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PENNICHUCK CORPORATION AND SUBSIDIARIES

Consolidated Statements of Income (Loss)
For the Years Ended December 31, 2021 and 2020
(in thousands)

2021 2020
Operating Revenues S 52,004 S 50,091
Operating Expenses:
Operations and maintenance 26,707 24,768
Depreciation and amortization 8,751 8,549
Taxes other than income taxes 6,872 6,445
Total Operating Expenses 42,330 39,762
Operating Income 9,674 10,329
Interest Expense (13,902) (11,896)
Other, Net 340 90
Loss Before Provision for Income Taxes (3,888) (1,477)
(Provision) Benefit for Income Taxes 189 (SO7)
Net Loss $ (3,699) S {1,984}

The accompanying notes are an integral part of these consolidated financial statements.

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PENNICHUCK CORPORATION AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income {Loss)
For the Years Ended December 31, 2021 and 2020
(in thousands)

2021 2020

Net Loss $ (3,699) $ (1,984)
Other Comprehensive Income {Loss):

Unrealized gain (loss) on derivatives 72 (149)

Reclassification of net income (loss) realized in net loss {68) 42

Income tax provision relating to

other comprehensive income {loss) 98 43

Other Comprehensive Income (Loss) 102 (64)
Comprehensive Loss $ (3,597) $ (2,048)

The accompanying notes are an integral part of these consolidated financial statements.

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PENNICHUCK CORPORATION AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholder's Equity (Deficit)

For the Year Ended December 31, 2021
(in thousands, except per share data)

Accumulated

Additional Other
Common Stock Paidin Accumulated Comprehensive
Shares Amount Capital Deficit Income Total

Balance as of
January 1, 2021 1,000 S - S 30,561 S (30,403) S 254 $ 412
Common dividends declared - - (279) - (279)
Net loss - - - (3,699) - (3,699)
Other comprehensive income:

Unrealized gain on derivatives,

net of taxes of $29 - - . 43 43

Reclassification of net income

realized in net loss, net of taxes

of $39 - - - 59 59
Balance as of
December 31, 2021 1,000 S - S 30,561 S (34,381) S 356 S (3,464)

The accompanying notes are an integral part of these consolidated financial statements.

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Balance as of
January 1, 2020

Net loss

PENNICHUCK CORPORATION AND SUBSIDIARIES

Consolidated Statement of Changes in Stockholder's Equity
For the Year Ended December 31, 2020
{in thousands, except per share data)

Accumulated

Other comprehensive income:

Unrealized loss on derivatives,

net of taxes of $(63)

Reclassification of net income
realized in net loss, net of

taxes of $27

Balance as of
December 31, 2020

Additional Other
Common Stock Paid in Accumulated Comprehensive
Shares Amount Capital Deficit Income Total

1,000 $ - S 30,561 S$ (28,140) 5 318 S 2,739
Common dividends declared - - - (279) - (279)
. : . (1,984) : (1,984)
. . 2 - (89) (89)
- - - - 25 25
1,000 5 - $ 30,561 S$ (30,403) 5 254 5 412

The accompanying notes are an integral part of these consolidated financial statements.

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PENNICHUCK CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows
For the Years Ended December 31, 2021 and 2020
{in thousands)

2021 2020
Cash Flows From Operating Activities:
Net Loss $ (3,699) S (1,984)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 8,843 8,637
Amortization of deferred investment tax credits (33) (33)
Provision for deferred income taxes {161) 534
Gain on disposition of property {345) -
Changes in assets and liabilities:
(Increase) decrease in accounts receivable billed, unbilled and other (1,084) (3,154)
(Increase) decrease in inventory {135) 50
(Increase) decrease in prepaid expenses 365 (387)
(Increase) decrease in refundable income taxes - 8
(Increase) decrease in deferred charges and other assets 8,179 (2,079)
Increase (decrease) in accounts payable and deferred revenue (521) (549)
Increase (decrease) in accrued property taxes 145 -
Increase (decrease) in accrued interest payable 37 (419)
Increase (decrease) in other (2,387) 3,027
Net cash provided by operating activities 9,204 3,651
Cash Flows From Investing Activities:
Purchase of praperty, plant and equipment including debt
component of allowance for funds used during construction (8,816) {10,165)
Proceeds from sale of property 429 -
Net cash used far investing activities {8,387) {10,165)
(continued)

The accompanying notes are an integral part of these consolidated financial statements.

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PENNICHUCK CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows - Continued
For the Years Ended December 31, 2021 and 2020
{in thousands)

2021 2020

Cash Flows From Financing Activities:

Borrowings (payments) on lines of credit, net S 1,128 S (3,803)

Payments on long-term debt (6,046) (65,649)

Contributions in aid of construction 40 35

Proceeds from long-term borrowings 9,614 87,290

Debt issuance costs (302) (11,922)

Dividends paid (279) (279)
Net cash provided by financing activities 4,155 5,672
Increase (Decrease) in cash, cash equivalents, and restricted cash 4,972 (842)
Cash, cash equivalents, and restricted cash at beginning of period 9,432 10,274
Cash, cash equivalents, and restricted cash at end of period i) 14,404 i) 9,432

Supplemental Disclosure of Cash Flow and Non-cash Items
For the Years Ended December 31, 2021 and 2020 (in thousands)

2021 2020
Cash paid during the period for:
Interest S 10,907 S 11,207
Income taxes 105 96
Non-cash ites:
Contributions in aid of construction 2,093 3,391
Forgiveness of debt 89 89

The accompanying notes are an integral part of these consolidated financial statements.

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PENNICHUCK CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

Description of Business and Summary of Significant Accounting Policies

Description of Business

Pennichuck Corporation (“the Company,” “we,” or “our”) is a holding company head-
quartered in Nashua, New Hampshire with five wholly owned operating subsidiaries:
Pennichuck Water Works, Inc., (“Pennichuck Water”) Pennichuck East Utility, Inc.,
(“Pennichuck East”) and Pittsfield Aqueduct Company, Inc. (“PAC”) (collectively referred to as
the Company's “utility subsidiaries”), which are involved in regulated water supply and
distribution to customers in New Hampshire; Pennichuck Water Service Corporation (“Service
Corporation”) which conducts non-regulated water-related services; and The Southwood
Corporation (“Southwood”) which has historically owned several parcels of undeveloped
land.

The Company’s utility subsidiaries are engaged principally in the collection, storage,
treatment and distribution of potable water to approximately 38,394 customers throughout
the State of New Hampshire. The utility subsidiaries, which are regulated by the New
Hampshire Public Utilities Commission (the “NHPUC”), are subject to the provisions of
Accounting Standards Codification (“ASC”) Topic 980 “Regulated Operations.”

Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany transactions have been
eliminated in consolidation.

Use of Estimates in the Preparation of Consolidated Financial Statements

The preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

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Property, Plant and Equipment

Property, plant and equipment, which includes principally the water utility assets of the
Company’s utility subsidiaries, is recorded at cost plus an allowance for funds used during
construction on major, long-term projects and includes property funded with contributions
in aid of construction.

Maintenance, repairs and minor improvements are charged to expense as incurred. Improve-
ments which significantly increase the value of property, plant and equipment are capitalized.

Cash and Cash Equivalents
Cash and cash equivalents generally consist of cash, money market funds and other short-
term liquid investments with original maturities of three months or less.

Restricted Cash — RSF

This restricted cash balance consists of funds maintained for the Rate Stabilization Fund
(“RSF”), which was established in conformity with the requirements of NHPUC Order No.
25,292, as explained more fully in Note 14 of these financial statements. The RSF is an imprest
fund of $5 million, which is subject to funding above or below the imprest fund balance,
reflecting actual revenue performance as it relates to prescribed revenue levels supported by
the RSF. The excess or deficient amount (versus the $5 million imprest balance) is subject to
return or collection to rate payers over the succeeding three-year period of time, as of the
rate order issued with the next promulgated rate case filing. On November 7, 2017, the
NHPUC approved and issued Order No. 26,070 which established new rates for Pennichuck
Water. In addition, the rate order then authorized the reallocation of the existing $5,000,000
RSF among the Company’s utility subsidiaries. Such that, Pennichuck Water’s allocated share
of the RSF would now be $3,920,000, with the remaining balance of $1,080,000 to be
allocated between Pennichuck East and PAC. Rate order No. 26,179, under docket DW 17-
128 then allocated $980,000 of the $1,080,000 to Pennichuck East with the remaining
$100,000 to PAC (for which the approval to allocate these funds to PAC were approved in
November 2021 with rate order No. 26,544 , in docket DW 20-153). The purpose for splitting
and allocating the original RSF funds amongst the regulated subsidiary companies is to
provide additional reserves at the individual entity level, which will aid in ensuring sufficient
capital reserve funds are available to each entity Company, to support its operations. For the
years ended December 31, 2021 and 2020, the aggregated balances in the RSFs and restricted
cash accounts were approximately $11.6 million and $8.6 million, respectively.

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Restricted Cash — CIAC

This restricted cash balance consists of funds maintained for the income tax impact from
Contributions in Aid of Construction (“CIAC”), which was established in conformity with the
NHPUC approval provided to the Company's regulated utilities on November 27, 2019. This
amendment to the Company's tariffs allows for the recovery from developers and other CIAC
contributors, the tax costs needed to fully fund the associated tax liability created from the
elimination of an exemption whereby CIAC to water utilities was exempt from taxation, was
eliminated with the passage of the Tax Cuts and Jobs Act of 2017 (“the TCJA”). The
Infrastructure Investment and Jobs act of 2021 retroactively made CIAC non-taxable for
federal tax, reversing the effect federally of the TCJA, whereas the taxation of CIAC for NH
Business Profits Taxes remains in effect currently. For the years ended December 31, 2021
and 2020, the balances in this restricted cash account were approximately $1.0 million and
$0.2, respectively. In accordance with the amended tariffs, these funds are the first used to
pay for income tax liability payments incurred by the Company, when and if actually incurred.

Restricted Cash — Bond Project Funds

This restricted cash balance consists of funds remaining from the issuance or funding of
semiannual debt service requirements of the Series 2014, 2019, 2020 and 2021 tax-exempt
bonds (the “Bonds”) in December of 2014, April of 2019, April and August of 2020, and April
2021, respectively. The proceeds from those bond issuance transactions are maintained in
separate restricted cash accounts, with Trustee oversight, and are subject to withdrawal as a
reimbursement of eligible capital project expenditures for the years 2014 through 2020, as
defined by the indenture and issuance documents associated with each offering. The
restricted cash accounts are also used as a “conduit” for the transfer of money from operating
cash to restricted cash, allowing the Trustee to make the required payments to bondholders
for principal and interest due semi-annually.

As of December 31, 2020, the funds in these restricted cash accounts totaled approximately
$237,000. During 2021, approximately $214,000 was withdrawn from the restricted cash
accounts to make the principal and interest payments for the Bonds, on January 1, July 1 and
October 1. In December 2021, approximately $232,000 was transferred into these restricted
cash accounts from the Company’s operating cash accounts, to provide the funds needed to
make the net principal and interest payments due on January 1, 2022 for the Bonds. As of
December 31, 2021, the funds in these restricted cash accounts totaled approximately
$255,000.

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Concentration of Credit Risks

Financial instruments that subject the Company to credit risk consist primarily of cash
{including cash equivalents and restricted cash} and accounts receivable. Cash balances are
invested in financial institutions insured by the Federal Deposit Insurance Corporation
(“FDIC”), At December 31, 2021 and 2020, the Company had approximately $14,500,000 and
$9,300,000 in excess of FDIC insured limits, respectively. Our accounts receivable balances
primarily represent amounts due from the residential, commercial and industrial customers
of our regulated water utility operations, as well as receivables from our Service Corporation
customers.

Accounts Receivable — Billed, Net
Water utility accounts receivable (regulated) are recorded at invoiced amounts.

Non-regulated accounts receivable are recorded based upon contracted prices when the
Company obtains an unconditional right to payment under the terms of the contract.

The allowance for doubtful accounts is our best estimate of the amount of probable credit
losses in our existing accounts receivable and is determined based on historical write-off
experience and the aging of account balances. We review the allowance for doubtful
accounts quarterly. Account balances are written off against the allowance when it is
probable the receivable will not be recovered.

Accounts Receivable — Unbilled, Net

We read our customer meters on a monthly basis and record revenues based on meter
reading results. Information from the last meter reading date is used to estimate the value of
unbilled revenues through the end of the accounting period. Estimates of water utility
revenues for water delivered to customers but not yet billed are accrued at the end of each
accounting period. Actual results could differ from those estimates.

inventory
Inventory is stated at the lower of cost or net realizable value, cost being determined using
the average cost method which approximates the first-in, first-out (FIFO) method.

Deferred Charges and Other Assets

Deferred charges include certain regulatory assets and other assets. Regulatory assets are
amortized over the periods they are recovered through NHPUC-authorized water rates. The
Company’s utility subsidiaries have recorded certain regulatory assets in cases where the
NHPUC has permitted, or is expected to permit, recovery of these costs over future periods.
Currently, the regulatory assets are being amortized over periods ranging from 2 to 25 years.

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