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PENNICHUCK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2016 and 2015

(in thousands)

Operating Activities:
Net Loss

Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization
Amortization of original issue discount
Equity component of AFUDC
Amortization of deferred investment tax credits
Provision for deferred income tax
Undistributed loss in real estate partnership
Gain on disposition of property

Changes in assets and liabilities:
(Increase) decrease in accounts receivable billed and unbilled
Decrease in inventory
(Increase) decrease in prepaid expenses
(Increase) decrease in deferred charges and other assets
(Increase) in refundable income taxes
Increase (decrease) in accounts payable and deferred revenue
Increase in accrued interest payable
Increase in other

Net cash provided by operating activities

Investing Activities:

Purchase of property, plant and equipment including debt
component of allowance for funds used during construction

(Increase) decrease in restricted cash

Purchase of marketable securities

Proceeds from sale of marketable securities

Proceeds from sale of property

Change in investment in real estate partnership and
deferred land costs

Net cash provided (used) by investing activities

$

2016

(1,240)

7,019

(137)

(33)
189

(529)

(1,584)
46
185

(456)

(2)
4,480
386
2,409

10,733

(21,886)
(5,826)

17,236
946

7

(9,523)

2015

$ (2,292)

6,586
252
(25)
(33)
294

129
90
(550)
1,123
(23)
(152)
636
530

6,566

(13,866)
37,565
(17,237)

(>)
6,457

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

City of Nashua

Central Purchasing
229 Main Street
Nashua NH 03060
603-589-3330 Fax: 603-589-3344

June 9, 2016
Memo #16-164

TO: MAYOR DONCHESS
FINANCE COMMITTEE

SUBJECT: NTS FIXED ROUTE CNG BUS PROCUREMENT (VALUE $3,966,832)
DEPARTMENT: 186 NASHUA TRANSIT ; FUND: GRANT FUNDS
ACCOUNT CLASSIFICATION: 81 MAJOR CAPITAL OUTLAY

Please see attached communication from Sarah Marchant, Community Development Division
Director, dated June 1, 2016 for information related to this purchase request.

Pursuant to § 5-78 Major purchases (greater than $10,000) A. All supplies and contractual
services, except as otherwise provided herein, when the estimated cost thereof shall exceed
$10,000 shall be purchased by formal, written contract from the lowest responsible bidder,
after due notice inviting bids.

Sarah Marchant, Director of Community Development and the Purchasing Department
recommend the award of this contract to Gillig LLC of Hayward, CA in the amount of
$3,966,832.

Respectfully,
Dan Kooken

Purchasing Manager

Cc: S.Marchant J. Graziano

PENNICHUCK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2016 and 2015
(in thousands)

2016 2015

Financing Activities:

Borrowings (payments) on line of credit, net $ - $ 7

Payments on long-term debt (4,227) (42,484)

Contributions in aid of construction 58 132

Proceeds from long-term borrowings 4,498 28,098

Debt issuance costs (59) (232)

Dividends paid (280) (278)
Net cash used by financing activities (10) (14,764)
Increase (Decrease) in cash and cash equivalents 1,200 (1,741)
Cash and cash equivalents, beginning of period 1,246 2,987
Cash and cash equivalents, end of period $ 2,446 $ 1,246

Supplemental Disclosure on Cash Flow and Non-cash Items
For the Years Ended December 31, 2016 and 2015 (in thousands)

2016 2015
Cash paid during the period for:
Interest $ 10,263 $ 9,991
Income taxes 123 233
Non-cash items:
Contributions in aid of construction 3,309 2,128
Forgiveness of debt 77 77

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

10

PENNICHUCK CORPORATION AND SUBSIDIARIES
NGTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 1 — 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 our 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 owns 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 36,047 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 elimi-
nated 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, 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.

11

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
25,292, as explained more fully in Note 12 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. Of the approximately $6.5 million in restricted cash as of December
31, 2016 and in compliance with the rules governing the use of the RSF, approximately $1.5
million is reserved as a potential return to rate payers as a component of the new water rates
set as a result of the next promulgated rate case before the NHPUC, which is in process at
this time and a final order is anticipated for late 2017.

Restricted Cash — Bond Project Funds

This restricted cash balance consists of funds remaining from the issuance of the Series 2014
and 2015 tax-exempt bonds (the “Bonds”) in December of 2014 and October of 2015,
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 reim-
bursement 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, 2015, the funds in these restricted cash accounts totaled approximately
$2.5 million. An additional amount of approximately $17.2 million of these bond funds were
held in investment accounts as of December 31, 2015; all of which were sold and transferred
to the restricted cash accounts during 2016. During 2016, approximately $1.5 million was
transferred into the restricted cash accounts from working capital and approximately $3.8
million was withdrawn from the restricted cash accounts to make the principal and interest
payments for the Bonds, on January 1 and July 1. Also during 2016, approximately $13.1
million was withdrawn from the restricted cash accounts, and transferred to the Company’s
operating cash accounts, for reimbursements of qualifying capital projects completed and
“used and useful” during 2016, which were initially funded from working capital. In
December 2016, approximately $3.3 million 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, 2017 for the Bonds. As of
December 31, 2016, the funds in these restricted cash accounts totaled approximately $7.6
million.

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Investments — Bond Project Funds

As discussed above, the approximately $17.2 million of these bond funds, which were held in
investment accounts as of December 31, 2015, were sold and transferred to the restricted
cash accounts during 2016. These funds were then used to reimburse the Company for
eligible capital project expenditures for the years 2014 through 2016, which were initially
funded from working capital. The funds, now held in the restricted cash accounts, were also
used to make the principal and interest payments for the bonds, on January and July 1“.

The Company determines the appropriate classification of its investments in debt and equity
securities at the time of purchase and reevaluates such determinations at each balance-sheet
date. Debt securities are classified as held-to-maturity when the Company has the positive
intent and ability to hold the securities to maturity. Held-to-maturity securities are recorded
as either short-term or long-term on the consolidated balance sheet, based on contractual
maturity date and are stated at amortized cost.

The fair value of all securities is determined by quoted market prices. The estimated fair
value of securities for which there are no quoted market prices is based on similar types of
securities that are traded in the market.

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, 2016 and 2015, the Company had approximately $16,950,000
and $9,200,000 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

Accounts receivable are recorded at the invoiced amounts. 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.

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Inventory
Inventory is stated at the lower of cost, using the average cost method, or market.
Deferred Land Costs

Included in deferred land costs is the Company’s original basis in its undeveloped land-
holdings 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, 2016 and 2015.

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 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 lives of the associated debt.

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 Contributions in Aid of Construction (““CIAC”). The 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.

Revenues

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.

14

Non-regulated water management services include contract operations and maintenance, and
water testing and billing services to municipalities and small, privately owned community
water systems. Contract revenues are billed and recognized on a monthly recurring basis in
accordance with agreed-upon contract rates. Revenues from unplanned additional work are
based upon time and materials incurred in connection with activities not specifically identi-
fied 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 our regulated utilities are comprised primarily of
undeveloped land.

Investment in Joint Venture

Southwood uses the equity method of accounting for its investment in a joint venture in
which it does not have a controlling interest. Under this method, Southwood records its
proportionate share of losses under “Other, net” in the accompanying Consolidated State-
ments of Income (Loss) with a corresponding decrease in the carrying value of the
investment.

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.

Change in Accounting Principle

In 2016, the Company adopted Financial Accounting Standards Board (FASB) Accounting
Standards Update (ASU) 2015-03, Interest — Imputation of Interest (Subtopic 835-30). The
effect of this change in 2016 was to reclassify debt issuance expenses in the amount of $4.5
million from other assets to a reduction in long-term debt. The consolidated financial
statements for 2015 have been retroactively restated for the change, which resulted in a
decrease to deferred charges and other assets and a corresponding decrease to long-term debt
of $4.8 million. There is no effect on net income for either year.

15

Note 2 — Property, Plant and Equipment

The components of property, plant and equipment as of December 31, 2016 and 2015 were
as follows:

Useful Lives
(in thousands) 2016 2015 (in years)
Utility Property:
Land and land rights $ 3,079 $ 3,078 -
Source of supply 61,450 52,347 3-70
Pumping and purification 30,851 30,508 7-64
Transmission and distribution, including 145,202 138,756
services, meters and hydrants 15-91
General and other equipment 15,000 13,189 7-75
Intangible plant 790 790 20
Construction work in progress 10,022 4,494
Total utility property 266,394 243,162
Total non-utility property 5 5 5-10
Total property, plant and equipment 266,399 243,167
Less accumulated depreciation (64,701) (59,926)

Property, plant and equipment, net $ 201,698 $ 183,241

The provision for depreciation is computed on the straight-line method over the estimated
useful lives of the assets, which range from 3 to 91 years. The weighted average composite
depreciation rate was 2.54% and 2.53% in 2016 and 2015, respectively.

Note 3 — Investments — Bond Project Funds

All investments were sold during 2016 and transferred to the Restricted Cash - Bond Project
Funds account.

At December 31, 2015, the Company held investments in marketable securities that were
classified as held-to-maturity and consisted of the following:

Unrecognized Estimated
December 31, 2015 Amortized Holding Fair
(in thousands) Cost Losses Value
U.S. government bonds $ 17,237 $ (27) $ 17,210
Investments - Bond Project Funds $ 17,237 § (27) §$ 17,210

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