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 June 30, 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.) 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 August 1, 1996 Common Stock, No par value 4,356,374 Shares UNITIL CORPORATION AND SUBSIDIARY COMPANIES INDEX Part I. Financial Information Page No. Consolidated Statements of Earnings - Three and Six Months Ended June 30, 1996 and 1995 3 Consolidated Balance Sheets, June 30, 1996, June 30, 1995 and December 31, 1995 4-5 Consolidated Statements of Cash Flows - Six Months Ended June 30, 1996 and 1995 6 Notes to Consolidated Financial Statements 7-8 Management's Discussion and Analysis of Results of Operations and Financial Condition 9-10 Exhibit 11 - Computation of Earnings per Average Common Share Outstanding 11 Part II. Other Information 12 -2- PART 1. FINANCIAL INFORMATION UNITIL CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) Three Months Ended Six Months Ended June 30, June 30, 1996 1995 1996 1995 Operating Revenues: Electric $36,350,820 $34,050,063 $73,047,416 $68,680,779 Gas 4,252,892 3,423,175 11,701,621 9,605,350 Other 7,142 207,034 30,427 426,670 Total Operating Revenues 40,610,854 37,680,272 84,779,464 78,712,799 Operating Expenses: Fuel and Purchased Power 24,739,837 23,050,620 48,977,621 46,249,620 Gas Purchased for Resale 2,831,468 2,126,771 7,155,434 5,585,321 Operating and Maintenance 6,383,692 5,732,168 12,207,983 11,117,153 Depreciation 1,667,157 1,548,067 3,300,715 3,118,742 Amort. of Cost of Abandoned Properties 416,215 396,869 904,715 817,588 Provisions for Taxes: Local Property and Other 1,259,582 1,156,449 2,572,958 2,350,891 Federal and State Income 881,432 754,304 2,633,219 2,229,753 Total Operating Expenses 38,179,383 34,765,248 77,752,645 71,469,068 Operating Income 2,431,471 2,915,024 7,026,819 7,243,731 Non-Operating (Income) Expense (630,220) 16,754 (642,721) 172,564 Income Before Interest Expense 3,061,691 2,898,270 7,669,540 7,071,167 Interest Expense, Net 1,464,712 1,370,926 2,876,648 2,824,956 Net Income 1,596,979 1,527,344 4,792,892 4,246,211 Less Dividends on Preferred Stock 66,889 70,835 137,615 142,136 Net Income Applicable to Common Stock $1,530,090 $1,456,509 $4,655,277 $4,104,075 Average Common Shares Otstanding 4,344,380 4,290,940 4,339,332 4,282,783 Earnings Per Share of Common Stock $0.35 $0.34 $1.07 $0.96 Dividends Declared per Share of Common Stock (Note 1) $0.33 $0.32 $0.99 $0.96 (The accompanying notes are an integral part of these statements.) -3- UNITIL CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) June 30, December 31, 1996 1995 1995 ASSETS: Utility Plant: Electric $152,853,592 $144,392,906 $148,458,414 Gas 27,785,959 26,102,007 27,220,705 Common 7,521,950 7,873,934 8,494,093 Construction Work in Progress 10,588,926 3,058,274 6,003,991 Total Utility Plant 198,750,427 181,427,121 190,177,203 Less: Accumulated Depreciation 62,165,294 58,542,627 60,682,742 Net Utility Plant 136,585,133 122,884,494 129,494,461 Other Property & Investments 42,448 42,448 42,448 Cash 2,537,729 2,199,060 3,397,931 Accounts Receivable - Less Allowance for Doubtful Accounts of $678,274 $539,741 and $622,596 14,438,879 13,008,798 14,931,699 Materials and Supplies 2,193,578 2,009,732 2,275,865 Prepayments 743,184 678,516 434,727 Accrued Revenue 3,780,317 2,029,452 2,577,715 Total Current Assets 23,693,687 19,925,558 23,617,937 Deferred Assets: Debt Issuance Costs 856,956 913,559 885,258 Cost of Abandoned Properties 26,350,076 27,955,250 27,254,791 Prepaid Pension Costs 7,141,212 6,244,710 6,689,093 Other Deferred Assets 23,721,275 24,460,235 23,718,296 Total Deferred Assets 58,069,519 59,573,754 58,547,434 TOTAL $218,390,787 $202,426,254 $211,702,284 (The accompanying notes are an integral part of these statements.) -4- UNITIL CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) June 30, December 31, 1996 1995 1995 CAPITALIZATION AND LIABILITIES: Capitalization: Common Stock Equity $64,951,176 $60,718,674 $63,894,789 Preferred Stock, Non-Redeemable, Non-Cumulative 225,000 225,000 225,000 Preferred Stock, Redeemable, Cumulative 3,665,900 3,773,900 3,773,900 Long-Term Debt, Less Current Portion 62,204,000 63,466,000 62,211,000 Total Capitalization 131,046,076 128,183,574 130,104,689 Capitalized Leases, Less Current Portion 3,584,502 3,260,128 3,732,947 Current Liabilities: Long-Term Debt, Current Portion 1,262,000 144,000 1,294,000 Short-Term Debt 6,100,000 -- 2,700,000 Accounts Payable 15,288,086 10,656,094 14,565,075 Dividends Declared and Payable 1,614,531 1,534,903 170,796 Refundable Customer Deposits 1,813,729 2,721,807 2,237,851 Taxes Accrued (56,414) 39,958 216,596 Interest Accrued 1,453,462 1,408,871 1,425,876 Capitalized Leases, Current Portion 792,100 498,770 741,832 Accrued and Other Current Liabilities 4,168,896 1,832,404 2,202,096 Total Current Liabilities 32,436,390 18,836,807 25,554,122 Deferred Liabilities: Investment Tax Credits 1,705,211 1,904,994 1,803,821 Other Deferred Liabilities 8,786,046 9,268,130 9,763,878 Total Deferred Liabilities 10,491,257 11,173,124 11,567,699 Deferred Income Taxes 40,832,562 40,972,621 40,742,827 TOTAL $218,390,787 $202,426,254 $211,702,284 (The accompanying notes are an integral part of these statements.) -5- UNITIL CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Six Months Ended June 30, 1996 1995 Net Cash Flow from Operating Activities: Net Income $4,792,892 $4,246,211 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization 4,205,430 3,936,330 Deferred Taxes 392,022 (29,899) Amortization of Investment Tax Credit (98,610) (101,174) Provision of Doubtful Accounts 476,252 369,264 Amortization of Debt Issuance Costs 28,302 43,950 Loss on Taking of Land and Building -- 140,698 Changes in Assets and Liabilities: (Increase) Decrease in: Accounts Receivable 16,568 (96,377) Materials and Supplies 82,287 80,247 Prepayments and Prepaid Pension (760,576) (712,811) Accrued Revenue (1,202,602) 262,845 Increase (Decrease) in: Accounts Payable 723,011 (1,834,947) Refundable Customer Deposits (424,122) 239,028 Taxes and Interest Accrued (245,424) 417,595 Other, Net 841,446 304,467 Net Cash Provided by Operating Activities 8,826,876 7,265,427 Net Cash Flows from Investing Activities: Acquisition of Property, Plant and Equip. (10,119,112) (5,963,887) Proceeds from Taking of Land & Building -- 2,000,000 Net Cash Used in Investing Activities (10,119,112) (3,963,887) Cash Flows from Financing Activities: Net (Decrease) in Short-Term Debt 3,400,000 - Net (Decrease) in Long-Term Debt (39,000) (1,970,321) Dividends Paid (2,991,258) (2,873,120) Issuance of Common Stock 524,318 541,634 Retirement of Preferred Stock (108,000) (94,700) Repayment of Capital Lease Obligations (354,026) (516,096) Net Cash Flows from Financing Activities 432,034 (4,912,603) Net Increase (Decrease) in Cash (860,202) (1,611,063) Cash at Beginning of Year 3,397,931 3,810,123 Cash at June 30, $2,537,729 $2,199,060 Supplemental Cash Flow Information: Cash Paid for: Interest Paid $2,893,132 $2,994,398 Federal Income Taxes Paid $2,232,000 $955,000 Non-Cash Financing Activities: Capital Leases Incurred $255,849 $437,453 (The accompanying notes are an integral part of these statements.) -6- UNITIL CORPORATION AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS (UNAUDITED) Note 1. Dividends Declared Per Share: Three regular quarterly common stock dividends were declared during the six month periods ended June 30, 1996 and 1995. Common Stock Dividend: On June 20, 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 August 15, 1996 to shareholders of record as of August 1, 1996. 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 second quarter of 1996, the Company sold 13,701 shares of Common Stock, at an average price of $21.53 per share, in connection with its Dividend Reinvestment and Stock Purchase Plan and its 401(k) plans. Net proceeds of $295,024 were used to reduce short-term borrowings. Note 3. Preferred Stock: Details on preferred stock at June 30, 1996, June 30, 1995 and December 31, 1995 are shown below: June 30, 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 1,034,600 1,076,600 1,076,600 8% Dividend Series 1,407,000 1,466,000 1,466,000 Total Redeemable Preferred Stock 3,665,900 3,773,900 3,773,900 Total Preferred Stock $3,890,900 $3,998,900 $3,998,900 -7- Note 4. Long-term Debt: Details on long-term debt at June 30, 1996, June 30, 1995 and December 31, 1995 are shown below: June 30, 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%, due October 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 1,262,000 144,000 1,294,000 Total Long-term Debt $62,204,000 $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 June 30, 1996 and 1995; and results of operations for the three and six months ended June 30, 1996 and 1995; and consolidated statements of cash flows for the six months ended June 30, 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 six months ended June 30, 1996 and 1995 are not necessarily indicative of the results to be expected for the full year. -8- UNITIL CORPORATION AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION EARNINGS Earnings from ongoing operations for the quarter increased more than 6%, versus the same period last year. The effect of nonrecurring items reduced earnings from operations 3%, resulting in a net increase of 3% in earnings per share to $0.35, compared to earnings of $0.34 per share for the same three-month period of 1995. For the first six months of 1996, earnings were $1.07 per share, up $0.11 per share from the same six-month period a year earlier, an increase of more than 11%. The earnings improvement for the second quarter primarily reflects increases derived from growing electric and gas sales. These earnings also reflect the effect of two nonrecurring and offsetting items recorded in the second quarter: 1) the positive impact of additional funds received in settlement of an eminent domain proceeding pertaining to the State of New Hampshire's taking of the Company's former corporate headquarters; and, 2) a one-time charge to earnings for estimated costs relating to compliance with the rules and regulations of the New Hampshire Public Utilities Commission for the New Hampshire Electric Retail Competition Pilot Program. Total base revenue increased 7.6% in the second quarter of 1996 as a result of higher electric and gas sales. Electric energy sales to large industrial and commercial customers were up substantially in the second quarter of 1996, as KWH usage by this group increased more than 28%, to 158,868,139 KWH up from 123,641,762 KWH in the year earlier period. These sales reflect the addition of major new load under Unitil's competitive initiatives, including the Energy Bank program(TM), as well as the overall positive impact that a more normal heating season had on energy sales. Residential KWH sales increased 2.2% to 117,796,323 KWH in the quarter, compared to 115,209,139 KWH during the second quarter of 1995. Total gas firm therm sales, most impacted by the weather, increased 6.5% during the second quarter of 1996 to 4,964,839 therms from 4,660,553 therms in the year earlier period. These increased energy sales supported higher operating costs primarily for expanded business development and marketing initiatives during the period. During the second quarter of 1996, the Company reached an agreement with the State of New Hampshire related to the eminent domain taking of its corporate headquarters. As a result of that agreement, the Company received an additional payment from the State of New Hampshire of $875,000, which settled a long standing dispute over the matter. Also in the second quarter, the Company recorded a one-time charge to earnings for estimated costs relating to compliance with the rules and regulations of the New Hampshire Public Utilities Commission for the New Hampshire Electric Retail Competition Pilot Program (see "NH Retail Competition Pilot Program"). The impact on earnings of these two nonrecurring items effectively offset each other. Total base revenue increased by 8.0% in the first six months of 1996. This increase was driven by an 11.5% increase in total KWH sales during the period. Sales to the Unitil System's largest commercial and industrial customer group grew 26.4% during the first six months of 1996, to 304,452,393 KWH from 240,936,562 KWH in the year earlier period. Residential KWH sales increased 5.1% to 272,368,605 KWH, compared to 259,196,773 KWH during the first half of 1995. Total gas firm therm sales, increased 13.3% during the first six months of 1996 to 16,296,209 therms from 14,380,297 therms in the year earlier period. 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 2.49 MW of electric capacity. In January 1996 the Nuclear Regulatory Commission (NRC) placed Millstone No. 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 (NU), the unit's managing owner. As a result of an engineering evaluation completed by NU, Millstone Unit No. 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 Station 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. -9- 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 NRC requirements. 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. NH Retail Competition Pilot Program In New Hampshire, the Retail Competition Pilot Program (Pilot Program) initiated by the New Hampshire Public Utilities Commission (NHPUC) has progressed to the operational stage. On May 1, 1996, all regulated electric utilities in the State, including Concord Electric Company (CECo) and Exeter & Hampton Electric Company (E&H), Unitil' New Hampshire based retail operating utilities, released lists of customers who have been selected as participants in the Pilot 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 thirty competitive electric suppliers, including Unitil Resources, Inc., the Company's competitive market subsidiary, are currently authorized to market the sale of electricity to these participants. Unitil Resources began marketing electricity to Pilot Program participants in late May, and actual sale by Unitil Resources and other suppliers began in June is some areas of the state. Unitil Resource's market price for the month of August - 2.2 cents/kilowatt hour - is the lowest price offered among the local, regional and national energy suppliers competing for customers in the program. Under the Pilot Program, the NHPUC had initially ordered CECo and E&H to file tariff rates which included discounts to participants and a non-participant protection mechanism, to prevent the allocation of unrecovered power costs to nonparticipating customers. The Company filed for reconsideration of that order based on a determination that the NHPUC'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. The Company entered into a settlement agreement with the NHPUC staff and the Office of the Consumer Advocate which was approved by the NHPUC on July 1, 1996 . The settlement contains provisions which provide the Company with an opportunity to mitigate the losses resulting from unrecovered power costs and mandated sales discounts. The Company has recorded in the second quarter a one-time charge to earnings for estimated costs relating to compliance with the rules and regulations of the New Hampshire Public Utilities Commission for the New Hampshire Electric Retail Competition Pilot Program. CAPITAL REQUIREMENTS Capital expenditures for the six months ended June 30, 1996 were approximately $10,100,000. This compares to $6,000,000 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. CORPORATE HEADQUARTERS RELOCATION Due to the eminent domain taking of our corporate headquarters in connection with a highway expansion, we have moved to Hampton, New Hampshire, just eight miles away from our former site. Our new address is 6 Liberty Lane West, Hampton, New Hampshire 03842. -10- PART I. EXHIBIT 11. UNITIL CORPORATION AND SUBSIDIARY COMPANIES COMPUTATION OF EARNINGS PER AVERAGE COMMON SHARE OUTSTANDING (UNAUDITED) PRIMARY Three Months Ended Six Months Ended June 30, June 30, EARNINGS PER SHARE 1996 1995 1996 1995 Net Income $1,596,979 $1,527,344 $4,792,892 $4,246,211 Less: Dividend Requirement on Preferred Stock 66,889 70,835 137,615 142,136 Net Income Applicable to Common Stock $1,530,090 $1,456,509 $4,655,277 $4,104,075 Average Number of Common Shares Outstanding 4,344,380 4,290,940 4,339,332 4,282,783 Earnings Per Common Share $0.35 $0.34 $1.07 $0.96 FULLY-DILUTED Three Months Ended Six Months Ended June 30, June 30, EARNINGS PER SHARE 1996 1995 1996 1995 Net Income $1,596,979 $1,527,344 $4,792,892 $4,246,211 Less: Dividend Requirement on Preferred Stock 66,889 70,835 137,615 142,136 Net Income Applicable to Common Stock $1,530,090 $1,456,509 $4,655,277 $4,104,075 Average Number of Common Shares Outstanding 4,454,049 4,365,961 4,453,385 4,357,227 Earnings Per Common Share $0.34 $0.33 $1.05 $0.94 -12- 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 June 30, 1996, the Company did not file any reports on Form 8-K. -13- 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 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.) -14-