UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

PENNICHUCK CORPORATION

(Exact name of registrant as specified in its charter)

New Hampshire		02-0177370
(State or other jurisdiction of incorporation)		(IRS Employer Identification No.)

(Address and zip code of principal executive offices)

None

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. þ Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). o Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes þ No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

Common Stock, $1 Par Value, 4,662,315 shares outstanding as of October 29, 2010

 

 

PENNICHUCK CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
September 30, 2010

TABLE OF CONTENTS

		Page
PART I. FINANCIAL INFORMATION (Unaudited)
Item 1. financial statements
Condensed Consolidated Balance Sheets (Unaudited) As of September 30, 2010 and December 31, 2009			1
Condensed Consolidated Statements of Income and Comprehensive Income (Unaudited) For the Three and Nine Months Ended September 30, 2010 and 2009			3
Condensed Consolidated Statements of Cash Flows (Unaudited) For the Nine Months Ended September 30, 2010 and 2009			4
Notes to Condensed Consolidated Financial Statements (Unaudited)			5
Note 1 — Description of Business and Summary of Significant Accounting Policies			5
Note 2 — Postretirement Benefit Plans			9
Note 3 — Stock-based Compensation Plan			11
Note 4 — Commitments and Contingencies			12
Note 5 — Business Segment Reporting			16
Note 6 — Financial Measurement and Fair Value of Financial Instruments			17
Note 7 — Equity Investment in Unconsolidated Company			18
Note 8 — Shareholder Rights Plan			18
Note 9 — Subsequent Events			18
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			19
Introduction			19
Forward-Looking Statements			20
City of Nashua’s Ongoing Eminent Domain Proceeding			21
Critical Accounting Policies, Significant Estimates and Judgments			25
Results of Operations — General			26
Results of Operations — Three Months Ended September 30, 2010 Compared to Three Months Ended September 30, 2009			26
Results of Operations — Nine Months Ended September 30, 2010 Compared to Nine Months Ended September 30, 2009			29
Liquidity and Capital Resources			32
Quarterly Dividends			34
Off-Balance Sheet Arrangements			34
Item 3. Quantitative and Qualitative Disclosures about Market Risk			34
Item 4. Controls and Procedures			35
PART II. OTHER INFORMATION			35
Item 1. Legal Proceedings			35
Item 1A. Risk Factors			38
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			40
Item 3. Defaults Upon Senior Securities			40
Item 4. Reserved			40
Item 5. Other Information			40
Item 6. Exhibits			41
Signatures			43
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
Exhibit 99.1

PART I. FINANCIAL INFORMATION (Unaudited)

ITEM 1. FINANCIAL STATEMENTS

PENNICHUCK CORPORATION AND SUBSIDIARIES

		As of
		September 30,				December 31,
		2010				2009
ASSETS
Property, Plant and Equipment, net		$	156,124			$	154,803
Current Assets:
Cash and cash equivalents			1,501				1,570
Accounts receivable, net of allowance of $38 as of September 30, 2010 and $53 as of December 31, 2009			2,713				2,064
Unbilled revenue			3,228				2,287
Materials and supplies			768				727
Deferred and refundable income taxes			559				1,636
Prepaid expenses			580				1,170
Total Current Assets			9,349				9,454
Other Assets:
Deferred land costs			2,485				2,474
Deferred charges and other assets			10,334				10,760
Investment in real estate partnerships			114				114
Total Other Assets			12,933				13,348
TOTAL ASSETS		$	178,406			$	177,605

See notes to condensed consolidated financial statements

PENNICHUCK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) — CONTINUED
(in thousands, except share data)

		As of
		September 30,				December 31,
		2010				2009
SHAREHOLDERS’ EQUITY AND LIABILITIES
Shareholders’ Equity:
Common stock — $1 par value Authorized — 11,500,000 shares in 2010 and 2009 Issued — 4,662,752 and 4,652,260 shares, respectively Outstanding — 4,661,550 and 4,651,058 shares, respectively		$	4,663			$	4,652
Additional paid in capital			40,996				40,619
Retained earnings			10,916				10,086
Accumulated other comprehensive loss			(386	)			—
Treasury stock, at cost; 1,202 shares in 2010 and 2009			(138	)			(138	)
Total Shareholders’ Equity			56,051				55,219
Preferred Stock, No Par Value, 115,000 Shares Authorized, No Shares Issued In 2010 and 2009			—				—
Long-term Debt, Less Current Portion			58,537				54,279
Current Liabilities:
Current portion of long-term debt			1,059				5,897
Accounts payable			1,066				1,104
Accrued interest payable			283				721
Accrued liability — retainage			166				480
Customer deposits and other current liabilities			1,585				660
Total Current Liabilities			4,159				8,862
Deferred Credits and Other Reserves:
Deferred income taxes			18,966				18,776
Other deferred credits and other reserves			9,177				8,843
Total Deferred Credits and Other Reserves			28,143				27,619
Contributions in Aid of Construction			31,516				31,626
TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES		$	178,406			$	177,605

See notes to condensed consolidated financial statements

PENNICHUCK CORPORATION AND SUBSIDIARIES

		For the Three Months Ended								For the Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
Operating Revenue		$	11,765			$	9,473			$	28,294			$	24,948
Operating Expenses:
Operations and maintenance			4,980				4,164				13,817				12,852
Depreciation and amortization			1,049				1,007				3,152				3,039
Taxes other than income taxes			974				786				2,877				2,472
Total Operating Expenses			7,003				5,957				19,846				18,363
Operating Income			4,762				3,516				8,448				6,585
Eminent Domain Expenses			(159	)			(204	)			(392	)			(392	)
Net Loss from Investment Accounted for Under the Equity Method			(2	)			(2	)			(5	)			(5	)
Other Expense, Net			(1	)			(1	)			(1	)			(34	)
Allowance for Funds Used During Construction			4				9				14				150
Interest Income			1				—				2				1
Interest Expense			(841	)			(927	)			(2,528	)			(2,762	)
Income Before Provision for Income Taxes			3,764				2,391				5,538				3,543
Provision for Income Taxes			1,491				1,017				2,194				1,474
Net Income			2,273				1,374				3,344				2,069
Other Comprehensive (Loss) Income, Net of Tax:
Unrealized (loss) gain on derivatives			(105	)			28				(385	)			72
Comprehensive Income		$	2,168			$	1,402			$	2,959			$	2,141
Earnings per Common Share:
Basic		$	0.49			$	0.32			$	0.72			$	0.49
Diluted		$	0.48			$	0.32			$	0.71			$	0.48
Weighted Average Common Shares Outstanding:
Basic			4,660,077				4,258,770				4,657,404				4,255,089
Diluted			4,696,338				4,291,142				4,685,389				4,272,132
Dividends Paid per Common Share		$	0.180			$	0.175			$	0.540			$	0.525

See notes to condensed consolidated financial statements

PENNICHUCK CORPORATION AND SUBSIDIARIES

		For the Nine Months Ended
		September 30,
		2010				2009
						(restated)
Operating Activities:
Net income		$	3,344			$	2,069
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			3,320				3,190
Amortization of deferred investment tax credits			(25	)			(25	)
Provision for deferred income taxes			447				2,467
Equity component of allowance for funds used during construction			(7	)			(65	)
Undistributed loss in real estate partnerships			5				5
Stock-based compensation expense			207				48
Changes in assets and liabilities			366				(1,705	)
Net cash provided by operating activities			7,657				5,984
Investing Activities:
Purchases of property, plant and equipment, including debt component of allowance for funds used during construction			(4,959	)			(5,843	)
Increase in investment in real estate partnership and deferred land costs			(17	)			(14	)
Net cash used in investing activities			(4,976	)			(5,857	)
Financing Activities:
Change in line of credit, net			—				2,133
Payments on long-term debt			(6,190	)			(742	)
Contributions in aid of construction			215				39
Proceeds from long-term borrowings			5,602				526
Debt issuance costs			(43	)			(370	)
Proceeds from issuance of common stock and dividend reinvestment plan			181				143
Dividends paid			(2,515	)			(2,235	)
Net cash used in financing activities			(2,750	)			(506	)
Decrease in cash and cash equivalents			(69	)			(379	)
Cash and cash equivalents, beginning of period			1,570				1,096
Cash and cash equivalents, end of period		$	1,501			$	717

Supplemental disclosure on cash flow and non-cash items for the nine months ended September 30, 2010 and 2009 is presented below.

		For the Nine Months Ended
		September 30,
(in thousands)		2010				2009
Cash paid during the period for:
Interest		$	2,788			$	3,136
Income taxes		$	718			$	129
Non-cash items:
Contributions in aid of construction		$	179			$	164

See notes to condensed consolidated financial statements

PENNICHUCK CORPORATION AND SUBSIDIARIES

Note 1 — Description of Business and Summary of Significant Accounting Policies

The terms “we,” “our,” “our Company,” and “us” refer, unless the context suggests otherwise, to Pennichuck Corporation (the “Company”) and its subsidiaries, Pennichuck Water Works, Inc. (“Pennichuck Water”), Pennichuck East Utility, Inc. (“Pennichuck East”), Pittsfield Aqueduct Company, Inc. (“Pittsfield Aqueduct”), Pennichuck Water Service Corporation (“Service Corporation”) and The Southwood Corporation (“Southwood”).

Operating results for the three and nine months ended September 30, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010. The condensed consolidated balance sheet amounts shown under the December 31, 2009 column have been derived from the audited financial statements of our Company as contained in our 2009 Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”).

Description of Business:

We are an investor-owned holding company headquartered in Merrimack, New Hampshire. We have five wholly-owned operating subsidiaries: Pennichuck Water, Pennichuck East, and Pittsfield Aqueduct (collectively referred to as our “Company’s utility subsidiaries”), which are involved in regulated water supply and distribution to customers in New Hampshire; Service Corporation which conducts non-regulated water-related services; and Southwood which owns several parcels of undeveloped land.

Our Company’s regulated water utility subsidiaries are engaged principally in the collection, storage, treatment and distribution of potable water to approximately 33,800 customers throughout the State of New Hampshire. The utility subsidiaries, which are regulated by the New Hampshire Public Utilities Commission (the “NHPUC”), are subject to the provisions of Accounting Standards Codification Topic 980 “Regulated Operations”.

Summary of Significant Accounting Policies:

(a) 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 of the SEC. 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 and non-recurring adjustments) considered necessary for a fair presentation have been included.

The accompanying condensed consolidated financial statements include the accounts of our Company and its wholly-owned subsidiaries. All significant intercompany transactions have been eliminated in consolidation.

(b) Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

(c) Property, Plant and Equipment

The components of property, plant and equipment as of September 30, 2010 and December 31, 2009 were as follows:

		As of
		September 30,				December 31,
(in thousands)		2010				2009
Utility Property:
Land and land rights		$	2,301			$	1,745
Source of supply			48,049				48,172
Pumping & purification			27,707				27,617
Transmission & distribution, including services, meters and hydrants			107,082				104,664
General and other equipment			9,424				9,029
Intangible plant			720				720
Construction work in progress			1,832				568
Total utility property			197,115				192,515
Total non-utility property			101				101
Total property, plant & equipment			197,216				192,616
Less accumulated depreciation			(41,092	)			(37,813	)
Property, plant and equipment, net		$	156,124			$	154,803

(d) Cash and Cash Equivalents

Cash and cash equivalents generally consist of cash, money market funds and other short-term liquid investments with original maturities of three months or less.

In the fourth quarter of 2009, we revised our cash and cash equivalents policy to include money market funds and other short-term highly liquid investments with original maturities of three months or less as cash equivalents.

The condensed consolidated statement of cash flows for the nine months ended September 30, 2009 has been restated to reflect the change in classification of those short term investments. Cash flows from investing activities decreased by $499,000 for the nine months ended September 30, 2009, whereas cash and cash equivalents as of September 30, 2009 and December 31, 2008 increased by $506,000 and approximately $1.0 million, respectively. There was no effect on net income for the three and nine months ended September 30, 2009.

(e) Concentration of Credit Risks

Financial instruments that subject our Company to credit risk consist primarily of cash and accounts receivable. Our cash balances are invested in a money market fund consisting of government-backed securities and a financial institution insured by the Federal Deposit Insurance Corporation (“FDIC”). Occasionally, our cash balance with this financial institution may exceed FDIC limits. Our accounts receivable balances primarily represent amounts due from the residential, commercial and industrial customers of our regulated water utility operations as well as receivables from our Service Corporation customers.

(f) Deferred Charges and Other Assets

Deferred charges include certain regulatory assets and costs of obtaining debt financing. Regulatory assets are amortized over the periods they are recovered through NHPUC-authorized water rates. Deferred financing costs are amortized over the term of the related bonds and notes. Our Company’s utility subsidiaries have recorded certain regulatory assets in cases where the NHPUC has permitted, or is expected to permit, recovery of these costs over future periods. Currently, the regulatory assets are being amortized over periods ranging from 4 to 25 years. Deferred charges and other assets as of September 30, 2010 and December 31, 2009 consisted of the following:

		As of
		September 30,				December 31,				Recovery
(in thousands)		2010				2009				Period
Regulatory assets:
Source development charges		$	698			$	729			5 - 25
Miscellaneous studies			876				860			4 - 25
Sarbanes-Oxley costs			293				440			5
Unrecovered pension expense			3,672				3,799			
Unrecovered postretirement benefits			52				68			
Total regulatory assets			5,591				5,896
Franchise fees and other			10				25
Supplemental retirement plan asset			635				579
Deferred financing costs			4,098				4,260
Total deferred charges and other assets		$	10,334			$	10,760

(g) Revenue

Standard charges for water utility services to customers are recorded as revenue, based upon meter readings and contract service, as services are provided. The majority of our Company’s water revenue is based on rates approved by the NHPUC. Estimates of unbilled service revenue are recorded in the period the services are provided. Provision is made in the financial statements for estimated uncollectible accounts.

Non-regulated water management services include contract operations and maintenance, and water testing and billing services to municipalities and small, privately owned community water systems. Contract revenue is billed and recognized on a monthly recurring basis in accordance with agreed-upon contract rates. Revenue from unplanned additional work is based upon time and materials incurred in connection with activities not specifically identified in the contract, or for which work levels exceed contracted amounts.

Revenue from real estate operations, other than undistributed earnings or losses from equity method joint ventures, is recorded upon completion of a sale of real property. Our Company’s real estate holdings outside of our regulated utilities are comprised primarily of undeveloped land.

(h) Allowance for Funds Used During Construction (“AFUDC”)

AFUDC represents the estimated debt and equity costs of capital necessary to finance the construction of new regulated facilities. AFUDC consists of an interest component and an equity component. AFUDC is capitalized as a component of property, plant and equipment and has been reported separately in the condensed consolidated statements of income and comprehensive income. The AFUDC rate was 7.38% and 8% in 2010 and 2009, respectively. The total amounts of AFUDC recorded for the three and nine months ended September 30, 2010 and 2009 were as follows:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
(in thousands)		2010				2009				2010				2009
Debt (interest) component		$	2			$	7			$	7			$	85
Equity component			2				2				7				65
Total AFUDC		$	4			$	9			$	14			$	150

(i) Earnings Per Share

Basic net income per share is computed using the weighted average number of common shares outstanding for a period. Diluted net income per share is computed using the weighted average number of common and dilutive potential common shares outstanding for the period. For the three and nine months ended September 30, 2010 and 2009, dilutive potential common shares consisted of outstanding stock options.

The dilutive effect of outstanding stock options is computed using the treasury stock method. Calculations of the basic and diluted net income per common share and potential common share for the three and nine months ended September 30, 2010 and 2009 were as follows:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
(in thousands, except share and per share data)		2010				2009				2010				2009
Basic net income per share		$	0.49			$	0.32			$	0.72			$	0.49
Dilutive effect of unexercised stock options			(.01	)			—				(.01	)			(.01	)
Diluted net income per share		$	0.48			$	0.32			$	0.71			$	0.48
Numerator:
Net income		$	2,273			$	1,374			$	3,344			$	2,069
Denominator:
Basic weighted average common shares outstanding			4,660,077				4,258,770				4,657,404				4,255,089
Dilutive effect of unexercised stock options			36,261				32,372				27,985				17,043
Diluted weighted average common shares outstanding			4,696,338				4,291,142				4,685,389				4,272,132

The following table lists the number of options to purchase shares of common stock that was not included in the computation of diluted earnings per share for the three and nine months ended September 30, 2010 and 2009 because their effect would have been antidilutive.

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
Number of options to purchase shares of Common stock excluded from the computation of diluted earnings per share			—				—				34,200				55,668

(j) Interest Rate Swap

As of September 30, 2010, we had a $4.4 million interest rate swap which qualifies as a derivative. This financial derivative is designated as a cash flow hedge. This financial instrument is used to mitigate interest rate risk associated with our outstanding $4.4 million loan which has a floating interest rate based on the three-month London Interbank Offered Rate (“LIBOR”) plus 1.75% as of September 30, 2010. The combined effect of the LIBOR-based borrowing formula and the swap produces an “all-in fixed borrowing cost” equal to 5.95%. The fair value of the financial derivative, as of September 30, 2010, included in our consolidated balance sheet under “Other deferred credits and other reserves” was $643,000. Changes in the fair value of this derivative were deferred in accumulated other comprehensive income (loss).

Swap settlements are recorded in the income statement with the hedged item as interest expense. During the three and nine months ended September 30, 2010, $43,000 and $102,000, respectively, was reclassified from accumulated other comprehensive income (loss) to interest expense as a result of swap settlements. We expect to reclassify approximately $171,000 from accumulated other comprehensive income (loss) to interest expense as a result of swap settlements, over the next twelve months.

(k) Recently Issued Accounting Standards

We do not expect the adoption of any recently issued accounting pronouncements to have a material impact on our financial condition or results of operations.

(l) Reclassifications

Certain Condensed Consolidated Statements of Income and Comprehensive Income amounts for the three and nine months ended September 30, 2009 have been reclassified to conform to the September 30, 2010 presentation. These reclassifications had no effect on total operating expenses, operating income or net income.

Note 2 — Postretirement Benefit Plans

Pension Plan

We have a non-contributory defined benefit pension plan (the “Plan”) that covers substantially all employees. The benefits are formula-based, giving consideration to both past and future service as well as participant compensation levels. Our funding policy is to contribute annual amounts that meet the requirements for funding under Section 404 of the Internal Revenue Code and the Pension Protection Act.

During the three and nine months ended September 30, 2010 and 2009, we made the following contributions to the Plan:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
(in thousands)		2010				2009				2010				2009
Amount of contribution to the Plan		$	134			$	245			$	380			$	584

We anticipate that we will contribute a total of approximately $514,000 into the Plan in 2010.

The components of net periodic pension cost were as follow:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
(in thousands)		2010				2009				2010				2009
Service cost, benefits earned during the period		$	164			$	208			$	492			$	624
Interest cost on projected benefit obligation			155				165				464				495
Expected return on plan assets			(124	)			(155	)			(372	)			(463	)
Amortization of transition asset			—				1				—				1
Recognized net actuarial loss			42				41				127				123
Net periodic benefit cost		$	237			$	260			$	711			$	780

Other Postretirement Benefits

We provide postretirement medical benefits for eligible retired employees, who retire on or after the normal retirement age of 65, through a postretirement medical plan. Future benefits increase annually based on the actual percentage of wage and salary increases earned from the plan inception date to the normal retirement date.

Upon retirement, if a qualifying employee elects to remain on our group medical plan, we pay his or her monthly premium up to a maximum allowable benefit based on eligibility and years of service. The current maximum monthly benefit is $285. Upon request, the spouse of a covered former employee may also remain on our group medical plan provided that person’s entire monthly premium is reimbursed to us.

We also offer postemployment medical benefits for employees who retire prior to their normal retirement age and who have met certain age and service requirements. The benefits allow continuity of coverage at group rates from the employee’s retirement date until the employee becomes eligible for Medicare. This postemployment plan is funded from our general assets.

Net periodic other postretirement and postemployment benefit cost included the following components:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
(in thousands)		2010				2009				2010				2009
Service cost, benefits earned during the period		$	32			$	36			$	95			$	106
Interest cost on accumulated postretirement and postemployment benefit obligation			35				34				104				102
Expected return on plan assets			(13	)			(12	)			(37	)			(36	)
Amortization of prior service cost			—				6				—				18
Recognized net actuarial loss			5				—				16				2
Net periodic benefit cost		$	59			$	64			$	178			$	192

During the three and nine months ended September 30, 2010 and 2009, we made the following contributions into this program.

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
(in thousands)		2010				2009				2010				2009
Amount of contribution into the program		$	10			$	11			$	31			$	29

We anticipate that we will contribute a total of approximately $42,000 into the program in 2010.

The net periodic pension and other postretirement benefit costs were estimated based on the latest available participant census data.

Note 3 — Stock-based Compensation Plan

Share-based payments to employees, including grants of stock options, are recognized as compensation expense in the condensed consolidated financial statements based on their fair value on the grant date. For purposes of calculating the fair value of each stock grant as of the date of grant, our Company uses the Black Scholes Option Pricing model.

The impact of stock-based compensation on the condensed consolidated statements of income and comprehensive income for the three and nine months ended September 30, 2010 and 2009 was as follows:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
(in thousands)		2010				2009				2010				2009
Stock-based compensation		$	32			$	16			$	207			$	48
Income taxes			(13	)			(6	)			(83	)			(19	)
Stock-based compensation, net of tax		$	19			$	10			$	124			$	29

Our Company has periodically granted its officers and key employees incentive and non-qualified stock options on a discretionary basis pursuant to the 2009 Equity Incentive Plan (the “2009 Plan”).

Options issued under the 2009 Plan during the three and nine months ended September 30, 2010 and 2009 were as follows:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
Options issued under the 2009 Plan			—				—				71,900				38,000

As of September 30, 2010, there were 111,934 shares available for future grant under the 2009 Plan.

Note 4 — Commitments and Contingencies

City of Nashua’s Ongoing Eminent Domain Proceedings

On March 25, 2004, the City of Nashua, New Hampshire (the “City”) filed a petition with the NHPUC under the New Hampshire utility municipalization statute, NHRSA Ch. 38, seeking to take by eminent domain all of the utility assets of our Company’s three utility subsidiaries. Under NHRSA Ch. 38, if the NHPUC makes a finding that it is in the public interest to do so, a municipality can take the assets of a utility providing service in that municipality. The NHPUC is also charged with determining the amount of compensation for the assets that it finds are in the public interest for the municipality to take.

NHPUC Order

In January 2005, the NHPUC ruled that the City could not use the eminent domain procedure to acquire any of the assets of Pennichuck East or Pittsfield Aqueduct, and that, with regard to the assets of Pennichuck Water, the question of which assets, if any, could be taken by the City was dependent on a determination to be made after a hearing as to what was in the public interest.

On July 25, 2008, the NHPUC issued an order (the “NHPUC Order”) that the taking of the assets of Pennichuck Water is in the public interest provided certain conditions are met, and that the amount of compensation to be paid to Pennichuck Water for such assets is $203 million determined as of December 31, 2008. However, it is our view that in the event the City decides to complete an eminent domain taking of Pennichuck Water’s assets pursuant to the NHPUC Order, and assuming it is then permitted to do so under state law (see below), this amount would have to be updated through the actual date of taking (hereinafter, a “True Up Adjustment”).

The conditions imposed by the NHPUC included a requirement that the City pay an additional $40 million into a mitigation fund to protect the interests of the customers of Pennichuck East and Pittsfield Aqueduct from the costs associated with operational inefficiencies and the loss of use of shared assets which would result from the taking of Pennichuck Water’s assets by the City. Consequently, under the terms of the NHPUC Order, the City would be required to pay at least $243 million. Another condition was that within 60 days of the NHPUC Order becoming final and no longer subject to appeal, the City must submit to the NHPUC for its approval duly authorized and executed operating contracts between the City and its planned water system contractors incorporating all conditions imposed by the NHPUC. The remaining conditions covered various aspects of the operation and oversight of the water system under City ownership.

The NHPUC Order is available on the NHPUC web site (Docket No. 04-048). On March 13, 2009, the NHPUC reaffirmed its NHPUC Order.

Supreme Court Decision

Both our Company and the City filed appeals with the New Hampshire Supreme Court (the “Court”), challenging aspects of the NHPUC Order. On March 25, 2010, the Court issued its decision, unanimously affirming the NHPUC Order in its entirety. More specifically, the Court affirmed the NHPUC Order that a taking of the operating assets of our Pennichuck Water regulated utility subsidiary is in the public interest and that the amount to be paid to us for such assets is $203 million determined as of December 31, 2008. The Court also affirmed the NHPUC’s establishment of its conditions, including that Nashua must pay an additional $40 million into a mitigation fund to protect the interests of the customers of our other two regulated utilities. The Court did not consider whether a True Up Adjustment should be made. The Court’s decision was effective April 7, 2010 and, therefore, the NHPUC Order became final and no longer subject to appeal on that date.

RSA 38:13

Effective April 7, 2010, provided all conditions and requirements are satisfied, the City had the right to take by condemnation (i.e., eminent domain) Pennichuck Water’s operating assets pursuant to the terms of the NHPUC Order and subject to New Hampshire utility municipalization statute RSA 38, Section 38:13 (hereinafter, a “Condemnation Taking”). In the case of a Condemnation Taking or an agreed sale under threat of condemnation, RSA 38:13 provides that within 90 days of the final determination of the price to be paid for the assets to be acquired, the municipality must decide, by vote of its governing body, whether to acquire such property. RSA 38:13 further provides that if this vote is in the negative, no other action under this chapter shall be had during the ensuing period of 2 years. With respect to the eminent domain dispute between the Company and the City, this means that in the case of a no vote during the 90-day period, the current municipalization process would be terminated and the City would then have to wait 2 years before taking other action to form a municipal water utility. Furthermore, any such action would then be subject to the City first obtaining a new majority public vote.

It is our Company’s view that there has not yet been any “final determination of the price to be paid for the assets to be acquired” and, therefore, the 90 day period has not yet been triggered. On June 30, 2010 and September 21, 2010, our Company and the City jointly filed motions (collectively, the “Joint Motions”) with the NHPUC requesting a scheduling order for the purpose of establishing a process by which the Condemnation Taking valuation of the plant and property of Pennichuck Water will be updated and to make a final determination of the price to be paid for such plant and property. The Joint Motions are consistent with the position taken by us in our June 2, 2010 press release that, as of that date, there had not yet been a final determination of the price to be paid by the City for the assets of Pennichuck Water. Our Company and the City have agreed that the final valuation and price should be determined by adjusting the preliminary $203 million purchase price in the NHPUC Order by the additions and retirements and accumulated depreciation reserves relating to assets placed in service, or retired from service, since December 31, 2008, consistent with the asset approach used by the NHPUC and expressly excluding consideration of the income approach. We believe the value of plant and property additions since the December 31, 2008 NHPUC valuation date exceeds the value of plant and property retirements and depreciation since that same date.

To date, the City’s Board of Aldermen has not voted on whether to acquire the assets of Pennichuck Water by Condemnation Taking pursuant to the terms of the NHPUC Order. Based on public statements by city officials, we believe it unlikely that the City will attempt to move forward in that regard.

The Joint Motions also indicate that our Company and the City remain interested in reaching a negotiated resolution of the eminent domain proceeding, which could include a possible parent-level sale of the stock of our Company to the City. Under 2007 special legislation in New Hampshire, the City can purchase and hold the stock of our Company provided it otherwise complies with the requirements of state law.

If our Company and the City reach agreement on such a consensual transaction, the Joint Motions state that the parties “intend to submit such a transaction to the [NHPUC] for its approval, and the price agreed to would constitute the final determination of price contemplated by RSA 38:13 that is subject to ratification by the City’s Board of Aldermen, thereby rendering it unnecessary for the [NHPUC] to update the preliminary value determined in the [NHPUC Order] for [Pennichuck Water’s] plant and property.” There can be no assurance that the NHPUC will adopt the position of the Company and the City regarding the final determination of price.

Notwithstanding the foregoing and as previously reported, a parent-level Company stock sale would require the negotiation and resolution of many complex issues and, therefore, no assurance can be given that the City and our Company would ultimately be able to reach agreement on such matters. Also, in addition to approval by the City’s Board of Aldermen, the consummation of such a transaction would be subject to approval by the NHPUC and our Company’s shareholders, and would depend on the availability of financing to the City. Finally, there can be no assurance that our Company’s Board of Directors will ultimately conclude that a sale of our Company to the City is in the best interests of our Company’s shareholders.

The NHPUC has set a deadline of November 30, 2010 for the parties to file briefs regarding a number of issues relating to the authority of the NHPUC to approve a Condemnation Taking considering the passage of time since the New Hampshire Supreme Court decision affirming the NHPUC Order, as well as the valuation methodology to be used for any True Up Adjustment. November 30, 2010 is also now the deadline for the City to submit to the NHPUC the executed operating contracts with its planned water system contractors.

Certain Possible Adverse Consequences

A Condemnation Taking of the assets of Pennichuck Water pursuant to the NHPUC Order, if it would be permitted under state law, would result in a significant taxable gain based on the difference between the eminent domain taking price as finally determined and the tax basis of the Pennichuck Water assets which was approximately $60 million as of December 31, 2009. The resulting corporate-level tax liability would substantially reduce the sales proceeds after a Condemnation Taking (i.e., before distribution to our shareholders) unless we were able to defer the tax liability by reinvesting all or a substantial portion of the Condemnation Taking proceeds in other water utility assets in accordance with certain provisions of the Internal Revenue Code. However, considering the geographic concentration of our operations, the time limit within which reinvestment must occur, and the large amount that would have to be reinvested, it would likely be very difficult to find suitable replacement property that is fairly priced and makes good business sense to purchase. Therefore, we do not believe reinvestment in like-kind property is a feasible solution to this corporate-level tax issue.

Since Pennichuck Water comprises the substantial majority of our consolidated assets and revenue, a permitted Condemnation Taking would likely result in a winding up and liquidation of our entire business. This would require us to repay all of our Company’s approximately $60 million of outstanding debt and sell off the Company’s remaining non-cash assets pursuant to a plan of liquidation. Under the circumstances, it could prove difficult to obtain good prices for those assets that fairly reflect their long-term value. Liquidation would also trigger taxation at the shareholder level depending on the difference between the amounts distributed in liquidation and the cost basis of the stock being redeemed.

A permitted Condemnation Taking could also result in our Company incurring various other costs depending on the final terms of the taking and decisions that our Company may make regarding its remaining operations. These costs may include expenditures associated with termination and/or funding of health and retirement plans, certain debt redemption premiums, severance costs and professional fees. Accordingly, if the City of Nashua decides to, and is permitted to, purchase the assets of Pennichuck Water by Condemnation Taking (i.e., eminent domain), the financial position of our Company could be materially and adversely impacted.

Other Eminent Domain Proceedings

The Town of Pittsfield, New Hampshire voted at its town meeting in 2003 to purchase the assets of our Company’s Pittsfield Aqueduct subsidiary by eminent domain. In April 2003, the Town notified our Company in writing of the Town’s desire to purchase the assets. Our Company responded that it did not wish to sell the assets. Thereafter, no further action was taken by the Town until March 2005 when it voted to appropriate $60,000 for the eminent domain process. On March 22, 2005, our Company received a letter from the Town reiterating the Town’s desire to purchase the assets of our Company’s Pittsfield Aqueduct subsidiary, and by letter dated May 10, 2005, our Company responded that it did not wish to sell them. Our Company does not have a basis to evaluate whether the Town will actively pursue the acquisition of our Company’s Pittsfield Aqueduct assets by eminent domain, but since the date of the Town’s letter to our Company, the Town has not taken any additional steps required under NHRSA Ch. 38 to pursue eminent domain.

The Town of Bedford, New Hampshire voted at its town meeting in March 2005 to take by eminent domain our Company’s assets within Bedford for purposes of establishing a water utility, and by letter dated April 4, 2005 inquired whether our Company, and any relevant wholly owned subsidiary of our Company, was willing to sell its assets to Bedford. Our Company responded by letter dated September 1, 2005, informing the Town that our Company did not wish to sell those assets located in Bedford that are owned by any of its subsidiaries. Our Company has not received a response to its letter, and since the date of the Town’s letter to our Company, the Town has not taken any additional steps required under NHRSA Ch. 38 to pursue eminent domain. During the hearing regarding the proposed eminent domain taking of Pennichuck Water’s assets by Nashua, a witness for the Town of Bedford testified that the Town’s interest in a possible taking of assets of our Company related to a situation in which the City of Nashua might acquire less than all of our Company’s assets, leaving the system in Bedford as part of a significantly smaller utility.

Our Company cannot predict the ultimate outcome of these matters. It is possible that if the Towns of Pittsfield and/or Bedford pursue an eminent domain taking and are ultimately successful, the financial position of our Company could be materially impacted. No adjustments have been recorded in the accompanying condensed consolidated financial statements for these uncertainties.

Note 5 — Business Segment Reporting

Our operating activities are currently grouped into the following two primary business segments.

•

Regulated water utility operations — Includes the collection, treatment and distribution of potable water for domestic, industrial, commercial and fire protection service in the City of Nashua and 29 other communities throughout New Hampshire. Our regulated water utility subsidiaries consist of Pennichuck Water, Pennichuck East and Pittsfield Aqueduct.

•

Water management services — Includes the contract operations and maintenance activities of Service Corporation.

In the fourth quarter of 2009, we determined that our real estate operations conducted through Southwood should no longer be considered a reportable business segment due to the sale and dissolution of substantially all of Southwood’s joint ventures and the expectation of limited real estate activities for the foreseeable future. Beginning in the fourth quarter of 2009, the line titled “Other” which previously included primarily parent company activity, including eminent domain-related expenses, now also includes the activities of Southwood. Prior to the fourth quarter of 2009, Southwood’s activities were considered a reportable segment and were reported on the line titled “Real estate operations.” The line titled “Other” is not a reportable segment and is shown only to reconcile to the total amounts shown in our condensed consolidated financial statements.

The following table presents information about our primary business segments:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
(in thousands)		2010				2009				2010				2009
Operating revenue:
Regulated water utility operations		$	11,118			$	8,856			$	26,442			$	22,863
Water management services			644				614				1,845				2,078
Real estate operations			N/A				—				N/A				—
Other			3				3				7				7
Total operating revenue		$	11,765			$	9,473			$	28,294			$	24,948
Operating income (loss):
Regulated water utility operations		$	4,675			$	3,466			$	8,366			$	6,442
Water management services			107				76				177				246
Real estate operations			N/A				(9	)			N/A				(30	)
Other			(20	)			(17	)			(95	)			(73	)
Total operating income		$	4,762			$	3,516			$	8,448			$	6,585
Net income (loss):
Regulated water utility operations		$	2,300			$	1,455			$	3,485			$	2,164
Water management services			64				42				106				143
Real estate operations			N/A				(6	)			N/A				(21	)
Other			(91	)			(117	)			(247	)			(217	)
Total net income		$	2,273			$	1,374			$	3,344			$	2,069

		As of
		September 30,				December 31,
(in thousands)		2010				2009
Total assets:
Regulated water utility operations		$	171,405			$	171,073
Water management services			250				319
Real estate operations			N/A				N/A
Other			6,751				6,213
Total assets		$	178,406			$	177,605

Note 6 — Financial Measurement and Fair Value of Financial Instruments

We use a fair value hierarchy which prioritizes the inputs to valuation methods used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of fair value hierarchy are as follows:

Level 1: Based on quoted prices in active markets for identical assets.

Level 2: Based on significant observable inputs.

Level 3: Based on significant unobservable inputs.

An asset or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

For assets and liabilities measured at fair value on a recurring basis, the fair value measurement by levels within the fair value hierarchy used as of September 30, 2010 were as follows:

		September 30,
(in thousands)		2010				Level 1				Level 2				Level 3
Interest rate swap		$	(643	)		$	—			$	(643	)		$	—

The carrying value of certain financial instruments included in the accompanying consolidated balance sheet, along with the related fair value, as of September 30, 2010 and December 31, 2009 was as follows:

		September 30, 2010								December 31, 2009
		Carrying				Fair				Carrying				Fair
(in thousands)		Value				Value				Value				Value
Liabilities:
Long-term debt		$	(59,596	)		$	(53,242	)		$	(60,176	)		$	(55,794	)
Interest rate swap liability			(643	)			(643	)			—				—

The fair value of long-term debt has been determined by discounting the future cash flows using current market interest rates for similar financial instruments of the same duration. The fair value for long-term debt shown above does not purport to represent the amounts at which those debt obligations would be settled. The fair market value of our interest rate swap represents the estimated cost to terminate this agreement as of September 30, 2010 based upon the then-current interest rates and the related credit risk.

The carrying values of our cash and cash equivalents, line of credit and accounts receivable approximate their fair values because of their short maturity dates.

Note 7 — Equity Investment in Unconsolidated Company

As of September 30, 2010 and December 31, 2009, Southwood held a 50 percent ownership interest in a limited liability company known as HECOP IV. HECOP IV, whose assets and liabilities are not included in the accompanying condensed consolidated balance sheets, owns approximately nine acres of undeveloped land in Merrimack, New Hampshire. The remaining ownership interest in HECOP IV is held by John P. Stabile II, principal owner of H. J. Stabile & Son, Inc. The short-term cash needs of HECOP IV are expected to be funded by its partners on an on-going basis and are not expected to be significant.

Southwood uses the equity method of accounting for its investment in this joint venture and accordingly, its investment is adjusted for its share of losses. Southwood’s share of losses is included under “Net Loss from Investment Accounted for Under the Equity Method” in the accompanying condensed consolidated statements of income.

Note 8 — Shareholder Rights Plan

On April 20, 2000, our Board of Directors (“Board”) adopted a Rights Agreement and declared a dividend of one preferred share purchase right (“Right”) for each outstanding share of common stock, $1.00 par value. The Rights become exercisable in the event that a person or group acquires, or commences a tender or exchange offer to acquire, more than 15% (up to 20% with the prior approval of the Board of Directors) of our Company’s outstanding common stock.

Effective March 24, 2010, our Board voted unanimously to extend the expiration date of the Rights under the Rights Agreement from April 19, 2010 to November 1, 2010. Effective October 29, 2010, our Board voted unanimously to extend the expiration date of the Rights under the Rights Agreement from November 1, 2010 to the date of the 2011 annual meeting of the Company’s shareholders, which is expected to be in May 2011. The material terms of the October 29, 2010 amendment to the Rights Agreement are described in Exhibit 4.11 to the Company’s Current Report on Form 8-K filed with the SEC on November 1, 2010. Concurrent with its vote approving the extension of the expiration date of the Rights, our Board also reaffirmed a previously adopted resolution that any extension of the expiration date of the Rights beyond the date of our Company’s 2011 annual meeting of shareholders would be subject to a majority shareholder vote at that meeting.

Note 9 — Subsequent Events

On October 8, 2010, the NHPUC issued orders approving temporary rate increases for Pennichuck Water and Pittsfield Aqueduct. The Pennichuck Water order provides for an annualized temporary increase in revenue of approximately $2.6 million, or 10.8%, effective for bills rendered from and after October 8, 2010. The Pittsfield Aqueduct order provides for an annualized temporary increase in revenue of approximately $61,000 or 10.0%, effective for bills rendered from and after October 8, 2010.

The temporary rate relief that has now been granted by the NHPUC for both Pennichuck Water and Pittsfield Aqueduct does not necessarily reflect the ultimate outcome of the underlying requests for permanent rate relief. Any difference between the temporary rate relief now being granted and the permanent rates ultimately approved by the NHPUC for these subsidiaries will be reconciled upon the approval of such permanent rates.

ITEM 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Introduction

The terms “we,” “our,” “our Company,” and “us” refer, unless the context suggests otherwise, to Pennichuck Corporation and its subsidiaries, Pennichuck Water Works, Inc. (“Pennichuck Water”), Pennichuck East Utility, Inc. (“Pennichuck East”), Pittsfield Aqueduct Company, Inc. (“Pittsfield Aqueduct”), Pennichuck Water Service Corporation (“Service Corporation”) and The Southwood Corporation (“Southwood”).

Pennichuck Corporation is a non-operating holding company whose income is derived from the earnings of its five wholly-owned subsidiaries. We are engaged primarily in the collection, storage, treatment and distribution of potable water for domestic, industrial, commercial and fire protection service in New Hampshire through our three utility subsidiaries: Pennichuck Water, Pennichuck East and Pittsfield Aqueduct.

The percentage of our operating revenue generated by our regulated water utility subsidiaries as a group and by Pennichuck Water for the three and nine months ended September 30, 2010 and 2009 was as follows.

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2010				2009				2010				2009
All regulated water utility subsidiaries			95	%			93	%			93	%			92	%
Pennichuck Water			76	%			75	%			74	%			72	%

Pennichuck Water’s franchise area presently includes the City of Nashua, New Hampshire and 10 surrounding municipalities.

Our Company’s regulated water utility subsidiaries are regulated by the New Hampshire Public Utilities Commission (the “NHPUC”) with respect to their water rates, financings and provision of service. We must obtain NHPUC approval to increase our Company’s regulated water utility subsidiaries’ water rates to recover increases in operating expenses and to obtain the opportunity to earn a return on investments in plant and equipment. New Hampshire law provides that utilities are entitled to charge rates which permit them to earn a reasonable return on the cost of the property employed in serving their customers, less accrued depreciation, contributed capital and deferred income taxes (“Rate Base”). The cost of capital permanently employed by a utility in its regulated business marks the rate of return that it is lawfully entitled to earn on its Rate Base. Capital expenditures associated with complying with federal and state water quality standards have historically been recognized and approved by the NHPUC for inclusion in our water rates, though there can be no assurance that the NHPUC will approve future rate increases in a timely or sufficient manner to cover our capital expenditures.

Service Corporation provides various non-regulated water-related monitoring, maintenance, testing and compliance reporting services for water systems for various towns, businesses and residential communities in New Hampshire and Massachusetts. Its most significant contracts are with the Town of Hudson, New Hampshire and the Town of Salisbury, Massachusetts.

Southwood is engaged in real estate management and commercialization activities. Historically, most of Southwood’s activities have been conducted through real estate joint ventures. Over the past 10 years, Southwood has participated in four joint ventures with John P. Stabile II, a local developer. Southwood’s earnings have from time to time during that period contributed a significant percentage of our net income, including in the year ended December 31, 2008 (i.e., the January 2008 sale of the three commercial office buildings that comprised substantially all of the assets of HECOPs I, II and III). Southwood’s contributions from the sale of real estate have increased the fluctuations in our net income during the 10-year period. While we anticipate that Southwood will contribute a smaller proportion of our revenue and earnings over the next several years, we do expect it to continue to pursue the environmentally responsible commercialization of our 450 acres of undeveloped land held outside our regulated utilities.

The pending eminent domain matter with the City of Nashua, New Hampshire (the “City”) that is described in more detail below and elsewhere in this report has had a material adverse effect on our results of operations in recent years and could have a material adverse effect on our financial condition if the City can and does, pursuant to New Hampshire law, acquire the Pennichuck Water assets upon the terms set forth in the NHPUC’s July 25, 2008 order.

As you read the Management’s Discussion and Analysis, refer to our Condensed Consolidated Financial Statements and the accompanying Notes to Condensed Consolidated Financial Statements in Part I, Item 1 in this Quarterly Report on Form 10-Q.

Forward-Looking Statements

Certain statements in this Quarterly Report on Form 10-Q, including certain statements in Management’s Discussion and Analysis, are forward-looking statements intended to qualify for safe harbors from liability under the Private Securities Litigation Reform Act of 1995, as amended (and codified in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934). The statements are made based upon, among other things, our current assumptions, expectations and beliefs concerning future developments and their potential effect on us. These forward-looking statements involve risks, uncertainties and other factors, many of which are outside our control which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. In some cases you can identify forward-looking statements where statements are preceded by, followed by, or include the words “in the future,” “believes,” “expects,” “anticipates,” “plans” or similar expressions, or the negative thereof.

Forward-looking statements involve risks and uncertainties, and there are important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements. These factors include, but are not limited to, the outcome of requests for rate relief from the NHPUC from time to time, the implications of the New Hampshire Supreme Court’s March 25, 2010 decision affirming the eminent domain order of the NHPUC in favor of the City of Nashua, New Hampshire; the impact of an eminent domain taking by Nashua on business operations and net assets; the interpretation of RSA 38:13 relative to a negotiated sale of the stock of Pennichuck Corporation to the City of Nashua under the 2007 special legislation that authorizes the City of Nashua to purchase and hold the stock of Pennichuck Corporation in settlement of the municipalization proceeding; legislation and/or regulation and accounting factors affecting Pennichuck Corporation’s financial condition and results of operations; the availability and cost of capital, including the impact on our borrowing costs of changes in interest rates; and the impact of weather. For a complete discussion of our risk factors, see Part I, Item 1A, “Risk Factors”, in our 2009 Annual Report on Form 10-K, as supplemented by Part II, Item 1A, “Risk Factors”, in our Quarterly Reports on Form 10-Q for the periods ended March 31, 2010 and September 30, 2010. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

City of Nashua’s Eminent Domain Proceeding

On March 25, 2004, the City of Nashua, New Hampshire (the “City”) filed a petition with the NHPUC under the New Hampshire utility municipalization statute, NHRSA Ch. 38, seeking to take by eminent domain all of the utility assets of our Company’s three utility subsidiaries. Under NHRSA Ch. 38, if the NHPUC makes a finding that it is in the public interest to do so, a municipality can take the assets of a utility providing service in that municipality. The NHPUC, which is comprised of three Commissioners, is also charged with determining the amount of compensation for the assets that it finds are in the public interest for the municipality to take.

In January 2005, the NHPUC ruled that the City could not use the eminent domain procedure to acquire any of the assets of Pennichuck East or Pittsfield Aqueduct, and that, with regard to the assets of Pennichuck Water, the question of which assets, if any, could be taken by the City was dependent on a determination to be made after a hearing as to what was in the public interest.

On July 25, 2008, the NHPUC issued an order (the “NHPUC Order”) that the taking of the assets of Pennichuck Water is in the public interest provided certain conditions are met, and that the amount of compensation to be paid to Pennichuck Water for such assets is $203 million determined as of December 31, 2008. However, it is our view that in the event the City decides to complete an eminent domain taking of Pennichuck Water’s assets pursuant to the NHPUC Order, and assuming it is then permitted to do so under state law (see below), this amount would have to be updated through the actual date of taking (hereinafter, a “True Up Adjustment”).

The conditions imposed by the NHPUC included a requirement that the City pay an additional $40 million into a mitigation fund to protect the interests of the customers of Pennichuck East and Pittsfield Aqueduct from the costs associated with operational inefficiencies and the loss of use of shared assets which would result from the taking of Pennichuck Water’s assets by the City. Consequently, under the terms of the NHPUC Order, the City would be required to pay at least $243 million. Another condition was that within 60 days of the NHPUC Order becoming final and no longer subject to appeal, the City must submit to the NHPUC for its approval duly authorized and executed operating contracts between the City and its planned water system contractors incorporating all conditions imposed by the NHPUC. The remaining conditions covered various aspects of the operation and oversight of the water system under City ownership. On March 13, 2009, the NHPUC reaffirmed its NHPUC order.

Following the denial of our Company’s and the City’s requests for reconsideration or rehearing by the NHPUC, both our Company and the City filed appeals with the New Hampshire Supreme Court (the “Court”). The City appealed both the $203 million asset valuation as of December 31, 2008 and the required $40 million mitigation fund.

On March 25, 2010, the Court issued its decision, unanimously affirming the NHPUC Order in its entirety. More specifically, the Court affirmed the NHPUC Order that a taking of the operating assets of our Pennichuck Water regulated utility subsidiary is in the public interest and that the amount to be paid to us for such assets is $203 million determined as of December 31, 2008. The Court also affirmed the NHPUC’s establishment of its conditions, including that Nashua must pay an additional $40 million into a mitigation fund to protect the interests of the customers of our other two regulated utilities. The Court did not consider whether a True Up Adjustment should be made. The Court’s decision was effective April 7, 2010 and, therefore, the NHPUC Order became final and no longer subject to appeal on that date.

Effective April 7, 2010, provided all conditions and requirements are satisfied, the City had the right to take by condemnation (i.e., eminent domain) Pennichuck Water’s operating assets pursuant to the terms of the NHPUC Order and subject to New Hampshire utility municipalization statute RSA 38, Section 38:13 (hereinafter, a “Condemnation Taking”). In the case of a Condemnation Taking or an agreed sale under threat of condemnation, RSA 38:13 provides that within 90 days of the final determination of the price to be paid for the assets to be acquired, the municipality must decide, by vote of its governing body, whether to acquire such property. RSA 38:13 further provides that if this vote is in the negative, no other action under this chapter shall be had during the ensuing period of 2 years. With respect to the eminent domain dispute between the Company and the City, this means that in the case of a no vote during the 90-day period, the current municipalization process would be terminated and the City would then have to wait 2 years before taking other action to form a municipal water utility. Furthermore, any such action would then be subject to the City first obtaining a new majority public vote.

It is our Company’s view that there has not yet been any “final determination of the price to be paid for the assets to be acquired” and, therefore, the 90 day period has not yet been triggered. On June 30, 2010 and September 21, 2010, our Company and the City jointly filed motions (collectively, the “Joint Motions”) with the NHPUC requesting a scheduling order for the purpose of establishing a process by which the Condemnation Taking valuation of the plant and property of Pennichuck Water will be updated and to make a final determination of the price to be paid for such plant and property. The Joint Motions are consistent with the position taken by us in our June 2, 2010 press release that, as of that date, there had not yet been a final determination of the price to be paid by the City for the assets of Pennichuck Water. Our Company and the City have agreed that the final valuation and price should be determined by adjusting the preliminary $203 million purchase price in the NHPUC Order by the additions and retirements and accumulated depreciation reserves relating to assets placed in service, or retired from service, since December 31, 2008, consistent with the asset approach used by the NHPUC and expressly excluding consideration of the income approach. We believe the value of plant and property additions since the December 31, 2008 NHPUC valuation date exceeds the value of plant and property retirements and depreciation since that same date.

To date, the City’s Board of Aldermen has not voted on whether to acquire the assets of Pennichuck Water by Condemnation Taking pursuant to the terms of the NHPUC Order. Based on public statements by city officials, we believe it unlikely that the City will attempt to move forward in that regard.

The Joint Motions also indicate that our Company and the City remain interested in reaching a negotiated resolution of the eminent domain proceeding, which could include a possible parent-level sale of the stock of our Company to the City. Under 2007 special legislation in New Hampshire, the City can purchase and hold the stock of our Company provided it otherwise complies with the requirements of state law.

If our Company and the City reach agreement on such a consensual transaction, the Joint Motions state that the parties “intend to submit such a transaction to the [NHPUC] for its approval, and the price agreed to would constitute the final determination of price contemplated by RSA 38:13 that is subject to ratification by the City’s Board of Aldermen, thereby rendering it unnecessary for the [NHPUC] to update the preliminary value determined in the [NHPUC Order] for [Pennichuck Water’s] plant and property.” There can be no assurance that the NHPUC will adopt the position of the Company and the City regarding the final determination of price.

Notwithstanding the foregoing and as previously reported, a parent-level Company stock sale would require the negotiation and resolution of many complex issues and, therefore, no assurance can be given that the City and our Company would ultimately be able to reach agreement on such matters. Also, in addition to approval by the City’s Board of Aldermen, the consummation of such a transaction would be subject to approval by the NHPUC and our Company’s shareholders, and would depend on the availability of financing to the City. Finally, there can be no assurance that our Company’s Board of Directors will ultimately conclude that a sale of our Company to the City is in the best interests of our Company’s shareholders.

The NHPUC has set a deadline of November 30, 2010 for the parties to file briefs regarding a number of issues relating to the authority of the NHPUC to approve a Condemnation Taking considering the passage of time since the New Hampshire Supreme Court decision affirming the NHPUC Order, as well as the valuation methodology to be used for any True Up Adjustment. November 30, 2010 is also now the deadline for the City to submit to the NHPUC the executed operating contracts with its planned water system contractors.

Notwithstanding the foregoing, no assurance can be given that the City and our Company will ultimately be able to reach agreement on a consensual transaction since a Company stock sale would require the negotiation and resolution of many complex issues. Also, in addition to approval by the City’s Board of Aldermen, the consummation of such a transaction would be subject to approval by the NHPUC and our Company’s shareholders, and would depend on the availability of financing to the City. Finally, there can be no assurance that our Company’s Board of Directors would ultimately conclude that a sale of our Company to the City is in the best interests of our Company’s shareholders.

As we have previously publicly stated, we have been opposed to an eminent domain taking of the assets of Pennichuck Water pursuant to the terms of the July 2008 NHPUC order. Due to the required form of the transaction (i.e., a corporate asset sale) coupled with the effects of accelerated depreciation for tax purposes, our Company would have a significant taxable gain and income tax liability at the corporate level, which would substantially erode the proceeds from the sale. We have considered attempting to defer the recognition of this corporate-level tax by reinvesting the proceeds in like-kind property pursuant to certain provisions of the Internal Revenue Code. However, considering the geographic concentration of our operations, the time limit within which reinvestment must occur, and the large amount that would have to be reinvested, it would likely be very difficult to find suitable replacement property that is fairly priced and makes good business sense to purchase. Therefore, we do not believe reinvestment in like-kind property is a feasible solution to this corporate-level tax issue.

Since Pennichuck Water comprises the substantial majority of our consolidated assets and revenue, a permitted Condemnation Taking would likely result in a winding up and liquidation of our entire business. This would require us to repay all of our Company’s approximately $60 million of outstanding debt and to sell off our Company’s remaining non-cash assets pursuant to a plan of liquidation. Under the circumstances, it could prove difficult to obtain good prices for those assets that fairly reflect their long-term value. Liquidation would also trigger taxation at the shareholder level depending on the difference between the amounts distributed in liquidation and the cost basis of the stock being redeemed.

A permitted Condemnation Taking could also result in our Company incurring various other costs depending on the final terms of the taking and decisions that our Company may make regarding its remaining operations. These costs may include expenditures associated with termination and/or funding of health and retirement plans, certain debt redemption premiums, severance costs and professional fees.

For all these reasons, we believe that a negotiated purchase by the City of Nashua of the (parent-level) stock of Pennichuck Corporation may yield a substantially better economic outcome for both parties and their stakeholders. Importantly, a Pennichuck Corporation stock sale would avoid double taxation to our shareholders and it may enable the City, in a parent-level stock purchase, to acquire all the assets it wants for a substantially lower net cost than would apply in an eminent domain taking pursuant to the NHPUC’s order coupled with its negotiated purchase of the other Company assets it wants.

In order for the City’s purchase of Pennichuck Corporation stock to be substantially more economically advantageous to the City than an eminent domain taking pursuant to the July 25, 2008 NHPUC order, we believe the transaction must be structured such that it not be deemed to be an asset sale by the City, resulting in an income tax payable by the City. We believe that the triggering of such a tax would depend on the structure of the acquisition transaction, the post-acquisition relationship between the City and the acquired entities, and perhaps other factors. Importantly in this regard, due to New Hampshire legislation we supported, the City can purchase the stock of Pennichuck Corporation and operate the acquired entities as controlled subsidiaries (i.e., there would be no state law requirement of liquidation).

Relative to post-acquisition operating costs over time, other related possible consequences of a stock purchase of Pennichuck Corporation by the City are that the City might have to finance the purchase with taxable (vs. tax-exempt) debt, and it might have to operate Pennichuck Corporation and its subsidiaries as for-profit entities. We believe that these possible post-acquisition requirements would likely be evaluated by the City in relation to various factors, including, (i) the initial savings the City would otherwise achieve in a stock purchase transaction, and (ii) the City’s estimate of what it believes would be the long term cost savings of operating the water system under its ownership.

Settlement discussions to date have been inconclusive

Notwithstanding the adversarial proceedings relating to the eminent domain dispute, our Company has engaged in settlement discussions with the City, as previously disclosed, including discussions regarding a comprehensive settlement involving the acquisition of Pennichuck Corporation stock. We must emphasize, however, that a parent-level stock acquisition would require the negotiation and resolution of many complex issues and, therefore, no assurance can be given that the City and our Company would ultimately be able to reach such an agreement. Moreover, in addition to approval by the City’s Board of Aldermen, such an agreement would also be subject to approval by the NHPUC and our Company’s shareholders. Additionally, the consummation of any such transaction would also depend on the availability of debt financing at terms acceptable to the City and the approval of that debt financing by a two-thirds vote of the City’s Board of Aldermen.

At present, we do not have any agreement with the City regarding a stock acquisition transaction. However, because we continue to believe that a negotiated parent-level stock acquisition may be the best way to resolve our dispute, we will continue to consider any and all stock acquisition proposals the City may wish to make.

Critical Accounting Policies, Significant Estimates and Judgments

We have identified the accounting policies below as those policies critical to our business operations and an understanding of our results of operations. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. We base our 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 reflected in these accounting policies could result in significant changes to the condensed consolidated financial statements. Our critical accounting policies are as follows:

Regulatory Accounting. Accounting Standards Codification Topic 980 “Regulated Operations” prescribes generally accepted accounting principles for companies whose rates are established by or are subject to approval by an independent third-party regulator such as the NHPUC. In accordance with Topic 980, we defer costs and credits on the condensed consolidated balance sheets as regulatory assets and liabilities when it is probable that these costs and credits will be recognized in the rate-making process in a period different from when the costs and credits are incurred. These deferred amounts, both assets and liabilities, are then recognized in the condensed consolidated statements of income in the same period that they are reflected in rates charged to our regulated water utility subsidiaries’ customers. In the event that the inclusion in the rate-making process is disallowed, the associated regulatory asset or liability would be adjusted to reflect the change in our assessment or change in regulatory approval.

We have not deferred costs incurred to defend against the City of Nashua’s ongoing eminent domain proceeding against our Pennichuck Water subsidiary.

Revenue Recognition. The revenue of our regulated water utility subsidiaries is based on authorized rates approved by the NHPUC. Estimates of regulated water utility revenue for water delivered to customers but not yet billed are accrued at the end of each accounting period. We read our customer meters on a monthly basis and record revenue based on those readings. Unbilled revenue from the last meter-reading date to the end of the accounting period are estimated based on historical usage and the effective water rates. Actual results could differ from those estimates. Accrued unbilled revenue recorded in the accompanying condensed consolidated financial statements as of September 30, 2010 and December 31, 2009 was $3.2 million and $2.3 million, respectively.

Our non-utility revenue is recognized when services are rendered. Revenue is based, for the most part, on long-term contractual rates.

Pension and Other Postretirement Benefits. Our pension and other postretirement benefit costs are dependent upon several factors and assumptions, such as employee demographics, plan design, the level of cash contributions made into the plans, earnings on the plans’ assets, the discount rate applied to estimated future payment obligations, the expected long-term rate of return on plan assets, and health care cost trends.

Changes in pension and other postretirement benefit obligations associated with these factors may not be immediately recognized as costs in the condensed consolidated statements of income, but generally are recognized in future years over the remaining average service period of the plan participants.

In determining pension obligation and expense amounts, the factors and assumptions described above may change from period to period, and such changes could result in material changes to recorded pension and other postretirement benefit costs and funding requirements. Further, the value of our pension plan assets are subject to fluctuations in market returns which may result in increased or decreased pension expense in future periods.

Our pension plan currently meets the minimum funding requirements of the Employee Retirement Income Security Act of 1974. We currently anticipate that we will contribute approximately $514,000 to the pension and $42,000 to the other postretirement benefit plans during 2010.

Results of Operations — General

In this section, we discuss our results of operations for the three and nine months ended September 30, 2010 and 2009 and the factors affecting them. Our operating activities are discussed in Note 5, “Business Segment Reporting” in Part I, Item I, in this Quarterly Report on Form 10-Q.

Results of Operations — Three Months Ended September 30, 2010
Compared to Three Months Ended September 30, 2009

Overview

Our revenue, and consequently our net income, can be significantly affected by economic and weather conditions as well as customer conservation efforts, and in past years our net income has been significantly affected by sales of major real estate assets which have occurred from time to time. Water revenue is typically at its lowest point during the first and fourth quarters of the calendar year. Water revenue in the second and third quarters tends to be greater because of increased water consumption for non-essential usage by our customers during the late spring and summer months.

For the three months ended September 30, 2010, our net income was $2.3 million, compared to $1.4 million for the three months ended September 30, 2009. On a per share basis (diluted), net income for the three months ended September 30, 2010 was $0.48 as compared to $0.32 for the three months ended September 30, 2009. The principal factors that affected current period net income, relative to the prior period, included the following:

•

An increase in regulated water utility operating income of $1.2 million;

•

A decrease in interest expense of $86,000;

•

A decrease in eminent domain-related costs of $45,000; partially offset by

•

An increase in income tax expense of $474,000.

Regulated Water Utility Operations

Our regulated water utility operations include the activities of Pennichuck Water, Pennichuck East and Pittsfield Aqueduct, each of which is regulated by the NHPUC.

For the three months ended September 30, 2010, our utility operating revenue increased to $11.1 million compared to $8.9 million for the three months ended September 30, 2009, an increase of approximately $2.3 million or 26%. The increase in revenue was principally due to an increase in water usage volumes due to dryer weather and, to a lesser extent, the permanent rate increase granted to Pennichuck Water in August 2009. For the three months ended September 30, 2010, 67% of our billed regulated water utility usage was to residential customers, and 22% to commercial and industrial customers, with the balance being principally from billings to municipalities.

We believe customer usage will continue to be impacted by the economy, weather and conservation efforts in response to rate increases, as well as general customer response to various conservation focused communications and the continuing installation of more water efficient appliances.

For the three months ended September 30, 2010, our total utility operating expenses increased by approximately 20% over the three months ended September 30, 2009 as shown in the table below.

		Three Months Ended September 30,
(in thousands)		2010				2009				Change
Operations & maintenance		$	4,423			$	3,600			$	823
Depreciation & amortization			1,046				1,004				42
Taxes other than income taxes			974				786				188
Total Utility Operating Expenses		$	6,443			$	5,390			$	1,053

The operations and maintenance expenses of our regulated water utility business include such categories as:

•

Water supply, treatment, purification and pumping;

•

Transmission and distribution system functions, including repairs and maintenance and meter reading; and

•

Engineering, customer service and general and administrative functions.

The $1.1 million increase in our utilities’ operating expenses over the same period in 2009 was primarily the result of the following:

•

Increased production costs of $483,000 related to increased power and purchased water costs resulting from higher water consumption levels;

•

Increased general and administrative costs of $190,000 primarily relating to combined effects of, (i) increased compensation expense accrued in accordance with our management incentive plans and annual wage increases (ii) increased health benefit costs and (iii) an increase in supplemental executive retirement plan costs, partially offset by (iv) a decrease in defined benefit pension plan and postretirement medical plan costs;

•

Increased taxes other than income taxes of $188,000, principally related to increased real estate taxes resulting from capital additions and increased assessed values in our core Pennichuck Water system;

•

Increased transmission and distribution costs of $117,000 relating to routine and periodic maintenance costs; and

•

Increased depreciation and amortization of $42,000 principally due to increased depreciation attributable to the water treatment plant upgrade for Pennichuck Water.

As a result of the above changes in operating revenue and operating expenses, regulated water utility operating income increased to $4.7 million from $3.5 million, an increase of approximately $1.2 million or 35%, for the three months ended September 30, 2010 compared to the three months ended September 30, 2009.

Pennichuck Water filed for rate relief with the NHPUC on May 7, 2010 seeking a permanent annual increase in revenue of $3.9 million, or 16.23%, plus a step increase of $0.9 million, or 3.68%. The rate relief request included a request to recover certain amounts expended by us in connection with the eminent domain proceedings. On October 8, 2010, the NHPUC issued an order approving a temporary rate increase which equates to an annualized increase in revenue of approximately $2.6 million, or 10.8%, effective for bills rendered from and after October 8, 2010. Any difference between the temporary rate relief granted and the permanent rates ultimately approved by the NHPUC for service rendered from and after June 16, 2010 will be reconciled upon the approval of such permanent rates.

Our utilities expect to periodically seek rate relief, as necessary, to recover increased operating costs and to obtain recovery of and a return on capital additions as they are made over time as well as to adjust for the impact of reduced consumption related to conservation and economic conditions.

Water Management Services

The operating revenue of our water management services segment increased to $644,000 for the three months ended September 30, 2010 from $614,000 for the three months ended September 30, 2009, resulting in an increase of approximately $30,000, or 5%.

Operating revenue earned from unscheduled work on continuing contracts increased to $217,000 for the three months ended September 30, 2010 from $188,000 for the three months ended September 30, 2009, an increase of approximately $29,000, or 15%.

The operating income of our water management services segment increased to $107,000 for the three months ended September 30, 2010 from $76,000 for the three months ended September 30, 2009, resulting in an increase of approximately $31,000, or 39%. The net income of our water management services segment increased to $64,000 for the three months ended September 30, 2010 from $42,000 for the three months ended September 30, 2009, resulting in an increase of approximately $22,000, or 53%.

Eminent Domain Expenses

Our eminent domain expenses were $159,000 for the three months ended September 30, 2010 as compared to $204,000 for the three months ended September 30, 2009. The 2010 and 2009 eminent domain expenses were primarily attributable to legal fees associated with the proceedings and related activities.

Interest Expense

For the three months ended September 30, 2010, our interest expense was $841,000, compared to $927,000 in 2009. The decrease of approximately $86,000 was primarily attributable to the payment of a $5 million note on March 1, 2010.

Provision for Income Taxes

For the three months ended September 30, 2010, we recorded income tax expense of $1.5 million compared to $1.0 million for the three months ended September 30, 2009. The effective income tax rate was 39.6% and 42.5% for the respective periods. The effective rate for the three months ended September 30, 2010 was the same as the statutory rate. The higher effective rate for the three months ended September 30, 2009 was due to a write-off associated with the expiration of state of New Hampshire Business Enterprise Tax (“BET”) credits.

Results of Operations — Nine Months Ended September 30, 2010
Compared to Nine Months Ended September 30, 2009

Overview

Our revenue, and consequently our net income, can be significantly affected by economic and weather conditions as well as customer conservation efforts, and in past years our net income has been significantly affected by sales of major real estate assets which have occurred from time to time. Water revenue is typically at its lowest point during the first and fourth quarters of the calendar year. Water revenue in the second and third quarters tends to be greater because of increased water consumption for non-essential usage by our customers during the late spring and summer months.

For the nine months ended September 30, 2010, our net income was $3.3 million, compared to $2.1 million for the nine months ended September 30, 2009. On a per share basis (diluted), net income for the nine months ended September 30, 2010 was $0.71 as compared to $0.48 for the nine months ended September 30, 2009. The principal factors that affected current period net income, relative to the prior period, included the following:

•

An increase in regulated water utility operating income of $1.9 million;

•

A decrease in interest expense of $234,000; partially offset by

•

A decrease in allowance for funds used during construction (“AFUDC”) of $136,000;

•

A decrease in water management service operating income of $69,000; and

•

An increase in income tax expense of $720,000.

Regulated Water Utility Operations

Our regulated water utility operations include the activities of Pennichuck Water, Pennichuck East and Pittsfield Aqueduct, each of which is regulated by the NHPUC.

For the nine months ended September 30, 2010, our utility operating revenue increased to $26.4 million compared to $22.9 million for the nine months ended September 30, 2009, an increase of approximately $3.5 million or 16%. The increase in revenue was principally due to an increase in water usage volumes due to dryer weather and, to a lesser extent, the permanent rate increase granted to Pennichuck Water in August 2009. For the nine months ended September 30, 2010, 67% of our billed regulated water utility usage was to residential customers, and 26% to commercial and industrial customers, with the balance being principally from billings to municipalities.

We believe customer usage will continue to be impacted by the economy, weather, and conservation efforts as a result of the rate increases, as well as general customer response to various conservation focused communications and the continuing installation of more water efficient appliances.

For the nine months ended September 30, 2010, our total utility operating expenses increased by approximately 10% over the nine months ended September 30, 2009 as shown in the table below.

		Nine Months Ended September 30,
(in thousands)		2010				2009				Change
Operations & maintenance		$	12,055			$	10,916			$	1,139
Depreciation & amortization			3,145				3,031				114
Taxes other than income taxes			2,876				2,474				402
Total Utility Operating Expenses		$	18,076			$	16,421			$	1,655

The operations and maintenance expenses of our regulated water utility business include such categories as:

•

Water supply, treatment, purification and pumping;

•

Transmission and distribution system functions, including repairs and maintenance and meter reading; and

•

Engineering, customer service and general and administrative functions.

The $1.7 million increase in our utilities’ operating expenses over the same period in 2009 was primarily the result of the following:

•

Increased production costs of $515,000 related to increased chemical, power and purchased water costs relating to higher water consumption levels;

•

Increased taxes other than income taxes of $402,000, principally related to increased real estate taxes resulting from capital additions as well as increased assessed values in our core Pennichuck Water system;

•

Increased general and administrative costs of $370,000 primarily relating to combined effects of, (i) increased compensation expense accrued in accordance with our management incentive plans, increased non-cash compensation expense recorded for employee stock options granted to our President & CEO during the first quarter of 2010 and annual wage increases (ii) increased health benefit costs and (iii) an increase in supplemental executive retirement plan costs, partially offset by (iv) a decrease in defined benefit and postretirement medical plan costs;

•

Increased transmission and distribution costs of $182,000 primarily relating to increased fuel costs, flushing activities and system maintenance costs; and

•

Increased depreciation and amortization of $114,000 principally due to increased depreciation attributable to completed portions of the water treatment plant upgrade for Pennichuck Water.

As a result of the above changes in operating revenue and operating expenses, regulated water utility operating income increased to $8.4 million from $6.4 million, an increase of approximately $2.0 million or 30%, for the nine months ended September 30, 2010 compared to the nine months ended September 30, 2009.

Pennichuck Water filed for rate relief with the NHPUC on May 7, 2010 seeking a permanent annual increase in revenue of $3.9 million, or 16.23%, plus a step increase of $0.9 million, or 3.68%. The rate relief request included a request to recover certain amounts expended by us in connection with the eminent domain proceedings. On October 8, 2010, the NHPUC issued an order approving a temporary rate increase providing for an annualized temporary increase in revenue of approximately $2.6 million, or 10.8%, effective for bills rendered from and after October 8, 2010. Any difference between the temporary rate relief granted and the permanent rates ultimately approved by the NHPUC for service rendered from and after June 16, 2010 will be reconciled upon the approval of such permanent rates.

Water Management Services

The operating revenue of our water management services segment decreased to $1.8 million for the nine months ended September 30, 2010 from $2.1 million for the nine months ended September 30, 2009, resulting in a decrease of approximately $233,000, or 11%.

Service Corporation’s contracts with two municipalities ended on June 30, 2009 and July 31, 2009 and have not been renewed by the municipalities. The operating revenue earned from these two contracts was $136,000 for the nine months ended September 30, 2009. Operating revenue earned from unscheduled work on continuing contracts decreased to $596,000 for the nine months ended September 30, 2010 from $685,000 for the nine months ended September 30, 2009, a decrease of approximately $89,000, or 13%. Revenue earned from Service Corporation’s Watertight program decreased to $260,000 for the nine months ended September 30, 2010 from $278,000 for the nine months ended September 30, 2009, a decrease of approximately $18,000, or 7%.

The operating income of our water management services segment decreased to $177,000 for the nine months ended September 30, 2010 from $246,000 for the nine months ended September 30, 2009, resulting in a decrease of approximately $69,000, or 28%. The net income of our water management services segment decreased to $106,000 for the nine months ended September 30, 2010 from $143,000 for the nine months ended September 30, 2009, resulting in a decrease of approximately $37,000, or 26%.

Eminent Domain Expenses

Our eminent domain expenses were $392,000 for both the nine months ended September 30, 2010 and 2009. The 2010 and 2009 eminent domain expenses were primarily attributable to legal fees associated with the proceedings and related matters.

Allowance for Funds Used During Construction (“AFUDC”)

For the nine months ended September 30, 2010 and 2009, we recorded AFUDC of $14,000 and $150,000, respectively. The approximately $136,000 decrease was attributable to the completion of certain large projects (e.g., the multi-year upgrade to Pennichuck Water’s water treatment plant) in 2009. We do not expect to incur any significant amounts of AFUDC for the remainder of 2010.

Interest Expense

For the nine months ended September 30, 2010, our interest expense was $2.5 million, compared to $2.8 million in 2009. The decrease of approximately $234,000 was primarily attributable to the payment of a $4.5 million note in December 2009 and the payment of a $5 million note on March 1, 2010 partially offset by a new $4.5 million loan incurred on March 1, 2010.

Provision for Income Taxes

For the nine months ended September 30, 2010, we recorded income tax expense of $2.2 million compared to $1.5 million for the nine months ended September 30, 2009. The effective income tax rate was approximately 40% and 42% for the respective periods. The effective rate for the three months ended September 30, 2010 was approximately the same as the statutory rate. The higher effective rate for the three months ended September 30, 2009 was due to a write-off associated with the expiration of state of New Hampshire Business Enterprise Tax (“BET”) credits.

Liquidity and Capital Resources

Overview

Our primary sources of funds are cash flow from utility operations, borrowings pursuant to our bank revolving credit facility and proceeds from long-term debt borrowings and the issuance of equity securities. Our primary uses of funds are capital expenditures associated with our continuous utility construction programs, dividends on our common stock payable as and when declared by our Board of Directors and repayments of principal on our outstanding debt obligations, whether pursuant to scheduled sinking fund payments or final maturities.

For the past several years, cash flows have fluctuated largely based on four factors: (i) weather, (ii) amount and timing of rate increases, (iii) gain(s) recognized on the sale of non-utility real estate and cell tower leases, and (iv) costs associated with our eminent domain dispute with the City of Nashua, New Hampshire. Our Company expects that weather and the amount and timing of rate increases will continue to impact its liquidity and expects gains from the sale of non-utility real estate and cell tower leases to become less frequent in the current economic environment. Our Company also expects the costs associated with the eminent domain proceeding to continue but at reduced levels more consistent with the levels experienced in the last two years.

We utilize our $16 million revolving credit facility to a greater or lesser extent in response to variations in cash flow from the factors discussed above. Our Company has been able to obtain long term financing as needed in the current economic environment.

Capital Expenditures Program

We expect our capital expenditures to moderate during the period 2010 through 2012 due to the completion of our water treatment plant during the first half of 2009. The following table summarizes our expected capital expenditure requirements for the 2010 to 2012 period.

(in thousands)		2010				2011				2012
Utility — water treatment plant upgrade		$	50			$	—			$	—
Utility — other plant additions			8,555				7,525				7,525
Total		$	8,605			$	7,525			$	7,525

We are engaged in construction programs at our utility subsidiaries primarily for water distribution system repair, rehabilitation and replacement, water storage facility maintenance and additions, and more recently, water supply security. The timing of these projects may be impacted by weather, availability of contractors and equipment, coordination with other utilities and municipalities in order to reduce digging and paving costs and the availability and cost of financing.

Significant Financial Covenants

Our $16.0 million revolving credit loan agreement with Bank of America expires on June 30, 2011. This agreement contains three financial maintenance tests which must be met on a quarterly basis. Capitalized terms listed below are used herein as defined in the revolving credit loan agreement. These maintenance tests, and actual performance against these tests as of the dates specified, are as follows:

(1)

our Fixed Charge Coverage Ratio must exceed 1.2x (3.7 as of September 30, 2010);

(2)

our Tangible Net Worth must exceed $45.7 million ($56.1 million as of September 30, 2010); and

(3)

our Funded Debt (less certain cash and short-term investment balances, if any) must not exceed 65% of our Total Capitalization (51.1% as of September 30, 2010).

Also, various Pennichuck Water and Pennichuck East loan agreements contain tests that govern the issuance of additional indebtedness. Capitalized terms listed below are used herein as defined in the revolving credit loan agreement. These issuance tests are as follows:

(1)

to issue Short-Term Debt, the sum of our Short-Term Debt and Funded Debt may not exceed 65% of our Short-Term Debt, Funded Debt and Capital and all Stock Surplus accounts (unless the new Short-Term Debt is subordinated to existing debt);

(2)

to issue long-term debt, our Funded Debt generally may not exceed 60% of our Net Amount of Capital Property Additions; and

(3)

to issue long-term debt, our Earnings Available for Interest divided by our Interest Expense must exceed 1.5x.

Several of Pennichuck Water’s loan agreements contain a covenant that prevents Pennichuck Water from declaring dividends if Pennichuck Water does not maintain a minimum net worth of $4.5 million. As of September 30, 2010, Pennichuck Water’s net worth was $53.3 million. One of Pennichuck East’s loan agreements contains a covenant that prevents Pennichuck East from declaring dividends if Pennichuck East does not maintain a minimum net worth of $1.5 million. As of September 30, 2010, Pennichuck East’s net worth was $6.9 million.

As of September 30, 2010, we were in compliance with all of our financial covenants. Our ability to incur additional long-term debt and to continue to satisfy these tests depends, among other factors, on receipt of timely and adequate rate relief.

Quarterly Dividends

One of our primary uses of funds is dividends on our common stock, payable as and when declared by our Board of Directors. We have paid dividends on our common stock each year since 1856. On October 28, 2010, the Board of Directors declared a fourth quarter common stock dividend of $0.185 per share payable December 1, 2010 to shareholders of record on November 15, 2010. The fourth quarter dividend amount results in an indicated annual rate of $0.74 per share. We expect to continue to pay comparable cash dividends in the future, subject to the terms of our debt agreements, as more fully discussed above.

Off-Balance Sheet Arrangements

On August 24, 2006, Pennichuck Water implemented a legal defeasance transaction for its outstanding $780,000 New Hampshire Industrial Development Authority 7.5% 1988 Series tax-exempt bonds (“1988 Series Bonds”). Pennichuck Water placed U.S. treasury securities in an irrevocable escrow account with The Bank of New York, the Bond Trustee, in an aggregate amount sufficient to provide for all remaining scheduled principal and interest payments on the 1988 Series Bonds. This defeasance transaction discharged all future Pennichuck Water obligations with respect to the 1988 Series Bonds and Pennichuck Water no longer records the debt in its consolidated financial statements.

In October 2005, Pennichuck Water completed a $49.5 million tax-exempt debt financing with the New Hampshire Bond Finance Authority (“BFA”). The BFA acts solely as a passive conduit to the tax-exempt bond markets with us acting as the obligor for the associated tax-exempt debt. As of September 30, 2010, we borrowed $38.1 million of the $49.5 million offering. The remaining $11.4 million was placed in escrow for the sole benefit of bondholders with no recourse to us. As a result of the completion of our $40 million water treatment plant upgrade in the second quarter of 2009 and the issuance of approximately $7.5 million of equity capital, net of expense, in December 2009, we allowed the $11.4 million to expire when the escrow matured on July 1, 2010.

We have one interest rate financial instrument, an interest rate swap, described in detail in Part I, Item 3, “Quantitative and Qualitative Disclosures About Market Risk”, in our Quarterly Report on Form 10-Q for the period ended March 31, 2010.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In addition to the other information set forth in Note 6, “Financial Measurement and Fair Value of Financial Instruments” in Part I, Item I, in this Quarterly Report on Form 10-Q, you should carefully consider the disclosures about market risk discussed in Part II, Item 7A. “Quantitative and Qualitative Disclosures About Market Risk” and Note 9 in Part II, Item 8, “Debt”, in our 2009 Annual Report on Form 10-K, as supplemented by Part I, Item 3, “Quantitative and Qualitative Disclosures About Market Risk”, in our Quarterly Report on Form 10-Q for the period ended March 31, 2010.

ITEM 4. CONTROLS AND PROCEDURES

We carried out an evaluation required by Rule 13a-15(b) of the Securities Exchange Act of 1934 under the supervision and with the participation of our management, including the principal executive officer and the principal financial officer, of the effectiveness of the design and operation of our “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this Report.

Disclosure controls and procedures are designed with the objective of ensuring that (i) information required to be disclosed in our Company’s reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) information is accumulated and communicated to management, including the principal executive officer and the principal financial officer, as appropriate to allow timely decisions regarding required disclosures.

Based on their evaluation, the principal executive officer and the principal financial officer have concluded that our disclosure controls and procedures are effective as of the end of the period covered by this Report on Form 10-Q to provide assurance that (i) information relating to our Company (including our consolidated subsidiaries) required to be included in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in applicable SEC rules and forms and (ii) information is accumulated and communicated to management, including the principal executive officer and the principal financial officer, as appropriate to allow timely decisions regarding required disclosures

There were no changes in our internal control over financial reporting that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

As we have previously disclosed and is discussed elsewhere in this report, on July 25, 2008, the New Hampshire Public Utilities Commission (the “NHPUC”) issued an order (the “NHPUC Order”) that the taking of the assets of Pennichuck Water by the City of Nashua, New Hampshire (the “City” or “Nashua”) is in the public interest provided certain conditions are met, and that the amount of compensation to be paid to Pennichuck Water for such assets is $203 million determined as of December 31, 2008. However, it is our view that in the event the City decides to complete an eminent domain taking of Pennichuck Water’s assets pursuant to the NHPUC Order, and assuming it is then permitted to do so under state law (see below), this amount would have to be updated through the actual date of taking (hereinafter, a “True Up Adjustment”).

The conditions imposed by the NHPUC included a requirement that the City pay an additional $40 million into a mitigation fund to protect the interests of the customers of Pennichuck East and Pittsfield Aqueduct from the costs associated with operational inefficiencies and the loss of use of shared assets which would result from the taking of Pennichuck Water’s assets by the City. Consequently, under the terms of the NHPUC Order, the City would be required to pay at least $243 million. Another condition was that within 60 days of the NHPUC Order becoming final and no longer subject to appeal, the City must submit to the NHPUC for its approval duly authorized and executed operating contracts between the City and its planned water system contractors incorporating all conditions imposed by the NHPUC. The remaining conditions covered various aspects of the operation and oversight of the water system under City ownership.

Both our Company and the City filed appeals with the New Hampshire Supreme Court (the “Court”), challenging aspects of the NHPUC Order. On March 25, 2010, the Court issued its decision, unanimously affirming the NHPUC Order in its entirety. More specifically, the Court affirmed the NHPUC Order that a taking of the operating assets of our Pennichuck Water regulated utility subsidiary is in the public interest and that the amount to be paid to us for such assets is $203 million determined as of December 31, 2008. The Court also affirmed the NHPUC’s establishment of its conditions, including that Nashua must pay an additional $40 million into a mitigation fund to protect the interests of the customers of our other two regulated utilities. The Court did not consider whether a True Up Adjustment should be made. The Court’s decision was effective April 7, 2010 and, therefore, the NHPUC Order became final and no longer subject to appeal on that date.

Effective April 7, 2010, provided all conditions and requirements are satisfied, the City had the right to take by condemnation (i.e., eminent domain) Pennichuck Water’s operating assets pursuant to the terms of the NHPUC Order and subject to New Hampshire utility municipalization statute RSA 38, Section 38:13 (hereinafter, a “Condemnation Taking”). In the case of a Condemnation Taking or an agreed sale under threat of condemnation, RSA 38:13 provides that within 90 days of the final determination of the price to be paid for the assets to be acquired, the municipality must decide, by vote of its governing body, whether to acquire such property. RSA 38:13 further provides that if this vote is in the negative, no other action under this chapter shall be had during the ensuing period of 2 years. With respect to the eminent domain dispute between the Company and the City, this means that in the case of a no vote during the 90-day period, the current municipalization process would be terminated and the City would then have to wait 2 years before taking other action to form a municipal water utility. Furthermore, any such action would then be subject to the City first obtaining a new majority public vote.

It is our Company’s view that there has not yet been any “final determination of the price to be paid for the assets to be acquired” and, therefore, the 90 day period has not yet been triggered. On June 30, 2010 and September 21, 2010, our Company and the City jointly filed motions (collectively, the “Joint Motions”) with the NHPUC requesting a scheduling order for the purpose of establishing a process by which the Condemnation Taking valuation of the plant and property of Pennichuck Water will be updated and to make a final determination of the price to be paid for such plant and property. The Joint Motions are consistent with the position taken by us in our June 2, 2010 press release that, as of that date, there had not yet been a final determination of the price to be paid by the City for the assets of Pennichuck Water. Our Company and the City have agreed that the final valuation and price should be determined by adjusting the preliminary $203 million purchase price in the NHPUC Order by the additions and retirements and accumulated depreciation reserves relating to assets placed in service, or retired from service, since December 31, 2008, consistent with the asset approach used by the NHPUC and expressly excluding consideration of the income approach. We believe the value of plant and property additions since the December 31, 2008 NHPUC valuation date exceeds the value of plant and property retirements and depreciation since that same date.

To date, the City’s Board of Aldermen has not voted on whether to acquire the assets of Pennichuck Water by Condemnation Taking pursuant to the terms of the NHPUC Order. Based on public statements by city officials, we believe it unlikely that the City will attempt to move forward in that regard.

The Joint Motions also indicate that our Company and the City remain interested in reaching a negotiated resolution of the eminent domain proceeding, which could include a possible parent-level sale of the stock of our Company to the City. Under 2007 special legislation in New Hampshire, the City can purchase and hold the stock of our Company provided it otherwise complies with the requirements of state law.

If our Company and the City reach agreement on such a consensual transaction, the Joint Motions state that the parties “intend to submit such a transaction to the [NHPUC] for its approval, and the price agreed to would constitute the final determination of price contemplated by RSA 38:13 that is subject to ratification by the City’s Board of Aldermen, thereby rendering it unnecessary for the [NHPUC] to update the preliminary value determined in the [NHPUC Order] for [Pennichuck Water’s] plant and property.” There can be no assurance that the NHPUC will adopt the position of the Company and the City regarding the final determination of price.

Notwithstanding the foregoing and as previously reported, a parent-level Company stock sale would require the negotiation and resolution of many complex issues and, therefore, no assurance can be given that the City and our Company would ultimately be able to reach agreement on such matters. Also, in addition to approval by the City’s Board of Aldermen, the consummation of such a transaction would be subject to approval by the NHPUC and our Company’s shareholders, and would depend on the availability of financing to the City. Finally, there can be no assurance that our Company’s Board of Directors will ultimately conclude that a sale of our Company to the City is in the best interests of our Company’s shareholders.

The NHPUC has set a deadline of November 30, 2010 for the parties to file briefs regarding a number of issues relating to the authority of the NHPUC to approve a Condemnation Taking considering the passage of time since the New Hampshire Supreme Court decision affirming the NHPUC Order, as well as the valuation methodology to be used for any True Up Adjustment. November 30, 2010 is also now the deadline for the City to submit to the NHPUC the executed operating contracts with its planned water system contractors.

Our Company cannot predict whether the City will decide to or be able to complete the eminent domain taking of the Pennichuck Water assets upon the terms set forth in the NHPUC’s July 25, 2008 order.

Giardia Litigation

In August 2010, two claims were filed against the Company and Pittsfield Aqueduct relating to a single outbreak of Giardia contamination that occurred in the water supply for the Birch Hill community water system in North Conway, New Hampshire during September 2007. The Center for Disease Control (“CDC”) characterizes giardiasis as a “common cause of waterborne disease in humans in the United States” resulting from ingesting Giardia cysts. Healthy people normally recover within 2-6 weeks without medicine and more quickly with medicine. There were 16 confirmed cases of giardiasis at Birch Hill in September 2007, two of which resulted in some prolonged physical effects. The 3-year statute of limitations has now run out on filing any new claims relatng to this outbreak. Therefore, these are the only cases we expect to have filed with respect to this incident.

Water utilities are not required by federal or state water quality standards to test for Giardia. To our knowledge, this is the only known outbreak of Giardia at Birch Hill (and throughout all of the Company’s water systems for that matter). The water quality of the wells servicing the Birch Hill community was determined to meet all state/federal water quality standards when we purchased the system in 2006, and we have continued to operate them in accordance with those standards. To date, the source and means by which Giardia cysts infected the well remains unknown. Normally, if there is an outbreak of Giardia, it usually occurs in surface water or in a shallow gravel-packed well close to surface water. It is highly unusual for a bedrock well, such as the one in question at Birch Hill, to become infected with Giardia cysts. The infected well was immediately shut-down, and abandoned, as soon as the presence of Giardia cysts was confirmed in September 2007. Since then, the Birch Hill water system has been interconnected to the North Conway Water District water system. The Company expects that both of these claims will be covered by the Company’s primary and/or umbrella insurance policies and that there will not be any material impact on the Company.

ITEM 1A. RISK FACTORS

Other than with respect to the risk factors below, there have been no material changes from the risk factors disclosed in Part I, Item 1A. “Risk Factors” in our 2009 Annual Report on Form 10-K. The Risk Factors presented below should be read in conjunction with the risk factors and information disclosed in our 2009 Annual Report on Form 10-K, as supplemented by Part II, Item 1A, “Risk Factors”, in our Quarterly Report on Form 10-Q for the period ended March 31, 2010. See also discussion under “City of Nashua’s Ongoing Eminent Domain Proceeding” included in Part I, Item 2, in this Quarterly Report on Form 10-Q.

Risks related to our Water Utilities

The City of Nashua’s attempt to use the power of eminent domain to acquire a significant portion of our water utility assets creates uncertainty and may result in material adverse consequences for us and our shareholders.

As discussed elsewhere in this Quarterly Report of Form 10-Q, we are involved in ongoing proceedings with the City of Nashua (the “City” or “Nashua”) regarding the City’s desire to acquire all or a significant portion of the water utility assets of Pennichuck Water, our principal subsidiary, as well as the assets of Pennichuck East and Pittsfield Aqueduct. The City is pursuing such acquisition in accordance with its right to seek the authority to take such assets by eminent domain under New Hampshire law. In January 2005, the NHPUC ruled that the City could not use the eminent domain procedure to acquire any of the assets of our Pennichuck East or Pittsfield Aqueduct subsidiaries.

An eminent domain taking of the assets of Pennichuck Water pursuant to the July 25, 2008 NHPUC order would result in a significant taxable gain based on the difference between the eminent domain taking price as finally determined and the tax basis of the Pennichuck Water assets which was approximately $60 million as of December 31, 2009. The resulting corporate-level tax liability would substantially reduce the sales proceeds after an eminent domain taking (i.e., before distribution to our shareholders) unless we were able to defer the tax liability by reinvesting all or a substantial portion of the eminent domain proceeds in other water utility assets in accordance with certain provisions of the Internal Revenue Code. However, considering the geographic concentration of our operations, the time limit within which reinvestment must occur, and the large amount that would have to be reinvested, it would likely be very difficult to find suitable replacement property that is fairly priced and makes good business sense to purchase. Therefore, we do not believe reinvestment in like-kind property is a feasible solution to this corporate-level tax issue.

Since Pennichuck Water comprises the substantial majority of our consolidated assets and revenue, a permitted Condemnation Taking would likely result in the winding up and liquidation of our entire business. This would require us to repay all of our Company’s approximately $60 million of outstanding debt and to sell off the Company’s remaining non-cash assets pursuant to a plan of liquidation. Under the circumstances, it could prove difficult to obtain good prices for those assets that fairly reflect their long-term values. Liquidation would also trigger taxation at the shareholder level depending on the difference between the amounts distributed in liquidation and the cost basis of the stock being redeemed.

A permitted Condemnation Taking could also result in our Company incurring various other costs depending on the final terms of the taking and decisions that our Company may make regarding its remaining operations. These costs may include expenditures associated with termination and/or funding of health and retirement plans, certain debt redemption premiums, severance costs and professional fees.

Both the Company and the City filed appeals with the New Hampshire Supreme Court, challenging various aspects of the NHPUC’s July 25, 2008 order. On March 25, 2010, the New Hampshire Supreme Court issued its decision, unanimously affirming that NHPUC order in its entirety. Our Company cannot predict whether the City will decide to or be able to acquire the Pennichuck Water assets upon the terms set forth in the NHPUC’s July 25, 2008 order or whether the Company and the City will be able to negotiate a settlement in lieu of an eminent domain taking, including a settlement involving the City’s acquisition of the stock of Pennichuck Corporation.

We expect that all or substantially all of our then outstanding indebtedness would be accelerated if the City of Nashua were to acquire a significant portion of our assets by eminent domain; such acceleration could adversely affect our financial condition, operating results and cash flows.

An eminent domain taking or temporary use by any governmental body of all or substantially all of the tangible property of Pennichuck Water used or useful in its business as a water company would result in a mandatory redemption of substantially all our long-term debt, which totaled approximately $60 million as of December 31, 2009 and September 30, 2010. We expect that any taking of Pennichuck Water’s assets by the City in the eminent domain matter now on appeal before the New Hampshire Supreme Court (or a bona fide sale in lieu of such taking) would represent the taking of substantially all of Pennichuck Water’s tangible property used or useful in its business as a water company and would therefore trigger mandatory redemption of our long-term debt. Similarly, our revolving credit facility with Bank of America provides that any indebtedness outstanding under the facility (for which no amounts were outstanding as of December 31, 2009 and September 30, 2010) would be due upon the City acquiring all or a material portion of Pennichuck Water’s assets in an eminent domain proceeding. Also, no new borrowings would be permitted under such facility. Such acceleration could adversely affect our financial condition and operating results if we are unable to repay such indebtedness at that time or to refinance the indebtedness on equally favorable terms and conditions or to incur new borrowings. We believe, however, that because the $203 million price established by the NHPUC for the taking of Pennichuck Water’s assets is substantially greater than our total long-term debt (approximately $60 million at December 31, 2009 and September 30, 2010) the Company would likely have the ability to repay such debt in the event of a taking.

With respect to the current eminent domain dispute between the Company and the City of Nashua, a finding by the NHPUC that a “final determination of the price to be paid for the plant and property” occurred (in accordance with New Hampshire utility municipalization statute RSA 38, Section 38:13) as of the effective date of the New Hampshire Supreme Court decision affirming the NHPUC Order, or otherwise prior to any comprehensive settlement between the parties, could preclude the parties from entering into any such settlement agreement for a period of two years and then only after a new public vote authorizing the City to proceed in that regard.

RSA 38:13 provides that “within 90 days of the final determination of the price to be paid (emphasis added) for the plant and property to be acquired under the provisions of RSA 38:8 [agreed sale]...or 38:10 [condemnation taking]...the municipality shall decide whether or not to acquire the plant and property... by a vote to issue bonds...” RSA 38:13 further provides that “If the ratifying vote...shall be in the negative, no other action under this chapter shall be had during the ensuing period of 2 years.” The City and the Company have taken the position in filings with the NHPUC that the final determination of price under RSA 38:13 has not yet occurred and have filed a joint motion asking the NHPUC to establish a process by which the eminent domain valuation of the plant and property of Pennichuck Water will be updated and to make a final determination of the price to be paid. Either in response to that motion or in connection with a subsequent filing requesting the NHPUC to approve a settlement transaction with the City in lieu of an eminent domain taking, it is possible that the NHPUC could rule that the final determination of the price to be paid for purposes of RSA 38:13 occurred on April 7, 2010, the effective date of the New Hampshire Supreme Court ruling affirming the NHPUC’s order that the purchase price was $203 million based on a December 31, 2008 measurement date, and that therefore the 90-day period expired on July 6, 2010. As the City’s Board of Aldermen did not vote by July 6, 2010 to approve a settlement transaction with the City in lieu of an eminent domain taking, such a ruling by the NHPUC in effect would prevent the City from being able to enter into any settlement transaction with the Company during the ensuing 2 year period and would require a new public vote in order for the City to enter into such a settlement transaction.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. RESERVED

ITEM 5. OTHER INFORMATION

On November 2, 2010, we issued a press release announcing our financial results for the three and nine months ended September 30, 2010. A copy of the press release is attached as Exhibit 99.1 to this Quarterly Report on Form 10-Q. The information contained in Exhibit 99.1 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed incorporated by reference in any filing with the SEC under the Exchange Act of 1934 or the Securities Act of 1933, except as expressly set forth by specific reference in such a filing.

ITEM 6. EXHIBITS

Exhibit
Number				Exhibit Description
	3.1			Restated Articles of Incorporation of Pennichuck Corporation (filed as Exhibit 3.1 to the Company’s 2007 Annual Report on Form 10-K and incorporated herein by reference)
	3.2			Bylaws of Pennichuck Corporation (filed as Exhibit 3.2 to the Company’s third quarter 2008 Quarterly Report on Form 10-Q and incorporated herein by reference)
	4.1			Rights Agreement dated as of April 20, 2000 between Pennichuck Corporation and Fleet National Bank, as Rights Agent (filed as Exhibit 4.1 to the Company’s Registration Statement on Form 8-A12G, filed on April 21, 2000 and incorporated herein by reference)
	4.2			Amendment to Rights Agreement dated October 10, 2001, by and between Pennichuck Corporation and Fleet National Bank (filed as Exhibit 4.1 to the Company’s Registration Statement on Form 8-A12G/A, filed on April 30, 2002 and incorporated herein by reference)
	4.3			Second Amendment to Rights Agreement dated January 14, 2002, by and between Pennichuck Corporation and EquiServe Trust Company, N.A. (filed as Exhibit 4.2 to the Company’s Registration Statement on Form 8-A12G/A, filed on April 30, 2002 and incorporated herein by reference)
	4.4			Agreement of Substitution and Amendment of Common Shares Rights Agreement dated January 15, 2002, by and between Pennichuck Corporation and American Stock Transfer & Trust Company (filed as Exhibit 4.3 to the Company’s Registration Statement on Form 8-A12G/A, filed on April 30, 2002 and incorporated herein by reference)
	4.5			Amendment to Rights Agreement dated April 29, 2002, by and between Pennichuck Corporation and American Stock Transfer & Trust Company (filed as Exhibit 99.2 to the Company’s Current Report on Form 8-K filed on April 29, 2002 and incorporated herein by reference)
	4.6			Dividend Reinvestment and Common Stock Purchase Plan, as amended (included in the prospectus in the Company’s Registration Statement on Form S-3/A, filed on April 8, 2009 and incorporated herein by reference)
	4.7			Amendment to Rights Agreement, effective as of August 15, 2006, by and between Pennichuck Corporation and American Stock Transfer & Trust Company (filed as Exhibit 4.1 to the Company’s Registration Statement on Form 8-A12G/A, filed on September 25, 2006 and incorporated herein by reference)
	4.8			Sixth Amendment to Rights Agreement, effective as of March 2, 2009, by and between Pennichuck Corporation and American Stock Transfer & Trust Company (filed as Exhibit 4.8 to the Company’s Registration Statement on Form 8-A12G/A filed on March 5, 2009 and incorporated herein by reference)

Exhibit
Number				Exhibit Description
	4.9			Letter agreement, effective as of March 18, 2009, by and between Pennichuck Corporation and GAMCO Investors, Inc. and its affiliated entities (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed on March 19, 2009 and incorporated herein by reference)
	4.10			Seventh Amendment to Rights Agreement, effective as of March 24, 2010, by and between Pennichuck Corporation and American Stock Transfer & Trust Company, LLC (filed as Exhibit 4.10 to the Company’s Registration Statement on Form 8-A12G/A filed on March 26, 2010 and incorporated herein by reference)
	4.11			Eighth Amendment to Rights Agreement, effective as of October 29, 2010, by and between Pennichuck Corporation and American Stock Transfer & Trust Company, LLC (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed on November 1, 2010 and incorporated herein by reference)
	31.1			Certification
	31.2			Certification
	32.1			Section 1350 Certification of Chief Executive Officer of the Company in accordance with Section 906 of the Sarbanes-Oxley Act of 2002
	32.2			Section 1350 Certification of Chief Financial Officer of the Company in accordance with Section 906 of the Sarbanes-Oxley Act of 2002
	99.1			Press Release — “Pennichuck Corporation Announces Third Quarter 2010 Earnings” dated November 2, 2010

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.