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 September 30, 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
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--753,681 shares as of October 1, 1997
INDEX
PENNICHUCK CORPORATION AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION PAGE NUMBER
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets--
September 30, 1997 and December 31, 1996 3
Condensed Consolidated Statements of Income--
Nine months and quarter ended September 30, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows--
Nine months ended September 30, 1997 and 1996 5
Notes to Condensed Consolidated Financial Statements--
September 30, 1997 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-12
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 12
SIGNATURES 13
PART I. Item 1. FINANCIAL INFORMATION
PENNICHUCK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30 December 31
1997 1996
------------ -----------
(In thousands)
(Unaudited)
<S> <C> <C>
ASSETS
Property, Plant and Equipment
Land $ 379 $ 378
Buildings and Structures 18,287 15,847
Equipment 43,096 41,862
Construction work in progress 633 150
-------------------------
62,395 58,237
Less accumulated depreciation 15,793 14,899
-------------------------
46,602 43,338
Current Assets
Cash 237 261
Restricted cash 1,252 --
Accounts receivable, net 2,030 2,128
Inventory 215 225
Other current assets 107 445
3,841 3,059
Other Assets
Land development costs 2,415 2,413
Deferred charges, net 1,545 1,106
Investment in real estate partnerships 212 154
-------------------------
TOTAL ASSETS $54,615 $50,070
=========================
STOCKHOLDERS' EQUITY AND LIABILITIES
Common stock-par value $1 per share $ 756 $ 748
Paid in capital 5,208 5,120
Retained earnings 7,798 7,381
Treasury stock, at cost (53) (53)
-------------------------
13,709 13,196
Long Term Debt, less current portion 24,725 20,995
Current Liabilities
Current portion of long term debt 100 819
Accounts payable 842 265
Accrued interest payable 440 330
Other accrued expenses 1,119 715
-------------------------
2,501 2,129
Other Liabilities
Contributions in aid of construction 8,803 8,794
Other liabilities and deferred credits 4,877 4,956
-------------------------
TOTAL STOCKHOLDERS' EQUITY & LIABILITIES $54,615 $50,070
=========================
</TABLE>
See notes to condensed consolidated financial statements.
PENNICHUCK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30 September 30
----------------- -----------------
1997 1996 1997 1996
---- ---- ---- ----
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Revenues
Water utility operations $ 3,299 $ 3,057 $ 8,492 $ 8,077
Real estate operations and other 217 50 416 664
---------------------------------------------
3,516 3,107 8,908 8,741
Operating expenses
Water utility operations 2,100 2,051 5,898 5,658
Real estate operations and other 32 42 109 622
---------------------------------------------
2,132 2,093 6,007 6,280
Operating income 1,384 1,014 2,901 2,461
Other income 24 4 34 8
Interest expense 465 409 1,308 1,223
---------------------------------------------
Income before income taxes 943 609 1,627 1,246
Provision for income taxes 364 232 619 469
---------------------------------------------
Net income $ 579 $ 377 $ 1,008 $ 777
=============================================
Net income per common share $ .78 $ .51 $ 1.35 $ 1.06
=============================================
Dividends paid per common share $ .27 $ .26 $ .79 $ .77
=============================================
Weighted average number of shares
outstanding 752,262 740,514 749,377 734,132
=============================================
</TABLE>
See notes to condensed consolidated financial statements.
PENNICHUCK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
--------------------
1997 1996
(In thousands)
<S> <C> <C>
CASH PROVIDED (USED) BY:
Operating Activities $ 3,458 $ 1,870
Investing Activities:
Purchase of property, plant and equipment (4,280) (2,308)
(Increase) in restricted cash (1,252) --
Receipt of contributions in aid of construction 101 311
(Increase) in partnership investments (58) (298)
(Increase) in other assets (509) (164)
--------------------
(5,998) (2,459)
Financing Activities:
Payments on long-term debt (989) (7,414)
Proceeds from issuance of long-term debt 4,000 8,000
Payment of common dividends (591) (563)
Proceeds from dividend reinvestment plan & other 96 413
--------------------
2,516 436
(DECREASE) IN CASH (24) (153)
CASH AT BEGINNING OF PERIOD 261 203
--------------------
CASH AT END OF PERIOD $ 237 $ 50
====================
</TABLE>
Supplemental Cash Flow Information. Interest paid was $1,182,000 and
$1,195,000 for the nine months ended September 30, 1997 and 1996,
respectively. Income taxes paid were $217,000 and $265,000 for the nine
months ended September 30, 1997 and 1996, respectively.
See notes to condensed consolidated financial statements.
PENNICHUCK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
September 30, 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 and nine month periods ended September 30, 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 on Form 10-KSB 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") and by long-term debt financings
such as the $4 million tax exempt bond discussed below. 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 September 30, 1997, the
Company had $2,925,000 of notes outstanding under this credit facility which
matured in October 1997 and were subsequently renewed to December 1997.
Thereafter, such notes may be automatically renewed at maturities ranging
from one to eighteen months. The average interest rate of those notes at
September 30, 1997 was 7.37%. Under the terms of the agreement, the maturity
date of all amounts borrowed, or to be borrowed in the next 20 months, has
been extended to May 31, 1999. As a result, outstanding bank borrowings at
September 30, 1997 totaling $2,925,000 are 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 $2,925,000 at June 30, 1997. 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; substantially
all of those proceeds were used to reduce short-term indebtedness.
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 nine
months ended September 30, 1997, Pennichuck has invested $4,179,000 in
capital projects, net of contributions in aid of construction. One of the
most significant capital projects thus far in 1997 has been the construction
of a 6.5 million gallon water storage tank which was completed in August
1997. In order to fund that project and several other major projects in 1997
and 1998, Pennichuck issued a $4 million tax exempt bond on May 15, 1997.
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%.
A portion of the proceeds from that tax exempt bond has been temporarily
invested in short-term government securities until such time as they are
needed to fund the related 1997 and 1998 capital projects. As of September
30, 1997 approximately $1,252,000 of the proceeds were unexpended as shown
under "Restricted cash" in the accompanying Condensed Consolidated Balance
Sheet.
Other major changes in the Company's financial condition were (i) a decrease
in other current assets of $338,000 resulting from the amortization of
prepaid property taxes on December 31, 1996, (ii) an increase of $439,000 in
deferred charges, of which $220,000 related to issuance expenses of the
aforementioned $4 million bond and (iii) an increase of $577,000 in accounts
payable reflecting the retainage and other charges payable on construction
work in progress at September 30, 1997.
At September 30, 1997, consolidated retained earnings increased to
$7,798,000, or $417,000 from the beginning of the year. This increase
reflects net income of $1,008,000 for the nine months ended September 30,
1997 less the payment of $591,000 for common dividends during that same
period. 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 September 30, 1997 Compared to
Three Months Ended September 30, 1996
For the three months ended September 30, 1997, consolidated net income was
$579,000, or $.78 per share compared to $326,000, or $.51 per share for the
same period in 1996 for reasons discussed in further detail below.
Consolidated revenues for the third quarter increased from $3,107,000 in
1996 to $3,526,000 in 1997, not only as a result of increased water revenues
generated by the Company's regulated utility operations but also as a result
of increased real estate revenues.
Due to the overall significance of water sales of Pennichuck as a percent of
consolidated revenues, the Company's consolidated revenues are generally
seasonal and therefore may vary significantly from quarter to quarter. 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 (see discussion below).
Water Utility Operations
On May 28, 1997, Pennichuck filed a petition with the New Hampshire Public
Utilities Commission ("NHPUC") to increase its rates by approximately 18
percent, which would result in additional annual revenues of $1,855,000. A
petition to increase Pennichuck's rates was deemed necessary given that its
actual overall rate of return on rate base at September 30, 1997 was 8.58%,
or 23 basis points below its authorized return. It is anticipated that the
decline in the overall rate of return will continue given the $2,634,000
of additions to rate base that Pennichuck has made thus far in 1997, most of
which is non-revenue producing. That decline in the overall rate of return
also has been affected by increased operating costs totaling nearly $300,000
for property taxes and water treatment expenses. On August 4, 1997, the
NHPUC approved Pennichuck's request for a 5.12% temporary rate increase for
service rendered on or after August 18, 1997; however, final resolution of
the permanent rate case filing is not expected to occur until early in the
first quarter of 1998 at which time the permanent rate increase, if any, may
be more or less than the 5.12% temporary rate increase already granted.
Utility operating revenues for the three months ended September 30, 1997
increased to $3,299,000, or a 7.9% increase over the same period in 1996.
That change reflects a 9.2% increase in billed consumption over last year as
well as a portion of the 5.12% temporary rate increase which went into
effect in August 1997. The increase in billed consumption resulted generally
from the warmer and drier weather experienced in June and July of 1997.
Total operating expenses of Pennichuck were $2,100,000 for the three months
ended September 30, 1997, or an increase of $49,000, or 2.4% over the same
period last year. Of that increase, the most notable increases were $55,000
in power, chemical and other production costs reflecting the increased water
usage during the quarter. Other cost increases during the third quarter of
1997 were $36,000 and $14,000 in depreciation and property taxes,
respectively, as a result of Pennichuck's continued investment in operating
assets during 1996 and 1997.
Real Estate and Other Operations
Real estate and other revenues were $217,000 and $50,000 for the third
quarter of 1997 and 1996, respectively; each includes approximately $25,000
of option income accrued by Southwood under a development option agreement
entered into during 1995 with a regional developer. Under the terms of that
agreement, the developer pays 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.
In April 1996, Southwood entered into a joint venture agreement, known as
Bowers Pond LLC, with a local builder for the development of a 33 unit
residential development in Nashua. For the three months ended September 30,
1997, Southwood has recorded $156,000 of revenues from this partnership,
reflecting the sale of 6 lots and homes during the third quarter.
The operating expenses associated with the Company's real estate and other
non-utility activities decreased slightly from $42,000 in the third quarter
of 1996 to $32,000 in the third quarter of 1997. Real estate and other non-
utility expenses in the third quarter of 1997 and 1996 generally consisted
of property taxes on Southwood's landholdings which did not change
materially from quarter to quarter.
Results of Operations - - Nine Months Ended September 30, 1997 Compared to
Nine Months Ended September 30, 1996
For the nine month period ended September 30, 1997, consolidated net income
increased to $1,008,000, or $1.35 per common share from $777,000, or $1.06
per common share for the same period in 1996. The year-to-date consolidated
revenues in 1997 were $8,908,000, or $167,000 more than last year for
reasons discussed below. The improvement in consolidated revenues and net
income occurred primarily as a result of the financial performance
experienced during the third quarter of 1997.
Water Utility Operations
Utility operating revenues for the first nine months of 1997 totaled
$8,492,000, or a $415,000 increase over the same period in 1996. That
increase is principally the result of an additional $415,000 in utility
revenues, reflecting a 5.3% increase in overall consumption and a 2.1%
increase in Pennichuck's larger commercial and industrial accounts.
The operating expenses of Pennichuck increased by $240,000, or 4.2%, to
$5,898,000 for the nine months ended September 30, 1997. Nearly half of that
increase, or $121,000, relates to increased production costs for the reasons
previously discussed. The remainder of the increase in utility operating
costs relate to $82,000 of additional depreciation and $54,000 of additional
property taxes recognized by Pennichuck for the first nine months of 1997 as
a result of its investment in operating assets of $3.1 million during 1996
and $4.3 million thus far in 1997.
Real Estate and Other Operations
For the nine months ended September 30, 1997 and 1996, revenues from real
estate and other activities totaled $416,000 and $664,000, respectively.
Last year's real estate revenues include $495,000, net of commission, from
the sale of a 19 acre parcel located in Southwood Business Park. There have
been no such major real estate sales during the same period in 1997.
However, during 1997, Southwood has recorded approximately $340,000 of
revenues generated through its 50% interest in Bowers Pond LLC, a
residential joint venture with a local builder. Other revenues from real
estate-related activities during the nine months ended September 30, 1997
and 1996 include approximately $72,000 and $66,000, respectively, of option
fee income earned under the development option agreement for Southwood
Corporate Park discussed earlier.
The operating expenses associated with the Company's real estate and other
non-utility activities decreased from $622,000 in 1996 to $109,000 in 1997.
Of that decrease, $534,000 relates to the infrastructure costs which were
allocated to the aforementioned land sale in January 1996. Property taxes on
Southwood's real estate holdings for the first nine months of 1997 increased
to $75,000 from $35,000 for same period in 1996. That increase in expense
resulted from the receipt of approximately $50,000 in May 1996 from the City
of Nashua for an abatement filed last year by Southwood. 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.
Recent Developments
On September 17, 1997, the Company signed a merger agreement with Pittsfield
Aqueduct Company ("Pittsfield"), a privately-owned water utility located in
Pittsfield, New Hampshire serving approximately 650 customers. Pittsfield's
revenues for 1997 are estimated to be $220,000 and its total assets as of
September 30, 1997 were approximately $2.1 million. Under this agreement,
the Company would acquire all of the outstanding common stock of Pittsfield
in exchange for common stock of the Company. The acquisition is expected to
be accounted for using the pooling of interests method. The merger is
subject to final approval by Pittsfield's shareholders and the New Hampshire
Public Utilities Commission as well as subject to the findings of the
Company's due diligence review. This merger is expected to close on or about
December 31, 1997.
Additionally, on November 5, 1997, the Company signed an Agreement of
Purchase and Sale of Assets with the Town of Hudson, New Hampshire
("Hudson") whereby the Company will purchase certain water utility assets
located outside of Hudson. Hudson recently received Commission regulatory
approval to acquire all of the operating water utility assets of Consumers
New Hampshire Water Company ("Consumers"). However, final acquisition by
Hudson is subject to a town vote scheduled in January 1998. At the time of
closing between Hudson and Consumers, the Company will purchase from Hudson
all of Consumers' former operating water utility assets outside of Hudson
for approximately $7.5 million. The closing is expected to occur in March or
April of 1998. The Company's obligation to purchase these assets is subject
to Commission approval including certain ratemaking concessions acceptable
to the Company. Currently, the Company is evaluating various sources of
long-term capital with which to finance this purchase, although the Company
may utilize an interim, short-term credit facility to initially finance the
purchase these assets.
New Accounting Standards
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 nine months ended September 30, 1997,
basic earnings per share would be $1.35 and diluted earnings per share would
also be $1.35.
During the second quarter of 1997, the Financial Accounting Standards Board
issued SFAS No. 130, "Reporting Comprehensive Income" and SFAS 131,
"Disclosures About Segments of an Enterprise and Related Information."
Although the adoption of these Statements is not required until fiscal years
beginning after December 15, 1997, the Company does not believe that it will
be materially affected by the new reporting standards set forth in those
Statements.
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 third 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: November 12, 1997 /s/ Maurice L. Arel
Maurice L. Arel, President and
Principal Executive Officer
Date: November 12, 1997 /s/ Charles J. Staab
Charles J. Staab, Vice President,
Treasurer and Principal Financial
Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 237,000
<SECURITIES> 1,252,000
<RECEIVABLES> 2,055,000
<ALLOWANCES> 25,000
<INVENTORY> 215,000
<CURRENT-ASSETS> 3,841,000
<PP&E> 62,395,000
<DEPRECIATION> 15,793,000
<TOTAL-ASSETS> 54,615,000
<CURRENT-LIABILITIES> 2,501,000
<BONDS> 24,725,000
0
0
<COMMON> 756,000
<OTHER-SE> 12,953,000
<TOTAL-LIABILITY-AND-EQUITY> 54,615,000
<SALES> 8,908,000
<TOTAL-REVENUES> 8,908,000
<CGS> 0
<TOTAL-COSTS> 6,007,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,308,000
<INCOME-PRETAX> 1,627,000
<INCOME-TAX> 619,000
<INCOME-CONTINUING> 1,008,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,008,000
<EPS-PRIMARY> 1.35
<EPS-DILUTED> 1.35
</TABLE>
