UNITIL CORP quarterly report, Q2 FY2013

Unitil Corporation 10-Q Summary

Business Context and Reporting Period

Unitil Corporation is a regulated utility holding company serving approximately 101,700 electric customers and 73,700 natural gas customers in New Hampshire, Massachusetts and Maine. Its principal businesses are electric and natural gas distribution, an 86-mile interstate gas transmission pipeline, and the non-regulated Usource energy-brokering business. This unaudited Form 10-Q covers the three and six months ended June 30, 2013, filed July 24, 2013.

Key Financial Metrics

Metric	Q2 2013	Q2 2012	Six Months 2013	Six Months 2012
Operating revenue	$66.4 million	$68.8 million	$184.6 million	$183.0 million
Operating income	$4.6 million	$4.3 million	$20.1 million	$18.3 million
Net income	$(0.1) million	$(0.3) million	$10.7 million	$8.7 million
Earnings applicable to common shareholders	$(0.1) million	$(0.4) million	$10.7 million	$8.6 million
EPS	$(0.01)	$(0.03)	$0.78	$0.74
Cash flow from operations	Not separately provided	Not separately provided	$70.3 million	$52.9 million

Operating margins were approximately 6.9% in the second quarter and 10.9% for the first six months, compared with approximately 6.3% and 10.0%, respectively, in the comparable 2012 periods. Net margin was approximately negative 0.2% in the second quarter and 5.8% year to date.

Gas sales margin increased to $13.4 million in the quarter and $43.9 million year to date, up $0.8 million and $4.0 million, respectively.
Electric sales margin increased to $17.9 million in the quarter and $36.3 million year to date, up $0.4 million and $2.7 million, respectively.
Natural gas therm sales increased 12.2% in the quarter and 12.3% year to date; electric kilowatt-hour sales increased 1.7% and 2.2%, respectively.
Operating and maintenance expense increased $0.5 million in the quarter and $2.4 million year to date. Depreciation and amortization increased $0.5 million and $1.6 million, respectively.
Net interest expense was unchanged in the quarter and declined $0.3 million year to date to $9.2 million.
Capital expenditures were $37.0 million year to date, compared with $23.9 million in 2012.

Liquidity, Debt and Balance Sheet

Cash was $7.1 million at June 30, 2013, compared with $9.8 million at December 31, 2012.
Net utility plant was $625.4 million and total assets were $874.2 million at June 30, 2013.
Long-term debt totaled $287.6 million, including $0.6 million classified as current; short-term debt was $24.5 million.
The $60.0 million unsecured revolving credit facility had $24.5 million outstanding and $35.5 million available. It expires October 8, 2013, and management expected renewal.
Funded debt was subject to a covenant limiting it to 65% of capitalization. The Company was in compliance with its financial covenants.
Operating cash flow of $70.3 million exceeded capital expenditures of $37.0 million, while financing uses totaled $36.0 million, including $24.9 million of short-term debt repayment and $9.5 million of dividends.
Quarterly common dividends were $0.345 per share; $1.035 per share had been declared for the first six months.

Material Changes Versus the Prior Comparable Period

Year-to-date earnings increased 24%, from $8.6 million to $10.7 million applicable to common shareholders, despite a higher average share count following the 2012 equity offering.
Revenue growth was modest because lower pass-through purchased electricity costs reduced reported electric revenue. Purchased gas and purchased electricity costs generally do not affect earnings because they are recovered through regulatory mechanisms.
Colder weather materially increased demand: heating degree days were 15% higher in the first six months, while weather-normalized gas sales increased approximately 5% and weather-normalized electric sales increased approximately 1% year to date.
O&M increases reflected vegetation management and reliability programs, system maintenance, professional fees and insurance claims. Certain program costs were recovered through cost-tracker mechanisms.
Capital investment increased substantially, and net utility plant rose from $601.2 million at December 31, 2012 to $625.4 million at June 30, 2013.
Fitchburg's redeemable preferred stock was retired in December 2012, reducing total preferred stock from $2.0 million at June 30, 2012 to $0.2 million.

Guidance, Outlook, Risks and Unusual Items

The filing does not provide formal earnings or financial guidance. Results are seasonal, with natural gas operations typically strongest in the first and fourth quarters.
Unitil Energy's $2.8 million annualized rate step increase became effective May 1, 2013.
Northern Utilities requested base-rate increases of $5.2 million in New Hampshire and $4.6 million in Maine. New Hampshire temporary rates providing a $2.5 million annualized increase became effective July 1, 2013; final decisions were expected in the first half of 2014.
Fitchburg filed for a $6.7 million electric distribution revenue increase, including recovery of approximately $2.1 million of extraordinary storm costs. A final decision was expected in the second quarter of 2014.
Granite State filed for a $0.4 million incremental annual rate adjustment, with proposed rates effective August 1, 2013.
Superstorm Sandy and other storm restoration costs remain subject to regulatory recovery. Unitil Energy received approval to recover approximately $2.3 million of Sandy-related costs over five years; Fitchburg's recovery remained part of its pending rate case.
Environmental obligations included $12.0 million for the Fitchburg Sawyer Passway manufactured-gas-plant site and $1.8 million for Northern Utilities' former manufactured-gas-plant sites, plus $1.0 million in other current liabilities. Corresponding regulatory assets were recorded for expected recovery.
The Company reported approximately $13.5 million of guarantees on energy and gas-storage contracts, with the longest term extending through February 2014. It also guaranteed $2.6 million of Unitil Realty notes and $10.0 million of Granite State notes.
Key risks include regulatory decisions and cost recovery, weather, storm damage, environmental liabilities, pension funding, interest rates, access to financing, commodity and transmission costs, competition and customer demand.
A Massachusetts investigation continued into a February 2013 natural-gas explosion in Fitchburg. The Company did not expect a material adverse financial impact. A separate class-action lawsuit relating to a 2008 ice storm was proceeding with twelve named plaintiffs after class certification was denied, subject to appeal.

Important Facts for Investors to Verify

Renewal and terms of the $60 million revolving credit facility expiring October 8, 2013.
Final regulatory outcomes for Northern Utilities' New Hampshire and Maine rate cases and Fitchburg's electric rate case.
Timing and amount of recovery for storm restoration costs and environmental remediation expenditures.
Whether colder weather-driven gas and electric volume increases are sustainable after normalization.
Future pension and postretirement funding requirements; retirement benefit obligations were $110.6 million at June 30, 2013.
Progress and potential exposure from the Fitchburg gas-explosion investigation and pending litigation.
Reliance on regulatory accounting, including $157.5 million of regulatory assets and $13.3 million of regulatory liabilities at June 30, 2013.