UNITIL CORP quarterly report, Q1 FY2011

Unitil Corporation 2011 First-Quarter Form 10-Q Summary

Business context and reporting period

Unitil Corporation is a regulated utility holding company serving approximately 100,900 electric customers and 70,800 natural gas customers in New Hampshire, Massachusetts and Maine. Its operations include electric and gas distribution, the Granite State interstate gas transmission pipeline and the non-regulated Usource energy-brokering business. The filing covers the unaudited three months ended March 31, 2011, compared with the three months ended March 31, 2010.

Utility revenues include pass-through recovery of approved purchased electricity and natural gas costs; these costs generally do not affect earnings. Results are seasonal, with natural gas operations typically strongest in the first and fourth quarters.

Financial performance and key metrics

Metric	Q1 2011	Q1 2010	Change
Total operating revenue	$115.4 million	$113.0 million	+$2.4 million
Operating income	$13.4 million	$10.9 million	+$2.5 million
Net income	$8.7 million	$6.5 million	+$2.2 million
EPS, basic and diluted	$0.81	$0.61	+$0.20
Operating cash flow	$36.4 million	$24.3 million	+$12.1 million
Capital expenditures	$10.8 million	$10.3 million	+$0.5 million

Gas revenue increased to $65.9 million from $61.1 million. Gas sales margin rose $3.6 million to $24.8 million, supported by a 12.7% increase in therm sales. Heating degree days were 6% higher, and weather-normalized gas sales increased 9.5%.
Electric revenue declined to $48.2 million from $50.8 million because of lower pass-through purchased-power costs. Electric sales margin increased $2.0 million to $16.1 million, aided by higher kWh sales and a July 2010 Unitil Energy rate increase.
Total kWh sales increased 4.9%, or 3.6% on a weather-normalized basis.
Operating expenses were essentially flat at $102.0 million versus $102.1 million. Higher O&M, depreciation, taxes and income taxes were offset largely by lower purchased-electricity costs.
O&M expense increased $0.8 million, depreciation and amortization increased $0.8 million, and federal and state income taxes increased $1.5 million.
Net interest expense increased $0.3 million to $4.6 million, primarily because of $40 million of long-term debt issued in March 2010.
Approximate operating margin improved to 11.6% from 9.6%; approximate net margin improved to 7.5% from 5.8%.
Net utility plant was $476.0 million at March 31, 2011, compared with $476.5 million at December 31, 2010.

Liquidity, debt and cash flow

Cash declined to $6.6 million at March 31, 2011 from $8.9 million at December 31, 2010.
Operating cash flow of $36.4 million funded $10.8 million of capital expenditures and supported financing uses of $27.9 million.
Financing cash uses included a $16.2 million reduction in short-term debt, $7.8 million of gas-inventory financing, $3.8 million of dividends and $0.1 million of long-term debt repayment.
Total long-term debt was $288.7 million, including $0.5 million current maturities. Short-term debt was $50.6 million, leaving $29.4 million available under the $80.0 million revolving credit facility.
The revolving facility matures October 8, 2013 and includes a covenant limiting funded debt to 65% of capitalization. Unitil was in compliance at March 31, 2011.
Management projected approximately $59.8 million of 2011 capital expenditures.
The Board declared quarterly dividends of $0.345 per share, equivalent to an annualized $1.38 per share based on the stated quarterly rate.

Material changes versus the prior comparable period

Earnings applicable to common shareholders increased 34% to $8.7 million, and EPS increased 33% to $0.81.
Higher gas and electric sales margins, colder weather, improved economic conditions and the Unitil Energy rate increase were the principal earnings drivers.
Operating cash flow increased approximately 50%, primarily due to higher earnings, non-cash charges and working-capital movements.
Short-term debt was materially higher than a year earlier, at $50.6 million versus $19.3 million, although it declined from $66.8 million at December 31, 2010.
Regulatory assets declined to $153.9 million on a gross basis, or $139.6 million net of current amounts, from $158.7 million gross and $143.0 million net at December 31, 2010.
Unitil received approximately $2.0 million from an environmental insurance settlement in the first quarter of 2011.

Guidance, outlook, commentary, risks and unusual items

Unitil expected to receive an order by May 1, 2011 on the permanent rate plan and settlement for Unitil Energy's pending rate case. A $5.2 million annual temporary increase had been effective July 1, 2010.
Granite State's FERC-approved settlement increased annual revenue by approximately $1.7 million effective January 1, 2011.
Fitchburg requested annual distribution increases of $7.1 million for electric operations and $4.4 million for gas operations, together with revenue decoupling. The MDPU deferred use of the proposed rates until August 2, 2011.
Northern Utilities planned to file New Hampshire and Maine base-rate cases in the second quarter of 2011; the filing does not provide the requested amounts.
Unitil projected approximately $59.8 million of capital spending for 2011. No full-year earnings guidance was provided.
Deferred storm costs remained subject to regulatory recovery. At March 31, 2011, approximately $2.2 million related to Unitil Energy and $13.4 million related to Fitchburg's December 2008 ice-storm costs were deferred as regulatory assets.
Fitchburg continued to appeal a $4.6 million gas-cost refund order, plus carrying charges, to the Massachusetts Supreme Judicial Court.
Unitil had $37.9 million of guarantees outstanding on energy and gas-storage contracts, with the longest extending through December 31, 2012.
Environmental obligations included $12.0 million for a former manufactured-gas-plant site in Fitchburg, $2.5 million for Northern Utilities sites and $0.1 million in current liabilities. Management stated that no material losses were reasonably likely beyond recorded amounts, but future environmental costs remain uncertain.
Key risks include regulatory decisions and cost recovery, weather, storms, energy commodity markets, interest rates, financing availability, pension obligations, environmental requirements, service reliability, competition and counterparty performance.
The company stated that there were no material changes to the risk factors in its 2010 Form 10-K. Management concluded that disclosure controls were effective and that no material internal-control changes occurred during the quarter.

Important facts for investors to verify

Outcome and timing of Unitil Energy's permanent rate plan, including reconciliation of temporary rates.
MDPU action on Fitchburg's requested rate increases and revenue-decoupling proposal.
Results and requested revenue increases in Northern Utilities' planned New Hampshire and Maine rate cases.
Regulatory recovery and timing for deferred storm, environmental, restructuring and pension-related assets.
Ability to fund projected 2011 capital expenditures while managing seasonal working-capital needs and $50.6 million of short-term debt.
Potential exposure from Fitchburg's gas-cost appeal, the ice-storm class action and environmental remediation matters.
Sustainability of first-quarter margin and earnings improvements after the benefit of colder weather and seasonal gas demand.