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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 June 30, 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
---------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(603) 882-5191
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES [X] NO [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
YES [ ] NO [X]
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 August 4, 2003
INDEX
PENNICHUCK CORPORATION AND SUBSIDIARIES
FORM 10-Q
June 30, 2003
PART I. FINANCIAL INFORMATION PAGE NUMBER
- ------------------------------ -----------
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets--
June 30, 2003 and December 31, 2002 3
Condensed Consolidated Statements
of Operations -- Three and six months ended
June 30, 2003 and 2002 4
Condensed Consolidated Statements
of Cash Flows -- Six months ended
June 30, 2003 and 2002 5
Notes to Condensed Consolidated
Financial Statements -- June 30, 2003 6-11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-21
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 21
Item 4. Controls and Procedures 21-22
PART II. OTHER INFORMATION
- --------------------------
Item 1. Legal Proceedings 22
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 22-23
Item 5. Other Information Not Applicable
Item 6. Exhibits and Reports on Form 8-K 23-27
SIGNATURES 27
- ----------
2
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
PENNICHUCK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2003
(Unaudited) December 31, 2002
------------- -----------------
ASSETS (In thousands, except share and per share data)
Property, Plant and Equipment $110,192 $106,951
Less accumulated depreciation (28,747) (27,279)
-------- --------
Net Property, Plant and Equipment 81,445 79,672
Current Assets
Cash and cash equivalents 985 2,444
Restricted cash --- 151
Accounts receivable, net 3,091 2,853
Notes receivable --- 605
Refundable income taxes --- 334
Inventory 1,018 590
Prepaid expenses and other current assets 554 490
-------- --------
5,648 7,467
Other Assets
Deferred land costs 842 791
Deferred charges and other assets 3,266 3,052
Long-term note receivable 1,224 ---
-------- --------
5,332 3,843
TOTAL ASSETS $ 92,425 $ 90,982
======== ========
STOCKHOLDERS' EQUITY AND LIABILITIES
Stockholders' Equity
Common stock-par value $1 per share
-authorized 11,500,000 shares - issued
2,393,391 shares $ 2,393 $ 2,393
Paid in capital 15,170 15,170
Retained earnings 13,499 13,941
Accumulated other comprehensive income (898) (927)
Less Treasury stock, at cost - 1,952 shares (138) (144)
-------- --------
30,026 30,433
Minority Interest 34 ---
Long Term Debt, less current portion 26,975 26,860
Current Liabilities
Current portion of long term debt 354 354
Accounts payable 1,193 673
Accrued interest payable 371 370
Income taxes payable 436 ---
Other accrued expenses 1,114 1,534
-------- --------
3,468 2,931
Deferred Credits and Other Reserves
Contributions in aid of construction 20,492 20,261
Deferred income taxes 6,251 6,634
Deferred gain on land sale 1,224 ---
Other liabilities and deferred credits 3,955 3,863
-------- --------
TOTAL STOCKHOLDERS' EQUITY & LIABILITIES $ 92,425 $ 90,982
======== ========
See notes to condensed consolidated financial statements.
3
PENNICHUCK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Quarter Ended Six Months Ended
June 30 June 30
2003 2002 2003 2002
---- ---- ---- ----
(In thousands, except per share amounts
and weighted average number of shares)
Revenues
Water utility operations $ 4,567 $ 4,462 $ 8,619 $ 8,414
Real estate operations 277 194 729 2,772
Contract operations 390 385 734 707
Other 28 12 40 25
---------- ---------- ---------- ----------
5,262 5,053 10,122 11,918
Operating expenses
Water utility operations 3,490 3,241 6,867 6,400
Real estate operations 17 42 40 1,782
Contract operations 375 255 648 544
Other 5 56 -- 61
---------- ---------- ---------- ----------
3,887 3,594 7,555 8,787
Operating income 1,375 1,459 2,567 3,131
Merger and other expenses (205) (1,396) (689) (1,571)
Other income 16 35 28 77
Interest expense (489) (500) (979) (993)
---------- ---------- ---------- ----------
Income (loss) before income taxes 697 (402) 927 644
Provision for income taxes 270 307 354 723
---------- ---------- ---------- ----------
Net income (loss) before minority interest 427 (709) 573 (79)
Minority interest in (earnings) of
Westwood Park LLC, net of tax (34) -- (34) --
---------- ---------- ---------- ----------
Net Income (loss) 393 (709) 539 (79)
Other comprehensive income:
Unrealized gain (loss) on
derivatives, net of tax 15 14 29 (62)
---------- ---------- ---------- ----------
Comprehensive income $ 408 $ (695) $ 568 $ (141)
========== ========== ========== ==========
Net earnings (loss) per common share:
Basic $ .16 $ (.30) $ .23 $ (.03)
Diluted $ .16 $ (.29) $ .22 $ (.03)
Weighted average common shares:
Basic 2,391,439 2,391,439 2,391,439 2,390,283
Diluted 2,398,824 2,405,765 2,398,748 2,402,478
Dividends paid per common share $ .215 $ .195 $ .41 $ .39
========== ========== ========== ==========
See notes to condensed consolidated financial statements.
4
PENNICHUCK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended
June 30
2003 2002
---- ----
(In thousands)
Operating Activities
Net income (loss) $ 539 $ (79)
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 1,408 1,382
Gain on sale of land (260) ---
Allocation of land costs --- 1,662
Deferred income taxes 90 45
Change in other assets and liabilities 393 (893)
------ ------
Net cash provided by operating activities 2,170 2,117
Investing Activities:
Purchase of property, plant and
equipment and other assets (3,153) (1,860)
Proceeds from sale of land, net 260 ---
Increase in contributions in aid of
construction 97 153
Increase (decrease) in other 26 (187)
------ ------
Net cash used in investing activities (2,770) (1,894)
Financing Activities:
Payments on long-term debt (80) (71)
Proceeds from issuance of debt 196 ---
Payment of common dividends (981) (932)
Proceeds from dividend reinvestment plan
and other 6 99
------ ------
Net cash used in financing activities (859) (904)
Decrease in cash and cash equivalents (1,459) (681)
Cash and cash equivalents at beginning of period 2,444 3,272
------ ------
Cash and cash equivalents at end of period $ 985 $2,591
====== ======
Supplemental Cash Flow Information. Interest paid was $1,038,000 and
$965,000 for the six months ended June 30, 2003 and 2002, respectively. No
income taxes were paid during the six months ended June 30, 2003. Income
taxes paid during the six months ended June 30, 2002 were $97,000. Non-cash
items for the six months ended June 30, 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 and contributions in aid of construction totaling $304,000 and
$106,000 for the six months ended June 30, 2003 and 2002, respectively.
See notes to condensed consolidated financial statements.
5
PENNICHUCK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 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 three and six months ended June 30, 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 Operations.
NOTE B -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with accounting principles generally
accepted in the United States of America for interim financial statements
and with the instructions to Form 10-Q and Regulation S-X pertaining to
interim financial statements. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally
accepted in the United States of America 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 and six months ended June
30, 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 Statement did not have a
material impact on the Company's results of operations or financial
position.
6
PENNICHUCK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2003
NOTE C - NEW ACCOUNTING PRONOUNCEMENTS (Continued)
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 three
and six months ended June 30, 2003 and 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 for the six months
ended June 30, 2003.
Three Months Ended Six Months Ended
June 30 June 30
2003 2002 2003 2002
---- ---- ---- ----
(In thousands, except per share data)
Net income (loss):
As reported $ 393 $(709) $ 539 $ (79)
Deduct total stock-based employee
compensation expense determined under
fair value method for all awards, net of
related tax effects (---) (---) (---) (145)
----- ----- ----- -----
Pro forma $ 393 $ 709 $ 539 $(224)
Basic earnings per share:
As reported $ .16 $(.30) $ .23 $(.03)
Pro forma $ .16 $(.30) $ .23 $(.09)
Diluted earnings per share:
As reported $ .16 $(.29) $ .22 $(.03)
Pro forma $ .16 $(.29) $ .22 $(.09)
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
7
PENNICHUCK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2003
NOTE C - NEW ACCOUNTING PRONOUNCEMENTS (Continued)
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 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 were 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 June 30, 2003,
Southwood was contingently liable on approximately $4.66 million of mortgage
indebtedness associated with those limited liability companies.
In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities - an Interpretation of ARB No.
51." FIN 46 establishes accounting, reporting and disclosure requirements
for companies that currently hold unconsolidated investments in Variable
Interest Entities ("VIEs"). Depending on the nature of the interest,
reporting of a VIE could be satisfied by disclosure or full consolidation.
FIN 46 applies immediately to VIEs created or acquired after January 31,
2003. It applies in the first fiscal year or interim period beginning after
June 15, 2003, to VIEs that were previously created or acquired before
February 1, 2003. The Company does not hold interests in any VIEs, and does
not expect the adoption of FIN 46 to have a material effect on its combined
financial statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity".
SFAS No. 150 establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. SFAS No. 150 applies specifically to a number of financial
instruments that companies have historically presented with their financial
statements either as equity or between the liabilities section and the
equity section, rather than as liabilities. SFAS 150 is effective for
financial instruments entered into or modified after May 31, 2003, and
otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. The Company does not believe that SFAS No.
150 will have a material effect on its combined financial statements.
8
PENNICHUCK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2003
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 $231,000 (or
approximately $139,000 on an after-tax basis) for the six months ended June
30, 2003.
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'
9
PENNICHUCK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2003
NOTE D - COMMITMENTS AND CONTINGENCIES (Continued)
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.
By letter dated May 28, 2003, Pittsfield Aqueduct Company, Inc. notified the
Town of Pittsfield of its decision not to sell its plant and property.
The Company cannot predict the ultimate outcome of these matters. It
is possible that, if the acquisition efforts of the City and the Town of
Pittsfield are successful, the financial position of the Company would be
materially impacted. No adjustments have been recorded in the accompanying
condensed financial statements for these uncertainties.
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 that the
Company believes are within the scope of the regulatory investigations. The
Company's board of directors believes that independent review is
substantially complete, and at the board's direction, counsel has briefed
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
10
PENNICHUCK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2003
NOTE D - COMMITMENTS AND CONTINGENCIES (Continued)
purchase in fact was not on terms that would have been available then to any
independent third-party purchaser. The board is continuing to consider what
action the Company should take against Mr. Arel in light of these facts, the
ongoing regulatory investigations and the related expenses incurred by the
Company, among other factors.
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. The Company cannot predict the
ultimate outcome of this matter and accordingly, no adjustments have been
made in the accompanying condensed financial statements for these
uncertainties.
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 until payment of the
note 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.
11
PART I. FINANCIAL INFORMATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Forward Looking Information
- ---------------------------
This report, including management's discussion and analysis, contains
forward looking statements regarding the Company's results of operations and
financial condition. Any statements contained herein that do not describe
historical facts are 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.
Results of Operations - - Three Months Ended June 30, 2003 Compared to Three
Months Ended June 30, 2002
For the three months ended June 30, 2003, consolidated net income was
$393,000, compared to a loss of $709,000 for the same period in 2002. Basic
earnings per common share were $.16 for the second quarter of 2003 compared
to a basic loss per share of $.30 in the second quarter of 2002. A principal
reason for the loss in 2002 was $1.4 million in merger-related costs
associated with the termination of the Philadelphia Suburban Corporation
planned merger. The Company's consolidated revenues for the second quarter
of 2003 totaled $5.26 million - a 4% increase over the second quarter of
2002. As discussed in greater detail below, this increase in consolidated
revenues occurred primarily in the Company's water utility and real estate
segments.
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
12
Results of Operations - - Three Months Ended June 30, 2003 Compared to Three
Months Ended June 30, 2002 (Continued)
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"). The combined
utility operating revenues for the three months ended June 30, 2003
increased $105,000 to $4.57 million, or a 2.4% increase from the same period
in 2002 as shown in the table below broken out by each regulated water
utility:
(in thousands)
June 30, 2003 June 30, 2002 Change
------------- ------------- ------
Pennichuck $3,707 $3,642 $ 65
Pennichuck East 762 719 43
Pittsfield 98 101 (3)
------ ------ ----
Total $4,567 $4,462 $105
====== ====== ====
The percentage of each utility's revenues to the total combined
utility revenues remained generally unchanged from the second quarter of
2002 to the second quarter of 2003.
The net increase in combined utility revenues was a result of (i) an
increase in the utilities' combined customer base of 550, representing a
1.9% increase and (ii) the benefit of a 5.76% rate increase granted to
Pennichuck in March 2002 for service rendered on or
after April 1, 2002, offset, however, by a 3.3% 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.
In May 2003, Pittsfield filed a Notice of Intent to File for Rate
Relief in which it is seeking an increase of approximately $67,000, or
16.3%, 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. Currently, there are no
pending rate filings for either Pennichuck or Pennichuck East.
Total utility operating expenses were $3.49 million for the quarter
ended June 30, 2003, a $249,000, or 7.7%, increase over the same period last
year. The combined water utilities' operating costs increased primarily due
to (i) approximately $118,000 of increased distribution system expenses as a
result of an extensive flushing program in Pennichuck's and Pennichuck
East's distribution systems; (ii) approximately $31,000 for additional
property and liability insurance premiums, consistent with recent changes in
13
Results of Operations - - Three Months Ended June 30, 2003 Compared to Three
Months Ended June 30, 2002 (Continued)
the insurance market, (iii) $43,000 of additional depreciation charges
associated with approximately $5.27 million of new utility plant and
equipment placed in service during 2002, (iv) approximately $28,000 in
general and administrative expenses reflecting principally increases in
salaries and benefits and (v) an overall increase of approximately 3% in
union wages effective in mid-February 2003.
Real Estate Operations
- ----------------------
For the quarter ended June 30, 2003, revenues from Southwood's real
estate activities were $277,000 compared to $194,000 for the same period
last year. Southwood's revenues for the second 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 $81,000 in the second 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 $21,000. At June 30, 2003, the principal asset of the
fourth LLC was approximately 9.1 acres of land held for future development.
The second source of real estate revenues was approximately $42,000 of
interest income and equity premiums earned on certain amounts loaned to a
local, unrelated developer to fund the development and construction of a
five unit residential development. The loans to the developer were secured
by a first mortgage on the properties and all amounts due from the
developer, including principal and accrued interest, were paid in full in
May 2003.
Contract Operations
- -------------------
Revenues from contract operations were $390,000 for the three months
ended June 30, 2003, compared to $385,000 for the same period in 2002. The
Service Corporation's revenues consist chiefly of fees under various
operations and billing contracts with the Town of Hudson, New Hampshire and
the Town of Salisbury, Massachusetts and approximately 50 non-transient,
non-community water systems ("NTNCWS") throughout southern and central New
Hampshire. The $5,000 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 service agreements with the two
municipalities and the addition of 12 new NTNCWS contracts over last year
partially offset, however, by approximately $11,000 in lower revenues from
sundry consulting services performed during the first and second quarters of
2002. There have been no such consulting services thus far in 2003.
Operating expenses associated with our contract operations were
$375,000 for the second quarter of 2003 compared to $255,000 for the second
quarter of 2002. The increase in operating expenses associated with our
contract operations resulted primarily from an $89,000 increase in
intercompany charges reflecting additional time and resources
14
Results of Operations - - Three Months Ended June 30, 2003 Compared to Three
Months Ended June 30, 2002 (Continued)
allocable to the Service Corporation activities, including new business
development.
Other Expenses
- --------------
Merger and other expenses in the second quarter of 2003 which totaled
$205,000 relate primarily to legal and other fees incurred in connection
with the pending municipalization process and pending regulatory investigation
discussed in Note D to the Notes to Condensed Consolidated Financial
Statements. There were no such charges during the second quarter of 2002.
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.
For the three months ended June 30, 2002, merger and other expenses
was comprised chiefly of costs associated with the Company's planned merger
with Philadelphia Suburban Corporation which was terminated in February 2003
as discussed in Note D to the Notes to Condensed Consolidated Financial
Statements. There were no such merger-related costs during the second
quarter of 2003.
Results of Operations - Six Months Ended June 30, 2003 Compared to Six
Months Ended June 30, 2002
For the six months ended June 30, 2003, the Company's consolidated net
income was $539,000, or $.23 per share. For the same period last year, the
Company incurred a net loss of $79,000, or $.03 per share, principally due
to the merger expenses associated with the planned merger with Philadelphia
Suburban Corporation. Year-to-date consolidated revenues in 2003 were $10.12
million compared to $11.92 million last year. As discussed below, the
decline in consolidated revenues occurred primarily in the Company's real
estate business segment due to the sale of a major tract of land in the
first quarter of 2002.
Water Utility Operations
- ------------------------
Utility operating revenues for the six months ended June 30, 2003
increased to $8.62 million, or 2.4%, from the same period in 2002 as shown
in the table below broken out by each of our regulated water utilities:
(in thousands)
June 30, 2003 June 30, 2002 Change
------------- ------------- ------
Pennichuck $7,033 $6,880 $153
Pennichuck East 1,355 1,332 23
Pittsfield 231 202 29
------ ------ ----
Total $8,619 $8,414 $205
====== ====== ====
15
Results of Operations - Six Months Ended June 30, 2003 Compared to Six
Months Ended June 30, 2002 (Continued)
For the six months ended June 30, 2003, 81%, 16% and 3% of the
combined utilities' operating income was provided by Pennichuck, Pennichuck
East and Pittsfield, respectively, which was comparable to 2002.
The increase in overall water revenues was derived primarily from our
core system, Pennichuck. Although year-to-date billed consumption within the
core system declined 2.3% from the same period last year, that negative
impact on water revenues was partially offset by the positive effect of the
5.76% rate increase implemented by Pennichuck in April 2002. Accordingly,
water revenues of Pennichuck's core system for the first six months of 2003
increased 2.2% over the same period last year. Additionally,
water revenues reflect a 1.9% increase in the combined utilities' customer
base from June 30, 2002 to June 30, 2003.
For the six months ended June 30, 2003, utility operating expenses
increased by $467,000, or 7%, to $6,867,000. That combined increase in the
utilities' operating expenses over the first half of 2002 resulted chiefly
from (i) $173,000 of increased distribution system expenses as a result of
colder temperatures experienced in the first quarter of 2003 and the
utilities' aggressive system flushing program in the second quarter of 2003,
(ii) approximately $71,000 of additional depreciation expense recognized by
our three utilities for the first half of 2003 as a result of their
additional investment in plant assets during 2002 and 2003, (iii) $79,000 of
increased property taxes as a result of increased additional plant assets
taxable by local and state authorities, (iv) $70,000 of increased insurance
premiums for additional property and liability insurance premiums,
consistent with recent changes in the insurance market and (v) approximately
$60,000 for increased salaries and benefits.
Real Estate Operations
- ----------------------
For the six months ended June 30, 2003, revenues from Southwood's real
estate activities were $729,000 compared to $2,772,000 for the same period
last year. This decrease resulted primarily from the sale of the remaining
40 acres in Southwood Corporate Park in January 2002 for $2.43 million. The
remaining infrastructure costs allocable to that sale of approximately $1.66
million are included in "Operating Expenses - Real estate operations" in the
accompanying Condensed Consolidated Statements of Operations for 2002.
Southwood's revenues for the first half of 2003 include approximately
$239,000 representing its 50% share of the pretax profits from the office
leasing activities of the three LLCs discussed earlier. For the same period
in 2002, Southwood's share of pretax operating income from the LLCs was
approximately $124,000.
Revenue from real estate activities in 2003 also reflects 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
16
Results of Operations - Six Months Ended June 30, 2003 Compared to Six
Months Ended June 30, 2002 (Continued)
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.
Operating expenses associated with our real estate activities for the
first six months of 2003 totaled $40,000, comprised chiefly of allocated
intercompany charges and property taxes on the remaining Southwood
landholdings.
Contract Operations
- -------------------
Revenues from contract operations totaled $734,000 for the six months
ended June 30, 2003, representing a $27,000 increase over the same period
last year. The increase over last year includes (i) the addition of 12 new
NTNCWS contracts from June 30, 2002 and (ii) CPI increases in contract fees
earned in the first six months of 2003, partially offset by lower revenues
from sundry consulting services performed during 2002 compared to 2003.
Operating expenses associated with our contract operations were
$648,000 and $544,000 for the first six months of 2003 and 2002,
respectively. The increase in operating expenses associated with our
contract operations resulted primarily from additional intercompany charges
of $115,000 reflecting additional time and resources allocable to the
Service Corporation activities, including new business development.
Other Expenses
- --------------
Merger and other expenses for the six months ended June 30, 2003
totaled $689,000 compared to $1,571,000 during the same period last year.
Other expenses in the current year related primarily to legal and other fees
incurred in connection with the pending municipalization process and pending
regulatory investigation discussed in Note D to the Notes to Condensed
Consolidated Financial Statements. There were no such charges during the
second quarter of 2002. 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.
For the six months ended June 30, 2002, merger and other expenses was
comprised chiefly of costs associated with the Company's planned merger with
Philadelphia Suburban Corporation which was terminated in February 2003 as
discussed in Note D to the Notes to Condensed Consolidated Financial
Statements.
17
Results of Operations - Six Months Ended June 30, 2003 Compared to Six
Months Ended June 30, 2002 (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 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 that the
Company believes are within the scope of the regulatory investigations. The
Company's board of directors believes that independent review is substantially
complete, and at the board's discretion, counsel has briefed 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
board is continuing to consider what action the Company should take against
Mr. Arel in light of these facts, the ongoing Regulatory investigations and
the Related expenses incurred by the Company, among other factors.
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. The Company cannot predict the
ultimate outcome of this matter and, accordingly, no adjustments have been
made in the accompanying condensed financial statements for these
uncertainties.
Mr. Arel retired from the Company as an officer and director on April
2, 2003 and as an employee on May 2, 2003.
18
Liquidity and Capital Resources
For the first half 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, available short-term investments
and low interest, state revolving loan funds. Typically, our cash needs are
at their lowest point of the year during the first quarter and early second
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 $2.17 million in consolidated
operating cash flow for the six months ended June 30, 2003.
The Company's cash and cash equivalents at June 30, 2003 decreased by
$1.46 million to $985,000, which is currently held in short-term money
market investments. This available cash is expected to be used to partially
fund our capital investment program during the remainder of 2003. Year-to-
date capital expenditures in 2003 totaled approximately $2.9 million. It is
anticipated that any additional cash required to fund the Company's
remaining $5 million of planned capital expenditures will be provided by
operating cash flow, short-term borrowings under a revolving line of credit
and various federal and state grants and revolving loan funds.
The Company maintains a revolving line of credit agreement with Fleet
National 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
June 30, 2003, there were no outstanding borrowings under this line of
credit agreement.
The following is a discussion of other major changes in the Company's
consolidated financial position from December 31, 2002 to June 30, 2003.
* Notes receivable included under Current Assets decreased by $605,000
reflecting the net payments received on a development and construction
loan to a local developer which were repaid in full in May 2003.
* Inventory increased to $1.0 million, or $428,000 from the end of 2002,
principally due to the purchase of remote radio read devices which
will be integrated with the water meters currently installed on the
customers' premises.
* Consolidated accounts payable at June 30, 2003 was $1.19 million,
compared to $673,000 at December 31, 2002. This increase principally
reflects additional vendor invoices associated with the purchase of
the remote radio reads discussed above and additional retainage
amounts with contractors for repairs, improvements, and certain
capital projects.
19
Liquidity and Capital Resources (Continued)
* Retained earnings decreased from $13.9 million at the end of 2002 to
$13.5 million at June 30, 2003 as a result of net income earned of
$539,000 for the first half of 2003 offset by common dividends paid of
$981,000.
* Other accrued expenses included under Current Liabilities decreased by
$420,000 principally as a result of the timing of year-end
construction projects.
* The "Long-term note receivable" balance of $1.2 million at June 30,
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 until payment of
the note 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 has not
yet been met.
Critical Accounting Policies, Significant Estimates and Judgments
- -----------------------------------------------------------------
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 judgments that affect the reported amounts
of assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. The Company bases its estimates on
historical experience and on various other assumptions that are believed to
be reasonable under the circumstances. However, future events are subject
to change and the best estimates and judgments routinely require adjustment.
Accounting principles generally accepted in the United States require us to
make estimates and judgments in several areas. 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
20
Liquidity and Capital Resources (Continued)
Critical Accounting Policies, Significant Estimates and Judgments
- -----------------------------------------------------------------
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.
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.
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 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 June 30, 2003, the Company has recorded a
liability of $493,000 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 designed to
ensure that material information relating to the Company, including its
consolidated subsidiaries, is accumulated and communicated to the Company's
management, including its principal executive officer and principal
financial officer, as appropriate to allow timely decisions regarding
required disclosure by the Company in the reports that it files or submits
under the Securities Exchange Act of 1934 ("Exchange Act").
21
PART I. FINANCIAL INFORMATION
Item 4: CONTROLS AND PROCEDURES (Continued)
Based on an evaluation of the Company's disclosure controls and
procedures (as defined in Rules 13a-15(e) under the Exchange Act) required
by Rule 13a-15(b) as of June 30, 2003, the end of the period covered by
this Quarterly Report on Form 10-Q, the principal executive officer and
principal financial officer have concluded that such disclosure controls and
procedures are effective to ensure that the information required to be
disclosed by the Company in reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported, within the
time periods specified in the applicable Securities and Exchange
Commission's rules and forms.
There were no changes in the Company's internal control over financial
reporting that occurred during the last fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the Company's
internal control over financial reporting.
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. These matters
were addressed in the Company's quarterly report on Form 10-Q for the period
ended March 31, 2003.
Item 4. Submission of Matters to a Vote of Security Holders
(a) On May 27, 2003, the Company held its Annual Meeting of Shareholders
to elect two directors and to ratify the appointment by the Board of
Directors of the firm of PricewaterhouseCoopers LLP as independent
accountants of the Company for the year ending December 31, 2003.
(b) The following incumbent directors were re-elected to a three year term
expiring at the Annual Meeting of Shareholders in 2006:
Number of Shares Voting --
For Withheld
--- --------
Joseph A. Bellavance 1,879,882 54,498
Robert P. Keller 1,860,364 74,016
The continuing directors whose terms expire beyond the May 27, 2003 Annual
Meeting date are:
Charles E. Clough Hannah M. McCarthy
Stephen J. Densberger Martha T. O'Neill
John R. Kreick Charles J. Staab
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders (Continued)
(c) By a vote of 1,916,385 shares FOR, 1,066 shares ABSTAINING and 6,929
shares AGAINST, the Board of Directors' appointment of
PricewaterhouseCoopers LLP as the Company's independent accountants for the
year ending December 31, 2003 was ratified.
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)
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).
23
Item 6. EXHIBITS AND REPORTS ON FORM 8-K (Continued)
Exhibit
Number Exhibit Description
------- -------------------
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)
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)
24
Item 6. EXHIBITS AND REPORTS ON FORM 8-K (Continued)
Exhibit
Number Exhibit Description
------- -------------------
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 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)
10.6 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)
10.7 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)
10.8 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)
25
Item 6. EXHIBITS AND REPORTS ON FORM 8-K (Continued)
Exhibit
Number Exhibit Description
------- -------------------
10.9 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)
10.10 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)
10.11 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)
10.12 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)
10.13 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)
31 Section 302 Certifications furnished by Donald L. Correll,
Principal Executive Officer, and Charles J. Staab,
Principal Financial Officer (Filed as Exhibit 31 to this
report on Form 10-Q).
26
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K (Continued)
Exhibit
Number Exhibit Description
------- -------------------
32 Statement(s) under Section 906 of the Sarbanes - Oxley Act
of 2002 furnished by Donald L. Correll, Principal
Executive Officer, and Charles J. Staab, Principal
Financial Officer (Filed as Exhibit 32 to this report on
Form 10-Q).
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K (Continued)
(b) Reports on Form 8-K:
The following Current Reports on Form 8-K were filed by the Registrant
since the filing of its Form 10-Q for the quarter ended March 31, 2003 with
the Commission:
1. Current Report on Form 8-K dated April 2, 2003 under the caption
"Item 5. Other Events and Regulation FD Disclosure."
2. Current Report on Form 8-K dated August 4, 2003 under the
caption "Item 5. Other Events and Regulation FD Disclosure."
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: August 14, 2003 /s/ Donald L. Correll
--------------- ---------------------
Donald L. Correll
Principal Executive Officer
Date: August 14, 2003 /s/ Charles J. Staab
--------------- --------------------
Charles J. Staab, Vice President,
Treasurer and Principal Financial
Officer
27