UNITIL CORPORATION - 2008 Annual Report (10-K) Summary
Business Context and Reporting Period
Company: UNITIL CORPORATION (Unitil)
Reporting Period: Fiscal year ended December 31, 2008
Business Overview: Unitil is a public utility holding company incorporated in New Hampshire. Its principal business is the local distribution of electricity and natural gas in New Hampshire, Massachusetts, and Maine through three wholly-owned distribution utilities: Unitil Energy, Fitchburg Gas and Electric Light Company, and Northern Utilities. It also owns Granite State Gas Transmission, an interstate natural gas pipeline, and Usource, a non-regulated energy brokering subsidiary.
Key Transaction: On December 1, 2008, Unitil acquired Northern Utilities and Granite State for an aggregate purchase price of $160 million in cash plus a working capital adjustment of $49.2 million (totaling approximately $209.2 million). This acquisition significantly expanded Unitil's gas operations into Maine and southeastern New Hampshire.
Key Financial Metrics (2008)
| Metric | 2008 Value | 2007 Value |
|---|---|---|
| Total Operating Revenue | $288.2 million | $262.9 million |
| Operating Income | $20.5 million | $18.5 million |
| Net Income | $9.7 million | $8.7 million |
| Earnings Applicable to Common Shareholders | $9.6 million | $8.6 million |
| Earnings Per Share (Diluted) | $1.65 | $1.52 |
| Total Assets | $735.2 million | $474.6 million |
| Long-Term Debt (less current) | $249.3 million | $159.6 million |
| Short-Term Debt | $74.1 million | $18.8 million |
| Cash Provided by Operating Activities | $47.3 million | $26.8 million |
| Dividends Paid Per Share | $1.38 | $1.38 |
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 9.6% to $288.2 million, driven primarily by the acquisition of Northern Utilities and Granite State, which added significant gas sales volume.
- Gas Operations: Natural gas sales margin increased by $6.7 million (52.8%) compared to 2007. Total gas operating revenue rose 66.4% to $56.9 million. Excluding the acquisition, organic gas sales increased 1.1%.
- Electric Operations: Electric sales margin decreased by $1.4 million due to lower sales volumes (down 2.7% year-over-year) caused by milder summer temperatures and a slowing economy, partially offset by higher base rates implemented in March 2008.
- Balance Sheet Expansion: Total assets increased by $260.6 million, largely due to the acquisition of utility plant assets ($173.9 million increase) and working capital adjustments.
- Debt Levels: Long-term debt increased by $89.7 million and short-term debt by $55.3 million to finance the acquisitions and fund working capital needs.
Guidance, Outlook, Risks, and Unusual Items
- Seasonality Outlook: Management expects future consolidated results to reflect the seasonal nature of Northern Utilities' gas sales more significantly. Results are expected to be positively affected in Q1 and Q4 and negatively affected in Q2 and Q3.
- Storm Costs: A severe ice storm in December 2008 caused extensive damage. The Company accrued and deferred approximately $10 million in storm restoration costs. Recovery timing will be determined in future regulatory proceedings.
- Regulatory Risks: The Company is subject to comprehensive regulation by FERC and state commissions (NHPUC, MDPU, MPUC). Risks include the ability to recover costs, obtain rate adjustments, and the impact of new regulations such as the "Green Communities Act" in Massachusetts.
- Financial Risks: Deterioration in credit markets could impact the ability to obtain debt financing. The Company has $39.1 million outstanding on a bank financing facility maturing November 1, 2009, which it expects to repay via equity or debt issuance.
- Pension Obligations: Declines in capital markets increased the unfunded status of pension plans. The Company expects to contribute approximately $4.0 million to its Pension Plan in 2009.
- Legal Proceedings: A putative class action lawsuit was filed in January 2009 regarding service outages during the December 2008 ice storm. The Company believes the complaint is without merit.
Investor Verification Checklist
- Acquisition Integration: Verify the progress of integrating Northern Utilities and Granite State and the realization of projected synergy savings.
- Storm Cost Recovery: Monitor regulatory proceedings regarding the $10 million in accrued ice storm restoration costs and the timeline for rate recovery.
- Debt Refinancing: Track the repayment of the $39.1 million bank financing facility due in November 2009 and the terms of any new long-term debt or equity issuances.
- Regulatory Settlements: Review the terms of the settlement agreements with Maine and New Hampshire regulators regarding Northern Utilities, specifically commitments on rate changes and customer service.
- Environmental Liabilities: Assess ongoing remediation costs for Manufactured Gas Plant (MGP) sites in Fitchburg and Northern Utilities territories and the status of insurance recoveries.