Pennichuck Water Special Committee
Special MeetingNashua, NH · December 10, 2015
Minutes
REPORT OF THE PENNICHUCK WATER SPECIAL COMMITTEE
DECEMBER 10, 2015
A meeting of the Pennichuck Water Special Committee was held on Thursday, December 10, 2015, at
7:02 p.m. in the Aldermanic Chamber.
Alderman-at-Large Daniel T. Moriarty, Chair, presided.
Members of the Committee present: Alderman Sean M. McGuinness
Alderwoman Mary Ann Melizzi-Golja
Alderman-at-Large Lori Wilshire
Members Not in Attendance: Alderman-at-Large David W. Deane
_______________________________________________________________________________________
PUBLIC COMMENT - None
COMMUNICATIONS
From: Larry D. Goodhue, CEO, Pennichuck Corporation
Re: Quarterly Report to the Sole Shareholder, Quarter Ended September 30, 2015
MOTION BY ALDERMAN MCGUINNESS TO ACCEPT AND PLACE ON FILE
MOTION CARRIED
Larry Goodhue
Thank you very much Alderman Moriarty. The report that we’re discussing is the quarter report to the sole
shareholder for the quarter ending September 30, 2015. Including in it is third quarter results and year to date
results for the first nine months of our fiscal year. I can say at the real front end, operations are as they have
been in the past – stable and as expected. In fact our revenue levels our year to date basis are a bit ahead of
the prior year and that’s representative of the dry summer that we actually had here in New Hampshire and as
a result of irrigation activities that were happening in our customer base. What’s kind of interesting is when
you look at the quarter ended results versus year to date results, that doesn’t seem to make sense. It seems
like there’s some contrary evidence there. That’s really because last year the third quarter was when we
earned the recruitment revenues for PEU and PAC to the subsidiaries from the rain cases in the prior filing. If
you recall, we had to file a rate case for the test year 2012 for all three of our regulating utilities on or before
June 1st of 2013 and that process is a lengthy process. It doesn’t culminate until we get a permanent rate
increase which we got in the third quarter of 2014. At that time, we recorded what is called recoupment and
that is basically the differential between a temporary rate increase as we were granted and a permanent rate
increase on all the consumption back to what is called the order of notice day which would have been in June
of 2013. So you booked that all at once. What that does it kind of blurs the results a little bit in both the third
quarter and for the first 9 months as on a comparative basis. When you look at the third quarter performance
at $12.5 million, that’s actually above what our expectations were for the third quarter again relative to the dry
season that we had this summer. Those results should fall right down through relative to operating expenses.
As you see, our operating expenses are a little bit higher than last year. There are portions of our operating
expenses that are fixed and there are portions of our operating expenses that of course would be variable.
When we produce more water, there are certain costs that go with it that are variable in nature and then
certain costs do escalate over time with inflation and/or different valuations like property taxes, wage
increases, cost of benefits, and things like that. Again performing at levels that we would fully expect and at
the very end of the day generating over $12 million, nearly $13 million which is the cash generated from our
operations in order to satisfy the obligations we have that have capitalized the company both the obligation to
the city as well as the obligation to our external debtholders. This is the same message we delivered before
Pennichuck Water Special Committee -2- 12/10/15
and hopefully it’s gaining some momentum with you as far as the understanding of how that all plays together
and the good news is the results are as expected so it’s easier to talk about them in that manner. If we turn
further and we go to the balance sheet on page 5, you will notice that we have just north of $300 million worth
of assets of the corporation which is down from the prior year end but I will remind the committee of the one
factor. If you’re looking at the top of page 5 in the right-hand column, there’s an amount of $23,725 which is a
restricted cash for the bond refund escrow. As you recall, that is related to the bond offering to close on
December 15th of last year but because of the 30 day notice requirement wrapped at year end so money was
sitting there on that side of the balance sheet as well as on the other side of the balance sheet just awaiting
that refunding of those debts. So almost immediately after year end, both sides of the balance sheet
decreased by $23.7 million and that money was paid out to those bond holders which would bring you par
really with where we’re at as far as a balance sheet as of the 9 months for this year. Those are the only real
significant things that I think that we would have to mention other than the fact that there’s still $14 million
remaining from that bond offering. If you look at the left-hand column near the top, $14,160 is the amount of
money that is still sitting at the bottom project fund from that bond offering December 15th. We raised $19.5
million to fund 2014, 2015, and 2016 capital expenditures but we’re not allowed to draw those monies out of
the restricted fund until the project is still used and useful. So even if we’re constructing them and they’re in
the process of being completed, we can’t draw those funds down until they use the use fund. So we’ve done
two draws on those monies at this point in time. We’re anticipating doing another drawing of those monies
tomorrow or sometime next week and then we’ll probably be doing the rest of the draws as the construction
season starts in 2016 to draw those monies down by the end of the year next year relative to all of those
capital projects being completed. If we continue along to page 7 and we look at the cash flow statement, this
is really where it shows the cash generation that comes from the operations of the business year to date
through September 30th. The net cash provided by acquiring activities is a little bit north of $4.2 million. If you
look at that, that really relates to for the most part the depreciation and amortization that you see a little bit up
higher within that grid in that that is an expense on a P & L that is not related to cash which has been vested in
those assets in the past and now you’re depreciating them over there and you use full life. As you see, we’ve
invested about $8.7 million into property plant equipment so far in the year. The $25,764 the lion’s share of
that is that $23,725 we talked about a minute ago. I’m kind of working my way down the third column. That
$25,764 and going down a little further the $25,635 in brackets those really for the most part are analogous to
each other because that has to do with that refunding activity that occurred on January 15th relative to those
bonds that were in escrow and year end. At the end of the day, we closed out the third quarter with $2.7
million in the bank which is not really a surprising result in that we’re coming out of our best season of the year
relative to revenues even though it’s a heavy construction season. Those monies do get utilized in the fourth
quarter for a number of purposes. We just paid out a very large sum of money to a great number of
municipalities in property taxes in the last couple of weeks, including the City of Nashua and the other
communities that we serve. On page 8 is a list of some of the major construction projects that we’ve been
working on during the course of this year. The first line item is the water transmission line that we came to you
folks earlier this year relative to the specific funding from the saver evolving fund creating a redundant supply
into our water treatment plant as well as some of the other major projects that we’re working on throughout the
City of Nashua and in other communities – Windham, Derry, Amherst are all throughout our systems
maintaining our infrastructure of pipes, supplying water to our customers, as well as other projects. You see a
minimum amount of money is (inaudible) invested on the operations building which we bonded for in October
and we will be doing construction on in the spring seeking to complete it and actually occupy it at this time next
year. Subsequent events, the major subsequent events to talk about. I already talked about the first one. We
did complete some financing for co-paying earlier this year which we had come before this committee for gain
approval for as well as the other financings on page 9 from the State Revolving Fund for projects in
Pennichuck East, Pennichuck Water Works, as well as Pittsfield Aquaduct. As you know, we filed in May of
this year a petition to bond up to $25.5 million. Those bonds were actually issued on October 27th which
included $7 million in new money for the operation facility and refinancing $16.2 million worth of existing debt
from balloon mature debt, to fully amortizing debt at a favorable interest rate and we did achieve a favorable
interest rate. Those bonds closed. One of them were issued as none AMT bonds and they were issued at 5
percent but the AMT bonds ran out the door and an all in interest rate of just about 4 percent which was a very
capable result.
Pennichuck Water Special Committee -3- 12/10/15
The net result of the finance (inaudible) that we’ve done over the last two years with regard to our bonding is
have the impact of driving down our rigid average cost of capital from Pennichuck Water Works by almost 100
basis points which is a favorable activity that everything in the overall capitalization of the company relative to
the operations of the company and relative to the rate structure for our ratepayers.
Chairman Moriarty
Thank you very much. I’ll look to my left. Any questions on anybody? I just have a small couple ones as
usual.
Can’t go through a Pennichuck Water Special Committee meeting without saying “mara”. You have to say it
at least once. Did I see acquisition premium? I’m disappointed in myself that I can’t go right to it. I would
expect to see a number that’s just slowly decreasing over time and every quarter.
Larry Goodhue
If you go page 5 and you look about a third of the way down the page under “outer assets is acquisitional
premium”. It’s gone from $78.9 million down to $77.5 million in the 9 months from December 31 st through
September 30th. So it amortizes our monthly basis and the annual basis in a rate that is consistent with the
city’s repayment of the debt obligation for the bonds that the city raised to purchase the company.
Chairman Moriarty
Okay that’s what I thought and it seemed slow. So 78.8 down to 74.4 means it went down 1 ½.
Larry Goodhue
It went down about $1.4 or $1.3 million
Chairman Moriarty
In 9 months?
Larry Goodhue
Yeah.
Chairman Moriarty
So that’s like $2 million per year.
Larry Goodhue
Over a 30 year period.
Chairman Moriarty
Is 60 so it’s a little bit less than the 78.
Pennichuck Water Special Committee -4- 12/10/15
Larry Goodhue
Yeah and it’s not an even flow. Again if you looked at the bond and debt when the city issued the bonds.
They issued serial bonds. So they issued about 40 different tranches of bonds and the bonds on the front end
had a higher interest rate so they had a different principle ratio and the overall payout than the ones that are
longer. So we’ve actually taken that exact payout and the pro rata payments of the overall is what it is
mirrored for the amortization of the mara so it follows that trend. It really has to do with how those bonds were
serialized. If you look at the front of the bond indenture, there’s actually a schedule there right inside the front
cover. That gives that payout and that’s really the methodology by which this is amortized.
Chairman Moriarty
Okay it’s just a bond indenture paying (inaudible), right?
Larry Goodhue
I forgot.
Chairman Moriarty
That’s all right.
My last question is are there any more of those so-called balloon payments, any more of the bonds that were
pre-existing?
Larry Goodhue
There is one remaining debt indenture on the company’s books. It was a corporate note indenture that was
put in place in 1996 with a 25 year life. It has a $400,000 annual safety fund payment and it does have a
balloon due in 2021 to the tune of about $2.4 million. It’s actually pretty high coupon debt rate. However, it
has a make whole payment on it so as far as refinancing it, it may not be advantageous but I will tell this board
that is one thing that we are looking at and considering this next year if there is a possibility and it is an
economically favorable thing to do, we would pursue that.
Alderman McGuinness
Could I get clarification? Make whole payment. Can you describe that for…
Larry Goodhue
Yeah and that’s one of the reasons that I’ve got some research to do. I’m actually working with our attorney to
understand the construct of that make whole payment. In its general sense, a make whole payment means
you do it on debt. It’s got future interest that’s attached to it. If you paid it off early, you’d have to pay 100
percent of that future interest to make the lender whole. Now if its 100 percent of that dollar value without a
present value calculation, that’s a big number. That dollar value present valued back is maybe a smaller
number and recurring interest rates versus that coupon rate, there might be an economic advantage to that
that we’re still looking at.
Alderman McGuinness
They perhaps buy that bond to fund something else and we’re relying on that interest and you have to
substitute something or you’ve got to pay it.
Larry Goodhue
Pennichuck Water Special Committee -5- 12/10/15
And that’s what we’re working on is to really get underneath in the indenture. Is there a specified rate that
might be allowable at the present value rate than is what’s baked into their calculations such that you gave
them enough now it does satisfy that future obligation when you…
Alderman McGuinness
Thank you for the clarification.
Can I ask one innocent question on page 8? Capital expenditures. What among these expenditures were as
a result of some of the repairs you had to do this year?
Don Ware
Help me with this term “repair”.
Alderman McGuinness
Poor choice of words.
Don Ware
If you look at this, again we have an ongoing plan of water main replacement based on age, material type,
size, location, needs. So if we were to look particularly you see Allds Street. Everybody may recall a couple
of years ago we tried to take out wash all the street down Salmon Brook. We tried as hard as we could,
couldn’t get rid of the old granite bridge but that was a big deal. That section of the main has been replaced
all the way down and tied back into Harbor Avenue and that was old, unlined cast iron main that was replaced.
Generally we’re targeting within the city two classes of mains: the unlined cast iron main that runs in a certain
date range and also dependent upon circumstances some of the translator cement asbestos pipe that was put
in the 1950s. That’s kind of the target. We’re going to do about $5 million worth of main replacement in total
this year. About 4 ½ miles worth of water main replaced within the city.
Looking closely at we’re going to do next year, great working opportunity with the folks through Public Work
and with the Gas Company. Typically where there’s aging water, there is aging sewer; there is aging gas
pipes. This year more than anything though there’s a lot of paving going on. The city has a very aggressive
plan paving activity. It’s some key streets where as we look at our plan, we don’t want to wait 10 or 15 years
to replace the main. My worst fear is you pave Amherst Street and 5 minutes after you’re done paving it, the
1888 6” water main that exists between Concord Street and Broad Street blows a hole and suddenly
somebody from Public Works comes and says when you patch that patch, why don’t you pave curb to curb
and from Concord Street down to Broad Street because we don’t like to see different colored pavements. So
we’re trying to coordinate that work. The city has been very good as well as the Gas Company. It’s going to
lead to a significant combined effort primarily associated around the paving work for next year. We’re looking
at about $5.2 to $5.5 million in main replacement work next year as well as the year after that. It appears to
be about the current run rate that allows us to keep our aging infrastructure from reaching a point where it’s
failing and creating operational and customer service problems.
Alderman McGuinness
Thank you.
Pennichuck Water Special Committee -6- 12/10/15
Chairman Moriarty
That reminds me of a something that brought a question to mind. Some time ago there was an easement that
had to do with the Broad Street Parkway. It went into Little Florida – an easement to allow a 6” I guess water
main. Did that go in? I presume it did.
Larry Goodhue
Yes.
From: Larry D. Goodhue, CEO, Pennichuck Corporation
Re: Resolution R-15-195
MOTION BY ALDERMAN MCGUINNESS TO ACCEPT AND PLACE ON FILE
MOTION CARRIED
Chairman Moriarty
Now is a good time to talk about this communication which will probably end up being the discussion regarding
the upcoming resolution in a few minutes. So I’ll hand it over to Mr. Goodhue.
Larry Goodhue
Thank you Alderman Moriarty. The communication relates to the operating line of credit which we have at our
parent corporation Pennichuck Corporation which is actually the entity for which the city is the shareholder. It
is an operating line of credit. It benefits Pennichuck Corporation and all of its subsidiaries for their working
capital needs. It is a $10 million line of credit that has been in place at the company at one or another banks is
the company has been holden by the shareholders of the City of Nashua. Originally it went to Citizens Bank
and a couple of years ago we actually renewed and refinanced that with TD Bank. What we’re looking to do
right now the current line expires on June 25 of 2016 and rather than waiting until just before it’s ready to
expire knowing that we have a need that’s an ongoing need for that that was available to the corporation,
we’re working to extend that now up to August of 2017. It’s being extended in all its terms and conditions as it
exists today. The only thing that is being done is to extend the life of the line of credit by another year and two
months out. One of the reasons you have an operating line of credit again is a back stop for working capital
needs on an ongoing basis. During that time that we’ve had it, we’ve only used it very modestly and very
infrequently. However, I do see us using it during the year 2016 which is one of the reasons we’re looking at
the extension now and it’s primarily related to the construction of the operation facility building. Even though
we bonded $7 million as I mentioned earlier, we cannot draw the funds down until an asset is used and useful.
When you’re building a building, we’re going to be constructing all the way from April, or March, or whenever
we can get started until November/December of next year and expending $7 million in building a building to
then draw all the money down in one fell swoop in November/December timeframe next year. So there’s a
good chance that we’re going to be into this line of credit for a sum of money depending on how next summer
goes. At some level, maybe upwards to $7 million while we’re constructing that building and waiting on that
reimbursement draw out of the bonded money that’s sitting in an escrow account. So that was really one of
the driving forces and actually approaching that now. Secondly is when you look at closing the financial
statements of an entity at the end of a fiscal year, our fiscal year is December 31st. If I had a line of credit
which is one of the structures in my debt that looks at the operations of financial stability in the organization if
that was what you aspire within the next 12 months, there’s disclosure consideration by our auditors as to
whether that action is going to be in place as a financial instrument for the full sub-seeding financial year. So
by putting the extension in place now, I take two things off the table by doing that and that is why we’re
approaching at this point in time.
Alderman McGuinness
Pennichuck Water Special Committee -7- 12/10/15
Thank you Mr. Chairman. All of that makes very good sense. Just a quick question. These lines – the line we
do with TD and the line you’re going to renew what generally about 2 years 18 months or something. It would
be wonderful if you could lock in an interest rate. You don’t know.
Larry Goodhue
And you know the interest rate of these lines is an adder to a floating rate. So our rate is a lot more closer to
1.75 percent. It’s fixed but variable. However one of the reasons that banks don’t tend to go a 4, 5, or 6 years
is they like to have the opportunity to sit down at the table with the client, look at the financials status of that
client, and to make sure that this is the engagement that they want to remain engaged in. They’re a little bit
reticent to go out 4, 5, 6 years in the banking industry too long as some of us in this room might know. With
respect to operating lines of credit, with respect to how they finance buildings and properties nowadays,
commercial mortgage they’re certainly not going nearly as long as they used to 10 or 15 years ago and it’s all
related to the risk paradynes that the bankers are willing to accept. So that’s really what we’re faced with.
Alderman McGuinness
Thank you. Just a little more cover on the line of credit. This is just a necessary business facility that you must
have perpetually. You’ll always want that. The fact that you’re suggesting you might push it a little bit and use
it this year for the reasons you explained is not the normal course of business but nevertheless, this is a facility
you really have to have to do your business.
Larry Goodhue
Exactly. Say the opposite occurred this year. Instead of having a very dry summer we had a very wet
summer and the result our revenues were the other direction. This is here to help back stop our working
capital costs while we go through a season like that awaiting a rate case to then restabilize our revenues. So
it is a necessary instrument to have at the corporation to maintain a financial operation as they need to be
maintained.
Alderman McGuinness
Good. Thank you.
UNFINISHED BUSINESS – None
NEW BUSINESS - RESOLUTIONS
R-15-195
Endorser: Mayor Donnalee Lozeau
APPROVING THE PROPOSAL BY PENNICHUCK CORPORATION TO EXTEND THE TEN
MILLION DOLLAR ($10,000,000) REVOLVING LINE OF CREDIT WITH TD BANK, N.A.
MOTION BY ALDERMAN WILSHIRE TO RECOMMEND FINAL PASSAGE OF R-15-195
MOTION CARRIED
Chairman Moriarty
It will get there a little less than two weeks so hopefully it will get approved before year end and then we
should be okay.
Pennichuck Water Special Committee -8- 12/10/15
Larry Goodhue
We appreciate that. Thank you.
NEW BUSINESS – ORDINANCES – None
PUBLIC COMMENT - None
REMARKS BY THE ALDERMEN
Alderman Wilshire
I’m excited to see this new operating facility. I’m also very excited that Larry Goodhue is now officially – I mean
we haven’t met since you officially took over as the role of CEO so I’d like to again formally congratulate you and
welcome you as the new CEO. I’m happy to work with you and (inaudible) facility. I think it’s going to be great.
Larry Goodhue
Yes we’re excited about it as well.
Alderman Wilshire
I bet.
Larry Goodhue
I will tell you that the guys that work with us and Don can speak to this, they’re very engaged in the process and
it’s going to be the right facility to service our customers which currently we don’t.
Don Ware
Our focus was functional not fancy. We’re a lot focused again on getting the right function – what do we need to
do. Everyone was happily engaged. I know they’re looking forward to getting through this winter so that next
winter they won’t have to shovel out all the trucks every time it snows.
Alderman Wilshire
Long overdue.
Larry Goodhue
Pray for not a lot of snow this year so it will be easier from that way too.
Alderwoman Melizzi-Golja
I’d just like to echo Alderman Wilshire’s congratulations on your new position now that it’s official and again
looking forward to the new opening.
Larry Goodhue
Thank you. We’ll do something special when that opens up to make sure that we can share with that everybody
so they can see what has been built.
Pennichuck Water Special Committee -9- 12/10/15
Alderman McGuinness
Yeah and I’d just like to share my confidence is high. Congratulations. Again thank you both for always your
very thorough testimony and thank you for tonight.
Larry Goodhue
I appreciate it.
Chairman Moriarty
So this will probably be the last Pennichuck Special meeting before the board changes. Who knows who’s going
to be on the committee next year. Who know who’s going to be Chairman. I’ll probably if I get the opportunity to
request it again. I’ve always enjoyed doing it. So we’ll see.
POSSIBLE NON-PUBLIC SESSION
ADJOURNMENT
MOTION BY ALDERMAN WILSHIRE TO ADJOURN
MOTION CARRIED
The Pennichuck Water Special Committee meeting was adjourned at 7:34 p.m.
Alderman Sean M. McGuiness
Committee Clerk
Agenda
PENNICHUCK WATER SPECIAL COMMITTEE
DECEMBER 10, 2015
7:00 p.m. Aldermanic Chamber
ROLL CALL
PUBLIC COMMENT
COMMUNICATIONS
From: Larry D. Goodhue, CEO, Pennichuck Corporation
Re: Quarterly Report to the Sole Shareholder, Quarter Ended September 30,2015
From: Larry D. Goodhue, CEO, Pennichuck Corporation
Re: Resolution R-15-195
UNFINISHED BUSINESS - None
ANTICIPATED REFERRAL FROM BOARD OF ALDERMEN MEETING OF DECEMBER 8. 2015
R-15-195
Endorser: Mayor Donnalee Lozeau
APPROVING THE PROPOSAL BY PENNICHUCK CORPORATION TO EXTEND THE TEN
MILLION DOLLAR ($10,000,000) REVOLVING LINE OF CREDIT WITH TD BANK, N.A.
NEW BUSINESS - ORDINANCES - None
PUBLIC COMMENT
REMARKS BY THE ALDERMEN
POSSIBLE NON-PUBLIC SESSION
ADJOURNMENT
PENNICHUCK 75 MANCHESTER STR5ET
PO 30X 1947
MSRÄIMACK NH 03054-1947
!603i 882- 5191
FAX (603) 913 2305
WWW.PENNICdUCK.COM
N o v e m b e r 6, 2 0 1 5
Mr. David Deane, President
Nashua Board of Aldermen
City of Nashua
229 Main Street
Nashua, NH 03060
Dear President Deane:
Enclosed for your information is the Pennichuck Corporation Quarterly Report to the Sole
Shareholder for the Quarter Ended September 30, 2015.
Please contact me at 603-913-2312 if you have any questions relative to the report.
Sincerely,
Larry D. Goodhue
Chief Executive Officer,
Chief Financial Officer
and Treasurer
cc. ooard of Aldermen
Mayor Donnai ee Lozeau
Stephen Bennett, City Corporation Counsel
John Griffin, City Chief Financial Officer
PENNICHUCK
Pennichuck Corporation
Quarterly Report to the
Sole Shareholder
(City of Nashua Board of Aldermen)
Quarter Ended September 30, 2015
Pennichuck Corporation - Quarterly Report (Quarter Ended September 30, 2015)
Executive Summary
• Revenues for the third quarter of 2015 were 2% lower than the prior year ($ 12.5 million for
2015 versus $12.8 million for 2014). Revenues on a year-to-date basis were 4% higher than
the prior year ($31.9 million for the first nine months of 2015 versus $30.6 million for the
comparable period in 2014).
• Operating Income for the third quarter of 2015 was 15% lower than the prior year
($4.3 million for 2015 versus $5.1 million for 2014) primarily due to the lower revenues and
increased operating expenses. Operating Income on a year-to-date basis is 1% above the
prior year ($8.0 million for 2015 versus $7.9 million for 2014) mainly attributable to the
increased revenue levels.
• Pre-Tax Income for the third quarter of 2015 was $1.6 million versus $2.5 million for 2014.
On a year-to-date basis, the pre-tax income was $0.2 million for 2015 versus
$0.4 million for 2014. The decreases are attributable to increased revenues, offset by
increased operating expenses tied to those revenue levels, as well as increased interest
associated with new debt incurred in late 2014 and early 2015.
• Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA) for the third
quarter of 2015 was lower than the prior year ($5.9 million in 2015 versus $6.6 million for
2014). On a year-to-date basis, EBITDA was $12.7 million for 2015 versus $12.5 million
for 2014. The year-to-date increase is primarily due to the greater revenues generated in the
nine month period.
• During the quarter, the Company paid $2.2 million to the City in principal, interest and
dividends to fund the City Acquisition Debt. Year-to-date, the Company has paid $6.6
million to the City in principal, interest and dividends to fund the City Acquisition Debt.
• Capital Expenditure additions for the third quarter of 2015 were $5.5 million compared to
$2.7 million in the third quarter of 2014. On a year-to-date basis, capital expenditure
additions for 2015 were $9.0 million compared to $5.9 million in 2014.
• On April 30, 2015, the Public Utilities Commission approved a 1.15% Water Infrastructure
and Conservation Adjustment ( W1CA) Surcharge for Pennichuck Water Works, Inc., which
went into effect on June 1, 2015.
• On May 29,2015, Pennichuck Water Works, Inc. filed a financing petition for up to $25.5
million with the Public Utilities Commission relative to its Integrated Capital Finance Plan.
On September 2,2015, the Public Utilities Commission approved the financing. On
October 27, 2015, the Company closed on the financing which included the refinancing of
$16.2 million of existing debt and $7.0 million related to the construction of an operations
center. The all-in interest rate relative to the financing is approximately 4.3%.
• On September 29,2015, the Public Utilities Commission issued an Order approving an
increase in the short-term debt limit to 18% for Pennichuck East Utility, Inc. and
Pittsfield Aqueduct Company, Inc., until June 30,2019.
Pennichuck Corporation - Quarterly Report (Quarter Ended September 30, 2015)
We continue to operate as planned. We continue to provide excellent service to our customers
and there has been little or no disruption in the Company's operations.
Unaudited Financial Highlights
Financial highlights on a Generally Accepted Accounting Principles ("GAAP") basis for the
third quarter of 2015 as compared to the third quarter of 2014, and the first nine months of 2015
as compared to the first nine months of 2014, are as follows:
(SOOO's)
Quarter Ended Year-to-Date
September 30, 2015 September 30. 2014 September 30. 2015 September 30. 2014
Revenues
Regulated Utilities S 11,748 $ 12,052 $ 29,558 $ 28,376
Other 797 756 2.388 2.195
Total 12,545 12,808 31.946 30,571
Operating Expenses
Regulated Utilities 7,542 7,079 21,677 20,651
Other 714 659 2.280 1.994
Total 8,256 7,738 23,957 22,645
Operating Income 4,289 5,070 7,989 7,926
Non-Operating (Income) Expense (H) 1 37 (9)
Net Interest Expense i(2,694) (2.531) (7,760) (7,541 )
Pre-Tax Income (Loss) 1,606 2,538 192 394
Income Tax Benefit (Expense) (154) (89) (11) 67
Net Income (Loss) $ 1,45.2. s S ..Jll $ ,.461
Earnings Before Interest. $ 5JM $ 6M1 $ UJM S 12425
Taxes, Depreciation
and Amortization (EBITDA)
Revenues from the water utility operations decreased 3% in the quarter and increased 4% on an
annual basis. The decrease is partially attributable to recoupment revenue related to the approval
of rate increases by the Public Utilities Commission for Pennichuck East Utility, Inc. and
Pittsfield Aqueduct Company, Inc. in 2014. The revenue increase for the year is mainly
attributable to increased water usage due to existing weather conditions. Revenues from the
unregulated water service business increased 6% in the third quarter over the prior year. On a
year-to-date basis, the unregulated water service revenues are up by 9%.
3
Pennichuck Corporation - Quarterly Report (Quarter Ended September 30, 2015)
Operating Expenses have increased over 2014 by approximately 7% in the third quarter and 6%
on a year-to-date basis. The increase is attributable to direct operating expenses related to an
increase in water usage due to weather conditions, as well as increased electric rates and annual
wage and benefit cost increases.
Operating Income has decreased approximately 15% for the third quarter of 2015 as compared to
the third quarter of 2014 due to the decrease in revenues and increased operating costs. On a
year-to-date basis, operating income increased approximately 1 % over the prior year due to the
year-to-date increase in revenues.
Interest Expense increased on a third quarter and year-over-year comparison, primarily related to
the increased debt incurred in late 2014 and throughout 2015, related to capital expenditures.
Pre-tax Income for the third quarter and year-to-date for 2015 is lower than the pre-tax income
for the third quarter and year-to-date in 2014, respectively, resulting from all the factors
addressed above.
The Income Tax Benefit in the current year reflects the tax treatment for the Municipal
Acquisition Regulatory Asset, which is not deductible for tax purposes. Therefore, the year-to-
date results reflect a tax expense of approximately 6% of pre-tax income compared to the
statutory tax rate expense of 39.6%.
Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA) on a year-to-date
basis increased over the same period last year primarily due to increased revenues.
4
Pennichuck Corporation - Quarterly Report (Quarter Ended September 30, 2015)
Balance Sheet As of As of
September 30. 2015 December 31. 2014
(Unaudited) (Audited)
Assets (000's)
Property, Plant & Equipment, Net $ 178.618 $ 173.287
Current Assets:
Cash 2,732 2,987
Restricted Cash 5,911 5,264
Restricted Cash - 2014 Bond Project Fund 14,160 16,847
Restricted Cash - Bond Refund Escrow 23,725
Accounts Receivable 6,532 4,631
Inventory 765 802
Other Current Assets N'"c 1 1.004 1.682
Total Current Assets 31.104 55.938
Other Assets:
Acquisition Premium s , " c 2 77.493 78.885
Other Assets 15.183 15.697
Total Other Assets 92.676 94.582
TOTAL ASSETS $ 302^8 S 323,802
Shareholders' Equity and Liabilities
Shareholders' Equity $ 24.539 $ 24.590
Bonds, Notes and Mortgages 200.006 198.032
Current Liabilities:
Current Portion of Long-Term Debt 3,043 26,275
Other Current Liabilities 2.897 2.948
Total Current Liabilities 5.940 29.223
Other Long-Term Liabilities:
CI AC, net 36,932 36,532
Deferred Income Taxes 20.368 20,334
Accrued Pension Liability Nu1e 3 7,872 8,017
Other Long-Term Liabilities 6.741 7.079
Total Other Long-Term Liabilities 71.913 71.962
TOTAL SHAREHOLDERS' EQUITY AND $ 1Q2J9S $ 323^07
LIABILITIES
5
Pennichuck Corporation - Quarterly Report (Quarter Ended September 30, 2015)
Note 1 (Other Current Assets) - At December 31, 2014, approximately $7,000 of this balance is
comprised of prepaid property taxes, which were expensed in the first quarter, relating to taxes
paid in November and December of 2014 for the second half of the property tax year ended
March 31. 2015. The balance of prepaid property taxes as of September 30, 2015 is
approximately $8,000.
Note 2 - In accordance with GAAP, the Acquisition Premium is being written-off over the
30-year life of the principal of the City Acquisition Debt. The difference in the balance of
Acquisition Premium between December 31, 2014 and June 30,2015 is due to the amortization
for the nine months of 2015.
Note 3 - During the nine months of 2015, $740,900 was contributed into the Pension Plan, while
approximately $102,000 in benefit payments were made to participants and approximately
$59,000 of investment income and appreciation was earned in the plan.
6
Pennichuck Corporation - Quarterly Report (Quarter Ended September .30, 2015)
Unaudited Cash Flow Statement
Cash Flow on a GAAP basis for the third quarter of 2015 as compared to the third quarter of
2014. and the year-to-date 2015 versus 2014, are as follows:
(SOOO's)
Quarter Ended Year-to-Date
September 30, September 30, September 30, September 30,
2015 2014 2015 2014
Operating Activities:
Net Income (Loss) S 1.452 $ 2.449 S 181 S 461
Adjustments to Reconcile Net Income (Loss)
to Net Cash Provided by Operating Activities:
Depreciation and Amortization 1.689 1.610 4,672 4,778
Provision tor Deferred Taxes 166 102 50 (25)
Other (9) (2) (33) (18)
Changes in Assets and Liabilities:
f Increase) Decrease in Accounts Receivable (165) (1,064) (1,901) (1,771)
(Increase) Decrease in Inventory 80 (31) 37 (ID
(Increase) Decrease in Other Assets 1.061 1,188 1.381 1,193
Increase (Decrease) in Accounts Payable (508) 366 (175) 715
Increase (Decrease) in Other Liabilities 250 (719) 21 (673)
Net Cash Provided by (Used in) Operating Activities 4,016 3.899 4.233 4,649
Investing Activities:
Purchases of Property, Plant & Equipment,
including the Debt Component of A FU DC (4,917) (2,554) (8.651) (5,180)
(Increase) Decrease in Restricted Cash 656 (199) 25,764 28
Change in Deferred Land Costs Ì2Ì il) (5) -
Net Cash Provided by (Used in) Investing Activities (4,266) (2,754) 17.108 (5,152)
Financing Activities:
Borrowings (Repayments) on Line of Credit (1,245) 1,200
Payments on Long-term Debt (641) (624) (25,635) (2,399)
Contributions in Aid of Construction - 8 15 41
Proceeds from Long-term Borrowings 2.141 1.114 4,368 1,240
Debt Issuance Costs (32) (176) (137) (257)
Dividends Paid (69) (70) (207) (208)
Net Cash Provided by (Used in) Financing Activities 1.399 (993) (21,596) (383)
Increase (Decrease) in Cash and Cash Equivalents 1,149 152 (255) (886)
Cash and Cash Equivalents at Beginning of Period 1,583 0 2.987 1.038
$
Cash and Cash Equivalents at End of Period S ¿,232 . J 12 $ 2,712 $
Financial information is available on the Company's website (www.Pennichuck.com) under the "Company
Reports" caption.
7
Pennichuck Corporation - Quarterly Report (Quarter Ended September 30, 2015)
Capital Expenditures
Capital Expenditure additions in the third quarter of 2015 were $5.5 million as compared to
S2.7 million in the third quarter of 2014. Capital Expenditure additions for the year-to-date were
59.0 million as compared to $5.9 million in 2014.
Major expenditures in the nine months of 2015 included:
Merrimack River - Water Transmission Line $1,400,000
Water Main Replacement - W&E, Windham $ 830,000
Asset Management, GIS, Data Presentation System $ 753,000
Water Main Replacement - Allds Street, Nashua S 648,000
Pump Station - Hardwood Estates, Derry $ 542,000
Vehicles, Trucks, Excavators $ 383,000
Meters (All Systems) $ 344,000
Shakespeare Tank Rehabilitation - Nashua $ 262,000
Timberline Pump Station - Nashua $ 242,000
Water Main Replacement - Foundry Street, Amherst $ 233,000
Water Main Replacement - Temple Street, Nashua $ 176,000
Water Main Replacement - Mack Hill Road, Amherst $ 149,000
Water Main Replacement - Ninth Street, Nashua $ 134,000
Station Demolitions (Pennichuck East Utility, Inc.) $ 122,000
Operations Building S 115,000
Merrimack River - Intake $ 102,000
Subsequent Events
Financing
On January 20, 2015, the entire balance in the Restricted Cash Bond Refund Escrow Account,
which included $23,350,000 of principal due on the Pennichuck Water Works, Inc. refinanced
bonds, as well as approximately $375,000 of accrued interest due on those bonds, was paid out to
holders of the debt instruments.
On March 4,2015, Pennichuck East Utility, Inc. completed a financing transaction with CoBank,
ACB in the amount of $625,000 for a term of 25 years at an interest rate of 4.9%.
8
Pennichuck Corporation - Quarterly Report (Quarter Ended September 30, 2015)
On March 16, 2015, Pennichuck East Utility, Inc. completed a financing transaction with the
New Hampshire Department of Environmental Services under the State Revolving Fund
Program in the amount of $510,000 for a term of 20 years at an interest rate of 2.72%. The loan
will fund the replacement of mains at the W&E System in Windham.
On May 15,2015, Pennichuck Water Works, Inc., Pennichuck East Utility, Inc. and Pittsfield
Aqueduct Company, Inc. completed a financing transaction with the New Hampshire
Department of Environmental Services under the State Revolving Fund Program in the amount
of $3,500,000, $400,000 and $165,000, for a term of 20 years at an interest rate of 3.1689%. The
loans will fund main installation and/or replacements in Merrimack, Barnstead and Pittsfield,
New Hampshire.
On May 29,2015, Pennichuck Water Works, Inc. filed a financing petition for up to $25.5
million with the Public Utilities Commission relative to its Integrated Capital Finance Plan. On
September 2,2015, the Public Utilities Commission approved the financing. On October 27,
2015, the Company closed on the financing which included the refinancing of $16.2 million of
existing debt and $7.0 million related to the construction of an operations center. The all-in
interest rate relative to the financing is approximately 4.3%.
On September 29, 2015, the Public Utilities Commission issued an Order approving an
increase in the short-term debt limit to 18% for Pennichuck East Utility, Inc. and Pittsfield
Aqueduct Company, Inc., until June 30,2019.
CEO Succession
The Board of Directors recently announced that Larry Goodhue, the Company's Chief Financial
Officer, Treasurer and Controller, will be promoted to the position of Chief Executive Officer
effective November 6,2015. The Company's current Chief Executive Officer, John Patenaude,
will retire on November 6, 2015.
9
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November 20, 2015
Stephen Bennett, Esq.
Corporation Counsel
City of Nashua
City Hall
P.O. Box 2019
Nashua, NH 03061-2019
Dear Attorney Bennett:
Introduction. As you know, the City of Nashua, New Hampshire (the '"City") is the sole corporate
shareholder of Pennichuck Corporation ("Penniclnick" or the 'Company"). The City has been the sole
shareholder since the acquisition of Pennichuck on January 25, 2012. The purpose for this letter is to
request that the City, acting in its capacity as sole shareholder, approve resolutions authorizing Pennichuck
Corporation to amend and extend its current line of credit which is currently set 10 expire on June 25, 2016
("Line of Credit"). The proposed amendment of this existing Line of Credit will extend the facility
through August 31,2017. All other terms and conditions of the existing Line of Credit agreement,
including the maximum principal amount of $10,000,000, will remain unchanged. This Line of Credit was
originally approved by the City, in its capacity as sole shareholder, by Resolution R-12-007 (January 23
2012), and modified to new lender TD Bank, N.A. by Resolution R-14-016 (March 20, 2014).
Shareholder Approval of Borrowings Required. Under ArticIc IX of Pennichuck's Articles of
Incorporation, the City, acting in its capacity as Pennichuck's sole shareholder, must approve:
"(3) any action to (A) create, incur or assume any indebtedness for borrowed money or
guarantee any such indebtedness of any person, (B) issue or sell any debt
securities or warrants or other rights to acquire any debt securities of the
[Pennichuck] Corporation or any of its Subsidiaries, or(C) guarantee any debt
securities of any person,"
Pennichuck Corporation Line of Credit
Pennichuck requests the City's approval to amend and extend its existing Line of Credit which will expire
on June 25,2016, through August 31, 2017, The current line of credit facility is provided by TD Bank,
NA. and allows borrowing by Pennichuck to finance general operations up to a principal amount of
$10,000,000. The proposed extension of the Line of Credit will be in the same principal amount as the
existing facility. The existing Line of Credit was approved by the City, acting in its capacity as
Pennichuck's sole shareholder,
_ 1.
T e r m s of the Line of Credit Borrowings
The amended and extended Line of Credit facility will continue to have the following basic terms:
• Term: The proposed Line of Credit will expire and terminate as of August 31, 2017
• Interest Rate: Ixans under the Line of Credit will bear interest at an annual rate equal to the 30-day
LIBOR plus 1.75%. The 30-day LIBOR rate as of November ]6th was 0.20%.
• Commitment Fee: The Line of Credit will charge a commitment fee to maintain any unused
borrowing capacity available to the Company equal to .25% of the unused capacity.
• Financial Covenants: The financial covenants that the Company must meet are consistent with those
under the current line of credit. These include: a minimum "fixed ciiarge ratio1' of 1.00 determined on
a 12-month basis; an "equity capitalization ratio" under which the Company's equity must be at least
35% of its total capitalization; and an annual "out of debt" requirement, which requires the Compaii)
to fully pay off any Line of Credit balance for at least 30 consecutive days during each fiscal year.
• Subordination: Consistent with the current line of credit, the Company's obligations to the City under
its existing Senior Unsecured Note.
• Security: The Line of Credit will be unsecured.
• Dividends: The Line of Credit will restrict payment of dividends to the City (the Company's sole
shareholder) only to those required to allow the City to meet its obligations under the general
obligation bonds issued to acquire the Company, plus $500,000 in any year.
Approval bv the Pennichuck Board of Directors. The Pennichuck Board of Directors has approved the
proposed Amendment to the Line of Credit with TD Bank, N A.
Purposes Served bv the Line of Credit. The Company requires the proposed Line of Credit to allow it to
continue to meet its obligations to provide high quality water service to all of its customers at affordable
prices. The Company intends to draw upon the Line of Credit facility as needed to fund current operations
and capital costs on an interim basis until such costs may be funded on a permanent basis. A facility of
this size is common for water utility operations of similar type and size. The proposed interest rate and
terms are consistent with those required by current market conditions.
Requested Approvals. For the reasons described above, Pennichuck respectfully requests that the City,
acting in its capacity as sole shareholder of Pennichuck and pursuant to Article IX (3) of Pennichuck s
Articles of Incorporation, authorize the following actions:
RESOLVED, thai the City hereby approves the amendment and extension of its existing
facility allowing for borrowing by the Pennichuck Corporation in the aggregate principal
amount of up to $10,000,000.00 from TD Bank, N.A. pursuant to a senior unsecured line
of credit facility (the "LOC Facility"), for the purpose of providing advances to be used
for general corporate putposes.
FURTHF.R RESOLVED, that Pennichuck Corporation, its Board of Directors and its
Officers arc severally authorized, empowered and directed to execute and deliver, in the
name of and on behalf of the Company, an Amendment and Allonge to its existing loan
agreement governing the LOC Facility and related documents and agreements (the
"Amendment Agreement"), with such terms, including exhibits and schedules to such
Amendment Agreement, as may be deemed necessary or advisable in the several
judgment of the Officers executing the Amendment Agreement, and to take all other'
-3 -
actions as they deem necessary or desirable to cffect the LOC Facility arid the
Amendment Agreement and to carry out the purposes of these resolutions.
Respect fully submitted,
PENNICHUCK CORPORATION
Larry D. Goodhue
Chief Executive Officer
cc: Mayor Donnalee Lozeau
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