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Balance Sheet ($000’s)
As of As of
December 31, 2015 December 31, 2014
(Audited) (Audited)
Assets:

Property, Plant & Equipment, Net $ 183,241 $ 173,287
Current Assets:

Cash 1,246 2,987

Restricted Cash 5,729 5,264

Investments — 2014 and 2015 Bond Project Funds 19,779 16,847

Investments — Bond Refund Escrow - 23,725

Accounts Receivable 4,502 4,631

Inventory 712 802

Other Current Assets “°*! 2.232 1,682
Total Current Assets 34,200 55,938
Other Assets:

Acquisition Premium “°°? 77,028 78,885

Other Assets 16,194 15,697
Total Other Assets 93,222 94,582
TOTAL ASSETS $ 310,663 $ 323,807

Shareholders’ Equity and Liabilities

Shareholders’ Equity $ _ 22.041 $ _ 24,590
Bonds, Notes and Mortgages 206,052 198.032
Current Liabilities:

Line of Credit - -

Current Portion of Long-Term Debt 4,120 26,275

Other Current Liabilities 3,490 2.948
Total Current Liabilities 7,610 29,223
Other Long-Term Liabilities:

CIAC, net 37,929 36,532

Deferred Income Taxes 20,642 20,334

Accrued Pension Liability ‘°°? 8,286 8,017

Other Long-Term Liabilities 8.103 7,079
Total Other Long-Term Liabilities 74,960 71,962
TOTAL SHAREHOLDERS’ EQUITY AND $ 310,663 $ 323,807

LIABILITIES

Notes to Balance Sheet

Note | (Other Current Assets) - At December 31, 2015, approximately $1,335,000 of this
balance is comprised of prepaid property taxes, which will be expensed in the first quarter of
2016, relating to taxes paid in November and December of 2015 for the second half of the
property tax year ended March 31, 2016.

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.

Note 3 — During 2015, approximately $936,000 was contributed into the Pension Plan, while
approximately $497,000 in benefit payments were made to participants and approximately
$62,000 of investment losses and appreciation was deducted from the plan.

Capital Expenditures

Capital expenditures in the fourth quarter of 2015 were $5.0 million compared to $3.3 million in
the fourth quarter of 2014. For the year 2015, capital expenditures were $12.9 million as
compared to $8.0 million in 2014.

The major expenditures for 2015 were as follows:

($000’s)
Merrimack River Raw Water Main 2,055
Asset Management / GIS / DPaC 1,022
Replacement of Carbon Filter Media (Nashua Water Treatment Plant) 979
Allds Street Main Replacement (Nashua) 924
Hardwood Pump Station Replacement (Derry) 598
W&E Water Main Replacement (Windham) 548
Locke Lake/Winwood Monroe Phase 2 Main Replacement (Barnstead) 524
Meter Replacements 387
Operations Facility Design / Engineering / Permitting 373
Mack Hill Road Bridge Relocation (Amherst) 317
Timberline Pump Station Upgrade (Nashua) 246
Chestnut Street Main Replacement (Nashua) 236
Richardson Station and Tank Replacement (Derry) 234

Foundry Street Water Main Replacement (Amherst) 233

-8-

Water Infrastructure and Conservation Adjustment (WICA)

On April 30, 2015, the Public Utilities Commission issued Order No. 25,784 approving a WICA
surcharge of 1.81% for customers of Pennichuck Water Works, Inc. in the Nashua Core System.
The surcharge is effective for service rendered on and after June 1, 2015. The order was
effective May 20, 2015.

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%.

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.

Succession Planning

The Company’s Chief Executive Officer, John Patenaude, retired on November 6, 2015. On that
date, Larry Goodhue, the Company’s Chief Financial Officer, Treasurer and Controller, was
promoted to Chief Executive Officer. Also on November 6, 2015, George Torres was promoted
to Corporate Controller, and Carol Ann Howe was promoted to Assistant Treasurer.

Company Goals - 2016

The Company’s main goals for 2016 are as follows:

Complete the construction of the new operations facility
Complete construction of the Merrimack River raw water main
Continued “roll-out” of the Company’s asset management system

Evaluate and upgrade the Company’s fixed asset tracking system in support
of the asset management system

Complete the reconstruction of the Harris Dam Spillway

Review and redevelopment of the Company’s IT and Safety and Security
Policies and Procedures

Procure necessary funding in support of infrastructure replacements and
improvements

Continued efforts related to ongoing training of employees and succession
planning throughout the organization in support of long-term operational
expertise and management.

Other detailed information is included in the Company’s financial statements.

Sincerely,

pAb.

Larry D. Goodhue
Chief Executive Officer

Pennichuck Corporation and Subsidiaries
Audited Consolidated Financial Statements

December 31, 2015 and 2014

Contents

Independent Auditors’ Report

Consolidated Balance Sheets

Consolidated Statements of Income

Consolidated Statements of Comprehensive Income

Consolidated Statement of Changes in Stockholder’s Equity Current Year

Consolidated Statement of Changes in Stockholder’s Equity Prior Year

Consolidated Statements of Cash Flows

Notes to the Consolidated Financial Statements

I]

MELANSONI| sigan

ACCOUNTANTS » AUGITORS

\2) River Front Drive

Manchester, NH 03702
(603}669-6'30
melansonheath.com

i ffices:
INDEPENDENT AUDITORS’ REPORT onal Offices
Nashua, NH

Andover, MA
Greenfield, MA

Board of Directors and Stockholder Ellsworth, ME

Pennichuck Corporation and Subsidiaries

We have audited the accompanying consolidated financial statements of Pennichuck Corporation
and Subsidiaries, which comprise the consolidated balance sheets as of December 31, 2015 and
2014, and the related consolidated statements of income, comprehensive income, changes in
stockholder’s equity, and cash flows for the years then ended, and the related notes to the
consolidated financial statements.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated
financial statements in accordance with accounting principles generally accepted in the
United States of America; this includes the design, implementation, and maintenance of
internal control relevant to the preparation and fair presentation of consolidated financial
statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based
on our audits. We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the consolidated financial statements
are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the consolidated financial statements. The procedures selected depend on the
auditors’ judgment, including the assessment of the risks of material misstatement of the
consolidated financial statements, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the entity’s preparation and fair
presentation of the consolidated financial statements in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion.
An audit also includes evaluating the appropriateness of accounting policies used and the
reasonableness of significant accounting estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide
a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Pennichuck Corporation and Subsidiaries as of
December 31, 2015 and 2014, and the results of their operations and their cash flows for the
years then ended in accordance with accounting principles generally accepted in the United
States of America.

Molenosn Haath

March 18, 2016

PENNICHUCK CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of December 31, 2015 and 2014
(in thousands, except share data)

ASSETS
Property, Plant and Equipment, net

Current Assets:
Cash and cash equivalents
Restricted cash - RSF
Restricted cash - Bond Project Funds
Restricted cash - Bond Refund Escrow
Investments - Bond Project Funds
Accounts receivable - billed, net
Accounts receivable - unbiiled, net
Accounts receivable - other
Inventory
Prepaid expenses
Prepaid property taxes
Deferred and refundable income taxes

Total Current Assets

Other Assets:
Deferred land costs
Deferred charges and other assets
Investment in real estate partnership
Acquisition premium, net

Total Other Assets
TOTAL ASSETS

2015 2014
$ 183,241 $173,287
1,246 2,987
5,729 5,264
2,542 16,847
- 23,725

17,237 -
2,184 2,189
2,283 2,399
35 43
712 802
667 541
1,334 1,047
231 94
34,200 55,938
2,295 2,251
13,835 13,342
104 104
77,028 78,885
93,222 94,582

$_310,663_

$323,807

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

PENNICHUCK CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - CONTINUED
As of December 31, 2015 and 2014
{in thousands, except share data)

2015 2014

STOCKHOLDER'S EQUITY AND LIABILITIES

Stockholder’s Equity:
Common stock; $0.01 par value; 1,000 shares
authorized, issued and outstanding $ - $ -
Additional paid in capital 30,561 30,561
Accumulated deficit (8,721) (6,151)
Accumulated other comprehensive income 201 180
Total Stockholder's Equity 22.041 24,590
Long-Term Debt, Less Current Portion 206,052 198,032
Current Liabilities:
Current portion of long-term debt 4,120 26,275
Accounts payable 1,492 1,577
Deferred revenue 66 65
Accrued interest payable 1,318 682
Other accrued expenses 243 215
Accrued wages and payroll withholding 220 221
Customer deposits and other [51 188
Total Current Liabilities 7,610 29,223
Other Liabilities and Deferred Credits:
Deferred income taxes 20,642 20,334
Accrued pension liability 8,286 8,017
Unamortized debt premium 3,243 2,331
Deferred investment tax credits 570 603
Regulatory liability 781 803
Accrued post-retirement benefits 2,242 2,016
Customer advances 84 84
Contributions in aid of construction, net 37,929 36,532
Derivative instrument 548 583
Other long-term liabilities 635 659
Total Other Liabilities and Deferred Credits 74,960 71,962

TOTAL STOCKHOLDER'S EQUITY AND LIABILITIES $ 310,663 $ 323,807

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