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PENNICHUCK CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows - Continued
For the Years Ended December 31, 2020 and 2019
(in thousands)

2020 2019

Cash Flows From Financing Activities:

Borrowings (payments) on lines of credit, net S (3,803) $ 2,657

Payments on long-term debt (65,649) (6,034)

Contributions in aid of construction 35 48

Proceeds from long-term borrowings 87,290 18,692

Debt issuance costs (11,922) (327)

Dividends paid (279) 280
Net cash provided by financing activities 5,672 14,756
Increase (Decrease) in cash, cash equivalents, and restricted cash (842) 1,934
Cash, cash equivalents, and restricted cash at beginning of period 10,274 8,340
Cash, cash equivalents, and restricted cash at end of period S 9,432 $ 10,274

Supplemental Disclosure of Cash Flow and Non-cash items
For the Years Ended December 31, 2020 and 2019 (in thousands)

2020 2019
Cash paid during the period for:
Interest S 11,207 S 10,963
Income taxes 96 157
Non-cash items:
Contributions in aid of construction 3,391 4,061
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 Merrimack, 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
(please refer to “Deferred Land Costs” in Note 1).

The Company’s utility subsidiaries are engaged principally in the collection, storage,
treatment and distribution of potable water to approximately 38,047 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.

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.

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City of Nashua, Public Works Division

To: Board of Public Works Meeting Date: May 25, 2022
From: David Boucher, Superintendent

Wastewater Department
Re: Sodium Hypochlorite

C. Motion: To approve Change Order #1 for the purchase of chemical Sodium Hypochlorite in the
amount of $28,000.00 from Borden & Remington of Fall River, MA. Funding will be
through: Department: 169 Wastewater; Fund: Wastewater; Account Classification: 61
Supplies & Materials

Attachments: Bid from Chemical Consortium

Discussion: The Wastewater Department uses Sodium Hypochlorite to disinfect the wastewater
before it is discharged into the Merrimack River. Additionally, it is used in the odor
control air scrubber systems.

The original fiscal year funding of $150,000 for the purchase of Sodium Hypochlorite
approved at the June 24, 2021 BPW Meeting was based on historical usage. Due to heavy
rain falls at the beginning of the fiscal year, more disinfection product was needed for
treatment. We are requesting additional funding to complete the fiscal year.

Pricing was established through participation in the Northeast/Merrimack Valley
Chemical Consortium (NEMVCC) bid process. Sealed bids were due by May 30, 2021
electronically or on paper to the Groton Water Department. Borden & Remington was the
low bidder for Sodium Hypochlorite.

#104 — Sodium Hypochlorite 15%, Bulk, price/ wet lb.

Borden & Remington Fall River, MA | $0.0903
Univar U.S.A., Inc Morrisville, PA | $0.1268

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 15 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. The purpose for splitting and allocating the existing RSF is to provide
additional reserves which ensure sufficient capital to enable the Company to support its
operations. For the years ended December 31, 2020 and 2019, the balances in the RSF were
approximately $8.6 million and $2.0 million, respectively.

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”). For the years
ended December 31, 2020 and 2019, the balances in this restricted cash account were
approximately $0.2 million and $0, 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.

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Restricted Cash — Bond Project Funds

This restricted cash balance consists of funds remaining from the issuance of the Series 2014,
2015, 2019 and 2020 tax-exempt bonds (the “Bonds”) in December of 2014, October of 2015,
April of 2019, and April and August of 2020, 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 2019, 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, 2019, the funds in these restricted cash accounts totaled approximately
$3.4 million. During 2020, approximately $3.4 million 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 2020, approximately $215,000 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, 2021 for the Bonds. As of
December 31, 2020, the funds in these restricted cash accounts totaled approximately
$237,000.

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, 2020 and 2019, the Company had approximately $9,300,000 and
$9,600,000 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 on 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.

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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 Land Costs

Deferred land costs have been recorded in all reporting periods leading up to and including
2019 by Southwood, the Company’s real estate subsidiary. Southwood was passively engaged
in the management and maintenance of land holdings outside of any of the land holdings
held in ownership by the Company's utility subsidiaries. Included in deferred land costs is the
Company’s original basis in its undeveloped landholdings and any land improvement costs,
which are stated at the lower of cost or market. All costs associated with real estate and land
projects are capitalized and allocated to the project to which the costs relate. Administrative
labor and the related fringe benefit costs attributable to the acquisition, active development,
and construction of land parcels are capitalized as deferred land costs. No labor and benefits
were capitalized for the years ended December 31, 2020 and 2019.

As of the end of 2019, all of the land holdings previously owned by Southwood were
transferred to the Company, which now has assumed the passive management and
maintenance of those land holdings. On a going forward basis, Southwood will be
maintained as a “corporate shell” allowing for its usage in possible future land management
opportunities, should they occur.

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.

Unamortized Debt Issuance Costs

Unamortized debt issuance costs are amortized over the original term of the related bonds
and notes. The Company’s utility subsidiaries have recorded unamortized debt issuance costs
in cases where the NHPUC has permitted or is expected to permit recovery of these costs
over future periods. The debt issuance costs are being amortized over the original lives of the
associated debt.

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Contributions in Aid of Construction

Under construction contracts with real estate developers and others, the Company’s utility
subsidiaries may receive non-refundable advances for the cost of installing new water mains.
These advances are recorded as CIAC. The Company’s utility subsidiaries also record to plant
and CIAC the fair market value of developer installed mains and any excess of fair market
value over the cost of community water systems purchased from developers. CIAC are
amortized over the life of the related properties.

Paycheck Protection Program Loan

The Company accounts for its Paycheck Protection Program (PPP) loan in accordance with
the guidelines established by the Financial Accounting Standards Board (FASB) ASC 470, Debt.
The guidance requires the company to account for the proceeds from the PPP loan as debt
and apply interest considering the ten-month interest payment deferral allowed for the loan.
The loan and accrued interest may be forgivable after eight or twenty-four weeks if the loan
proceeds are used for eligible purposes. The Company has elected to report the PPP loan as
long-term debt. No income will be recognized from the extinguishment of the PPP debt
(whether as a result of forgiveness or otherwise) until the Company has been legally released
as the primary obligor of the loan.

Revenue Recognition ~ Regulated Entities

Standard charges for water utility services to customers are recorded as revenue, based upon
meter readings and contract service, as services are provided. The majority of the Company’s
water revenues are based on rates approved by the NHPUC. Estimates of unbilled service
revenues are recorded in the period the services are provided. Provision is made in the
consolidated financial statements for estimated uncollectible accounts.

Revenue Recognition — Non-Regulated Entities

The Company derives its non-regulated revenues primarily from water management services
which include contract operations and maintenance, and water testing and billing services to
municipalities and small, privately owned community water systems. Revenue is measured
based on consideration specified in contracts with customers. The Company recognizes
revenue when it satisfies performance obligations under the terms of the contract which
generally occurs with the transfer of control of the services to the customer. Revenues from
unplanned additional work are based upon time and materials incurred in connection with
activities not specifically identified in the contract, or for which work levels exceed contracted
amounts.

Revenues from real estate operations, other than undistributed earnings or losses from
equity method joint ventures, are recorded upon completion of a sale of real property. The
Company’s real estate holdings outside of the Company’s utility subsidiaries are comprised
primarily of undeveloped land.

The Company does not have any significant financing components as payment is received at
or shortly after the point of sale.

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Contract Combination

To determine the proper revenue recognition method for contracts, the Company evaluates
whether two or more contracts should be combined and accounted for as one single contract
and whether the combined or single contract should be accounted for as more than one
performance obligation. This evaluation requires significant judgment and the decision to
combine a group of contracts or separate a combined or single contract into multiple
performance obligations could change the amount of revenue and profit recorded in a given
period. Contracts are considered to have a single performance obligation if the promise to
transfer the individual goods or services is not separately identifiable from other promises in
the contracts, which is mainly because the Company provides a significant service of
integrating a complex set of tasks and components into a single project or capability.

For contracts with multiple performance obligations, the Company allocates the transaction
price to each performance obligation using management’s best estimate of the standalone
selling price of each distinct good or service in the contract. In cases where the Company does
not provide the distinct good or service on a standalone basis, the primary method used to
estimate standalone selling price is the expected cost plus a margin approach, under which
management forecasts the Company’s expected costs of satisfying a performance obligation
and then adds an appropriate margin for that distinct good or service.

Performance Obligations
For performance obligations related to operations, planned maintenance, and water testing

and billing services, control transfers to the customer over time as the services are provided.
These services are sold primarily to municipalities or small, privately owned community water
systems. The majority of the Company’s unplanned maintenance contracts are billed on a
time and materials basis and revenue is recognized over time as the services are performed.
The majority of the Company’s operations, planned maintenance, and water testing and
billing contracts are billed on a fixed price basis. For fixed price contracts, the Company
measures its progress towards complete satisfaction of the performance obligation using a
time-based measure. This method is used because management considers time elapsed to
be the best available measure of progress on contracts.

Contract Estimates and Modifications

Due to the nature of the work required to be performed on many of the Company’s
performance obligations, the estimation of total revenue and cost at completion is complex,
subject to many variables and requires significant judgment.

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As a significant change in one or more of these estimates could affect the profitability of the
Company’s contracts, management reviews and updates the Company's contract-related
estimates regularly through a Company-wide project review process in which management
reviews the progress and execution of the Company's performance obligations and the
estimate at completion. As part of this process, management reviews information including,
but not limited to, any outstanding key contract matters, progress towards completion and
the related program schedule, and the related changes in estimates of revenues and costs.
Management must make assumptions and estimates regarding labor productivity and
availability, the complexity of the work to be performed, the cost and availability of materials,
among other variables.

The Company recognizes adjustments in estimated profit on contracts under the cumulative
catch-up method. Under this method, the impact of the adjustment on profit recorded to
date is recognized in the period the adjustment is identified. Revenue and profit in future
periods of contract performance is recognized using the adjusted estimate. If at any time the
estimate of contract profitability indicates an anticipated loss on the contract, the Company
recognizes the total loss in the period it is identified.

Variable Consideration

Variable consideration is estimated at the most likely amount to which the Company is
expected to be entitled. Any variable consideration is included in the transaction price to the
extent it is probable that a significant reversal of cumulative revenue recognized will not
occur when the uncertainty associated with the variable consideration is resolved. Estimates
of variable consideration and the determination of whether to include estimated amounts in
the transaction price are based largely on assessments of legal enforceability, the Company’s
performance, and all information (historical, current, and forecasted) that is reasonably
available to management.

Variable consideration is allocated entirely to a performance obligation or to a distinct good
or service within a performance obligation if it relates specifically to efforts to satisfy the
performance obligation or transfer the distinct good or service, and the allocation depicts the
amount of consideration the Company expects to be entitled.

Significant Judgments
The Company recognizes contract revenue for financial reporting purposes over time.

Progress toward completion of the Company's contracts is measured using a time-based
criterion for each contract and requires significant judgment. This method is used because
management considers time-elapsed to be the best available measure of progress on
contracts.

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Contract Assets and Liabilities

Billing practices are governed by the contract terms of each project based upon achievement
of milestones or pre-agreed schedules. Billings do not necessarily correlate with revenue
recognized using a time-elapsed method of revenue recognition. Contract assets include
unbilled amounts typically resulting from revenue under long-term contracts when the time-
elapsed method of revenue recognition is utilized and revenue recognized exceeds the
amount billed to the customer, and right to payment is not unconditional. Contract liabilities
consist of deferred revenue.

Contract assets and liabilities are reported in a net position on a contract-by-contract basis at
the end of each reporting period. The Company classifies deferred revenue as current or
noncurrent based on the timing of when revenue is expected to be recognized. The current
portion of deferred revenue is included in current liabilities in the Balance Sheets.

Practical Expedients
The Company generally expenses pre-contract costs when incurred because the amortization

period would have been one year or less.

Income Taxes

Income taxes are recorded using the accrual method and the provision for federal and state
income taxes is based on income reported in the consolidated financial statements, adjusted
for items not recognized for income tax purposes. Provisions for deferred income taxes
are recognized for accelerated depreciation and other temporary differences. A valuation
allowance is provided to offset any net deferred tax assets if, based upon available evidence,
it is more likely than not that some or all of the deferred tax assets will not be realized.
Investment tax credits previously realized for income tax purposes are amortized for financial
statement purposes over the life of the property, giving rise to the credit.

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