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As of December 31, 2021 and 2020, the Company had a $2.3 million and $2.5 million,
respectively, interest rate swap which qualifies as a derivative. This financial derivative is
designated as a cash flow hedge. This financial instrument is used to mitigate interest rate
risk associated with our outstanding $2.3 million loan which has a floating interest rate
based on the three-month London Interbank Offered Rate (“LIBOR”) plus 1.88% as of
December 31, 2021. The combined effect of the LIBOR-based borrowing formula and the
swap produces an “all-in fixed borrowing cost” equal to 5.95%. The fair value of the financial
derivative, as of December 31, 2021 and 2020, included in our Consolidated Balance Sheets
under “Other Liabilities and Deferred Credits” as “Derivative instrument” was $290,000 and
$460,000, respectively. Changes in the fair value of this derivative were deferred in
accumulated other comprehensive income.

Swap settlements are recorded in the statements of income (loss) with the hedged item as
interest expense. During the years ended December 31, 2021 and 2020, $68,000 loss and
$42,000 income, respectively, was reclassified pre-tax from accumulated other
comprehensive income (loss) to interest expense as a result of swap settlements. The
Company expects to reclassify approximately $76,000, pre-tax, from accumulated other
comprehensive income to interest expense as a result of swap settlements, over the next
twelve months.

Paycheck Protection Program Loan

On May 7, 2020, the Company received loan proceeds in the amount of approximately
$2,543,600 under the Small Business Administration (SBA) PPP. The PPP, established as part
of the Coronavirus Aid, Relief and Economic Security Act (CARES Act), which was enacted
March 27, 2020, provides for loans to qualifying businesses for amounts up to 2.5 times the
average monthly payroll expenses of the qualifying business. The loan and accrued interest
may be forgiven after eight or twenty-four weeks providing the Company uses the loan
proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains
certain payroll levels.

Any unforgiven portion of the PPP loan is payable over two years, from the date of the initial
approval of the loan, at an interest rate of 1%, with deferral of payments for the first ten
months. Early in 2022, the Company’s application for forgiveness was denied and the PPP
loan has been reclassified to current portion of long-term debt with a maturity date of May
7, 2022.

40

12.

Lines of Credit

In December of 2020, the Company’s existing Working Capital Line of Credit (WCLOC) and
Pennichuck Water‘s FALOC were renewed. The WCLOC was extended and renewed for an
additional year and a half, expiring on June 30, 2022, whereas the FALOC was extended and
renewed for an additional two and a half years, expiring on June 30, 2023. Additionally, as a
part of the renewal and extension of the FALOC, the capacity of that facility was increased
from $10 million to $12 million, while the Company’s WCLOC remains at $4 million.
Pennichuck East’s Fixed Asset Line of Credit (PEU FALOC) was renewed and extended for an
additional three years on November 24, 2020, expiring on September 30, 2023, at its current
facility level of $3 million. The two Fixed Asset Lines of Credit (FALOC and PEU FALOC) are
used to fund construction work in progress on capital projects, which will be refinanced into
long-term term loan obligations or issued bond indebtedness, annually.

Short-term borrowing activity under the Company’s WCLOC for the years ended
December 31, 2021 and 2020 was:

(in thousands) 2621 2020

Established line as of December 31, S 4,000 § 4,000
Maximum amount outstanding during period 2,312 3,006
Average amount outstanding during period 942 1,354
Amount outstanding as of December 31, - 624
Weighted average interest rate during period 1.88% 2.47%
interest rate as of December 31, 1.84% 1.90%

Short-term borrowing activity under Pennichuck Water’s FALOC for the years ended
December 31, 2021 and 2020 was:

(in thousands) 2021 2020
Established line as of December 31, S$ 12,000 S 12,000
Maximum amount outstanding during period 5,851 7,223
Average amount outstanding during period 3,775 3,610
Amount outstanding as of December 31, 5,851 4,550
Weighted average interest rate during period 1.88% 2.80%
Interest rate as of December 31, 1.84% 1.90%

al

Short-term borrowing activity under Pennichuck East’s FALOC for the years ended
December 31, 2021 and 2020 was:

2021 2020
Established line as of December 31, 5 3,000 S 3,000
Maximum amount outstanding during period 1,171 1,106
Average amount outstanding during period 909 1,022
Amount outstanding as of December 31, 757 306
Weighted average interest rate during period 2.13% 2.80%
Interest rate as of December 31, 2.09% 2.15%

The Company’s revolving credit loan facilities with TD Bank contain certain covenant
obligations upon Pennichuck Water, which are as follows:

Debt to Capital Covenant - Pennichuck Water cannot create, issue, incur, assume or
guarantee any short-term debt if (1) the sum of the short-term debt plus its funded debt
(“Debt”) shall exceed 85% of the sum of its short-term debt, funded debt and capital stock
plus surplus accounts (“Capital”), unless the short-term debt issued in excess of the 85%
is subordinated to the loan facility. Thereby, the ratio of Debt to Capital must be equal to
or less than 1.0. As of December 31, 2021 and 2020, Pennichuck Water has a Debt to
Capital Coverage ratio of 0.7 and 0.6, respectively.

All Bonds Test - Additionally, Pennichuck Water cannot create, issue, incur, assume or
guarantee any new funded debt, if the total outstanding funded debt (“Total Funded
Debt”) will exceed the sum of MARA (as defined in Note 14 of these consolidated financial
statements) and 85% of its Net Capital Properties (“MARA and Capital Properties”), and
unless net revenues or EBITDA (earnings before interest, taxes, depreciation and
amortization) shall equal or exceed for at least 12 consecutive months out of the 15
months preceding the issuance of the new funded debt by 1.1 times the maximum
amount for which Pennichuck Water will be obligated to pay in any future year (“Max
Amount Due”), as a result of the new funded debt being incurred. Thereby, the ratio of
Total Funded Debt to MARA and Capital Properties must be equal to or less than 1.0; as
of December 31, 2021 and 2020, this coverage ratio was 0.6 and 0.6, respectively. Also,
the ratio of EBITDA to the Max Amount Due must be equal to or greater than 1.1; as of
December 31, 2021 and 2020 this ratio was 2.3 and 2.6, respectively.

42

Rate Covenant Test - If during any fiscal year, the EBITDA of Pennichuck Water shall not
equal at least 1.1 times all amounts paid or required to be paid during that year
(“Amounts Paid”}, then the Company shall undertake reasonable efforts to initiate a rate-
making proceeding with the NHPUC, to rectify this coverage requirement in the
succeeding fiscal years. Thereby, the ratio of EBITDA to Amounts Paid must be equal to
or greater than 1.1; as of December 31, 2021 and 2020, the Rate Covenant coverage ratio

was 2.19 and 3.57, respectively.

13. Accumulated Other Comprehensive Income

The following table presents changes in accumulated other comprehensive income by

component for the years ended December 31, 2021 and 2020:

(in thousands)

Beginning balance

Other comprehensive income (loss) before reclassifications

Amounts reclassified from accumulated other
comprehensive income

Net current period other comprehensive income (loss)

Ending balance

interest Rate Contract

2021 2020
254 «=§ 318
43 (89)
59 25
102 (64)

The following table presents reclassifications out of accumulated other comprehensive

income for the years ended December 31, 2021 and 2020:

Amounts Reclassified
from Accumulated Other
Comprehensive Income

Details about Accumulated Other
Comprehensive Income Components

(in thousands) 2021 2020
Gain on cash flow hedges:
Interest rate contracts $ 98 6S 42
(39) (17)

Amounts reclassified from accumulated
other comprehensive income $ 59 863§ 25

43

Affected tine Itemin
the Statement Where

Net Income is Presented

Interest expense
Tax expense

Net of tax

14.

Transaction with the City of Nashua

On January 25, 2012, in full settlement of an ongoing Eminent Domain lawsuit filed by the
City of Nashua (“City”) and with the approval of the NHPUC, the City acquired all of the
outstanding shares of the Company and, thereby, indirect acquisition of its regulated
subsidiaries. The total amount of the acquisition was $150.6 million (“Acquisition Price”) of
which $138.4 million was for the purchase of the outstanding shares, $5.0 million for the
establishment of a Rate Stabilization Fund, $2.6 million for legal and due diligence costs, $2.3
million for severance costs, $1.3 million for underwriting fees, and $1.0 million for bond
discount and issue costs. The entire purchase of $150.6 million was funded by General
Obligation Bonds (“Bonds”) issued by the City of Nashua. The Company is not a party to the
Bonds and has not guaranteed nor is obligated in any manner for the repayment of the Bonds.
The Company remains an independent corporation with an independent Board of Directors,
with the City of Nashua as its sole stockholder.

Pennichuck Water, Pennichuck East, PAC, Service Corporation, and Southwood will continue
as subsidiaries of Pennichuck Corporation and Pennichuck Water, Pennichuck East and PAC
will continue as regulated companies under the jurisdiction of the NHPUC. The terms of the
merger and the requisite accounting and rate-setting mechanisms were agreed to in the
NHPUC Order No. 25,292 (“PUC Order”) dated November 23, 2011.

Transactions with Related Party — City of Nashua

The Company issued a promissory note to the City of Nashua in the amount of approximately
$120 million to be repaid over a thirty (30) year period with monthly payments of
approximately $707,000, including interest at 5.75%. The Company recorded an additional
amount of approximately $30.6 million as contributed capital. The remaining outstanding
balance of the note payable to the City at December 31, 2021 and 2020 was approximately
$99.6 million and $102 million, respectively, as disclosed in Note 11 to these consolidated
financial statements. During 2021 and 2020, dividends of approximately $279,000 and
$279,000, respectively, were declared and paid to the City. The dividends paid to the City
during 2021 comprised approximately $279,000 of regular quarterly dividends declared and
paid; and no special dividend was declared or paid in 2021. The dividends paid to the City
during 2020 comprised approximately $279,000 of regular quarterly dividends declared and
paid; and no special dividend was declared or paid in 2020.

Additional ongoing transactions occur in the normal course of business, between the
Company and the City, related to municipal water usage, fire protection and sewer billing
support services, and property taxes related to real property owned by the Company within
the City of Nashua. For the years ended December 31, 2021 and 2020, respectively,
approximately $3.9 million and $3.4 million were paid to the Company by the City for
municipal water consumption, fire protection charges, and sewer billing support services.
Conversely, the Company paid property taxes to the City of Nashua of approximately $2.3
million for the year ended December 31, 2021, and approximately $2.7 million for the year
ended December 31, 2020.

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Rate Stabilization Fund — Restricted Cash

As a part of the acquisition, the Company agreed to contribute $5,000,000 of the proceeds
from the settlement transaction to Pennichuck Water, which was used to establish an RSF,
allowing for the maintenance of stable water utility rates and providing a mechanism to
ensure the Company’s continued ability to meet its obligations under the promissory note to
the City, in the event of adverse revenue developments. Restricted cash consists of amounts
set aside in the RSF account and is adjusted monthly as required in the NHPUC Order, as
discussed in Note 1 of these financial statements.

Municipal Acquisition Regulatory Asset (“MARA”)

Pursuant to the NHPUC Order, the Company established a new Regulatory asset (MARA) which
represents the amount that the Acquisition Price exceeded the net book assets of the
Company’s regulated subsidiaries (Pennichuck Water, Pennichuck East, and PAC) at
December 31, 2011. The initial amount of the MARA was approximately $89 million for the
regulated companies, offset by a non-regulated amount of approximately $4.8 million. The
MARA is to be amortized over a thirty (30) year period in the same manner as the repayment
of debt service for the City’s acquisition bonds. The balance in the MARA at December 31, 2021
was approximately $68.9 million, reduced by the non-regulated credit of approximately $3.8
million.

Aggregate amortization expense for the years ended December 31, 2021 and 2020 totaled
approximately $2,119,000 and $2,061,000, respectively.

The following table represents the total estimated amortization of MARA:

Estimated

Amortization

(in thousands) Expense
2022 Ss 2,183
2023 2,253
2024 2,328
2025 2,409
2026 2,498
2026 and thereafter 53,411
Total $ 65,082

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15. Segment Reporting

For the years ended December 31, 2021 and 2020, and as of those dates, the following
financial results were generated by the segments of the Company:

(in thousands}
Operating Revenues:
Pennichuck Water
Pennichuck East
Pittsfield Aqueduct
Subtotal Regulated Segment
Service Corporation
Other

Total Operating Revenues

Depreciation and Amortization Expense:
Pennichuck Water
Pennichuck East
Pittsfield Aqueduct
Subtotal Regulated Segment
Service Corporation
Other
Total Depreciation and Amortization Expense

Operating Income:
Pennichuck Water

Pennichuck East
Pittsfield Aqueduct
Subtotal Regulated Segment
Service Corporation
Other
Total Operating Income

Interest Expense:
Pennichuck Water
Pennichuck East
Pittsfield Aqueduct
Subtotal Regulated Segment
Service Corporation
Other

Total Interest Expense

46

$

2021 2020
38,024 36,688
9,818 9,805
810 808
48,652 47,301
3,339 2,778
13 12
52,004 50,091
7,920 7,341
1,238 1,212
116 116
8,874 8,669
{123) (120)
8,751 8,549
8,346 8,961
988 1,148
71 80
9,405 10,189
251 119
18 21
9,674 10,329
7,193 4,903
765 777
40 40
7,998 5,/20
1 2
5,903 6,174
13,902 11,896

(continued)

(continued)

{in thousands} 2021 2020
Income Taxes Provision (Benefit):
Pennichuck Water $ 1,192 § 1,728
Pennichuck East 185 738
Pittsfield Aqueduct 20 21
Subtotal Regulated Segment 1,397 2,487
Service Corporation 77 34
Other (1,663) (2,014)
Total Income Taxes Provision (Benefit) $ (189) $ 507
Net Income (Loss):
Pennichuck Water $ 198 §=$ 2,409
Pennichuck East 38 (361)
Pittsfield Aqueduct 13 19
Subtotal Regulated Segment 249 2,067
Service Corporation 173 84
Other (4,121) (4,135)
Total Net Income (Loss) $ (3,699) $ (1,984)
Total Net Assets:
Pennichuck Water S 298,304 §$ 298,004
Pennichuck East 65,183 61,881
Pittsfield Aqueduct 2,912 3,056
Subtotal Regulated Segment 366,399 362,941
Service Corporation 151 (12)
Other (17,318) (15,631)

Total Net Assets $ 349,232. § 347,298

Total Liabilities:

Pennichuck Water $ 200,536 $ 194,433
Pennichuck East 57,107 53,757
Pittsfield Aqueduct 1,370 1,402

Subtotal Regulated Segment 259,013 249,592
Service Corporation 43 (31)
Other 93,640 97,325

Total Liabilities $ 352,696 $ 346,886

(continued)

4?

16.

(continued)

(in thousands} 2021 2020
Total Long-Term Debt (less current portion
and unamortized debt insurance costs):

Pennichuck Water S 105,875 5 103,019
Pennichuck East 24,124 21,023
Pittsfield Aqueduct 132 136
Subtotal Regulated Segment 130,131 124,178
Service Corporation : -
Other 96,932 99,627

Tota] Long-Term Debt $ 227,063 $ 223,805

Rate Cases

Pennichuck Water

On October 21, 2021, Pennichuck Water filed an emergency tariff sheet request for approval
with the NHPUC. The Company’s emergency tariff filing was on behalf of a single customer,
the Merrimack Village District (MVD), and would allow this customer to purchase bulk water
at Pennichuck Water’s variable cost of production. The initial rate to be billed will be $0.67
per cubic feet. This would allow MVD access to Pennichuck Water’s bulk water supply in late
2021 and during 2022, while MVD’s water supply systems are brought into compliance with
water quality regulations for PFAS contaminants.

On November 12, 2021, the NHPUC issued Order No. 26,552, with an effective date of
November 20, 2021, approving Pennichuck Water’s request for an emergency tariff filing on
behalf of a single customer, the MVD. This emergency tariff is on a temporary basis and must
not exceed a term longer than six months from the effective date.

In conjunction with this, Pennichuck Water also opened a docket under DW 21-134 for the
approval of a special contract for these emergency rates, in order to bring those rates into
full force and effect (preceding and succeeding the emergency rate tariff), upon approval, for
the time period from which the emergency usage of this water was initiated on October 20,
2021, for a period not to exceed a termination date of December 31, 2022.

48

Ward 7

e Crown St

e Dearborn St John St —E. Otterson St)
e John St

e Melrose St

e Oldfield Rd

e Proctor St

e Superior Dr

Ward 8
e Decatur Dr
Ward 9

e Aberdeen Ln
e Holbrook Dr
e Palisade Dr

e Quinton Dr

e Terramar Ln
e Westwood Dr

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