Unitil Corporation 2013 Form 10-K Summary
Business context and reporting period
Unitil Corporation is a regulated utility holding company serving approximately 178,300 electric and natural-gas customers in New Hampshire, Massachusetts and Maine. The company operates electric distribution, natural-gas distribution and transmission, and a small non-regulated energy-brokering business. This Form 10-K covers the fiscal year ended December 31, 2013; fourth-quarter information is unaudited.
Financial performance and key metrics
| Metric | 2013 | 2012 | Change |
|---|---|---|---|
| Operating revenue | $366.9 million | $353.1 million | +$13.8 million |
| Operating income | $53.5 million | $47.5 million | +$6.0 million |
| Net income | $21.6 million | $18.2 million | +$3.4 million |
| Earnings applicable to common shareholders | $21.6 million | $18.1 million | +$3.5 million |
| Basic and diluted EPS | $1.57 | $1.43 | +$0.14 |
| Cash flow from operations | $96.3 million | $66.7 million | +$29.6 million |
| Capital expenditures | $89.5 million | $68.5 million | +$21.0 million |
| Long-term debt, including current portion | $287.3 million | $287.8 million | -$0.5 million |
| Short-term debt | $60.2 million | $49.4 million | +$10.8 million |
Operating margin was approximately 14.6%, compared with 13.5% in 2012. Net margin was approximately 5.9%, compared with 5.2%. Gas revenue was $170.4 million and electric revenue was $190.7 million; non-regulated revenue was $5.8 million. Gas sales margin increased $9.0 million to $85.2 million, while electric sales margin increased $4.3 million to $76.2 million.
At December 31, 2013, cash and cash equivalents were $9.4 million, total assets were $920.6 million, net utility plant was $665.6 million and common equity was $265.0 million. The amended revolving credit facility has a $120.0 million limit, $60.2 million outstanding and $59.8 million available. The company was in compliance with its debt covenants, including the 65% funded-debt-to-capitalization covenant.
The company paid $19.1 million of dividends in 2013 and maintained a quarterly dividend of $0.345 per share, or $1.38 annualized. The 2013 cash-flow profile was strongly seasonal and reflected operating cash flow of $96.3 million against capital spending of $89.5 million.
Fourth-quarter information
For the quarter ended December 31, 2013, operating revenue was $109.8 million, operating income was $21.5 million, net income applicable to common shareholders was $10.3 million and EPS was $0.75. The comparable 2012 fourth-quarter amounts were $98.8 million, $18.9 million, $9.0 million and $0.66, respectively.
Material changes versus the prior comparable period
- Colder weather materially supported demand: heating degree days increased 16% from 2012, gas therm sales increased 10.7% and electric kWh sales increased 0.9%.
- Gas sales margin benefited from higher distribution rates, increased volumes and customer growth. Electric margin benefited from higher rates, customer growth and recovery of vegetation-management, reliability and storm-restoration costs.
- Operating and maintenance expense increased $4.0 million, depreciation and amortization increased $2.6 million, and taxes other than income taxes increased $1.0 million.
- Interest expense, net increased $0.7 million to $18.8 million, while income-tax expense increased $1.7 million to $12.7 million.
- Capital spending increased substantially, primarily because of gas-system additions and customer connections. Management projected approximately $91 million of 2014 capital expenditures.
- Net utility plant increased from $601.2 million to $665.6 million. Regulatory assets declined from $186.5 million to $143.7 million, including lower retirement-benefit and restructuring-related balances.
- The company entered into a new credit agreement in October 2013, increasing the revolving facility limit from $60 million to $120 million and extending maturity to October 2018.
Guidance, outlook, commentary, risks and unusual items
- Management did not provide an earnings or revenue forecast in the filing. It projected approximately $91 million of 2014 capital expenditures, with increased spending on information systems, utility facilities and gas customer additions.
- Northern Utilities received approval for a $3.8 million permanent annual Maine revenue increase effective January 1, 2014, plus a targeted infrastructure replacement adjustment mechanism. Its New Hampshire rate case remained pending, with temporary annualized rates of $2.5 million effective July 1, 2013.
- Fitchburg requested a $6.7 million electric base-revenue increase, including recovery of approximately $2.1 million of extraordinary storm costs and a proposed $2.8 million annual storm-recovery factor beginning in 2015. Final regulatory action was expected in the second quarter of 2014.
- Remaining stranded-cost and restructuring regulatory assets were $12.7 million at year-end, principally recoverable over the following year. Recovery depends on continued regulatory approval and timely rate adjustments.
- Major risks include regulatory disallowance or delay, weather and storm exposure, energy-supply and transmission conditions, interest-rate and refinancing risk, pension funding, environmental remediation, operational accidents, cybersecurity and information-system failures, competition and customer migration to third-party suppliers.
- Environmental obligations totaled $14.8 million, including approximately $12.0 million related to the Fitchburg Sawyer Passway manufactured-gas-plant site and $1.8 million of Northern Utilities remediation obligations, plus $1.0 million classified as current. Management believes recovery through rates is probable and does not expect a material adverse effect, but estimates may change.
- Outstanding guarantees on energy and gas-storage contracts were approximately $19.1 million, with the longest term extending through October 2014. Total contractual cash obligations were $698.4 million, including debt, interest and energy-supply commitments.
- A Fitchburg gas explosion investigation and litigation related to the 2008 Fitchburg ice storm remained pending. Management believed these matters were without merit or would not materially affect financial position, but ultimate outcomes were uncertain.
- The independent auditor issued an unqualified opinion on the consolidated financial statements and internal control over financial reporting.
Most important facts for investors to verify
- Confirm the final outcomes and effective dates of the Northern New Hampshire and Fitchburg rate cases, including storm-cost recovery.
- Assess whether colder 2013 weather inflated reported gas margins and how future results may perform under normalized weather.
- Monitor the $91 million 2014 capital program, funding needs and the balance between operating cash flow and capital expenditures.
- Review short-term debt utilization, interest-rate exposure, credit-facility availability and compliance with debt covenants.
- Evaluate the recoverability and timing of regulatory assets, stranded costs, pension obligations and environmental remediation balances.
- Track the Fitchburg litigation, gas-explosion investigation and any related regulatory penalties or insurance recoveries.
- Consider dividend sustainability because Unitil Corporation depends on distributions from regulated subsidiaries and remains subject to debt and regulatory restrictions.