UNITIL CORP 10-Q Summary: Quarter Ended March 31, 2008
Business Context and Reporting Period
This Form 10-Q covers the three-month period ended March 31, 2008, for Unitil Corporation, a public utility holding company. The Company operates primarily through two regulated subsidiaries: Unitil Energy Systems, Inc. (UES) in New Hampshire and Fitchburg Gas and Electric Light Company (FG&E) in Massachusetts. These utilities serve approximately 99,400 electric and 15,000 natural gas customers. Unitil also operates a non-regulated energy brokering subsidiary, Usource. As of April 23, 2008, there were 5,765,031 shares of common stock outstanding.
Key Financial Metrics
| Metric | Q1 2008 | Q1 2007 |
|---|---|---|
| Total Operating Revenues | $71.9 million | $77.8 million |
| Net Income | $3.3 million | $2.6 million |
| Earnings Per Share (EPS) | $0.57 | $0.46 |
| Operating Cash Flow | $7.9 million | $6.1 million |
| Net Utility Plant | $249.4 million | $237.7 million |
| Long-Term Debt | $159.6 million | $140.0 million |
| Short-Term Debt | $16.7 million | $29.7 million |
| Cash and Equivalents | $4.0 million | $2.8 million |
Material Changes vs. Prior Period
- Earnings Growth: Net income increased 27% ($0.7 million) and EPS rose 24% ($0.11) compared to Q1 2007. This improvement was driven by a $0.9 million increase in gas sales margin and a $2.8 million reduction in operating expenses due to an insurance settlement for environmental remediation costs.
- Revenue Decline: Total operating revenues decreased 7.6% ($5.9 million). Electric operating revenues fell 9.7% due to lower sales volumes (down 1.4%) driven by milder weather and economic slowdown. Gas operating revenues increased slightly by 0.7% despite a 1.7% drop in sales volume, aided by higher base rates.
- Expense Management: Total Operation & Maintenance (O&M) expenses decreased $1.8 million. This was primarily due to the insurance settlement, partially offset by higher salary costs and bad debt expenses.
- Balance Sheet: Long-term debt increased $19.6 million following the issuance of $20.0 million in Senior Long-Term Notes in May 2007, which was used to refinance short-term borrowings. Consequently, short-term debt decreased $13.0 million.
Outlook, Risks, and Management Commentary
- Acquisition Activity: On February 15, 2008, Unitil entered into an agreement to acquire Northern Utilities, Inc. and Granite State Gas Transmission, Inc. for $160 million plus a working capital adjustment. The transaction is subject to regulatory approval and is anticipated to close in the fourth quarter of 2008. The Company has capitalized $1.1 million in transaction costs to date.
- Dividends: The Board declared quarterly dividends of $0.345 per share in January and March 2008, maintaining an unbroken record of quarterly payments.
- Risk Factors: Key risks include regulatory approval of the Northern/Granite acquisition, integration challenges, weather variations affecting sales volumes, and fluctuations in energy commodity prices. The Company notes that while commodity prices fluctuate, the regulatory framework allows for pass-through recovery of supply costs, limiting direct exposure.
- Regulatory Matters: FG&E received approval for a $2.1 million electric distribution rate increase effective March 1, 2008. UES filed its annual reconciliation with the New Hampshire Public Utilities Commission, pending investigation.
Investor Verification Checklist
- Verify the status of regulatory approvals for the $160 million acquisition of Northern Utilities and Granite State Gas.
- Confirm the sustainability of the $2.8 million insurance settlement benefit, as it is a non-recurring item impacting O&M expenses.
- Monitor the impact of milder weather and economic slowdown on future electric and gas sales volumes.
- Review the Company's ability to finance the acquisition via the senior unsecured bridge facility or new long-term debt issuance.
- Assess the adequacy of the Allowance for Doubtful Accounts given the noted increase in bad debt expenses.