FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q


QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 2002

 

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 incorporation or organization)

(I.R.S. Employer Identification No.)

 

6 Liberty Lane West, Hampton, New Hampshire

03842-1720

(Address of principal executive office)

(Zip Code)

 

Registrant's telephone number, including area code: (603) 772-0775

 

 

 

 

 

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 August 1, 2002

Common Stock, No par value

4,743,696 Shares

 

 

 

 

UNITIL CORPORATION AND SUBSIDIARY COMPANIES
FORM 10-Q
For the Three and Six Months Ended June 30, 2002

 

Table of Contents

 

 

Part I. Financial Information

  

Item 1.  Financial Statements

 

Consolidated Statements of Earnings - Three and Six Months Ended June 30, 2002 and 2001

Consolidated Balance Sheets, June 30, 2002, June 30, 2001 and December 31, 2001

Consolidated Statements of Cash Flows - Six Months Ended June 30, 2002 and 2001

Notes to Consolidated Financial Statements

  

Item 2.  Management's Discussion and Analysis of Results of Operations and Financial Condition

  

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

  
  

Part II. Other Information

  

Item 1.  Legal Proceedings

  

Item 5.  Other Information - Certification under Sarbanes-Oxley Act

  

Item 6.  Exhibits and Reports on Form 8-K

  

Signatures

  

Exhibit 11 - Computation of Earnings per Average Common Share Outstanding

 

 
 

 

 

 

 

PART 1. FINANCIAL INFORMATION

Item 1. Financial Statements

 

UNITIL CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF EARNINGS
(000's except common shares and per share data)
(UNAUDITED)

 

 

Three Months Ended
June 30,

   

Six Months Ended
June 30,

 

2002

 

2001

 

2002

 

2001

Operating Revenues

                     

  Electric

$

41,451

 

$

41,589

 

$

78,657

 

$

94,902

  Gas

 

3,901

   

3,952

   

10,756

   

15,034

  Other

 

165

   

78

   

393

   

173

    Total Operating Revenues

 

45,517

   

45,619

   

89,806

   

110,109

                       

Operating Expenses

                     

  Fuel and Purchased Power

 

28,511

   

29,567

   

53,486

   

69,738

  Gas Purchased for Resale

 

2,139

   

2,227

   

6,022

   

9,869

  Operation and Maintenance

 

6,218

   

5,439

   

12,116

   

12,629

  Depreciation and Amortization

 

3,618

   

3,203

   

7,156

   

6,569

  Provisions for Taxes:

                     

    Local Property and Other

 

1,105

   

1,289

   

2,385

   

2,676

    Federal and State Income

 

764

   

678

   

1,794

   

1,681

      Total Operating Expenses

 

42,355

   

42,403

   

82,959

   

103,162

Operating Income

 

3,162

   

3,216

   

6,847

   

6,947

    (Gain) on Sale of Non-Utility Investments,  net of tax (Note 2)

 

(82)

   

----  

   

(82)

   

----  

    Other Non-Operating Expenses

 

60

   

42

   

91

   

88

Income Before Interest Expense

 

3,184

   

3,174

   

6,838

   

6,859

    Interest Expense, Net

 

1,831

   

1,722

   

3,726

   

3,401

Net Income

 

1,353

   

1,452

   

3,112

   

3,458

    Less: Dividends on Preferred Stock

 

63

   

64

   

127

   

131

Net Income Applicable to Common Stock

$

1,290

 

$

1,388

 

$

2,985

 

$

3,327

                        

Average Common Shares Outstanding - Basic

 

4,743,696

   

4,743,415

   

4,743,696

   

4,740,564

Average Common Shares Outstanding - Diluted

 

4,774,047

   

4,762,106

   

4,767,282

   

4,758,963

                        
                     

Basic and Diluted Earnings Per Share

$

0.27

 

$

0.29

 

$

0.63

 

$

0.70

                        

Dividends Declared Per Share

                     

of Common Stock (Note 3)

$

0.345

 

$

0.345

 

$

1.035

 

$

1.035

 

(The accompanying notes are an integral part of these statements.)

 

 

 

 

UNITIL CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(000's)

 

 

 

(UNAUDITED)

 

(AUDITED)

 

June 30,

 

December 31,

 

2002

 

2001

 

2001

ASSETS:

               
                 

Utility Plant:

               

  Electric

$

188,581

 

$

178,719

 

$

183,795

  Gas

 

41,806

   

38,312

   

41,287

  Common

 

28,562

   

22,241

   

28,529

  Construction Work in Progress

 

4,080

   

3,376

   

1,887

Total Utility Plant

 

263,029

   

242,648

   

255,498

  Less:    Accumulated Depreciation

 

81,187

   

74,880

   

77,210

Net Utility Plant

 

181,842

   

167,768

   

178,288

                 

Other Property and Investments

 

389

   

5,984

   

2,286

                 

Current Assets:

               

  Cash

 

3,643

   

5,196

   

6,076

  Accounts Receivable - Less Allowance for

               

    Doubtful Accounts of $579, $589 and $596

 

15,395

   

21,535

   

17,133

  Materials and Supplies

 

2,182

   

2,803

   

2,804

  Prepayments

 

1,881

   

1,557

   

1,889

  Accrued Revenue

 

(84)

   

2,142

   

1,330

      Total Current Assets

 

23,017

   

33,233

   

29,232

                 
                 
                 

Noncurrent Assets:

               

  Regulatory Assets

 

145,932

   

157,465

   

149,672

  Prepaid Pension Costs

 

10,815

   

10,334

   

10,712

  Debt Issuance Costs

 

1,785

   

1,774

   

1,826

  Other Noncurrent Assets

 

4,789

   

7,381

   

2,314

      Total Noncurrent Assets

 

163,321

   

176,954

   

164,524

                 

TOTAL

$

368,569

 

$

383,939

 

$

374,330

 

(The accompanying notes are an integral part of these statements.)

 

 

 

UNITIL CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS (Cont.)
(000's)

 

 

 

(UNAUDITED)

 

(AUDITED)

 

June 30,

 

December 31,

 

2002

 

2001

 

2001

CAPITALIZATION AND LIABILITIES:

               
                 

Capitalization:

               
                 

Common Stock Equity

$

73,000

 

$

78,788

 

$

74,746 

Preferred Stock, Non-Redeemable, Non-Cumulative

 

225

   

225

   

225 

Preferred Stock, Redeemable, Cumulative

 

3,350

   

3,465

   

3,384 

Long-Term Debt, Less Current Portion

 

104,350

   

107,568

   

107,470 

      Total Capitalization

 

180,925

   

190,046

   

185,825 

                 
                 

Current Liabilities:

               

  Long-Term Debt, Current Portion

 

3,233

   

3,232

   

3,224 

  Capitalized Leases, Current Portion

 

864

   

921

   

988 

  Accounts Payable

 

16,750

   

21,120

   

20,084 

  Short-Term Debt

 

19,500

   

6,300

   

13,800 

  Dividends Declared and Payable

 

1,725

   

1,819

   

109 

  Refundable Customer Deposits

 

1,385

   

1,307

   

1,393 

  Taxes Payable / (Refundable)

 

451

   

(670)

   

(2,432)

  Interest Payable

 

1,311

   

1,375

   

1,375 

  Other Current Liabilities

 

3,137

   

6,774

   

6,328 

      Total Current Liabilities

 

48,356

   

42,178

   

44,869 

                 

Deferred Income Taxes

 

46,434

   

49,854

   

47,113 

                 

Noncurrent Liabilities:

             

  Power Supply Contract Obligations

 

85,142

   

93,061

   

88,779 

  Capitalized Leases, Less Current Portion

 

2,569

   

2,802

   

2,945 

  Other Noncurrent Liabilities

 

5,143

   

5,998

   

4,799 

      Total Noncurrent Liabilities

 

92,854

   

101,861

   

96,523 

                 

TOTAL

$

368,569

 

$

383,939

 

$

374,330 

(The accompanying notes are an integral part of these statements.)

 

 

 

UNITIL CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000's)
(UNAUDITED)

 

 

Six Months Ended June 30,

 

2002

 

2001

Net Cash Flow from Operating Activities:

         

  Net Income

$

3,112 

 

$

3,458 

  Adjustments to Reconcile Net Income to Cash

         

    Provided by Operating Activities:

         

    Depreciation and Amortization

 

7,156 

   

6,569 

    Deferred Taxes Provision

 

31 

   

788 

    Amortization of Investment Tax Credit

 

(26)

   

(76)

    Gain on Sale of Investment, net

 

(82)

   

----

  Changes in Current Assets and Liabilities:

         

    Accounts Receivable

 

1,738 

   

(1,478)

    Prepayments and other Current Assets

 

3,410 

   

783 

    Accrued Revenue

 

1,414 

   

7,161 

    Accounts Payable

(3,334)

2,581 

    Interest Payable and Other Current Liabilities

 

(3,263)

   

677 

  Other, net

 

(4,003)

   

(5,205)

        Net Cash Provided by Operating Activities

 

6,153 

 

15,258 

   

   

Net Cash Flows from Investing Activities:

 

   

    Acquisition of Property, Plant and Equip.

 

(8,756)

   

(9,010)

    Proceeds from Sale of Electric Generation Assets

 

----

   

342 

    Proceeds from Sale of Investment, net

 

1,535 

   

----

    Acquisition of Other Property and Investments

 

----

   

(535)

        Net Cash Used in Investing Activities

 

(7,221)

   

(9,203)

    

   

Cash Flows from Financing Activities:

         

    Net Increase (Decrease) in Short-Term Debt

 

(5,700)

   

(26,200)

    Proceeds from Issuance of Long-Term Debt

 

----

   

29,000 

    Repayment of Long-Term Debt

 

(3,111)

   

(3,102)

    Dividends Paid

 

(3,420)

   

(3,427)

    Issuance of Common Stock

 

----

   

281 

    Retirement of Preferred Stock

 

(34)

   

----

    Repayment of Capital Lease Obligations

 

(500)

   

(471)

        Net Cash Flows (Used in) Financing Activities

 

(1,365)

   

(3,919)

Net Increase in Cash

 

(2,433)

   

2,136 

Cash at Beginning of Period

 

6,076 

   

3,060 

Cash at End of Period

$

3,643 

 

$

5,196 

           

Supplemental Cash Flow Information:

         

   

         

    Interest Paid

$

4,718 

 

$

4,412  

    State Income Taxes Paid (Received)

$

(33)

 

$

44  

           
           

(The accompanying notes are an integral part of these statements.)

 

 

 

 

UNITIL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 1 - Summary of Significant Accounting Policies

Nature of Operations - Unitil Corporation (Unitil or the Company) is registered with the Securities and Exchange Commission (SEC) as a public utility holding company under the Public Utility Holding Company Act of 1935. The following companies are wholly-owned subsidiaries of Unitil: Concord Electric Company (CECo), Exeter & Hampton Electric Company (E&H), Fitchburg Gas and Electric Light Company (FG&E), Unitil Power Corp. (UPC), Unitil Realty Corp. (URC), Unitil Service Corp. (USC), and its non-regulated business unit Unitil Resources, Inc. (URI). Usource, Inc. and Usource L.L.C. (collectively, Usource) are wholly-owned subsidiaries of Unitil Resources, Inc.

Unitil's principal business is the retail sale and distribution of electricity in New Hampshire and the retail sale and distribution of electricity and gas in Massachusetts through its retail distribution subsidiaries, CECo, E&H, and FG&E. The Company's wholesale electric power subsidiary, UPC, principally provides all the electric power supply requirements to CECo and E&H for resale at retail. URI conducts an energy brokering business, as well as related energy consulting and marketing activities through its subsidiary, Usource. Finally, URC and USC provide centralized facilities and operations and management services to support the Unitil system of companies.

With respect to rates and other business and financial matters, CECo and E&H are subject to regulation by the New Hampshire Public Utilities Commission (NHPUC), FG&E is regulated by the Massachusetts Department of Telecommunications & Energy (MDTE), and UPC, CECo, E&H, and FG&E are regulated by the Federal Energy Regulatory Commission (FERC).

The results of operations for the three and six months ended June 30, 2002 and 2001 are not necessarily indicative of the results to be expected for the full year. 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 June 30, 2002 and 2001 and December 31, 2001; and results of operations for the three and six months ended June 30, 2002 and 2001; and consolidated statements of cash flows for the six months ended June 30, 2002 and 2001.

Reclassifications - Certain amounts previously reported have been reclassified to conform to current period presentation.

 

Note 2 - Sale of Equity Stake in Enermetrix

On April 11, 2002, Unitil Corporation sold its equity ownership in Enermetrix.com Inc. for cash and improved commercial terms for use of the Enermetrix Software Network. As a result of the sale, the Company will realize approximately $1.4 million in current tax benefits from capital loss carrybacks.

 

Note 3 - Dividends Declared Per Share

Declaration

Date

Shareholder of

Dividend

Date

Paid (Payable)

Record Date

Amount

06/20/02

08/15/02

08/01/02

$ 0.345

03/21/02

05/15/02

05/01/02

$ 0.345

01/17/02

02/15/02

02/01/02

$ 0.345

09/28/01

11/15/01

11/01/01

$ 0.345

06/28/01

08/15/01

08/01/01

$ 0.345

03/15/01

05/15/01

05/01/01

$ 0.345

01/16/01

02/15/01

02/01/01

$ 0.345

Note 4 - Common Stock

 

During the second quarter of 2002, the Company did not sell any additional shares of Common Stock in connection with its Dividend Reinvestment and Stock Purchase Plan.

During the second quarter of 2001, the Company sold 5,622 shares of Common Stock, at an average price of $25.43 per share, in connection with its Dividend Reinvestment and Stock Purchase Plan. Net proceeds of $142,973 were used to reduce short-term borrowings.

 

 

Note 5 - Preferred Stock

Details on preferred stock at June 30, 2002, June 30, 2001 and December 31, 2001 are shown below:

(Amounts in Thousands)

 

June 30,

 

December 31,

 

2002

 

2001

 

2001

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

 

84

   

91

   

91

    6% Dividend Series

 

168

   

168

   

168

    8.75% Dividend Series

 

333

   

333

   

333

    8.25% Dividend Series

 

385

   

385

   

385

    5.125% Dividend Series

 

947

   

973

   

960

    8% Dividend Series

 

1,218

   

1,300

   

1,232

      Total Redeemable Preferred Stock

 

3,350

   

3,465

   

3,384

  

        Total Preferred Stock

$

3,575

 

$

3,690

 

$

3,609

Note 6 - Long-term Debt

 

Details on long-term debt at June 30, 2002, June 30, 2001 and December 31, 2001 are shown below:

(Amounts in Thousands)

 

June 30,

 

December 31,

 

2002

  

2001

 

2001

                 

Concord Electric Company:

               

  First Mortgage Bonds:

               

Series I, 8.49%, due October 14, 2024

$

6,000

 

$

6,000

 

$

6,000

Series J, 6.96%, due September 1, 2028

 

10,000

   

10,000

   

10,000

Series K, 8.00%, due May 1, 2031

 

7,500

   

7,500

   

7,500

                 

Exeter & Hampton Electric Company:

               

  First Mortgage Bonds:

               

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

   

10,000

Series M, 8.00%, due May 1, 2031

 

7,500

   

7,500

   

7,500

                 

Fitchburg Gas and Electric Light Company:

               

  Promissory Notes:

               

8.55% Notes due March 31, 2004

 

6,000

   

9,000

   

9,000

6.75% Notes due November 30, 2023

 

19,000

   

19,000

   

19,000

7.37% Notes due January 15, 2029

 

12,000

   

12,000

   

12,000

7.98% Notes due June 1, 2031

 

14,000

   

14,000

   

14,000

                 

Unitil Realty Corp.

               

  Senior Secured Notes:

               

8.00% Notes Due August 1, 2017

 

6,583

   

6,800

   

6,694

                 

Total

 

107,583

   

110,800

   

110,694

Less: Installments due within one year

 

3,233

   

3,232

   

3,224

                 

Total Long-term Debt

$

104,350

 

$

107,568

 

$

107,470

 

 

Note 7 - Segment Information

 

The following table provides significant segment financial data for the three and six months ended June 30, 2002 and 2001:

Three Months Ended June 30, 2002 (000's)

Electric

Gas

Other

Usource

Eliminations

Total

Revenues

           

    External Customers

$   41,451

$  3,901 

$         7

$    158 

 

$  45,517

    Intersegment

----  

----  

4,676

----  

(4,676)

----  

Depreciation and Amortization

2,615

462 

492

49 

 

3,618

Interest, net

1,230

434 

166

 

1,831

Income Taxes

1,010

(236)

44

(54)

 

764

Segment Profit (Loss)

1,516

(265)

121

(82)

 

1,290

Identifiable Segment Assets

277,715

85,053 

21,474

1,393 

(17,066)

368,569

Capital Expenditures

4,251

1,136 

----  

----  

 

5,387

             

Three Months Ended June 30, 2001 (000's)

             

Revenues

           

    External Customers

$   41,588

$  3,952 

$         7

$     72 

 

$  45,619

    Intersegment

----  

----  

5,048

----  

(5,048)

----  

Depreciation and Amortization

2,391

401 

494

(83)

 

3,203

Interest, net

1,113

394 

254

(39)

 

1,722

Income Taxes

685

18 

55

(80)

 

678

Segment Profit (Loss)

1,699

(245)

90

(156)

 

1,388

Identifiable Segment Assets

292,466

88,211 

25,788

1,056 

(23,582)

383,939

Capital Expenditures

1,189

1,369 

489

   

3,047

             

Six Months Ended June 30, 2002 (000's)

           

Revenues

           

    External Customers

$   78,657

$ 10,756 

$        15

$    378 

 

$  89,806

    Intersegment

----  

----  

9,810

----  

(9,810)

----  

Depreciation and Amortization

5,168

925 

963

100 

 

7,156

Interest, net

2,490

888 

344

 

3,726

Income Taxes

1,890

(29)

78

(145)

 

1,794

Segment Profit (Loss)

2,992

50 

163

(220)

 

2,985

Identifiable Segment Assets

277,715

85,053 

21,474

1,393 

(17,066)

368,569

Capital Expenditures

7,213

1,543 

----  

----  

 

8,756

             

Six Months Ended June 30, 2001 (000's)

                 

Revenues

           

    External Customers

$   94,901

$ 15,034 

$      15

$   159 

 

$  110,109

    Intersegment

----  

----  

10,072

----  

(10,072)

----  

Depreciation and Amortization

4,803

802 

839

125 

 

6,569

Interest, net

2,180

775 

449

(3)

 

3,401

Income Taxes

1,496

455 

95

(365)

 

1,681

Segment Profit (Loss)

3,428

457 

141

(699)

 

3,327

Identifiable Segment Assets

292,466

88,211 

25,788

1,056 

(23,582)

383,939

Capital Expenditures

7,012

1,661 

872

----  

 

9,545

 

 

Note 8 - Regulatory Matters

The Unitil Companies are regulated by various federal and state agencies, including the Securities and Exchange Commission (SEC), the Federal Energy Regulatory Commission (FERC), and state regulatory authorities with jurisdiction over the utility industry, including the New Hampshire Public Utilities Commission (NHPUC) and the Massachusetts Department of Telecommunications and Energy (MDTE). In recent years, there has been significant legislative and regulatory activity to restructure the utility industry in order to introduce greater competition in the supply and sale of electricity and gas, while continuing to regulate the distribution operations of Unitil's utility operating subsidiaries.

In New Hampshire, Unitil's electric distribution companies, CECo and E&H, filed a comprehensive restructuring proposal with the NHPUC on January 25, 2002. The restructuring proposal, if approved, will go into effect on or before May 1, 2003. Under the restructuring proposal: the Companies' customers will be allowed to choose a competitive energy supplier while electricity delivery services will continue to be provided by Unitil; Unitil will sell its portfolio of electricity supply contracts and recover the residual stranded costs over a period of years; Unitil will offer customers up to a three-year transition service at specified prices and a permanent default service and these services will be procured from the competitive wholesale market.

As part of the restructuring, Unitil is also proposing to combine CECo, E&H, and the remaining functions of UPC into a single distribution utility, Unitil Energy Systems, Inc. As part of the filing, Unitil filed new consolidated tariff and rate schedules for distribution service in NH and is seeking an increase in base rates for distribution service. Increases to base rates are anticipated to take effect on December 1, 2002. Rate levels and rate components applicable to all Unitil customers will change and, while distribution rates may increase, overall rate levels resulting from restructuring are expected to be below levels in effect at the time of filing.

On May 31, 2002, Unitil and all other parties in the proceeding filed an agreement on the procedures for the Company's sale of its power contract portfolio and purchase of Transition and Default service. The Company and parties are in negotiation relative to the settlement of all other issues.

In Massachusetts, FG&E's third annual electric restructuring reconciliation and rate adjustment filing was filed on December 2, 2001. The filing included a recast of its rates from 1998 through 2001 in compliance with the MDTE's Final Order of October 18, 2001 on FG&E's initial reconciliation filing. On December 27, 2001, the MDTE approved the proposed rates for effect on January 1, 2002, subject to further review. The Massachusetts Attorney General's Office (AG) filed testimony in this proceeding in June raising two issues relating to the return earned on deferred transition costs and certain tax calculations. The Company and the Attorney General's office are in negotiation relative to the settlement of these issues.

Rate Proceedings - Prior to 2002, the last formal regulatory filings initiated by the Company to increase base rates for Unitil's retail electric operating subsidiaries occurred in 1985 for CECo, 1984 for FG&E, and 1981 for E&H. The last distribution base rate increase request for Unitil's retail gas operations occurred in 1998. A majority of the Company's electric and gas operating revenues are collected under various periodic rate adjustment mechanisms including fuel, purchased power, energy efficiency, and restructuring-related cost recovery mechanisms. Industry restructuring will continue to change the methods of how certain costs are recovered through the Company's regulated rates and tariffs.

As part of the electric restructuring proposal for Unitil's New Hampshire operations described above, the Company is requesting an increase in base rates for distribution services. As proposed, under the current schedule for the proceeding, new distribution rates will be effective December 1, 2002, but any increase would be more than offset by decreases in power supply related rate components, resulting in an overall rate decrease to the company's New Hampshire retail customers.

On May 17, 2002, FG&E filed proposed changes to its base rates for both the Gas Division and Electric Division. As discussed further below, these changes are a necessary component of its Performance Based Regulation (PBR) Plans and will serve to set appropriate cast off rates for the plans. Following a statutory six-month review and suspension period, new base rates will take effect December 3, 2002. The MDTE's review of the Company's PBR Plans is currently underway.

Performance Based Regulation - On October 29, 1999, the MDTE initiated a proceeding to establish guidelines for service quality standards to be included in PBR plans for all electric and gas distribution utilities in Massachusetts. PBR is a method of setting regulated distribution rates that provides incentives for utilities to control costs while maintaining a high level of service quality. Under PBR, a company's earnings are tied to performance targets whereby penalties can be imposed for deterioration of service quality. MDTE policy is to implement PBR in the context of a base rate case for each distribution company.

The MDTE issued an Order on June 29, 2001, establishing guidelines for implementation of service-quality measurement programs by gas and electric companies operating under PBR. On October 29, 2001, FG&E filed Service Quality Measurement Plans for its Gas and Electric Divisions as required by the MDTE. On December 5, 2001, FG&E received approval of its Service Quality Measurement Plan for its Electric Division, subject to modification and pending the conclusion of the service quality proceeding. The plan for the Gas Division was approved on April 17, 2002.

On April 16, 2002, FG&E filed PBR plans for both its Gas and Electric Divisions. The filing of a Gas PBR plan had been ordered previously by the MDTE in the context of the Final Order in FG&E's 1998 gas rate case. FG&E chose to file an Electric PBR plan concurrently in anticipation of the electric rate case filing discussed above. The PBR plans will be based on the new cast-off distribution rates established through the traditional base rate case process, and will institute service quality measurement standards and penalties as well as procedures for adjusting retail rates to reflect cost inflation and other factors over the term of the PBR plan. The MDTE has not yet initiated their review of these filings.

Note 9 - Environmental Matters

The Company's past and present operations include activities which are subject to extensive federal and state environmental regulations.

Former Electric Generating Station - The Company is investigating environmental conditions at a former electric generating station located at Sawyer Passway, which FG&E sold to WRW, a general partnership, in 1983. Rockware International Corporation (Rockware), an affiliate of WRW, acquired rights to the electric equipment in the building and intended to remove, recondition and sell this equipment. During 1985, Rockware demolished several exterior walls of the generating station in order to facilitate removal of certain equipment. The demolition of the walls and the removal of generating equipment resulted in damage to asbestos containing insulation materials inside the building, which had been intact and encapsulated at the time of the sale of the structure to WRW.

Due to the continuing deterioration of this former electric generating station and Rockware's continued lack of performance regarding clean up of the site, FG&E, in concert with the Massachusetts Department of Environmental Protection (DEP) and the U.S. Environmental Protection Agency (EPA), conducted further testing and survey work during 2001 to ascertain the environmental status of the building. These recent surveys have revealed continued deterioration of the asbestos containing insulation materials in the building. By letter dated May 1, 2002 the EPA notified the Company that it was a Potentially Responsible Party (a "PRP") for remedial activities related to the former electric station site. The letter also notified the Company of planned remedial activities at the site and invited the Company to perform or finance such activities. These activities include: 1) further site characterization, sampling and analysis, 2) further onsite containment of asbes tos contaminated material as determined necessary, 3) identification and segregation of other hazardous materials, and 4) disposal of contaminated materials at an EPA approved disposal facility. The EPA has also informed the Company that if it does not indicate a willingness to finance or perform such actions, it may order the Company to undertake such actions. The Company responded to the EPA and indicated its willingness to perform the remediation. At this time, the Company is uncertain as to the total cost of the further remedial action that will be required by the EPA. However, the Company has liability insurance policies which provide significant coverage for the costs of these types of clean-up efforts. The Company believes that the ultimate resolution of this matter will not have a material adverse impact on the Company's financial position.

 

 

Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition

 

SAFE HARBOR CAUTIONARY STATEMENT

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.

 

RESULTS OF OPERATIONS

Earnings per share were $0.27 for the second quarter of 2002; down $0.02 compared to the second quarter of 2001. Utility Operations contributed $0.29 per share to consolidated results; a decline of $0.04 from last year, while Usource lost $0.02 per share, an improvement of $0.02 from the same period in 2001.

Sales (000's)

             
 

Three Months Ended  

     

Six Months Ended 

    

kWh Sales

06/30/02

06/30/01

Change

 

06/30/02

06/30/01

Change

Residential

135,207 

134,061 

0.9%

 

297,037

301,888

-1.6%

Commercial/Industrial

252,002 

243,746 

3.4%

 

493,848

495,037

-0.2%

   Total kWh Sales

387,209 

377,807 

2.5%

 

790,885

796,925

-0.8%

               

Firm Therm Sales

             

Residential

2,420 

2,377 

1.8%

 

7,219

8,180

-11.7%

Commercial/Industrial

2,217 

2,280 

-2.8%

 

6,908

8,246

-16.2%

   Total Firms Therm Sales

4,637 

4,657 

-0.4%

 

14,127

16,426

-14.0%

               
               

Segment Information ($000's except per share data)

             
               
 

Three Months Ended - 6/30/02

     

Six Months Ended - 6/30/02

   
 

Utility

     

Utility

   
 

Operations

Usource

Total

 

Operations

Usource

Total

Revenues

$ 45,359 

$   158 

$ 45,517 

 

$ 89,428 

$   378 

$ 89,806 

Segment Profit

1,372 

(82)

1,290 

 

3,205 

(220)

2,985 

Earnings per Share

0.29 

(0.02)

0.27 

 

0.68 

(0.05)

0.63 

               
 

Three Months Ended - 6/30/01

     

Six Months Ended - 6/30/01

   
 

Utility

     

Utility

   
 

Operations

Usource

Total

 

Operations

Usource

Total

Revenues

$ 45,547 

$   72 

$ 45,619 

 

$ 109,950 

$   159 

$ 110,109 

Segment Profit

1,544 

(156)

1,388 

 

4,026 

(699)

3,327 

Earnings per Share

0.33 

(0.04)

0.29 

 

0.85 

(0.15)

0.70 

 

On a year to date basis, diluted earnings were $0.63 per share, a $0.07 decrease from the same period in 2001. Earnings per share from Utility Operations for the first six-month period of 2001 were $0.17 lower than in the same period of 2001, while the loss related to Usource improved by $0.10. The reduction in Utility Operations earnings primarily reflects the impact from the warmest winter on record in New England, where heating degree-days for the 2002 winter were 20% below the prior year.

Total electric kilowatt-hour (kWh) sales volume increased 2.5% in the second quarter of 2002, due to early summer temperatures and increased industrial sales. Residential kWh sales increased 0.9%, while Commercial and Industrial kWh sales increased 3.4%, compared to the same three-month period last year. Total kWh Sales were flat for the six-month period ended June 30, 2002.

Electric revenues decreased 0.3% and 17.1% for the three- and six-months ended June 30, 2002, respectively, compared to the same periods of 2001. These decreases were due to an 8% electric base rate reduction for Fitchburg Gas and Electric Light Company ordered in the third quarter of 2001 by the Massachusetts Department of Telecommunications and Energy (MDTE), as well as a reduction in wholesale commodity fuel prices. The six-month period was also negatively impacted by mild winter weather.

Total Firm Therm gas sales, while flat for the second quarter, decreased 14.0% in the six-month period ended June 30, 2002. This decrease primarily reflects the milder winter heating season compared to the prior year.

Gas revenues, while also flat for the quarter, decreased 28.5% for the six-month period, reflecting lower unit sales and decreased gas commodity wholesale supply prices, compared to the prior year.

Corresponding to the decline in revenues and wholesale energy prices during the second quarter of 2002, Fuel and Purchased Power and Gas Purchased for Resale expenses decreased 3.6% and 4.0%, respectively, from the prior year. Both electric and gas supply costs are collected from customers through periodic cost recovery mechanisms, and therefore, changes in these costs do not affect the Company's net income.

Operation and Maintenance expenses were 14.3% higher in the three-month period ending June 30, 2002, and 4.1% lower in the six-month period ending June 30, 2002, compared to the prior year. The second quarter increase reflects higher costs related to regulatory proceedings, certain costs previously recovered in flow-through revenues now recorded as base expense due to MDTE orders in the third quarter of 2001, as well as increases in salary and benefits, over the same period in 2001. The six-month reduction is primarily the result of the reorganization of the Company's Usource division in early 2001.

In the six-months ended June 30, 2002, Local Property and Other taxes decreased 10.9%, primarily due to cessation of the NH Franchise Tax, offset by the increase in state and local property tax due to capital additions. The lower Franchise Taxes were credited directly to customers. Therefore, changes in this cost did not affect the Company's net income. Interest expense, net, was 9.6% higher in the second quarter of 2002 than the same period last year, primarily due to higher long-term debt balances and reduced interest income on Regulatory Asset balances.

Second quarter losses from our Usource segment decreased by $0.02 per share compared to the same period in 2001. The reduction in Usource losses reflects the Company's refocused operating plan, which significantly lowered operating expenses from prior year, and increased brokerage sales in the Northeast. In the second quarter of 2002, Usource revenues were $158k, compared to $72k in the second quarter of 2001. Revenues for the six-month period were $378k in 2002 and $158k in 2001.

 

REGULATORY MATTERS

Regulatory Matters is fully discussed in Note 7 to Consolidated Financial Statements

 

CAPITAL REQUIREMENTS

Capital expenditures for the six months ended June 30, 2002 were approximately $8.8 million. This compares to $9.5 million during the same period last year. Annual capital expenditures for the year 2002 are estimated to be approximately $19.3 million as compared to $19.9 million for 2001. This projection reflects normal capital expenditures for utility system expansions, replacements and other improvements.

 

 

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

Although Unitil's utility operating companies are subject to commodity price risk as part of their traditional operations, the current regulatory framework within which these companies operate allows for full collection of fuel and gas costs in rates. Consequently, there is limited commodity price risk after consideration of the related rate-making. As the utility industry deregulates, the Company will be divesting its commodity-related energy businesses and therefore will be further reducing its exposure to commodity-related risk. There were no material changes to the Company's exposure to interest rate risk from December 31, 2001.

 

 

 

 

 

 

PART II. OTHER INFORMATION

Item 1.  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.

 

 

Item 5.  Other Information

Certification Under Sarbanes-Oxley Act

Our chief executive officer, chief financial officer and controller have furnished to the SEC the certification with respect to this Report that is required by Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

Item 6.  Exhibits and Reports on Form 8-K

(a)  Exhibits

Exhibit No.

Description of Exhibit

Reference

     

11

Computation in Support of

Filed herewith

 

Earnings Per Average Common Share

 
     

 

 

(b)    Reports on Form 8-K

During the quarter ended June 30, 2002, the Company did not file any reports on Form 8-K.

 

 

 

 

 

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:   August 13, 2002

         /s/ Anthony J. Baratta, Jr.

 

                Anthony J. Baratta, Jr.

 

                Chief Financial Officer

 

 

Date:   August 13, 2002

         /s/ Mark H. Collin

 

                Mark H. Collin

 

               Treasurer

EXHIBIT 11

EXHIBIT 11.

 

UNITIL CORPORATION AND SUBSIDIARY COMPANIES

COMPUTATION OF EARNINGS PER AVERAGE COMMON SHARE OUTSTANDING
(000's except for per share data)
(UNAUDITED)

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

BASIC EARNINGS PER SHARE

2002

 

2001

 

2002

 

2001

               

Net Income

$1,353

 

$1,452

 

$3,112

 

$3,458

Less: Dividend Requirement

             

    on Preferred Stock

63

 

64

 

127

 

131

Net Income Applicable

             

    to Common Stock

$1,290

 

$1,388

 

$2,985

 

$3,327

               

Average Number of Common

             

    Shares Outstanding

4,743,696

 

4,743,415

 

4,743,696

 

4,740,564

               

Basic Earnings Per Common Share

$0.27

 

$0.29

 

$0.63

 

$0.70

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

DILUTED EARNINGS PER SHARE

2002

 

2001

 

2002

 

2001

               

Net Income

$1,353

 

$1,452

 

$3,112

 

$3,458

Less: Dividend Requirement

             

    on Preferred Stock

63

 

64

 

127

 

131

Net Income Applicable

             

    to Common Stock

$1,290

 

$1,388

 

$2,985

 

$3,327

               

Average Number of Common

             

    Shares Outstanding

4,743,696

 

4,743,415

 

4,743,696

 

4,740,564

               

Dilutive Effect of Stock Options

30,351

 

18,691

 

23,586

 

18,399

               

Average Number of Dilutive

             

    Common Shares Outstanding

4,774,047

 

4,762,106

 

4,767,282

 

4,758,963

               

Diluted Earnings per Common Share

$0.27

 

$0.29

 

$0.63

 

$0.70