UTL

UNITIL CORP - 10-Q Summary (Q1 2009)

Business Context and Reporting Period

This Form 10-Q covers the three-month period ended March 31, 2009. Unitil Corporation is a public utility holding company headquartered in Hampton, New Hampshire, operating regulated electric and natural gas distribution utilities in New Hampshire, Massachusetts, and Maine. The reporting period includes the full impact of the December 1, 2008, acquisitions of Northern Utilities, Inc. and Granite State Gas Transmission, Inc., which significantly expanded the company's natural gas footprint and asset base.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased 88.6% year-over-year, driven primarily by the inclusion of Northern Utilities and Granite State. Gas operating revenues surged 406.3% to $72.4 million, while electric revenues grew 9.7% to $62.1 million.
• Earnings Increase: Net income rose 175.8% to $9.1 million. Earnings per share doubled to $1.14, reflecting higher earnings volume despite a significant increase in the weighted average shares outstanding (from 5.7 million to 8.0 million) due to a December 2008 public offering.
• Expense Increases: Operation & Maintenance (O&M) expenses increased $5.7 million, largely due to the new acquisitions ($2.1 million), higher compensation, and the absence of a $2.8 million insurance settlement received in 2008. Interest expense, net, increased $2.2 million due to debt issued to finance the acquisitions.
• Volume Trends: Natural gas sales volumes increased 6.0% (excluding acquisitions) due to a colder winter (6.4% colder than prior year). Electric sales volumes decreased 4.7% due to economic slowdown and conservation efforts.

Outlook, Risks, and Unusual Items

• Seasonality: Management expects future results to reflect greater seasonality due to the gas acquisitions, with positive impacts in Q1 and Q4 and negative impacts in Q2 and Q3.
• Storm Restoration: A severe ice storm in December 2008 caused approximately $10 million in repair costs (accrued and deferred). The company does not expect this to have a material adverse impact, as costs are expected to be recovered through regulatory proceedings.
• Legal Proceedings: A putative class action lawsuit was filed against Fitchburg Gas and Electric Light Company regarding the December 2008 ice storm. The company believes the suit is without merit. Additionally, the Massachusetts Department of Public Utilities opened an investigation into Fitchburg's gas procurement practices.
• Regulatory Matters: The company is subject to ongoing regulatory reviews regarding rate mechanisms, revenue decoupling, and compliance with the "Green Communities Act" in Massachusetts.
• Liquidity: The company maintains $39.1 million in a bank financing facility for acquisitions and $48.6 million in short-term debt under a revolving credit agreement. It remains in compliance with all financial covenants.

Investor Verification Checklist

• Verify the timeline and regulatory approval status for the recovery of the $10 million storm restoration costs.
• Monitor the outcome of the Massachusetts Department of Public Utilities investigation into Fitchburg's gas procurement practices.
• Review the integration progress of Northern Utilities and Granite State to assess if projected synergy savings are being realized.
• Track the company's ability to refinance the $39.1 million acquisition-related bank facility maturing in November 2009.
• Assess the impact of the increased share count (8.1 million shares outstanding) on future EPS growth targets.