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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1999
Commission File Number 1-8858
Unitil Corporation
(Exact name of registrant as specified in its charter)
New Hampshire 02-0381573
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6 Liberty Lane West, Hampton, New Hampshire 03842
(Address of principal executive office) (Zip Code)
(603) 772-0775
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year, if changed since
last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at May 1, 1998
Common Stock, No par value 4,691,910 Shares
UNITIL CORPORATION AND SUBSIDIARY COMPANIES
INDEX
Part I. Financial Information Page No.
Consolidated Statements of Earnings - Three
Months Ended March 31, 1999 and 1998 3
Consolidated Balance Sheets, March 31, 1999,
March 31, 1998 and December 31, 1998 4-5
Consolidated Statements of Cash Flows - Three Months
Ended March 31, 1999 and 1998 6
Notes to Consolidated Financial Statements 7-8
Management's Discussion and Analysis of Results of
Operations and Financial Condition 9-14
Exhibit 11 - Computation of Earnings per Average
Common Share Outstanding 15
Part II. Other Information 16
PART 1. FINANCIAL INFORMATION
UNITIL CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF EARNINGS
(000's except common shares and per share data)
(UNAUDITED)
Three Months Ended
March 31,
1999 1998
Operating Revenues:
Electric $36,184 $37,659
Gas 6,156 6,326
Other 7 8
Total Operating Revenues 42,347 43,993
Operating Expenses:
Fuel and Purchased Power 22,906 25,142
Gas Purchased for Resale 3,178 3,595
Operation and Maintenance 5,937 5,630
Depreciation and Amortization 2,935 2,330
Provisions for Taxes:
Local Property and Other 1,465 1,407
Federal and State Income 1,375 1,370
Total Operating Expenses 37,796 39,474
Operating Income 4,551 4,519
Non-Operating Expense, Net 12 44
Income Before Interest Expense 4,539 4,475
Interest Expense, Net 1,795 1,853
Net Income 2,744 2,622
Less Dividends on Preferred Stock 68 69
Net Income Applicable to Common Stock $2,676 $2,553
Average Common Shares Outstanding 4,621,042 4,478,334
Basic Earnings Per Share $0.58 $0.57
Diluted Earnings Per Share $0.58 $0.56
Dividends Declared per Share
of Common Stock (Note 1) $0.69 $0.68
(The accompanying notes are an integral part of these statements.)
UNITIL CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS (000's)
(UNAUDITED) (AUDITED)
March 31, December 31,
1999 1998 1998
Utility Plant:
Electric $154,697 $168,631 $152,940
Gas 32,234 30,686 32,622
Common 21,034 19,757 20,876
Construction Work in Progress 2,686 3,052 3,024
Utility Plant 210,651 222,126 209,462
Less: Accumulated Depreciation 63,946 69,915 63,428
Net Utility Plant 146,705 152,211 146,034
Current Assets:
Cash 3,344 3,252 4,083
Accounts Receivable - Less Allowance
for Doubtful Accounts of $557,
$669 and $646 18,217 17,600 15,999
Materials and Supplies 2,297 2,043 2,962
Prepayments 613 763 1,147
Accrued Revenue 1,938 2,905 5,322
Total Current Assets 26,409 26,563 29,513
Noncurrent Assets:
Regulatory Assets 162,490 23,446 163,034
Prepaid Pension Costs 8,690 8,240 8,591
Debt Issuance Costs 1,387 903 1,320
Other Noncurrent Assets 30,078 24,874 27,287
Total Noncurrent Assets 202,645 57,463 200,232
TOTAL $375,759 $236,237 $375,779
(The accompanying notes are an integral part of these statements.)
UNITIL CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS (Cont.) (000's)
(UNAUDITED) (AUDITED)
March 31, December 31,
1999 1998 1998
CAPITALIZATION AND LIABILITIES:
Capitalization:
Common Stock Equity $75,867 $71,720 $75,351
Preferred Stock, Non-Redeemable,
Non-Cumulative 225 225 225
Preferred Stock, Redeemable, Cumulative 3,598 3,655 3,618
Long-Term Debt, Less Current Portion 85,061 60,771 74,047
Total Capitalization 164,751 136,371 153,241
Current Liabilities:
Long-Term Debt, Current Portion 1,180 4,537 1,175
Capitalized Leases, Current Portion 917 1,227 907
Accounts Payable 12,354 15,865 11,382
Short-Term Debt 3,375 15,300 20,000
Dividends Declared and Payable 1,855 1,784 232
Refundable Customer Deposits 1,334 1,744 1,293
Taxes Payable (Refundable) 1,510 1,270 (1,056)
Interest Payable 1,344 1,203 841
Other Current Liabilities 2,868 3,018 2,776
Total Current Liabilities 26,737 45,948 37,550
Deferred Income Taxes 42,477 42,127 43,027
Noncurrent Liabilities:
Power Supply Contract Obligations 129,688 --- 129,688
Capitalized Lease,
Less Current Portion 4,217 4,136 4,287
Other Noncurrent Liabilities 7,889 7,655 7,986
Total Noncurrent Liabilities 141,794 11,791 141,961
TOTAL $375,759 $236,237 $375,779
(The accompanying notes are an integral part of these statements.)
UNITIL CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (000's)
(UNAUDITED)
Three Months Ended March 31,
1999 1998
Cash Flows from Operating Activities:
Net Income $2,744 $2,622
Adjustments to Reconcile Net Income to
Cash Provided by Operating Activities:
Depreciation and Amortization 2,949 2,340
Deferred Taxes Provision (443) 99
Amortization of Investment Tax Credit (94) (53)
Changes in Working Capital:
Accounts Receivable (2,218) (711)
Materials and Supplies 665 620
Prepayments 534 (449)
Accrued Revenue 3,383 3,891
Accounts Payable 972 1,131
Refundable Customer Deposits 41 (443)
Taxes and Interest Payable 3,069 1,939
Other, Net (1,894) (188)
Net Cash Provided by
Operating Activities 9,708 10,798
Cash Flows Used In Investing Activities:
Acquisition of Property, Plant and Equipment (2,752) (2,958)
Other Property and Investments (3,097) ---
Cash Used in Investing Activities (5,849) (2,958)
Cash Flows from Financing Activities:
Net Decrease in Short-Term Debt (16,625) (2,700)
Proceeds from Issuance of Long-Term Debt 12,000 ---
Repayment of Long-Term Debt (980) (3,057)
Dividends Paid (1,642) (1,548)
Issuance of Common Stock 2,729 644
Retirement of Preferred Stock (20) (11)
Repayment of Capital Lease Obligations (60) (253)
Cash Used in Financing Activities (4,598) (6,925)
Net (Decrease) Increase in Cash (739) 915
Cash at Beginning of Year 4,083 2,337
Cash at March 31 $3,344 $3,252
Supplemental Cash Flow Information:
Interest Paid $1,398 $1,773
Federal Income Taxes Paid --- ---
(The accompanying notes are an integral part of these statements.)
UNITIL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1.
Dividends Declared Per Share:
Two regular quarterly common stock dividends were declared during
the first quarter of 1999 and 1998.
Common Stock Dividend:
On March 18, 1999, the Company's Board of Directors declared its
regular quarterly dividend on the Company's Common Stock of $0.345 per share
which is payable on May 14, 1999 to shareholders of record as of April 30,
1999.
On January 19, 1999, the Company's Board of Directors approved a 1.5%
increase to the dividend rate on its common stock. The new regular dividend
rate is $0.345 per share and was payable February 15, 1999 to shareholders
of record as of February 1, 1999.
Note 2.
Common Stock:
During the first quarter of 1999, the Company sold 7,528 shares of
Common Stock, at an average price of $24.80 per share, in connection with
its Dividend Reinvestment and Stock Purchase Plan and its 401(k) plans.
Net proceeds of $186,687 were used to reduce short-term borrowings.
Note 3.
Preferred Stock:
Details on preferred stock at March 31, 1999, March 31, 1998 and
December 31, 1998 are shown below (000's):
March 31, December 31,
1999 1998 1998
Preferred Stock:
Non-Redeemable, Non-Cumulative,
6%, $100 Par Value $225 $225 $225
Redeemable, Cumulative,
$100 Par Value:
8.70% Series 215 215 215
5% Dividend Series 91 91 91
6% Dividend Series 168 168 168
8.75% Dividend Series 333 333 333
8.25% Dividend Series 386 406 406
5.125% Dividend Series 998 1,035 998
8% Dividend Series 1,407 1,407 1,407
Total Redeemable Preferred Stock 3,598 3,655 3,618
Total Preferred Stock $3,823 $3,880 $3,843
Note 4.
Long-term Debt:
Details on long-term debt at March 31, 1999, March 31, 1998 and
December 31, 1998 are shown below (000's):
March 31, December 31,
1999 1998 1998
Concord Electric Company:
First Mortgage Bonds:
Series H, 9.43%, due September 1, 2003 --- 5,200 ---
Series I, 8.49%, due October 14, 2024 6,000 6,000 6,000
Series J, 6.96%, due September 1, 1998 10,000 --- 10,000
Exeter & Hampton Electric Company:
First Mortgage Bonds:
Series H, 8.50%, due December 15, 2002 --- 700 ---
Series J, 9.43%, due September 1, 2003 --- 4,000 ---
Series K, 8.49%, due October 14, 2024 9,000 9,000 9,000
Series L, 6.96%, due September 1, 2028 10,000 --- 10,000
Fitchburg Gas and Electric Light Company:
Promissory Notes:
8.55% Notes due March 31, 2004 13,000 14,000 14,000
6.75% Notes due November 30, 2023 19,000 19,000 19,000
7.37% Notes due January 15, 2029 12,000 --- ---
Unitil Realty Corp.:
Senior Secured Notes:
8.00% Notes due August 1, 2017 7,241 7,408 7,222
Total 86,241 65,308 75,222
Less: Installments due within one year 1,180 4,537 1,175
Total Long-term Debt $85,061 $60,771 $74,047
Note 5.
In the opinion of the Company, the accompanying unaudited
consolidated financial statements contain all adjustments (consisting only
of normal recurring accruals) necessary to present fairly the consolidated
financial position as of March 31, 1999 and 1998; and results of operations
for the three months ended March 31, 1999 and 1998; and consolidated
statements of cash flows for the three months ended March 31, 1999 and 1998.
Reclassifications are made periodically to amounts previously reported to
conform with current year presentation.
The results of operations for the three months ended March 31, 1999
and 1998 are not necessarily indicative of the results to be expected for
the full year.
UNITIL CORPORATION AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
EARNINGS
Basic earnings per average common share improved to $0.58 for the first
quarter of 1999, up from $0.57 for the first quarter of 1998. This increase
of $0.01 per share reflects higher electric and gas sales during the first
quarter of 1999. Electric and gas sales to commercial and industrial
customers were stronger in 1999, due to the healthy regional economy. Gas
sales to residential customers were slightly weaker than the prior year, due
to the mild early winter weather. Temperatures in our service territories
were almost as warm as the record-setting warm winter weather in the first
quarter of 1998. Also impacting earnings in the first quarter of 1999 were
higher Depreciation and Operation and Maintenance expenses which were
partially offset by lower Interest expense.
As shown in the Energy Sales Table on this page, total electric KWH sales
for the quarter were up 5.7% and total Firm Therm gas sales were up 4.7%
compared to the prior year. Sales to commercial and industrial customers
were 7.8% and 13.1% higher for electric KWH and gas Firm Therm sales,
respectively, in the first quarter of 1999 compared to 1998. Electric KWH
sales to residential customers were 2.3% higher than the prior year. However,
firm therm gas sales to residential customers were down 1.8% from prior year
primarily because of the warm gas heating season early this year.
Total Operating Revenues were $42.3 million in the first quarter of 1999
compared to $44.0 million in the prior year, due to the Company's lower
electric rates in 1999. Despite the increase in sales volumes, electric
revenues were down, as a result of an 11% reduction in energy supply prices
(which are passed through to customers) and a 10% rate reduction to our
Massachusetts customers from electric utility industry restructuring.
Similarly, the higher Firm Therm gas sales volume resulted in relatively
flat gas revenues compared to prior year, because of lower gas supply prices
in 1999. These lower gas supply prices offset an approved gas rate increase
implemented by the Company on December 1, 1998.
Energy Sales (000's)
Three Months Ended
KWH Sales 3/31/99 3/31/98 Change
Residential 154,673 151,129 2.3%
Commercial/Industrial 259,533 240,858 7.8%
Total KWH Sales 414,206 391,987 5.7%
Electric Revenue
Residential 14,664 15,678 (6.5%)
Commercial/Industrial 21,520 21,981 (2.1%)
Total Electric Revenue 36,184 37,659 (3.9%)
Firm Therm Sales 5,394 5,493 (1.8%)
Residential 4,846 4,283 13.1%
Commercial/Industrial 10,240 9,776 4.7%
Total Firm Therm Sales
Gas Revenue
Residential 3,250 3,457 (6.0%)
Commercial/Industrial 2,580 2,358 9.4%
Total Firm Gas Sales 5,830 5,815 0.3%
Interruptible Gas Sales 326 511 (36.2%)
Total Gas Revenue 6,156 6,326 (2.7%)
During the first quarter, electric and gas energy supply costs were driven
down by lower oil prices. These lower costs are reflected in lower Fuel and
Purchased Power and lower Gas Purchased for Resale expenses. Both electric
and gas energy supply costs are collected from customers through periodic
cost recovery mechanisms. Therefore, changes in energy supply prices do not
affect the Company's net income, as they mirror changes in energy supply
costs.
Operation and Maintenance expenses increased over the prior year, due to the
costs to implement and operate electric utility industry restructuring in
Massachusetts. Similarly, the increase in Depreciation and Amortization
expenses was a result of the accelerated write-off of electric generating
assets, in accordance with Fitchburg Gas and Electric Light Company's
("FG&E") electric utility industry restructuring plan, which was approved on
January 15, 1999. FG&E is Unitil's Electric and Gas Utility subsidiary in
Massachusetts. Interest expense was lower in the first quarter of 1999, due
to decreased borrowings and lower interest rates.
In March 1999 Unitil acquired a minority interest in North American Power
Brokers, Inc., ("NAP"), for $3 million in cash. Unitil will be represented
on NAP's Board of Directors and will play an active role in the strategic
direction of NAP. At the same time, Unitil Resources, Inc. (URI) licensed
NAP's innovative Internet-based technology for brokering electricity and
natural gas sales between retail energy consumers and energy suppliers. URI
will offer the retail energy electronic commerce system developed and owned
by NAP to medium and large commercial and industrial customers, under the
name "Usource". Usource will allow URI to deliver the price benefits of
competitive supplier bidding to retail energy consumers, without URI
undertaking the financial risk of commodity ownership.
The Company's Balance Sheet reflects the recording at December 31, 1998, of
significant Regulatory Assets related to the approval by the Massachusetts
Department of Telecommunications and Energy ("MDTE") of FG&E's Electric
Restructuring Plan. FG&E has been allowed full recovery of its Transition
Costs, estimated at $140 million, related to electric utility industry
restructuring in Massachusetts. FG&E's Transition Costs include
approximately $11 million of Net Book value of owned electric generation
assets and approximately $129 million representing the Company's estimate,
based on bids received, of the divestiture of FG&E's Power Supply contract
portfolio.
Basic earnings per average common share for the 12 months ended March 31,
1999 and 1998, were $1.78 and $1.72, respectively. The increase is
attributable to higher Electric and Gas margins, lower Interest Expense,
and lower effective Income Tax rates which were partially offset by higher
Operation and Maintenance and Depreciation and Amortization expenses.
RESTRUCTURING AND COMPETITION
Regulatory activity surrounding restructuring and competition continues in
both Massachusetts and New Hampshire. March 1, 1998 was "Choice Date" or the
beginning of competition for all electric consumers in Massachusetts, while
New Hampshire's "Choice Date" slipped past both the proposed date of January
1, 1998, and the legislature's mandated July 1, 1998. Currently,
approximately 10% of New Hampshire electric consumers can choose their
electric supplier. The ability to choose for the remaining 90% is currently
the subject of a federal court preliminary injunction (see below).
Massachusetts gas industry restructuring plans continue to be under
development. The MDTE, gas utilities and other stakeholders began a
collaborative effort in late 1997 to develop solutions to the many issues
that surround restructuring the local natural gas distribution business.
Unitil has been preparing for electric and gas industry restructuring by
developing transition plans that will move its utility subsidiaries into
this new market structure in a way that will ensure fairness in the
treatment of the Company's assets and obligations that are dedicated to the
current regulated franchises and, at the same time, provide choice for all
customers.
Massachusetts (Electric)- On January 15, 1999, the MDTE gave final approval
to FG&E's restructuring plan with certain modifications. The Plan provides
customers with: a) a choice of energy supplier; b) an option to purchase
Standard Offer Service (i.e. state-mandated energy service) provided by FG&E
at regulated rates for up to seven years; and c) a cumulative 15% rate
reduction. The Plan also provides for FG&E to divest generation assets and
its portfolio of purchased power contracts. The Company will be afforded
full recovery of any transition costs through a non-bypassable retail
Transition Charge.
Pursuant to the Plan, on October 30, 1998, FG&E filed with the MDTE a
proposed contract with Constellation Power Services Inc. for provision of
Standard Offer Service. The MDTE's January 15, 1999 Order approves the
FG&E/Constellation contract, and service thereunder commenced on March 1,
1999, and is scheduled to continue through February 28, 2005. This contract
is the result of the first successful Standard Offer auction conducted in
Massachusetts.
The January 15 Order also approved FG&E's power supply divestiture plan for
its interest in three generating units and four long-term power supply
contracts. A contract for the sale of FG&E's interest in the New Haven
Harbor plant was filed with the MDTE on November 20, 1998. The MDTE approved
the contract on March 31, 1999. A contract for the sale of FG&E's remaining
generating assets and purchased power contracts is expected to be filed with
the MDTE in the near future. All such contracts are subject to MDTE approval.
The first annual reconciliation filing was made with the MDTE in May of 1999.
As a result of the reconciliations, FG&E is seeking to raise its transmission
charges and to reduce its transition charges effective June 1, 1999. The
MDTE's decision regarding this revenue neutral filing is pending.
Massachusetts (Gas) -In mid-1997, the MDTE directed all Massachusetts natural
gas Local Distribution Companies (LDCs) to form a collaborative with other
stakeholders to develop common principles and appropriate regulations for
the unbundling of gas service, and directed FG&E and four other LDCs to file
unbundled gas rates for its review. FG&E's unbundled gas rates were approved
by the MDTE and implemented in November 1998.
On February 1, 1999, the MDTE issued an order in which it determined that
the LDCs would continue to have an obligation to provide gas supply and
delivery services for another five years, with a review after three years.
That order also set forth the MDTE's decision regarding release by LDCs of
their pipeline capacity contracts to competitive marketers. On March 24,
1999 the LDCs and other stakeholders filed a settlement with the MDTE which
set forth rules for implementing an interim firm transportation service
through October 31, 2000. The interim service will ultimatly be superceded
by the permanent transportation service, beginning as early as November 1,
1999. The MDTE approved the settlement on April 2, 1999. On May 17, 1999,
FG&E made a compliance filing with the MDTE to implement the interim firm
gas transportation service for its largest general service customers
effective June 1, 1999. The MDTE's decision is pending.
New Hampshire - On February 28, 1997, the New Hampshire Public Utilities
Commission (NHPUC) issued its Final Plan for transition to a competitive
electric market in New Hampshire. The order allowed Concord Electric Company
and Exeter & Hampton Electric Company, Unitil's New Hampshire retail
distribution utilities, to recover 100% of "stranded" costs for a two-year
period, but excluded recovery of certain administrative-related charges.
Northeast Utilities' affiliate, Public Service Company of New Hampshire,
appealed the NHPUC order in Federal District Court. A temporary restraining
order was issued on March 10, 1997. In June 1997, Unitil was admitted as a
Plaintiff Intervenor in the Federal Court proceeding. On June 9, 1998, the
Federal Court issued an injunction continuing the freeze on NHPUC efforts to
implement restructuring. Various interlocutory appeals and pre-trial
disputes have delayed this proceeding and no date has been scheduled for a
trial. However, at a preliminary hearing on April 7, 1999, the Judge
reiterated the continuining injunction against implementation by the NHPUC.
The Company will vigorously pursue its action in the federal court and
simultaneously look for ways to resolve issues and bring forth choice to its
retail customers.
In September 1998, the Company reached a comprehensive restructuring
settlement with key parties and filed this voluntary Agreement with the
NHPUC. The Agreement was modified on October 20, 1998. In oral deliberations
on November 2 and November 18, 1998, the NHPUC imposed conditions to
approval of the Settlement which were unacceptable to the Company, and the
Settlement was subsequently withdrawn. The component of the Agreement
dealing with wholesale rates was filed with the Federal Energy Regulatory
Commission ("FERC") in September 1998, and approved by the FERC in early
November. However, implementation will not occur, as the changes were
conditioned upon approval by the NHPUC. Unitil continues to participate
actively in all proceedings and in several NHPUC-established working groups
which will define details of the transition to competition and customer
choice.
Rate Cases -The last formal regulatory hearings to increase base electric
rates for Unitil's three retail operating subsidiaries occurred in 1985 for
Concord Electric Company, 1984 for Fitchburg Gas and Electric Light Company
and 1981 for Exeter & Hampton Electric Company.
On May 15, 1998, FG&E filed a gas base rate case with the MDTE. After
evidentiary hearings, the MDTE issued an Order allowing FG&E to establish
new rates, effective November 30, 1998, that would produce an annual
increase of approximately $1.0 million in gas revenues. However, as part of
the proceeding, the Attorney General of the Commonwealth of Massachusetts
alleged that FG&E had double-collected fuel inventory finance charges, since
1987, and requested that the MDTE require FG&E to refund approximately $1.6
million to its customers. The Company believes that the Attorney General's
claim is without merit and that a refund is not justified or warranted. The
MDTE stated its intent to open a separate proceeding to investigate the
Attorney General's claim.
A majority of the Company's operating revenues are collected under various
periodic rate adjustment mechanisms including fuel, purchased power, cost of
gas and energy efficiency program cost recovery mechanisms. Restructuring
will continue to change the methods of how certain costs are recovered from
customers and from suppliers. Transition costs, Standard Offer Service and
Default Service power supply costs, internal and external transmission
service costs and energy efficiency and renewable energy program costs for
FG&E are being recovered via fully reconciling rate adjustment mechanisms in
Massachusetts.
Millstone Unit No. 3- FG&E has a 0.217% nonoperating ownership in the
Millstone Unit No. 3 (Millstone 3) nuclear generating unit which supplies it
with 2.49 megawatts (MW) of electric capacity. In January 1996, the Nuclear
Regulatory Commission (NRC) placed Millstone 3 on its Watch List, which
calls for increased NRC inspection attention. On March 30, 1996, as a result
of an engineering evaluation completed by the operator, Northeast Utilities,
Millstone 3 was taken out of service. NRC authorization for restart was
given on June 29, 1998. Millstone 3 began producing electric power in early
July, 1998 and reached full output on July 15, 1998. The unit remains on
the NRC's Watch List.
During the period that Millstone 3 was out of service, FG&E continued to
incur its proportionate share of the unit's ongoing Operations and
Maintenance (O&M) costs, and may incur additional O&M costs and capital
expenditures to meet NRC requirements. FG&E also incurred costs to replace
the power that was expected to be generated by the unit. During the outage,
FG&E had been incurring approximately $35,000 per month in replacement power
costs, and had been recovering those costs through its fuel adjustment
clause, which will be subject to review and approval by the MDTE.
In August 1997, FG&E, in concert with other non-operating joint owners,
filed a demand for arbitration in Connecticut and a lawsuit in Massachusetts,
in an effort to recover costs associated with the extended unplanned
shutdown. The arbitration and legal cases are proceeding.
YEAR 2000 SOFTWARE COMPLIANCE DISCUSSION
The Company recognizes the need to ensure its operations are not
adversely affected by software or device failures related to the Year 2000
date recognition problem, (the "Y2K Issues"). Specifically, Y2K Issues
would arise when software applications, or devices with embedded chips, fail
to correctly recognize and process the year 2000 and beyond. Certain
software applications and devices are certified to recognize and process
date references to the year 2000 and beyond and they are deemed to be Year
2000 compliant, ("Year 2000 Compliance"). Potential software failures could
create incorrect calculations, among other errors, and they present a risk
to the integrity of our Company's financial systems and the reliability of
our operating systems. In order to minimize the risk of disruption to our
business operations, the Company is taking the actions described below,
including communicating with suppliers, dealers, financial institutions and
others with which it does business, to coordinate the identification,
evaluation, remediation and testing of possible Y2K Issues which may affect
the Company.
The Company has established a centralized task force to identify and
implement necessary changes to the Company's internal computer systems,
controlling hardware devices and software applications in order to achieve
Year 2000 Compliance for those systems. The remediation of Y2K Issues and
testing of all critical components of the Company's internal systems is
scheduled to be completed by June 30, 1999.
The Company has also established processes for evaluating and managing the
risks and possible costs associated with Y2K Issues which may exist in
systems external to the Company's operations, but could affect the Company's
operations indirectly. The Company has already directed efforts to notify
our critical vendors and suppliers about Y2K Issues which may affect our
operations, and most are already providing important information about the
Year 2000 readiness of their organizations. Testing of certain critical
systems has already begun, in conjunction with our key suppliers and vendors,
and the Company is planning to develop contingency plans in circumstances
where assurance of Year 2000 Compliance cannot be obtained.
The Company currently estimates it will invest in the range of $250,000 to
$500,000 plus internal costs, over the cost of normal software upgrades and
replacements to achieve Year 2000 Compliance. These additional capital
outlays include costs to replace certain devices and software, and the costs
for consultants to assist us with software programming and testing.
Unitil relies on the proper operation of a regional network of systems and
devices to transport and distribute electricity and gas to its customers.
Any disruption in those systems caused by Y2K Issues could interrupt the
reliable delivery of electric and gas service through our Distribution
Operating Companies. Some of these software systems and devices belong to
other companies and are beyond the control of Unitil to ensure that they
are properly remediated for Year 2000. However, several agencies, including
the Department of Energy, The New England ISO, and The National Electricity
Reliability Council, have active Year 2000 programs in place. These programs
will ensure that member companies are actively and comprehensively dealing
with any Year 2000 Issues in their supply, generation, transportation and
distribution facilities and systems. Unitil participates in these groups and
currently believes that satisfactory progress is being made and will
continue to be made to ensure a reliable supply and delivery of energy.
Furthermore, these groups plan to establish contingency plans to cover
delivery difficulties during key Year 2000 dates. The Company also plans to
work with local, state and regional agencies and other utility companies to
ensure that appropriate contingency plans are in place for energy supply and
delivery systems which could be affected by Year 2000 difficulties.
In addition, while the Company currently anticipates that its own
mission-critical systems will be Year 2000 Compliant in a timely fashion,
it cannot guarantee the compliance of other systems operated by other
companies upon which it depends. For example, the Company's ability to
provide electricity to its customers depends upon the regional electric
transmission grid which connects the systems of neighboring utilities to
provide electric power for the region. If one company's system is not Year
2000 Compliant, then a failure could impact all providers within the grid,
including Unitil. Similarly, the Company's gas operations depend upon
natural gas pipelines that it does not own or control, and any Year 2000
noncompliance associated with these pipelines may affect the Company's
ability to provide natural gas to its customers. Failure to achieve Year
2000 readiness could have a material effect on the Company's results of
operations, financial position and cash flows.
CAPITAL REQUIREMENTS
Capital expenditures for the three months ended March 31, 1999 were
approximately $2.8 million. This compares to $3.0 million during the same
period last year. Capital expenditures for the year 1999 are estimated to be
approximately $15.7 million as compared to $14.5 million for 1998. This
projection reflects normal capital expenditures for utility system
expansions, replacements and other improvements.
LEGAL PROCEEDINGS
The Company is involved in legal and administrative proceedings and claims
of various types which arise in the ordinary course of business. In the
opinion of the Company's management, based upon information furnished by
counsel and others, the ultimate resolution of these claims will not have
a material impact on the Company's financial position.
FORWARD-LOOKING INFORMATION
This report contains forward-looking statements which are subject to the
inherent uncertainties in predicting future results and conditions. Certain
factors that could cause the actual results to differ materially from those
projected in these forward-looking statements include, but are not limited
to; variations in weather, changes in the regulatory environment, customers'
preferences on energy sources, general economic conditions, increased
competition and other uncertainties, all of which are difficult to predict,
and many of which are beyond the control of the Company.
PART I. EXHIBIT 11.
UNITIL CORPORATION AND SUBSIDIARY COMPANIES
COMPUTATION OF EARNINGS PER AVERAGE COMMON SHARE OUTSTANDING
(000's except for per share data)
(UNAUDITED)
BASIC Three Months Ended March 31,
EARNING PER SHARE 1999 1998
Net Income $2,744 $2,622
Less: Dividend Requirement
on Preferred Stock 68 69
Net Income Applicable
to Common Stock $2,676 $2,553
Average Number of Common
Shares Outstanding 4,621 4,478
Basic Earnings Per Common Share $0.58 $0.57
DILUTED Three Months Ended March 31,
EARNINGS PER SHARE 1999 1998
Net Income $2,744 $2,622
Less: Dividend Requirement
on Preferred Stock 68 69
Net Income Applicable
to Common Stock $2,676 $2,553
Average Number of Common
Shares Outstanding 4,629 4,590
Diluted Earnings Per Common Share $0.58 $0.56
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit No. Description of Exhibit Reference
11 Computation in Support of
Earnings Per Average Common Share Filed herewith
(b) Reports on Form 8-K
On January 29, 1999 Unitil Corporation filed Form 8-K related to the
approval of Fitchburg Gas and Electric Light Company's Electric
Restructuring Plan by the Massachusetts Department of
Telecommunications and Energy.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
UNITIL CORPORATION
(Registrant)
Date: May 14, 1999 /s/ Anthony J. Baratta, Jr.
Anthony J. Baratta, Jr.
Chief Financial Officer
Date: May 14, 1999 /s/ Mark H. Collin
Mark H. Collin
Treasurer