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, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____.
Commission file number 0-18552
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Pennichuck Corporation
- -------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
New Hampshire 02-0177370
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Four Water Street, Nashua, New Hampshire 03061
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(Address of principal executive offices) (Zip Code)
(603) 882-5191
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(Issuer's telephone number)
Not applicable
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(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--747,665 shares as of May 1, 1997
INDEX
PENNICHUCK CORPORATION AND SUBSIDIARIES
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PART I. FINANCIAL INFORMATION PAGE NUMBER
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Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets--March 31, 1997 and
December 31, 1996 3
Condensed Consolidated Statements of Income--Three months ended
March 31, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows--Three months
ended March 31, 1997 and 1996 5
Notes to Condensed Consolidated Financial Statements--March 31, 1997 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 7-10
PART II. OTHER INFORMATION
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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 10
SIGNATURES 11
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PART I. Item 1. FINANCIAL INFORMATION
PENNICHUCK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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<CAPTION>
March 31 December 31
1997 (In thousands) 1996
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(Unaudited)
<S> <C> <C>
ASSETS
Property, Plant and Equipment
Land $ 378 $ 378
Buildings 15,873 15,847
Equipment 42,161 41,862
Construction work in progress 145 150
-------------------------------------
58,557 58,237
Less accumulated depreciation 15,205 14,899
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43,352 43,338
Current Assets
Cash 535 261
Accounts receivable, net 1,420 2,128
Inventory 220 225
Other current assets 146 445
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2,321 3,059
Other Assets
Land development costs 2,413 2,413
Deferred charges, net 1,157 1,106
Investment in real estate partnerships 166 154
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TOTAL ASSETS $ 49,409 $ 50,070
=====================================
STOCKHOLDERS' EQUITY AND LIABILITIES
Common stock-par value $1 per share $ 750 $ 748
Paid in capital 5,143 5,120
Retained earnings 7,290 7,381
Treasury stock, at cost (53) (53)
-------------------------------------
13,130 13,196
Long Term Debt, less current portion 20,550 20,995
Current Liabilities
Current portion of long term debt 819 819
Accounts payable 129 265
Accrued interest payable 351 330
Other accrued expenses 661 715
-------------------------------------
1,960 2,129
Other Liabilities
Contributions in aid of construction 8,807 8,794
Other liabilities and deferred credits 4,962 4,956
-------------------------------------
TOTAL STOCKHOLDERS' EQUITY & LIABILITIES $ 49,409 $ 50,070
=====================================
</TABLE>
See notes to condensed consolidated financial statements.
PENNICHUCK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
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Three Months Ended
March 31
1997 1996
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(In thousands, except per share amounts)
<S> <C> <C>
Revenues
Water utility operations $ 2,392 $ 2,353
Real estate operations and other 105 553
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2,497 2,906
Operating expenses
Water utility operations 1,902 1,810
Real estate operations and other 35 588
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1,937 2,398
Operating income 560 508
Other income (expense) 4 (1)
Interest expense (407) (421)
----------------------------------------
Income before income taxes 157 86
Provision for income taxes 54 30
----------------------------------------
Net income $ 103 $ 56
========================================
Net earnings per common share based on 746,590 and
726,557 weighted average common shares in 1997 and
1996, respectively $ .14 $ .08
========================================
Dividends paid per common share $ .26 $ .25
========================================
</TABLE>
See notes to condensed consolidated financial statements
PENNICHUCK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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<CAPTION>
Three Months Ended
March 31
1997 1996
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(In thousands)
<S> <C> <C>
CASH PROVIDED (USED) BY:
Operating Activities $ 1,364 $ 1,051
Investing Activities:
Purchase of property, plant and equipment and other assets (500) (729)
Increase in contributions in aid of construction 37 166
Increase (Decrease) in other (12) 1
-----------------------
(475) (562)
Financing Activities:
Payments on long-term debt (8,598)
Proceeds from issuance of long-term debt 8,000
Payment of common dividends (194) (180)
Decrease in note payable to bank (445) --
Proceeds from dividend reinvestment plan and other 24 273
-----------------------
(615) (505)
INCREASE (DECREASE) IN CASH 274 (16)
CASH AT BEGINNING OF PERIOD 261 203
-----------------------
CASH AT END OF PERIOD $ 535 $ 187
=======================
</TABLE>
Supplemental Cash Flow Information. Interest paid was $379,485 and $234,616
for the three months ended March 31, 1997 and 1996, respectively. No income
taxes were paid in either of the three month periods ended March 31, 1997
and 1996.
See notes to condensed consolidated financial statements.
PENNICHUCK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 1997
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,
1997 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1997. The Balance Sheet amounts shown under the
December 31, 1996 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, 1996.
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 $4.5
million at interest rates tied to Fleet's cost of funds or LIBOR, whichever is
lower. At March 31, 1997, the Company had $2,750,000 of notes outstanding under
this credit facility maturing in various dates in April and June 1997 which may
be automatically renewed at maturities ranging from 30 to 420 days. The average
interest rate of those notes at March 31, 1997 was 7.09%. 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, 1998. As a result, outstanding
bank borrowings at March 31, 1997 totaling $2,750,000 have been classified as
"Long Term Debt" in the Condensed Consolidated Balance Sheets.
Total indebtedness under the credit facility with Fleet decreased from
$3,195,000 at December 31, 1996 to $2,750,000 at March 31, 1996. This decrease
was principally due to the receipt of $535,000 received from the State of New
Hampshire in January 1997 as payment for land acquired by the State under an
eminent domain proceeding initiated last year. That amount was included under
"Account receivable, net" at December 31, 1996.
The Company's consolidated capital budget for 1997 consists of $5.3 million for
water utility projects, which significantly exceeds the $3.1 million and $2.5
million expended during 1996 and 1995, respectively. For the quarter ended
March 31, 1997, Pennichuck invested $500,000 in capital projects and other
assets, most of which relate to system improvements and upgrades. Since
available short-term borrowings are not expected to be sufficient to fund all
of its 1997 capital budget, Pennichuck intends to issue $4 million of tax
exempt bonds on May 15, 1997, the proceeds from which will be used to fund a
major portion of the 1997 capital program. The terms of that bond issue provide
for a maturity date of April 15, 2022, with a fixed interest rate per annum of
6.30%. As of April 15, 1997, Pennichuck had received all necessary approvals
for the issuance of those bonds.
The other major change in the Company's financial position during the first
quarter was a decrease of $299,000 in "Other Current Assets" resulting from
prepaid property taxes which were fully amortized in the first quarter of 1997.
At March 31, 1997, consolidated retained earnings decreased to $7,290,000, or
by $91,000 from the beginning of the year. This decline is due to a payout of
$194,000 in common dividends on February 15, 1997 which exceeded the Company's
consolidated net income of $103,000 for the first quarter. Due to the generally
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, 1997 Compared to Three
Months Ended March 31, 1996
For the three months ended March 31, 1997, consolidated net income was
$103,000, or $.14 per share compared to $56,000, or $.08 per share for the same
period in 1996. Consolidated revenues for the first quarter decreased from
$2,906,000 in 1996 to $2,497,000 in 1997. Last year's revenues reflect the
receipt of approximately $500,000 from the sale of land by Southwood in January
1996 while there were no such real estate revenues in the first quarter of
1997.
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. In addition, the Company's
consolidated revenues may be significantly affected by sales of major real
estate parcels which may occur from time to time.
Water Utility Operations
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Utility operating revenues for the three months ended March 31, 1997 increased
to $2,392,000, or a 1.7% increase over the same period in 1996. Revenues from
billed consumption in 1997 were approximately 3.4% greater than in 1996,
attributable principally to an increase in commercial and industrial
consumption.
During the past twelve months, Pennichuck's overall rate of return on its rate
base, as defined, has fallen to 8.26%, which is below its allowed rate of
return of 8.81% as authorized by the New Hampshire Public Utilities Commission
(the "Commission"). That decline in the overall rate of return principally
reflects (i) its added investment in rate base in the amount of approximately
$1.9 million since its last rate increase, nearly all of which is non-revenue
producing and (ii) increased operating costs totaling nearly $300,000 for
property taxes and water treatment expenses. As a result of that decline,
Pennichuck filed a Notice of Intent to File for Rate Relief with the Commission
on March 31, 1997 with the actual filing expected to occur in May 1997. In its
Notice of Intent to File, Pennichuck indicated an estimated rate increase of
$1.8 million, or an 18% increase over existing rates. Because rate proceedings
may take up to a year, Pennichuck cannot at this time estimate when such
increased water rates will take effect.
Total operating expenses of Pennichuck were $1,902,000 for the three months
ended March 31, 1997, or an increase of $92,000 over the same period last year.
Operations and maintenance costs, which include water treatment and
purification, distribution and administrative expenses, increased 4% -- from
$1,338,000 in 1996 to $1,391,000 in 1997. Distribution expenses increased by
$25,000 for additional labor wages and vehicle costs while administrative
expenses increased approximately $27,000, or 5.1% over 1996 as a result of
additional salaries, pension and other employee benefit costs. Other operating
expenses, such as depreciation and property taxes, also increased by $20,000
and $28,000, respectively, as a result of Pennichuck's continued investment in
operating assets during 1996 and the first quarter of 1997.
Real Estate and Other Operations
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For the three months ended March 31, 1997, revenues from real estate and other
activities were $105,000 compared to $553,000 for the same period in 1996. Last
year's revenues include approximately $495,000, net of sales commission, from
the sale of a 19 acre parcel located in Southwood Business Park. There were no
such sales of any parcels of land in the first quarter of 1997.
In April 1996, Southwood entered into a joint venture agreement with a local
builder for the development of a 35 unit residential development in Nashua.
Under the terms of the agreement, Southwood conveyed the related land parcel to
the partnership in exchange for a non-interest bearing note from the
partnership secured by a second mortgage on the real estate conveyed. For the
three months ended March 31, 1997, Southwood has recorded $52,000 of revenues
from this partnership which includes payments on the note reflecting the sale
of two homes during the quarter.
Real estate and other revenues in the first quarter of 1997 and 1996 also
include $26,000 and $28,000, respectively, of option income accrued by
Southwood under a development option agreement which was entered into during
1995 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 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 decreased from $588,000 in the first quarter of 1996 to
$35,000 in 1997. That decrease reflects infrastructure costs of $534,000 which
were allocated to the aforementioned land sale occurring in January 1996.
Property taxes for the three months ended March 31, 1997 and 1996 were $27,000
and $43,000, respectively for Southwood. That decrease resulted principally
from a $1.8 million reduction in assessed values on land located in Southwood
Corporate Park. In April 1996, Southwood and the City of Nashua re-negotiated
the assessments of that Park resulting in an assessed value which more
accurately reflects the current market value of that land. For 1997,
Southwood's property taxes on all of its landholdings are estimated to be
$93,000, most of which relates to its Corporate Park.
New Accounting Standard
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The Company will be required to adopt Statement of Financial Accounting
Standards No. 128 (SFAS 128), "Earnings Per Share" for the year ending December
31, 1997. SFAS 128 replaces primary earnings per share with basic earnings per
share. Basic earnings per share is calculated by dividing earnings available to
common shareholders by weighted average shares outstanding. SFAS 128 also
requires the presentation of diluted earnings per share, which is calculated
similarly to full diluted earnings per share. If SFAS 128 had been adopted for
the quarter ended March 31, 1997, basic earnings per share would be $.14 and
diluted earnings per share would also be $.14.
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 1997.
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: April 28, 1997 /s/ Maurice L. Arel
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Maurice L. Arel, President and
Principal Executive Officer
Date: April 28, 1997 /s/ Charles J. Staab
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Charles J. Staab, Vice President,
Treasurer and Principal Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 535,000
<SECURITIES> 0
<RECEIVABLES> 1,445,000
<ALLOWANCES> 25,000
<INVENTORY> 220,000
<CURRENT-ASSETS> 2,321,000
<PP&E> 58,557,000
<DEPRECIATION> 15,205,000
<TOTAL-ASSETS> 49,409,000
<CURRENT-LIABILITIES> 1,960,000
<BONDS> 21,369,000
0
0
<COMMON> 750,000
<OTHER-SE> 12,380,000
<TOTAL-LIABILITY-AND-EQUITY> 49,409,000
<SALES> 2,497,000
<TOTAL-REVENUES> 2,497,000
<CGS> 1,937,000
<TOTAL-COSTS> 1,937,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 407,000
<INCOME-PRETAX> 157,000
<INCOME-TAX> 54,000
<INCOME-CONTINUING> 54,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 54,000
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
</TABLE>
