UNITIL CORP 10-K Summary: Fiscal Year Ended December 31, 2009
Business Context and Reporting Period
UNITIL Corporation (Unitil) is a public utility holding company incorporated in New Hampshire, providing regulated electric and natural gas distribution services in New Hampshire, Massachusetts, and Maine. The company operates through three primary distribution utilities: Unitil Energy (electric), Fitchburg Gas and Electric Light Company (electric and gas), and Northern Utilities (gas), along with Granite State Gas Transmission (interstate gas pipeline). The reporting period covers the fiscal year ended December 31, 2009. This period includes the first full year of operations for Northern Utilities and Granite State, which were acquired on December 1, 2008.
Key Financial Metrics
| Metric | 2009 | 2008 |
|---|---|---|
| Total Operating Revenue | $367.0 million | $288.2 million |
| Operating Income | $26.1 million | $20.5 million |
| Net Income | $10.0 million | $9.7 million |
| Earnings Applicable to Common Shareholders | $9.9 million | $9.6 million |
| Earnings Per Share (Basic & Diluted) | $1.03 | $1.65 |
| Dividends Per Share | $1.38 | $1.38 |
| Total Assets | $725.2 million | $733.2 million |
| Long-Term Debt (less current) | $248.9 million | $249.3 million |
| Short-Term Debt | $64.5 million | $74.1 million |
| Cash Provided by Operating Activities | $50.9 million | $47.3 million |
Material Changes vs. Prior Period
- Revenue Growth: Total operating revenue increased 27.3% to $367.0 million, driven primarily by the inclusion of Northern Utilities and Granite State for the full year. Gas operating revenue rose 168.5% to $152.8 million, while electric operating revenue decreased 7.7% to $209.9 million due to lower sales volumes and commodity prices.
- Earnings Dilution: While Net Income increased slightly, Earnings Per Share (EPS) declined significantly from $1.65 to $1.03. This decrease is attributed to a higher number of average shares outstanding following equity offerings in 2008 and 2009, as well as one-time regulatory and legal charges.
- One-Time Charges: The company recorded approximately $3.0 million in professional fees related to the December 2008 Ice Storm and a $4.9 million pre-tax charge in Q4 2009 related to a Massachusetts Department of Public Utilities (MDPU) order requiring a refund of natural gas costs.
- Expense Increases: Operation and Maintenance (O&M) expenses increased 62.5% to $44.7 million, largely due to the full-year inclusion of acquired assets and storm-related legal fees. Interest expense increased 50.5% to $15.8 million due to debt issued to finance the acquisitions.
Guidance, Outlook, Risks, and Contingencies
- Regulatory Matters:
- Ice Storm Recovery: Unitil has deferred approximately $14.6 million in storm restoration costs for future rate recovery. Regulatory approval has been granted to defer these costs, but final recovery is subject to future rate cases.
- Fitchburg Gas Procurement: The MDPU ordered Fitchburg to refund $4.6 million plus carrying charges for imprudent gas purchasing practices. Fitchburg recorded a $4.9 million charge and has appealed the order to the Massachusetts Supreme Judicial Court.
- Legal Proceedings: A putative class action lawsuit regarding the December 2008 Ice Storm remains pending. The company believes the suit is without merit.
- Environmental Liabilities: The company has accrued liabilities for environmental remediation at former Manufactured Gas Plant (MGP) sites. Costs are generally recoverable through rates, but future regulatory changes could impact compliance costs.
- Capital Requirements: The company plans to issue $15 million in First Mortgage Bonds (Unitil Energy) and $25 million in Senior Unsecured Notes (Northern Utilities) in early 2010 to repay short-term debt.
- Seasonality: Results are expected to be positively affected in Q1 and Q4 due to higher natural gas sales and negatively affected in Q2 and Q3.
Investor Verification Checklist
- Regulatory Cost Recovery: Verify the status of the $14.6 million deferred storm costs and the timeline for their inclusion in future rate cases.
- Appeal Outcome: Monitor the status of Fitchburg's appeal regarding the $4.9 million gas procurement charge with the Massachusetts Supreme Judicial Court.
- Debt Refinancing: Confirm the successful closing of the $40 million in long-term debt issuances scheduled for Q1 2010.
- EPS Dilution: Assess the impact of the increased share count (from ~5.8 million in 2008 to ~9.6 million in 2009) on future earnings per share.
- Weather Sensitivity: Evaluate the impact of weather variations on natural gas sales, which represent approximately 50% of annual gas sales volume.