UNITIL CORP - 10-Q Filing Summary
Business Context and Reporting Period
Company: UNITIL CORP (Unitil)
Reporting Period: Quarter and Nine Months Ended September 30, 2008
Business Overview: Unitil is a public utility holding company operating regulated retail distribution of electricity and natural gas in New Hampshire (UES) and Massachusetts (FG&E), serving approximately 100,000 electric and 15,100 gas customers. It also operates a non-regulated energy brokering subsidiary, Usource.
Key Transaction: On February 15, 2008, Unitil agreed to acquire Northern Utilities, Inc. and Granite State Gas Transmission, Inc. for $160 million. Regulatory approvals were received from New Hampshire and Maine in October 2008, with Massachusetts approval pending as of the filing date.
Key Financial Metrics
| Metric (Millions) | Q3 2008 | Q3 2007 | YTD 2008 | YTD 2007 |
|---|---|---|---|---|
| Total Operating Revenues | $69.1 | $61.8 | $200.4 | $198.6 |
| Net Income | $1.5 | $1.6 | $6.5 | $6.0 |
| Earnings Per Share (Diluted) | $0.27 | $0.28 | $1.12 | $1.04 |
| Operating Cash Flow (YTD) | $27.1 (2008) vs $23.6 (2007) | |||
| Capital Expenditures (YTD) | $20.6 (2008) vs $25.9 (2007) | |||
| Short-Term Debt | $21.7 (Sep 30, 2008) vs $13.0 (Sep 30, 2007) | |||
| Long-Term Debt | $159.4 (Sep 30, 2008) vs $159.8 (Sep 30, 2007) |
Material Changes vs. Prior Period
- Earnings: Q3 Net Income decreased slightly to $1.5 million from $1.6 million, driven by higher operating and interest expenses offset by improved utility sales margins. YTD Net Income increased 8% to $6.5 million.
- Electric Sales: Total kWh sales decreased 2.0% (Q3) and 2.1% (YTD) due to milder weather, a slowing economy, and energy conservation. However, Electric Operating Revenues increased 11.8% in Q3 due to higher base rates and commodity costs passed through to customers.
- Gas Sales: Therm sales increased 5.7% in Q3 (driven by Commercial/Industrial usage) but decreased 0.5% YTD due to a milder winter. Gas sales margins increased significantly ($0.2M Q3, $1.3M YTD) due to rate increases.
- Expenses: Operation & Maintenance (O&M) expenses increased $0.5M in Q3 due to higher salaries and bad debt. YTD O&M decreased $1.1M, largely due to a $2.8M insurance settlement related to environmental remediation.
- Balance Sheet: Net Utility Plant increased $9.4M. Regulatory Assets decreased $30.5M, primarily due to cost recoveries and a $20.0M reduction in Power Supply Contract Obligations.
Guidance, Outlook, and Risks
- Acquisition Status: The $160 million acquisition of Northern and Granite is expected to close in Q4 2008. Financing involves a bridge facility, new common stock issuance (up to 4 million shares), and $90 million in new senior unsecured notes priced in September 2008.
- Regulatory Risks: While New Hampshire and Maine have approved the acquisition, the Massachusetts Department of Public Utilities (MDPU) is still reviewing the transaction. The Massachusetts Attorney General has challenged the sale, arguing it harms Bay State Gas customers. Unitil is seeking a final order by November 3, 2008.
- Market Risks: The filing highlights risks related to recent distress in financial markets affecting credit availability and liquidity. Interest rate fluctuations on variable short-term debt are also noted.
- Dividends: The Board declared a quarterly dividend of $0.345 per share, maintaining an unbroken record of payments.
Investor Verification Checklist
- Acquisition Closing: Confirm the final regulatory approval status in Massachusetts and the expected closing date of the Northern/Granite acquisition.
- Financing Execution: Verify the successful issuance of the $90 million in senior notes and the common stock offering intended to repay the bridge facility.
- Weather Sensitivity: Monitor upcoming weather forecasts, as mild winters and summers have recently reduced sales volumes.
- Bad Debt Trends: Review the trend in bad debt expenses, which increased in Q3 2008, potentially reflecting economic slowdown impacts on customers.
- Regulatory Rate Cases: Track the progress of revenue decoupling filings in Massachusetts and New Hampshire, which could alter future revenue structures.