UNITIL CORP - 10-Q Summary (Quarter Ended September 30, 2007)
Business Context and Reporting Period
UNITIL Corporation is a public utility holding company operating primarily in New Hampshire and Massachusetts. Its principal business involves the retail distribution of electricity and natural gas through subsidiaries Unitil Energy Systems, Inc. (UES) and Fitchburg Gas and Electric Light Company (FG&E). The company also operates a non-regulated energy brokering subsidiary, Usource. This report covers the three and nine months ended September 30, 2007.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2007 | Nine Months Ended Sep 30, 2007 |
|---|---|---|
| Total Operating Revenues | $61.8 million | $198.6 million |
| Net Income | $1.6 million | $6.0 million |
| Earnings Per Share (Basic & Diluted) | $0.28 | $1.04 |
| Operating Cash Flow | N/A | $23.6 million |
| Long-Term Debt | $159.8 million | $159.8 million |
| Short-Term Debt | $13.0 million | $13.0 million |
| Dividends Declared Per Share | $0.345 | $1.38 (YTD) |
Material Changes vs. Prior Period
- Earnings: Q3 2007 EPS decreased to $0.28 from $0.32 in Q3 2006, driven by higher depreciation and interest expenses. However, YTD 2007 EPS increased 12% to $1.04 compared to $0.93 in 2006.
- Sales Volume: Electric sales decreased 3.9% (Q3) and 1.4% (YTD) due to cooler weather and conservation. Natural gas sales increased 6.1% (Q3) and 8.0% (YTD) due to a colder winter and higher industrial demand.
- Margins: Electric and gas sales margins improved due to rate increases and higher sales volumes in gas, offsetting lower electric volumes. Usource (non-regulated) revenues increased 67% in Q3 and 56% YTD.
- Expenses: Interest expense increased due to higher debt levels and rates. Depreciation increased due to plant additions. O&M expenses were flat for Q3 and decreased slightly YTD due to savings from Automated Metering Infrastructure (AMI) investments.
- Balance Sheet: Long-term debt increased by $19.7 million following a $20 million private placement of Senior Notes. Regulatory assets increased by $19.3 million, largely due to the adoption of SFAS No. 158 regarding retirement benefit obligations.
Guidance, Outlook, and Risks
- Capital Expenditures: Projected annual capital expenditures for 2007 are $32.4 million, including $6.7 million for the final phase of the AMI project.
- Regulatory Matters: FG&E filed for a $3.3 million electric rate increase (4.7%), which is suspended pending investigation. UES received approval for rate increases and step adjustments. The company is subject to ongoing investigations regarding ratemaking practices in Massachusetts and time-based metering in New Hampshire.
- Risks: Key risks include weather variations, regulatory changes, interest rate fluctuations, and commodity price volatility (though largely mitigated by pass-through mechanisms). The company faces potential environmental remediation costs, with $12.0 million recorded for a former gas plant site.
- Dividends: The company declared a quarterly dividend of $0.345 per share, maintaining an unbroken record of payments.
Investor Verification Checklist
- Verify the impact of the suspended FG&E electric rate increase on future revenue recovery.
- Monitor the status of the Massachusetts Attorney General's appeal regarding FG&E's bad debt recovery mechanism.
- Assess the realization of projected cost savings from the Automated Metering Infrastructure (AMI) project.
- Review the funding status and actuarial assumptions for Retirement Benefit Obligations (RBO) following SFAS No. 158 adoption.
- Track the performance of the non-regulated Usource subsidiary, which showed significant revenue growth.