UGI CORP /PA/ (UGI) FY 2021 MD&A

ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

MD&A discusses our results of operations for Fiscal 2021 and Fiscal 2020, and our financial condition. For discussion of our results of operations and cash flows for Fiscal 2020 compared with Fiscal 2019, refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Fiscal 2020 Annual Report on Form 10-K, filed with the SEC on November 20, 2020. MD&A should be read in conjunction with Items 1 and 2, “Business and Properties,” Item 1A, “Risk Factors,” and the Consolidated Financial Statements in Item 8 below including “Segment Information” included in Note 23 to 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.

Executive Overview

Recent Developments

Acquisition of Mountaineer Gas Company

On September 1, 2021, UGI acquired Mountaineer, the largest natural gas distribution company in West Virginia for a purchase price of $540 million, which includes the assumption of approximately $140 million principal amounts of long-term debt. Mountaineer serves nearly 214,000 customers across 50 of the state’s 55 counties. Mountaineer is subject to regulation by the WVPSC. The Mountaineer Acquisition was funded with cash proceeds from the 2021 UGI Corporation Senior Credit Facility and the issuance of Equity Units and cash on hand. The Mountaineer business is included in the UGI Utilities segment as of the acquisition date. For additional information on the Mountaineer Acquisition and the associated financings, see Notes 5, 6 and 13 to the consolidated financial statements.

COVID-19 Pandemic

In March 2020, the WHO declared a global pandemic attributable to the outbreak and continued spread of COVID-19 that has had a significant impact throughout the global economy. In connection with the mitigation and containment procedures recommended by the WHO, the CDC, and as imposed by federal, state, and local governmental authorities, including shelter-in-place orders, quarantines and similar restrictions, we implemented a variety of procedures to protect our employees, third-party business partners, and customers worldwide. Although our results continue to be impacted by COVID-19, we continue to provide essential products and services to our global customers in a safe and reliable manner and will continue to do so in compliance with mandated restrictions presented by each of the markets we serve. We continue to evaluate and react to the potential effects of a prolonged disruption and the continued impact on our results of operations. These items may include, but are not limited to: the financial condition of our customers; decreased availability and demand for our products and services; realization of accounts receivable; impairment considerations related to certain current assets, long-lived assets and goodwill; delays related to current and future projects; and the effects of government stimulus efforts including tax legislation (see “Interest Expense and Income Taxes” below and Note 7 to the consolidated financial statements) in response to COVID-19.

We cannot predict the duration or total magnitude of the pandemic and the total effects on our business, financial position, results of operations, liquidity or cash flows at this time, but we remain focused on managing our financial condition and liquidity throughout this global crisis.

Strategic Initiatives

Business Transformation Initiatives

Corporate Services. Beginning in Fiscal 2020, we initiated a transformation project focused on our support functions including: finance, procurement, human resources, and information technology. This initiative will standardize processes and

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activities across our global platform, while leveraging the use of best practices and efficiencies between our businesses. While this initiative is being coordinated across multiple support functions, each area is at a different stage of transformation and will undergo the required changes over a two to three year period. In connection with these activities, we expect to incur approximately $40 million of non-recurring costs during that time resulting in more than $15 million of ongoing annualized savings by the end of Fiscal 2023.

AmeriGas Propane: At AmeriGas Propane, we began executing on business transformation initiatives during Fiscal 2019 focused on efficiency and effectiveness in the following key areas: customer digital experience; customer relationship management; operating process redesign and specialization; distribution and routing optimization; sales and marketing effectiveness; purchasing and general and administrative efficiencies; and supply and logistics. These transformation activities are substantially complete and are expected to provide total annual benefits of more than $150 million by the end of Fiscal 2022. These benefits will allow us to continue to improve profitability and cash flow through operational efficiencies and expense reductions and enable increased investment into base business customer retention and growth initiatives, including the reduction of margins in select segments of our base business. The total cost of executing on these initiatives, including approximately $110 million of related capital expenditures, will amount to approximately $220 million.

UGI International. At our UGI International LPG business, we launched an initiative in Fiscal 2019 and embarked on a process of identifying operational synergies across all 17 countries in which we currently do business. The goal of this initiative (Project Alliance) was to focus attention on enhanced customer service and safe and efficient operations through the establishment of two centers of excellence. One center focuses on commercial excellence to identify and execute projects that improve the customer’s experience. The second center focuses on operational excellence across our distribution network and our filling centers. These business activities are substantially complete and are expected to generate over €30 million of annual benefits by the end of Fiscal 2022. The total cumulative cost of executing these Project Alliance initiatives, including approximately €10 million related to IT capital expenditures, will amount to approximately €55 million.

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 comparable GAAP measure, to adjusted diluted earnings per share:

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(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 23 to 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.

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Fiscal 2021 Compared with Fiscal 2020

Discussion. Net income attributable to UGI Corporation was $1,467 million for Fiscal 2021 (equal to $6.92 per diluted share) compared to $532 million for Fiscal 2020 (equal to $2.54 per diluted share). Net income attributable to UGI Corporation in Fiscal 2021 reflects a $951 million year-over-year increase in net unrealized gains on commodity derivative instruments and certain foreign currency derivative instruments. This increase is primarily attributable to the significant rise in commodity prices during Fiscal 2021, and has contributed to the accumulation of substantial derivative assets related to the Company’s commodity derivative instruments at September 30, 2021. Fiscal 2021 net income attributable to UGI Corporation also reflects higher business transformation expenses, impairments of investments and long-lived assets, and acquisition and integration expenses compared to the prior year, as well as a $23 million tax benefit related to an election made in connection with a tax law change in Italy. Fiscal 2020 net income attributable to UGI Corporation includes a $39 million loss on assets that were disposed of in September 2020.

Adjusted net income attributable to UGI Corporation for Fiscal 2021 was $629 million (equal to $2.96 per diluted share) compared to adjusted net income attributable to UGI Corporation for Fiscal 2020 of $561 million (equal to $2.67 per diluted share). The increase in adjusted net income attributable to UGI Corporation during Fiscal 2021 reflects higher earnings contributions from each of our four business segments including improved margin at UGI International which benefited from colder weather compared to the prior year and the translation effects of stronger foreign currencies. Higher average LPG unit margins including the continued effects of margin management efforts, the increase in base rates at UGI Utilities, Inc. in Fiscal 2021, and the effects of acquisitions and assets placed into service since the fourth quarter of Fiscal 2020 also contributed to the improvement. These positive impacts were partially offset by higher depreciation and amortization expense and a lower benefit under the CARES Act compared to the prior year.

AmeriGas Propane’s adjusted net income attributable to UGI Corporation increased $12 million during Fiscal 2021. This increase principally reflects lower operating and administrative expenses, including partial benefits related to the execution of transformation initiatives, higher other income attributable to customer fees and gains on the early settlement of certain commodity derivative instruments during Fiscal 2021, and lower interest and depreciation and amortization expense compared to the prior year. These positive factors were partially offset by lower retail propane margin primarily attributable to lower volumes.

UGI International’s adjusted net income attributable to UGI Corporation increased $48 million during Fiscal 2021 principally reflecting increased LPG volumes which benefited from colder weather compared to Fiscal 2020, higher average LPG unit margins including effective margin management efforts, and the translation effects of stronger foreign currencies. These positive factors were partially offset by higher operating and administrative expenses reflecting increased maintenance and distribution costs attributable to the stronger LPG volumes compared to Fiscal 2020, as well as the previously mentioned effects of stronger foreign currencies.

Midstream & Marketing adjusted net income in Fiscal 2021 was $15 million higher than the prior year. This increase principally reflects incremental margin from capacity management and renewable energy marketing activities, and lower operating and administrative expenses largely related to the impact of divested assets.

UGI Utilities Fiscal 2021 adjusted net income increased $8 million compared to the prior year. This increase reflects higher natural gas margin largely attributable to the increase in base rates that went into effect in Fiscal 2021 and higher margin from large delivery service customers, and an increase in Electric Utility margin resulting from higher volumes compared to the prior year. These improvements were partially offset by higher operating and administrative expenses attributable to the effects of the Mountaineer Acquisition and increased depreciation expense related to continued capital expenditure activity.

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

(b)Beginning in Fiscal 2021, 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 United States, excluding Alaska and Hawaii. Prior-period amounts have been restated to conform to the current-period presentation.

Average temperatures during Fiscal 2021 were 2.8% warmer than normal and 2.2% warmer than the prior year. Total retail gallons sold decreased during Fiscal 2021 principally reflecting structural conservation and other residual volume loss and the greater impact of COVID-19 on commercial volumes compared to Fiscal 2020. These decreases were partially offset by higher resale and motor fuel volumes during Fiscal 2021.

Total revenues increased $233 million during Fiscal 2021 largely reflecting higher average propane selling prices ($255 million) and increased wholesale volumes ($26 million) partially offset by the lower retail propane volumes ($39 million) compared to Fiscal 2020. Average daily wholesale propane commodity prices during Fiscal 2021 at Mont Belvieu, Texas, one of the major supply points in the U.S., were approximately 97% higher than such prices during Fiscal 2020. Total cost of sales increased $257 million during Fiscal 2021 largely attributable to the higher average propane product costs ($245 million) and higher wholesale propane volumes ($24 million), partially offset by the lower retail propane volumes ($16 million).

AmeriGas Propane total margin decreased $24 million in Fiscal 2021 largely attributable to the lower retail propane volumes ($24 million) and decreased non-propane margin ($13 million) principally reflecting lower fees and services partially offset by increased cylinder sales. These decreases were partially offset by higher average propane margin ($10 million) resulting from the rising propane cost environment and effective margin management efforts.

Operating income and earnings before interest expense and income taxes increased $12 million during Fiscal 2021 reflecting lower operating and administrative expenses ($21 million) compared to Fiscal 2020, higher other income ($10 million) attributable to customer fees and gains on the early settlement of certain commodity derivative instruments during Fiscal 2021, and lower depreciation and amortization expense ($5 million). These positive impacts were largely offset by the previously mentioned decrease in total margin ($24 million). The decrease in operating and administrative expenses in Fiscal 2021 reflects, among other things, lower employee compensation and benefits-related costs ($26 million), decreased equipment operating and maintenance expenses ($7 million), and lower general insurance costs ($4 million) compared to Fiscal 2020. These decreases were partially offset by increased advertising expenses ($7 million) and higher vehicle lease expense ($4 million) compared to Fiscal 2020. The lower operating and administrative expenses reflect the partial benefits related to the previously mentioned ongoing business transformation initiatives.

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(a)Total margin represents total revenues less total cost of sales and in Fiscal 2020, LPG cylinder filling costs of $28 million. For financial statement purposes, LPG cylinder filling costs in Fiscal 2020 are included in “Operating and administrative expenses” on the 2020 Consolidated Statement of Income (but are excluded from operating and administrative expenses presented above). LPG cylinder filling costs are included in “Cost of sales” on the 2021 Consolidated Statement of Income.

(b)Beginning in Fiscal 2021, 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. Prior-period amounts have been restated to conform to the current-period presentation.

Average temperatures during Fiscal 2021 were slightly colder than normal and 14.1% colder than Fiscal 2020. Total LPG retail gallons sold during Fiscal 2021 increased 5% compared to Fiscal 2020 largely attributable to higher bulk volumes reflecting the effects of the colder weather on heating-related bulk sales. These volume improvements also reflect small acquisitions in Switzerland and Finland and the recovery of certain volume decreases attributable to COVID-19 during Fiscal 2021, and were partially offset by the termination of a high-volume, low-margin autogas contract in Italy during Fiscal 2020. Average wholesale prices for propane and butane during Fiscal 2021 in northwest Europe were approximately 52% and 33% higher, respectively, compared to Fiscal 2020.

UGI International base-currency results are translated into U.S. dollars 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 Fiscal 2021 and Fiscal 2020, the average unweighted euro-to-dollar translation rates were approximately $1.20 and $1.12, respectively, and the average unweighted British pound sterling-to-dollar translation rates were approximately $1.37 and $1.28, respectively. Fluctuations in these foreign currency exchange rates can have a significant impact on the individual financial statement components discussed below. The net effect of changes in foreign currency exchange rates on UGI International’s earnings before interest expense and income taxes resulted in a net benefit of $26 million in Fiscal 2021. However, the impact of these changes is mitigated by the effects of forward foreign currency exchange contracts entered into over a multi-year period intended to substantially offset this volatility. These forward foreign currency exchange contracts resulted in realized net gains of $1 million and $15 million, respectively, in Fiscal 2021 and Fiscal 2020.

UGI International revenues and cost of sales increased $524 million and $379 million, respectively, during Fiscal 2021. The increase in revenues and cost of sales principally reflects the translation effects of stronger foreign currencies (approximately $174 million and $102 million, respectively), the effects of higher average butane and propane selling prices and product costs compared to Fiscal 2020, and the previously mentioned increase in bulk volumes. Energy marketing activities also contributed to the increased revenues and cost of sales during Fiscal 2021 largely related to higher natural gas volumes and prices.

UGI International total margin increased $145 million during Fiscal 2021 reflecting the translation effects of stronger foreign currencies (approximately $72 million), the previously mentioned increase in total LPG volumes, lower costs associated with energy conservation certificates, and higher average LPG unit margins including the continued effects of margin management efforts. These margin improvements include the impact of LPG assets acquired in Fiscal 2021 and higher margin from energy marketing activities principally reflecting increased natural gas volumes.

UGI International operating income and earnings before interest expense and income taxes increased $73 million and $58 million, respectively, during Fiscal 2021. The increase in operating income principally reflects the increase in total margin partially offset by higher operating and administrative expenses ($77 million) which was largely attributable to the effects of stronger foreign currencies ($38 million) compared to Fiscal 2020. The increase in operating and administrative expenses also reflects higher maintenance, distribution and employee compensation costs attributable to the increased volumes. The increase in earnings before interest expense and income taxes in Fiscal 2021 largely reflects the increase in operating income partially

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offset by lower realized gains on foreign currency exchange contracts entered into in order to reduce volatility in UGI International earnings resulting from the effects of changes in foreign currency exchange rates ($14 million).

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

Average temperatures across Midstream & Marketing’s energy marketing territory during Fiscal 2021 were 6.9% warmer than normal and 2.6% warmer than the prior year. Midstream & Marketing’s prior year results include contributions from operating activities attributable to its HVAC business and ownership interest in Conemaugh, both of which were sold in September 2020. Losses associated with the disposal of these assets are reflected in “Corporate & Other” (see “Non-GAAP Financial Measures” above).

Midstream & Marketing’s revenues increased $159 million compared to the prior year principally reflecting increased revenues from natural gas ($144 million) and renewable energy ($27 million) marketing activities and higher capacity management revenues ($24 million) which were impacted by the timing of certain mark-to-market contract settlements. Higher revenues associated with electricity marketing ($8 million) and natural gas gathering activities ($6 million) also contributed to the increase. These factors were partially offset by the absence of revenues attributable to its former HVAC business and ownership interest in Conemaugh ($59 million). Midstream & Marketing cost of sales was $1,033 million in Fiscal 2021 compared to $892 million in Fiscal 2020. The $141 million increase principally reflects higher cost of sales related to natural gas ($138 million), renewable energy ($20 million), and electricity ($7 million) marketing activities, partially offset by the absence of costs attributable to HVAC and Conemaugh ($30 million). The increases in both natural gas revenues and cost of sales during Fiscal 2021 are largely attributable to higher average natural gas prices compared to the prior year partially offset by lower volumes attributable to weather that was warmer than the prior year.

Midstream & Marketing total margin increased $18 million in Fiscal 2021 reflecting improved capacity management margin ($24 million), higher margin from renewable energy ($7 million) and natural gas ($5 million) marketing activities, and higher margin from natural gas gathering activities ($6 million). These margin improvements include the impact of acquisitions and new assets placed into service since the fourth quarter of Fiscal 2020, and were partially offset by the absence of margins attributable to HVAC and Conemaugh ($29 million).

Midstream & Marketing operating income and earnings before interest expense and income taxes during Fiscal 2021 increased $20 million and $22 million, respectively, compared to the prior year. The increase in operating income principally reflects the increase in total margin and lower operating and administrative expenses compared to the prior year, partially offset by an adjustment to the contingent consideration related to the GHI acquisition ($9 million). The decrease in operating and administrative expenses was largely related to the absence of the previously mentioned divested assets partially offset by an increase in employee and benefits-related costs and increases related to new assets placed into service. The increase in earnings before interest expense and income taxes reflects the improvement in operating income and incremental equity method earnings related to the investment in Pine Run.

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(a)Total margin represents total revenues less total cost of sales and revenue-related taxes (i.e. Electric Utility gross receipts taxes) of $5 million in both Fiscal 2021 and Fiscal 2020. For financial statement purposes, revenue-related taxes are included in “Operating and administrative expenses” on the Consolidated Statements of Income (but are excluded from operating expenses presented above).

(b)Beginning in Fiscal 2021, 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 airports located within UGI Utilities natural gas service territory. Prior-period amounts have been restated to conform to the current-period presentation.

Temperatures in UGI Utilities’ natural gas service territory during Fiscal 2021 were 7.9% warmer than normal and slightly warmer than the prior year. UGI Utilities’ core market volumes increased (2 bcf) during Fiscal 2021 reflecting the effects of continued growth in the number of core market customers and the recovery of certain volume decreases attributable to COVID-19 during Fiscal 2021, partially offset by the warmer weather compared to the prior year. Total natural gas distribution system throughput increased slightly during Fiscal 2021 primarily attributable to the impact of the Mountaineer Acquisition and the increase in core market volumes, partially offset by lower large delivery service volumes. Electric Utility distribution sales volumes increased during Fiscal 2021 primarily attributable to customer growth.

UGI Utilities revenues increased $49 million in Fiscal 2021 reflecting a $42 million increase in natural gas revenues and a $7 million increase in Electric Utility revenues. The increase in natural gas revenues principally reflects the increase in base rates that went into effect as part of a phased approach on January 1, 2021 and July 1, 2021, higher revenues from off system sales, and incremental revenues attributable to the Mountaineer acquisition ($9 million) in September 2021. These factors were partially offset by lower PGC rates compared to the prior year. The increase in Electric Utility revenues during Fiscal 2021 is largely attributable to the increased distribution sales volumes and higher DS rates compared to the prior year.

UGI Utilities cost of sales was $458 million in Fiscal 2021 compared with $448 million in Fiscal 2020 reflecting higher natural gas ($8 million) and Electric Utility ($2 million) cost of sales compared to the prior year. Higher natural gas cost of sales associated with off system sales and incremental cost of sales related to Mountaineer were partially offset by lower PGC rates compared to the prior year. Electric Utility cost of sales increased during Fiscal 2021 reflecting the increased volumes and DS rates compared to the prior year.

UGI Utilities total margin increased $39 million during Fiscal 2021 reflecting higher natural gas margin ($34 million) and Electric Utility margin ($5 million). The increase in natural gas margin reflects higher margin from core market customers ($18 million) largely attributable to the previously mentioned increase in base rates, incremental margin attributable to Mountaineer ($6 million), and higher margin from large delivery service customers. The increased natural gas margin also benefited from the implementation of a DSIC effective April 1, 2021 and higher customer account fees compared to the prior year. The increase in Electric Utility margin is largely attributable to the increase in distribution sales volumes compared to the prior year.

UGI Utilities operating income and earnings before interest expense and income taxes during Fiscal 2021 increased $12 million and $13 million, respectively, compared to the prior year. These increases largely reflect the previously mentioned increase in total margin, partially offset by higher operating and administrative expenses ($15 million) and depreciation expense ($14 million) compared to the prior year. The increase in operating and administrative expenses reflects incremental activities related to Mountaineer ($7 million) as well as higher contracted labor expenses and employee costs. The higher depreciation expense compared to the prior year includes the effects of continued distribution system and IT capital expenditure activity and incremental depreciation attributable to Mountaineer.

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Interest Expense and Income Taxes

Our consolidated interest expense during Fiscal 2021 was $310 million compared to $322 million during the prior year. The $12 million decrease in interest expense principally reflects lower average short-term borrowings outstanding compared to the prior year, partially offset by incremental interest on the UGI Utilities, Inc.’s senior notes issued during the year.

Our effective income tax rate increased between Fiscal 2021 and Fiscal 2020 due primarily to an increase in the concentration of foreign earnings largely attributable to gains on commodity derivatives reflecting foreign statutory tax rates that exceed the U.S. statutory rate and a lower NOL benefit under the CARES Act compared to the prior year. These items were partially offset by an election made in the current year available under a tax law change in Italy which allowed the Company to step up its tax basis on certain assets in exchange for paying a three percent substitute tax in connection with such election. This election resulted in a $23 million net benefit in the current period resulting in incremental tax basis that will be deductible in future periods. For additional information on our income taxes, including tax law changes, see Note 7 to Consolidated Financial Statements.

Financial Condition and Liquidity

The Company expects to have sufficient liquidity including cash on hand and available borrowing capacity to continue to support long-term commitments and ongoing operations despite uncertainties associated with the outbreak and continued impact of COVID-19. Our total available liquidity balance, comprising cash and cash equivalents and available borrowing capacity on our revolving credit facilities, totaled approximately $2.2 billion and $1.5 billion at September 30, 2021 and 2020, respectively. Our total available liquidity at September 30, 2021 includes $468 million of cash collateral received from derivative counterparties resulting from the impact of rising commodity prices and an accumulation of derivative assets associated with our commodity derivative instruments. The Company does not have any near-term senior note or term loan maturities. While the Company’s operations and financial performance continue to be impacted by COVID-19, it is a rapidly evolving situation and the Company cannot predict the ultimate impact that COVID-19 will have on its liquidity, debt covenants, financial condition or the timing of capital expenditures. UGI and its subsidiaries were in compliance with all debt covenants as of September 30, 2021.

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

The primary sources of UGI’s cash and cash equivalents are the dividends and other cash payments made to UGI or its corporate subsidiaries by its principal business units. Our cash and cash equivalents totaled $855 million at September 30, 2021, compared with $336 million at September 30, 2020. Our cash and cash equivalents at September 30, 2021 includes the previously mentioned $468 million of cash collateral deposits received from our derivative instrument counterparties. This is attributable to significant mark-to-market gains on our commodity derivative instruments resulting from the steep rise in commodity prices during Fiscal 2021. This cash could be returned to such counterparties as commodity prices and their impact to our commodity derivative instruments stabilizes or reverses. Excluding these collateral deposits received and cash and cash equivalents that reside at UGI’s operating subsidiaries, at September 30, 2021 and 2020, our cash and cash equivalents totaled $172 million and $112 million, respectively. Such cash is available to pay dividends on UGI Common Stock and for investment purposes.

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During Fiscal 2021 and Fiscal 2020, our principal business units paid cash dividends and made other cash payments to UGI and its subsidiaries as follows:

(a)    Represents cash payments to UGI International’s U.S. holding company subsidiary. Cash dividends in Fiscal 2020 were used, in part, to pay down all outstanding revolving credit facility borrowings on the UGI International Credit Facilities Agreement in September 2020.

Common and Preferred Stock

Issuance of Equity Units

On May 25, 2021, the Company issued 2.2 million Equity Units with a total notional value of $220 million. Each Equity Unit has a stated amount of $100 and consists of (1) a 10% undivided beneficial ownership interest in one share of Convertible Preferred Stock with a liquidation preference of $1,000 per share and (2) a 2024 Purchase Contract. The Company received approximately $213 million in proceeds from the issuance of the Equity Units, net of offering expenses and underwriting costs and commissions, and issued 220,000 shares of Convertible Preferred Stock, recording $213 million in “Preferred stock” on the accompanying Consolidated Balance Sheet. The proceeds were used to pay a portion of the purchase price for the Mountaineer Acquisition and related fees and expenses, and for general corporate purposes. For additional information on the Mountaineer Acquisition and the issuance of Equity Units, see Notes 5 and 13 to the Consolidated Financial Statements.

Dividends

Quarterly dividends per share of UGI Common Stock paid during Fiscal 2021 and Fiscal 2020 were as follows:

On November 18, 2021, UGI’s Board of Directors declared a cash dividend equal to $0.345 per common share. The dividend will be payable on January 1, 2022, to shareholders of record on December 15, 2021.

Repurchases of Common Stock

During Fiscal 2020, the Company repurchased 1 million shares at a total purchase price of $38 million. There were no such repurchases during Fiscal 2021. For additional information on the authorization of these repurchases, see Note 13 to the Consolidated Financial Statements.

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Long-term Debt and Credit Facilities

The Company’s debt outstanding at September 30, 2021 and 2020, comprises the following:

Significant Financing Activities

Mountaineer. As further described in Note 5 to the consolidated financial statements, UGI acquired Mountaineer on September 1, 2021. Mountaineer has a credit facility agreement which provides for borrowings up to $100 million, with an option to increase the maximum borrowing capacity to $200 million. The credit facility agreement is scheduled to expire in November 2024, with the option to extend the maturity for up to two additional one-year periods. Borrowings under this credit facility agreement bear interest at (1) a prime rate plus a margin or (2) an adjusted LIBOR plus a margin. Such margin is dependent upon Mountaineer’s unsecured debt rating.

Mountaineer also has several unsecured senior notes and principal amounts are due in full at maturity. Interest is payable on a semiannual basis in June and December for each of these senior notes. See Note 6 to the Consolidated Financial Statements for further information on these senior notes.

UGI Utilities, Inc.’s Senior Notes. On May 7, 2021, UGI Utilities, Inc. entered into a Note Purchase Agreement with a consortium of lenders. Pursuant to the Note Purchase Agreement, UGI Utilities, Inc. issued $100 million aggregate principal amount of 1.59% Senior Notes due June 15, 2026 and $75 million aggregate principal amount of 1.64% Senior Notes due September 15, 2026 in June and September 2021, respectively. The net proceeds from these issuances were used to reduce short-term borrowings and for general corporate purposes.

2021 UGI Corporation Senior Credit Facility. On May 4, 2021, UGI amended the existing UGI Corporation Senior Credit Facility. The 2021 UGI Corporation Senior Credit Facility (1) extends the maturity date of the previous three-year $300 million term loan included in the existing UGI Corporation Senior Credit Facility, which is now due in May 2025; and (2) includes a new four-year $215 million term loan commitment. Proceeds from new term loan borrowings under the 2021 UGI Corporation Senior Credit Facility were used to finance a portion of the Mountaineer Acquisition and for general corporate purposes.

Borrowings on the new term loan under the 2021 UGI Corporation Senior Credit Facility bear interest subject to our election, at either (1) the associated prime rate plus a margin or (2) an adjusted LIBOR or an alternate benchmark rate plus a margin and are due in their entirety at the maturity date. The applicable margin on the new borrowings, which is dependent upon a ratio of consolidated net indebtedness to consolidated EBITDA, as defined, or UGI’s credit ratings, ranges from 0.125% to 1.50% if the prime rate option is elected and 1.125% to 2.50% if the LIBOR option is elected.

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Credit Facilities

Information about the Company’s principal credit agreements (excluding Energy Services’ Receivables Facility, which is discussed below) as of September 30, 2021 and 2020, is presented in the tables below.

(a)The UGI International Credit Facilities Agreement permits UGI International, LLC to borrow in euros or dollars.

(b)Borrowings outstanding have been classified as “Long-term debt” on the Consolidated Balance Sheets. In October 2021 and 2020, the Company repaid $70 million and $30 million, respectively, of such borrowings and classified these repayments as “Current maturities of long-term debt” on the Consolidated Balance Sheets.

N.A. - Not applicable

N.M. - Not meaningful

The average daily and peak short-term borrowings under the Company’s principal credit agreements during Fiscal 2021 and Fiscal 2020 are as follows:

Receivables Facility. Energy Services also has a Receivables Facility with an issuer of receivables-backed commercial paper. On October 22, 2021, the expiration date of the Receivables Facility was extended to October 21, 2022. The Receivables Facility provides Energy Services with the ability to borrow up to $150 million of eligible receivables during the period November through April, and up to $75 million of eligible receivables during the period May through October. Energy Services uses the Receivables Facility to fund working capital, margin calls under commodity futures contracts, capital expenditures, dividends and for general corporate purposes.

At September 30, 2021, the outstanding balance of trade receivables was $61 million, none of which was sold to the bank. At September 30, 2020, the outstanding balance of trade receivables was $50 million of which $19 million was sold to the bank. Amounts sold to the bank are reflected as “Short-term borrowings” on the Consolidated Balance Sheet. During Fiscal 2021 and Fiscal 2020, peak sales of receivables were $87 million and $97 million, respectively. During Fiscal 2021 and Fiscal 2020, average daily amounts sold were $21 million and $45 million, respectively.

For further information on the Company’s long-term debt and credit facilities, see Note 6 to Consolidated Financial Statements.

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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 flows from operating activities in Fiscal 2021 and Fiscal 2020 were $1,481 million and $1,102 million, respectively. Cash flows from operating activities before changes in operating working capital were $1,200 million in Fiscal 2021 and $1,176 million in Fiscal 2020. Changes in operating working capital provided (used) operating cash flow of $281 million in Fiscal 2021 and $(74) million in Fiscal 2020. Changes in operating working capital during Fiscal 2021 reflect cash generated from changes in accounts payable and higher cash received for commodity derivative instrument collateral deposits in the Fiscal 2021 as compared to Fiscal 2020, as well as cash generated from changes in income taxes receivable and other current liabilities. These changes were partially offset by an increase in cash required to fund changes in accounts receivable and inventories due to rising commodity prices during Fiscal 2021, net refunds of deferred fuel and power costs compared to net recoveries during the Fiscal 2020 as well as an increase in cash required to fund changes in other current assets.

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 proceeds from sales and retirements of property, plant and equipment. Cash expenditures for property, plant and equipment totaled $690 million in Fiscal 2021 and $655 million in Fiscal 2020. Cash payments for property, plant and equipment were higher in Fiscal 2021 compared with Fiscal 2020 reflecting, in part, the return of normal capital spending in the absence of curtailments experienced at the onset of the COVID-19 pandemic in Fiscal 2020. Cash used for acquisitions of businesses and assets in Fiscal 2021 reflects UGI’s acquisition of Mountaineer. Cash used for investments in equity method investees in Fiscal 2021 includes contributions to Pine Run of $56 million to fund the acquisition of Pine Run Midstream, LLC.

Financing Activities:

Changes in cash flow from financing activities are primarily due to issuances and repayments of long-term debt; short-term borrowings; dividends on UGI Common Stock; and issuances or repurchases of equity instruments.

Cash flow provided by financing activities was $166 million in Fiscal 2021 compared to cash used to fund financing activities of $635 million in Fiscal 2020. During Fiscal 2021, the Company received $213 million in net cash proceeds from the issuance of Equity Units and $215 million from the issuance of a new variable rate term loan due in May 2025. These funds were used partially to fund the Mountaineer Acquisition. Also during Fiscal 2021 and Fiscal 2020, UGI Utilities, Inc. issued $175 million of senior notes and $150 million of senior notes, respectively. In Fiscal 2021 and Fiscal 2020, the Company had net repayments on credit facilities and the Receivables Facility of $35 million and $449 million, respectively. Cash used to fund changes in financing activities in Fiscal 2020 includes $38 million of cash paid to repurchase UGI Common Stock.

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Capital Expenditures

In the following table, we present capital expenditures (which exclude acquisitions of businesses and assets) for Fiscal 2021 and Fiscal 2020. We also provide amounts we expect to spend in Fiscal 2022. We expect to finance a substantial portion of our Fiscal 2022 capital expenditures from cash generated by operations and cash on hand.

Capital expenditures at Midstream & Marketing declined during Fiscal 2021 primarily due to the use of funds to invest in Pine Run. Increased levels of capital expenditures estimated in Fiscal 2022 reflect natural gas infrastructure expansion and investments in renewable energy projects at Midstream & Marketing; replacement and betterment projects at UGI Utilities, Inc.; and the addition of Mountaineer’s capital expenditure programs.

Contractual Cash Obligations and Commitments

The Company has contractual cash obligations that extend beyond Fiscal 2021. The following table presents contractual cash obligations with non-affiliates under agreements existing as of September 30, 2021:

(a)Based upon stated maturity dates for debt outstanding at September 30, 2021.

(b)Based upon stated interest rates adjusted for the effects of interest rate swaps.

(c)Calculated using applicable interest rates or forward interest rate curves, and UGI’s and its subsidiaries’ leverage ratios, as of September 30, 2021.

(d)Represents the sum of amounts due if derivative instrument liabilities were settled at the September 30, 2021 amounts reflected in the Consolidated Balance Sheet (but excluding amounts associated with interest rate contracts).

“Other noncurrent liabilities” included in our Consolidated Balance Sheet at September 30, 2021, principally comprise operating lease liabilities (see Note 16 to Consolidated Financial Statements); regulatory liabilities (see Note 9 to Consolidated Financial Statements); refundable tank and cylinder deposits (as further described in Note 2 to Consolidated Financial Statements under the caption “Refundable Tank and Cylinder Deposits”); litigation, property and casualty liabilities and obligations under environmental remediation agreements (see Note 17 to Consolidated Financial Statements); pension and other postretirement benefit liabilities recorded in accordance with accounting guidance relating to employee retirement plans (see Note 8 to Consolidated Financial Statements); and liabilities associated with executive compensation plans (see Note 14 to Consolidated Financial Statements). These liabilities, with the exception of operating lease liabilities, are not included in the table of Contractual Cash Obligations and Commitments because they are estimates of future payments and not contractually fixed as to timing or amount. Required minimum contributions to the U.S. Pension Plans (as further described below under

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“U.S. Pension Plans”) in Fiscal 2022 are not expected to be material. Required minimum contributions to the U.S. Pension Plans in years beyond Fiscal 2022 will depend, in large part, on the impacts of future returns on pension plan assets and interest rates on pension plan liabilities.

U.S. Pension Plans

The U.S. Pension Plans consist of (1) a defined benefit pension plan for employees hired prior to January 1, 2009, of UGI, UGI Utilities, Inc. and certain of UGI’s other domestic wholly owned subsidiaries, and (2) a noncontributory defined benefit pension plan covering substantially all Mountaineer employees. The fair values of the U.S. Pension Plans’ assets totaled $717 million and $566 million at September 30, 2021 and 2020, respectively. At September 30, 2021 and 2020, the underfunded positions of the U.S. Pension Plans, defined as the excess of the PBO over the U.S. Pension Plans’ assets, were $109 million and $170 million, respectively.

We believe we are in compliance with regulations governing defined benefit pension plans, including the ERISA rules and regulations. Required minimum contributions to the U.S. Pension Plans in Fiscal 2022 are not expected to be material. Pre-tax pension cost associated with the U.S. Pension Plans in Fiscal 2021 was not material. Pre-tax pension cost associated with the U.S. Pension Plans in Fiscal 2022 is not expected to be material.

GAAP guidance associated with pension and other postretirement plans generally requires recognition of an asset or liability in the statement of financial position reflecting the funded status of pension and other postretirement benefit plans with current year changes recognized in shareholders’ equity unless such amounts are subject to regulatory recovery. At September 30, 2021, we have recorded after-tax charges to UGI Corporation’s stockholders’ equity of $8 million and recorded regulatory assets totaling $108 million in order to reflect the funded status of the U.S. Pension Plans. For a more detailed discussion of the U.S. Pension Plans and our other postretirement benefit plans, see Note 8 to Consolidated Financial Statements.

Related Party Transactions

During Fiscal 2021 and Fiscal 2020, we did not enter into any related-party transactions that had a material effect on our financial condition, results of operations or cash flows.

Off-Balance-Sheet Arrangements

UGI primarily enters into guarantee arrangements on behalf of its consolidated subsidiaries. These arrangements are not subject to the recognition and measurement guidance relating to guarantees under GAAP.

We do not have any off-balance-sheet arrangements that are expected to have a material effect on our financial condition, change in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Utility Regulatory Matters

Base Rate Filings. On February 8, 2021, Electric Utility filed a rate request with the PAPUC to increase its annual base distribution revenues by $9 million. On October 28, 2021, the PAPUC issued a final Order approving a settlement that permitted Electric Utility, effective November 9, 2021, to increase its base distribution revenues by $6 million.

On January 28, 2020, Gas Utility filed a request with the PAPUC to increase its annual base distribution operating revenues by $75 million annually. On October 8, 2020, the PAPUC issued a final Order approving a settlement that permits Gas Utility to increase its annual base distribution rates by $20 million, through a phased approach, with $10 million beginning January 1, 2021 and an additional $10 million beginning July 1, 2021. Additionally, Gas Utility was authorized to implement a DSIC once Gas Utility total property, plant and equipment less accumulated depreciation reaches $2,875 million. This threshold was achieved in December 2020, and Gas Utility implemented a DSIC effective April 1, 2021. The PAPUC’s final Order also includes enhanced COVID-19 customer assistance measures, including the establishment of an Emergency Relief Program for a defined set of payment troubled customers (“ERP”). Additionally, the PAPUC’s final Order permits Gas Utility to establish a regulatory asset for certain incremental expenses attributable to the ongoing COVID-19 pandemic, most notably expenses related to the ERP and uncollectible accounts expense, through the effective date of rates in the next Gas Utility base rate case, to be recovered and amortized over a 10-year period. In accordance with the terms of the Joint Petition, Gas Utility is not permitted to file a rate case prior to January 1, 2022.

On January 28, 2019, Gas Utility filed a rate request with the PAPUC to increase the base operating revenues for residential, commercial, and industrial customers throughout its Pennsylvania service territory by an aggregate $71 million. On October 4, 2019, the PAPUC issued a final Order approving a settlement that permitted Gas Utility, effective October 11, 2019, to increase

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its base distribution revenues by $30 million under a single consolidated tariff, approved a plan for uniform class rates, and permitted Gas Utility to extend its Energy Efficiency and Conservation and Growth Extension Tariff programs by an additional term of five years. The PAPUC’s final Order approved a negative surcharge, to return to customers $24 million of tax benefits experienced by Gas Utility over the period January 1, 2018 to June 30, 2018, plus applicable interest, in accordance with the May 17, 2018 PAPUC Order, which became effective for a twelve-month period beginning on October 11, 2019, the effective date of Gas Utility’s new base rates, subject to final reconciliation of any over- or under-crediting of the tax savings.

Market Risk Disclosures

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 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.

UGI 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 UGI Utilities operations. 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 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 fixed-price sales and purchase contracts.

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

Interest Rate Risk

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

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Our variable-rate debt at September 30, 2021, includes revolving credit facility borrowings and variable-rate term loans at UGI International, UGI Utilities, Inc., 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 all or a significant portion of the term loans’ principal balances and all or a significant portion of the term loans’ tenor. We have designated these interest rate swaps as cash flow hedges. At September 30, 2021, combined borrowings outstanding under variable-rate debt agreements, excluding the previously mentioned effectively fixed-rate debt, totaled $807 million. Based upon average borrowings outstanding under variable-rate borrowings (excluding effectively fixed-rate term loan debt), an increase in short-term interest rates of 100 basis points (1%) would have increased our Fiscal 2021 interest expense by approximately $7 million. The remainder of our debt outstanding is subject to fixed rates of interest. A 100 basis point increase in market interest rates would result in decreases in the fair value of this fixed-rate debt of approximately $292 million at September 30, 2021. A 100 basis point decrease in market interest rates would result in increases in the fair value of this fixed-rate debt of approximately $249 million at September 30, 2021.

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 U.S. dollar versus the euro and, to a lesser extent, the U.S. dollar versus the British pound sterling. The U.S. dollar 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. 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 U.S. dollar would reduce their aggregate net book value at September 30, 2021, by approximately $170 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 U.S. dollar 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 September 30, 2021, 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 $1,687 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 September 30, 2021, we had received cash collateral from derivative instrument counterparties totaling $468 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 September 30, 2021, 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 September 30, 2021 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.

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(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 U.S. dollar.

Critical Accounting Policies and Estimates

The accounting policies and estimates discussed in this section are those that we consider to be the most critical to an understanding of our financial statements because they involve significant judgments and uncertainties. The application of these accounting policies and estimates necessarily requires management’s most subjective or complex judgments regarding estimates and projected outcomes of future events. Changes in these policies and estimates could have a material effect on our financial statements. Management has reviewed these critical accounting policies, and the estimates and assumptions associated with them, with the Company’s Audit Committee. Also, see Note 2 to Consolidated Financial Statements which discusses our significant accounting policies.

Goodwill Impairment Evaluation. Our goodwill is the result of business acquisitions. We do not amortize goodwill, but test it at least annually for impairment at the reporting unit level. A reporting unit is an operating segment, or one level below an operating segment (a component), if it constitutes a business for which discrete financial information is available and regularly reviewed by segment management. Components are aggregated into a single reporting unit if they have similar economic characteristics. A reporting unit with goodwill is required to perform an impairment test annually or whenever events or circumstances indicate that the value of goodwill may be impaired.

For certain of our reporting units with goodwill, we assess qualitative factors to determine whether it is more likely than not that the fair value of such reporting unit is less than its carrying amount. For our other reporting units with goodwill, we bypass the qualitative assessment and perform the quantitative assessment by comparing the fair values of the reporting units with their carrying amounts, including goodwill. We determine fair values generally based on a weighting of income and market approaches. For purposes of the income approach, fair values are determined based upon the present value of the reporting unit’s estimated future cash flows, including an estimate of the reporting unit’s terminal value based upon these cash flows, discounted at appropriate risk-adjusted rates. We use our internal forecasts to estimate future cash flows, which may include estimates of long-term future growth rates based upon our most recent reviews of the long-term outlook for each reporting unit. Cash flow estimates used to establish fair values under our income approach involve management judgments based on a broad range of information and historical results. In addition, external economic and competitive conditions can influence future performance. For purposes of the market approach, we use valuation multiples for companies comparable to our reporting units. The market approach requires judgment to determine the appropriate valuation multiples. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to such excess but not to exceed the total amount of the goodwill of the reporting unit. As of September 30, 2021, our goodwill totaled $3,770 million. No impairments of goodwill were recorded during any of the periods presented.

Impairment of Long-Lived Assets. An impairment test for long-lived assets (or an asset group) is required when circumstances indicate that such assets may be impaired. If it is determined that a triggering event has occurred, we perform a recoverability test based upon estimated undiscounted cash flow projections expected to be realized over the remaining useful life of the long-lived asset. If the undiscounted cash flows used in the recoverability test are less than the long-lived asset's carrying amount, we determine its fair value. If the fair value is determined to be less than its carrying amount, the long-lived asset is reduced to its estimated fair value and an impairment loss is recognized in an amount equal to such shortfall. When determining whether a long-lived asset has been impaired, management groups assets at the lowest level that has identifiable cash flows. Performing an impairment test on long-lived assets involves judgment in areas such as identifying when a triggering event requiring evaluation occurs; identifying and grouping assets; and, if the undiscounted cash flows used in the recoverability test are less than the long-lived asset's carrying amount, determining the fair value of the long-lived asset. Although cash flow estimates are based upon relevant information at the time the estimates are made, estimates of future cash flows are by nature highly uncertain and contemplate factors that change over time such as the expected use of the asset including future production and sales volumes, expected fluctuations in prices of commodities and expected proceeds from

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disposition. See Note 5 to Consolidated Financial Statements for information on the impairment loss associated with the disposal of Conemaugh during the third quarter of Fiscal 2020. No other material provisions for impairments of long-lived assets were recorded during Fiscal 2021 or Fiscal 2020.

Loss Contingencies and Environmental Remediation Liabilities. We are involved in litigation that arises in the normal course of business, and we are subject to risk of loss for general, automobile and product liability and workers’ compensation claims for which we obtain insurance coverage subject to self-insured retentions or deductibles. We are also subject to environmental laws and regulations intended to mitigate or remove the effects of past operations and improve or maintain the quality of the environment. These laws and regulations require the removal or remedy of the effect on the environment of the disposal or release of certain specified hazardous substances at current or former operating sites.

We establish reserves for loss contingencies including pending litigation, and for pending and incurred but not reported claims associated with general and product liability, automobile and workers’ compensation when it is probable that a liability exists and the amount or range of amounts related to such liability can be reasonably estimated. When no amount within a range of possible loss is a better estimate than any other amount within the range, liabilities recorded are based upon the low end of the range. With respect to unasserted claims arising from unreported incidents, we may use the work of specialists to estimate the ultimate losses to be incurred using actuarially determined loss development factors applied to actual claims data.

The likelihood of a loss with respect to a particular loss contingency is often difficult to predict. In addition, a reasonable estimate of the loss, or a range of possible loss, may not be practicable based upon the information available and the potential effects of future events and decisions by third parties that will determine the ultimate resolution of the loss contingency. Reasonable estimates involve management judgments based on a broad range of information and prior experience. For litigation and pending claims including those covered by insurance policies, the analysis of probable loss is performed on a case by case basis and includes an evaluation of the nature of the claim, the procedural status of the matter, the probability or likelihood of success in prosecuting or defending the claim, the information available with respect to the claim, the opinions and views of outside counsel and other advisors, and past experience in similar matters. These judgments are reviewed quarterly as more information is received, and the amounts reserved are updated as necessary. Our estimated reserves for loss contingencies and for pending and incurred but not reported claims associated with general and product liability, automobile and workers’ compensation may differ materially from the ultimate liability and such reserves may change materially as more information becomes available and estimated reserves are adjusted.

We accrue reserves for environmental remediation when assessments indicate that it is probable a liability has been incurred and an amount can be reasonably estimated. Amounts recorded as environmental liabilities on the Consolidated Balance Sheets represent our best estimate of costs expected to be incurred or, if no best estimate can be made, the minimum liability associated with a range of expected environmental investigation and remediation costs. These estimates are based upon a number of factors including whether the company will be responsible for such remediation, the scope and cost of the remediation work to be performed, the portion of costs that will be shared with other potentially responsible parties, the timing of the remediation and possible impact of changes in technology, and the regulations and requirements of local governmental authorities. Our estimated reserves for environmental remediation may differ materially from the ultimate liability and such reserves may change materially as more information becomes available and estimated reserves are adjusted. Gas Utility receives ratemaking recognition of environmental investigation and remediation costs associated with its in-state environmental sites.  This ratemaking recognition balances the accumulated difference between historical costs and rate recoveries with an estimate of future costs associated with the sites.

Regulatory Assets and Liabilities. The accounting for our rate regulated gas and electric utility businesses differs from the accounting for nonregulated operations in that these businesses are required to reflect the effects of rate regulation in the consolidated financial statements. Regulatory practices that assign costs to accounting periods may differ from accounting methods generally applied by nonregulated businesses. When it is probable that regulators will permit the recovery of current costs through future rates charged to customers, these costs that otherwise would be expensed by nonregulated companies are deferred as regulatory assets. Similarly, regulatory liabilities are recognized when it is probable that regulators will require customer refunds through future rates or when revenue is collected from customers for expenditures that have yet to be incurred. We continually assess whether the regulatory assets are probable of future recovery by evaluating the regulatory environment, recent rate orders and public statements issued by the PAPUC, WVPSC and MDPSC, discussions with regulatory authorities and legal counsel. If future recovery of regulatory assets ceases to be probable, the elimination of those regulatory assets would adversely impact our results of operations and cash flows. As of September 30, 2021, our regulatory assets and regulatory liabilities totaled $397 million and $388 million, respectively. For additional information on regulatory assets and liabilities, see Notes 2 and 9 to Consolidated Financial Statements.

Income Taxes. We use the asset and liability method of accounting for income taxes. Under this method, income tax expense is recognized for the amount of taxes payable or refundable for the current year and for deferred tax liabilities and assets for the

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future tax consequences of events that have been recognized in our financial statements or tax returns. Positions taken by an entity in its tax returns must satisfy a more-likely-than-not recognition threshold assuming the positions will be examined by tax authorities with full knowledge of relevant information. We use assumptions, judgments and estimates to determine our current provision for income taxes. We also use assumptions, judgments and estimates to determine our deferred tax assets and liabilities and any valuation allowance to be recorded against a deferred tax asset. The interpretation of tax laws involves uncertainty since tax authorities may interpret the laws differently. Our assumptions, judgments and estimates relative to the current provision for income tax give consideration to current tax laws, our interpretation of current tax laws and possible outcomes of current and future audits conducted by foreign and domestic tax authorities. Changes in tax law or our interpretation thereof and the resolution of current and future tax audits could significantly impact the amounts provided for income taxes in our consolidated financial statements. Our assumptions, judgments and estimates relative to the amount of deferred income taxes take into account estimates of the amount of future taxable income. Actual taxable income or future estimates of taxable income could render our current assumptions, judgments and estimates inaccurate. Changes in the assumptions, judgments and estimates mentioned above could cause our actual income tax obligations to differ significantly from our estimates. As of September 30, 2021, our net deferred tax liabilities totaled $1,082 million.

Business Combination Purchase Price Allocations. From time to time, the Company enters into material business combinations. The purchase price is allocated to the various assets acquired and liabilities assumed at their estimated fair value as of the acquisition date with the residual of the purchase price allocated to goodwill. From time to time, we engage third-party valuation experts to assist us in determining the fair values of certain assets acquired and liabilities assumed. Such valuations require management to make significant judgments, estimates and assumptions especially with respect to intangible assets. Management makes estimates of fair value based upon assumptions it believes to be reasonable. These estimates are based upon historical experience and information obtained from the management of the acquired companies and are inherently uncertain. Critical estimates in valuing certain of the intangible assets include, but are not limited to, discount rates and expected future cash flows from and the economic lives of customer relationships, trade names, existing technology, and other intangible assets. Unanticipated events and circumstances may occur, which may affect the accuracy or validity of such assumptions or estimates. The allocation of the purchase price may be modified up to one year after the acquisition date, under certain circumstances, as more information is obtained about the fair value of assets acquired and liabilities assumed.

Recently Issued Accounting Pronouncements

See Note 3 to Consolidated Financial Statements for a discussion of the effects of recently issued accounting guidance.