UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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|
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the quarterly period ended: September 30, 2009
or
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|
o
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|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the transition period from
to
0-18552
(Commission File Number)
PENNICHUCK CORPORATION
(Exact name of registrant as specified in its charter)
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New Hampshire
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02-0177370
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(State or other jurisdiction
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(IRS Employer
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of incorporation)
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Identification No.)
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25 Manchester Street, Merrimack, New Hampshire 03054
(Address and zip code of principal executive offices)
(603) 882-5191
(Registrants telephone number, including area code)
None
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
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 (§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.
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Large accelerated filer
o
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Accelerated filer
þ
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Non-accelerated filer
o
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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). Yes
o
No
þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as
of the latest practicable date:
Common Stock, $1 Par Value, 4,261,118 shares outstanding as of November 2, 2009
PENNICHUCK CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
September 30, 2009
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION (Unaudited)
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ITEM 1.
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FINANCIAL STATEMENTS
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PENNICHUCK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(000s, except share data)
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|
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As of
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|
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September 30,
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|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Property, Plant and Equipment, net
|
|
$
|
153,679
|
|
|
$
|
151,319
|
|
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
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|
Cash and cash equivalents
|
|
|
211
|
|
|
|
91
|
|
Investments
|
|
|
506
|
|
|
|
1,005
|
|
Accounts receivable, net of allowance
of $28 and $37 in 2009
and 2008, respectively
|
|
|
2,659
|
|
|
|
2,142
|
|
Unbilled revenue
|
|
|
2,828
|
|
|
|
2,941
|
|
Materials and supplies
|
|
|
820
|
|
|
|
889
|
|
Refundable income taxes
|
|
|
1,704
|
|
|
|
667
|
|
Prepaid expenses
|
|
|
609
|
|
|
|
1,134
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
9,337
|
|
|
|
8,869
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Assets:
|
|
|
|
|
|
|
|
|
Deferred land costs
|
|
|
2,468
|
|
|
|
2,457
|
|
Deferred charges and other assets
|
|
|
12,239
|
|
|
|
12,195
|
|
Investment in real estate partnerships
|
|
|
112
|
|
|
|
114
|
|
|
|
|
|
|
|
|
Total Other Assets
|
|
|
14,819
|
|
|
|
14,766
|
|
|
|
|
|
|
|
|
|
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TOTAL ASSETS
|
|
$
|
177,835
|
|
|
$
|
174,954
|
|
|
|
|
|
|
|
|
See notes to condensed consolidated financial statements
- 1 -
PENNICHUCK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) CONTINUED
(000s, except share data)
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As of
|
|
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September 30,
|
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|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
SHAREHOLDERS EQUITY AND LIABILITIES
|
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Shareholders Equity:
|
|
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|
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|
Common stock $1 par value
Authorized 11,500,000 shares in 2009 and 2008
Issued 4,261,661 and 4,253,398 shares, respectively
Outstanding 4,260,459 and 4,252,196 shares, respectively
|
|
$
|
4,262
|
|
|
$
|
4,253
|
|
Additional paid in capital
|
|
|
33,274
|
|
|
|
33,092
|
|
Retained earnings
|
|
|
10,518
|
|
|
|
10,684
|
|
Accumulated other comprehensive loss
|
|
|
(39
|
)
|
|
|
(111
|
)
|
Treasury stock, at cost; 1,202 shares in 2009 and 2008
|
|
|
(138
|
)
|
|
|
(138
|
)
|
|
|
|
|
|
|
|
Total Shareholders Equity
|
|
|
47,877
|
|
|
|
47,780
|
|
|
|
|
|
|
|
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Preferred Stock, No Par Value, 100,000 Shares Authorized,
No Shares Issued In 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Long-term Debt, Less Current Portion
|
|
|
54,235
|
|
|
|
59,586
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Line of credit
|
|
|
3,598
|
|
|
|
1,465
|
|
Current portion of long-term debt
|
|
|
10,344
|
|
|
|
5,199
|
|
Accounts payable
|
|
|
1,141
|
|
|
|
1,326
|
|
Accrued interest payable
|
|
|
271
|
|
|
|
804
|
|
Accrued liability retainage
|
|
|
421
|
|
|
|
1,049
|
|
Customer deposits and other current liabilities
|
|
|
709
|
|
|
|
919
|
|
|
|
|
|
|
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|
Total Current Liabilities
|
|
|
16,484
|
|
|
|
10,762
|
|
|
|
|
|
|
|
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Deferred Credits and Other Reserves:
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
17,650
|
|
|
|
15,135
|
|
Other deferred credits and other reserves
|
|
|
9,976
|
|
|
|
9,761
|
|
|
|
|
|
|
|
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Total Deferred Credits and Other Reserves
|
|
|
27,626
|
|
|
|
24,896
|
|
|
|
|
|
|
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|
Contributions in Aid of Construction
|
|
|
31,613
|
|
|
|
31,930
|
|
|
|
|
|
|
|
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TOTAL SHAREHOLDERS EQUITY AND LIABILITIES
|
|
$
|
177,835
|
|
|
$
|
174,954
|
|
|
|
|
|
|
|
|
See notes to condensed consolidated financial statements
- 2 -
PENNICHUCK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME (UNAUDITED)
(000s, except share and per share data)
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|
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|
|
|
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For the Three Months Ended
|
|
|
For the Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Operating Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Water utility operations
|
|
$
|
8,856
|
|
|
$
|
7,759
|
|
|
$
|
22,863
|
|
|
$
|
21,185
|
|
Water management services
|
|
|
614
|
|
|
|
675
|
|
|
|
2,078
|
|
|
|
1,925
|
|
Real estate operations
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
5
|
|
Other
|
|
|
3
|
|
|
|
3
|
|
|
|
7
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Revenues
|
|
|
9,473
|
|
|
|
8,440
|
|
|
|
24,948
|
|
|
|
23,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Water utility operations
|
|
|
5,390
|
|
|
|
5,414
|
|
|
|
16,421
|
|
|
|
15,888
|
|
Water management services
|
|
|
538
|
|
|
|
535
|
|
|
|
1,832
|
|
|
|
1,647
|
|
Real estate operations
|
|
|
9
|
|
|
|
15
|
|
|
|
30
|
|
|
|
44
|
|
Other
|
|
|
20
|
|
|
|
21
|
|
|
|
80
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expenses
|
|
|
5,957
|
|
|
|
5,985
|
|
|
|
18,363
|
|
|
|
17,615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
|
3,516
|
|
|
|
2,455
|
|
|
|
6,585
|
|
|
|
5,507
|
|
Eminent Domain Expenses
|
|
|
(204
|
)
|
|
|
(125
|
)
|
|
|
(392
|
)
|
|
|
(141
|
)
|
Net (Loss) Earnings from Investments
Accounted for
Under the Equity Method
|
|
|
(2
|
)
|
|
|
(24
|
)
|
|
|
(5
|
)
|
|
|
3,429
|
|
Other (Expense) Income, Net
|
|
|
(1
|
)
|
|
|
(4
|
)
|
|
|
(34
|
)
|
|
|
49
|
|
Allowance for Funds Used During Construction
|
|
|
9
|
|
|
|
99
|
|
|
|
150
|
|
|
|
339
|
|
Interest Income
|
|
|
|
|
|
|
49
|
|
|
|
1
|
|
|
|
182
|
|
Interest Expense
|
|
|
(927
|
)
|
|
|
(934
|
)
|
|
|
(2,762
|
)
|
|
|
(2,735
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Provision for Income Taxes
|
|
|
2,391
|
|
|
|
1,516
|
|
|
|
3,543
|
|
|
|
6,630
|
|
Provision for Income Taxes
|
|
|
1,017
|
|
|
|
603
|
|
|
|
1,474
|
|
|
|
2,435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
1,374
|
|
|
|
913
|
|
|
|
2,069
|
|
|
|
4,195
|
|
Other Comprehensive Income (Loss), Net of Tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on derivatives
|
|
|
28
|
|
|
|
10
|
|
|
|
72
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income
|
|
$
|
1,402
|
|
|
$
|
923
|
|
|
$
|
2,141
|
|
|
$
|
4,194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.32
|
|
|
$
|
0.21
|
|
|
$
|
0.49
|
|
|
$
|
0.99
|
|
Diluted
|
|
$
|
0.32
|
|
|
$
|
0.21
|
|
|
$
|
0.48
|
|
|
$
|
0.98
|
|
Weighted Average Common Shares Outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
4,258,770
|
|
|
|
4,243,987
|
|
|
|
4, 255,089
|
|
|
|
4,236,880
|
|
Diluted
|
|
|
4,291,142
|
|
|
|
4,266,333
|
|
|
|
4,272,132
|
|
|
|
4,268,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends Paid per Common Share
|
|
$
|
0.175
|
|
|
$
|
0.165
|
|
|
$
|
0.525
|
|
|
$
|
0.495
|
|
See notes to condensed consolidated financial statements
- 3 -
P
ENNICHUCK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(000s)
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
Operating Activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,069
|
|
|
$
|
4,195
|
|
Adjustments to reconcile net income to net cash
provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
3,190
|
|
|
|
3,118
|
|
Amortization of deferred investment tax credits
|
|
|
(25
|
)
|
|
|
(25
|
)
|
Provision for deferred income taxes
|
|
|
2,467
|
|
|
|
1,353
|
|
Equity component of allowance for funds used
during construction
|
|
|
(65
|
)
|
|
|
(142
|
)
|
Undistributed loss in real estate partnerships
|
|
|
5
|
|
|
|
4
|
|
Stock-based compensation expense
|
|
|
48
|
|
|
|
56
|
|
Changes in assets and liabilities
|
|
|
(1,705
|
)
|
|
|
(2,185
|
)
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
5,984
|
|
|
|
6,374
|
|
|
|
|
|
|
|
|
Investing Activities:
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment,
including debt component of allowance for funds
used during construction
|
|
|
(5,843
|
)
|
|
|
(11,182
|
)
|
Sales of investment securities
|
|
|
1,175
|
|
|
|
8,200
|
|
Purchases of investment securities
|
|
|
(676
|
)
|
|
|
(6,193
|
)
|
Distributions in excess of earnings
in investment in real estate partnerships
|
|
|
|
|
|
|
365
|
|
Increase in investment in real estate partnership
and deferred land costs
|
|
|
(14
|
)
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(5,358
|
)
|
|
|
(8,820
|
)
|
|
|
|
|
|
|
|
Financing Activities:
|
|
|
|
|
|
|
|
|
Change in line of credit, net
|
|
|
2,133
|
|
|
|
1,000
|
|
Payments on long-term debt
|
|
|
(742
|
)
|
|
|
(15,666
|
)
|
Contributions in aid of construction
|
|
|
39
|
|
|
|
106
|
|
Proceeds from long-term borrowings
|
|
|
526
|
|
|
|
20,711
|
|
Debt issuance costs
|
|
|
(370
|
)
|
|
|
(780
|
)
|
Proceeds from issuance of common stock and
dividend reinvestment plan
|
|
|
143
|
|
|
|
239
|
|
Dividends paid
|
|
|
(2,235
|
)
|
|
|
(2,097
|
)
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(506
|
)
|
|
|
3,513
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents
|
|
|
120
|
|
|
|
1,067
|
|
Cash and cash equivalents, beginning of period
|
|
|
91
|
|
|
|
963
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
211
|
|
|
$
|
2,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures on Cash Flow and Non-Cash Items:
|
|
|
|
|
|
|
|
|
Cash Paid During the Period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
3,136
|
|
|
$
|
2,770
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes, net of refunds
|
|
$
|
129
|
|
|
$
|
1,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash Items:
|
|
|
|
|
|
|
|
|
Contributions in aid of construction
|
|
$
|
164
|
|
|
$
|
380
|
|
|
|
|
|
|
|
|
See notes to condensed consolidated financial statements
- 4 -
PENNICHUCK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 Description of Business, Summary of Significant Accounting Policies and Non-recurring Items
The terms we, our, our Company, and us refer, unless the context suggests otherwise,
to Pennichuck Corporation (the Company) and its subsidiaries, including 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, 2009 are not necessarily
indicative of the results that may be expected for the year ending December 31, 2009. The
condensed consolidated balance sheet amounts shown under the December 31, 2008 column have been
derived from the audited financial statements of our Company as contained in our 2008 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 Companys 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 conducts real estate operations.
Our Companys utility subsidiaries are engaged principally in the collection, storage,
treatment and distribution of potable water to approximately 33,500 customers throughout the State
of New Hampshire. The utility subsidiaries, which are regulated by the New Hampshire Public
Utilities Commission (NHPUC), are subject to the provisions of Accounting Standards Codification
Topic 980 Regulated Operations(formerly Statement of Financial Accounting Standards (SFAS)
No. 71,
Accounting for the Effects of Certain Types of Regulation
). Service Corporation is
involved in providing non-regulated water-related services to approximately 19,300 customers, while
Southwood owns and commercializes real estate holdings.
- 5 -
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 Company has performed an evaluation of subsequent events through November 5, 2009, which
is the date the financial statements were issued and filed with the SEC. There were no reportable
events.
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.
Certain balance sheet amounts as of December 31, 2008 have been reclassified to conform to the
September 30, 2009 balance sheet presentation. These reclassifications had no effect on total
current assets or total current liabilities and relate to the reclassification of refundable income
taxes, miscellaneous accrued accounts payable and accrued liability-retainage.
(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 revenues and
expenses during the reporting period. Actual results could differ from those estimates.
(c) New Accounting Pronouncements
The Financial Accounting Standards Board (FASB) announced that effective for interim and
annual periods ending after September 15, 2009, the FASB Accounting Standards Codification (ASC)
will be the single official source of authoritative, nongovernmental U.S. generally accepted
accounting principles, superseding existing FASB, American Institute of Certified Public
Accountants, Emerging Issues Task Force and related literature. At that time, only one level of
authoritative Generally Accepted Accounting Principles (GAAP) will exist, excluding the guidance
issued by the SEC. ASC does not change GAAP; instead, ASC introduces a new structure, arranged
within topics, subtopics, sections and subsections.
In November 2008, the SEC released a proposed roadmap regarding the potential use by U.S.
issuers of financial statements prepared in accordance with International Financial Reporting
Standards (IFRS). IFRS is a comprehensive series of accounting standards published by the
International Accounting Standards Board. Under the proposed roadmap, we may be required to prepare
financial statements in accordance with IFRS as early as 2014. The SEC will make a determination in
2011 regarding the mandatory adoption of IFRS. Our Company is currently assessing the impact that
this potential change would have on our financial statements, and we will
continue to monitor the SECs determination regarding of the potential requirement to
implement of IFRS.
- 6 -
In December 2008, the FASB issued FSP SFAS 132(R)-1,
Employers Disclosures about
Postretirement Benefit Plan Assets
(ASC Topic 715 Compensation Retirement Benefits). This FSP
amends SFAS 132(R), Employers Disclosures about Pensions and Other Postretirement Benefits, to
provide guidance on an employers disclosures about plan assets of a defined benefit pension or
other postretirement plan. The disclosures about plan assets required by this FSP shall be
provided for fiscal years ending after December 15, 2009. We will incorporate the requirements of
this FSP in our financial statements for the year ending December 31, 2009. We do not expect that
the adoption of this standard will have a material impact on our consolidated financial statements.
In August 2009, the FASB issued Accounting Standards Update No. 2009-5,
Fair Value
Measurements and Disclosures
. This update provides clarification for the fair value measurement
of liabilities in circumstances in which a quoted price in an active market for the identical
liability is not available, an entity is required to measure fair value using either a valuation
technique that uses a quoted price of either a similar liability or a quoted price of an identical
or similar liability when traded as an asset, or another valuation technique that is consistent
with the principles of fair value measurements, such as an income approach (e.g., present value
technique). This guidance also states that both a quoted price in an active market for the
identical liability and a quoted price for the identical liability when traded as an asset in an
active market when no adjustments to the quoted price of the asset are required are Level 1 fair
value measurements. These changes are effective for interim periods beginning after August 28,
2009. We do not expect the adoption of this standard will have a material effect on our
consolidated financial statements.
(d) Property, Plant and Equipment
The components of property, plant and equipment as of September 30, 2009 and December 31, 2008
were as follows:
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(000s)
|
|
Utility Property:
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
1,829
|
|
|
$
|
1,712
|
|
Source of supply
|
|
|
47,852
|
|
|
|
46,868
|
|
Pumping & purification
|
|
|
26,831
|
|
|
|
22,805
|
|
Transmission & distribution, including
services, meters and hydrants
|
|
|
102,906
|
|
|
|
98,889
|
|
General and other equipment
|
|
|
8,924
|
|
|
|
8,787
|
|
Intangible plant
|
|
|
720
|
|
|
|
720
|
|
Construction work in progress
|
|
|
1,852
|
|
|
|
7,478
|
|
|
|
|
|
|
|
|
Total utility property
|
|
|
190,914
|
|
|
|
187,259
|
|
Total non-utility property
|
|
|
101
|
|
|
|
101
|
|
|
|
|
|
|
|
|
Total property, plant & equipment
|
|
|
191,015
|
|
|
|
187,360
|
|
Less accumulated depreciation
|
|
|
(37,336
|
)
|
|
|
(36,041
|
)
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
153,679
|
|
|
$
|
151,319
|
|
|
|
|
|
|
|
|
- 7 -
(e)
Cash and Cash Equivalents
Cash and cash equivalents consists of cash in banks.
(f) Investments
Investments represent funds held in money market securities. These funds have no restriction
and may be used for general corporate purposes.
(g) 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 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 water utility operations as well as receivables from our water management services
customers.
(h) 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
Companys 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, 2009 and December 31, 2008 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
Recovery
|
|
|
2009
|
|
|
2008
|
|
|
Period
|
|
|
(000s)
|
|
|
|
Regulatory assets:
|
|
|
|
|
|
|
|
|
|
|
Source development charges
|
|
$
|
740
|
|
|
$
|
771
|
|
|
5 25
|
Miscellaneous studies
|
|
|
955
|
|
|
|
979
|
|
|
4 25
|
Sarbanes-Oxley costs
|
|
|
488
|
|
|
|
635
|
|
|
5
|
Prepaid pension
|
|
|
4,724
|
|
|
|
4,724
|
|
|
|
Other postretirement benefits
|
|
|
447
|
|
|
|
447
|
|
|
|
|
|
|
|
|
|
|
|
|
Total regulatory assets
|
|
|
7,354
|
|
|
|
7,556
|
|
|
|
Franchise fees and other
|
|
|
46
|
|
|
|
45
|
|
|
|
Supplemental retirement plan asset
|
|
|
578
|
|
|
|
525
|
|
|
|
Deferred financing costs
|
|
|
4,261
|
|
|
|
4,069
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred charges and other assets
|
|
$
|
12,239
|
|
|
$
|
12,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We expect to recover the deferred pension and other postretirement amounts consistent with
the anticipated expense recognition of the pension and other postretirement costs.
|
- 8 -
(i) Revenues
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 Companys water
revenues are based on rates approved by the NHPUC. Estimates of unbilled service revenues 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.
In accordance with the guidance contained in the SECs Staff Accounting Bulletin No. 104, Topic 13
Revenue Recognition, revised and updated,
our Company records revenues for this business segment
in one of two ways. Contract revenues are 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.
Revenues from real estate operations, other than undistributed earnings or losses from equity
method joint ventures, are recorded upon completion of a sale of real property. Our Companys real
estate holdings outside of our regulated utilities are comprised primarily of undeveloped land.
(j) Allowance for Funds Used During Construction
Allowance for funds used during construction (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 8% in 2009 and 2008. The total
amounts of AFUDC recorded for the three and nine months ended September 30, 2009 and 2008 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(000s)
|
|
Debt (interest) component
|
|
$
|
7
|
|
|
$
|
59
|
|
|
$
|
85
|
|
|
$
|
197
|
|
Equity component
|
|
|
2
|
|
|
|
40
|
|
|
|
65
|
|
|
|
142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total AFUDC
|
|
$
|
9
|
|
|
$
|
99
|
|
|
$
|
150
|
|
|
$
|
339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(k)
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, 2009 and 2008, dilutive potential common shares consisted of
outstanding stock options.
- 9 -
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, 2009 and 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(000s, except per share and share data)
|
|
Basic net income per share
|
|
$
|
0.32
|
|
|
$
|
0.21
|
|
|
$
|
0.49
|
|
|
$
|
0.99
|
|
Dilutive effect of unexercised
stock options
|
|
|
|
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive net income per share
|
|
$
|
0.32
|
|
|
$
|
0.21
|
|
|
$
|
0.48
|
|
|
$
|
0.98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,374
|
|
|
$
|
913
|
|
|
$
|
2,069
|
|
|
$
|
4,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average common
shares outstanding
|
|
|
4,258,770
|
|
|
|
4,243,987
|
|
|
|
4,255,089
|
|
|
|
4,236,880
|
|
Dilutive effect of unexercised
stock options
|
|
|
32,372
|
|
|
|
22,346
|
|
|
|
17,043
|
|
|
|
31,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average common
shares outstanding
|
|
|
4,291,142
|
|
|
|
4,266,333
|
|
|
|
4,272,132
|
|
|
|
4,268,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options to purchase -0- and 55,668 shares of common stock were not included in the
computation of diluted earnings per share for the three and nine months ended September 30, 2009,
respectively, because their effect would have been antidilutive. Options to purchase 16,200 shares
of common stock were not included in the computation of diluted earnings per share for the three
and nine months ended September 30, 2008 because their effect would have been antidilutive.
Non-recurring Items
:
Net (loss) earnings from investments accounted for under the equity method for the nine
months ended September 30, 2008 includes a non-recurring, non-operating, after-tax gain of
approximately $2.3 million ($3.4 million before federal income taxes), or $0.53 diluted earnings
per share, from the January 2008 sale of three commercial real estate properties that were owned by
three joint ventures, as more fully described in Note 7, Equity Investments in Unconsolidated
Companies.
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.
During the three months ended September 30, 2009 and 2008, we contributed $245,000 and $387,000,
respectively, into the Plan. During the nine months ended September 30, 2009 and 2008, we
contributed $584,000 and $680,000, respectively, into the Plan. We anticipate that we will
contribute a total of approximately $675,000 into the Plan in 2009.
- 10 -
The components of net periodic pension benefit cost were as follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(000s)
|
|
Service cost
|
|
$
|
208
|
|
|
$
|
129
|
|
|
$
|
624
|
|
|
$
|
372
|
|
Interest cost
|
|
|
165
|
|
|
|
110
|
|
|
|
495
|
|
|
|
317
|
|
Expected return on plan assets
|
|
|
(155
|
)
|
|
|
(105
|
)
|
|
|
(463
|
)
|
|
|
(300
|
)
|
Amortization of prior service cost
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
Amortization of transition asset
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
Recognized net actuarial loss
|
|
|
41
|
|
|
|
27
|
|
|
|
123
|
|
|
|
76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
260
|
|
|
$
|
162
|
|
|
$
|
780
|
|
|
$
|
466
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Postretirement Benefits
We provide postretirement medical benefits for eligible retired employees, who retire on or
after the normal retirement age of 65, through separate postretirement medical plans for union and
non-union employees. 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.
Our Company also offers 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 employees retirement date until the employee
becomes eligible for Medicare. This postemployment plan is funded from the general assets of the
Company.
Upon retirement, if a qualifying employee elects to remain on the Companys group medical
plan, the Company pays his or her full monthly premium. Upon request, the spouse of the covered
former employee may also remain on the Companys group medical plan provided that persons full
monthly premium is reimbursed to the Company.
Net periodic other postretirement and postemployment benefit cost included the following
components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(000s)
|
|
Service cost
|
|
$
|
36
|
|
|
$
|
33
|
|
|
$
|
106
|
|
|
$
|
128
|
|
Interest cost
|
|
|
34
|
|
|
|
26
|
|
|
|
102
|
|
|
|
94
|
|
Expected return on plan assets
|
|
|
(12
|
)
|
|
|
(10
|
)
|
|
|
(36
|
)
|
|
|
(30
|
)
|
Amortization of prior service cost
|
|
|
6
|
|
|
|
7
|
|
|
|
18
|
|
|
|
31
|
|
Recognized net actuarial loss
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
64
|
|
|
$
|
56
|
|
|
$
|
192
|
|
|
$
|
223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The net periodic pension and other postretirement benefit costs were estimated based on
the latest available participant census data. During each of the three months ended September 30,
2009 and 2008, we contributed approximately $11,000 and $10,000, respectively into this program.
During the nine months ended September 30, 2009 and 2008, we contributed
approximately $29,000 and $27,000, respectively, into this program. We anticipate that we
will contribute a total of approximately $39,000 into the program in 2009.
- 11 -
Note 3 Stock-based Compensation Plans
Share-based payments to employees, including grants of stock options, are recognized as
compensation expense in the consolidated financial statements based on their fair value on the
grant date.
The impact of stock-based compensation on the condensed consolidated statements of income and
comprehensive income was approximately:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(000s)
|
|
Stock-based compensation
|
|
$
|
16
|
|
|
$
|
33
|
|
|
$
|
48
|
|
|
$
|
56
|
|
Income taxes
|
|
|
(6
|
)
|
|
|
(13
|
)
|
|
|
(19
|
)
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation, net
of tax
|
|
$
|
10
|
|
|
$
|
20
|
|
|
$
|
29
|
|
|
$
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our Company has periodically granted its officers and key employees incentive and
non-qualified stock options on a discretionary basis pursuant to two stock option plans, the 1995
Stock Option Plan (1995 Plan) and the 2000 Stock Option Plan (2000 Plan).
On May 6, 2009, our shareholders approved an amendment to and restatement of the 2000 Plan to
also allow for the issuance of restricted stock without increasing the number of shares available
for awards under the Plan. As amended and restated, the plan has been renamed the 2009 Equity
Incentive Plan (the 2009 Plan). No further shares are available for future grant under the 1995
Plan. As of September 30, 2009, there were 183,834 shares available for future grant under the
2009 Plan. We issued -0- and 38,000 options during the three and nine months ended September 30,
2009.
Note 4 Commitments and Contingencies
City of Nashuas 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 Companys 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 may 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.
- 12 -
Principal NHPUC rulings
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 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.
The conditions 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 resulting
from the taking of the Pennichuck Water assets by the City. Consequently, under the terms of the
NHPUC order, the City would be required to pay a total of $243 million determined as of December
31, 2008. Another condition was that the City submit to the NHPUC, for its advance approval, the
final operating contracts between the City and its planned contractors. The remaining conditions
covered various aspects of the operation and oversight of the water system under City ownership.
The $203 million compensation amount was set by two-thirds majority vote of the NHPUC
Commissioners, with one Commissioner dissenting. The dissenting Commissioner argued for a $151
million compensation amount. The separate $40 million mitigation reserve amount was set by
unanimous vote of the Commissioners.
It is our understanding that in the event of an eminent domain taking pursuant to the July 25,
2008 NHPUC order, the actual amount of compensation the City would have to pay would include
compensating Pennichuck Water for capital additions from and after the end of 2008 through the
ultimate asset acquisition closing date.
The NHPUC July 2008 decision and the opinion of the dissenting Commissioner are available
on the NHPUC web site (Docket No. 04-048).
Pending Supreme Court appeal
The Company and the City submitted motions to the NHPUC requesting reconsideration or
rehearing as to its July 25, 2008 order. On March 13, 2009, the NHPUC issued an order denying the
motions of both parties in their entirety on the basis that neither party had presented any new
arguments or evidence that the NHPUC had not previously considered. Subsequently, both the Company
and the City filed appeals with the Supreme Court.
The City filed its appeal brief with the Supreme Court on August 14, 2009. The Company filed
its appeal brief, and its initial reply to the Citys brief, on September 29, 2009. Additional
reply briefs were filed by the City on October 29, 2009 and are expected to be filed by the Company
by November 18, 2009. Oral arguments before the Supreme Court are expected to take place in either
December 2009 or January 2010.
The Companys Supreme Court appeal is principally focused on legal issues relating to the
NHPUCs public interest determination. The Company has also appealed the adequacy of the $40
million mitigation reserve required by the NHPUC to protect the interests of the customers of
Pennichuck East and Pittsfield Aqueduct.
- 13 -
The Citys Supreme Court appeal focuses principally on the compensation amount for Pennichuck
Waters assets, arguing that the $151 million proposed by the dissenting NHPUC Commissioner is the
appropriate amount of compensation for the assets of Pennichuck Water as of December 31, 2008. The
City has also appealed certain legal issues relating to the decision by the NHPUC on January 21,
2005 denying the City the right to take the assets of Pennichuck East and Pittsfield Aqueduct by
eminent domain, and the size of the mitigation reserve which the City argues should be
substantially reduced.
The Company expects that the Supreme Court will likely not render its decision before early
2010. The outcome of the Supreme Court appeals cannot be predicted. If the Company prevails in
its public interest appeal, the NHPUCs July 25, 2008 order could be reversed by the Supreme Court
and the case could be dismissed or the case could be remanded to the NHPUC for further
consideration. If the Company does not prevail in its public interest appeal and the City prevails in its appeals on valuation and/or the taking of Pennichuck
East and Pittsfield Aqueduct, or if either party is successful in its appeal of the $40 million
mitigation reserve, the Supreme Court would likely remand the case to the NHPUC for further
determination.
A taking of assets by eminent domain pursuant to the NHPUC order would result in a significant
taxable gain and related tax liability to the Company based on the difference between the price
paid to Pennichuck Water for the assets taken and Pennichuck Waters underlying tax basis in such
assets. The tax liability would be due proximate to the sale of the assets unless the proceeds of
the taking were reinvested in other water utility assets in accordance with certain provisions of
the Internal Revenue Code. A taking by eminent domain could also result in our Company incurring
various other costs depending on the final terms of the eminent domain 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. In addition, if the Company were to sell some or
all of its remaining businesses or assets, it may be forced to accept prices below their current
carrying values as a result of then-current market conditions, a limited number of potential
buyers, and/or other factors. If the acquisition efforts of the City are successful, 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 acquire the assets
of our Companys Pittsfield Aqueduct subsidiary by eminent domain. In April 2003, the Town
notified our Company in writing of the Towns desire to acquire 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 the Town voted to appropriate $60,000 to the eminent domain process. On
March 22, 2005, our Company received a letter from the Town reiterating the Towns desire to
acquire the assets of our Companys 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 Companys Pittsfield
Aqueduct assets by eminent domain, but since the date of the Towns letter to our Company the Town
has not taken any additional steps required under New Hampshire RSA Chapter 38 to pursue eminent
domain.
- 14 -
The Town of Bedford, New Hampshire voted at its town meeting in March 2005 to take by eminent
domain our Companys 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 Towns letter to our Company the Town has not
taken any additional steps required under New Hampshire RSA Chapter 38 to pursue eminent domain.
During the hearing regarding the proposed eminent domain taking of the Pennichuck Water assets by
Nashua, a witness for the Town of Bedford testified that the Towns interest in a possible taking
of assets of our Company related to a situation in which Nashua might acquire less than all of our
Companys 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
acquisition efforts of the City and/or the Towns of Pittsfield or Bedford were ultimately
successful, the financial position of our Company would 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 grouped into three primary business segments as follows:
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
numerous other communities throughout New Hampshire.
Water management services
Includes the contract operations and maintenance activities of
Service Corporation.
Real estate operations
Involves the ownership, commercialization and sale of non-utility
landholdings in Nashua and Merrimack, New Hampshire.
The line titled Other relates to parent company activity, including eminent domain expenses.
This line, which is not a reportable segment, is shown only to reconcile to the total amounts
shown in our condensed consolidated financial statements.
- 15 -
The following table presents information about our three primary business segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(000s)
|
|
Operating revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Water utility operations
|
|
$
|
8,856
|
|
|
$
|
7,759
|
|
|
$
|
22,863
|
|
|
$
|
21,185
|
|
Water management services
|
|
|
614
|
|
|
|
675
|
|
|
|
2,078
|
|
|
|
1,925
|
|
Real estate operations
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
5
|
|
Other
|
|
|
3
|
|
|
|
3
|
|
|
|
7
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
$
|
9,473
|
|
|
$
|
8,440
|
|
|
$
|
24,948
|
|
|
$
|
23,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Water utility operations
|
|
$
|
3,466
|
|
|
$
|
2,345
|
|
|
$
|
6,442
|
|
|
$
|
5,297
|
|
Water management services
|
|
|
76
|
|
|
|
140
|
|
|
|
246
|
|
|
|
278
|
|
Real estate operations
|
|
|
(9
|
)
|
|
|
(12
|
)
|
|
|
(30
|
)
|
|
|
(39
|
)
|
Other
|
|
|
(17
|
)
|
|
|
(18
|
)
|
|
|
(73
|
)
|
|
|
(29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income
|
|
$
|
3,516
|
|
|
$
|
2,455
|
|
|
$
|
6,585
|
|
|
$
|
5,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Water utility operations
|
|
$
|
1,455
|
|
|
$
|
946
|
|
|
$
|
2,164
|
|
|
$
|
1,914
|
|
Water management services
|
|
|
42
|
|
|
|
84
|
|
|
|
143
|
|
|
|
166
|
|
Real estate operations
|
|
|
(6
|
)
|
|
|
(23
|
)
|
|
|
(21
|
)
|
|
|
2,246
|
|
Other
|
|
|
(117
|
)
|
|
|
(94
|
)
|
|
|
(217
|
)
|
|
|
(131
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net income
|
|
$
|
1,374
|
|
|
$
|
913
|
|
|
$
|
2,069
|
|
|
$
|
4,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(000s)
|
|
Total assets:
|
|
|
|
|
|
|
|
|
Water utility operations
|
|
$
|
165,428
|
|
|
$
|
165,280
|
|
Water management services
|
|
|
303
|
|
|
|
159
|
|
Real estate operations
|
|
|
2,344
|
|
|
|
2,394
|
|
Other
|
|
|
9,760
|
|
|
|
7,121
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
177,835
|
|
|
$
|
174,954
|
|
|
|
|
|
|
|
|
Note 6 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: Unadjusted quoted prices in active markets that are accessible at the
measurement date for identical, unrestricted assets or liabilities.
|
|
|
|
|
Level 2: Quoted prices in markets that are not active, or inputs that are observable
either directly or indirectly, for substantially the full term of the asset or the
liability.
|
|
|
|
|
Level 3: Prices or valuation techniques that require inputs that are both significant
to the fair value measurement and unobservable (
i.e.
supported with little or no market
activity).
|
- 16 -
An asset or liabilitys 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, 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in Active
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
Markets for
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
|
Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
September 30,
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
2009
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
(000s)
|
|
Investments
|
|
$
|
506
|
|
|
$
|
506
|
|
|
$
|
|
|
|
$
|
|
|
Interest rate swap
|
|
|
(64
|
)
|
|
|
|
|
|
|
(64
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
442
|
|
|
$
|
506
|
|
|
$
|
(64
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 December 31, 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in Active
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
Markets for
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
|
Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
December 31,
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
2008
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
(000s)
|
|
Investments
|
|
$
|
1,005
|
|
|
$
|
1,005
|
|
|
$
|
|
|
|
$
|
|
|
Interest rate swap
|
|
|
(185
|
)
|
|
|
|
|
|
|
(185
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
820
|
|
|
$
|
1,005
|
|
|
$
|
(185
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The carrying value of certain financial instruments included in the accompanying
consolidated balance sheet, along with the related fair value, as of September 30, 2009 and
December 31, 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009
|
|
|
December 31, 2008
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
|
(000s)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
$
|
506
|
|
|
$
|
506
|
|
|
$
|
1,005
|
|
|
$
|
1,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
(64,579
|
)
|
|
|
(57,608
|
)
|
|
|
(64,785
|
)
|
|
|
(59,148
|
)
|
Interest rate swap liability
|
|
|
(64
|
)
|
|
|
(64
|
)
|
|
|
(185
|
)
|
|
|
(185
|
)
|
- 17 -
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 swaps represents the
estimated cost to terminate these agreements as of September 30, 2009 and December 31, 2008 based
upon current interest rates.
The carrying values of the Companys cash, short-term investments, line of credit and
short-term notes receivable approximate their fair values because of the short maturity dates of
those financial instruments.
Note 7 Equity Investments in Unconsolidated Companies
As of September 30, 2009 and December 31, 2008, Southwood held a 50 percent ownership interest
in a limited liability company (LLC) known as HECOP IV. The remaining ownership interest in
HECOP IV is held by John P. Stabile II (Stabile), principal owner of H.J. Stabile & Son, Inc.
This LLC, 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
short-term cash needs of HECOP IV are expected to be funded by the LLC partners on an on-going
basis and are not expected to be significant.
Until December 2008, Southwood also held a 50 percent ownership interest in three other LLCs
known as HECOP I, HECOP II and HECOP III. All or a majority of the remaining ownership interest in
each of these joint ventures was held primarily by Stabile. Net (loss) earnings from investments
accounted for under the equity method for the nine months ended September 30, 2008 include a
non-recurring, non-operating, after state tax gain of approximately $3.4 million ($2.3 million
after federal income taxes) from the January 2008 sale of the three commercial real estate
properties that were owned by these three joint ventures. The land and office buildings sold
comprised substantially all of the assets of HECOP I, II, and III. Consequently, these three joint
ventures were dissolved in December 2008. For the three and nine months ended September 30, 2008,
cash distributions received from HECOP I, II, and III were $-0- and $3.8 million, respectively.
Southwood uses the equity method of accounting for its investments in the joint ventures
and accordingly, its investment is adjusted for its share of earnings or losses and for any
distributions or dividends received from the joint ventures. Southwoods share of earnings and
losses are included under Net (loss) earnings from investments accounted for under the equity
method in the accompanying condensed consolidated statements of income.
- 18 -
|
|
|
ITEM 2.
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|
MANAGEMENTS 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 (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).
Pennichuck Corporation is a non-operating holding company whose income is derived from the
earnings of our 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. Our water utility revenues constituted 92% of our
consolidated revenues for the nine months ended September 30, 2009 and 2008. Pennichuck Water, our
principal subsidiary which was established in 1852, accounted for 72% of our revenues for the nine
months ended September 30, 2009 and 2008. Pennichuck Waters franchise area presently includes the
City of Nashua, New Hampshire and 10 surrounding municipalities.
Our water utility subsidiaries are regulated by the New Hampshire Public Utilities Commission
(NHPUC) and must obtain NHPUC approval to increase their water rates to recover increases in
operating expenses and to obtain the opportunity to earn a return on investment in plant and
equipment. New Hampshire law provides that utilities are entitled to charge rates that 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 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.
The businesses of our other two subsidiaries are non-regulated water management services and
real estate management and commercialization. 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 towns of Hudson, New Hampshire and Salisbury,
Massachusetts.
Southwood is engaged in real estate management and commercialization activities.
Historically, most of Southwoods activities have been conducted through joint ventures. Over the
past 10 years, Southwood has participated in four joint ventures with John P. Stabile II, a local
developer. Southwoods earnings have from time to time during that period contributed a
significant percentage of our net income, including in the nine months ended September 30, 2008
(
i.e.
, the January 2008 sale of the three commercial office buildings that comprised substantially
all of the assets of HECOP I, II, and III as more fully described in Note 7, Equity Investments in
Unconsolidated Companies in Part I, Item I, in this Quarterly Report on Form
10-Q).
Southwoods
contributions from the sale of real estate have increased the fluctuations in our net
income during the
10-year
period. While we expect that Southwood will contribute a smaller
proportion of our revenues and earnings over the next several years, we expect it to pursue the
orderly commercialization of the Companys 450 acres of undeveloped land held outside the regulated
utilities.
- 19 -
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 may have a material adverse effect on our financial
condition, depending on the outcome of appeals pending before the New Hampshire Supreme Court and
the ultimate outcome of settlement negotiations that have occurred, and are expected to continue to
occur, from time to time with the City.
As you read the Managements Discussion and Analysis, refer to our Condensed Consolidated
Financial Statements and the accompanying Notes to Condensed Consolidated Financial Statements in
Item 1 in this Quarterly Report on Form10-Q.
Forward-Looking Statements
Certain statements in this Quarterly Report on Form 10-Q, including Managements 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. Such factors include, among other things, whether eminent domain
proceedings are ultimately successful against some or all of our water utility assets, the success
of applications for rate relief, changes in governmental regulations, changes in the economic and
business environment that may impact demand for our water, services and real estate products,
changes in capital requirements that may affect our level of capital expenditures, changes in
business strategy or plans and fluctuations in weather conditions that impact water consumption.
For a complete discussion of our risk factors, see Part I, Item 1A, Risk Factors, in our 2008
Annual Report on Form 10-K, as supplemented by Part II, Item 1A, Risk Factors, in this Quarterly
Report on Form 10-Q. 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 Nashuas Ongoing Eminent Domain Proceeding
On March 25, 2004, 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 Companys 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 may 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.
- 20 -
There can be no assurance that the City would choose to complete an eminent domain taking of
all or any portion of our utility assets. The Company expects that the City would finance the
amount of compensation that the City would have to pay us for our utility assets, which we
sometimes refer to as the purchase price, as well as its other related costs, through the sale of
debt securities. The issuance of that debt would require the approval of two-thirds of the Citys
Board of Aldermen. Accordingly, a decision by the City ultimately to proceed with an eminent
domain taking in effect requires the approval of two-thirds of the Citys Board of Aldermen after
there is a final determination permitting the City to acquire our utility assets by eminent domain
and fixing the amount of compensation that the City must pay for those assets, and the terms of the
related financing are finalized. The City would have 90 days to make a decision regarding an
eminent domain taking after such a final determination.
Summarized below are the principal NHPUC rulings in the eminent domain proceeding, the pending
appeal before the New Hampshire Supreme Court (the Supreme Court), and the Companys perspective
on why a negotiated settlement with the City could be more advantageous for each party than an
eminent domain taking.
Principal NHPUC rulings
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 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.
The conditions 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 resulting
from the taking of the assets by the City. Consequently, under the terms of the NHPUC order, the
City would be required to pay a total of $243 million determined as of December 31, 2008. Another
condition was that the City submit to the NHPUC, for its advance approval, the final operating
contracts between the City and its planned contractors. The remaining conditions covered various
aspects of the operation and oversight of the water system under City ownership.
The $203 million compensation amount was set by two-thirds majority vote of the NHPUC
Commissioners, with one Commissioner dissenting. The dissenting Commissioner argued for a $151
million compensation amount. The separate $40 million mitigation reserve amount was set by
unanimous vote of the Commissioners.
It is our
understanding that in the event of an eminent domain taking pursuant to the July 25,
2008 NHPUC order, the actual amount of compensation the City would have to pay would
include compensating Pennichuck Water for capital additions from and after
the end of 2008 through the ultimate asset acquisition closing date.
The NHPUC July 2008 order and the opinion of the dissenting Commissioner are available on the
NHPUC web site (Docket No. 04-048).
- 21 -
Pending Supreme Court appeal
The Company and the City submitted motions to the NHPUC requesting reconsideration or
rehearing as to its July 25, 2008 order. On March 13, 2009, the NHPUC issued an order denying the
motions of both parties in their entirety on the basis that neither party had presented any new
arguments or evidence that the NHPUC had not previously considered.
Subsequently, both the Company and the City filed appeals with the Supreme Court. The City
filed its appeal brief with the Supreme Court on August 14, 2009. The Company filed its appeal
brief, and its initial reply to the Citys brief, on September 29, 2009. Additional reply briefs
were filed by the City on October 29, 2009 and are expected to be filed by the Company by November
18, 2009. Oral arguments before the Supreme Court are expected to take place in either December
2009 or January 2010.
The Companys Supreme Court appeal is principally focused on legal issues relating to the
NHPUCs public interest determination. The Company has also appealed the adequacy of the $40
million mitigation reserve required by the NHPUC to protect the interests of the customers of
Pennichuck East and Pittsfield Aqueduct.
The Citys Supreme Court appeal focuses principally on the compensation amount for Pennichuck
Waters assets, arguing that the $151 million proposed by the dissenting NHPUC Commissioner is the
appropriate amount of compensation for the assets of Pennichuck Water as of December 31, 2008. The
City has also appealed certain legal issues relating to the decision by the NHPUC on January 21,
2005 denying the City the right to take the assets of Pennichuck East and Pittsfield Aqueduct by
eminent domain, and the size of the mitigation reserve, which the City argues should be
substantially reduced.
The Company expects that the Supreme Court will likely not render its decision before early
2010. The outcome of the Supreme Court appeals cannot be predicted. If the Company prevails in
its public interest appeal, the NHPUCs July 25, 2008 order could be reversed by the Supreme Court
and the case could be dismissed. On the other hand, if the Company does not prevail in its public
interest appeal and the City prevails in its appeals on valuation and/or the taking of Pennichuck
East and Pittsfield Aqueduct, or if either party is successful in its appeal of the $40 million
mitigation reserve, the Supreme Court would likely remand the case to the NHPUC for further
determination.
Potential advantages of a negotiated settlement
The Company believes a negotiated settlement between the Company and the City could be more
advantageous for each party than an eminent domain taking pursuant to the NHPUCs July 25, 2008 order.
Based upon the public statements of the Citys Mayor and various members of the Citys Board
of Aldermen, as well as the positions taken in filings with the NHPUC and the Supreme Court, we
believe that:
|
|
|
the City would like to acquire the operating assets of Pennichuck Water and
would prefer to pay not more than $151 million for those assets;
|
|
|
|
|
the City would prefer to acquire the assets of Pennichuck East and Pittsfield
Aqueduct as part of the eminent domain proceeding, instead of funding a $40
million mitigation reserve as provided in the NHPUCs July 25, 2008 order;
|
- 22 -
|
|
|
the City would prefer that if a mitigation reserve is required (in lieu of it
being allowed to acquire the assets of Pennichuck East and Pittsfield Aqueduct),
it should be substantially less than the $40 million determined by the NHPUC; and
|
|
|
|
the City would prefer to outsource to a third party the operation of any water
systems the City acquires.
|
In addition, the City has stated publicly that it would also like to acquire the Companys
approximately 450 acres of undeveloped non-utility landholdings that would not be includible in any
eminent domain taking.
If the Supreme Court upholds the NHPUCs July 25, 2008 order that (i) a taking of the assets
of Pennichuck Water is in the public interest provided certain conditions are met, (ii) the amount
of compensation to be paid to Pennichuck Water for such assets is $203 million as of December 31,
2008, and (iii) the City must pay an additional $40 million into a mitigation fund, we believe that
the total cost to the City to accomplish its stated objectives, including the acquisition of the
undeveloped land, would likely be at least $250 million. Of course, for the reasons described
above, the City would not be obligated to proceed with an acquisition on those terms, and we expect
that the City would not continue to pursue an eminent domain acquisition on those terms.
From the Companys perspective, even if the Supreme Court upholds the NHPUCs compensation
determination, an eminent domain taking is undesirable primarily because it would result in the
recognition of a substantial taxable gain at the corporate level that would adversely affect
shareholder value. An eminent domain taking also would likely have an adverse effect on the value
of Pennichuck East and Pittsfield Aqueduct, if, as we believe is appropriate, the City is not
permitted to acquire the assets of those companies in the eminent domain proceeding. In addition,
the Company would likely incur material additional costs in connection with any eminent domain
taking and related matters. For these reasons, which are described in more detail below, we remain
opposed to an eminent domain taking of the assets of Pennichuck Water pursuant to the terms of the
July 2008 NHPUC order.
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 at the corporate level based on the difference
between the eminent domain taking price as finally determined and the tax basis of the assets
taken. That tax basis was approximately $60 million as of September 30, 2009. The resulting
corporate-level income tax liability would substantially reduce the Companys net worth 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 current geographic concentration of our operations, the time limit within
which the reinvestment must occur and the large dollar amount that would have to be reinvested in
order to substantially mitigate the tax consequences, we believe it would likely be difficult to
find suitable replacement property that would be priced fairly and that otherwise would be prudent
for us to purchase. For these reasons, we do not expect that the reinvestment of all or a
substantial portion of the eminent domain proceeds would be a viable strategy for the Company to
defer the payment of the tax liability due as a result of the sale of assets in an eminent domain
taking.
- 23 -
A taking by eminent domain could also result in our Company incurring various other costs
depending on the final terms of the eminent domain 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. In addition, if the Company were to sell some or all of its
remaining businesses or assets as a consequence of an eminent domain taking, it could be forced to
accept prices below their current carrying values as a result of then-current market conditions, a
limited number of potential buyers, and/or other factors.
We have stated publicly that because we believe an eminent domain taking pursuant to the July
25, 2008 NHPUC order would not be in the best interests of either the City or the Company, the
parties instead should attempt to negotiate a purchase of Pennichuck Corporation (parent-level)
stock as part of a comprehensive settlement of the eminent domain dispute. From our shareholders
perspective, the principal advantage of a Pennichuck Corporation stock sale would be the
elimination of a corporate-level income tax that effectively would be absorbed by our shareholders
(an eminent domain taking is treated as an asset sale for tax purposes and would result in a
substantial income tax liability for the company that sells the assets).
From the Citys perspective, the acquisition of Pennichuck Corporation stock would
include the assets of Pennichuck East and Pittsfield Aqueduct and therefore, under certain
circumstances, could eliminate the need for or at least substantially reduce the size of the
mitigation reserve. In addition, by acquiring Pennichuck Corporation stock, the City would also
acquire the 450 acres of undeveloped land. Moreover, due to the differing tax treatment of an asset
versus stock purchase, we believe that the Citys acquisition of Pennichuck Corporation stock would
likely result in the City paying materially less in total (for more assets) than it likely would
have to pay if the Supreme Court upholds the NHPUCs July 25, 2008 ruling.
Conversely, from the Citys perspective, an asset taking transaction may have certain
advantages not available in a stock acquisition transaction. For example, in the case of an
eminent domain taking, the City would be able to finance the purchase cost with tax-exempt debt.
By comparison, we believe that the City would be required to finance a stock purchase with higher
cost taxable debt. Also, in the case of an eminent domain taking by a municipality, the acquired
operations would automatically become part of the tax-exempt entity. By comparison, in the case of
a stock acquisition, we believe that under current law the City would need to operate the acquired
operations through one or more for-profit subsidiaries in order to avoid the risk of triggering a
substantial taxable gain chargeable to the City that could result if the operations were converted
to tax exempt status.
Settlement discussions to date have been inconclusive
Notwithstanding the continued adversarial proceedings regarding the eminent domain case,
including the pending appeals before the Supreme Court, the 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 any comprehensive settlement, especially one involving the acquisition of Pennichuck
Corporation stock, would require the negotiation and resolution of many complex issues and,
therefore, no assurance can be given that the City and the Company would ultimately be able to
reach a settlement agreement. Moreover, in addition to the approval of two-thirds of the Citys
Board of Aldermen, a definitive settlement agreement could also be subject to approval by the NHPUC
and, depending on the terms of any settlement, the Companys shareholders. Further, any such settlement agreement would also depend on the availability of financing at terms
acceptable to the City.
- 24 -
In November 2008, the City announced that it was hiring an investment banking firm to assist
it in exploring all possible ways that it might acquire the assets of Pennichuck Water by means
other than eminent domain. In February 2009, we announced the engagement of the investment banking
firm of Boenning & Scattergood, Inc. to advise us regarding possible settlement with the City.
The Company and the City, and their respective representatives, have engaged in, and are expected to continue to engage in
from time to time, settlement discussions that could lead to the purchase by the City, directly or
indirectly, of all of the stock of Pennichuck Corporation, or all or substantially all of our
utility assets, in resolution of the eminent domain dispute.
The terms of our
confidentiality agreement with the City preclude
us from disclosing details of our settlement discussions, though through the date of this report, those discussions have
been inconclusive. We do not have an agreement or understanding with the City regarding any of the
material terms of a comprehensive settlement, including the structure of such a settlement and the
valuation of Pennichuck Corporations material assets. Consequently, we have no reason to believe
that a comprehensive settlement is imminent. Moreover, we believe that it is likely that neither the
City nor the Company will be willing to make significant concessions in any settlement
negotiations before the Supreme Court renders its decision. Regardless of the outcome of the
Supreme Court decision, however, and in recognition of the Citys interest in acquiring the water
system that serves its residents, the Company is willing to consider any and all credible
acquisition proposals by the City.
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 and liabilities and revenues 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.
ASC Topic 980 Regulated Operations (formerly SFAS No. 71,
Accounting for the Effects of Certain Types of Regulation
), 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. Accordingly, 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 water utilities 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 Nashuas ongoing eminent
domain proceeding against our Pennichuck Water subsidiary.
Revenue Recognition.
The revenues of our water utility subsidiaries are based on authorized
rates approved by the NHPUC. Estimates of water utility revenues 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 revenues based on those readings. Unbilled revenues
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 revenues recorded in the accompanying condensed consolidated financial statements
as of September 30, 2009 and December 31, 2008 were approximately $2.8 million and $2.9 million,
respectively.
- 25 -
Our non-utility revenues are recognized when services are rendered. Revenues are 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 to the plans, return on plan assets, discount rate, 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.
Although our pension plan currently meets the minimum funding requirements of the Employee
Retirement Income Security Act of 1974, market declines significantly impacted the value of our
pension plan assets in 2008, which has unfavorably impacted pension expense. We currently
anticipate that we will contribute approximately $675,000 to the plan during 2009.
Results of Operations General
In this section, we discuss our results of operations for the three and nine months ended
September 30, 2009 and 2008 and the factors affecting them. Our operating activities, as more
fully discussed in Note 5, Business Segment Reporting in Part I, Item I, in this Quarterly Report
on Form 10-Q, are grouped into three primary business segments as follows:
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Water utility operations;
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|
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|
Water management services; and
|
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|
Real estate operations.
|
Results of Operations Three Months Ended September 30, 2009 Compared to Three Months Ended
September 30, 2008
Overview
Our water utility operating revenues, and consequently our net income, tend to be
significantly affected by weather conditions experienced throughout the year and, from time to
time, by temporary and final orders of the NHPUC on our requests for rate increases. Additionally,
our net income has been significantly affected by sales of major real estate assets which occur
from time to time. Water revenues are typically at their lowest point during the first and fourth
quarters of the calendar year. Water revenues in the second and third quarters tend to be greater
because of increased water consumption for non-essential usage by our customers during the late
spring and summer months.
- 26 -
For the three months ended September 30, 2009, our net income was $1.4 million, compared to
net income of $913,000 for the three months ended September 30, 2008. On a per share basis, the
fully diluted income per share for the three months ended September 30, 2009 was $0.32 as compared
to fully diluted income per share of $0.21 for the three months ended September 30, 2008. The
principal factors that affected current period net income, relative to prior period net income,
include the following:
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|
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An increase in 2009 regulated water utility operating income of $1.1 million;
|
|
|
|
A decrease in 2009 allowance for funds used during construction of $90,000;
|
|
|
|
An increase in 2009 eminent domain-related costs of $79,000;
|
|
|
|
A decrease in 2009 interest income of $49,000; and
|
|
|
|
An increase in 2009 income tax expense of $414,000.
|
Water Utility Operations
Our water utility operations include the activities of Pennichuck Water, Pennichuck East and
Pittsfield Aqueduct, each of which is regulated by the NHPUC.
Our utility operating revenues increased to approximately $8.9 million in 2009, an increase of
14.1% over 2008, as shown in the following table.
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Three Months Ended September 30,
|
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|
2009
|
|
|
2008
|
|
|
Change
|
|
|
|
(000s)
|
|
Pennichuck Water
|
|
$
|
7,059
|
|
|
|
80
|
%
|
|
$
|
6,177
|
|
|
|
80
|
%
|
|
$
|
882
|
|
Pennichuck East
|
|
|
1,436
|
|
|
|
16
|
%
|
|
|
1,381
|
|
|
|
18
|
%
|
|
|
55
|
|
Pittsfield Aqueduct
|
|
|
361
|
|
|
|
4
|
%
|
|
|
201
|
|
|
|
2
|
%
|
|
|
160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8,856
|
|
|
|
100
|
%
|
|
$
|
7,759
|
|
|
|
100
|
%
|
|
$
|
1,097
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in revenues is primarily the result of temporary rate increases granted to
Pennichuck Water and Pittsfield Aqueduct in December 2008 and a permanent rate increase granted to
Pennichuck Water in August 2009. Pennichuck Water was granted a 22% permanent rate increase in
August 2009 which replaced a previously granted 11% temporary rate increase.
For the three months ended September 30, 2009, approximately 67% of our billed water utility
usage was to residential customers, and approximately 28% to commercial and industrial customers,
with the balance being principally from billings to municipalities. Total consumption was down in
the third quarter of 2009 compared to the prior year.
We believe that the economic recession and the cool and wet weather we experienced in July
have been the primary causes of the lower than average consumption we experienced in the third
quarter of 2009. We also believe that usage has and may be further impacted by increased customer
conservation efforts as a result of rate increases, as discussed above, the implementation of
monthly versus quarterly billing and other factors.
- 27 -
For the three months ended September 30, 2009, our total utility operating expenses were
relatively unchanged as shown in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
|
(000s)
|
|
Operations & maintenance
|
|
$
|
3,600
|
|
|
$
|
3,614
|
|
|
$
|
(14
|
)
|
Depreciation & amortization
|
|
|
1,004
|
|
|
|
995
|
|
|
|
9
|
|
Taxes other than income taxes
|
|
|
786
|
|
|
|
805
|
|
|
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,390
|
|
|
$
|
5,414
|
|
|
$
|
(24
|
)
|
|
|
|
|
|
|
|
|
|
|
The operations and maintenance expenses of our 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 $24,000 decrease in our utilities operating expenses over the same period in 2008 was
primarily the result of the following:
|
|
|
Decreased chemical, electricity and other production costs of $196,000 due
principally to lower usage;
|
|
|
|
Decreased transmission and distribution costs of $53,000 relating to repair or
replacement of gates, mains, meters and hydrants, supplies, fuel and labor costs; and
|
|
|
|
Increased general and administrative costs of $226,000 largely relating to
increased pension and postretirement expense of $115,000.
|
As a result of the above changes in operating revenue and operating expenses, water utility
operating income increased to $3.5 million from $2.4 million, or 48%, for the three months ended
September 30, 2009 compared to the three months ended September 30, 2008.
Our utilities 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. In
May 2008, the Companys Pittsfield Aqueduct utility subsidiary filed for rate relief with the NHPUC
to recover increased operating expenses and to obtain recovery of and a return on capital
improvements principally benefitting water systems acquired in 2006. Pittsfield Aqueduct requested
an overall increase in rates that, if approved in its entirety, would result in an annual increase
in revenues of approximately $1.1 million effective for service rendered from June 6, 2008. In
December 2008, the NHPUC issued an order approving temporary rate relief for Pittsfield Aqueduct.
The order provided for an annualized temporary increase in revenues of approximately $666,000
effective for service rendered from June 6, 2008.
On January 14, 2009, the Company filed a motion with the NHPUC to extend the procedural
schedule in the Pittsfield Aqueduct rate case until March 13, 2009 in order to allow the Company to
modify its request for permanent rate relief. In broad terms, the Company has proposed to transfer
the assets of the systems in Barnstead, Middleton and Conway, New Hampshire (the North Country
Systems) to its sister utility, Pennichuck East. The Company and the NHPUC Staff presented a
settlement agreement on the merits of the case to the Commission at a final hearing on September
30, 2009. Temporary rates, as approved, will remain in effect for the North Country Systems until
permanent rates are approved by the Commission.
- 28 -
In June 2008, the Companys Pennichuck Water utility subsidiary filed for rate relief with the
NHPUC to recover increased operating expenses and to obtain recovery of and a return on capital
improvements principally for the ongoing major upgrade to its water treatment plant, the
replacement of a 5.5 million gallon water tank, the installation of radio meter reading equipment,
and the replacement of aging infrastructure. Pennichuck Water requested an overall increase in
rates that, if approved in its entirety, would have resulted in an annual increase in revenues of
approximately $5.1 million based on 2007 usage volumes. Included in the $5.1 million were two
proposed step increases that, if approved, would have increased annual revenues by a combined total
of approximately $1.9 million. In December 2008, the NHPUC issued an order approving a temporary
rate increase for Pennichuck Water of approximately $2.4 million based on 2007 usage volumes, or
11%, effective for service rendered from July 28, 2008. On August 13, 2009, the NHPUC issued an
order approving a rate settlement between Pennichuck Water and the Staff of the NHPUC. The order
provides for an annualized permanent increase in revenues of approximately $4.7 million, or 22%,
based on 2007 usage volumes. The final order replaced the temporary order and included a 10% step
increase effective for billings beginning August 13, 2009.
The temporary rate relief granted by the NHPUC to Pittsfield Aqueduct does not necessarily
reflect the ultimate outcome of the underlying request for permanent rate relief. Any difference
between the temporary rate relief that has been granted and the permanent rates ultimately approved
by the NHPUC will be reconciled upon the approval of such permanent rates.
Water Management Services
The operating income of our water management services segment was $76,000 and $140,000 for the
three months ended September 30, 2009 and September 30, 2008, respectively. Service Corporations
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 1% and 10%
of Service Corporations total revenue for the three months ended September 30, 2009 and 2008,
respectively.
Real Estate Operations
As of September 30, 2009 and 2008, our Company, principally through our Southwood subsidiary,
owned approximately 450 acres of non-utility undeveloped land in southern New Hampshire. We expect
to pursue the commercialization of this land over the next several years as market conditions
improve.
As of September 30, 2009 and 2008, Southwood held a 50% ownership interest in a real estate
joint venture (known as HECOP IV) organized as a limited liability company. HECOP IV currently
owns undeveloped land and generates no operating revenue. Consequently, earnings or losses from
HECOP IV for the foreseeable future are expected to be insignificant. As of
September 30, 2008, Southwood also held a 50% ownership interest in three other real estate
joint ventures (known as HECOP I, II, and III) also organized as limited liability companies. In
December 2008, HECOP I, II and III were dissolved.
- 29 -
Eminent Domain Expenses
Our eminent domain expenses were $204,000 for the three months ended September 30, 2009 as
compared to $125,000 for the three months ended September 30, 2008. The 2009 eminent domain
expenses were primarily attributable to on-going legal fees related to the Companys appeal to the
New Hampshire Supreme Court of the NHPUCs July 2008 order. The Company expects to continue to
incur material eminent domain expenses for the remainder of 2009.
Allowance for Funds Used During Construction (AFUDC)
For the three months ended September 30, 2009 and 2008, we recorded AFUDC of approximately
$9,000 and $99,000, respectively. The $90,000 decrease is largely attributable to the completion
of certain large projects that qualified for AFUDC during the reported periods. This trend is
expected to continue principally because the multi-year upgrade to Pennichuck Waters water
treatment plant has been completed.
Interest Income
For the three months ended September 30, 2009 and 2008, we recorded interest income of
approximately $-0- and $49,000, respectively. The decrease of $49,000 is primarily attributable to
lower cash and short-term investment balances during the three-month period ended September 30,
2009, as well as lower earned rates on our money market investments.
Provision for Income Taxes
For the three months ended September 30, 2009 and 2008, we recorded an income tax provision of
$1.0 million and $603,000, respectively. The effective income tax rate was 42.5% and 39.8%,
respectively. The increase in the effective rate in 2009 compared to the statutory rate of 39.6%
is due to the expiration of certain state tax credit carryforwards previously expected to be
utilized.
Results of Operations Nine Months Ended September 30, 2009 Compared to Nine Months Ended
September 30, 2008
Overview
Our revenues, and consequently our net income, can be significantly affected by weather
conditions, 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 revenues are typically at their lowest
point during the first and fourth quarters of the calendar year. Water revenues in the second and
third quarters tend to be greater because of increased water consumption for non-essential usage by
our customers during the late spring and summer months.
- 30 -
For the nine months ended September 30, 2009, our net income was $2.1 million, compared to net
income of $4.2 million for the nine months ended September 30, 2008. On a per share basis, the
fully diluted income per share for the nine months ended September 30, 2009 was
$0.48 as compared to fully diluted income per share of $0.98 for the nine months ended
September 30, 2008. The principal factors that affected current period net income, relative to
prior period net income, included the following:
|
|
|
A 2008 non-operating, after-tax gain of approximately $2.3 million ($3.4
million before federal income taxes) from the sale of land and three commercial
office buildings by three of our HECOP joint ventures;
|
|
|
|
An increase in 2009 regulated water utility operating income of $1.1 million;
|
|
|
|
An increase in 2009 eminent domain-related costs of $251,000;
|
|
|
|
A decrease in interest income of $181,000;
|
|
|
|
A decrease in allowance for funds used during construction of $189,000; and
|
|
|
|
A decrease in the 2009 provision for income taxes of $961,000.
|
Water Utility Operations
Our water utility operations include the activities of Pennichuck Water, Pennichuck East and
Pittsfield Aqueduct, each of which is regulated by the NHPUC.
Our utility operating revenues increased to approximately $22.9 million in 2009, an increase
of 7.9% over 2008, as shown in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
|
(000s)
|
|
Pennichuck Water
|
|
$
|
17,893
|
|
|
|
78
|
%
|
|
$
|
16,656
|
|
|
|
79
|
%
|
|
$
|
1,237
|
|
Pennichuck East
|
|
|
3,906
|
|
|
|
17
|
%
|
|
|
3,939
|
|
|
|
18
|
%
|
|
|
(33
|
)
|
Pittsfield Aqueduct
|
|
|
1,064
|
|
|
|
5
|
%
|
|
|
590
|
|
|
|
3
|
%
|
|
|
474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
22,863
|
|
|
|
100
|
%
|
|
$
|
21,185
|
|
|
|
100
|
%
|
|
$
|
1,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in revenues is primarily the result of temporary rate increases granted to
Pennichuck Water and Pittsfield Aqueduct in December 2008 offset, in part, by declines in customer
usage. Additionally Pennichuck Water was granted a permanent rate increase as well as a step
increase in August 2009.
For the nine months ended September 30, 2009, approximately 67% of our billed water utility
usage was to residential customers and approximately 29% to commercial and industrial customers,
with the balance being principally from billings to municipalities. Company-wide usage for the
nine months ended September 30, 2009 declined by approximately 9%, due in part to a 4% drop in
usage by one of our industrial customers which resulted from an energy conservation program
implemented by that customer in the third quarter of 2008. Year over year comparative demand by
that industrial customer is expected to generally stabilize for the remainder of 2009 and
thereafter.
We believe that the current economic recession coupled with the wet weather we experienced in
June and July of 2009 has been the primary cause of the current reduction in consumption among our
residential, commercial and industrial customers (aside from the effects of
the energy conservation program implemented by one of our industrial customers). We also
believe that usage has and may be further impacted by increased customer conservation efforts as a
result of rate increases, as discussed elsewhere in this Quarterly Report on Form 10-Q, and the
implementation of monthly versus quarterly billing.
- 31 -
For the nine months ended September 30, 2009, utility operating expenses increased by
approximately $533,000, or approximately 3.4%, to approximately $16.4 million as shown in the table
below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
|
(000s)
|
|
Operations & maintenance
|
|
$
|
10,915
|
|
|
$
|
10,631
|
|
|
$
|
284
|
|
Depreciation & amortization
|
|
|
3,032
|
|
|
|
2,963
|
|
|
|
69
|
|
Taxes other than income taxes
|
|
|
2,474
|
|
|
|
2,294
|
|
|
|
180
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
16,421
|
|
|
$
|
15,888
|
|
|
$
|
533
|
|
|
|
|
|
|
|
|
|
|
|
The operations and maintenance expenses of our 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 $533,000 increase in our utilities operating expenses over the same period in 2008 was
primarily the result of the following:
|
|
|
Decreased production costs of $251,000 related to lower consumption levels and
favorable chemical and power rates;
|
|
|
|
Increased general and administrative costs of $393,000 primarily relating to
increased pension and postretirement expense of $292,000;
|
|
|
|
Increased taxes other than income taxes of $180,000, principally related to
increased real estate taxes resulting from capital additions in our core Pennichuck
Water system as well as increased real estate tax rates;
|
|
|
|
Increased customer accounting expenses of $94,000, primarily associated with the
additional costs of billing customers on a monthly rather than a quarterly basis;
|
|
|
|
Increased depreciation and amortization of $69,000 principally due to increased
depreciation attributable to completed portions of the water treatment plant upgrade
for Pennichuck Water; and
|
|
|
|
Increased transmission and distribution costs of $57,000 relating to repair or
replacement of gates, mains, meters, services and hydrants.
|
As a result of the above changes in operating revenue and operating expenses, water utility
operating income increased to $6.4 million from $5.3 million, or 22%, for the nine months ended
September 30, 2009 compared to the nine months ended September 30, 2008.
Our utilities 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. In
May 2008, the Companys Pittsfield Aqueduct utility subsidiary filed for rate relief with the NHPUC
to recover increased operating expenses and to obtain recovery of and a return on capital
improvements principally benefitting water systems acquired in 2006. Pittsfield Aqueduct requested
an overall increase in rates that, if approved in its entirety, would result in an annual increase
in revenues of approximately $1.1 million effective for service rendered from June 6, 2008. In
December 2008, the NHPUC issued an order approving temporary rate relief for Pittsfield Aqueduct.
The order provided for an annualized temporary increase in revenues of approximately $666,000
effective for service rendered from June 6, 2008.
- 32 -
On January 14, 2009, the Company filed a motion with the NHPUC to extend the procedural
schedule in the Pittsfield Aqueduct rate case until March 13, 2009 in order to allow the Company to
modify its request for permanent rate relief. In broad terms, the Company has proposed to transfer
the assets of the systems in Barnstead, Middleton and Conway, New Hampshire (the North Country
Systems) to its sister utility, Pennichuck East. The Company and the NHPUC Staff presented a
settlement agreement on the merits of the case to the Commission at a final hearing on September
30, 2009. Temporary rates, as approved, will remain in effect for the North Country Systems until
permanent rates are approved by the Commission.
In June 2008, the Companys Pennichuck Water utility subsidiary filed for rate relief with the
NHPUC to recover increased operating expenses and to obtain recovery of and a return on capital
improvements principally for the ongoing major upgrade to its water treatment plant, the
replacement of a 5.5 million gallon water tank, the installation of radio meter reading equipment,
and the replacement of aging infrastructure. Pennichuck Water requested an overall increase in
rates that, if approved in its entirety, would have resulted in an annual increase in revenues of
approximately $5.1 million based on 2007 usage volumes. Included in the $5.1 million were two
proposed step increases that, if approved, would have increased annual revenues by a combined total
of approximately $1.9 million. In December 2008, the NHPUC issued an order approving a temporary
rate increase for Pennichuck Water of approximately $2.4 million based on 2007 usage volumes, or
11%, effective for service rendered from July 28, 2008. On August 13, 2009, the NHPUC issued an
order approving a rate settlement between Pennichuck Water and the Staff of the NHPUC. The order
provides for an annualized permanent increase in revenues of approximately $4.7 million, or 22%,
based on 2007 usage volumes. The final order replaced the temporary order and included a 10% step
increase effective for billings beginning August 13, 2009.
The temporary rate relief granted by the NHPUC to Pittsfield Aqueduct does not necessarily
reflect the ultimate outcome of the underlying request for permanent rate relief. Any difference
between the temporary rate relief that has been granted and the permanent rates ultimately approved
by the NHPUC will be reconciled upon the approval of such permanent rates.
Water Management Services
The operating income of our water management services segment was $246,000 and $278,000 for
the nine months ended September 30, 2009 and September 30, 2008, respectively. Service
Corporations 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
7% and 11% of Service Corporations total revenue for the nine months ended September 30, 2009 and
2008, respectively.
Real Estate Operations
As of September 30, 2009 and 2008, our Company, principally through our Southwood subsidiary,
owned approximately 450 acres of non-utility, undeveloped land in southern New Hampshire. We
expect to pursue the commercialization of this land over the next several years as market
conditions improve.
- 33 -
As of September 30, 2009 and 2008, Southwood held a 50% ownership interest in a real estate
joint venture (known as HECOP IV) organized as a limited liability company. HECOP IV currently
owns undeveloped land and generates no revenue. Consequently, earnings or losses from HECOP IV for
the foreseeable future are expected to be insignificant. As of September 30, 2008, Southwood also
held a 50% ownership interest in three other real estate joint ventures (known as HECOP I, II, and
III) also organized as a limited liability companies.
For the nine months ended September 30, 2009, Southwoods equity share of pre-tax loss from
HECOP IV was approximately $(5,000). For the nine months ended September 30, 2008, Southwoods
equity share of pre-tax income from HECOP I, II, III, and IV was approximately $3.5 million. The
2008 pre-tax earnings was due principally to an approximately $3.4 million gain (before federal
income taxes) from the January 2008 sale of the three commercial real estate properties owned by
HECOP I, II, and III. The real estate assets sold by HECOP I, II, and III comprised substantially
all of the assets of those three joint ventures. In December 2008, HECOP I, II and III were
dissolved.
Eminent Domain Expenses
Our eminent domain expenses were $392,000 for the nine months ended September 30, 2009 as
compared to $141,000 for the nine months ended September 30, 2008. The 2009 eminent domain
expenses were primarily attributable to on-going legal fees and the Companys retention of an
investment banking firm in January 2009. The Company expects to continue to incur material eminent
domain expenses for the remainder of 2009.
Allowance for Funds Used During Construction (AFUDC)
For the nine months ended September 30, 2009 and 2008, we recorded AFUDC of approximately
$150,000 and $339,000, respectively. The $189,000 decrease is largely attributable to the
completion of certain large projects qualifying for AFUDC during the reported periods. This trend
is expected to continue principally because the upgrade to Pennichuck Waters water treatment plant
was completed in May of 2009.
Interest Income
For the nine months ended September 30, 2009 and 2008, we recorded interest income of
approximately $1,000 and $182,000, respectively. The decrease of $181,000 is primarily
attributable to lower cash and short-term investment balances throughout the respective nine-month
periods, as well as lower earned rates on our money market investments.
Provision for Income Taxes
For the nine months ended September 30, 2009 and 2008, we recorded an income tax provision of
$1.5 million and $2.4 million, respectively. The decrease was largely due to federal income taxes
on the January 2008 gain on the sale of the real estate held by HECOP I, II, and III
joint ventures. The effective income tax rate was 41.6% and 36.7%, respectively. The increase
in the effective rate in 2009 compared to the statutory rate of 39.6% is due to the expiration of
certain state tax credit carryforwards previously expected to be utilized.
The State of New Hampshire income tax liability on income attributable to our Companys four
joint ventures is imposed at the LLC level, and not at the Pennichuck Corporation level (in
contrast to federal income taxes). Therefore, State of New Hampshire income taxes for the joint
ventures are included in Net (loss) earnings from investments accounted for under the equity
method in the accompanying condensed consolidated statements of income and comprehensive income.
The amount of such state income taxes in 2008 was approximately $217,000. This is the principal
reason why the Provision for Income Taxes for 2008, as a percentage of Income Before Provision
for Income Taxes, was lower in 2008 than the statutory rate of 39.6%.
- 34 -
Liquidity and Capital Resources
Overview
Our primary sources of funds are cash flow from utility operations, cash proceeds from the
sale of portions of our real estate holdings, borrowings pursuant to our bank revolving credit
facility and proceeds from the issuance of long-term debt and equity securities. Our primary uses
of funds are capital expenditures, 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 from operations 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 properties, and (iv) defense costs associated with the ongoing
eminent domain proceeding. During the nine months ended September 30, 2009, the Company billed
over $1.0 million of revenue accrued in December 2008 related to recoupment of temporary rate
increases it was granted by the NHPUC.
Capital Expenditures Program
We expect our capital expenditures to moderate during the period 2009 through 2011 due to the
substantial completion of our water treatment plant during the first half of 2009. The following
table summarizes our expected capital expenditure requirements for the 2009 to 2011 period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
|
(000s)
|
|
Utility water treatment plant upgrade
|
|
$
|
2,160
|
|
|
$
|
|
|
|
$
|
|
|
Utility other plant additions
|
|
|
5,675
|
|
|
|
7,686
|
|
|
|
7,361
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,835
|
|
|
$
|
7,686
|
|
|
$
|
7,361
|
|
|
|
|
|
|
|
|
|
|
|
During the first half of 2009, we completed the upgrade of our water treatment plant that
was necessary in order for the plant to meet more stringent federally mandated safe drinking water
standards. Capital expenditures, including pre-design and construction costs, associated with the
water treatment plant upgrade project aggregated approximately $39.5 million through September 30,
2009.
The additional $1.9 million in forecasted 2009 capital expenditure spending over the amount in
our 2008 Annual Report on Form 10-K reflects primarily the addition of previously deferred projects
that are now expected to be funded by a combination of 2009 American Reinvestment and Recovery Act
and new State Revolving Fund (SRF) monies.
In addition to the water treatment plant upgrade project, 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.
- 35 -
We have applied, and will continue to apply, for long-term debt funds directly from the SRF
loan program. SRF loans have long-term fixed interest rates set with reference to various
Municipal Bond Indices, which rates have historically been at or below the rates for comparable
U.S. Treasury securities of like maturity. As of September 30, 2009, we had twelve outstanding SRF
loans with aggregate principal balances outstanding of approximately $6.4 million. Funds available
for future advances as of September 30, 2009 totaled approximately $2.9 million. The construction
associated with these available loans will not be completed until the summer of 2010.
Long-term Debt
The Company has $4.5 million of long-term bank debt due on December 31, 2009 and a $5 million
note due March 4, 2010. The Company expects to pay off these amounts when they become due through
an issuance of replacement debt or equity.
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. These maintenance tests are as follows:
|
(1)
|
|
our Fixed Charge Coverage Ratio must exceed 1.2x;
|
|
(2)
|
|
our Tangible Net Worth must exceed $37.0 million, plus new equity issued
subsequent to December 2007; and
|
|
(3)
|
|
our Funded Debt (less certain cash and short-term investment balances, if
any) must not exceed 65% of our Total Capitalization.
|
Also, various Pennichuck Water and Pennichuck East loan agreements contain tests that govern
the issuance of additional indebtedness. These issuance tests are as follows:
|
(1)
|
|
to issue short-term debt, our Total Debt must not exceed 65% of our Total
Capital (unless the new short-term debt is subordinated to existing debt);
|
|
(2)
|
|
to issue long-term debt, our Funded Debt must not exceed 60% of our Property
Additions; and
|
|
(3)
|
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to issue long-term debt, our Earnings Available for Interest divided by our
Interest Expense must exceed 1.5x.
|
Certain covenants in Pennichuck Waters and Pennichuck Easts loan agreements and in our Bank
of America revolving credit loan agreement effectively restrict our ability to upstream
common dividends from Pennichuck Water and Pennichuck East as well as limit our ability to pay
common dividends to our shareholders.
Several of Pennichuck Waters loan agreements contain a covenant that requires Pennichuck
Water to maintain a minimum net worth of $4.5 million. As of September 30, 2009, Pennichuck
Waters net worth was $42.5 million. One of Pennichuck Easts loan agreements contains a covenant
that requires Pennichuck East to maintain a minimum net worth of $1.5 million. As of September 30,
2009, Pennichuck Easts net worth was $6.3 million.
- 36 -
As of September 30, 2009, we were in compliance with all of our financial covenants. Our
ability to incur significant 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 November 4, 2009, the Board of Directors declared a fourth quarter common stock dividend
of $0.175 per share payable December 1, 2009 to shareholders of record November 16, 2009. The
fourth quarter dividend amount results in an indicated annual rate of $0.70 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
In October 2005, we completed a tax-exempt debt financing with the Business Finance Authority.
The Business Finance Authority acts solely as a passive conduit to the tax-exempt bond markets
with our Company acting as the obligor for the associated tax-exempt debt. As of September 30,
2009, we had borrowed $38.1 million representing a portion of the $49.5 million offering conducted
in October 2005. The remaining $11.4 million has been placed in an escrow account maintained by
The Bank of New York Trust Company, N.A., as escrow agent, for the sole benefit of bondholders with
no recourse to us and hence we have not recorded the associated debt as a long-term liability. The
escrow arrangement matures on July 1, 2010, as remarketed on October 1, 2009.
We have one interest rate financial instrument, an interest rate swap, as described in Part I,
Item 3, in this Quarterly Report on Form 10-Q.
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|
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ITEM 3.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Information regarding market risk of our Company is presented in Note 6, Fair Value of
Financial Instruments in Part I, Item I, in this Quarterly Report on Form 10-Q and in Note 3,
Debt in Part II, Item 8, in our 2008 Annual Report on Form 10-K.
We do not engage in trading market risk sensitive instruments or purchasing hedging
instruments or other than trading instruments that are likely to expose us to significant market
risk, whether interest rate, foreign currency exchange, commodity price or equity price risk. As
described below, our Company has one interest rate financial instrument, an interest rate swap,
which qualifies as a derivative under GAAP
.
We are subject to commodity price risks associated with price increases for chemicals,
electricity and other commodities. These risks are reduced through contracts and the ability to
recover price increases through rates. Non-performance by our commodity suppliers can gave a
material adverse impact on our results of operations, cash flows and financial position.
- 37 -
Our exposure to financial market risk results primarily from fluctuations in interest rates.
We are exposed to changes in interest rates primarily from our revolving credit facility. Our
revolving credit facility, which includes a total borrowing capacity of $16.0 million, permits us
to borrow, re-pay and re-borrow, in varying amounts and from time to time at our discretion through
June 30, 2011. Borrowings under our revolving credit facility as of September 30, 2009 totaled
approximately $3.6 million. Borrowings under this credit facility bear interest rates at prime or
the London Interbank Offered Rate (LIBOR) plus 1.2% to 1.7% (based on the results of various
financial ratios). The applicable margin as of September 30, 2009 was 1.45%. As of September 30,
2009, borrowings at prime (3.25%) totaled approximately $2.1 million and borrowing at LIBOR plus
(2.02625%) totaled $1.5 million. We expect to borrow additional amounts during the remainder of
2009, as needed to supplement cash generated from operations. We expect to repay all of these
borrowed amounts within the next twelve months.
We have a $4.5 million variable interest rate loan with a bank. The loan is scheduled to
mature on December 31, 2009. In April 2005, we entered into an interest rate swap agreement with
the bank that also has a maturity date of December 31, 2009. The purpose of this swap agreement is
to mitigate interest rate risks associated with this $4.5 million floating-rate loan. The
agreement provides for the exchange of fixed interest rate payments for floating interest rate
payment obligations on notional amounts of principal totaling $4.5 million. The floating-rate loan
with the bank contains interest rates ranging from LIBOR plus 1.0% to LIBOR plus 1.5% based on the
results of various financial ratios. The applicable margin as of September 30, 2009 was 1.25%,
resulting in an interest rate of 1.75%. We designated this interest rate swap as a cash flow hedge
against the variable future cash flows associated with the interest payments due on the $4.5
million of notes. The combined effect of its LIBOR-based borrowing formula and the swap produces
an all-in fixed borrowing cost equal to 6.0%.
|
|
|
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) or Rule
15d-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 reports filed under the Securities Exchange Act of
1934 is recorded, processed, summarized and reported within the time periods specified in the SECs
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.
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.
- 38 -
PART II. OTHER INFORMATION
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|
|
ITEM 1.
|
|
LEGAL PROCEEDINGS
|
On March 13, 2009, the New Hampshire Public Utilities Commission (NHPUC) issued an order
denying the rehearing motions filed by both the Company and the City of Nashua (the City) in
September 2008 with respect to the NHPUCs July 25, 2008 order that the taking of the assets of
Pennichuck Water by eminent domain is in the public interest, subject to certain conditions. In
denying the rehearing motions, the NHPUC ruled that neither party had presented any new arguments
or evidence that the NHPUC had not previously considered. Both the Company and the City appealed
the NHPUCs March 13 order to the New Hampshire Supreme Court (see also Item 1A, Risks Related to
Our Water Utilities, below). The Supreme Court agreed to hear the appeals and set a briefing
schedule, but has not yet set a date for oral arguments. The Company and the City have filed
appeal briefs with the New Hampshire Supreme Court (the Supreme Court). The Companys appeal
brief, which includes the Companys initial reply to the Citys brief, was filed on September 29,
2009 and is principally focused on legal issues relating to the NHPUCs public interest
determination. The Company has also appealed the sufficiency of the $40 million mitigation reserve
required by the NHPUC to protect the interests of the customers of Pennichuck East and Pittsfield
Aqueduct. Additional reply briefs were filed by the City on October 29, 2009 and are expected to be
filed by the Company by November 18, 2009. Oral arguments before the Supreme Court are expected to
take place in either December 2009 or January 2010. The Company expects that the Supreme Court is
not likely to render a decision before early 2010. Except as otherwise noted in this Item 1, there
were no material changes in existing legal proceedings or any new material legal proceedings during
the three months ended September 30, 2009.
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 2008 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 2008 Annual Report on Form 10-K. See also discussion under City
of Nashuas 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 Nashuas use of 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 on Form 10-Q, we are involved in ongoing
proceedings with the City of Nashua (the City) regarding the Citys desire to acquire all or a
significant portion of the water utility assets of Pennichuck Water, our principal subsidiary. The
City is pursuing such acquisition pursuant to its right to seek the authority to take such assets
by eminent domain under New Hampshire law.
- 39 -
On July 25, 2008, the NHPUC issued an 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.
The conditions included a requirement that Nashua 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 resulting
from the taking of the assets by Nashua.
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 remaining tax basis of the Pennichuck Water assets which
was approximately $60 million as of September 30, 2009. The resulting corporate-level tax
liability would substantially reduce our net worth 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, we believe it would
likely be difficult to find suitable replacement property that would be priced fairly and that
otherwise would be prudent for us to purchase. For these reasons, we do not expect that the
reinvestment of all or a substantial portion of the eminent domain proceeds would be a viable
strategy for the Company to defer the payment of the tax liability due as a result of the sale of
assets in an eminent domain taking.
A taking by eminent domain could also result in our Company incurring various other costs
depending on the final terms of the eminent domain 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. In addition, if the Company were to sell some or all of its
remaining businesses or assets as a consequence of an eminent domain taking, it could be forced to
accept prices below their current carrying values as a result of then-current market conditions, a
limited number of potential buyers, and/or other factors.
The Company and the City submitted motions to the NHPUC requesting reconsideration or
rehearing as to its July 25, 2008 order. On March 13, 2009, the NHPUC issued an order denying the
motions of both parties in their entirety on the basis that neither party had presented any new
arguments or evidence that the NHPUC had not previously considered. Subsequently, both the Company
and the City filed appeals with the Supreme Court.
The Company expects that the Supreme Court will likely not render its decision before early
2010. The Company cannot predict the outcome of the Supreme Court appeals or the ultimate outcome
of these matters.
Our liquidity may be reduced and our cost of debt financing may be increased while the eminent
domain controversy remains unresolved, because, while such controversy is ongoing, we may be unable
to issue or remarket debt securities for which Pennichuck may be liable.
Given the highly uncertain ultimate outcome of the eminent domain proceeding, we may find that
we are unable to issue or remarket certain debt securities pending a definitive resolution of the
Citys eminent domain petition or we may find that the cost that we incur in connection with the
issuance or remarketing of such debt increases materially. If we are unable to, or elect not to,
issue or remarket such debt, we would expect to rely primarily on our bank revolving credit
facility to
finance our capital projects. Our borrowing costs under that credit facility would likely be
materially higher than tax-exempt bond financing costs. Borrowings under the credit facility would
also reduce our liquidity to meet other obligations. For additional information, see Managements
Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 in our
2008 Annual Report on Form 10-K.
- 40 -
Our ability to raise equity capital on a timely basis, and indirectly our liquidity, may be
adversely affected while the eminent domain controversy remains unresolved because, while such
controversy is ongoing, we may be unable to, or elect not to, issue equity securities.
Given the highly uncertain outcome of the eminent domain proceeding and any confidential
settlement discussions that may be ongoing from time to time between the parties, we may find that
we are unable to, or elect not to, issue equity securities because we are precluded
from disclosing, or believe we could adversely affect any settlement discussions if we were to
disclose, the details of on-going settlement discussions to current and potential investors in
connection with an equity offering. If we are unable to, or elect not to, issue equity securities
as necessary to maintain an appropriate debt/equity balance, we would be unable to pay down our
revolving credit facility on a timely basis and our liquidity available to meet other obligations
would be reduced.
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ITEM 2.
|
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UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
None.
|
|
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ITEM 3.
|
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DEFAULTS UPON SENIOR SECURITIES
|
None.
|
|
|
ITEM 4.
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SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
None.
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|
ITEM 5.
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OTHER INFORMATION
|
On November 4, 2009, we issued a press release announcing our financial results for the three
and nine months ended September 30, 2009. 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 Securities and Exchange Commission under
the Exchange Act of 1934 or the Securities Act of 1933, except as expressly set forth by specific
reference in such a filing.
- 41 -
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Exhibit
|
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Number
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Exhibit Description
|
|
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|
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3.1
|
|
|
Restated Articles of Incorporation of Pennichuck Corporation
(filed as Exhibit 3.1 to the Companys 2007 Annual Report on
Form 10-K and incorporated herein by reference)
|
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3.2
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Bylaws of Pennichuck Corporation (filed as Exhibit 3.2 to the
Companys third quarter 2008 Quarterly Report on Form 10-Q and
incorporated herein by reference)
|
|
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|
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 Companys Registration Statement on
Form 8-A12G, filed on April 21, 2000 and incorporated herein by
reference)
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|
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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 Companys Registration Statement on
Form 8-A12G/A, filed on April 30, 2002 and incorporated herein by
reference)
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|
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|
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|
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 Companys Registration Statement
on Form 8-A12G/A, filed on April 30, 2002 and incorporated herein
by reference)
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|
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|
|
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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 Companys Registration Statement on
Form 8-A12G/A, filed on April 30, 2002 and incorporated herein by
reference)
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|
|
|
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|
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 Companys Current Report on Form 8-K
filed on April 29, 2002 and incorporated herein by reference)
|
|
|
|
|
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|
4.6
|
|
|
Dividend Reinvestment and Common Stock Purchase Plan, as amended
(included in the prospectus in the Companys 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 Companys Registration
Statement on Form 8-A12G/A, filed on September 25, 2006 and
incorporated herein by reference)
|
- 42 -
|
|
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|
|
Exhibit
|
|
|
Number
|
|
Exhibit Description
|
|
|
|
|
|
|
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 Companys
Registration Statement on Form 8-A12G/A filed on March 5, 2009
and incorporated herein by reference)
|
|
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|
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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 Companys Current
Report on Form 8-K, filed on March 19, 2009 and incorporated
herein by reference)
|
|
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|
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|
31.1
|
|
|
Certification
|
|
|
|
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|
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31.2
|
|
|
Certification
|
|
|
|
|
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32.1
|
|
|
Section 1350 Certification of Chief Executive Officer of the
Company in accordance with Section 906 of the Sarbanes-Oxley Act
of 2002
|
|
|
|
|
|
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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
2009 Earnings dated November 4, 2009
|
- 43 -
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.
|
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Pennichuck Corporation
|
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(Registrant)
|
|
Date: November 5, 2009
|
By:
|
/s/ Duane C. Montopoli
|
|
|
|
Duane C. Montopoli
|
|
|
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President and Chief Executive Officer
|
|
Date: November 5, 2009
|
By:
|
/s/ Thomas C. Leonard
|
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Thomas C. Leonard
|
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Senior Vice President, Treasurer and
Chief
Financial Officer
|
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- 44 -
EXHIBIT INDEX
|
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|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
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 2009
Earnings dated November 4, 2009
|
- 45 -
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