U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark one)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
_____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____.
Commission file number 0-18552
Pennichuck Corporation
(Exact name of small business issuer as specified in its charter)
New Hampshire 02-0177370
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Four Water Street, Nashua, New Hampshire 03061
(Address of principal executive offices) (Zip Code)
(603) 882-5191
(Issuer's telephone number)
Not applicable
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES X NO ___
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practical date:
Common Stock, $1 Par Value--736,757 shares as of May 1, 1996
INDEX
PENNICHUCK CORPORATION AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION PAGE NUMBER
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets--
March 31, 1996 and December 31, 1995 ................. 3
Condensed Consolidated Statements of Income--
Three months ended March 31, 1996 and 1995 ........... 4
Condensed Consolidated Statements of Cash Flows--
Three months ended March 31, 1996 and 1995 ........... 5
Notes to Condensed Consolidated Financial Statements--
March 31, 1996 ....................................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ........ 7-10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings .................................... Not Applicable
Item 2. Changes in Securities ................................ Not Applicable
Item 3. Defaults upon Senior Securities ...................... Not Applicable
Item 4. Submission of Matters to a Vote
of Security Holders .................................. Not Applicable
Item 5. Other Information .................................... Not Applicable
Item 6. Exhibits and Reports on Form 8-K ..................... 11
SIGNATURES ................................................... 11
PART I. Item 1. FINANCIAL INFORMATION
PENNICHUCK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31 December 31
1996 1995
------------------------
(In thousands)
(Unaudited)
<S> <C> <C>
ASSETS
Property, Plant and Equipment
Land ................................................ $ 319 $ 318
Buildings ........................................... 15,302 15,173
Equipment ........................................... 39,940 39,214
Construction work in progress ....................... 178 522
------- -------
55,739 55,227
Less accumulated depreciation ....................... 14,002 13,781
------- -------
41,737 41,446
Current Assets
Cash ................................................ 187 203
Accounts receivable, net ............................ 1,465 1,743
Inventory ........................................... 218 220
Other current assets ................................ 89 404
------- -------
1,959 2,570
Other Assets
Land development costs ............................. 2,317 2,844
Deferred charges, net ............................... 1,020 916
Investment in real estate partnership ............ 114 117
------- -------
TOTAL ASSETS ................................................ $47,147 $47,893
======= =======
STOCKHOLDERS' EQUITY AND LIABILITIES
Common stock-par value $1 per share ................. $ 737 $ 722
Paid in capital ..................................... 4,935 4,678
Retained earnings ................................... 6,774 6,898
Treasury stock, at cost ............................. (53) (51)
------- -------
12,393 12,247
Long Term Debt, less current portion ........................ 20,299 20,881
Current Liabilities
Current portion of long term debt ................... 131 147
Accounts payable .................................... 231 586
Accrued interest payable ............................ 372 195
Other accrued expenses ............................. 635 903
------- -------
1,369 1,831
Other Liabilities
Contributions in aid of construction ................ 8,514 8,376
Other liabilities and deferred credits .............. 4,572 4,558
------- -------
TOTAL STOCKHOLDERS' EQUITY & LIABILITIES .................... $47,147 $47,893
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
PENNICHUCK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31
-------------------
1996 1995
-------------------
(In thousands, except
per share amounts)
<S> <C> <C>
Revenues
Water utility operations .................... $2,353 $2,285
Real estate operations and other ............ 553 11
------ ------
2,906 2,296
Operating expenses
Water utility operations .................... 1,810 1,653
Real estate operations and other ............ 588 89
------ ------
2,398 1,742
Operating income .................................... 508 554
Other income (expense) ..................... (1) 1
Interest expense ............................ (421) (423)
------ ------
Income before income taxes .......................... 86 132
Provision for income taxes .................. 30 50
------ ------
Net income .......................................... $ 56 $ 82
====== ======
Net earnings per common share based on
726,557 and 714,776 weighted average
common shares in 1996 and 1995, respectively ...... $ .08 $ .11
====== ======
Dividends paid per common share .................... $ .25 $ .22
====== ======
</TABLE>
See notes to condensed consolidated financial statements
PENNICHUCK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31
----------------------
1996 1995
----------------------
(In thousands)
<S> <C> <C>
CASH PROVIDED (USED) BY:
Operating Activities ........................... $ 1,051 $ 920
Investing Activities:
Purchase of property, plant and
equipment and other assets ............ (729) (312)
Increase in contributions in aid of
construction ......................... 166 30
Increase (Decrease) in other ........... 1 (30)
------- ------
(562) (312)
Financing Activities:
Payments on long-term debt ............. (8,598) (4)
Proceeds from issuance of long-term debt 8,000 --
Payment of common dividends ............ (180) (158)
Decrease in note payable to bank ....... -- (495)
Proceeds from dividend reinvestment plan
and other ............................. 273 15
------- ------
(505) (642)
(DECREASE) IN CASH ............................. (16) (34)
CASH AT BEGINNING OF PERIOD .................... 203 198
------- ------
CASH AT END OF PERIOD ........................ $ 187 $ 164
======= ======
</TABLE>
Supplemental Cash Flow Information. Interest paid was $234,616 and $321,374 for
the three months ended March 31, 1996 and 1995, respectively. No income taxes
were paid in either of the three month periods ended March 31, 1996 and 1995.
See notes to condensed consolidated financial statements.
PENNICHUCK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 1996
NOTE A -- BACKGROUND
The financial statements include the accounts of Pennichuck Corporation (the
"Company") and its wholly-owned subsidiaries, Pennichuck Water Works, Inc.
("Pennichuck"), The Southwood Corporation ("Southwood") and Pennichuck Water
Service Corporation (the "Service Corporation"). All significant intercompany
accounts have been eliminated in consolidation.
NOTE B -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310 of
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month period ended March 31, 1996
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1996. The Balance Sheet amounts shown under the December 31,
1995 column have been derived from the audited financial statements of the
Company as contained in its Annual Report to Shareholders. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's annual report for the year ended December 31,
1995.
PART I. Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Financial Condition
The financial position of Pennichuck Corporation (the "Company") and its three
wholly-owned operating subsidiaries, Pennichuck Water Works, Inc.
("Pennichuck"), The Southwood Corporation ("Southwood") and Pennichuck Water
Service Corporation (the "Service Corporation") is shown in the accompanying
CONDENSED CONSOLIDATED BALANCE SHEETS.
The Company's cash needs for operations, capital projects and dividends
throughout the year are funded primarily by operating cash flow as supplemented
by borrowings under a revolving credit agreement (the "agreement") with Fleet
Bank-NH ("Fleet"). The agreement allows the Company to borrow up to $5.5 million
at interest rates tied to Fleet's cost of funds or LIBOR, whichever is lower. At
March 31, 1996, the Company had a 6.8%, $950,000 note outstanding under this
credit facility maturing in June 1996 which may be automatically renewed at
maturities ranging from 30 to 270 days. In addition, the Company had $730,000
outstanding under the revolving line of credit portion of the agreement, at
Fleet's current base rate of 8.25%. Under the terms of the agreement, the
maturity date of all amounts borrowed, or to be borrowed in the next 14 months,
has been extended to May 31, 1997. As a result, outstanding bank borrowings at
March 31, 1996 totaling $1,680,000 have been classified as "Long Term Debt" in
the CONDENSED CONSOLIDATED BALANCE SHEETS.
Total indebtedness under the credit facility with Fleet decreased from
$4,295,000 at December 31, 1995 to $1,680,000 at March 31, 1996. This decrease
was principally due to (i) an $8 million refinancing in March 1996 of which
$2,670,000 was applied against bank borrowings as discussed in the Company's
1995 ANNUAL REPORT TO SHAREHOLDERS, (ii) the receipt of $495,000 from a land
sale during January 1996 and (iii) the receipt of $270,000 under the Company's
dividend reinvestment and common stock purchase plan in February 1996. During
the first quarter of 1996, however, the Company utilized its credit facility
with Fleet to prepay $653,000 of principal previously outstanding on a mortgage
note in order to take advantage of the recent decline in long term interest
rates.
For the remainder of 1996, the Company's cash flow projections indicate that
outstanding borrowings at various times of the year should not exceed $3.5
million and thus the Company has adequate credit availability to fund any
unanticipated expenditures during 1996. The Company's consolidated capital
budget for 1996 consists of $2.8 million for water utility projects and $400,000
for real estate capital expenditures, the total of which exceeds the $2.5
million and $2.4 million expended during 1995 and 1994, respectively. For the
quarter ended March 31, 1996, Pennichuck invested $600,000 in capital projects,
most of which relate to system improvements and upgrades.
Other changes in the Company's financial position during the first quarter were
(i) a decrease of $315,000 in "Other Current Assets" resulting from prepaid
property taxes which were fully amortized in the first quarter of 1996 and (ii)
a decrease of $278,000 in accounts receivable reflecting the receipt of $150,000
as a contribution in aid of construction for a pumping station which was
completed in December 1995.
In October 1995, the Company amended its dividend reinvestment plan to allow
Pennichuck's residential customers and employees in New Hampshire to make
initial investments in the Company's common stock and, thereafter to participate
in the plan, as well as to allow for optional cash payments for existing
shareholders. On February 15, 1996, the Company sold approximately $270,000 of
common stock through initial investments and dividend reinvestments which has
been added to the Company's consolidated common equity base. The proceeds from
the plan investments were used to reduce outstanding bank borrowings during the
quarter.
At March 31, 1996, consolidated retained earnings decreased to $6,774,000, or by
$124,000 from the beginning of the year. This decline is due to a payout of
$180,000 in common dividends on February 15, 1996 which exceeded the Company's
consolidated net income of $56,000 for the first quarter. Due to the seasonal
nature of the Company's water utility business, it is not uncommon for the
Company's dividend payout to exceed its earnings in the first quarter of the
calendar year. The Company's ability to pay common dividends is dependent on the
level of its future earnings and the capital needs of its operating business
units.
Results of Operations -- Three Months Ended March 31, 1996 Compared to Three
Months Ended March 31, 1995
For the three months ended March 31, 1996, consolidated net income was $56,000,
or $.08 per share compared to $82,000, or $.11 per share for the same period in
1995. Consolidated revenues for the first quarter of 1996 increased to
$2,906,000 from $2,296,000 last year. 1996 revenues reflect the receipt of
approximately $500,000 from the sale of land by Southwood in January 1996; there
were no such real estate revenues in the first quarter of 1995.
The Company's consolidated revenues are generally seasonal due to the overall
significance of the water sales of Pennichuck as a percent of consolidated
revenues. Water revenues are typically at their lowest point during the first
and fourth quarters of the calendar year while water revenues in the second and
third quarters tend to be greater as a result of increased water consumption
during the late spring and summer months.
Water Utility Operations
Utility operating revenues for the three months ended March 31, 1996 increased
to $2,353,000, a $70,000 increase over utility revenues for the same period in
1995. Revenues from billed consumption in 1996 were approximately 1% greater
than in 1995 while unbilled revenues increased $38,000 reflecting a 4.3%
increase in water pumpage during February and March 1996. Total water pumpage in
Pennichuck's core system for the first quarter of 1996 was approximately 1
billion gallons compared to 965 million gallons in the first quarter of 1995.
During the past twelve months, Pennichuck's overall rate of return on its rate
base, as defined, has been exceeding its allowed rate of return of 8.81% as
authorized by the New Hampshire Public Utilities Commission (the "Commission").
For the twelve months ended March 31, 1996, Pennichuck's overall rate of return
was 9.55% and as a result, Pennichuck has not filed for any rate relief with the
Commission thus far during 1996.
Total operating expenses of Pennichuck were $1,810,000 for the three months
ended March 31, 1996, or an increase of $157,000 over the same period last year.
Operations and maintenance costs, which include water treatment and
purification, distribution and administrative expenses, increased 6.9% -- from
$1,085,000 in 1995 to $1,160,000 in 1996. Treatment and purification expenses
increased $38,000 principally as a result of a 4.3% increase in pumpage volume
and increased sludge removal fees payable to the City of Nashua. Administrative
expenses increased approximately $28,000, or 5.4% over 1995 as a result of
additional salaries, pension and post-retirement health benefits and public
relations expenses.
Also included in Pennichuck's operating expenses are costs for property taxes to
the various municipalities in which it owns and operates taxable property. In
August 1995, Pennichuck reached a settlement agreement with Nashua and
Merrimack, New Hampshire with respect to a re-assessment of its utility
properties in those municipalities, resulting in a 23% increase over previous
assessments. As a result, the first quarter of 1996 reflects a $60,000 increase
in property taxes over the same quarter of 1995. Pennichuck expects that early
in 1997 it will file with the Commission a petition to increase its water rates
for the increased operating expenses discussed above and for investments in rate
base which it has made since its last rate filing. Because rate proceedings may
take up to a year, Pennichuck cannot at this time estimate when such increased
water rates will take effect.
Real Estate and Other Operations
For the three months ended March 31, 1996, revenues from real estate and other
activities were $553,000 compared to only $11,000 for the same period in 1995.
The current year's real estate revenues include $495,000, net of sales
commission, from the sale of a 19 acre parcel located in Southwood Business
Park. That sale, which occurred in January 1996, reduces Southwood's property
tax burden by $18,000 annually and leaves 13.5 acres remaining to be sold in
that Business Park. There were no such real estate sales in the first quarter of
1995.
Real estate and other revenues in the first quarter of 1996 also include $28,000
of option income accrued by Southwood under a development option agreement which
was entered into last September with a regional developer. Under the terms of
that agreement, the developer will pay Southwood an annual option fee equal to
the carrying costs associated with Southwood Corporate Park, principally
property taxes and property maintenance costs, in exchange for the exclusive
development rights of that Park. As lots are readied for development, the
agreement provides for a per acre payment of $60,000 to Southwood. Currently, 47
acres in the Corporate Park lot are subject to this development agreement.
The operating expenses associated with the Company's real estate and other
non-utility activities increased from $89,000 in the first quarter of 1995 to
$588,000 in 1996. That increase includes infrastructure costs of $534,000 which
were allocated to the aforementioned land sale in January 1996. Property taxes
for the three months ended March 31, 1996 and 1995 were $43,000 and $60,000,
respectively for Southwood; the decrease resulted from the two land sales in
Southwood Corporate and Business Parks in August 1995 and in January 1996.
Property taxes on those two parcels had been approximately $48,000 annually. For
1996, Southwood's property taxes are estimated to be $150,000, most of which
relates to its two office parks. Approximately $130,000 of that amount is
subject to reimbursement under the development option agreement discussed
previously.
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) No exhibits are filed herewith.
(b) There were no reports on Form 8-K filed during the first quarter of 1996.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Pennichuck Corporation
(Registrant)
Date: May 10, 1996 /s/ Maurice L. Arel
Maurice L. Arel, President and
Principal Executive Officer
Date: May 10, 1996 /s/ Charles J. Staab
Charles J. Staab, Vice President,
Treasurer and Principal Financial
Officer
<TABLE> <S> <C>
<ARTICLE> UT
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 41,737
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<TOTAL-CURRENT-ASSETS> 1,959
<TOTAL-DEFERRED-CHARGES> 1,020
<OTHER-ASSETS> 2,431
<TOTAL-ASSETS> 47,147
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<TOTAL-COMMON-STOCKHOLDERS-EQ> 12,393
0
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<LONG-TERM-DEBT-NET> 20,299
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</TABLE>
