UNITIL CORP quarterly report, Q1 FY2013

Unitil Corporation — Q1 2013 Form 10-Q Summary

Business context and reporting period

Unitil is a regulated utility holding company distributing electricity and natural gas in New Hampshire, Massachusetts and Maine. Its subsidiaries serve approximately 101,700 electric and 73,700 natural gas customers and operate an 86-mile interstate gas transmission pipeline. The filing covers the three months ended March 31, 2013; financial statements are unaudited.

Financial performance and liquidity

Metric	Q1 2013	Q1 2012	Change
Operating revenue	$118.2 million	$114.2 million	3.5% increase
Operating income	$15.5 million	$14.0 million	10.7% increase
Net income	$10.8 million	$9.0 million	20.0% increase
EPS, basic and diluted	$0.79	$0.83	Decrease due to higher share count
Operating cash flow	$40.8 million	$30.4 million	$10.4 million increase
Capital expenditures	$14.4 million	$9.1 million	$5.3 million increase
Interest expense, net	$4.6 million	$4.9 million	$0.3 million decrease

Gas revenue was $70.8 million, with gas sales margin of $30.5 million, up $3.2 million. Electric revenue was $45.9 million, while electric sales margin was $18.4 million, up $2.3 million.
Operating margin was approximately 13.1% in Q1 2013 versus 12.3% in Q1 2012. Net margin was approximately 9.1% versus 7.9%.
Natural gas therm sales increased 12.3%; electric kilowatt-hour sales increased 2.7%. The company reported 10% more heating degree days than in the prior-year quarter.
O&M expense increased $1.9 million, depreciation and amortization increased $1.1 million, and income tax expense increased $1.1 million.
Cash at March 31, 2013 was $7.5 million. The $60.0 million revolving credit facility had $32.6 million outstanding and $27.4 million available; it extended to October 8, 2013. The company stated that it expected renewal and believed the facility was sufficient until then.
Total long-term debt was $287.7 million and short-term debt was $32.6 million at March 31, 2013. The company was in compliance with its debt covenants, including the requirement that funded debt not exceed 65% of capitalization.
Common equity was $262.3 million, and net utility plant was $608.3 million. The quarterly common dividend was $0.345 per share.

Material changes versus the prior comparable period

Earnings applicable to common shareholders rose $1.8 million, but EPS declined because average shares outstanding increased from 10.9 million to 13.7 million following the May 2012 equity offering.
Gas margin benefited from colder weather, customer growth and higher distribution base rates. Electric margin benefited from higher sales and base rates, including $0.9 million of vegetation-management and reliability-cost recovery and $0.3 million of storm-cost recovery, each substantially offset by related expenses.
Operating cash flow improved primarily through higher net income, working-capital sources and deferred regulatory and other charges.
Financing cash use increased to $28.7 million, including $16.8 million of net short-term debt repayment, $7.2 million of reduced exchange-gas financing and $4.8 million of dividends.
Net utility plant increased from $560.1 million at March 31, 2012 to $608.3 million at March 31, 2013. Retirement benefit obligations increased to $107.2 million from $89.5 million.

Guidance, outlook, commentary, risks and unusual items

The filing does not provide formal annual earnings or revenue guidance. Management cautions that first-quarter results are seasonally strong for the natural gas business and are not necessarily indicative of full-year results.
Unitil Energy filed for a $2.8 million annual step increase effective May 1, 2013; the request was pending.
Northern Utilities filed rate cases seeking annual base-revenue increases of $5.2 million in New Hampshire and $4.6 million in Maine, plus a requested $2.5 million annualized temporary New Hampshire increase effective July 1, 2013. Final orders were expected in the first half of 2014.
Superstorm Sandy restoration costs were approximately $1.1 million for Fitchburg and $2.7 million for Unitil Energy. Recovery timing remained subject to regulatory proceedings; management did not expect a material adverse financial impact.
A February 2013 natural gas explosion in Fitchburg prompted an MDPU investigation. Management did not expect a material adverse impact, but the matter remained pending.
Environmental obligations included $12.0 million for remediation of Fitchburg’s Sawyer Passway manufactured-gas-plant site, $1.8 million of Northern Utilities obligations in noncurrent liabilities and $1.0 million in current liabilities. Corresponding regulatory assets were recorded based on expected rate recovery.
The company had approximately $13.5 million of guarantees on energy and gas-storage contracts, with the longest term extending through February 2014. It also guaranteed $2.7 million of Unitil Realty notes and $10.0 million of Granite State notes.
Key risks include regulatory decisions and cost recovery, weather and storm exposure, commodity and transmission costs, pension funding, interest rates, financing availability, debt covenants, environmental liabilities, service reliability, competition and customer demand.
The company reported no material changes to the risk factors in its 2012 Form 10-K, no material subsequent events, and effective disclosure controls as of March 31, 2013.

Important facts for investors to verify

Resolution and effective dates of Unitil Energy’s step increase and Northern Utilities’ New Hampshire and Maine rate cases.
Regulatory recovery of Superstorm Sandy and other storm restoration costs.
Renewal or replacement of the $60 million revolving credit facility before its October 8, 2013 expiration.
Progress and potential cost changes relating to Fitchburg’s gas-explosion investigation and manufactured-gas-plant remediation.
Funding requirements and regulatory recovery for pension and postretirement benefit obligations.
Whether colder weather and seasonal gas demand persist; Q1 results may overstate normalized full-year earnings.