Unitil Corporation 2017 Form 10-K Summary
Business Context and Reporting Period
Unitil Corporation is a regulated utility holding company serving approximately 186,300 electric and natural gas customers in New Hampshire, Massachusetts and Maine. Its principal businesses are electric distribution, natural gas distribution and transmission, with a small non-regulated energy-brokering business, Usource. The filing covers the fiscal year ended December 31, 2017, and includes unaudited fourth-quarter information.
- Electric customers: 104,978; natural gas customers: 81,309.
- Net utility plant: $971.5 million at December 31, 2017.
- Revenue is substantially generated by regulated utility operations; purchased energy costs are generally recovered through pass-through rate mechanisms.
Financial Performance and Key Metrics
| Metric | 2017 | 2016 | Change |
|---|---|---|---|
| Operating revenue | $406.2 million | $383.4 million | +6.0% |
| Operating income | $69.7 million | $65.3 million | +6.7% |
| Net income | $29.0 million | $27.1 million | +7.0% |
| Diluted EPS | $2.06 | $1.94 | +$0.12 |
| Operating margin | 17.2% | 17.0% | Improved |
| Net margin | 7.1% | 7.1% | Broadly stable |
| Cash from operating activities | $86.2 million | $68.3 million | +$17.9 million |
| Capital expenditures | $119.3 million | $98.1 million | +$21.2 million |
Gas revenue was $194.0 million and electric revenue was $206.2 million. Gas sales margin, a non-GAAP measure, increased to $109.7 million from $103.6 million, while electric sales margin increased to $92.2 million from $88.1 million. Gas therm sales increased 3.9%, supported by colder weather and customer growth; electric kilowatt-hour sales declined 0.3% because of milder summer weather.
Fourth-quarter revenue was $115.4 million, compared with $104.3 million in the fourth quarter of 2016. Fourth-quarter net income was $11.2 million, or $0.79 per share, compared with $10.2 million, or $0.73 per share.
Balance Sheet, Debt and Liquidity
- Total assets were $1.242 billion, including $971.5 million of net utility plant.
- Common equity was $336.6 million; long-term debt, net of current maturities, was $376.3 million.
- Current long-term debt was $29.8 million and short-term debt was $38.3 million at year-end.
- The $120.0 million revolving credit facility had $81.7 million available at year-end and terminates in October 2020.
- The company complied with its debt covenants, including the credit-facility funded-debt-to-capitalization limit of 65%.
- Unitil issued $90 million of subsidiary long-term debt in November 2017, primarily to refinance debt and repay short-term borrowings, and raised approximately $32 million net through a common-stock offering.
- Contractual cash obligations totaled $1.169 billion, including $409.4 million of long-term debt, $434.8 million of gas supply contracts and $289.2 million of interest on long-term debt.
- Annual common dividends increased from $1.44 per share in 2017 to an effective $1.46 per share beginning in 2018.
Material Changes Versus the Prior Comparable Period
- Net income increased $1.9 million and EPS increased $0.12, primarily from higher gas and electric distribution margins.
- Gas margin benefited from $3.3 million of higher distribution rates and $2.8 million from weather and customer growth.
- Electric margin benefited from $5.4 million of higher distribution rates and $1.0 million of customer growth, partly offset by weather and lower transmission revenue.
- Operation and maintenance expense rose $3.9 million, compensation and benefits rose $2.0 million, and property taxes contributed to a $1.5 million increase in taxes other than income taxes.
- Cash from operations improved, but capital spending increased materially and exceeded operating cash flow by $33.1 million.
- Short-term debt declined from $81.9 million to $38.3 million, while long-term debt increased due to refinancing and new debt issuance.
- Common equity increased from $292.9 million to $336.6 million, principally reflecting the December 2017 equity offering and retained earnings.
Guidance, Outlook, Commentary and Unusual Items
- Management projected 2018 capital spending of approximately $100 million to $105 million.
- Unitil Energy received approval for a $4.1 million permanent electric base-rate increase and a three-year rate plan, including additional capital-related rate steps in 2018 and 2019.
- Northern Utilities had pending Maine and New Hampshire rate cases seeking annual revenue increases of $6.7 million and $4.7 million, respectively. The New Hampshire proceeding included temporary rates producing approximately $1.6 million of annualized revenue.
- The Tax Cuts and Jobs Act reduced the federal corporate tax rate to 21% beginning in 2018. Unitil recorded a $48.9 million regulatory liability from revaluing accumulated deferred income taxes and expected regulators to determine the customer rate treatment.
- A remaining $2.3 million regulatory liability related to the Portland Natural Gas Transmission pipeline refund was expected to be credited to customers and marketers by 2018.
- Retirement benefit obligations totaled $150.1 million, and the company contributed $4.1 million to its pension plan and $4.0 million to voluntary employee benefit trusts in 2017.
- Material risks include regulatory rate decisions and cost recovery, weather and seasonality, interest-rate and refinancing risk, pension funding, aging infrastructure, severe storms, environmental obligations, cybersecurity, energy supply availability and customer adoption of distributed generation or efficiency measures.
- A long-standing Fitchburg ice-storm class action remains pending as individual claims after class certification was denied; management does not expect the matter to have a material impact.
- The independent auditor issued an unqualified opinion and concluded that internal control over financial reporting was effective.
Important Facts for Investors to Verify
- Reconcile the filing’s inconsistent references to 2017 total revenue of $406.2 million and $406.9 million; the consolidated statements report $406.2 million.
- Track final regulatory decisions in the Northern Utilities Maine and New Hampshire rate cases and the effect of the Tax Cuts and Jobs Act on customer rates and earnings.
- Assess whether projected 2018 capital spending can be funded while maintaining dividend growth and acceptable leverage.
- Review debt maturities, refinancing requirements and exposure to variable short-term interest rates.
- Monitor pension and post-retirement funding requirements, regulatory asset recovery and environmental remediation costs.
- Evaluate the sensitivity of earnings and cash flow to weather, customer growth, energy efficiency, distributed generation and other changes in delivered volumes.