UNITIL CORP - 10-Q Summary (Quarter Ended September 30, 2009)
Business Context and Reporting Period
UNITIL Corporation (Unitil) is a public utility holding company headquartered in Hampton, New Hampshire. Its principal business is the local distribution of electricity and natural gas in New Hampshire, Massachusetts, and Maine. The company operates three wholly-owned distribution utilities: Unitil Energy Systems, Inc., Fitchburg Gas and Electric Light Company, and Northern Utilities, Inc. (acquired December 1, 2008). It also owns Granite State Gas Transmission, Inc. The reporting period covers the three and nine months ended September 30, 2009. Results for the current period include the full impact of the Northern Utilities and Granite State acquisitions, making them not directly comparable to the prior year without pro forma adjustments.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2009 | Three Months Ended Sep 30, 2008 | Nine Months Ended Sep 30, 2009 | Nine Months Ended Sep 30, 2008 |
|---|---|---|---|---|
| Total Operating Revenues ($ millions) | $70.4 | $69.1 | $277.5 | $200.4 |
| Net Income ($ millions) | ($0.6) | $1.5 | $8.8 | $6.5 |
| Earnings Applicable to Common Shareholders ($ millions) | ($0.6) | $1.5 | $8.7 | $6.4 |
| Earnings Per Share (Basic/Diluted) | ($0.06) | $0.27 | $0.94 | $1.12 |
| Cash Provided by Operating Activities ($ millions) | N/A | N/A | $21.2 | $27.1 |
| Total Assets ($ millions) | $711.2 | $467.5 | N/A | N/A |
| Total Capitalization ($ millions) | $442.6 | $261.3 | N/A | N/A |
| Short-Term Debt ($ millions) | $54.0 | $21.7 | N/A | N/A |
| Long-Term Debt ($ millions) | $249.0 | $159.4 | N/A | N/A |
Material Changes vs. Prior Period
- Acquisition Impact: The significant increase in revenues, assets, and debt is primarily driven by the December 1, 2008, acquisitions of Northern Utilities and Granite State. Gas sales margins increased $5.9 million (Q3) and $32.4 million (YTD) due to these acquisitions and a colder winter heating season (6.4% colder than 2008).
- Electric Sales: Total electric kilowatt-hour sales decreased 4.5% (Q3) and 5.3% (YTD) compared to 2008, attributed to regional economic slowdown and milder summer weather.
- Operating Expenses: Total Operation & Maintenance (O&M) expenses increased $5.0 million (Q3) and $15.7 million (YTD). Increases were driven by the acquisitions, higher professional fees (including $2.0 million related to the December 2008 ice storm), and higher compensation costs.
- Interest Expense: Net interest expense increased $1.6 million (Q3) and $5.2 million (YTD) due to new long-term notes issued by Northern Utilities and Granite State in late 2008 and higher average borrowings.
- Share Count: Earnings per share were diluted by a higher number of average shares outstanding following public offerings of 4.97 million shares between December 2008 and June 2009 to finance acquisitions.
Guidance, Outlook, Risks, and Unusual Items
- Seasonality: Management expects results to be positively affected in Q1 and Q4 due to higher natural gas sales, and negatively affected in Q2 and Q3 when gas operating expenses typically exceed sales margins.
- Ice Storm Recovery: The company accrued approximately $14.1 million in deferred regulatory assets for storm restoration costs from the December 2008 ice storm. Recovery timing is subject to future regulatory proceedings. A class action lawsuit regarding the storm remains pending, though management believes it is without merit.
- Regulatory Matters: Pending investigations include an MDPU inquiry into Fitchburg's gas procurement practices (potential refund recommendation of ~$0.86 million) and a review of Fitchburg's storm response (potential fines of $4.65 million recommended by the Attorney General). The company disputes these findings.
- Dividends: The Board declared quarterly dividends of $0.345 per share for all quarters in 2009, maintaining an unbroken record of payments.
- Capital Requirements: The company amended its revolving credit facility in October 2009, increasing capacity from $60 million to $80 million and extending the maturity to October 2010.
Investor Verification Checklist
- Regulatory Cost Recovery: Verify the status of regulatory proceedings regarding the recovery of the $14.1 million ice storm restoration costs and the potential fines/refunds related to Fitchburg's storm response and gas procurement.
- Acquisition Integration: Monitor the realization of estimated synergy savings from the Northern Utilities and Granite State acquisitions.
- Debt Servicing: Review the impact of increased interest expense ($5.2 million YTD increase) on future cash flows, particularly given the new long-term debt issuances.
- Electric Demand: Assess the trend of declining electric sales volumes (-5.3% YTD) and its impact on future revenue stability amidst economic conditions.
- Environmental Liabilities: Confirm the adequacy of the $12.7 million in accrued liabilities for environmental remediation (MGP sites) and the probability of rate recovery.