $1,132.6 (the “Heritage Acquisition”). The Heritage Acquisition was consummated pursuant to a Contribution and Redemption Agreement, dated October 15, 2011, as amended (the “Contribution Agreement”), by and among AmeriGas Partners, ETP, Energy Transfer Partners GP, L.P., the general partner of ETP, and Heritage ETC, L.P. For additional information on the Heritage Acquisition, see Note 4 to the Company’s 2012 Annual Financial Statements and Notes.
The following presents unaudited pro forma income statement and earnings per share data as if the Heritage Acquisition had occurred on October 1, 2011:

 
 
Nine Months Ended
June 30,
 
 
2013 (As Reported)
 
2012 Pro Forma
Revenues
 
$
5,932.6

 
$
5,885.2

Net income attributable to UGI Corporation
 
$
289.2

 
$
211.4

Earnings per common share attributable to UGI Corporation stockholders:
 
 
 
 
Basic
 
$
2.54

 
$
1.88

Diluted
 
$
2.51

 
$
1.87

The unaudited pro forma results of operations reflect Heritage Propane’s historical operating results after giving effect to adjustments directly attributable to the transaction that are expected to have a continuing effect. The unaudited pro forma consolidated results of operations are not necessarily indicative of the results that would have occurred had the Heritage Acquisition occurred on the date indicated nor are they necessarily indicative of future operating results.


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Table of Contents
UGI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Millions of dollars and euros, except per share amounts)

5.
Goodwill and Intangible Assets

Goodwill and intangible assets comprise the following:
 
 
 
June 30,
2013
 
September 30,
2012
 
June 30,
2012
Goodwill (not subject to amortization)
 
$
2,834.0

 
$
2,818.3

 
$
2,756.0

Intangible assets:
 
 
 
 
 
 
Customer relationships, noncompete agreements and other
 
$
692.6

 
$
691.9

 
$
689.3

Trademarks and tradenames (not subject to amortization)
 
128.4

 
137.2

 
189.6

     Gross carrying amount
 
821.0

 
829.1

 
878.9

     Accumulated amortization
 
(212.4
)
 
(170.9
)
 
(161.2
)
       Intangible assets, net
 
$
608.6

 
$
658.2

 
$
717.7

The decrease in trademarks and tradenames and the increase in goodwill during the nine months ended June 30, 2013, principally reflects a correcting adjustment associated with the Heritage Acquisition. Amortization expense of intangible assets was $13.3 and $40.2 for the three and nine months ended June 30, 2013, respectively, and $12.4 and $31.2 for the three and nine months ended June 30, 2012, respectively. No amortization is included in cost of sales in the Condensed Consolidated Statements of Income. As of June 30, 2013, our expected aggregate amortization expense of intangible assets for the remainder of Fiscal 2013 and for the next four fiscal years is as follows: remainder of Fiscal 2013$12.5; Fiscal 2014$50.5; Fiscal 2015$47.4; Fiscal 2016$41.3; Fiscal 2017$35.0.


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Table of Contents
UGI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Millions of dollars and euros, except per share amounts)

6.
Segment Information

Our operations comprise six reportable segments generally based upon products sold, geographic location and regulatory environment. Our reportable segments comprise: (1) AmeriGas Propane; (2) an international LPG segment comprising Antargaz; (3) an international LPG segment principally comprising Flaga and AvantiGas; (4) Gas Utility; (5) Energy Services; and (6) Electric Generation. We refer to both international segments together as “International Propane” and Energy Services and Electric Generation together as “Midstream & Marketing.” For Fiscal 2012, the Company began reporting its Electric Generation operating segment as a separate reportable segment and our former Electric Utility reportable segment was combined with Corporate & Other. Previously, the Electric Generation operating segment was included in the Energy Services reportable segment. Segment information for the three and nine months ended June 30, 2012 presented below has been adjusted to conform to the current year presentation.
The accounting policies of our reportable segments are the same as those described in Note 2, “Significant Accounting Policies” in the Company’s 2012 Annual Financial Statements and Notes. We evaluate AmeriGas Propane’s performance principally based upon the Partnership’s earnings before interest expense, income taxes, depreciation and amortization (“Partnership EBITDA”). Although we use Partnership EBITDA to evaluate AmeriGas Propane’s profitability, it should not be considered as an alternative to net income (as an indicator of operating performance) or as an alternative to cash flow (as a measure of liquidity or ability to service debt obligations) and is not a measure of performance or financial condition under GAAP. Our definition of Partnership EBITDA may be different from that used by other companies. We evaluate the performance of our other reportable segments principally based upon their income before income taxes.

Three Months Ended June 30, 2013:
 
 
 
 
 
 
 
 
 
 
 
Midstream & Marketing
 
International Propane
 
 
 
 
Total
 
Elims.
 
 
AmeriGas
Propane
 
Gas
Utility
 
Energy Services
 
Electric Generation

 
Antargaz
 
Flaga &
Other
 
Corporate
& Other (b)
Revenues
 
$
1,372.3

 
$
(61.5
)
(c)
 
$
581.7

 
$
126.7

 
$
233.0

 
$
15.7

 
$
249.2

 
$
182.5

 
$
45.0

Cost of sales
 
$
827.9

 
$
(60.1
)
(c)
 
$
305.7

 
$
52.4

 
$
213.9

 
$
7.7

 
$
148.7

 
$
134.8

 
$
24.8

Segment profit:
 
 
 
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
Operating income (loss)
 
$
53.1

 
$
(0.2
)
 
 
$
6.6

 
$
16.1

 
$
7.4

 
$
0.8

 
$
14.5

 
$
6.5

 
$
1.4

Income from equity investees
 

 

 
 

 

 

 

 

 

 

Interest expense
 
(59.2
)
 

 
 
(41.2
)
 
(9.2
)
 
(0.6
)
 

 
(6.2
)
 
(1.2
)
 
(0.8
)
(Loss) income before income taxes
 
$
(6.1
)
 
$
(0.2
)
 
 
$
(34.6
)
 
$
6.9

 
$
6.8

 
$
0.8

 
$
8.3

 
$
5.3

 
$
0.6

Partnership EBITDA (a)
 
 
 
 
 
 
$
59.1

 
 
 
 
 
 
 
 
 
 
 
 
Noncontrolling interests’ net income (loss)
 
$
(29.8
)
 
$

 
 
$
(29.6
)
 
$

 
$

 
$

 
$
(0.3
)
 
$
0.1

 
$

Depreciation and amortization
 
$
91.9

 
$
(0.1
)
 
 
$
52.5

 
$
13.1

 
$
2.1

 
$
2.6

 
$
14.0

 
$
6.1

 
$
1.6

Capital expenditures
 
$
107.6

 
$
(0.1
)
 
 
$
26.3

 
$
37.3

 
$
22.0

 
$
4.4

 
$
11.7

 
$
4.0

 
$
2.0

Total assets (at period end)
 
$
9,828.8

 
$
(95.9
)
 
 
$
4,388.1

 
$
2,164.4

 
$
437.0

 
$
267.2

 
$
1,771.7

 
$
543.1

 
$
353.2

Bank loans (at period end)
 
$
135.9

 
$

 
 
$
80.0

 
$

 
$
45.5

 
$

 
$

 
$
10.4

 
$

Goodwill (at period end)
 
$
2,834.0

 
$

 
 
$
1,929.2

 
$
182.1

 
$
2.8

 
$

 
$
619.2

 
$
93.7

 
$
7.0


- 10 -

Table of Contents
UGI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Millions of dollars and euros, except per share amounts)

Three Months Ended June 30, 2012:
 
 
 
 
 
 
 
 
 
 
 
Midstream & Marketing
 
International Propane
 
 
 
 
Total
 
Elims.
 
 
AmeriGas
Propane
 
Gas
Utility
 
Energy Services
 
Electric Generation

 
Antargaz
 
Flaga &
Other
 
Corporate
& Other (b)
Revenues
 
$
1,277.2

 
$
(33.4
)
(c)
 
$
571.9

 
$
122.3

 
$
157.0

 
$
10.9

 
$
211.8

 
$
193.4

 
$
43.3

Cost of sales
 
$
810.2

 
$
(32.1
)
(c)
 
$
334.0

 
$
51.4

 
$
140.0

 
$
6.4

 
$
133.6

 
$
153.0

 
$
23.9

Segment profit:
 
 
 
 
 
 
 
 
 
 

 

 
 
 
 
 
 
Operating (loss) income
 
$
(19.2
)
 
$

 
 
$
(48.4
)
 
$
22.5

 
$
6.8

 
$
(1.9
)
 
$
(1.2
)
 
$
2.4

 
$
0.6

Income from equity investees
 
(0.1
)
 

 
 

 

 

 

 
(0.1
)
 

 

Gain on extinguishments of debt
 
0.1

 

 
 
0.1

 

 

 

 

 

 

Interest expense
 
(61.3
)
 

 
 
(41.8
)
 
(9.9
)
 
(1.2
)
 

 
(6.3
)
 
(1.2
)
 
(0.9
)
(Loss) income before income taxes
 
$
(80.5
)
 
$

 
 
$
(90.1
)
 
$
12.6

 
$
5.6

 
$
(1.9
)
 
$
(7.6
)
 
$
1.2

 
$
(0.3
)
Partnership EBITDA (a)
 
 
 
 
 
 
$
1.8

 
 
 
 
 
 
 
 
 
 
 
 
Noncontrolling interests’ net loss
 
$
(70.2
)
 
$

 
 
$
(70.0
)
 
$

 
$

 
$

 
$
(0.2
)
 
$

 
$

Depreciation and amortization
 
$
84.6

 
$

 
 
$
49.5

 
$
12.3

 
$
0.9

 
$
2.3

 
$
13.5

 
$
4.7

 
$
1.4

Capital expenditures
 
$
83.7

 
$

 
 
$
25.2

 
$
29.0

 
$
7.3

 
$
6.3

 
$
12.0

 
$
2.8

 
$
1.1

Total assets (at period end)
 
$
9,652.2

 
$
(87.4
)
 
 
$
4,579.5

 
$
2,027.0

 
$
355.0

 
$
261.3

 
$
1,664.7

 
$
513.2

 
$
338.9

Bank loans (at period end)
 
$
187.3

 
$

 
 
$
68.8

 
$

 
$
95.0

 
$

 
$

 
$
23.5

 
$

Goodwill (at period end)
 
$
2,756.0

 
$

 
 
$
1,866.7

 
$
182.1

 
$
2.8

 
$

 
$
605.0

 
$
92.4

 
$
7.0

(a)
The following table provides a reconciliation of Partnership EBITDA to AmeriGas Propane operating income:
Three Months Ended June 30,
 
2013
 
2012
Partnership EBITDA
 
$
59.1

 
1.8

Depreciation and amortization
 
(52.5
)
 
(49.5
)
Gain on extinguishments of debt
 

 
(0.1
)
Noncontrolling interests (i)
 

 
(0.6
)
Operating income (loss)
 
$
6.6

 
$
(48.4
)
(i)
Principally represents the General Partner’s 1.01% interest in AmeriGas OLP.
(b)
Corporate & Other results principally comprise Electric Utility, Enterprises’ heating, ventilation, air-conditioning, refrigeration and electrical contracting businesses (“HVAC/R”), net expenses of UGI’s captive general liability insurance company and UGI’s unallocated corporate and general expenses and interest income. Corporate & Other assets principally comprise cash, short-term investments, the assets of Electric Utility and HVAC/R, and an intercompany loan. The intercompany loan and associated interest is removed in the segment presentation.

- 11 -

Table of Contents
UGI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Millions of dollars and euros, except per share amounts)

(c)
Principally represents the elimination of intersegment transactions among Midstream & Marketing, Gas Utility and AmeriGas Propane.
Nine Months Ended June 30, 2013:
 
 
 
 
 
 
 
 
 
 
 
 
Midstream & Marketing
 
International Propane
 
 
 
 
Total
 
Elims.
 
 
AmeriGas
Propane
 
Gas
Utility
 
Energy Services
 
Electric Generation

 
Antargaz
 
Flaga &
Other
 
Corporate
& Other (b)
Revenues
 
$
5,932.6

 
$
(181.1
)
(c)
 
$
2,634.6

 
$
743.6

 
$
764.8

 
$
47.7

 
$
1,121.1

 
$
659.0

 
$
142.9

Cost of sales
 
$
3,547.3

 
$
(176.2
)
(c)
 
$
1,370.2

 
$
372.7

 
$
648.8

 
$
27.9

 
$
714.4

 
$
507.1

 
$
82.4

Segment profit:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating income
 
$
835.4

 
$
(1.1
)
 
 
$
403.9

 
$
191.6

 
$
78.2

 
$
1.5

 
$
129.8

 
$
30.6

 
$
0.9

Income from equity investees
 
0.1

 

 
 

 

 

 

 
0.1

 

 

Interest expense
 
(179.6
)
 

 
 
(124.2
)
 
(28.1
)
 
(2.4
)
 

 
(19.0
)
 
(3.8
)
 
(2.1
)
Income (loss) before income taxes
 
$
655.9

 
$
(1.1
)
 
 
$
279.7

 
$
163.5

 
$
75.8

 
$
1.5

 
$
110.9

 
$
26.8

 
$
(1.2
)
Partnership EBITDA (a)
 
 
 
 
 
 
$
550.5

 
 
 
 
 
 
 
 
 
 
 
 
Noncontrolling interests’ net income
 
$
192.6

 
$

 
 
$
192.4

 
$

 
$

 
$

 
$
0.1

 
$
0.1

 
$

Depreciation and amortization
 
$
266.3

 
$
(0.1
)
 
 
$
150.5

 
$
38.4

 
$
5.6

 
$
7.5

 
$
42.3

 
$
17.4

 
$
4.7

Capital expenditures
 
$
292.5

 
$
(1.1
)
 
 
$
80.7

 
$
90.2

 
$
54.8

 
$
15.4

 
$
37.1

 
$
10.3

 
$
5.1

Total assets (at period end)
 
$
9,828.8

 
$
(95.9
)
 
 
$
4,388.1

 
$
2,164.4

 
$
437.0

 
$
267.2

 
$
1,771.7

 
$
543.1

 
$
353.2

Bank loans (at period end)
 
$
135.9

 
$

 
 
$
80.0

 
$

 
$
45.5

 
$

 
$

 
$
10.4

 
$

Goodwill (at period end)
 
$
2,834.0

 
$

 
 
$
1,929.2

 
$
182.1

 
$
2.8

 
$

 
$
619.2

 
$
93.7

 
$
7.0




- 12 -

Table of Contents
UGI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Millions of dollars and euros, except per share amounts)

Nine Months Ended June 30, 2012:
 
 
 
 
 
 
 
 
 
 
 
 
Midstream & Marketing
 
International Propane
 
 
 
 
Total
 
Elims.
 
 
AmeriGas
Propane
 
Gas
Utility
 
Energy Services
 
Electric Generation

 
Antargaz
 
Flaga &
Other
 
Corporate
& Other (b)
Revenues
 
$
5,393.5

 
$
(134.2
)
(c)
 
$
2,411.3

 
$
696.8

 
$
652.5

 
$
27.1

 
$
958.7

 
$
646.5

 
$
134.8

Cost of sales
 
$
3,438.6

 
$
(130.7
)
(c)
 
$
1,447.8

 
$
370.6

 
$
553.1

 
$
17.6

 
$
597.9

 
$
506.3

 
$
76.0

Segment profit:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating income (loss)
 
$
549.9

 
$

 
 
$
206.7

 
$
168.7

 
$
67.3

 
$
(7.9
)
 
$
96.3

 
$
16.8

 
$
2.0

Loss from equity investees
 
(0.2
)
 

 
 

 

 

 

 
(0.2
)
 

 

Loss on extinguishments of debt
 
(13.3
)
 

 
 
(13.3
)
 

 

 

 

 

 

Interest expense
 
(162.6
)
 

 
 
(103.4
)
 
(30.1
)
 
(3.6
)
 

 
(19.7
)
 
(3.4
)
 
(2.4
)
Income (loss) before income taxes
 
$
373.8

 
$

 
 
$
90.0

 
$
138.6

 
$
63.7

 
$
(7.9
)
 
$
76.4

 
$
13.4

 
$
(0.4
)
Partnership EBITDA (a)
 
 
 
 
 
 
$
310.0

 
 
 
 
 
 
 
 
 
 
 
 
Noncontrolling interests’ net income
 
$
46.5

 
$

 
 
$
46.2

 
$

 
$

 
$

 
$
0.3

 
$

 
$

Depreciation and amortization
 
$
227.7

 
$

 
 
$
118.5

 
$
36.6

 
$
2.4

 
$
6.6

 
$
42.6

 
$
16.6

 
$
4.4

Capital expenditures
 
$
237.7

 
$

 
 
$
70.3

 
$
76.5

 
$
30.2

 
$
17.4

 
$
28.0

 
$
11.5

 
$
3.8

Total assets (at period end)
 
$
9,652.2

 
$
(87.4
)
 
 
$
4,579.5

 
$
2,027.0

 
$
355.0

 
$
261.3

 
$
1,664.7

 
$
513.2

 
$
338.9

Bank loans (at period end)
 
$
187.3

 
$

 
 
$
68.8

 
$

 
$
95.0

 
$

 
$

 
$
23.5

 
$

Goodwill (at period end)
 
$
2,756.0

 
$

 
 
$
1,866.7

 
$
182.1

 
$
2.8

 
$

 
$
605.0

 
$
92.4

 
$
7.0

(a)
The following table provides a reconciliation of Partnership EBITDA to AmeriGas Propane operating income:
Nine Months Ended June 30,
 
2013
 
2012
Partnership EBITDA
 
$
550.5

 
$
310.0

Depreciation and amortization
 
(150.5
)
 
(118.5
)
Loss on extinguishments of debt
 

 
13.3

Noncontrolling interests (i)
 
3.9

 
1.9

Operating income
 
$
403.9

 
$
206.7

(i)
Principally represents the General Partner’s 1.01% interest in AmeriGas OLP.
(b)
Corporate & Other results principally comprise Electric Utility, Enterprises’ heating, ventilation, air-conditioning, refrigeration and electrical contracting businesses (“HVAC/R”), net expenses of UGI’s captive general liability insurance company and UGI’s unallocated corporate and general expenses and interest income. Corporate & Other assets principally comprise cash, short-term investments, the assets of Electric Utility and HVAC/R, and an intercompany loan. The intercompany loan and associated interest is removed in the segment presentation.

- 13 -

Table of Contents
UGI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Millions of dollars and euros, except per share amounts)

(c)
Principally represents the elimination of intersegment transactions among Midstream & Marketing, Gas Utility and AmeriGas Propane.

- 14 -

Table of Contents
UGI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Millions of dollars and euros, except per share amounts)

7.
Energy Services Accounts Receivable Securitization Facility

Energy Services currently has a $100 receivables purchase facility (“Receivables Facility”) with an issuer of receivables-backed commercial paper that expires in November 2013. The Receivables Facility may terminate prior to such date due to the termination of commitments of the Receivables Facility back-up purchasers.
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, Energy Services Funding Corporation (“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 commercial paper conduit of a major bank. ESFC was created and has been structured to isolate its assets from creditors of Energy Services and its affiliates, including UGI. Energy Services continues to service, administer and collect trade receivables on behalf of the commercial paper issuer and ESFC. Trade receivables sold to the commercial paper conduit remain on the Company’s balance sheet; the Company reflects a liability equal to the amount advanced by the commercial paper conduit; and the Company records interest expense on amounts sold to the commercial paper conduit.
During the nine months ended June 30, 2013 and 2012, Energy Services transferred trade receivables to ESFC totaling $766.1 and $674.4, respectively. During the nine months ended June 30, 2013 and 2012, ESFC sold an aggregate $224.0 and $266.5, respectively, of undivided interests in its trade receivables to the commercial paper conduit. At June 30, 2013, the outstanding balance of ESFC receivables was $58.2 and there was $9.5 sold to the commercial paper conduit. At June 30, 2012, the outstanding balance of ESFC receivables was $41.0 and there was $10.0 sold to the commercial paper conduit.

8.
Utility Regulatory Assets and Liabilities and Regulatory Matters

For a description of the Company’s regulatory assets and liabilities other than those described below, see Note 8 to the Company’s 2012 Annual Financial Statements and Notes. UGI Utilities does not recover a rate of return on its regulatory assets. The following regulatory assets and liabilities associated with Gas Utility and Electric Utility are included in our accompanying Condensed Consolidated Balance Sheets:

 
 
June 30,
2013
 
September 30,
2012
 
June 30,
2012
Regulatory assets:
 
 
 
 
 
 
Income taxes recoverable
 
$
104.7

 
$
103.2

 
$
99.9

Underfunded pension and postretirement plans
 
177.8

 
188.2

 
144.6

Environmental costs
 
16.6

 
16.8

 
16.6

Deferred fuel and power costs
 
4.1

 
11.6

 
9.8

Removal costs, net
 
12.1

 
12.7

 
11.8

Other
 
5.6

 
5.9

 
8.3

Total regulatory assets
 
$
320.9

 
$
338.4

 
$
291.0

Regulatory liabilities:
 
 
 
 
 
 
Postretirement benefits
 
$
14.2

 
$
13.1

 
$
12.3

Environmental overcollections
 
2.9

 
2.9

 
3.7

Deferred fuel and power refunds
 
14.2

 
4.4

 
10.3

State tax benefits—distribution system repairs
 
8.0

 
7.4

 
7.0

Other
 
0.7

 
0.5

 
0.7

Total regulatory liabilities
 
$
40.0

 
$
28.3

 
$
34.0

Deferred fuel and power—costs and refunds. Gas Utility’s tariffs and Electric Utility’s tariffs contain clauses which permit recovery of all prudently incurred purchased gas and power costs through the application of purchased gas cost (“PGC”) rates in the case of Gas Utility and default service (“DS”) rates in the case of Electric Utility. The clauses provide for periodic adjustments to PGC and DS rates for differences between the total amount of purchased gas and electric generation supply costs collected from customers and recoverable costs incurred. Net undercollected costs are classified as a regulatory asset and net overcollected costs are classified as a regulatory liability.

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Table of Contents
UGI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Millions of dollars and euros, except per share amounts)

Gas Utility uses derivative financial instruments to reduce volatility in the cost of natural gas it purchases for firm- residential, commercial and industrial (“retail core-market”) customers. Realized and unrealized gains or losses on natural gas derivative financial instruments are included in deferred fuel costs or refunds. Net unrealized gains (losses) on such contracts at June 30, 2013September 30, 2012 and June 30, 2012 were $(1.4), $5.3 and $0.3, respectively.
Electric Utility enters into forward electricity purchase contracts to meet a substantial portion of its electricity supply needs. Because these contracts do not currently qualify for the normal purchases and normal sales exception under GAAP, the fair values of these contracts are required to be recognized on the Condensed Consolidated Balance Sheets with an associated adjustment to regulatory assets or liabilities in accordance with GAAP related to rate-regulated entities. At June 30, 2013September 30, 2012, and June 30, 2012, the fair values of Electric Utility’s electricity supply contracts were net losses of $6.1, $9.2 and $13.1, respectively, which amounts are reflected in current derivative financial instrument liabilities and other noncurrent liabilities on the Condensed Consolidated Balance Sheets with equal and offsetting amounts reflected in deferred fuel and power costs in the table above.
 
In order to reduce volatility associated with a substantial portion of its electric transmission congestion costs, Electric Utility obtains financial transmission rights (“FTRs”). FTRs are derivative financial instruments that entitle the holder to receive compensation for electricity transmission congestion charges when there is insufficient electricity transmission capacity on the electric transmission grid. Because Electric Utility is entitled to fully recover its DS costs, realized and unrealized gains or losses on FTRs are included in deferred fuel and power—costs or refunds. Unrealized gains or losses on FTRs at June 30, 2013September 30, 2012, and June 30, 2012, were not material.

Allentown, Pennsylvania Natural Gas Incident. On October 3, 2012, UGI Utilities and the PUC Bureau of Investigation and Enforcement (“PUC Staff”) submitted a Joint Settlement Petition (“Joint Settlement”) to settle all regulatory compliance issues raised in the PUC Staff's formal complaint, issued on June 11, 2012, pertaining to a natural gas explosion which occurred on February 9, 2011, in Allentown, Pennsylvania and resulted in five deaths, several personal injuries and significant property damage. On February 19, 2013, the PUC entered a final order (the “Final Order”) in which PUC Commissioners adopted the Joint Settlement, with certain modifications. The Final Order requires UGI Utilities to (i) pay a civil penalty amount that increases the amount provided in the Joint Settlement from $0.4 to $0.5; (ii) conduct a pilot new technology leak detection program in Allentown; and (iii) accept new reporting requirements governing its agreed upon 14-year cast iron and 30-year bare steel pipeline replacement program and distribution integrity management program. The Final Order makes no findings that UGI Utilities has violated any regulation or operating procedure. The Company does not believe that the cost of complying with the requirements of the Final Order will have a material impact on UGI Utilities' consolidated financial position, results of operations or cash flows.
Transfers of Assets. On February 1, 2012, CPG filed an application with the PUC for review and approval of the transfer of an 11-mile natural gas pipeline, related facilities and right of way located in Delmar Township, Pennsylvania (“TL-96 line”) to Energy Services.   The PUC approved the transfer and, in April 2013, the TL-96 line was dividended to UGI and subsequently contributed to Energy Services.  The net book value of the TL-96 line is approximately $2.6.

9.
Defined Benefit Pension and Other Postretirement Plans

In the U.S., we currently sponsor one defined benefit pension plan for employees hired prior to January 1, 2009, of UGI, UGI Utilities, PNG, CPG and certain of UGI’s other domestic wholly owned subsidiaries (“Pension Plan”). We also provide postretirement health care benefits to certain retirees and postretirement life insurance benefits to nearly all domestic active and retired employees. In addition, Antargaz employees are covered by certain defined benefit pension and postretirement plans.
 

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Table of Contents
UGI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
(Millions of dollars and euros, except per share amounts)

Net periodic pension expense and other postretirement benefit costs include the following components:
 
 
Pension Benefits
 
Other
Postretirement Benefits
 
 
Three Months Ended June 30,
 
Three Months Ended June 30,
 
 
2013
 
2012
 
2013
 
2012
Service cost
 
$
2.8

 
$
2.1

 
$
0.2

 
$
0.1

Interest cost
 
5.9

 
6.1

 
0.2

 
0.2