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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, 1998
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 4,491,919 Shares
UNITIL CORPORATION AND SUBSIDIARY COMPANIES
INDEX
Part I. Financial Information Page No.
Consolidated Statements of Earnings - Three
Months Ended March 31, 1998 and 1997 3
Consolidated Balance Sheets, March 31, 1998,
March 31, 1997 and December 31, 1997 4-5
Consolidated Statements of Cash Flows - Three Months
Ended March 31, 1998 and 1997 6
Notes to Consolidated Financial Statements 7-8
Management's Discussion and Analysis of Results of
Operations and Financial Condition 9-12
Exhibit 11 - Computation of Earnings per Average
Common Share Outstanding 13
Part II. Other Information 14
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,
1998 1997
Operating Revenues:
Electric $37,659 $38,058
Gas 6,326 7,266
Other 8 8
Total Operating Revenues 43,993 45,332
Operating Expenses:
Fuel and Purchased Power 25,142 25,472
Gas Purchased for Resale 3,595 4,366
Operating and Maintenance 5,630 5,647
Depreciation 1,923 1,902
Amort. of Cost of Abandoned Properties 407 401
Provisions for Taxes:
Local Property and Other 1,407 1,371
Federal and State Income 1,370 1,558
Total Operating Expenses 39,474 40,717
Operating Income 4,519 4,615
Non-Operating Expense 44 6
Income Before Interest Expense 4,475 4,609
Interest Expense, Net 1,853 1,695
Net Income 2,622 2,914
Less Dividends on Preferred Stock 69 69
Net Income Applicable to Common Stock $2,553 $2,845
Average Common Shares Outstanding 4,478,334 4,389,566
Basic Earnings Per Share $0.57 $0.65
Diluted Earnings Per Share $0.56 $0.64
Dividends Declared per Share
of Common Stock (Note 1) $0.68 $0.67
(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,
1998 1997 1997
ASSETS:
Utility Plant:
Electric $168,631 $160,109 $166,636
Gas 30,686 28,887 30,473
Common 19,757 18,641 19,689
Construction Work in Progress 3,052 2,376 2,677
Utility Plant 222,126 210,013 219,475
Less: Accum. Depreciation 69,915 65,518 68,360
Net Utility Plant 152,211 144,495 151,115
Other Property & Investments 42 42 42
Current Assets:
Cash 3,252 3,270 2,337
Accounts Receivable - Less
Allow. for Doubtful Accounts
of $669, $697 and $653 17,600 17,705 16,890
Materials and Supplies 2,043 1,819 2,663
Prepayments 763 773 434
Accrued Revenue 2,905 6,436 6,796
Total Current Assets 26,563 30,003 29,120
Deferred Assets:
Debt Issuance Costs 903 815 918
Cost of Abandoned Properties 23,446 25,031 23,885
Prepaid Pension Costs 8,240 7,526 8,120
Other Deferred Assets 24,832 23,900 24,777
Total Deferred Assets 57,421 57,272 57,700
TOTAL $236,237 $231,812 $237,977
(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,
1998 1997 1997
CAPITALIZATION AND LIABILITIES:
Capitalization:
Common Stock Equity $71,720 $69,704 $71,644
Preferred Stock,
Non-Redeemable, Non-Cumulative 225 225 225
Preferred Stock,
Redeemable, Cumulative 3,655 3,666 3,666
Long-Term Debt,
Less Current Portion 60,771 57,900 63,896
Total Capitalization 136,371 131,495 139,431
Capitalized Leases,
Less Current Portion 4,136 4,449 4,733
Current Liabilities:
Long-Term Debt, Current Portion 4,537 4,272 4,470
Capitalized Leases, Current Portion 1,227 903 883
Accounts Payable 15,865 14,858 14,734
Short-Term Debt 15,300 17,550 18,000
Dividends Declared and Payable 1,784 197 212
Refundable Customer Deposits 1,744 1,644 2,187
Taxes Payable (Refundable) 1,270 1,937 (554)
Interest Payable 1,203 1,427 1,087
Other Current Liabilities 3,018 2,532 2,635
Total Current Liabilities 45,948 45,320 43,654
Deferred Liabilities:
Investment Tax Credits 1,384 1,566 1,437
Other Deferred Liabilities 7,655 8,442 7,864
Total Deferred Liabilities 9,039 10,008 9,301
Deferred Income Taxes 40,743 40,540 40,858
TOTAL $236,237 $231,812 $237,977
(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,
1998 1997
Cash Flows from Operating Activities:
Net Income $2,622 $2,914
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation and Amortization 2,324 2,303
Deferred Taxes Provided 99 (9)
Amortization of Investment Tax Credit (53) (43)
Amortization for Debt Issuance Costs 16 14
Provision of Doubtful Accounts 189 222
Changes in Assets and Liabilities:
(Increase) Decrease in:
Accounts Receivable (900) (1,544)
Materials and Supplies 620 660
Prepayments and Prepaid Pension (449) (470)
Accrued Revenue 3,891 2,423
Increase (Decrease) in:
Accounts Payable 1,131 (245)
Refundable Customer Deposits (443) 58
Taxes and Interest Payable 1,939 2,028
Other, Net (188) 140
Net Cash Provided by
Operating Activities 10,798 8,451
Cash Flows from Investing Activities:
Acquisition of Property, Plant and Equipment (2,958) (2,571)
Net Cash Used in Investing Activities (2,958) (2,571)
Cash Flows from Financing Activities:
Net Decrease in Short-Term Debt (2,700) (3,850)
Repayment of Long-Term Debt (3,057) (39)
Dividends Paid (1,548) (1,531)
Issuance of Common Stock 644 229
Retirement of Preferred Stock (11)
Repayment of Capital Lease Obligations (253) (322)
Net Cash Used in Financing Activities (6,925) (5,513)
Net Increase in Cash 915 367
Cash at Beginning of Year 2,337 2,903
Cash at March 31, $3,252 $3,270
Supplemental Cash Flow Information:
Interest Paid $1,773 $1,849
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 1998 and 1997.
Common Stock Dividend:
On March 5, 1998, the Company's Board of Directors declared its regular
quarterly dividend on the Company's Common Stock of $0.34 per share which is
payable on May 15, 1998 to shareholders of record as of May 1, 1998.
On January 20, 1998, 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 $0.34 per share and was payable February 13, 1998 to shareholders of
record as of January 30, 1998.
Note 2.
Common Stock:
During the first quarter of 1998, the Company sold 9,849 shares of
Common Stock, at an average price of $25.32 per share, in connection with its
Dividend Reinvestment and Stock Purchase Plan and its 401(k) plans. Net
proceeds of $249,412 were used to reduce short-term borrowings.
Note 3.
Preferred Stock:
Details on preferred stock at March 31, 1998, March 31, 1997 and
December 31, 1997 are shown below (000's):
March 31, December 31,
1998 1997 1997
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 333 344 344
8.25% Dividend Series 406 406 406
5.125% Dividend Series 1,035 1,035 1,035
8% Dividend Series 1,407 1,407 1,407
Total Redeemable Preferred Stock 3,655 3,666 3,666
Total Preferred Stock $3,880 $3,891 $3,891
Note 4.
Long-term Debt:
Details on long-term debt at March 31, 1998, March 31, 1997 and
December 31, 1997 are shown below (000's):
March 31, December 31,
1998 1997 1997
Concord Electric Company:
First Mortgage Bonds:
Series C, 6 3/4%, due Jan. 15, 1998 --- $1,520 $1,520
Series H, 9.43%, due Sept. 1, 2003 5,200 5,850 5,200
Series I, 8.49%, due Oct. 14, 2024 6,000 6,000 6,000
Exeter & Hampton Electric Company:
First Mortgage Bonds:
Series E, 6 3/4%, due Jan. 15, 1998 --- 497 498
Series H, 8.50%, due Dec. 15, 2002 700 805 700
Series J, 9.43%, due Sept. 1, 2003 4,000 4,500 4,000
Series K, 8.49%, due Oct. 14, 2024 9,000 9,000 9,000
Fitchburg Gas and Electric Light Company:
Promissory Notes:
8.55% Notes due Mar. 31, 2004 14,000 15,000 15,000
6.75% Notes due Nov. 30, 2023 19,000 19,000 19,000
Unitil Realty Corporation:
Senior Secured Notes:
8.00% Notes due Aug. 1, 2017 7,408 --- 7,448
Total 65,308 62,172 68,366
Less: Installments due within one year 4,537 4,272 4,470
Total Long-term Debt $60,771 $57,900 $63,896
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, 1998 and 1997; and results of operations for the three
months ended March 31, 1998 and 1997; and consolidated statements of cash flows
for the three months ended March 31, 1998 and 1997. 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, 1998 and
1997 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 were $0.57 for the first quarter of
1998, versus $0.65 for the first quarter of 1997. This decrease of $0.08 per
share, or 12%, primarily reflects lower electric and gas revenues billed
following the warmest winter on record. The change also reflects the effects of
deregulation and restructuring of the electric utility industry in
Massachusetts, and higher interest expenses.
The weather in the first quarter, as measured by heating degree days, was 16%
warmer than normal and 7% warmer than last year. In Unitil's service
territories, temperatures were at the highest level, ever, in the 103 years
such data has been kept. As a result, kilowatt hour sales were relatively flat
and gas firm therm sales, (most sensitive to weather) declined 4.7%. Revenues
were also down because of lower peak billing demands for electricity during the
milder winter.
On March 1, 1998, customers of Unitil's Massachusetts electric utility,
Fitchburg Gas and Electric Light Company (FG&E), gained the right to choose
their electric power supplier. At the same time, they also received a 10%
retail rate discount under a statewide legislated mandate. (See RESTRUCTURING
AND COMPETITION - ELECTRIC UTILITY INDUSTRY discussion below.)
Interest expense was higher for the quarter, due to increased borrowings and
higher interest rates than the same period last year.
Three Months Ended
3/31/98 3/31/97 % Change
Electric Sales and Revenue:
Total KWH Sales 391,987 388,988 0.8 %
Distribution Revenue $11,717 $12,553 (6.7)%
Energy Sales Revenue 25 942 25,505 1.7 %
Total Electric Revenue $37,659 $38,058 (1.0)%
Gas Sales and Revenue:
Total Firm Therm Sales $9,776 $10,255 (4.7)%
Distribution Revenue $2,667 $2,833 (5.9)%
Energy Sales Revenue 3,659 4,433 (17.5)%
Total Gas Revenue $6,326 $7,266 (12.9)%
Other Revenue 8 8 (0.0)%
Total Revenue $43,993 $45,332 (3.0)%
Total Operating Revenues for the Unitil System of companies decreased 3% to
$44.0 million in the first quarter of 1998 from $45.3 million in the first
quarter of 1997, as shown in the table on this page. Electric Distribution
Revenues declined during the quarter by 6.7% to $11.7 million from $12.5
million in the first quarter of 1997. Electric and Gas Distribution Revenues
are operating revenues which the Company realizes for the distribution and
delivery of electricity and gas to its customers across the local distribution
system. These types of revenues have a direct impact on net income.
Electric Energy Sales Revenues are operating revenues which are collected from
customers as separate components of their monthly bill, and do not affect net
income, as they normally mirror costs related to energy supply. As of March 1,
1998, the Company's Massachusetts customers now have a choice to secure their
energy supply from competitive suppliers or to continue receiving energy
services from the Company through standard offer and default services. Unitil
expects revenues for the balance of 1998 to be negatively impacted by the
effects of industry restructuring in Massachusetts.
Gas Distribution Revenues declined 5.9% for the quarter, to $2.7 million
compared to $2.8 million in the same period last year. The decline reflects the
lower consumption of energy during the warmer heating season. Gas Energy Sales
Revenues are revenues collected under the Company's cost-of-gas adjustment
mechanism, and do not affect net income.
RESTRUCTURING AND COMPETITION - ELECTRIC UTILITY INDUSTRY
Regulatory activity in both New Hampshire and Massachusetts continues
to focus on deregulating the retail sale of electric energy. March 1, 1998 was
the "Retail Access Date" or the beginning of competition in Massachusetts, while
New Hampshire's "Choice Date" slipped past the proposed January 1, 1998, and
probably will not make the legislature's mandated July 1, 1998. Both states'
restructuring efforts have focused on allowing customers to choose their
supplier of electricity from the competitive market, and have their local
utility deliver that electricity over its distribution systems at regulated
rates.
Massachusetts
On December 31, 1997, FG&E filed its restructuring plan (the "Plan")
with the Massachusetts Department of Telecommunications and Energy (MDTE) as
required by the Massachusetts restructuring law enacted in November, 1997.
The Plan provides customers with: a) choice of energy supplier; b) an optional
transition energy service provided by FG&E at regulated rates for up to seven
years; and c) a 10% price decrease. The MDTE conditionally approved the Plan
for effect on March 1, 1998, and set a procedural schedule that, following
evidentiary hearings, should result in final approval of the Plan by the MDTE
in June, 1998. In the Plan, FG&E has proposed to divest of owned and leased
generation units and its portfolio of purchased power contracts by year end
1998. Also under the Plan, to the extent that the divestiture fails to recoup
the full cost of electric supply resources, the Company will be afforded full
recovery of any shortfall through non-bypassable retail access charges.
When the Company receives a Final Order from the DTE on its Plan, the
Company will be able to determine, in sufficient detail, the impact of
deregulation on the generation portion of FG&E's business. At that point, the
Company will be able to measure the effect of the Final Order on the generation
portion of its business that will no longer be regulated and on the
distribution portion of its business that will remain regulated. As a result,
the Company may be required to stop applying the provisions of Statement of
Financial Accouning Standards 71, "Accounting for the Effects of Certain Types
of Regulation," to a portion of its business. Upon receiving the Final Order,
the Company will review the measurement and recording of Regulatory Assets and
Liabilities arising from the Final Order. Based upon settlements already
reached between other Electric Utilities and the DTE in Massachusetts, the
Company believes it will recover its generation investments and the above market
portion of its power contract commitments through regulated cash flows to be
realized from the distribution portion of FG&E's business.
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 (CECo) and Exeter
& Hampton Electric Company (E&H), Unitil's New Hampshire based retail
distribution utilities, to recover 100% of costs which will be "stranded" due
to this restructuring, but also took positions undermining the legal basis for
such recovery in the future. Northeast Utilities' affiliate, Public Service
Company of New Hampshire, appealed the decision in Federal Court, which issued
a temporary restraining order. In June 1997, Unitil was admitted as a
Plaintiff Intervenor in this proceeding. On March 20, 1998, the NHPUC issued
Order No. 22,875 affirming in part and modifying in part its February 29, 1997
Final Plan. The new NHPUC order required CECo, E&H and all other New Hampshire
electric utilities except the Public Service Company of New Hampshire to submit
a compliance filing by May 1, 1998. CECo and E&H submitted a response to the
NHPUC's March 20 order on May 1 which included: a) unbundled delivery service
rates; b) plans to implement the NHPUC affiliate rules when promulgated, miti
gate stranded costs, implement low-income customer policies, meet the energy
needs of special contract customers and implement data transfers electronically
with suppliers; c) proposed tariffs for delivery services; and d) proposed
terms and conditions for interfacing with competitive suppliers. Unitil
continues to participate actively in all proceedings and in NHPUC-established
working groups which will define the details of the transition to competition
and customer choice. However, it now appears that competition will be delayed
beyond the original legislative timetable of July 1, 1998.
The Company continues to work towards a comprehensive settlement of all
restructuring issues for Unitil. In February, a Preliminary Agreement
outlining the basic elements of such a settlement was executed with several
parties, and discussions are continuing.
Unitil Resources, Inc., the Company's competitive market subsidiary,
continues to participate in the New Hampshire Retail Competition Pilot Program
(Pilot Program), which began in May 1996.
MILLSTONE UNIT NO. 3
Unitil's Massachusetts operating subsidiary, Fitchburg Gas and Electric
Light Company, 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 as a Category 2 facility, which calls
for increased NRC inspection attention. In March 1996 the NRC requested
additional information about the operation of the unit from Northeast Utilities
companies (NU), which operate the unit. As a result of an engineering evaluation
completed by NU, Millstone 3 was taken out of service on March 30, 1996. The
NRC later informed NU, in a letter dated June 28, 1996, that it had reclassified
Millstone 3 as a Category 3 facility. The NRC assigns this rating to plants
which it deems to have significant weaknesses that warrant maintaining the plant
in shutdown condition until the operator demonstrates that adequate programs
have been established and implemented to ensure substantial improvement in the
operation of the plant. The NRC's letter also informed NU that this designation
would require the NRC staff to obtain NRC approval by vote prior to a restart
of the unit. The other Millstone nuclear units are also out of service and
listed as Category 3 facilities.
In March 1998, NU announced that Millstone 3 has been designated as the
lead unit in the recovery process for the Millstone units, and plans to have the
unit ready for restart in the second quarter of 1998, and back on line in the
third quarter of 1998. During the period that Millstone 3 is out of service,
FG&E will continue 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 will also incur costs to
replace the power that was expected to be generated by the unit. During the
outage, FG&E has been incurring approximately $35,000 per month in replacement
power costs, and has been recovering these 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 nonoperating 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 and the associated
costs. The arbitration and legal cases are actively proceeding.
CAPITAL REQUIREMENTS
Capital expenditures for the three months ended March 31, 1998 were
approximately $3.0 million. This compares to $2.6 million during the same period
last year. Capital expenditures for the year 1998 are estimated to be
approximately $15.0 million as compared to $13.9 million for 1997. 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.
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,
EARNINGS PER SHARE 1998 1997
Net Income 2,622 $2,914
Less: Dividend Requirement
on Preferred Stock 69 69
Net Income Applicable
to Common Stock $2,553 $2,845
Average Number of Common
Shares Outstanding 4,478 4,390
Basic Earnings Per Common Share $0.57 $0.65
DILUTED Three Months Ended March 31,
EARNINGS PER SHARE 1998 1997
Net Income $2,622 $2,914
Less: Dividend Requirement
on Preferred Stock 69 69
Net Income Applicable
to Common Stock $2,553 $2,845
Average Number of Common
Shares Outstanding 4,590 4,498
Diluted Earnings Per Common Share $0.56 $0.64
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
During the quarter ended March 31, 1998, 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: May 14, 1998 /s/ Anthony Baratta
Anthony Baratta
Chief Financial Officer
Date: May 14, 1998 /s/ Mark H. Collin
Mark H. Collin
Treasurer