Unitil Corporation 2010 Form 10-K Summary
Business Context and Reporting Period
Unitil Corporation is a regulated utility holding company serving approximately 100,900 electric and 70,800 natural gas customers in New Hampshire, Massachusetts and Maine. Its principal businesses are electric distribution, natural gas distribution and gas transmission; substantially all operating revenue is regulated. The filing covers the fiscal year ended December 31, 2010, with fourth-quarter information also presented.
- Net utility plant was $476.5 million at year-end.
- 2010 operating revenue was $358.4 million: $203.7 million electric, $150.1 million gas and $4.6 million other.
- The 2008 acquisitions of Northern Utilities and Granite State continue to affect comparability and increase the seasonality of consolidated results.
Financial Performance and Key Metrics
| Metric | 2010 | 2009 | Change |
|---|---|---|---|
| Operating revenue | $358.4 million | $367.0 million | Down $8.6 million |
| Operating income | $28.0 million | $26.1 million | Up $1.9 million |
| Net income | $9.6 million | $10.0 million | Down $0.4 million |
| Earnings applicable to common shareholders | $9.5 million | $9.9 million | Down $0.4 million |
| Diluted EPS | $0.88 | $1.03 | Down $0.15 |
| Cash flow from operations | $25.9 million | $50.9 million | Down $25.0 million |
| Capital expenditures | $49.6 million | $58.7 million | Down $9.1 million |
- Approximate operating margin was 7.8%, compared with 7.1% in 2009; approximate net margin was 2.7%, compared with 2.7% in 2009.
- Electric sales margin increased $4.8 million, supported by higher usage, favorable summer weather and a July 2010 New Hampshire rate increase.
- Gas sales margin increased $2.3 million primarily because 2009 included a $4.9 million pre-tax charge related to a required natural gas cost refund. Excluding that item, 2010 gas margin declined $2.6 million, mainly because of milder winter weather.
- Operation and maintenance expense increased $4.1 million, depreciation and amortization increased $1.5 million, and net interest expense increased $2.3 million.
- Total assets were $759.6 million, including $143.0 million of noncurrent regulatory assets. Common equity was $189.0 million and long-term debt, excluding the current portion, was $288.3 million.
- Short-term debt was $66.8 million under an $80.0 million revolving credit facility, leaving $13.2 million available at year-end. The company was in compliance with its debt covenants.
- The annual common dividend remained $1.38 per share, or $0.345 quarterly.
Material Changes Versus the Prior Comparable Period
- Operating revenue declined 2.3%, mainly because lower purchased-gas and purchased-electricity costs were passed through to customers.
- Electric kilowatt-hour sales increased 4.5% to 1,691.1 million; weather-normalized sales increased approximately 1.6%.
- Natural gas therm sales decreased 3.2% to 172.9 million; weather-normalized sales were essentially flat.
- Operating income improved despite lower revenue, but net income and EPS declined because of higher operating costs and interest expense and a larger share count.
- Cash from operations fell sharply because 2010 working capital changes used $12.1 million, compared with a $29.4 million source in 2009. Significant uses included accounts receivable, accrued revenue, refundable taxes and gas inventory.
- Unitil Energy and Northern Utilities issued $15.0 million and $25.0 million, respectively, of ten-year debt in March 2010 at coupons of 5.24% and 5.29%.
- Capital expenditures declined from 2009, while 2010 financing cash flow increased to $24.9 million, including $39.5 million of net long-term debt proceeds.
Guidance, Outlook, Commentary, Risks and Unusual Items
- Management projected approximately $57 million of 2011 capital expenditures, primarily for normal electric and gas system additions.
- Granite State’s approved rate settlement was expected to increase annual revenue by approximately $1.7 million beginning January 1, 2011.
- Unitil Energy was pursuing permanent approval of a requested $10.1 million base-rate increase; a temporary $5.2 million annual increase became effective July 1, 2010.
- Fitchburg filed for electric and gas distribution increases of $7.1 million and $4.4 million, respectively, together with revenue decoupling. The rates were suspended pending Massachusetts regulatory review.
- Northern Utilities planned base-rate filings for its New Hampshire and Maine divisions in 2011.
- A February 2010 wind storm caused approximately $7.4 million of damage and restoration costs, of which $5.9 million was deferred as a regulatory asset pending rate recovery. Approximately $15.4 million of 2008 ice-storm costs also remained deferred at Fitchburg and Unitil Energy.
- Fitchburg’s required $4.9 million gas-cost refund charge from 2009 remained subject to appeal before the Massachusetts Supreme Judicial Court.
- A putative class action relating to the December 2008 ice storm sought unspecified damages; management stated that it believed the action lacked merit.
- Environmental obligations were $14.6 million at year-end, including manufactured-gas-plant remediation liabilities. The company stated that no material additional losses were reasonably likely beyond recorded amounts, but future costs remain uncertain.
- Key risks include regulatory disallowance or delayed recovery of costs, weather and storm exposure, interest-rate and financing risk, pension funding requirements, environmental liabilities, operational hazards, competitive energy supply markets and customer demand variability.
- The company had $876.3 million of contractual cash obligations, including $288.8 million of long-term debt, $284.1 million of long-term-debt interest, $276.0 million of gas supply commitments and $21.8 million of power supply obligations.
Most Important Facts for Investors to Verify
- Final outcomes and timing of the Unitil Energy and Fitchburg rate cases and Northern Utilities’ planned rate filings.
- Whether deferred storm costs and other regulatory assets are fully recovered, and the pace of recovery of the $46.8 million of restructuring-related assets.
- The outcome of Fitchburg’s appeal of the $4.9 million gas-cost refund and the related customer refund schedule.
- Liquidity headroom under the revolving credit facility and compliance with the 65% funded-debt-to-capitalization covenant.
- Future pension and postretirement funding requirements, given retirement benefit obligations of $74.0 million and a pension plan funded status deficit of approximately $35.3 million.
- Actual 2011 capital spending, weather-normalized demand and the effect of rate increases on operating cash flow and earnings.
- Potential changes in environmental remediation costs, storm liabilities and the Fitchburg ice-storm class-action proceeding.