UNITIL CORP - 10-Q Summary (Quarter Ended June 30, 2007)
Business Context and Reporting Period
This Form 10-Q covers the three and six months ended June 30, 2007. Unitil Corporation is a public utility holding company operating primarily through two regulated subsidiaries: Unitil Energy Systems, Inc. (UES) in New Hampshire and Fitchburg Gas and Electric Light Company (FG&E) in Massachusetts. The company serves approximately 99,400 electric and 15,000 natural gas customers. It also operates a non-regulated energy brokering business, Usource.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2007 | Six Months Ended June 30, 2007 |
|---|---|---|
| Total Operating Revenues | $59.0 million | $136.8 million |
| Net Income | $1.8 million | $4.4 million |
| Earnings Applicable to Common Shareholders | $1.7 million | $4.3 million |
| Earnings Per Share (Basic & Diluted) | $0.30 | $0.76 |
| Operating Cash Flow | N/A | $17.0 million |
| Long-Term Debt | $160.0 million | $160.0 million |
| Short-Term Debt | $9.5 million | $9.5 million |
| Net Utility Plant | $243.8 million | $243.8 million |
Material Changes vs. Prior Period
- Earnings Growth: Earnings per share increased 20% to $0.30 for the quarter and 25% to $0.76 year-to-date compared to 2006. Net income rose from $1.5 million to $1.8 million for the quarter.
- Revenue Drivers: Gas sales margin improved significantly ($0.5 million increase QTD, $1.3 million YTD) due to higher sales volumes from normal winter weather and new rate increases. Usource (non-regulated) revenues increased 50% year-over-year.
- Expenses: Operation and Maintenance (O&M) expenses decreased $0.4 million QTD and $0.2 million YTD due to lower outside services and bad debt expenses. However, Interest Expense, Net increased $0.4 million QTD and $0.6 million YTD due to higher debt levels and interest rates.
- Balance Sheet: Long-term debt increased by $34.8 million compared to June 2006, driven by the issuance of $15 million in bonds in late 2006 and $20 million in notes in May 2007. Regulatory Assets increased $19.7 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 approximately $5.5 million for the Automated Metering Infrastructure (AMI) project.
- Dividends: The Board declared a quarterly dividend of $0.345 per share, maintaining an unbroken record of quarterly payments.
- Regulatory Matters: FG&E received approval for a gas rate settlement effective February 2007. UES received approval for a base rate case settlement effective January 2006 with step increases in 2006 and 2007. An investigation into ratemaking practices in Massachusetts remains pending.
- Risks: Key risks include weather variations, regulatory changes, interest rate fluctuations, and commodity price volatility. The company notes that forward-looking statements are subject to inherent uncertainties.
- Environmental: A liability of $12.0 million was recorded for environmental remediation at a former manufactured gas plant site in Fitchburg, Massachusetts, with a corresponding regulatory asset recorded for future rate recovery.
Investor Verification Checklist
- Verify the impact of the new $20 million long-term note issuance on future interest expense and debt service coverage.
- Monitor the status of the Massachusetts Attorney General's appeal regarding FG&E's bad debt recovery order.
- Confirm the progress and cost recovery of the $5.5 million Automated Metering Infrastructure (AMI) investment.
- Review the assumptions used for Retirement Benefit Obligations (RBO) under SFAS No. 158, specifically discount rates and expected returns on plan assets.
- Track the outcome of the Massachusetts Department of Public Utilities investigation into ratemaking practices and revenue decoupling.