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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 March 31, 2003
[ ] 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
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Pennichuck Corporation
----------------------
(Exact name of registrant as specified in its charter)
New Hampshire 02-0177370
------------- ----------
(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
--------------
(Registrant's telephone number, including area code)
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 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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State 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 May 2, 2003
INDEX
PENNICHUCK CORPORATION AND SUBSIDIARIES
PART I FINANCIAL INFORMATION PAGE NUMBER
- ------ --------------------- -----------
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets--
March 31, 2003 and December 31, 2002 3
Condensed Consolidated Statements of Income--
Three months ended March 31, 2003 and 2002 4
Condensed Consolidated Statements of Cash Flows--
Three months ended March 31, 2003 and 2002 5
Notes to Condensed Consolidated
Financial Statements-- March 31, 2003 6-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-17
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 17
Item 4. Controls and Procedures 18
PART II. OTHER INFORMATION
- -------- -----------------
Item 1. Legal Proceedings 18
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 19-23
SIGNATURES 23
- ----------
SECTION 302 CERTIFICATIONS
- --------------------------
2
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
PENNICHUCK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2003
(Unaudited) December 31, 2002
-------------- -----------------
(In thousands)
ASSETS
Property, Plant and Equipment 107,720 106,951
Less accumulated depreciation (27,990) (27,279)
-------- --------
Net Property, Plant and Equipment 79,730 79,672
Current Assets
Cash and cash equivalents 2,620 2,444
Restricted cash 151 151
Accounts receivable, net 2,663 2,853
Notes receivable 361 605
Refundable income taxes --- 334
Inventory 551 590
Prepaid expenses and other current assets 149 490
-------- --------
6,495 7,467
Other Assets
Deferred land costs 826 791
Deferred charges and other assets 3,149 3,052
Long-term note receivable 1,224 ---
-------- --------
5,199 3,843
TOTAL ASSETS $ 91,424 $ 90,982
======== ========
STOCKHOLDERS' EQUITY AND LIABILITIES
Stockholders' Equity
Common stock-par value $1 per share $ 2,393 $ 2,393
Paid in capital 15,170 15,170
Retained earnings 13,622 13,941
Accumulated other comprehensive income (913) (927)
Less Treasury stock, at cost (144) (144)
-------- --------
30,128 30,433
Long Term Debt, less current portion 26,942 26,860
Current Liabilities
Current portion of long term debt 354 354
Accounts payable 396 673
Accrued interest payable 290 370
Other accrued expenses 1,677 1,534
-------- --------
2,717 2,931
Deferred Credits and Other Reserves
Contributions in aid of construction 20,101 20,261
Deferred income taxes 6,196 6,634
Deferred gain on land sale 1,224 ---
Other liabilities and deferred credits 4,116 3,863
-------- --------
TOTAL STOCKHOLDERS' EQUITY & LIABILITIES $ 91,424 $ 90,982
======== ========
See notes to condensed consolidated financial statements.
3
PENNICHUCK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended
March 31
2003 2002
---- ----
(In thousands, except per share amounts)
Revenues
Water utility operations $ 4,052 $ 3,952
Real estate operations 453 2,578
Contract operations 344 322
Other 12 13
---------- ----------
4,861 6,865
Operating expenses
Water utility operations 3,377 3,159
Real estate operations 23 1,740
Contract operations 273 289
Other 224 5
---------- ----------
3,897 5,193
Operating income 964 1,672
Merger and related expenses (255) (175)
Other income 12 42
Interest expense (490) (493)
---------- ----------
Income before income taxes 231 1,046
Provision for income taxes 84 416
---------- ----------
Net Income $ 147 $ 630
---------- ----------
Other Comprehensive Income:
Unrealized gain on
derivatives, net of tax 14 76
---------- ----------
Comprehensive Income $ 161 $ 706
========== ==========
Net earnings per common share:
Basic $ .06 $ .26
Diluted $ .06 $ .26
Weighted average common shares:
Basic 2,391,439 2,389,416
Diluted 2,397,780 2,419,709
Dividends paid per common share $ .195 $ .195
========== ==========
See notes to condensed consolidated financial statements
4
PENNICHUCK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended
March 31
2003 2002
---- ----
(In thousands)
Operating Activities
Net income $ 147 $ 630
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 710 707
Gain on sale of land (260) (765)
Deferred income taxes 45 23
Change in other assets and liabilities 515 (369)
------ ------
Net cash provided by operating activities 1,157 226
Investing Activities:
Purchase of property, plant and
equipment and other assets (891) (883)
Proceeds from sale of land, net 260 2,427
Increase in contributions in aid of
construction 127 145
(Decrease) in other (93) (65)
------ ------
Net cash provided (used) in investing activities (597) 1,624
Financing Activities:
Payments on long-term debt (7) ---
Proceeds from issuance of debt 89 ---
Payment of common dividends (466) (466)
Proceeds from dividend reinvestment plan
and other --- 18
------ ------
Net cash used in financing activities (384) (448)
Increase in cash and cash equivalents 176 1,402
Cash and cash equivalents at beginning of period 2,444 3,272
------ ------
Cash and cash equivalents at end of period $2,620 $4,674
====== ======
Supplemental Cash Flow Information. Interest paid was $559,000 and $553,000
for the three months ended March 31, 2003 and 2002, respectively. No income
taxes were paid in either of the three month periods ended March 31, 2003 or
2002. Non-cash items for the three months ended March 31, 2003 include the
deferred gain on a land sale of $1.224 million and the related long-term
note receivable as discussed in Note E of the Notes to Condensed
Consolidated Financial Statements.
See notes to condensed consolidated financial statements.
5
PENNICHUCK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2003
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.
Certain amounts for the quarter ended March 31, 2002 have been
reclassified to conform with the 2003 financial statement presentation.
These reclassifications had no effect on net income and relate primarily to
the disclosure of "Other revenues" and "Other expenses" as separate line
items in the Condensed Consolidated Statements of Income.
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 adjustments) considered
necessary for a fair presentation have been included. Operating results for
the three month period ended March 31, 2003 are not necessarily indicative
of the results that may be expected for the year ending December 31, 2003.
The Balance Sheet amounts shown under the December 31, 2002 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 - NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board ("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 and became effective for
the Company on January 1, 2003. Adoption of this
6
PENNICHUCK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2003
NOTE C - NEW ACCOUNTING PRONOUNCEMENTS (Continued)
Statement did not have a material impact on the Company's results of
operations or financial position.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-
Based Compensation- Transition and Disclosure- an amendment to FASB
Statement No. 123" (SFAS 148) which provides for alternative methods of
transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, SFAS 148
requires prominent disclosures in both interim and annual financial
statements about the method of accounting for stock-based employee
compensation. At this time, the Company does not intend to change to the
fair value based method of accounting for stock-based compensation. On a pro
forma basis, the Company's net income and earnings per share for the quarter
ended March 31, 2002 would have been reduced to the following amounts had
compensation cost for the plan been determined consistent with SFAS No. 123,
"Accounting for Stock Based Compensation." There was no stock-based employee
compensation awarded in the first quarter of 2003.
Quarter Ended March 31,
2003 2002
---- ----
Net income:
As reported $ 147,000 $ 630,000
Deduct total stock-based employee compensation
expense determined under fair value method for
all awards, net of related tax effects (--) (145,000)
--------- ---------
Pro forma $ 147,000 $ 485,000
Basic earnings per share:
As reported $ .06 $ .26
Pro forma $ .06 $ .20
Diluted earnings per share:
As reported $ .06 $ .26
Pro forma $ .06 $ .20
In November 2002, FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" (the "Interpretation"). The
Interpretation elaborates on the disclosures to be made by a guarantor in
its interim and annual financial statements about its obligations under
certain guarantees it has issued. It also clarifies that a guarantor is
required to recognize, at the inception of a guarantee, a liability for the
fair value of the obligation undertaken in issuing the guarantee. The
initial recognition and initial
7
PENNICHUCK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2003
NOTE C - NEW ACCOUNTING PRONOUNCEMENTS (Continued)
measurement provisions of this Interpretation are applicable on a
prospective basis to guarantees issued or modified after December 31, 2002.
For Pennichuck Corporation, disclosure requirements are effective with the
2002 financial statements contained in its most recent Form 10-K report.
The application of this Interpretation did not materially impact the
financial condition, results of operations, and cash flows of Pennichuck
Corporation.
Southwood has issued a financial guarantee of one-half of the
outstanding mortgage balances associated with three limited liability
companies in which it has a 50% ownership interest. At March 31, 2003,
Southwood was contingently liable on approximately $4.69 million of mortgage
indebtedness associated with those limited liability companies.
NOTE D - COMMITMENTS AND CONTINGENCIES
Termination of Merger Agreement
- -------------------------------
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. Under the terms of the agreement, the Company's stockholders
would have received 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. The merger was 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 review of the merger by
the NHPUC and approval by the Company's shareholders was expected to occur
in the first half of 2003.
However, on November 26, 2002, the Board of Aldermen of the City of
Nashua, New Hampshire adopted a resolution calling for a referendum on
January 14, 2003 that, if passed, would authorize Nashua to pursue the
acquisition, by an eminent domain proceeding or otherwise, of all or a
portion of Pennichuck's water system serving the residents of Nashua and
others. The voters of Nashua passed the referendum on January 14, 2003.
Subsequently, on February 4, 2003, the Company announced that it had reached
an agreement with PSC to terminate PSC's pending acquisition of the Company.
The decision to terminate the merger agreement resulted from the ongoing
efforts by the City of Nashua (the "City") to acquire Pennichuck's utility
plant and property by eminent domain. Expenses associated with the PSC
merger transaction and related issues totaled approximately $255,000 (or
approximately $153,000 on an after-tax basis) for the quarter ended March
31, 2003.
8
PENNICHUCK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2003
NOTE D - COMMITMENTS AND CONTINGENCIES (Continued)
Pending Municipalization
- ------------------------
The City formally notified the Company's utility subsidiaries on
February 5, 2003 of its intention to acquire all or a portion of their
plant and property. The notification letters from the City stated that the
City was acting pursuant to New Hampshire's utility municipalization
statute. The City did not propose a purchase price for the assets in its
initial notification to the utility subsidiaries. On March 25, 2003, the
Company's three utilities notified the City of their decision not to sell
their plant and property. Under New Hampshire statutes, a municipality may
seek the NHPUC's authorization to compel the sale of utility assets through
an eminent domain proceeding if the utility does not agree to sell the
assets voluntarily. By letter dated March 26, 2003, the City indicated its
intent to pursue such an eminent domain proceeding. It is not certain
whether the City would ultimately choose to complete the acquisition of all
or any portion of the three utilities' plant and property even if the NHPUC
were to approve such an acquisition and establish a price for it.
On April 8, 2003, the Town of Pittsfield formally notified Pittsfield
Aqueduct Company, Inc. that it wished to acquire the plant and property of
that company. The letter indicated that the Town was providing its
notification pursuant to the New Hampshire utility municipalization statute.
The statute provides for a utility to respond to such an inquiry within
sixty days. The Company's Board of Directors has not yet considered the
notification from the Town or determined how to respond.
Pending Governmental Investigations
- -----------------------------------
The Company has been informed by the Securities and Exchange
Commission and the New Hampshire Bureau of Securities Regulation that it is
the subject of related investigations by each regulator. The Company
understands that the scope of those investigations relates to various real
estate development joint ventures, and includes a 1998 real estate
transaction between one of those joint ventures and Maurice L. Arel, the
Company's former President, and the Company's previous public disclosure
regarding that transaction. The Company has received subpoenas from each
regulator, seeking the production of documents in connection with their
investigations. The Company believes that it has cooperated fully with both
investigations, and it intends to continue to do so.
The Company's board of directors has retained legal counsel to conduct
an independent review, under the direction of the Company's Audit Committee,
of Mr. Arel's 1998 real estate transaction and other matters within the
scope of the regulatory investigations. The Company's board of directors
believes that independent review is substantially complete and has directed
counsel to brief the regulators on the board's findings.
9
PENNICHUCK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2003
NOTE D - COMMITMENTS AND CONTINGENCIES (Continued)
As reported in the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 2002, Note A to the Company's 1998 financial
statements, which were included in the Company's annual report to
shareholders and incorporated into its Annual Report on Form 10-KSB for that
year, disclosed that an executive officer had purchased a home in 1998 from
a joint venture between a Pennichuck subsidiary and a real estate developer.
Note A stated that the terms of the home purchase "were the same as the terms
which would be given to any independent third-party purchaser." Mr. Arel is
the executive referenced in that disclosure. Based upon the findings of the
internal review, the board of directors of the Company has determined that
Mr. Arel's 1998 home purchase in fact was not on terms that would have been
available then to any independent third-party purchaser. The Audit Committee
is continuing to investigate the matter to determine, among other things, the
financial impact of the transaction on the Company, the value of any benefits
received by Mr. Arel in that transaction, and what action the Company should
take against Mr. Arel or others.
The SEC and the New Hampshire Bureau of Securities Regulation could
seek to impose fines, penalties or other sanctions upon the Company as a
result of their respective investigations.
Mr. Arel retired from the Company as an officer and director on April
2, 2003 and as an employee on May 2, 2003.
NOTE E - DEFERRED GAIN ON LAND SALE
In January 2003, Southwood sold a tract of land to a regional
developer for approximately $1.5 million. Under the terms of that sale,
Southwood conveyed approximately 66.8 acres of land in exchange for
approximately $260,000 in cash and a long-term note receivable of
$1,223,990. The note, which matures in October 2005, carries a floating
interest rate of prime plus 1.5% and is secured by a first mortgage on the
property. The pretax gain on that sale was approximately $1.48 million, of
which $260,000, representing the net cash received at closing, is included
in "Revenues-Real Estate Operations." The remaining gain of $1,223,990,
represented by the note receivable, has been deferred since the requirements
established under Statement of Financial Accounting Standards No. 66, "
Accounting for Sales of Real Estate," for recognition of all of the profit
from this sale have not yet been met.
10
PART I. FINANCIAL INFORMATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations - - Three Months Ended March 31, 2003 Compared to
Three Months Ended March 31, 2002
For the three months ended March 31, 2003, consolidated net income was
$147,000, compared to $630,000 for the same period in 2002. Basic and
diluted earnings per common share were $.06 and $.26 for the first quarter
of 2003 and 2002, respectively. The Company's consolidated revenues for the
first quarter of 2003 totaled $4.86 million - a decrease of nearly $2
million from the first quarter of 2002. As discussed below, this decline in
consolidated revenues occurred primarily in the Company's real estate
segment due to the sale of a major tract of land that had occurred in
January 2002.
Our consolidated revenues are generally seasonal due to the overall
significance of the water sales of Pennichuck, Pennichuck East and
Pittsfield as a percent 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, our consolidated revenues may be
significantly affected by sales of major real estate parcels, which may
occur from time to time.
Water Utility Operations
- ------------------------
The Company's water utility operations include the activities of
Pennichuck, Pennichuck East and Pittsfield, each of which is regulated by
the New Hampshire Public Utilities Commission (the "NHPUC"). Utility
operating revenues for the three months ended March 31, 2003 increased
$100,000 to $4.05 million, or a 2.5% increase from the same period in 2002.
For the three months ended March 31, 2003, utility revenues of Pennichuck,
Pennichuck East and Pittsfield were $3.33 million, $592,000 and $134,000,
respectively. The contribution percentage of each utility in the first
quarter of 2003 was not materially different from the same quarter last
year.
The net increase in combined utility revenues was a result of (i) an
increase in the utilities' combined customer base of 224, or less than 1%,
and (ii) the benefit of a 5.76% rate increase granted to Pennichuck in March
2002, offset, however, by a 1.2% decrease in billed consumption within
Pennichuck's core system. That decrease in consumption reflects a declining
trend in consumption for Pennichuck's 100 largest commercial and industrial
accounts as a result of a modest slowdown in the regional economy.
During the first quarter of 2003, there were no rate filings made by
the Company's regulated utilities. However, in May 2003, Pittsfield filed a
Notice of Intent to File for Rate Relief in which it is seeking an increase
of approximately $89,000, or 21.6%, in its annual water revenues. It is
uncertain (i) whether or not this rate case will be concluded in 2003 or
(ii) the amount of rate increase which will ultimately be determined by the
NHPUC.
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Results of Operations -- Three Months Ended March 31, 2003 Compared to Three
Months Ended March 31, 2002 (Continued)
Total utility operating expenses were $3.38 million for the quarter
ended March 31, 2003, a $218,000, or 6.9%, increase over the same period
last year. The combined water utilities' operating costs increased primarily
due to (i) approximately $80,000 of increased distribution system expenses
as a result of colder temperatures and increased snowfall experienced in the
first quarter of 2003, (ii) approximately $18,000 for additional property
and liability insurance premiums, consistent with recent changes in the
insurance market, (iii) $51,000 of additional depreciation charges and
property taxes associated with approximately $5.27 million of new utility
plant and equipment placed in service during the past year, (iv)
approximately $23,000 in general and administrative salaries due to normal
pay increases granted during 2002 and (v) an overall increase of
approximately 3% in union wages effective in mid-February 2002.
Real Estate Operations
- ----------------------
For the three months ended March 31, 2003, revenues from Southwood's
real estate activities were $453,000 compared to $2.56 million for the same
period last year. Last year's revenues include $2.43 million from the sale
of the remaining 40 acres in Southwood Corporate Park to Winstanley
Enterprises, Inc. -- one of Southwood's joint venture partners. 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 2002 in the accompanying Condensed Consolidated
Statements of Income.
Southwood's revenues for the first quarter of 2003 were derived from
two principal sources. First, Southwood has a 50% ownership interest in four
limited liability companies ("LLCs"), whose assets and liabilities are not
included in the accompanying Condensed Consolidated Balance Sheets. Three of
those LLCs each own a commercial office building from which Southwood
recorded approximately $158,000 in the first quarter of 2003 as its share of
pretax operating income from the rental activities of the LLCs. For the same
quarter in 2002, Southwood's share of pretax operating income was
approximately $103,000. At March 31, 2003, the principal asset of the fourth
LLC was approximately 9.1 acres of land held for future development.
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Results of Operations -- Three Months Ended March 31, 2003 Compared to Three
Months Ended March 31, 2002 (Continued)
The second principal source of revenue from real estate activities in
first quarter of 2003 was derived from the sale of land to a regional
developer in January 2003. Under the terms of that sale, Southwood conveyed
approximately 66.8 acres of land in exchange for approximately $260,000 in
cash and a long-term note receivable of $1,223,990. The note, which matures
in October 2005, carries a floating interest rate of prime plus 1.5% and is
secured by a first mortgage on the property. The pretax gain on that sale
was approximately $1.48 million, of which $260,000, representing the net
cash received at closing, is included in "Revenues-Real Estate Operations."
The remaining gain of $1,223,990, represented by the note receivable, has
been deferred since the requirements established under Statement of
Financial Accounting Standards No. 66, "Accounting for Sales of Real
Estate," for recognition of all of the profit from this sale have not yet
been met. The Company anticipates recognizing the deferred gain on this
transaction upon final payment of principal on the note in October 2005.
Contract Operations
- -------------------
Revenues from contract operations were $344,000 for the three months
ended March 31, 2003, compared to $322,000 for the same period in 2002. The
Service Corporation's revenues consist chiefly of fees under various
operations and billing contracts as well as rental income from several tower
leases. The $22,000 increase in contract revenues over the same period last
year is principally due to CPI adjustments to the contract fees contained in
Service Corporation's two largest service agreements with the Town of
Hudson, New Hampshire and the Town of Salisbury, Massachusetts.
Operating expenses associated with our contract operations were
$273,000 for the first quarter of 2003 compared to $289,000 for the first
quarter of 2002. The decrease in operating expenses associated with our
contract operations resulted primarily from (i) a decrease of $8,000 in
direct expenses associated with the Hudson contract and (ii) a $17,000
decrease in expenses related to the Service Corporation's Watertight program
and other activities.
Other Expenses
- --------------
Other expenses in the first quarter of 2003 include approximately
$93,000 and $136,000 of legal and other fees incurred in connection with the
pending municipalization offer and pending regulatory investigation,
respectively, discussed in Note D to the Notes to Condensed Consolidated
Financial Statements.
During the first quarter of 2003, the Company also incurred
approximately $255,000 in merger costs relating to the terminated merger
agreement with PSC as shown in the accompanying Condensed Consolidated
Statement of Income. The Company currently expects that the legal and other
costs associated with both the current municipalization offer and the ongoing
regulatory investigations are likely to continue until the resolution of such
matters.
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Pending Governmental Investigations
- -----------------------------------
The Company has been informed by the Securities and Exchange
Commission and the New Hampshire Bureau of Securities Regulation that it is
the subject of related investigations by each regulator. The Company
understands that the scope of those investigations relates to various real
estate development joint ventures, and includes a 1998 real estate
transaction between one of those joint ventures and Maurice L. Arel, the
Company's former President, and the Company's previous public disclosure
regarding that transaction. The Company has received subpoenas from each
regulator, seeking the production of documents in connection with their
investigations. The Company believes that has cooperated fully with both
investigations, and it intends to continue to do so.
The Company's board of directors has retained legal counsel to conduct
an independent review, under the direction of the Company's Audit Committee,
of Mr. Arel's 1998 real estate transaction and other matters within the
scope of the regulatory investigations. The Company's board of directors
believes that independent review is substantially complete and has directed
counsel to brief the regulators on the board's findings.
As reported in the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 2002, Note A to the Company's 1998 financial
statements, which were included in the Company's annual report to
shareholders and incorporated into its Annual Report on Form 10-KSB for that
year, disclosed that an executive officer had purchased a home in 1998 from
a joint venture between a Pennichuck subsidiary and a real estate developer.
Note A stated that the terms of the home purchase "were the same as the terms
which would be given to any independent third-party purchaser." Mr. Arel is
the executive referenced in that disclosure. Based upon the findings of the
internal review, the board of directors of the Company has determined that
Mr. Arel's 1998 home purchase in fact was not on terms that would have been
available then to any independent third-party purchaser. The Audit Committee
is continuing to investigate the matter to determine, among other things, the
financial impact of the transaction on the Company, the value of any benefits
received by Mr. Arel in that transaction, and what action the Company should
take against Mr. Arel or others.
The SEC and the New Hampshire Bureau of Securities Regulation could
seek to impose fines, penalties or other sanctions upon the Company as a
result of their respective investigations.
Mr. Arel retired from the Company as an officer and director on April
2, 2003 and as an employee on May 2, 2003.
14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Liquidity and Financial Condition
For the first three months of 2003, the cash required to fund the
Company's normal operating activities and its capital improvements program
was derived from a combination of operating cash flow and available short-
term investments. Typically, our cash needs are at their lowest point of the
year during the first quarter since construction activity for our water
utilities and the related capital expenditures do not normally begin until
the second quarter. Our operating subsidiaries generated approximately $1.16
million in consolidated operating cash flow for the three months ended March
31, 2003.
For the quarter ended March 31, 2003, our Company's cash and cash
equivalents increased by $176,000 to $2.62 million, which is currently held
in short-term money market investments. This cash is expected to be used for
funding our capital investment program during 2003 and any operating cash
flow deficiencies as well as any costs required as a result of the ongoing
municipalization effort by the City of Nashua and by the ongoing
governmental investigations.
The Company also maintains a revolving line of credit agreement with a
local bank. This line of 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, 2002 and
March 31, 2003, there were no outstanding borrowings under this line of
credit agreement.
Other major changes in our financial position from December 31, 2002
to March 31, 2003 were:
* a decrease of $341,000 in "Prepaid expenses and other current assets"
resulting from prepaid property taxes which were amortized and charged
against earnings during the first quarter of 2003;
* a decrease of $243,000 in "Notes receivable" included under Current
Assets reflecting the net payments received on a development and
construction loan to a local developer which are expected to be repaid
in full in May 2003;
* an increase of $891,000 in operating and other utility assets for
capital projects undertaken during the first quarter; and
* a decrease in retained earnings from $13.94 million at the end of 2002
to $13.62 million at March 31, 2003 as a result of the Company's net
income of $147,000 for the first quarter of 2003 offset by common
dividends paid of $466,000 during the first quarter.
15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Liquidity and Financial Condition (Continued)
The "Long-term note receivable" balance of $1.22 million at March 31,
2003 represents a note received by Southwood from the sale of a 66.8 acre
tract of land to a regional developer in January 2003. Under the terms of
that sale, Southwood conveyed approximately 66.8 acres of land in exchange
for approximately $260,000 in cash and a long-term note receivable of
$1,223,990. The note, which matures in October 2005, carries a floating
interest rate of prime plus 1.5% and is secured by a first mortgage on the
property. The pretax gain on that sale was approximately $1.48 million, of
which $260,000, representing the net cash received at closing, is included
in "Revenues-Real Estate Operations." The remaining gain of approximately
$1.22 million, represented by the note receivable, has been deferred since
the requirements established under Statement of Financial Accounting
Standards No. 66, " Accounting for Sales of Real Estate," for recognition of
all of the profit from this sale have not yet been met.
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 ("SFAS") No 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 our rates charged
for water utility operations. In the event that our assessment as to the
probability of the inclusion in the rate-making process is incorrect, the
associated regulatory asset or liability would be adjusted to reflect the
change in our assessment or change in regulatory approval.
16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Accrued unbilled revenue - We read our customer meters on a cyclical
basis and record our revenue based on our meter reading results. Revenues
from the 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.
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 available to management at the time the
statements are made, 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: likely commencement of eminent domain
proceedings before the NHPUC to acquire all or a portion of the Company's
water utility assets, and impact thereof on the Company's consolidated
business operations and planning; timeliness and extent of water utility
rate increases, if any; future operating results in the water utility and
real estate sectors; earnings growth and expectations; and corporate
spending and liquidity. The following factors, among others, could cause
actual results to differ materially from those described in the forward
looking statements: with respect to eminent domain proceedings, the
timeframe in which proceedings occur, and the results thereof or negotiated
alternatives thereto; with respect to regulated water utility rate relief,
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, the impact of overall economic conditions in the
local and national economy; with respect to corporate spending and
liquidity, changes in capital projects that may affect the Company's level
of capital expenditures, any enhanced security measures required to be
implemented by water utility companies as a result of September 11th
concerns, and expenses related to the pending municipalization efforts by
the City of Nashua and others and the ongoing governmental investigations.
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
17
PART I. FINANCIAL INFORMATION
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
(Continued)
agreements provide for the exchange of fixed interest rate payments for
floating rate interest 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 March 31, 2003, the
Company has recorded a liability of $517,000 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.
Item 4: CONTROLS AND PROCEDURES
We have established disclosure controls and procedures to ensure that
material information relating to the Company, including its consolidated
subsidiaries, is made known to the officers who certify the Company's
financial reports and to other members of senior management and the Board of
Directors.
Based on their evaluation as of a date within 90 days of the filing
date of this Quarterly Report on Form 10-Q, the principal executive officer
and principal financial officer of Pennichuck Corporation have concluded
that Pennichuck Corporation's disclosure controls and procedures (as defined
in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934)
are effective to ensure that the information required to be disclosed by
Pennichuck Corporation in reports that it files or submits under the
Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified in applicable Securities and
Exchange Commission rules and forms.
There were no significant changes in Pennichuck Corporation's internal
controls or in other factors that could significantly affect those controls
subsequent to the date of their most recent evaluation.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company has been informed by the Securities and Exchange
Commission and the New Hampshire Bureau of Securities Regulation that it is
the subject of related investigations by each regulator as discussed in
greater detail in Management's Discussion and Analysis of Financial
Condition and Results of Operations contained in this Report.
18
PART II. OTHER INFORMATION (Continued)
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibit Index:
Exhibit
Number Exhibit Description
------- -------------------
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)
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)
3.3 Bylaws of Pennichuck Corporation (Filed as Exhibit 3.3 to
the Company's 2002 Form 10-K Report and incorporated
herein by reference)
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)
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)
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)
19
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K (Continued)
Exhibit
Number Exhibit Description
------- -------------------
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).
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).
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).
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).
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).
10.1 Deferred Compensation Program for Directors of Pennichuck
Corporation (Filed as Exhibit 10.2 to the Company's 1997
Form 10-KSB Report and incorporated herein by reference)
20
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K (Continued)
Exhibit
Number Exhibit Description
------- -------------------
10.2 Amended Line of Credit Agreement dated October 2, 1991
between Pennichuck Corporation and Fleet Bank-NH (Filed as
Exhibit 10.7 to the Company's 1991 Form 10-K Report and
incorporated herein by reference)
10.3 Second Amendment dated March 23, 1994 to Line of Credit
Agreement between Pennichuck Corporation and Fleet Bank-NH
dated October 2, 1991 (Filed as Exhibit 10.7 to the
Company's 1994 first quarter Form 10-QSB Report and
incorporated herein by reference)
10.4 Amended and Restated Revolving Line of Credit Loan
Agreement dated March 23, 1994 between Pennichuck
Corporation and Fleet Bank-NH (Filed as Exhibit 10.8 to
the Company's 1994 second quarter Form 10-QSB Report and
incorporated herein by reference)
10.5 Insurance Funded Deferred Compensation Agreement dated
June 13, 1994 (Filed as Exhibit 10.9 to the Company's 1994
second quarter Form 10-QSB Report and incorporated herein
by reference)
10.6 Amendment Agreement dated May 4, 1995 to Amended and
Restated Revolving Line of Credit Loan Agreement dated
March 23, 1994 between Pennichuck Corporation and Fleet
Bank-NH (Filed as Exhibit 10.8 to the Company's 1995
second quarter Form 10-QSB Report and incorporated herein
by reference)
10.7 1995 Stock Option Plan (Filed as Exhibit 4.1 to the
Company's Post-Effective Amendment No. 1 to Registration
Statement on Form S-8, filed September 17, 2001, No. 333-
57352, and incorporated herein by reference)
10.8 Amendment Agreement dated July 31, 1996 to Amended and
Restated Revolving Line of Credit Loan Agreement dated
March 23, 1994 between Pennichuck Corporation and Fleet
Bank-NH (Filed as Exhibit 10.10 to the Company's 1996
third quarter Form 10-QSB Report and incorporated herein
by reference)
21
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K (Continued)
Exhibit
Number Description of Exhibit
------- ----------------------
10.9 Amendment Agreement dated March 18, 1998 to Amended and
Restated Revolving Line of Credit Loan Agreement dated
March 23, 1994 between Pennichuck Corporation and Fleet
Bank-NH (Filed as Exhibit 10.10 to the Company's 1998
first quarter Form 10-QSB report and incorporated herein
by reference)
10.10 Loan Agreement dated April 8, 1998 between Pennichuck
Corporation, Pennichuck East Utility, Inc. and Fleet Bank-
NH (Filed as Exhibit 10.11 to the Company's 1998 second
quarter Form 10-QSB report and incorporated herein by
reference)
10.11 Amendment Agreement dated April 24, 1998 to Loan Agreement
dated April 8, 1998 between Pennichuck Corporation,
Pennichuck East Utility, Inc., The Southwood Corporation,
Pennichuck Water Service Corporation and Fleet Bank-NH
(Filed as Exhibit 10.12 to the Company's 1998 second
quarter Form 10-QSB report and incorporated herein by
reference)
10.12 Employment Agreement by and between Pennichuck Corporation
and Maurice L. Arel (Filed as Exhibit 10.13 to the
Company's 1998 Form 10-KSB Report and incorporated herein
by reference)
10.13 Form of Change of Control Agreement by and between
Pennichuck Corporation and executive officers (Stephen J.
Densberger, Charles J. Staab, Bonalyn J. Hartley and
Donald L. Ware) each dated January 8, 1999 (Filed as
Exhibit 10.14 to the Company's 1999 first quarter Form 10-
QSB Report and incorporated herein by reference)
10.14 Amendment Agreement dated August 24, 1999 to Amended and
Restated Revolving Line of Credit Agreement dated March
23, 1994 between Pennichuck Corporation, Pennichuck Water
Works, Inc. and Fleet Bank-NH (Filed as Exhibit 10.15 to
the Company's 1999 third quarter Form 10-QSB Report and
incorporated herein by reference)
22
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K (Continued)
Exhibit
Number Description of Exhibit
------- ----------------------
10.15 2000 Stock Option Plan (Exhibit 4.1 to the Company's Post-
Effective Amendment No. 1 to Registration Statement on
Form S-8, No. 333-57354, filed on September 17, 2001 and
incorporated herein by reference)
99.1 Statement(s) under Section 906 of the Sarbanes - Oxley Act
of 2002 furnished by John R. Kreick, PhD., Principal
Executive Officer, and Charles J. Staab, Principal
Financial Officer (Filed as Exhibit 99.1 to this report on
Form 10-Q).
(b) Reports on Form 8-K:
The following Current Reports on Form 8-K were filed by the Registrant
during the first quarter of 2003 with the Commission:
1. Current Report on Form 8-K dated January 8, 2003 under the caption
"Item 9. Regulation FD Disclosure."
2. Current Report on Form 8-K dated February 5, 2003 under the caption
"Item 5. Other Events."
3. Current Report on Form 8-K/A dated February 5, 2003 under the
caption "Item 5. Other Events."
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: May 15, 2003 /s/ John R. Kreick
------------ ------------------
John R. Kreick, PhD.,
Principal Executive Officer
Date: May 15, 2003 /s/ Charles J. Staab
------------ --------------------
Charles J. Staab, Vice
President, Treasurer and
Principal Financial Officer
23
SECTION 302 CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER
- ------------------------------------------------------------
I, John R. Kreick, 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;
24
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: May 15, 2003
/s/ John R. Kreick
- ------------------
Principal Executive Officer
25
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
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;
26
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: May 15, 2003
/s/ Charles J. Staab
- --------------------
Vice President, Treasurer and Principal Financial Officer
27