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, 2000
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
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(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)
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-1,754,631 shares as of August 1, 2000
INDEX
PENNICHUCK CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NUMBER
-------------------------------- -----------
<S> <C> <C>
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets--
June 30, 2000 and December 31, 1999 3
Condensed Consolidated Statements of Income--
Three and six months ended June 30, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows--
Six months ended June 30, 2000 and 1999 5
Notes to Condensed Consolidated Financial
Statements--June 30, 2000 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 12
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
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</TABLE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
PENNICHUCK CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30 December 31
2000 (In thousands) 1999
--------------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Property, Plant and Equipment
Land $ 1,012 $ 998
Buildings 22,927 22,498
Equipment 61,041 58,620
Construction work in progress 561 955
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85,541 83,071
Less accumulated depreciation 21,192 20,066
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64,349 63,005
Current Assets
Cash 827 2,438
Accounts receivable, net 2,684 2,509
Notes receivable 838 --
Inventory 306 312
Other current assets 151 739
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4,806 5,998
Other Assets
Land development costs 3,801 3,753
Deferred charges, net 2,479 2,430
Investment in real estate partnerships 638 395
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TOTAL ASSETS $76,073 $75,581
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STOCKHOLDERS' EQUITY AND LIABILITIES
Common stock-par value $1 per share $ 1,770 $ 1,761
Paid in capital 14,633 14,458
Retained earnings 10,577 10,361
Treasury stock, at cost (358) (323)
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26,622 26,257
Minority Interest 279 295
Long Term Debt, less current portion 27,154 27,223
Current Liabilities
Current portion of long term debt 1,121 1,043
Accounts payable 446 479
Accrued interest payable 369 383
Other accrued liabilities 443 1,225
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2,379 3,130
Other Liabilities
Contributions in aid of construction 12,255 11,300
Other liabilities and deferred credits 7,384 7,376
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TOTAL STOCKHOLDERS' EQUITY & LIABILITIES $76,073 $ 75,581
========================================
</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
---------------------- ----------------------
2000 1999 2000 1999
---- ---- ---- ----
(In thousands, except per share amounts
and weighted average number of shares)
<S> <C> <C> <C> <C>
Revenues
Water utility operations $ 3,941 $ 4,284 $ 7,581 $ 7,847
Real estate operations and other 512 426 1,007 755
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4,453 4,710 8,588 8,602
Operating expenses
Water utility operations 2,852 2,832 5,572 5,384
Real estate operations and other 218 156 436 319
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3,070 2,988 6,008 5,703
Operating income 1,383 1,722 2,580 2,899
Other income 50 45 90 89
Interest expense (500) (510) (1,000) (1,013)
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Income before income taxes 933 1,257 1,670 1,975
Provision for income taxes 347 483 630 760
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Net income before minority interest 586 774 1,040 1,215
Minority interest in (loss) Westwood Park, LLC (10) (3) (16) (18)
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Net income $ 596 $ 777 $ 1,056 $ 1,233
================================================
Earnings per common share:
Basic $ .34 $ .45 $ .60 $ .71
Diluted $ .34 $ .44 $ .60 $ .70
Weighted average common shares:
Basic 1,768,947 1,740,363 1,767,112 1,736,663
Diluted 1,774,818 1,755,105 1,772,983 1,751,405
Dividends paid per common share $ .24 $ .23 $ .48 $ .45
</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
2000 1999
------------------
(In thousands)
<S> <C> <C>
CASH PROVIDED (USED) BY:
Operating Activities
Net income $ 1,056 $ 1,233
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 1,119 1,028
Deferred income taxes 45 45
Change in working capital (1,208) (445)
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1,012 1,861
Investing Activities:
Purchase of property, plant and
equipment and other assets (2,666) (2,783)
Increase in contributions in aid of
construction 991 757
(Increase) in other (266) (52)
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(1,941) (2,078)
Financing Activities:
Payments on long-term debt (82) (17)
Proceeds from issuance of long-term debt 91 72
Payment of common dividends (840) (774)
Proceeds from dividend reinvestment plan
and other 149 198
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(682) (521)
(DECREASE) IN CASH (1,611) (738)
CASH AT BEGINNING OF PERIOD 2,438 3,602
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CASH AT END OF PERIOD $ 827 $ 2,864
==================
</TABLE>
Supplemental Cash Flow Information. Interest paid was $929,000 and $895,000
for the six months ended June 30, 2000 and 1999, respectively. Income taxes
paid were $284,000 and $242,000 for the six month periods ended June 30,
2000 and 1999 respectively.
See notes to condensed consolidated financial statements.
PENNICHUCK CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2000
NOTE A -- BACKGROUND
The financial statements include the accounts of Pennichuck
Corporation (the "Company") and its wholly-owned subsidiaries, Pennichuck
Water Works, Inc. ("Pennichuck"), Pennichuck East Utility, Inc. ("Pennichuck
East"), Pittsfield Aqueduct Company, Inc. ("Pittsfield"), 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 months and six month periods ended June 30, 2000 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2000. The Balance Sheet amounts shown under the December
31, 1999 column have been derived from the audited financial statements of
the Company as contained in its Annual Report on Form 10-KSB filed with the
Securities and Exchange Commission. 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, 1999.
NOTE C - EARNINGS PER SHARE
Diluted earnings per share were computed by dividing actual net income
by the adjusted weighted average number of shares of common stock which
include the effect of dilutive unexercised stock options.
PART I. FINANCIAL INFORMATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Financial Condition
During the first half of 2000, our cash needs for operations, capital
projects and dividends were funded primarily through a combination of the
operating cash flow from our subsidiaries and available cash. Our operating
cash flow for the six months ended June 30, 2000 was derived principally
from net income of $1.06 million, non-cash charges of $1.16 million offset
by $1.21 million of working capital required during that period. At June 30,
2000, the Company's cash and cash equivalents on hand had decreased by $1.61
million from the beginning of the year. That decrease in our cash balance is
due to (i) nearly $750,000 of property tax and debt service payments made by
our subsidiaries on June 30, 2000 and (ii) nearly $838,000 which was loaned
to one of our unconsolidated real estate joint ventures as discussed further
in this report. During July 2000, approximately $450,000 was repaid on those
notes receivable by the real estate joint venture.
We also maintain a revolving credit agreement (the "agreement") with
Fleet Bank-NH ("Fleet"). The agreement, as amended, allows us to borrow up
to $2.5 million at interest rates tied to Fleet's cost of funds or LIBOR,
whichever is lower. At June 30, 2000, there were no borrowings outstanding
under this agreement.
The Company's consolidated capital budget for 2000 consists of
approximately $4.8 million, practically all of which relates to various
projects of our three operating water utilities. Our capital projects for
this year are expected to be for the following:
(i) $1.18 million for replacement of our aging infrastructure,
(ii) $1.9 million for new distribution lines and storage,
(iii) $760,000 for water treatment and supply, and
(iv) the remainder on technology-related upgrades to our operating
and administrative systems.
So far in 2000, we have recorded approximately $2.49 million of
additions to "Property, Plant and Equipment," of which nearly $1 million has
been in the form of contributions in aid of construction. We believe that
our operating cash flow for the second half of 2000, together with available
short-term investments, will be sufficient to fund our remaining 2000
capital expenditure program, cash dividends and required principal payments.
Besides the change in our cash accounts from December 31, 1999 to June
30, 2000, other major changes in our financial position were (i) a decrease
of $588,000 in "Other current assets" resulting from prepaid property taxes
which were amortized and charged against our earnings during the first
quarter of 2000 and (ii) a decrease of $782,000 in "Other accrued
liabilities" principally due to payments of retainage amounts on outstanding
construction contracts and other miscellaneous accruals.
Liquidity and Financial Condition (Continued)
The "Notes receivable" balance of $838,000 at June 30, 2000 represents
amounts loaned by the Company to a certain real estate partnership in which
Southwood is a 50% owner. The loans to the partnership are for the
infrastructure development and construction of 7 homes in Nashua, New
Hampshire and are secured by a mortgage on the land.
Results of Operations -- Three Months Ended June 30, 2000 Compared to
Three Months Ended June 30, 1999
For the three months ended June 30, 2000, consolidated net income was
$596,000, or $.34 per share compared to $777,000, or $.45 per share for the
same period in 1999. Consolidated revenues for the second quarter decreased
from $4.71 million in 1999 to $4.45 million in 2000. The reduction in
consolidated net income and revenues was principally a result of decreased
water sales in Pennichuck and Pennichuck East during May and June 2000
partially offset by an increase in real estate activity, as discussed in
further detail below.
The Company's consolidated revenues are generally seasonal due to the
overall significance of the water sales of Pennichuck, Pennichuck East and
Pittsfield 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
------------------------
Utility operating revenues for the three months ended June 30, 2000
decreased to $3.94 million, or an 8% decrease from the same period in 1999
as shown in the table below broken out by each of our regulated water
utilities:
<TABLE>
<CAPTION>
June 30, 2000 June 30, 1999 Change
------------- ------------- ------
<S> <C> <C> <C>
Pennichuck $3,226,000 $3,448,000 $(222,000)
Pennichuck East 610,000 728,000 (118,000)
Pittsfield 105,000 108,000 (3,000)
------------------------------------------
Total $3,941,000 $4,284,000 $(343,000)
==========================================
</TABLE>
The decrease in water revenues of $343,000 reflects the damper and
cooler conditions in the second quarter of 2000 compared to the unusually
hotter and drier conditions during the same period last year as indicated by
the following statistics for the respective quarters ended June 30:
<TABLE>
<CAPTION>
2000 1999 Change
---- ---- ------
<S> <C> <C> <C>
Rainfall (inches) 16.8 7.0 9.7
Average Maximum Temperature 67.7 Degrees 71.7 Degrees (4 Degrees)
</TABLE>
The effect of the above changes in weather conditions from 1999 to
2000 was to reduce Pennichuck's pumpage from 16.3 million gallons per day
for the second quarter of 1999 to 13.4 million gallons per day for 2000 -- a
decrease of 17.7%.
The adverse effect of the decline in pumpage and consumption, however,
was partially offset by a 2.2% increase in new customers within Pennichuck
and Pennichuck East from June 1999 to June 2000. None of our water companies
had any rate proceedings pending before the New Hampshire Public Utilities
Commission during the three months ended June 30, 2000 or 1999.
Total utility operating expenses, which include production,
distribution system maintenance, administration, depreciation and taxes
other than income taxes, were $2.85 million for the three months ended June
30, 2000, which was approximately the same level as last year. Although
total production and treatment costs decreased by $65,000 as a result of the
aforementioned decline in pumpage, our utilities did experience a similar
increase in depreciation expense and property taxes reflecting their
increased investment in operating assets during 1999 and 2000.
Real Estate Operations and Other
--------------------------------
Revenues from our real estate activities and other activities
(principally contract operations) were $345,000 and $167,000, respectively,
for the three months ended June 30, 2000. For the same period last year,
real estate and other revenues were $313,000 and $113,000, respectively.
Of our real estate revenues for the second quarter of 2000, $262,000
was provided by the 11 sale of homes through a residential joint venture in
which Southwood is a 50% owner. Under the terms of the partnership
agreement, Southwood conveyed the related land parcels to the partnership in
exchange for a non-interest bearing note secured by a second mortgage on the
real estate conveyed. Of the 87 homes expected to be built and sold by the
partnership, 49 homes have been sold since sales activities began in early
1999 and 25 additional homes are currently under purchase and sale
agreements pending completion of construction.
Other operating revenues of $167,000 for the quarter ended June 30,
2000 consisted chiefly of fees charged by our Service Corporation under
various operations and billing contracts as well as rental income from
several tower leases. The $54,000 increase in 2000 revenues over 1999
resulted primarily from additional contract work billed by the Service
Corporation under an operations contract with a local municipality.
Operating expenses associated with our real estate and other
activities for the second quarter of 2000 were approximately $218,000, or
$62,000 greater than last year. This increase resulted principally from
additional direct contract maintenance expenses and increased intercompany
charges from the Company during the second quarter of 2000.
Results of Operations -- Six Months Ended June 30, 2000 Compared to Six Months
Ended June 30, 1999
For the six months ended June 30, 2000, consolidated net income was
$1.06 million, compared to $1.23 million for the same period in 1999. On a
per share basis, basic earnings per share decreased to $.60 for the six
months ended June 30, 2000 from $.71 last year. The year-to-date
consolidated revenues in 2000 were $8.59 million, a slight decrease from
last year. Although consolidated revenues did not change materially from
1999 to 2000, there was a significant change in revenues among our principal
business segments as discussed in this report.
Water Utility Operations
------------------------
Utility operating revenues for the first half of 2000 totaled $7.58
million, or a $266,000 decrease from the same period in 1999. For the six
months ended June 30, 2000, water pumpage within Pennichuck's core system
was 8.32% less than last year. As explained earlier, all of that decrease
resulted during the second quarter of 2000 due to the damper and cooler
weather conditions experienced in May and June of this year. The table below
summarizes the change in utility revenues for each of our water utilities:
<TABLE>
<CAPTION>
2000 1999 Change
---- ---- ------
<S> <C> <C> <C>
Pennichuck $6,177,000 $6,360,000 $(183,000)
Pennichuck East 1,173,000 1,285,000 (112,000)
Pittsfield 231,000 202,000 29,000
-------------------------------------
Total $7,581,000 $7,847,000 $(266,000)
=====================================
</TABLE>
For the six months ended June 30, 2000, the utility operating expenses
increased by $188,000, or 3.5%, to $5,572,000. That increase is primarily
comprised of
* $83,000 of additional depreciation expense recognized by our three
utilities for the first half of 2000 as a result of their $4.7
million net investment in plant assets during 1999,
* approximately $46,000 of lower capitalized general and
administrative costs in 2000 and
* a $42,000 increase in special fees and services incurred by
Pennichuck during the first half of this year.
As a result of Pennichuck's capital investment in the past three years
and increases in related operating costs, its overall return on investment
("ROI") has begun to decline. For the trailing twelve months ended June 30,
2000, its ROI was 7.89% which is 45 basis points below its authorized ROI of
8.34%. At this time, it appears likely that management will be filing a rate
case with the New Hampshire Public Utilities Commission in early 2001 to
recover, through increased water rates, its return on new investment and
additional operating costs incurred since its last rate case in 1997.
Real Estate and Other Operations
--------------------------------
For the six months ended June 30, 2000 and 1999, revenues from real
estate and other activities totaled $1,007,000 and $755,000, respectively.
Of those amounts, approximately $661,000 and $461,000 relate to real estate
revenues earned by Southwood during the comparative periods. The $200,000
increase in Southwood's revenues thus far in 2000 has resulted principally
from home sales generated by a residential real estate venture in which
Southwood is a 50% owner.
In the first quarter of 2000, Southwood sold a one-half interest in a
land parcel to a local developer which resulted in a $100,000 pretax gain.
Subsequently, we conveyed our remaining interest in that land parcel to a
limited liability corporation - Heron Cove Office Park II ("HECOP II") in
which Southwood is a 50% owner. HECOP II is constructing a 42,000 square
foot office building, of which approximately 40,000 square feet is subject
to either signed, long-term lease agreements or letters of intent to lease
with third parties. A similar sale occurred in the first quarter of 1999 in
which Southwood sold a one half interest in a land parcel to the same local
developer which resulted in a $72,000 pretax gain. That land was also
conveyed to a limited liability corporation - Heron Cove Office Park I
("HECOP I") which owns and leases a 39,000 square foot office building.
Revenues from other operating activities during the six months ended
June 30, 2000 include $346,000 for contract operations and other services
performed by the Service Corporation which is a $52,000 increase from the
same period in 1999. The increase in 2000 over last year resulted primarily
from additional services and fees charged by the Service Corporation under
an operations and maintenance contract with a local municipality.
PART II. OTHER INFORMATION
Item 2. Changes in Securities
The Company maintains a stock option plan for the benefit of its
officers and key employees. Under the plan, incentive stock options may be
granted to acquire shares of the Company's common stock, $1.00 par value, at
an exercise price equal to the closing sale price of the Company's common
stock on the date of the grant. During the period covered by this report,
options were exercised to acquire 225 shares under the plan. The offer and
sale of shares of common stock under the plan is exempt from the
registration requirements of the Securities Act of 1933, as amended,
pursuant to Section 3(a)(11) thereof, as (i) the Company is incorporated
under the laws of New Hampshire and (ii) all employees receiving and
exercising stock option grants are residents of the State of New Hampshire.
The shares acquired pursuant to such exercise are restricted from transfer
for one year following the date of acquisition.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits filed herewith:
Exhibit 3.5 Articles of Amendment to the Articles of
Incorporation authorizing the increase in the
aggregate number of authorized common shares of
the Company from 5 million shares to 11.5 million
shares
Exhibit 3.6 Articles of Amendment to the Articles of
Incorporation designating a Series A Junior
Participating Preferred Stock
(b) The following report on Form 8-K was filed during the second
quarter of 2000:
Form 8-K Filed on April 21, 2000 for the adoption of a
Shareholders' Rights Agreement
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 8, 2000 /s/ Maurice L. Arel
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Maurice L. Arel, President and
Principal Executive Officer
Date: August 8, 2000 /s/ Charles J. Staab
-------------- --------------------
Charles J. Staab, Vice President,
Treasurer and Principal Financial
Officer
