Unitil Corporation 2019 Form 10-K Summary
Business Context and Reporting Period
Unitil Corporation is a regulated utility holding company serving approximately 190,040 electric and natural gas customers in New Hampshire, Massachusetts and Maine. Its principal businesses are electric distribution, natural gas distribution and interstate natural gas transmission. The filing covers the fiscal year ended December 31, 2019; fourth-quarter information is presented as unaudited quarterly data.
- Electric customers: 106,129; natural gas customers: 83,911.
- Net utility plant: $1,111.5 million at December 31, 2019.
- Operations are subject primarily to FERC, NHPUC, MDPU and MPUC regulation.
- Unitil divested its non-regulated energy-brokering subsidiary, Usource, on March 1, 2019.
Financial Performance and Key Metrics
| Metric | 2019 | 2018 |
|---|---|---|
| Operating revenue | $438.2 million | $444.1 million |
| Operating income | $73.1 million | $71.2 million |
| Net income | $44.2 million | $33.0 million |
| Diluted EPS | $2.97 | $2.23 |
| Operating cash flow | $104.9 million | $78.5 million |
| Capital expenditures | $119.2 million | $102.4 million |
| Cash and equivalents | $5.2 million | $7.8 million |
| Short-term debt | $58.6 million | $82.8 million |
| Long-term debt, net of current portion | $437.5 million | $387.4 million |
| Common equity | $376.6 million | $351.1 million |
- Operating margin was approximately 16.7%, compared with approximately 16.0% in 2018. Net margin was approximately 10.1%, compared with approximately 7.4% in 2018.
- Gas operating revenue was $203.4 million and gas sales margin was $122.2 million, up $5.3 million year over year.
- Electric operating revenue was $233.9 million and electric sales margin was $91.9 million, essentially unchanged from 2018.
- Natural gas therm sales increased 0.4%, while electric kilowatt-hour sales decreased 4.8%.
- Operating cash flow exceeded capital expenditures by approximately $14.3 million before financing and other investing items.
- The $120.0 million revolving credit facility had $58.6 million of borrowings, $0.1 million of letters of credit and $61.3 million of availability at year-end.
- Cash dividends declared were $1.48 per share in 2019, compared with $1.46 in 2018. The board subsequently increased the annualized dividend to $1.50 per share.
Material Changes Versus the Prior Comparable Period
- Net income increased $11.2 million, or 33.9%, and diluted EPS increased $0.74, primarily because of a one-time $9.8 million after-tax gain from the Usource divestiture.
- Excluding the Usource gain, net income was $34.4 million, or $2.31 per share, up $1.4 million, or $0.08 per share, from 2018.
- The Usource transaction generated a $13.4 million pretax gain and a $3.6 million tax provision; Usource revenue fell to $0.9 million from $4.7 million.
- Gas sales margin increased 4.5%, driven mainly by higher distribution rates, customer growth and slightly higher therm sales; milder weather partly offset these benefits.
- Electric sales margin was flat as higher distribution rates offset lower usage, milder summer weather, energy-efficiency initiatives and distributed generation.
- Operating and maintenance expense declined $2.3 million, partly due to the Usource divestiture, while depreciation and amortization increased $1.6 million because of higher utility plant balances.
- Long-term debt increased following the issuance of $30 million of Unitil notes due 2029 and $40 million of Northern Utilities notes due 2049. Short-term debt declined $24.2 million.
- The company adopted the new lease standard, recognizing approximately $4.2 million of lease assets and liabilities at adoption; earnings and cash flows were not materially affected.
Guidance, Outlook, Risks and Unusual Items
- Management projected 2020 capital spending of approximately $125 million to $130 million.
- Pending regulatory matters include Northern Utilities’ Maine request for a $7.0 million annual base-revenue increase and Fitchburg requests for electric and gas revenue-target increases of $2.7 million and $7.3 million, respectively.
- Fitchburg’s approved and proposed long-term offshore wind and clean-energy contracts could materially affect future contractual obligations and regulatory assets once specified conditions and contingencies are satisfied. Costs are generally intended to be recovered through approved mechanisms.
- Regulated commodity supply costs are generally recovered through pass-through mechanisms, limiting direct commodity-price exposure; however, timing of recovery can affect liquidity.
- Material risks include adverse regulatory decisions, inability to recover costs, weather variability, severe storms, aging infrastructure, environmental liabilities, pension funding requirements, interest-rate changes, cyberattacks, supply and transmission constraints, competition and distributed generation.
- Retirement benefit obligations were $141.9 million at year-end, and the plans remained significantly underfunded. Pension contributions were $6.9 million in 2019 versus $16.6 million in 2018.
- Total contractual cash obligations were $1.405 billion, including $460.5 million of long-term debt, $340.4 million of related interest and $599.0 million of gas and electric supply commitments.
- Environmental obligations totaled $2.7 million, including a $0.7 million accrual for estimated remediation at the Rochester, New Hampshire manufactured-gas-plant site. Management reported no material litigation or environmental losses beyond recorded amounts.
- The company was in compliance with debt covenants, including the revolving-credit-facility funded-debt-to-capitalization limit of 65%, and management stated that working capital sources were sufficient.
- The independent auditor issued an unqualified opinion and reported effective internal control over financial reporting. The impact of rate regulation was identified as the critical audit matter.
Most Important Facts for Investors to Verify
- Separate recurring utility earnings from the $9.8 million after-tax Usource divestiture gain.
- Track regulatory decisions on Northern Utilities’ and Fitchburg’s pending rate filings and the treatment of excess deferred income taxes.
- Assess whether planned capital spending and long-term clean-energy commitments can be recovered through rates without pressuring leverage or dividends.
- Review debt maturities, variable-rate short-term borrowings, credit-facility availability and the 65% covenant.
- Monitor pension and post-retirement obligations, required contributions and sensitivity to discount rates and asset returns.
- Evaluate weather-normalized gas and electric demand, customer growth, energy efficiency and distributed-generation trends.
- Review environmental remediation, gas-system safety proceedings, FERC transmission-rate matters and potential cyber or operational disruptions.