Leases

6 Months Ended

Mar. 31, 2020

Leases [Abstract]

Leases

Note 9 — Leases

Lessee

We lease various buildings and other facilities, real estate, vehicles, rail cars and other equipment, the majority of which are operating leases. We determine if a contract is or contains a lease by evaluating whether the contract explicitly or implicitly identifies an asset, whether we have the right to obtain substantially all of the economic benefits of the identified leased asset and to direct its use.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. We recognize ROU assets at the lease commencement date at the value of the lease liability adjusted for any prepayments, lease incentives received, and initial direct costs incurred. Lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. These payments are discounted using the discount rate implicit in the lease, when available. We apply an incremental borrowing rate, which is developed utilizing a credit notching approach based on information available at the lease commencement date, to substantially all of our leases as the implicit rate is often not available.

Lease expense is recognized on a straight-line basis over the expected lease term. Renewal and termination options are not included in the lease term unless we are reasonably certain that such options will be exercised. Leases with an original lease term of one year or less, including consideration of any renewal options assumed to be exercised, are not included in the Condensed Consolidated Balance Sheets.

Certain lease arrangements, primarily fleet vehicle leases with lease terms of one to ten years, contain purchase options. The Company generally excludes purchase options in evaluating its leases unless it is reasonably certain that such options will be exercised. Additionally, leases of fleet vehicles often contain residual value guarantees that are due at the end of the lease. Such amounts are included in the determination of lease liabilities when we are reasonably certain that they will be owed.

Certain leasing arrangements require variable payments that are dependent on asset usage or are based on changes in index rates, such as the Consumer Price Index. The variable payments component of such leases cannot be determined at lease commencement and is not recognized in the measurement of ROU assets or lease liabilities, but is recognized in earnings in the period in which the obligation occurs.

ROU assets and lease liabilities recorded in the Condensed Consolidated Balance Sheet are as follows:

	March 31, 2020		Location on the Balance Sheet
ROU assets:
Operating lease ROU assets	$	431.8	Other assets
Finance lease ROU assets	54.0		Property, plant and equipment
Total ROU assets	$	485.8
Lease liabilities:
Operating lease liabilities - current	$	86.5	Other current liabilities
Operating lease liabilities - noncurrent	351.8		Other noncurrent liabilities
Finance lease liabilities - current	6.2		Current maturities of long-term debt
Finance lease liabilities - noncurrent	41.4		Long-term debt
Total lease liabilities	$	485.9

The components of lease cost are as follows:

	Three Months Ended March 31, 2020		Six Months Ended March 31, 2020
Operating lease cost	$	28.1	$	53.7
Finance lease cost:
Amortization of ROU assets	1.6		3.2
Interest on lease liabilities	0.7		1.2
Variable lease cost	1.4		2.8
Short-term lease cost	0.6		1.6
Total lease cost	$	32.4	$	62.5

The following table presents the cash and non-cash activity related to lease liabilities included in the Condensed Consolidated Statement of Cash Flows occurring during the period:

	Six Months Ended March 31, 2020
Cash paid related to lease liabilities:
Operating cash flows from operating leases	$	53.3
Operating cash flows from finance leases	$	1.2
Financing cash flows from finance leases	$	1.9
Non-cash lease liability activities:
ROU assets obtained in exchange for operating lease liabilities (including the impact upon adoption)	$	475.6
ROU assets obtained in exchange for finance lease liabilities	$	21.5

The following table presents the weighted-average remaining lease term and weighted-average discount rate as of March 31, 2020:

Weighted-average remaining lease term	In years
Operating leases	6.3
Finance leases	2.4
Weighted-average discount rate	%
Operating leases	3.9%
Finance leases	2.0%

Expected annual lease payments based on maturities of operating and finance leases, as well as a reconciliation to the lease liabilities on the Condensed Consolidated Balance Sheet, as of March 31, 2020, were as follows:

	Remainder of Fiscal 2020		Fiscal 2021		Fiscal 2022		Fiscal 2023		Fiscal 2024		After Fiscal 2024		Total Lease Payments		Imputed Interest			Lease Liabilities
Operating leases:	$	50.8	$	93.3	$	77.8	$	68.6	$	59.1	$	146.8	$	496.4	$	(58.1	)	$	438.3
Finance leases:	$	3.1	$	5.1	$	4.0	$	3.4	$	3.1	$	85.9	$	104.6	$	(57.0	)	$	47.6

Approximately 85% of the operating lease liabilities presented above relates to AmeriGas Propane.

At March 31, 2020, operating and finance leases that had not yet commenced were not material.

Disclosures related to periods prior to adoption of ASC 842

As discussed above, the Company adopted ASC 842 effective October 1, 2019, using a modified retrospective approach. As required, the following disclosure is provided for periods prior to adoption. The Company’s future minimum payments under non-cancelable operating leases at September 30, 2019, which were accounted for under ASC 840, were as follows:

	Fiscal 2020		Fiscal 2021		Fiscal 2022		Fiscal 2023		Fiscal 2024		After Fiscal 2024
Total	$	100.4	$	85.9	$	71.0	$	61.7	$	53.6	$	139.2

Lessor

We enter into lessor arrangements for the purposes of storing, gathering or distributing natural gas and propane. AmeriGas Propane and UGI International have lessor arrangements that grant customers the right to use small, medium and large storage tanks, which we classify as operating leases. These agreements contain renewal options for periods up to nine years and certain agreements at UGI International contain a purchase option. Energy Services leases certain natural gas gathering assets to customers, which we classify as operating leases. Lease income is generally recognized on a straight-line basis over the lease term and included in “Revenues” on the Condensed Consolidated Statements of Income (see Note 4).

Leases

Note 9 — Leases

Lessee

We lease various buildings and other facilities, real estate, vehicles, rail cars and other equipment, the majority of which are operating leases. We determine if a contract is or contains a lease by evaluating whether the contract explicitly or implicitly identifies an asset, whether we have the right to obtain substantially all of the economic benefits of the identified leased asset and to direct its use.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. We recognize ROU assets at the lease commencement date at the value of the lease liability adjusted for any prepayments, lease incentives received, and initial direct costs incurred. Lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. These payments are discounted using the discount rate implicit in the lease, when available. We apply an incremental borrowing rate, which is developed utilizing a credit notching approach based on information available at the lease commencement date, to substantially all of our leases as the implicit rate is often not available.

Lease expense is recognized on a straight-line basis over the expected lease term. Renewal and termination options are not included in the lease term unless we are reasonably certain that such options will be exercised. Leases with an original lease term of one year or less, including consideration of any renewal options assumed to be exercised, are not included in the Condensed Consolidated Balance Sheets.

Certain lease arrangements, primarily fleet vehicle leases with lease terms of one to ten years, contain purchase options. The Company generally excludes purchase options in evaluating its leases unless it is reasonably certain that such options will be exercised. Additionally, leases of fleet vehicles often contain residual value guarantees that are due at the end of the lease. Such amounts are included in the determination of lease liabilities when we are reasonably certain that they will be owed.

Certain leasing arrangements require variable payments that are dependent on asset usage or are based on changes in index rates, such as the Consumer Price Index. The variable payments component of such leases cannot be determined at lease commencement and is not recognized in the measurement of ROU assets or lease liabilities, but is recognized in earnings in the period in which the obligation occurs.

ROU assets and lease liabilities recorded in the Condensed Consolidated Balance Sheet are as follows:

	March 31, 2020		Location on the Balance Sheet
ROU assets:
Operating lease ROU assets	$	431.8	Other assets
Finance lease ROU assets	54.0		Property, plant and equipment
Total ROU assets	$	485.8
Lease liabilities:
Operating lease liabilities - current	$	86.5	Other current liabilities
Operating lease liabilities - noncurrent	351.8		Other noncurrent liabilities
Finance lease liabilities - current	6.2		Current maturities of long-term debt
Finance lease liabilities - noncurrent	41.4		Long-term debt
Total lease liabilities	$	485.9

The components of lease cost are as follows:

	Three Months Ended March 31, 2020		Six Months Ended March 31, 2020
Operating lease cost	$	28.1	$	53.7
Finance lease cost:
Amortization of ROU assets	1.6		3.2
Interest on lease liabilities	0.7		1.2
Variable lease cost	1.4		2.8
Short-term lease cost	0.6		1.6
Total lease cost	$	32.4	$	62.5

The following table presents the cash and non-cash activity related to lease liabilities included in the Condensed Consolidated Statement of Cash Flows occurring during the period:

	Six Months Ended March 31, 2020
Cash paid related to lease liabilities:
Operating cash flows from operating leases	$	53.3
Operating cash flows from finance leases	$	1.2
Financing cash flows from finance leases	$	1.9
Non-cash lease liability activities:
ROU assets obtained in exchange for operating lease liabilities (including the impact upon adoption)	$	475.6
ROU assets obtained in exchange for finance lease liabilities	$	21.5

The following table presents the weighted-average remaining lease term and weighted-average discount rate as of March 31, 2020:

Weighted-average remaining lease term	In years
Operating leases	6.3
Finance leases	2.4
Weighted-average discount rate	%
Operating leases	3.9%
Finance leases	2.0%

Expected annual lease payments based on maturities of operating and finance leases, as well as a reconciliation to the lease liabilities on the Condensed Consolidated Balance Sheet, as of March 31, 2020, were as follows:

	Remainder of Fiscal 2020		Fiscal 2021		Fiscal 2022		Fiscal 2023		Fiscal 2024		After Fiscal 2024		Total Lease Payments		Imputed Interest			Lease Liabilities
Operating leases:	$	50.8	$	93.3	$	77.8	$	68.6	$	59.1	$	146.8	$	496.4	$	(58.1	)	$	438.3
Finance leases:	$	3.1	$	5.1	$	4.0	$	3.4	$	3.1	$	85.9	$	104.6	$	(57.0	)	$	47.6

Approximately 85% of the operating lease liabilities presented above relates to AmeriGas Propane.

At March 31, 2020, operating and finance leases that had not yet commenced were not material.

Disclosures related to periods prior to adoption of ASC 842

As discussed above, the Company adopted ASC 842 effective October 1, 2019, using a modified retrospective approach. As required, the following disclosure is provided for periods prior to adoption. The Company’s future minimum payments under non-cancelable operating leases at September 30, 2019, which were accounted for under ASC 840, were as follows:

	Fiscal 2020		Fiscal 2021		Fiscal 2022		Fiscal 2023		Fiscal 2024		After Fiscal 2024
Total	$	100.4	$	85.9	$	71.0	$	61.7	$	53.6	$	139.2

Lessor

We enter into lessor arrangements for the purposes of storing, gathering or distributing natural gas and propane. AmeriGas Propane and UGI International have lessor arrangements that grant customers the right to use small, medium and large storage tanks, which we classify as operating leases. These agreements contain renewal options for periods up to nine years and certain agreements at UGI International contain a purchase option. Energy Services leases certain natural gas gathering assets to customers, which we classify as operating leases. Lease income is generally recognized on a straight-line basis over the lease term and included in “Revenues” on the Condensed Consolidated Statements of Income (see Note 4).

Leases

Note 9 — Leases

Lessee

We lease various buildings and other facilities, real estate, vehicles, rail cars and other equipment, the majority of which are operating leases. We determine if a contract is or contains a lease by evaluating whether the contract explicitly or implicitly identifies an asset, whether we have the right to obtain substantially all of the economic benefits of the identified leased asset and to direct its use.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. We recognize ROU assets at the lease commencement date at the value of the lease liability adjusted for any prepayments, lease incentives received, and initial direct costs incurred. Lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. These payments are discounted using the discount rate implicit in the lease, when available. We apply an incremental borrowing rate, which is developed utilizing a credit notching approach based on information available at the lease commencement date, to substantially all of our leases as the implicit rate is often not available.

Lease expense is recognized on a straight-line basis over the expected lease term. Renewal and termination options are not included in the lease term unless we are reasonably certain that such options will be exercised. Leases with an original lease term of one year or less, including consideration of any renewal options assumed to be exercised, are not included in the Condensed Consolidated Balance Sheets.

Certain lease arrangements, primarily fleet vehicle leases with lease terms of one to ten years, contain purchase options. The Company generally excludes purchase options in evaluating its leases unless it is reasonably certain that such options will be exercised. Additionally, leases of fleet vehicles often contain residual value guarantees that are due at the end of the lease. Such amounts are included in the determination of lease liabilities when we are reasonably certain that they will be owed.

Certain leasing arrangements require variable payments that are dependent on asset usage or are based on changes in index rates, such as the Consumer Price Index. The variable payments component of such leases cannot be determined at lease commencement and is not recognized in the measurement of ROU assets or lease liabilities, but is recognized in earnings in the period in which the obligation occurs.

ROU assets and lease liabilities recorded in the Condensed Consolidated Balance Sheet are as follows:

	March 31, 2020		Location on the Balance Sheet
ROU assets:
Operating lease ROU assets	$	431.8	Other assets
Finance lease ROU assets	54.0		Property, plant and equipment
Total ROU assets	$	485.8
Lease liabilities:
Operating lease liabilities - current	$	86.5	Other current liabilities
Operating lease liabilities - noncurrent	351.8		Other noncurrent liabilities
Finance lease liabilities - current	6.2		Current maturities of long-term debt
Finance lease liabilities - noncurrent	41.4		Long-term debt
Total lease liabilities	$	485.9

The components of lease cost are as follows:

	Three Months Ended March 31, 2020		Six Months Ended March 31, 2020
Operating lease cost	$	28.1	$	53.7
Finance lease cost:
Amortization of ROU assets	1.6		3.2
Interest on lease liabilities	0.7		1.2
Variable lease cost	1.4		2.8
Short-term lease cost	0.6		1.6
Total lease cost	$	32.4	$	62.5

The following table presents the cash and non-cash activity related to lease liabilities included in the Condensed Consolidated Statement of Cash Flows occurring during the period:

	Six Months Ended March 31, 2020
Cash paid related to lease liabilities:
Operating cash flows from operating leases	$	53.3
Operating cash flows from finance leases	$	1.2
Financing cash flows from finance leases	$	1.9
Non-cash lease liability activities:
ROU assets obtained in exchange for operating lease liabilities (including the impact upon adoption)	$	475.6
ROU assets obtained in exchange for finance lease liabilities	$	21.5

The following table presents the weighted-average remaining lease term and weighted-average discount rate as of March 31, 2020:

Weighted-average remaining lease term	In years
Operating leases	6.3
Finance leases	2.4
Weighted-average discount rate	%
Operating leases	3.9%
Finance leases	2.0%

Expected annual lease payments based on maturities of operating and finance leases, as well as a reconciliation to the lease liabilities on the Condensed Consolidated Balance Sheet, as of March 31, 2020, were as follows:

	Remainder of Fiscal 2020		Fiscal 2021		Fiscal 2022		Fiscal 2023		Fiscal 2024		After Fiscal 2024		Total Lease Payments		Imputed Interest			Lease Liabilities
Operating leases:	$	50.8	$	93.3	$	77.8	$	68.6	$	59.1	$	146.8	$	496.4	$	(58.1	)	$	438.3
Finance leases:	$	3.1	$	5.1	$	4.0	$	3.4	$	3.1	$	85.9	$	104.6	$	(57.0	)	$	47.6

Approximately 85% of the operating lease liabilities presented above relates to AmeriGas Propane.

At March 31, 2020, operating and finance leases that had not yet commenced were not material.

Disclosures related to periods prior to adoption of ASC 842

As discussed above, the Company adopted ASC 842 effective October 1, 2019, using a modified retrospective approach. As required, the following disclosure is provided for periods prior to adoption. The Company’s future minimum payments under non-cancelable operating leases at September 30, 2019, which were accounted for under ASC 840, were as follows:

	Fiscal 2020		Fiscal 2021		Fiscal 2022		Fiscal 2023		Fiscal 2024		After Fiscal 2024
Total	$	100.4	$	85.9	$	71.0	$	61.7	$	53.6	$	139.2

Lessor

We enter into lessor arrangements for the purposes of storing, gathering or distributing natural gas and propane. AmeriGas Propane and UGI International have lessor arrangements that grant customers the right to use small, medium and large storage tanks, which we classify as operating leases. These agreements contain renewal options for periods up to nine years and certain agreements at UGI International contain a purchase option. Energy Services leases certain natural gas gathering assets to customers, which we classify as operating leases. Lease income is generally recognized on a straight-line basis over the lease term and included in “Revenues” on the Condensed Consolidated Statements of Income (see Note 4).