Unitil Corporation 2012 Form 10-K Summary
Business context and reporting period
Unitil Corporation is a regulated utility holding company serving approximately 175,400 electric and natural gas customers in New Hampshire, Massachusetts, and Maine. Its principal businesses are electric distribution, natural gas distribution, an 86-mile natural gas transmission pipeline, and non-regulated energy brokering through Usource. This Form 10-K covers the fiscal year ended December 31, 2012; fourth-quarter figures are included but the filing is annual.
- Electric customers: 101,674; natural gas customers: 73,722.
- Net utility plant: $601.2 million; total assets: $886.6 million.
- Operations are subject to FERC, NHPUC, MDPU, and MPUC regulation, with most purchased energy costs recovered through pass-through mechanisms.
Financial performance and liquidity
| Metric | 2012 | 2011 | Change |
|---|---|---|---|
| Operating revenue | $353.1 million | $352.8 million | Flat |
| Operating income | $36.5 million | $37.2 million | Down $0.7 million |
| Net income | $18.2 million | $16.4 million | Up $1.8 million |
| Earnings applicable to common shareholders | $18.1 million | $16.3 million | Up 11% |
| Diluted EPS | $1.43 | $1.50 | Down $0.07 |
| Operating cash flow | $66.7 million | $45.9 million | Up $20.8 million |
| Capital expenditures | $68.5 million | $57.1 million | Up $11.4 million |
- Gas revenue was $160.6 million and electric revenue was $187.0 million. Usource revenue was $5.5 million.
- Gas sales margin increased to $76.2 million from $67.9 million; electric sales margin increased to $71.9 million from $67.6 million.
- Operating margin was approximately 10.3%, compared with 10.5% in 2011; net margin was approximately 5.2%, compared with 4.6%.
- Interest expense, net declined to $18.1 million from $20.4 million, primarily due to lower rates, lower borrowing balances, and a non-recurring 2011 charge.
- At December 31, 2012, long-term debt was $287.8 million, short-term debt was $49.4 million, and cash was $9.8 million.
- The revolving credit facility had a $60.0 million limit, $49.4 million outstanding, and $10.6 million available. The facility expires October 8, 2013, and includes a funded-debt-to-capitalization covenant of 65%; Unitil reported compliance.
- Common equity increased to $260.4 million from $191.7 million following a May 2012 offering of 2.76 million shares that generated approximately $65.7 million of net proceeds.
- The annual common dividend remained $1.38 per share, or $0.345 per quarter.
Material changes versus the prior comparable period
- Common earnings increased despite lower EPS because the May equity offering substantially increased the weighted-average share count to 12.672 million from 10.883 million.
- Gas and electric margins benefited from rate increases, customer growth, and approved regulatory mechanisms. These benefits were partly offset by unusually mild weather, which reduced gas earnings by approximately $1.6 million and electric earnings by approximately $0.1 million.
- Gas therm sales declined 3.0% and electric kilowatt-hour sales declined 1.7%, while weather-normalized sales were higher for gas and approximately unchanged for electricity.
- Operation and maintenance expense rose $5.5 million, depreciation and amortization rose $5.8 million, and property taxes rose $1.0 million.
- Cash flow from operations improved materially, but capital spending increased to support gas customer connections, utility infrastructure, information systems, and facility projects.
- Retirement benefit obligations increased to $103.7 million from $91.2 million. The Company contributed $9.4 million to its pension plan and $2.2 million to VEBTs in 2012.
- Fitchburg redeemed its remaining preferred stock, reducing preferred stock on the balance sheet from $2.0 million to $0.2 million.
Guidance, outlook, risks, contingencies, and unusual items
- Management projected approximately $83 million of capital expenditures for 2013, higher than 2012, primarily for information systems, utility facilities, and gas customer additions.
- Unitil estimated $8.2 million of future Usource fees from executed energy supply contracts running from 2013 through 2017; this is not recognized as 2012 revenue.
- Superstorm Sandy caused estimated restoration costs of $1.1 million at Fitchburg and $2.6 million at Unitil Energy. Recovery and timing remained subject to future regulatory proceedings.
- The Company had $24.3 million of remaining stranded-cost and restructuring-related regulatory assets, principally recoverable over the next one to two years.
- Total contractual cash obligations were $755.3 million, including $287.8 million of long-term debt, $244.1 million of long-term-debt interest, and $215.0 million of gas supply contracts.
- Unitil had approximately $12.3 million of guarantees on energy and gas-storage management contracts. It also guaranteed approximately $2.8 million of Unitil Realty notes and $10.0 million of Granite State notes.
- Key risks include adverse rate decisions, delayed recovery of purchased energy, storm costs, weather volatility, interest rates, refinancing and liquidity, pension funding, environmental remediation, cybersecurity and operational hazards.
- Environmental liabilities included $14.8 million of environmental obligations, primarily associated with former manufactured-gas-plant sites. The Company stated that no material additional losses were reasonably likely beyond recorded amounts, but future costs remain uncertain.
- A Fitchburg ice-storm lawsuit was not certified as a class action in January 2013 and continued with twelve named plaintiffs; management considered the case without merit.
- The filing disclosed no material subsequent events through the filing date. Independent auditors reported that the financial statements and internal controls were effective.
Most important facts for an investor to verify
- Whether the $60 million revolving credit facility was renewed or replaced before its October 2013 expiration and whether borrowing capacity remained adequate.
- The regulatory outcomes and recovery timing for Superstorm Sandy costs, prior storm costs, stranded-cost assets, and Fitchburg regulatory proceedings.
- Actual 2013 capital spending versus the approximately $83 million projection and the resulting effect on debt and dividends.
- Future pension and post-retirement funding requirements, particularly given the $103.7 million retirement benefit obligation.
- Whether rate increases, revenue decoupling, customer growth, and weather normalization sustain gas and electric sales margins.
- Developments in the Fitchburg ice-storm litigation, environmental remediation programs, and the pending regulatory service-quality and bad-debt proceedings.