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U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____.
Commission file number 0-18552
Pennichuck Corporation
- ---------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New Hampshire 02-0177370
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Four Water Street, Nashua, New Hampshire 03061
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(Address of principal executive offices) (Zip Code)
(603) 882-5191
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(Registrant's telephone number)
Not applicable
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(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 past 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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practical date:
Common Stock, $1 Par Value-2,391,439 shares as of November 1, 2002
1
INDEX
PENNICHUCK CORPORATION AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION PAGE NUMBER
- ------------------------------- -----------
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets--
September 30, 2002 and December 31, 2001 3
Condensed Consolidated Statements of Income--
Three and nine months ended September 30, 2002 and 2001 4
Condensed Consolidated Statements of Cash Flows--
Nine months ended September 30, 2002 and 2001 5
Notes to Condensed Consolidated Financial Statements--
September 30, 2002 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 - 17
Item 3. Quantitative and Qualitative Disclosures About Market Risk 17
Item 4. Controls and Procedures 17
PART II. OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings Not Applicable
Item 2. Changes in Securities and Use of Proceeds Not Applicable
Item 3. Defaults upon Senior Securities Not Applicable
Item 4. Submission of Matters to a Vote
of Security Holders Not Applicable
Item 5. Other Information Not Applicable
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 20
- ----------
SECTION 302 CERTIFICATIONS 21
- --------------------------
2
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
PENNICHUCK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30,
2002 December 31,
(Unaudited) 2001
------------- ------------
(In thousands)
ASSETS
Property, Plant and Equipment, at cost $101,910 $98,647
Construction work in progress 348 260
-------- -------
102,258 98,907
Less accumulated depreciation (26,753) (24,947)
-------- -------
75,505 73,960
Current Assets
Cash 3,113 3,272
Restricted cash 151 151
Accounts receivable, net 1,681 1,246
Unbilled revenue 1,969 1,349
Notes receivable 528 100
Refundable income taxes -- 125
Inventory 395 365
Prepaid expenses and other current assets 135 480
-------- -------
7,972 7,088
Other Assets
Deferred land costs 790 2,391
Deferred charges and other assets 3,741 3,676
Notes receivable -- 726
-------- -------
4,531 6,793
TOTAL ASSETS $ 88,008 $87,841
======== =======
STOCKHOLDERS' EQUITY AND LIABILITIES
Stockholders' Equity
Common stock-par value $1 per share $ 2,393 $ 2,389
Paid in capital 15,170 15,098
Retained earnings 13,366 13,545
Accumulated Other Comprehensive Income (546) (308)
Less treasury stock, at cost (144) (129)
-------- -------
30,239 30,595
Long Term Debt, less current portion 27,082 27,072
Current Liabilities
Current portion of long term debt 354 348
Accounts payable 408 1,373
Accrued interest payable 294 368
Other accrued expenses 2,479 1,467
-------- -------
3,535 3,556
Deferred Credits and Other Reserves
Contributions in aid of construction 17,263 17,251
Deferred income taxes 6,234 6,166
Other liabilities and deferred credits 3,655 3,201
-------- -------
TOTAL STOCKHOLDERS' EQUITY & LIABILITIES $ 88,008 $87,841
======== =======
See notes to condensed consolidated financial statements
3
PENNICHUCK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Quarter Ended Nine Months Ended
September 30 September 30
------------------------ ------------------------
2002 2001 2002 2001
---- ---- ---- ----
(In thousands, except per share amounts
and weighted average number of shares)
Revenues
Water utility operations $ 5,900 $ 5,083 $ 14,314 $ 13,141
Real estate operations 267 316 3,039 1,654
Contract operations and other 370 255 1,102 842
--------- --------- --------- ---------
6,537 5,654 18,455 15,637
Operating expenses
Water utility operations 3,100 3,217 9,500 9,161
Real estate operations 38 148 1,820 548
Contract operations and other 489 167 1,094 603
--------- --------- --------- ---------
3,627 3,532 12,414 10,312
Operating income 2,910 2,122 6,041 5,325
Merger and related expenses (95) -- (1,666) --
Other income 7 44 84 176
Interest expense (493) (505) (1,486) (1,498)
--------- --------- --------- ---------
Income before income taxes 2,329 1,661 2,973 4,003
Provision for income taxes 952 657 1,675 1,561
--------- --------- --------- ---------
Net income before minority interest 1,377 1,004 1,298 2,442
Minority interest in earnings
of Westwood Park LLC -- (4) -- 53
--------- --------- --------- ---------
Net income $ 1,377 $ 1,008 $ 1,298 $ 2,389
========= ========= ========= =========
Basic earnings per common share: $ .58 $ .42 $ .54 $ 1.01
Diluted earnings per common share: $ .57 $ .42 $ .54 $ 1.01
Weighted average common shares:
Basic 2,391,439 2,383,533 2,390,303 2,379,165
Diluted 2,410,348 2,394,772 2,409,212 2,390,404
Dividends paid per common share $ .195 $ .188 $ .585 $ .563
See notes to condensed consolidated financial statements
4
PENNICHUCK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended
September 30
--------------------
2002 2001
---- ----
(In thousands)
CASH PROVIDED (USED) BY:
Operating Activities
Net income (loss) $ 1,298 $ 2,389
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 2,098 1,763
Deferred land costs allocated to land sale 1,662 292
Deferred income taxes 67 67
Change in working capital (180) (272)
------- -------
4,945 4,239
Investing Activities:
Purchase of property, plant and
equipment and other assets (3,813) (5,175)
Increase in contributions in aid of construction 400 299
Decrease (Increase) in other (285) 1,236
------- -------
(3,698) (3,640)
Financing Activities:
Payments on long-term debt (82) (102)
Payment of common dividends (1,477) (1,338)
Proceeds from issuance of debt 92 402
Proceeds from dividend reinvestment plan and other 61 211
------- -------
(1,406) (827)
(DECREASE) IN CASH (159) (228)
CASH AT BEGINNING OF PERIOD 3,272 3,732
------- -------
CASH AT END OF PERIOD $ 3,113 $ 3,504
======= =======
Supplemental Cash Flow Information: Interest paid was $1,520,000 and
$1,399,000 for the nine months ended September 30, 2002 and 2001,
respectively. Income taxes paid were $309,000 and $692,000 for the nine
month periods ended September 30, 2002 and 2001, respectively.
See notes to condensed consolidated financial statements.
5
PENNICHUCK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2002
NOTE A -- BACKGROUND
The financial statements include the accounts of Pennichuck Corporation
(the "Company") and its wholly-owned subsidiaries, Pennichuck Water Works,
Inc. ("Pennichuck"), Pittsfield Aqueduct Company, Inc. ("Pittsfield"),
Pennichuck East Utility, Inc. ("Pennichuck East"), The Southwood
Corporation ("Southwood") and Pennichuck Water Service Corporation (the
"Service Corporation"). The financial statements also include the accounts
of Westwood Park LLC ("Westwood") in which Southwood owns a 60% majority
interest. All significant intercompany accounts have been eliminated in
consolidation.
NOTE B -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q
and Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three months and nine months periods ended September 30,
2002 are not necessarily indicative of the results that may be expected for
the year ending December 31, 2002. The Balance Sheet amounts shown under
the December 31, 2001 column have been derived from the audited financial
statements of the Company as contained in its Annual Report on Form 10-K
filed with the Securities and Exchange Commission.
NOTE C - COMMITMENT AND CONTINGENCY
Southwood holds a 50% interest in three limited liability companies known
as HECOP I, HECOP II and HECOP III, each of which owns land and a commercial
office building, subject to a mortgage note with a local bank. The mortgage
notes, totaling $9.5 million, which are not included in the accompanying
Condensed Consolidated Balance Sheets, are each secured by the underlying
real property. In addition, Southwood has provided a guarantee on one-half
of the total outstanding balance of these notes.
NOTE D - NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the FASB issued Statement of Financial Accounting Standards
No. 143, "Accounting for Asset Retirement Obligations" ("SFAS No. 143").
This statement requires that the fair value of the liability for an asset
retirement obligation be recognized in the period in which it is incurred
if a reasonable estimate of fair value can be made. The associated asset
retirement costs are capitalized as part of the carrying amounts of the
long-lived assets. SFAS No. 143 is effective for all fiscal years beginning
after June 15, 2002. The Company intends to adopt this statement as
required in 2003. The Company is currently evaluating the provisions of
this statement but does not expect the effect of adoption on its results of
operations or financial position to be material.
6
PENNICHUCK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2002 (Continued)
NOTE D - NEW ACCOUNTING PRONOUNCEMENTS (Continued)
In October 2001, the FASB issued Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" ("SFAS No. 144") which replaces SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." This statement addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. Although SFAS No. 144
supercedes SFAS No. 121, it retains the fundamental provisions of SFAS No.
121 regarding recognition/measurement of impairment of long-lived assets to
be held and used and measurement of long-lived assets to be disposed of by
sale. Under SFAS No. 144, asset write-downs from discontinuing a business
segment will be treated the same as other assets held for sale. The new
standard also broadens the financial statement presentation of discontinued
operations to include the disposal of an asset group (rather than a segment
of a business). SFAS No. 144 is effective beginning January 1, 2002 and
generally is to be applied prospectively. The Company has adopted this new
standard and it did not have any significant impact on its financial
position and results of operations.
In April 2002, the FASB approved SFAS No. 145, "Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and
Technical Corrections." SFAS No. 145, among other things, rescinds SFAS No.
4, which required all gains and losses from the extinguishment of debt to
be classified as an extraordinary item and amends SFAS No. 13 to require
that certain lease modifications that have economic effects similar to
sale-leaseback transactions be accounted for in the same manner as sale-
leaseback transactions. This statement is not expected to have a material
impact on the Company's results of operations and financial position.
In June 2002, the FASB approved SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 requires the
recognition of costs associated with exit or disposal activities when they
are incurred rather than at the date of a commitment to an exit or disposal
plan. This statement replaces the previous accounting guidance provided in
Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." SFAS No. 146 is
effective for exit or disposal activities that are initiated after December
31, 2002. The Company is currently evaluating the provisions of this
statement and has not yet determined the effect of adoption on its results
of operations and financial position.
NOTE E - PENDING MERGER PROPOSAL
On April 29, 2002, the Company entered into a definitive agreement with
Philadelphia Suburban Corporation ("PSC") to merge into a wholly-owned
subsidiary of PSC with shareholders of the Company receiving shares of PSC
in the merger (as more fully discussed in the next paragraph). The merger
is subject to several conditions, including, among other things, the
satisfaction of the applicable requirements under the Hart-Scott-Rodino
Antitrust Improvements Act, approval by the shareholders of the Company and
approval by the New Hampshire Public Utilities Commission ("NHPUC"). The
timetable set for review of the merger by the NHPUC suggests that, once all
the requisite conditions to closing have been met, the merger could close
in the first half of 2003. In June 2002, the Federal Trade Commission
granted early termination of the 30-day waiting period under the Antitrust
Improvements Act.
7
PENNICHUCK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2002 (Continued)
NOTE E - PENDING MERGER PROPOSAL (Continued)
Under the terms of the agreement, the Company's stockholders will receive a
number of shares of PSC common stock based upon the average closing price
of PSC common stock for a 20-trading day period ending shortly before the
closing of the merger. If the average PSC closing price is greater than
$25.00, the Company's stockholders will receive 1.320 shares of PSC common
stock for each share of Company common stock. If the average closing price
is less than $23.00, the Company's stockholders will receive 1.435 shares
of PSC common stock for each share of Company common stock. If the average
closing price is not greater than $25.00 and not less than $23.00, the
exchange ratio will be equal to $33.00 divided by the average closing price
of PSC stock. After the merger, the Company will be a wholly-owned
subsidiary of PSC. Total expenses associated with this merger transaction
amounted to approximately $95,000 for the third quarter of this year, and
$1,666,000 for the first nine months of 2002. Further details of these
merger expenses are discussed in Part I. Item 2. of MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
NOTE F - UNFUNDED PENSION OBLIGATION
Since 2000, there has been a marked decline in the equity markets
accompanied by lower interest rates in the debt market, resulting in a
significant decline in the market value of the assets held in Pennichuck's
defined benefit pension plan (the "Plan"). At September 30, 2002, the value
of the Plan's assets was approximately $3,090,000 representing a decrease
of $146,000 from December 31, 2001, net of Pennichuck's contribution and
payments to retirees during the first nine months of September 2002.
As a result of the decline in the equity markets and the impact on
Pennichuck's Plan assets, it is possible that the Company could be required
to record a minimum liability as prescribed in Statement of Financial
Accounting Standards ("SFAS") No. 87, "Employers' Accounting for Pensions"
and SFAS 132, "Employers' Disclosures About Pensions and Postretirement
Benefits." The liability would be recorded as a reduction in common equity,
net of any tax benefit, through a charge to Other Comprehensive Income and
would not affect net income for 2002. At present, the Company estimates that
the minimum liability could be as high as $500,000 on an after-tax basis. It
is reasonably possible that the minimum liability adjustment could increase
based on continued declines in market performance and interest rates.
However, it is also possible that no adjustment for the minimum liability
will be required at December 31, 2002 if (i) there is no further significant
decline in the market's performance or interest rates and (ii) Pennichuck
makes its required maximum contribution of $286,000 for the Plan year by
December 31, 2002. Pennichuck is currently evaluating the extent of its
minimum liability to be recorded, if any, and believes it has adequate
capital resources to support any required funding.
NOTE G - SUBSEQUENT EVENT
On October 16, 2002, Southwood entered into an amendment to a purchase and
sale agreement entered into in June 1999 with a local, unrelated developer
for the sale of approximately 66 acres of land in Merrimack, New Hampshire.
Under the terms of that agreement, Southwood will sell the property for
approximately $1.5 million in exchange for $250,000 in cash at closing and
a mortgage note of $1,250,000 secured by a first mortgage on the property.
This sale is expected to close in early 2003.
8
PART I. FINANCIAL INFORMATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations -- Three Months Ended September 30, 2002
Compared to Three Months Ended September 30, 2001
For the three months ended September 30, 2002, the Company's consolidated
net income was $1,377,000, or $.58 per share, compared to net income of
$1,008,000, or $.42 per share, for the same period in 2001. Net income,
excluding expenses related to the proposed merger with Philadelphia
Suburban Corporation ("PSC") of $95,000, for the three months ended
September 30, 2002 was approximately $1.46 million, or $.61 per share.
Consolidated revenues for the third quarter of 2002 increased to $6.54
million from $5.65 million for the same period in 2001. As discussed in
greater detail below, the $883,000 increase in consolidated revenues
occurred principally in the Company's water-related businesses reflecting
increased water rates in Pennichuck, the Company's core water utility, and
additional operating contracts in the Service Corporation.
On March 1, 2002, the New Hampshire Public Utilities Commission ("NHPUC")
issued an order in which it granted final approval of an overall 14.43%
rate increase for Pennichuck. The approved rate order includes an 8.67%
rate increase on bills rendered on or after September 8, 2001 and an
additional step adjustment of 5.76% for service rendered on or after March
1, 2002. The combined rate increases represent additional annual revenues
of approximately $1.8 million based on comparable consumption levels
experienced during the past two years.
During the third quarter of 2002, there were no rate filings made by the
Company's regulated utilities.
Our consolidated revenues are generally seasonal due to the overall
significance of the water sales of Pennichuck, Pennichuck East and
Pittsfield as a percentage of consolidated revenues. Water revenues are
typically at their lowest point during the first and fourth quarters of the
calendar year while water revenues in the second and third quarters tend to
be greater as a result of increased water consumption during the late
spring and summer months. In addition, the Company's consolidated revenues
may be significantly affected by sales of major real estate parcels, which
may occur from time to time (see discussion below under "Real Estate
Operations").
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Results of Operations -- Three Months Ended September 30, 2002 Compared to
Three Months Ended September 30, 2001 (Continued)
Water Utility Operations
The Company's water utility operations include the combined activities of
Pennichuck, Pennichuck East and Pittsfield, each of which is regulated by
the NHPUC. For the three months ended September 30, 2002, approximately
81%, 17% and 2% of the total utility operating revenues of $5,900,000 were
generated by Pennichuck, Pennichuck East and Pittsfield, respectively. The
contribution percentage of each utility in 2002 was the same from the same
quarter last year. The revenue generated by our water utility operations
contributed 90% of our total revenue for the three months ended September
30, 2002 compared to 90% for the same period last year.
Utility operating revenues for the three months ended September 30, 2002
increased to $5.90 million, a $817,000 increase from the same period in
2001 as shown in the table below broken out by each regulated water
utility:
September 30, 2002 September 30, 2001 Change
------------------ ------------------ ------
Pennichuck $4,770,000 $4,098,000 $672,000
Pennichuck East 1,022,000 874,000 148,000
Pittsfield 108,000 111,000 (3,000)
---------- ---------- --------
Total $5,900,000 $5,083,000 $817,000
========== ========== ========
The 16.1% increase in water revenues is a net result of (1) the 14.43%
overall rate increase granted to Pennichuck by the NHPUC and (2) a 2.2%
increase in the utilities' customer base over last year, offset by a 4.55%
decrease in billed consumption resulting from damper weather conditions
experienced during the spring and early summer of this year.
Total utility operating expenses, which include production, distribution
system maintenance, administration, depreciation and taxes other than
income taxes, were $3.1 million for the three months ended September 30,
2002, a decrease of $117,000, or 4%, from the same period last year.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Results of Operations -- Three Months Ended September 30, 2002 Compared to
Three Months Ended September 30, 2001 (Continued)
The decrease in utility operating expenses was primarily due to:
* an $89,000 decrease in property taxes reflecting lower
statewide property assessments,
* a decrease of $116,000 in administration expenses resulting
from the allocation of additional intercompany charges of
$146,000 from the Company's utility business segment to its
non-regulated businesses, offset by $30,000 in additional
employee benefits, principally health and pension costs and
* a $48,000 increase in depreciation and amortization due to
additional assets.
For the three months ended September 30, 2002, the combined operating
income of our three water utilities was $2,800,000, an increase of $934,000
over the same quarter in 2001. This improvement is primarily due to the
14.43% increase in water rates from last year recognized in our core
system.
Real Estate Operations
For the three months ended September 30, 2002, revenues from real estate
activities were $267,000, or $49,000 less than in the same period last
year. The third quarter revenues in 2002 were comprised of (1)
approximately $167,000 of net rental income from Southwood's 50% interest
in three office buildings located in Merrimack, New Hampshire compared to
$50,000 in 2001, and (2) approximately $97,000 in interest and other income
earned on certain mortgage notes receivable due from a local developer as
explained in the "Liquidity and Financial Condition." Last year's real
estate revenues also include $197,000 from a residential joint venture
which was closed earlier this year.
Southwood holds a 50% interest in three limited liability companies known
as HECOP I, HECOP II and HECOP III, each of which owns land and a
commercial office building, subject to a mortgage note with a local bank.
The mortgage notes, totaling $9.5 million, which are not included in the
accompanying Condensed Consolidated Balance Sheets, are each secured by the
underlying real property. In addition, Southwood has provided a guarantee
on one-half of the total outstanding balance of these notes.
Real estate operating expenses of $38,000 for the third quarter of 2002
represent a decrease of $110,000 from the same quarter in 2001, principally
due to:
* a $32,000 decrease in property tax and property management
expenses as a result of the Southwood Corporate Park land sale
which occurred in January 2002,
* a $28,000 decrease in allocated intercompany charges and
* a $15,000 decrease in operating expenses associated with
Westwood Park LLC which was not materially active in 2002.
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Results of Operations -- Three Months Ended September 30, 2002 Compared to
Three Months Ended September 30, 2001 (Continued)
Contract Operations and Other
Revenues from our contract operations and other activities were $358,000
and $12,000, respectively, for the three months ended September 30, 2002,
consisting mainly of fees charged by our Service Corporation under various
operating contracts as well as rental income from several tower leases. The
$142,000 increase in 2002 contract revenues results primarily from a multi-
year operating contract with the Town of Salisbury, Massachusetts, which
began in October 2001. Under the terms of that contract, the Service
Corporation operates and maintains that municipality's water system,
including all meter reading and billing functions. Service Corporation
earned approximately $111,000 of revenues during the third quarter of 2002
from that contract.
The following table provides a breakdown of revenues from Contract
operations and other for the third quarter of 2002 and 2001:
2002 2001 Change
---- ---- ------
Service Corporation $358,000 $216,000 $142,000
Other 12,000 39,000 (27,000)
-------- -------- --------
Total $370,000 $255,000 $115,000
======== ======== ========
Operating expenses associated with our Contract operations and other
activities were $453,000 and $36,000, respectively, for the third quarter
of 2002 as compared to $142,000 and $25,000, respectively, for the same
period in 2001. The increase in contract operations expenses resulted from
(i) additional direct maintenance and administrative expenses of $82,000
associated with the Town of Salisbury contract, and (ii) a third quarter
adjustment of $177,000 for additional year-to-date intercompany management
fee charges determined to be allocable to the Service Corporation reflecting
the increased resources provided by the Company and Pennichuck.
Results of Operations -- Nine Months Ended September 30, 2002 Compared to
Nine Months Ended September 30, 2001
For the nine months ended September 30, 2002, the Company's consolidated
net income was $1,298,000, compared to net income of $2,389,000 for the
same period in 2001. On a per share basis, basic income per share was $.54
for the nine months ended September 30, 2002, a $.47 per share decrease
from the same period last year. The decrease in net income was primarily
due to expenses related to the proposed merger with PSC incurred during the
first nine months of 2002. Excluding the effect of the merger expenses,
consolidated net income would have been approximately $2.83 million, or
$1.18 per share for the nine months ended September 30, 2002.
Year-to-date consolidated revenues in 2002 were $18.46 million, a 18%
increase over last year. As discussed below, this revenue growth occurred
primarily as a result the 14.43% overall rate increase granted to
Pennichuck in the past twelve months and the sale of land in Southwood
Corporate Park which occurred in the first quarter of this year as
discussed below.
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Results of Operations -- Nine Months Ended September 30, 2002 Compared to
Nine Months Ended September 30, 2001 (Continued)
Expenses associated with the pending PSC merger transaction total
approximately $1,666,000 for the nine months ended September 30, 2002.
Those expenses are broken down as follows:
Quarter ended Nine months ended
------------------------------------- -----------------
3/31/02 6/30/02 9/30/02 9/30/02
------- ------- ------- -------
Legal fees $141,000 $ 310,000 $78,000 $ 529,000
Investment banking fees 32,000 1,054,000 -- 1,086,000
Other fees 2,000 32,000 17,000 51,000
-------- ---------- ------- ----------
Total merger costs $175,000 $1,396,000 $95,000 $1,666,000
======== ========== ======= ==========
If the merger is ultimately consummated, the Company is obligated to pay an
additional $1.6 million in investment banking fees to its financial
adviser. Under current Internal Revenue Code regulations, any such merger-
related costs would not be deductible for Federal income tax purposes. In
the event the merger is terminated under certain conditions as set forth in
the merger agreement, the Company could be required to pay PSC a
termination fee of $2.5 million.
Water Utility Operations
Utility operating revenues for the nine months ended September 30, 2002
increased to $14.31 million, or 9%, from the same period in 2001 as shown
in the table below broken out by each of our regulated water utilities:
September 30, 2002 September 30, 2001 Change
------------------ ------------------ ------
Pennichuck $11,651,000 $10,587,000 $1,064,000
Pennichuck East 2,354,000 2,243,000 111,000
Pittsfield 309,000 311,000 (2,000)
----------- ----------- ----------
Total $14,314,000 $13,141,000 $1,173,000
=========== =========== ==========
For the nine months ended September 30, 2002, 83%, 15% and 2% of the
combined utilities' operating income was provided by Pennichuck, Pennichuck
East and Pittsfield, respectively, compared to 78%, 20%, and 2%,
respectively, for the same period last year.
The increase in overall water revenues resulted primarily within our core
system, Pennichuck. Year-to-date billed consumption within the core system,
however, declined 6.5% from the same period last year, reflecting the
effect of a 35% increase in rainfall during the first half of 2002 over the
same period in 2001. That adverse impact was partially offset by the
positive effect of an 8.67% rate increase granted to Pennichuck in
September 2001 and an additional 5.76% rate increase granted to Pennichuck
in March 2002. Accordingly, billed revenue from Pennichuck's core system
for the first nine months of 2002 increased 7.3% over the same period last
year. Additionally, water revenues reflect a 2.2% increase in the combined
utilities' customer base from September 30, 2001 to September 30, 2002.
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Results of Operations -- Nine Months Ended September 30, 2002 Compared to
Nine Months Ended September 30, 2001 (Continued)
For the nine months ended September 30, 2002, the combined utility
operating expenses increased by $339,000, or 4%. That increase is primarily
comprised of :
* approximately $195,000 of additional depreciation expense
recorded by our three utilities reflecting new investment in
plant assets during 2001 and 2002,
* $56,000 increase in liability and other business insurance
costs,
* a $108,000 increase in the Company's pension expense due to
increased payroll levels and declining investment returns on
pension plan assets,
* offset by approximately $63,000 in lower power and purification
expenses as a result of the decrease in water consumption
discussed earlier.
Real Estate Operations
For the nine months ended September 30, 2002, revenues from Southwood's
real estate activities were $3,039,000 compared to $1,654,000 for the same
period last year. This increase in revenue was primarily due to the sale of
the remaining 40 acres in Southwood Corporate Park to one of Southwood's
joint venture partners in January of this year. The net sales price of
$2.43 million was offset by approximately $1.66 million of remaining
infrastructure costs which are included in "Operating Expenses - Real
estate operations" in the accompanying Condensed Consolidated Statements of
Income. Other real estate revenues in 2002 include approximately $291,000
from Southwood's 50% ownership interest in HECOP I, II and III and $168,000
from the sale of land in the first quarter of 2002 for the future
development of HECOP IV.
For the nine months ended September 30, 2001, revenues from real estate
operations totaled $1,654,000 comprised chiefly of:
* $524,000 from Southwood's share of pretax profit from its
residential joint venture, Heron Cove,
* $422,000 from the sale of two land parcels in Southwood
Corporate Park, and
* $119,000 from Southwood's share of pretax income in commercial
joint ventures, principally its 50% ownership in HECOP I, II
and III.
During 2002, real estate expenses, excluding allocated infrastructure costs
of $1.66 million, were approximately $158,000 consisting of $31,000 for
property taxes and $64,000 for intercompany charges.
Contract Operations and Other
Revenues from contract and other operating activities totaled $1,102,000
for the nine months ended September 30, 2002. The following table provides
a breakdown of those revenues for the first nine months of 2002 and 2001:
14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Results of Operations -- Nine Months Ended September 30, 2002 Compared to
Nine Months Ended September 30, 2001 (Continued)
September 30, 2002 September 30, 2001 Change
------------------ ------------------ ------
Service Corporation $1,065,000 $631,000 $ 434,000
Other 37,000 211,000 (174,000)
---------- -------- ---------
Total $1,102,000 $842,000 $ 260,000
========== ======== =========
The $434,000 increase in Service Company's revenue over last year includes
(1) additional contract work of $322,000 billed by the Service Corporation
under the operating contract with the Town of Salisbury, Massachusetts
which began in October 2001, (2) additional contract revenues of
approximately $40,000 from 14 new operating contracts for non-transient,
community water systems and (3) $72,000 from additional Watertight
revenues.
Other revenues in 2001 included approximately $145,000 from timber
harvesting activities on forested land owned by the Company. No timber
harvesting activities were undertaken during 2002.
Operating expenses associated with our contract operations and other
activities were $998,000 and $96,000, respectively, for the first nine
months of 2002 compared to $503,000 and $100,000, respectively, for the
same period in 2001. Operating expenses relating to our contract operations
increased $495,000 compared to the prior year principally from (1)
additional expenses of $259,000 relating to the Town of Salisbury contract,
(2) $36,000 in increased Watertight related expenses and (3) an increase of
$181,000 in intercompany charges due to the increase in Company resources
utilized for the operation and development of the Service Corporation's
various activities.
Liquidity and Financial Condition
For the nine months ended September 30, 2002, the Company's cash and cash
equivalents decreased by $159,000 to $3.11 million, which is currently
invested in short-term money market funds. This cash is expected to be used
for partially funding our capital investment program during 2002 and 2003
as well to fund any operating cash flow deficiencies. The Company also
maintains a revolving line of credit agreement ("credit agreement") with a
local bank. This credit agreement allows the Company and its subsidiaries
to borrow up to $2.5 million at interest rates tied to the bank's cost of
funds or LIBOR, whichever is lower. At December 31, 2001 and September 30,
2002, there were no outstanding borrowings under this credit agreement. The
Company believes its operating cash flow for the rest of 2002, together
with available short-term investments, will be sufficient to fund the
remaining routine 2002 capital expenditures, cash dividends, required
principal payments and any additional merger-related costs that may occur.
There were several significant changes in our financial position from
December 31, 2001 to September 30, 2002, principally in certain asset
accounts of the Company and its subsidiaries. The Company experienced a net
increase in current assets of $884,000 comprised chiefly of :
* an aggregate increase of $1,055,000 in Accounts receivable and
Unbilled revenue at September 30, 2002 reflecting the higher
consumption and an increase in water rates during the third
quarter of 2002 over the fourth quarter of 2001, as discussed
earlier,
15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Liquidity and Financial Condition (Continued)
* a decrease of $345,000 in prepaid expenses due to the
amortization of prepaid property taxes at December 31, 2001 and
* an net increase of $428,000 in notes receivable, representing
amounts due from a local developer as further discussed below
and previously classified under Other Assets at December 31,
2001.
Other major changes in the Company's consolidated balance sheet from
December 31, 2001 to September 30, 2002 include (i) a decrease in deferred
land costs of $1.6 million reflecting the write-off of the remaining basis
of 40 acres in Southwood Corporate Park for the land sale which occurred in
the first quarter of 2002, (ii) a decrease of $965,000 in accounts payable
resulting from the payment of $322,000 for a source development charge and
payments of $255,000 for outstanding amounts due on various capital
projects and (iii) an increase in other accrued expenses of $1,012,000,
principally for additional Federal and state income taxes payable resulting
from the non-deductibility of certain merger-related expenses in the event
that the proposed merger with PSC is ultimately consummated.
The aforementioned notes receivable balance at September 30, 2002 of
$528,000 represents the remaining amounts due from a local unaffiliated
developer for the acquisition of land and the construction of five homes in
a residential development. During the third quarter of 2002, two homes had
been sold to third parties resulting in a repayment of $555,000 of
principal on the development and construction loans. The notes carry an
annual interest rate of 10.5% and mature in April 2003. The loans are
secured by a first mortgage interest in the land and houses.
At December 31, 2001, the $100,000 note receivable balance included under
Current Assets related to an amount due from a local developer from the
sale of a residential land parcel in October 2001 that was repaid in August
2002.
Critical Accounting Policies
The Company has identified the accounting policies below as those policies
critical to the business operations and the understanding of the results of
operations. The preparation of financial statements requires management to
make estimates and assumptions that affect the reported amounts of assets
and liabilities and revenues and expenses. The Company bases its estimates
on historical experience and on various other assumptions that are believed
to be reasonable under the circumstances. Changes in the estimates or other
judgments included within these accounting policies could result in
significant changes to the financial statements. Our critical accounting
policies are as follows:
The use of regulatory assets and liabilities as permitted by Statement of
Financial Accounting Standards No. 71 ("SFAS 71"), "Accounting for the
Effects of Certain Types of Regulation" stipulates generally accepted
accounting principles for companies whose rates are established by or are
subject to approval by an independent third-party regulator. In accordance
with SFAS No. 71, we defer costs and credits on the balance sheet as
regulatory assets and liabilities when it is probable that these costs and
credits will be recognized in the rate-making process in the period
different from when the costs and credits were incurred. These deferred
amounts, both assets and liabilities, are then recognized in the income
statement in the same period that they are reflected in rates charged to
our water utilities' customers. In the event that our assessment as to the
probability of the inclusion in the rate-making process is disallowed, the
associated regulatory asset or liability would be adjusted to reflect the
change in our assessment or change in regulatory approval.
Accrued unbilled revenue - We read our residential customer meters
generally on a quarterly basis and record our revenue based on our meter
reading results. Unbilled revenues from the last meter-reading date to the
end of the accounting period are estimated based on historical usage
patterns and the effective tariff rates. The estimate of the unbilled
revenue is a management estimate utilizing certain sets of assumptions and
conditions. Actual results could differ from those estimates.
Security Issues
Since the September 11th events of last year, water utilities have been
advised to increase security at key facilities in order to avoid
contamination of water supplies and other disruptions of service. We have
implemented a number of steps to address these concerns. Although we have
not experienced any material increase in costs relating to new security
measures, we are unable to predict what, if any, additional measures will
need to be implemented and what such measures may cost. There is no
guarantee that the NHPUC will authorize recovery of any or all of these
costs.
Forward Looking Information
This report, including management's discussion and analysis, contains
certain forward looking statements regarding the Company's results of
operations and financial position. For this purpose, any statements
contained herein that are not statements of historical fact may be deemed
to be forward looking statements. These forward looking statements are
based on current information and expectations, and are subject to factors
and uncertainties that could cause the Company's actual results to differ
materially from those expressed or implied by such forward looking
statements. Such statements address the following subjects, among others:
timeliness and extent of water utility rate increase, if any; future
operating results in the water utility and real estate sectors; earnings
growth and
16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Forward Looking Information (continued)
expectations; corporate spending and liquidity; and the proposed merger
with PSC. The following factors, among others, could cause actual results
to differ materially from those described in the forward looking
statements: with respect to regulated water utility rate relief, risk
associated with the timing and amount of rate increases as well as general
regulatory lag in realizing changes; with respect to water utility
operations, the impact of weather, such as the amount of rainfall and
temperature; with respect to real estate development, continued generally
beneficial economic conditions in the local and national economy; with
respect to corporate spending and liquidity, any enhanced security measures
required to be implemented as a result of September 11th concerns and
expenses related to the proposed merger with PSC; and with respect to the
merger with PSC, the satisfaction of all of the conditions to closing
including, among other things, shareholder approval and NHPUC approval.
PART I. FINANCIAL INFORMATION
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has entered into two interest rate swap agreements at a fixed
rate of 6.5% in order to mitigate interest rate risks associated with its
floating-rate loans. The agreements provide for the exchange of fixed
interest rate payments for floating interest rate payment obligations on
notional amounts of principal totaling $6,000,000. The Company has
designated these interest rate swaps as a cash flow hedge against the
variable future cash flows associated with the interest payments due on
$6,000,000 of notes. As of September 30, 2002, the Company has recorded a
liability of $546,000 in "Other liabilities and deferred credits"
associated with these swap agreements with the offsetting amount in
"Accumulated Other Comprehensive Income" in the accompanying Condensed
Consolidated Balance Sheets.
The fair market value of the Company's interest rate swaps represents the
estimated unrealized loss to terminate these agreements based upon current
interest rates.
PART I. FINANCIAL INFORMATION
Item 4: CONTROLS AND PROCEDURES
The Company has established a system of controls and procedures designed to
ensure that the information required to be disclosed in our periodic
reports and communications with shareholders and the investor marketplace
is recorded, processed, summarized and reported on a timely basis. The
Company's Chief Executive Officer and Chief Financial Officer are
responsible for establishing and maintaining the Company's disclosure
controls and procedures to ensure that material information relating to the
Company, including its consolidated subsidiaries, whether financial or non-
financial, is made known to responsible personnel within the Company during
the period in which the Company's financial statements and periodic
disclosure reports are being prepared. These officers have evaluated the
effectiveness of the design and operation of the Company's disclosure
controls and procedures within 90 days of the filing of this quarterly
report. This evaluation consisted of a review of the underlying procedures
presently in place, conversations and communications with responsible line
officers of material business segments and an analysis of any concerns
raised about the effectiveness of our controls and procedures to make
certain that the information necessary to make adequate judgments as to
appropriate disclosures concerning the Company is available to management.
17
Item 4: CONTROLS AND PROCEDURES (Continued)
Based on their recent evaluation, these officers have disclosed to the
Company's auditors and to the Audit Committee of the Board of Directors
that there are no significant deficiencies in the design or operation of
the Company's internal controls which could adversely affect the Company's
ability to record, process, summarize and report reliable financial data
and to prepare fair and accurate disclosure reports. Further, these
officers did not identify any material weaknesses in the internal controls
for our auditors or Audit Committee of the Board of Directors, nor have they
identified any fraud, whether or not material, that involves management or
other employees who have a significant role in the Company's internal
controls.
Finally, there have not been any significant changes in our internal
controls and procedures or in other factors that could significantly affect
such internal controls since the date of the most recent evaluation by
these senior officers and no corrective actions with regard to any
significant deficiencies or material weaknesses have been taken.
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits filed herewith:
Exhibit 2.1 Agreement and Plan of Merger dated as of April
29, 2002 by and between Pennichuck and PSC
(incorporated by reference to Exhibit 99.1 to
Pennichuck Corporation's Current Report on Form
8-K filed with the Securities and Exchange
Commission on April 29, 2002).
Exhibit 3.1 Restated Articles of Incorporation of Pennichuck
Corporation (Filed as Exhibit 3.1 to the
Company's 1990 Form 10-K Report and incorporated
herein by reference)
Exhibit 3.2 Articles of Amendment to the Articles of
Incorporation of Pennichuck Corporation (Filed
as Exhibit 3.2 to the Company's 1994 Form 10-KSB
Report and incorporated herein by reference)
Exhibit 3.3 Amended and Restated Bylaws of Pennichuck
Corporation (Filed as Exhibit 3.3 to the
Company's 2001 second quarter Form 10-Q Report
and incorporated herein by reference)
Exhibit 3.4 Articles of Amendment to the Articles of
Incorporation of Pennichuck Corporation (Filed
as Exhibit 3.4 to the Company's 1999 second
quarter Form 10-QSB Report and incorporated
herein by reference)
Exhibit 3.5 Articles of Amendment to the Articles of
Incorporation of Pennichuck Corporation (Filed
as Exhibit 3.5 to the Company's 2000 second
quarter Form 10-QSB Report and incorporated
herein by reference)
18
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K (Continued)
Exhibits filed herewith (continued):
Exhibit 3.6 Certificate of Designation of Series A Junior
Participating Preferred Stock of Pennichuck
Corporation (Filed as Exhibit 3.6 to the
Company's 2000 second quarter Form 10-QSB Report
and incorporated herein by reference)
Exhibit 4.1 Rights Agreement dated as of April 20, 2000 by
and between Pennichuck Corporation and Fleet
National Bank as Rights Agent (incorporated by
reference to Exhibit 3.2 to Pennichuck
Corporation's Registration Statement on Form
8-A12G filed with the Securities and Exchange
Commission on April 21, 2000).
Exhibit 4.2 Amendment to Rights Agreement dated October 10,
2001 by and between Pennichuck Corporation and
Fleet National Bank (incorporated by reference
to Exhibit 4.1 to Pennichuck Corporation's
Registration Statement on Form 8-A12G/A filed
with the Securities and Exchange Commission on
April 30, 2002).
Exhibit 4.3 Second Amendment to Rights Agreement dated
January 14, 2002 by and between Pennichuck
Corporation and EquiServe Trust Company, N.A.
(incorporated by reference to Exhibit 4.2 to
Pennichuck Corporation's Registration Statement
on Form 8-A12G/A filed with the Securities and
Exchange Commission on April 30, 2002).
Exhibit 4.4 Agreement of Substitution and Amendment of
Common Shares Rights Agreement dated January 15,
2002 by and between the Company and American
Stock Transfer & Trust Company (incorporated by
reference to Exhibit 4.3 to Pennichuck
Corporation's Registration Statement on Form
8-A12G/A filed with the Securities and Exchange
Commission on April 30, 2002).
Exhibit 4.5 Amendment to Rights Agreement dated April 29,
2002 by and between Pennichuck Corporation and
American Stock Transfer & Trust Company
(incorporated by reference to Exhibit 99.2 to
Pennichuck Corporation's Current Report on Form
8-K filed with the Securities and Exchange
Commission on April 29, 2002).
Exhibit 99.1 Statement(s) under Section 906 of the Sarbanes -
Oxley Act of 2002 furnished by Maurice L. Arel,
Chief Executive Officer, and Charles J. Staab,
Vice President, Treasurer and Principal
Financial Officer.
19
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K (Continued)
Exhibits filed herewith (continued):
The following report on Form 8-K was filed during the third quarter of
2002:
None.
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.
Pennichuck Corporation
(Registrant)
Date: November 12, 2002 /s/ Maurice L. Arel
----------------- ------------------------------------
Maurice L. Arel, President and
Principal Executive Officer
Date: November 12, 2002 /s/ Charles J. Staab
----------------- ------------------------------------
Charles J. Staab, Vice President,
Treasurer and Principal Financial
Officer
20
SECTION 302 CERTIFICATION OF THE PRESIDENT
AND PRINCIPAL EXECUTIVE OFFICER
I, Maurice L. Arel, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Pennichuck
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
21
SECTION 302 CERTIFICATION OF THE PRESIDENT
AND PRINCIPAL EXECUTIVE OFFICER (Continued)
6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 12, 2002
/s/ Maurice L. Arel
- ----------------------------------
President and Principal Executive Officer
SECTION 302 CERTIFICATION OF THE VICE PRESIDENT,
TREASURER AND PRINCIPAL FINANCIAL OFFICER
I, Charles J. Staab, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Pennichuck
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
22
SECTION 302 CERTIFICATION OF THE VICE PRESIDENT,
TREASURER AND PRINCIPAL FINANCIAL OFFICER (Continued)
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 12, 2002
/s/ Charles J. Staab
- ----------------------------------
Vice President, Treasurer and
Principal Financial Officer
23