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 June 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--750,693 shares as of August 1, 1997
INDEX
PENNICHUCK CORPORATION AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION PAGE NUMBER
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets--
June 30, 1997 and December 31, 1996 3
Condensed Consolidated Statements of Income--
Six months ended June 30, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows--
Six months ended June 30, 1997 and 1996 5
Notes to Condensed Consolidated Financial
Statements--June 30, 1997 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-11
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 12
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>
June 30 December 31
1997 (In thousands) 1996
---------------------------------
ASSETS (Unaudited)
<S> <C> <C>
Property, Plant and Equipment
Land $ 378 $ 378
Buildings 16,234 15,847
Equipment 42,635 41,862
Construction work in progress 1,830 150
--------------------------------
61,077 58,237
Less accumulated depreciation 15,469 14,899
--------------------------------
45,608 43,338
Current Assets
Cash 31 261
Restricted cash 2,437 --
Accounts receivable, net 1,914 2,128
Inventory 239 225
Other current assets 454 445
--------------------------------
5,075 3,059
Other Assets
Land development costs 2,413 2,413
Deferred charges, net 1,361 1,106
Investment in real estate
partnerships 173 154
--------------------------------
TOTAL ASSETS $54,630 $50,070
================================
STOCKHOLDERS' EQUITY AND LIABILITIES
Common stock-par value $1 per share $ 753 $ 748
Paid in capital 5,160 5,120
Retained earnings 7,422 7,381
Treasury stock, at cost (53) (53)
--------------------------------
13,282 13,196
Long Term Debt, less current portion 24,250 20,995
Current Liabilities
Current portion of long term debt 819 819
Accounts payable 1,281 265
Accrued interest payable 361 330
Other accrued expenses 837 715
--------------------------------
3,298 2,129
Other Liabilities
Contributions in aid of construction 8,816 8,794
Other liabilities and deferred credits 4,984 4,956
--------------------------------
TOTAL STOCKHOLDERS' EQUITY & LIABILITIES $54,630 $50,070
================================
</TABLE>
See notes to condensed consolidated financial statements.
PENNICHUCK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30 June 30
1997 1996 1997 1996
------------------------------------------
(In thousands, except per share amounts and
weighted average number of shares)
<S> <C> <C> <C> <C>
Revenues
Water utility operations $2,801 $2,667 $5,193 $5,020
Real estate operations and other 94 61 199 614
--------------------------------------------
2,895 2,728 5,392 5,634
Operating expenses
Water utility operations 1,896 1,797 3,798 3,607
Real estate operations and other 42 (8) 77 580
--------------------------------------------
1,938 1,789 3,875 4,187
Operating income 957 939 1,517 1,447
Other income (expense) 6 5 10 4
Interest expense (436) (393) (843) (814)
--------------------------------------------
Income before income taxes 527 551 684 637
Provision for income taxes 201 207 255 237
--------------------------------------------
Net income $ 326 $ 344 $ 429 $ 400
============================================
Net income per common share $ .43 $ .47 $ .57 $ .55
============================================
Dividends paid per common share $ .26 $ .26 $ .52 $ .51
============================================
Weighted average number of shares
outstanding 749,179 736,517 747,916 731,173
==============================================
</TABLE>
See notes to condensed consolidated financial statements
PENNICHUCK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30
1997 1996
--------------------
(In thousands)
<S> <C> <C>
CASH PROVIDED (USED) BY:
Operating Activities $ 2,499 $ 1,154
--------------------
Investing Activities:
Purchase of property, plant and
equipment (2,933) (1,556)
Increase in contributions in aid of
construction 84 214
Increase in partnership investment (19) (252)
Increase in restricted cash (2,437) --
Increase (Decrease) in other (336) (145)
--------------------
(5,641) (1,739)
--------------------
Financing Activities:
Payments on long-term debt (745) (7,388)
Proceeds from issuance of long-term debt 4,000 8,000
Payment of common dividends (388) (370)
Proceeds from dividend reinvestment plan
and other 45 359
--------------------
2,912 601
--------------------
INCREASE (DECREASE) IN CASH (230) 16
CASH AT BEGINNING OF PERIOD 261 203
--------------------
CASH AT END OF PERIOD $ 31 $ 219
====================
</TABLE>
Supplemental Cash Flow Information. Interest paid was $798,888 and $662,994
for the six months ended June 30, 1997 and 1996, respectively. Income taxes
paid were $118,000 and $160,000 for the six months ended June 30, 1997 and
1996, respectively.
See notes to condensed consolidated financial statements.
PENNICHUCK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 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 six month periods ended June 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 June 30, 1997, the Company
had $2,450,000 of notes outstanding under this credit facility maturing in
August 1997 which may be automatically renewed at maturities ranging from
one to twenty-three months. The average interest rate of those notes at June
30, 1997 was 7.34%. Under the terms of the agreement, the maturity date of
all amounts borrowed, or to be borrowed in the next 23 months, has been
extended to May 31, 1999. As a result, outstanding bank borrowings at June
30, 1997 totaling $2,450,000 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 $2,450,000 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. 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 six months
ended June 30, 1997, Pennichuck has invested $2,933,000 in capital projects,
the most significant of which is a 6.5 million gallon water storage tank
which is expected to be completed in mid-August 1997. In order to fund that
project and several other major projects contemplated for 1997, 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 capital projects. As of June 30, 1997
approximately $2,437,000 of the proceeds were unexpended as shown under
"Restricted cash" in the accompanying Condensed Consolidated Balance Sheet.
Construction work in progress increased to $1,830,000 at June 30, 1997
compared to $150,000 at the end of 1996. That increase principally reflects
the costs incurred to date for the aforementioned water storage tank as well
as certain other routine projects under construction at the end of the
second quarter. Similarly, accounts payable increased by approximately $1
million during the same period reflecting outstanding liabilities for work
completed but not paid on several construction projects underway at June 30,
1997.
At June 30, 1997, consolidated retained earnings increased to $7,422,000, or
by $41,000 from the beginning of the year. This increase reflects net income
of $429,000 for the six months ended June 30, 1997 less the payment of
$388,000 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 June 30, 1997
Compared to Three Months Ended June 30, 1996
For the three months ended June 30, 1997, consolidated net income was
$326,000, or $.43 per share compared to $344,000, or $.47 per share for the
same period in 1996. Consolidated revenues for the second quarter increased
from $2,728,000 in 1996 to $2,895,000 in 1997, principally as a result of
increased water revenues generated by the Company's regulated utility
operations.
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 (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 June 30, 1997 was 8.35%, or 46
basis points below its authorized return. 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. In
addition, that return is projected to decline even further during 1997 as a
result of Pennichuck's significant investment in rate base this year and
increases in related operating costs. On August 4, 1997, the NHPUC approved
Pennichuck's request for a 5.12% temporary rate increase; 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
granted.
Utility operating revenues for the three months ended June 30, 1997
increased to $2,801,000, or a 5% increase over the same period in 1996. That
change reflects a 1.8% increase in billed consumption over last year as well
as an 8.2% increase in unbilled consumption compared to the same quarter in
1996. The increase in unbilled consumption results generally from the warmer
and drier weather experienced in June 1997. Such unbilled revenues are
expected be billed and collected during the third quarter of 1997.
Total operating expenses of Pennichuck were $1,896,000 for the three months
ended June 30, 1997, or an increase of $101,000 over the same period last
year. Of that increase, the most notable increases were $31,000 in sludge
disposal fees, $50,000 for increased pumping and treatment costs and $26,000
and $12,000 for increased 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 $94,000 and $61,000 for the second
quarter of 1997 and 1996, respectively; each includes $20,000 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 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 June 30, 1997, Southwood has recorded $26,000 of
revenues from this partnership which includes payment on the note reflecting
the sale of one home during the quarter.
The operating expenses associated with the Company's real estate and other
non-utility activities increased $50,000 from the second quarter of 1996 to
the second quarter of 1997. Last year's operating expenses reflect the
receipt of approximately $50,000 in property tax abatements from the City of
Nashua in May 1996, resulting principally from a $1.8 million reduction in
assessed values on land located in Southwood Corporate Park. Earlier in
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.
Results of Operations - - Six Months Ended June 30, 1997 Compared
to Six Months Ended June 30, 1996
For the six month period ended June 30, 1997, consolidated net income was
$429,000, or $.57 per common share compared to $400,000, or $.55 per common
share for the same period in 1996. The year-to-date consolidated revenues in
1997 were $5,392,000, or $242,000 less than last year. That decrease is
principally a result of the receipt of approximately $500,000 from the sale
of land by Southwood in January 1996; there have been no such major real
estate sales in the first half of 1997. Pennichuck's water revenues for
1997, however, increased by $173,000 over last year,
Water Utility Operations
Utility operating revenues for the first half of 1997 totaled $5,193,000, or
a $173,000 increase over the same period in 1996, principally as a result of
increased consumption of 2.5% primarily in Pennichuck's commercial and
industrial accounts.
The operating expenses of Pennichuck increased by $191,000, or 5.3%, to
$3,798,000 for the six months ended June 30, 1997. Of that increase, $50,000
relates to increased production costs for the reasons previously discussed
as well as $40,000 for additional distribution maintenance costs incurred in
the first and second quarters of 1997. Additionally, the amount of property
taxes and depreciation expense recognized by Pennichuck for the first half
of 1997 increased by $46,000 and $40,000, respectively, as a result of its
investment in operating assets of $3.1 million during 1996 and $2.9 million
thus far in 1997.
Real Estate and Other Operations
For the six months ended June 30, 1997 and 1996, revenues from real estate
and other activities totaled $199,000 and $614,000, 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. Other
revenues from real estate-related activities during the six months ended
June 30, 1997 and 1996 include approximately $46,000 and $49,000,
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 $580,000 in 1996 to $77,000 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 six months of 1997 were
$52,000 compared to $14,000 in same period of 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.
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 six months ended June 30, 1997, basic
earnings per share would be $.57 and diluted earnings per share would also
be $.57.
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 4. Submission of Matters to a Vote Of Security Holders
(a) On April 18, 1997, the Company held its Annual Meeting of Shareholders
to elect three directors and to ratify the appointment by the Board of
Directors of the firm of Arthur Andersen LLP as independent accountants of
the Company for the year ending December 31, 1997.
(b) The following three incumbent directors were re-elected to three year
terms expiring at the Annual Meeting of Shareholders in 2000:
<TABLE>
<CAPTION>
Number of Shareholders Voting --
For Withheld
--------------------------------
<S> <C> <C>
Maurice L. Arel 581,107 20,468
Joseph A. Bellavance 581,762 19,813
Robert P. Keller 581,633 19,941
</TABLE>
The continuing directors whose terms expire beyond the April 18, 1997 Annual
Meeting date are:
Frank B. Clancy Charles E. Clough
Stephen J. Densberger Hannah M. McCarthy
Charles J. Staab Davis P. Thurber
(c) By a vote of 596,944 shares FOR, 314 shares AGAINST and 4,317 shares
ABSTAINING, the Board of Directors' appointment of Arthur Andersen LLP as
the Company's independent accountants for the year ending December 31, 1997
was ratified.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibit 27 Financial Data Schedule
(b) There were no reports on Form 8-K filed during the second 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: August 13, 1997 /s/ Maurice L. Arel
Maurice L. Arel, President and
Principal Executive Officer
Date: August 13, 1997 /s/ Charles J. Staab
Charles J. Staab, Vice President,
Treasurer and Principal Financial
Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 31,000
<SECURITIES> 2,437,000
<RECEIVABLES> 1,939,000
<ALLOWANCES> 25,000
<INVENTORY> 239,000
<CURRENT-ASSETS> 5,075,000
<PP&E> 61,077,000
<DEPRECIATION> 15,469,000
<TOTAL-ASSETS> 54,630,000
<CURRENT-LIABILITIES> 3,298,000
<BONDS> 24,250,000
0
0
<COMMON> 753,000
<OTHER-SE> 12,529,000
<TOTAL-LIABILITY-AND-EQUITY> 54,630,000
<SALES> 5,392,000
<TOTAL-REVENUES> 5,392,000
<CGS> 0
<TOTAL-COSTS> 3,875,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 843,000
<INCOME-PRETAX> 684,000
<INCOME-TAX> 255,000
<INCOME-CONTINUING> 429,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 429,000
<EPS-PRIMARY> .57
<EPS-DILUTED> .57
</TABLE>
