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, 1996 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.) 216 Epping Road, Exeter, New Hampshire 03833 (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 5, 1996 Common Stock, No par value 4,339,818 Shares UNITIL CORPORATION AND SUBSIDIARY COMPANIES INDEX Part I. Financial Information Page No. Consolidated Statements of Earnings - Three Months Ended March 31, 1996 and 1995 3 Consolidated Balance Sheets, March 31, 1996, March 31, 1995 and December 31, 1995 4-5 Consolidated Statements of Cash Flows - Three Months Ended March 31, 1996 and 1995 6 Notes to Consolidated Financial Statements 7-8 Management's Discussion and Analysis of Results of Operations and Financial Condition 9-11 Exhibit 11 - Computation of Earnings per Average Common Share Outstanding 12 Part II. Other Information 13 PART 1. FINANCIAL INFORMATION UNITIL CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) Three Months Ended March 31, 1996 1995 Operating Revenues: Electric $36,696,596 $34,630,716 Gas 7,448,729 6,182,175 Other 23,285 219,636 Total Operating Revenues 44,168,610 41,032,527 Operating Expenses: Fuel and Purchased Power 24,237,784 23,231,030 Gas Purchased for Resale 4,323,966 3,458,550 Operating and Maintenance 5,824,291 5,352,955 Depreciation 1,633,558 1,570,675 Amort. of Cost of Abandoned Properties 488,500 420,719 Provisions for Taxes: Local Property and Other 1,313,376 1,194,442 Federal and State Income 1,751,787 1,475,449 Total Operating Expenses 39,573,262 36,703,820 Operating Income 4,595,348 4,328,707 Non-Operating (Income) Expense (12,501) 155,810 Income Before Interest Expense 4,607,849 4,172,897 Interest Expense, Net 1,411,936 1,454,030 Net Income 3,195,913 2,718,867 Less Dividends on Preferred Stock 70,726 71,301 Net Income Applicable to Common Stock $3,125,187 $2,647,566 Average Common Shares Outstanding 4,334,283 4,274,626 Earnings Per Share of Common Stock $0.72 $0.62 Dividends Declared per Share of Common Stock (Note 1) $0.66 $0.64 (The accompanying notes are an integral part of these statements.) UNITIL CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) March 31, December 31, 1996 1995 1995 ASSETS: Utility Plant: Electric $149,755,755 $143,467,360 $148,458,414 Gas 27,378,391 25,894,102 27,220,705 Common 8,347,204 6,951,814 8,494,093 Construction Work in Progress 9,666,536 1,452,591 6,003,991 Utility Plant 195,147,886 177,765,867 190,177,203 Less: Accumulated Depreciation 61,946,195 57,509,133 60,682,742 Net Utility Plant 133,201,691 120,256,734 129,494,461 Other Property & Investments 42,448 42,448 42,448 Current Assets: Cash 2,151,213 6,345,082 3,397,931 Accounts Receivable - Less Allowance for Doubtful Accounts of $648,186, $568,626 and $622,596 15,970,323 14,492,916 14,931,699 Materials and Supplies 1,738,516 1,529,955 2,275,865 Prepayments 679,079 688,645 434,727 Accrued Revenue 1,418,653 655,514 2,577,715 Total Current Assets 21,957,784 23,712,112 23,617,937 Deferred Assets: Debt Issuance Costs 871,107 926,128 885,258 Cost of Abandoned Properties 26,766,291 28,352,120 27,254,791 Prepaid Pension Costs 6,914,961 5,971,880 6,689,093 Other Deferred Assets 24,246,950 25,511,425 23,718,296 Total Deferred Assets 58,799,309 60,761,553 58,547,438 TOTAL $214,001,232 $204,772,847 $211,702,284 (The accompanying notes are an integral part of these statements.) UNITIL CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) March 31, December 31, 1996 1995 1995 CAPITALIZATION AND LIABILITIES: Capitalization: Common Stock Equity $64,502,158 $60,262,024 $63,894,789 Preferred Stock, Non-Redeemable, Non-Cumulative Preferred Stock 225,000 225,000 225,000 Redeemable, Cumulative Preferred Stock 3,766,900 3,809,600 3,773,900 Long-Term Debt, Less Current Portion 62,211,000 63,466,000 62,211,000 Total Capitalization 130,705,058 127,762,624 130,104,689 Capitalized Leases, Less Current Portion 3,644,252 3,381,675 3,732,947 Current Liabilities: Long-Term Debt, Current Portion 1,255,000 144,000 1,294,000 Short-Term Debt 1,900,000 0 2,700,000 Accounts Payable 14,355,500 11,398,398 14,565,075 Dividends Declared and Payable 1,611,340 1,525,877 170,796 Refundable Customer Deposits 1,823,971 2,917,450 2,237,851 Taxes Accrued 2,040,377 1,193,442 216,596 Interest Accrued 1,471,692 1,428,365 1,425,876 Capitalized Leases, Current Portion 673,438 525,989 741,832 Accrued and Other Current Liabilities 2,928,465 2,201,055 2,202,096 Total Current Liabilities 28,059,783 21,334,576 25,554,122 Deferred Liabilities: Investment Tax Credits 1,754,516 1,955,581 1,803,821 Other Deferred Liabilities 9,139,137 9,258,090 9,763,878 Total Deferred Liabilities 10,893,653 11,213,671 11,567,699 Deferred Income Taxes 40,698,486 41,080,301 40,742,827 TOTAL $214,001,232 $204,772,847 $211,702,284 (The accompanying notes are an integral part of these statements.) UNITIL CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) March 31, 1996 1995 Net Cash Flow from Operating Activities: Net Income $3,195,913 $2,718,867 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization 2,122,058 1,991,394 Deferred Taxes 156,278 48,205 Amortization of Investment Tax Credit (49,305) (50,587) Provision of Doubtful Accounts 227,244 185,217 Amortization of Debt Issuance Costs 14,151 29,802 Loss on Taking of Land and Building 0 140,698 Changes in Assets and Liabilities: (Increase) Decrease in: Accounts Receivable (1,265,868) (1,396,447) Materials and Supplies 537,349 560,024 Prepayments and Prepaid Pension (470,220) (450,110) Accrued Revenue 1,159,062 1,636,783 Increase (Decrease) in: Accounts Payable 209,575) (1,092,643) Refundable Customer Deposits (413,881) 434,671 Taxes and Interest Accrued 1,869,598 1,590,573 Other, Net (493,911) (372,070) Net Cash Provided by Operating Activities 6,378,893 5,974,377 Net Cash Flows from Investing Activities: Acquisition of Property, Plant and Equip. (5,359,269) (2,098,879) Proceeds from Taking of Land & Building 0 2,000,000 Net Cash Used in Investing Activities (5,359,269) (98,879) Cash Flows from Financing Activities: Net (Decrease) in Short-Term Debt (800,000) 0 Net (Decrease) in Long-Term Debt (39,000) (1,970,321) Dividends Paid (1,492,585) (1,435,686) Issuance of Common Stock 229,333 259,705 Retirement of Preferred Stock (7,000) (59,000) Repayment of Capital Lease Obligations (157,090) (135,237) Net Cash Flows from Financing Activities (2,266,342) (3,340,539) Net Increase (Decrease) in Cash (1,246,718) 2,534,959 Cash at Beginning of Year 3,397,931 3,810,123 Cash at March 31, $2,151,213 $6,345,082 Supplemental Cash Flow Information: Cash Paid for: Interest Paid $1,488,976 $1,482,339 Federal Income Taxes Paid $200,000 $0 Non-Cash Financing Activities: Capital Leases Incurred $0 $205,359 (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 1996 and 1995. Common Stock Dividend: On March 7, 1996, the Company's Board of Directors declared its regular quarterly dividend on the Company's Common Stock of $0.33 per share which is payable on May 15, 1996 to shareholders of record as of May 1, 1996. On January 16, 1996, the Company's Board of Directors approved a 3.1% increase to the dividend rate on its common stock. The new regular dividend rate is $0.33 per share and was payable February 15, 1996 to shareholders of record as of February 1, 1996. Note 2. Common Stock: During the first quarter of 1996, the Company sold 9,765 shares of Common Stock, at an average price of $23.48 per share, in connection with its Dividend Reinvestment and Stock Purchase Plan and its 401(k) plans. Net proceeds of $229,294 were used to reduce short-term borrowings. Note 3. Preferred Stock: Details on preferred stock at March 31, 1996, March 31, 1995 and December 31, 1995 are shown below: March 31, December 31, 1996 1995 1995 Preferred Stock: Non-Redeemable, Non-Cumulative, 6%, $100 Par Value $225,000 $225,000 $225,000 Redeemable, Cumulative, $100 Par Value: 8.70% Series 215,000 215,000 215,000 5% Dividend Series 91,000 98,000 98,000 6% Dividend Series 168,000 168,000 168,000 8.75% Dividend Series 344,300 344,300 344,300 8.25% Dividend Series 406,000 406,000 406,000 5.125% Dividend Series 1,076,600 1,108,100 1,076,600 8% Dividend Series 1,466,000 1,470,200 1,466,000 Total Redeemable Preferred 3,766,900 3,809,600 3,773,900 Total Preferred Stock $3,991,900 $4,034,600 $3,998,900 Note 4. Long-term Debt: Details on long-term debt at March 31, 1995, March 31, 1995 and December 31, 1995 are shown below: March 31, December 31, 1996 1995 1995 Concord Electric Company: First Mortgage Bonds: Series C, 6 3/4%, due January 15, 1998 $1,552,000 $1,584,000 $1,584,000 Series H, 9.43%, due September 1, 2003 6,500,000 6,500,000 6,500,000 Series I, 8.49%, dueOcotber 14, 2024 6,000,000 6,000,000 6,000,000 Exeter & Hampton Electric Company: First Mortgage Bonds: Series E, 6 3/4%, due January 15, 1998 504,000 511,000 511,000 Series H, 8.50%, due December 15, 2002 910,000 1,015,000 910,000 Series J, 9.43%, due September 1, 2003 5,000,000 5,000,000 5,000,000 Series K, 8.49%, due October 14, 2024 9,000,000 9,000,000 9,000,000 Fitchburg Gas and Electric Light Company: Promissory Notes: 8.55% Notes due March 31, 2004 15,000,000 15,000,000 15,000,000 6.75% Notes due November 30,2023 19,000,000 19,000,000 19,000,000 Total 63,466,000 63,610,000 63,505,000 Less: Installments due within one year 1,255,000 144,000 1,294,000 Total Long-term Debt $62,211,000 $63,466,000 $62,211,000 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, 1996 and 1995; and results of operations for the three months ended March 31, 1996 and 1995; and consolidated statements of cash flows for the three months ended March 31, 1996 and 1995. Reclassifications of amounts are made periodically to previously issued financial statements to conform with the current year presentation. The results of operations for the three months ended March 31, 1996 and 1995 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 Earnings per average common share outstanding were $0.72 for the three-months ended March 31, 1996, as compared to $0.62 per average common share outstanding for the three-months ended March 31, 1995. This increase of $0.10 per share, or 16%, was primarily due to higher electric and gas base revenue during the first quarter of 1996. Higher operating costs and lower energy consulting revenue partially offset this increase. Total base revenue increased 10.7% in the first quarter of 1996. This increase was mainly attributable to two factors: 1) continued growth in electric sales to the System's largest commercial and industrial customers: and 2) the positive impact of a normal heating season on electric and gas sales to residential customers. The Unitil System's kilowatt-hour (KWH) sales increased 11.7% during the first quarter of 1996. Regulatory approvals for Unitil's Energy Bank(TM) have now been secured and already this initiative has meant substantial new electric sales under market pricing arrangements with the System's customers at prices which are up to 40% less than the current New England average industrial rate. The addition of these substantial new sales, combined with overall higher energy usage by existing customers, resulted in an increase of over 24% in KWH sales to the System's largest commercial and industrial customer group, to 145,584,255 KWH up from 117,294,800 KWH in the year earlier period. A return to normal winter weather also had a positive impact on sales. The weather in the first quarter of 1996, as measured by heating degree days, was 12.5% colder than the same period in 1995. As a result, KWH sales to residential customers increased 7.4% to 154,572,282 KWH, compared to 143,987,634 KWH during the first quarter of 1995. Total gas firm therm sales, most impacted by the weather, increased 16.6% during the current quarter of 1996 to 11,331,370 therms from 9,719,744 therms in the year earlier period. Higher operating costs in the first quarter of 1996 partially offset the increase in base revenue. This increase in costs primarily reflects expanded business development and marketing initiatives. The Company is investing some of the earnings from new growth in the development and marketing of additional new products designed to secure and expand market share as new competitive opportunities arise from industry restructuring efforts currently underway. Other offsetting factors included a reduction in energy consulting revenues during the current quarter and an increase in property taxes of more than 10%. Millstone Unit No. 3 Unitil's Massachusetts operating subsidiary, Fitchburg Gas and Electric Light Company (FG&E), has a 0.217% ownership in the Millstone Unit No. 3 nuclear generating unit which supplies it with 2.50 MW of electric capacity. In January 1996 the Nuclear Regulatory Commission (NRC) placed Millstone No. 3 on its watch list, which calls for increased NRC inspection attention. In March 1996 the NRC requested additional information about the operation of the unit. As a result of an engineering evaluation completed by Northeast Utilities, the unit's managing owner, Millstone Unit No. 3 was taken out of service on March 30, 1996. It is expected that completion of the work necessary to answer the NRC's questions will last until early July 1996. Neither the plant's management nor the Company can predict how long the NRC will take to review this data, or what further actions the NRC might require before the restarting of this unit. During the period that Millstone No. 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 the NRC guidelines. FG&E will also incur costs to replace the power that was expected to be generated by the unit. It is estimated that the additional cost of replacement power will approximate $35,000 per month during the outage. Competition and Industry Restructuring At the state level in both New Hampshire and Massachusetts, progress towards a more competitive retail electric marketplace has continued. Unitil remains an active participant in industry, regulatory, and legislative proceedings on the issues of competition and industry restructuring, favoring a reasonable and orderly transition to competition and more choice for all customers. In New Hampshire, the Retail Competition Pilot Program initiated by the New Hampshire Public Utilities Commission (NHPUC) is currently in the implementation stage. On May 1, 1996, all regulated electric utilities in the State released lists of customers who have been selected as participants in the program. The guidelines provide that up to 3% of each utility's retail customer's will be allowed to select from among competing electric supply providers and have this supply delivered across the local utility system.More than twenty electric suppliers, including Unitil Resources, Inc., are authorized to begin marketing the sale of unbundled electricity to these participants. Unitil is currently appealing a decision by the NHPUC regarding the recovery of power costs on mandated sales discounts to Pilot Program participants. The NHPUC has ordered CECo and E&H to file tariff rates which include a non-participant protection mechanism, to prevent the allocation of unrecovered power costs to non-participating customers. The Commission's decision would deny CECo and E&H the opportunity to fully recover their purchased power costs, in violation of both federal and state law, or to mitigate any of the losses associated with the mandated power sales discounts. Unless and until reversed by the Commission or the Supreme Court it is estimated that under these tariffs CECo and E&H may potentially incur $275,000 annually of trapped wholesale power supply costs. Early in 1995, the NHPUC issued an order ruling that utilities in New Hampshire do not have exclusive territories as a matter of law. This order was issued in response to a petition by a power marketer seeking to sell electricity to certain industrial customers of an investor-owned New Hampshire utility. The NHPUC's decision was appealed to the New Hampshire Supreme Court by the affected New Hampshire utility, and on May 13, 1996 the Court confirmed the NHPUC decision by ruling that New Hampshire utilities do not as a matter of law have exclusive territories. In the New Hampshire Legislature, HB 1392 passed both the House and the Senate during the first quarter of 1996 and execution by the governor is pending. This bill establishes principles, standards and a timetable for the NHPUC to implement full, open retail electric energy competition by January 1, 1998. The Bill also calls for the NHPUC to set Interim Access Charges (equitable, appropriate and balanced with due consideration of regional competitive rate levels), with final orders on stranded cost recovery within two years of the implementation of full competition. During February 1996, four Massachusetts utilities filed restructuring plans with the Massachusetts Department of Public Utilities (MDPU), as required by that state's industry restructuring process. Following these filings, the MDPU revised its initial industry restructuring procedures, moving to a generic rulemaking proceeding first, to be followed by utility compliance filings by October 6, 1996. Draft regulations issued May 1, 1996 call for unbundled rates by January 1, 1997 and implementation of full and open electric energy competition by around January 1, 1998. Utilities are to be provided reasonable opportunity to recover prudent, non-mitigable stranded costs over ten years, phased incentive for divestiture of generation, and performance based ratemaking of monopoly transmission and distribution functions. At the federal level, the Federal Energy Regulatory Commission (FERC) recently issued its long awaited Mega-NOPR (Notice of Proposed Rulemaking) ordering jurisdictional utilities to file open access, non-discriminatory wholesale transmission tariffs within 60 days. Result should be an increase in wholesale competition in New England and, over time, a reduction in the Unitil System's purchased power costs. However, compliance with this ruling will initially involve additional filing and compliance costs for the Company. CAPITAL REQUIREMENTS Capital expenditures for the three months ended March 31, 1996 were approximately $5,400,000. This compares to $2,100,000 during the same period last year. Capital expenditures for the year 1996 are estimated to be approximately $18,300,000 as compared to $14,600,000 for 1995. This projection reflects capital expenditures of approximately $14,200,000 million for normal utility system expansions, replacements and other improvements and capital expenditures of approximately $4,100,000 related to the completion of construction of Unitil's new corporate headquarters. LEGAL PROCEEDINGS In June, 1993, E&H was served with a complaint from Zeabrook Associates, the owner of an apartment complex. In that complaint filed in the New Hampshire Superior Court for Rockingham County, the owner asserts that the Company improperly imposed a cash deposit requirement for new residential customers in the claimant's apartment complex resulting in lost rental income and damages to reputation. This matter was recently settled through mediation and E&H agreed to make a settlement payment to Zeabrook of $400,000. Approximately $200,000 of the settlement amount and $100,000 of legal fees are recoverable under E&H's stop-loss insurance policies. In another matter unrelated to Zeabrook, following a hearing before the New Hampshire Board of Land and Tax Appeals on April 11,1996, the New Hampshire Department of Transportation ("NHDOT") agreed to settle its dispute with the Company over the value of the Company's former corporate headquarters which was taken by NHDOT in 1995 in an eminent domain action. The terms of the settlement include an additional payment to be made to the Company of $875,000 and is subject to the approval of the New Hampshire Governor's Council. The Company intends to use the proceeds of the settlement, when received, to partially offset construction costs of its new corporate headquarters in Hampton, NH. PART I. EXHIBIT 11. UNITIL CORPORATION AND SUBSIDIARY COMPANIES COMPUTATION OF EARNINGS PER AVERAGE COMMON SHARE OUTSTANDING (UNAUDITED) Three Months Ended PRIMARY March 31, 1996 1995 Net Income $3,195,913 $2,718,867 Less: Dividend Requirement on Preferred Stock 70,726 71,301 Net Income Applicable to Common Stock $3,125,187 $2,647,566 Average Number of Common Shares Outstanding 4,334,283 4,274,626 Earnings Per Common Share $0.72 $0.62 Three Months Ended FULLY-DILUTED March 31, 1996 1995 Net Income $3,195,913 $2,718,867 Less: Dividend Requirement on Preferred Stock 70,726 71,301 Net Income Applicable to Common Stock $3,125,187 $2,647,566 Average Number of Common Shares Outstanding 4,443,907 4,343,520 Earnings Per Common Share $0.70 $0.61 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, 1996, 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, 1996 /s/ Gail A. Siart Gail A. Siart, Treasurer and Chief Financial Officer (Gail A. Siart is the Principal Financial Officer and has been duly authorized to sign on behalf of the registrant.)