Board Of Aldermen

The following table presents reclassifications out of accumulated other comprehensive
income for the years ended December 31, 2016 and 2015:

Amounts Reclassified Affected Line Item in

Details about Accumulated Other from Accumulated Other the Statement Where
Comprehensive Income Components Comprehensive Income Net Income is Presented
(in thousands) 2016 2015
Gain (loss) on cash flow hedges

Interest rate contracts § 123 § 144 Interest expense

(49) (58) Tax expense

Amounts reclassified from accumulated

As of December 31, 2016 and 2015, the Company had a $3.3 million and $3.5 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 $3.3 million loan which has a floating interest rate
based on the three-month London Interbank Offered Rate (“LIBOR”) plus 1.75% as of
December 31, 2016. The combined effect of the LIBOR-based borrowing formula and the

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 NH Public Utilities Commission, 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,

The aggregate principal payment requirements subsequent to December 31, 2016 are as
follows:

(in thousands) Amount

2017 $ 5,162
2018 5,422
2019 5,663
2020 5,932
2021 8,208
2022 and thereafter 180,056
Total $ 210,443

(in thousands)

Unsecured note payable to City of Nashua, 5.75%,
due 12/25/2041

Unsecured senior note payable due to an insurance company
7.40%, due March 1, 2021

Note 10 — Debt

Long-term debt as of December 31, 2016 and 2015 consisted of the following:

The Company had a federal net operating loss in 2016 and 2015 in the amounts of
approximately $1.6 million and $3.5 million, respectively. The federal tax benefit of the
cumulative net operating loss is approximately $3.8 million which begins to expire in 2032,
and is included in deferred income taxes in the Consolidated Balance Sheet as of December
31, 2016.

Note 9 — Income Taxes

The components of the federal and state income tax provision (benefit) as of December 31,
2016 and 2015 were as follows:

(in thousands) 2016 2015
Federal $ 284 $ (79)
State (116) 420
Amortization of investment tax credits (33) (33)
Total $ 135 $ 308
Current $ - $ (1)
Deferred 135 309
Total $ 135 $ 308

The following is a reconciliation between the statutory federal income tax rate and the
effective income tax rate for 2016 and 2015:

For assets and liabilities measured at fair value on a recurring basis, the fair value measure-
ment by levels within the fair value hierarchy used as of December 31, 2016 and 2015 were
as follows:

December 31, 2016
(in thousands) Total Level 1 Level 2 Level 3
Liabilities:
Interest rate swap $ (453) $ - $ (453) §$ -
December 31, 2015
(in thousands) Total Level 1 Level 2 Level 3
Assets:
U.S. government bonds $ 17,210 $ 17,210 $ - $ -
Liabilities:
Interest rate swap $ (548) $ - $ (548) §$ -

Note 7 - Commitments and Contingencies

Operating Leases

The Company’s corporate office space, as well as certain office equipment, is leased under
operating lease agreements. Total rent expense was approximately $344,800 and $307,000
for the years ended December 31, 2016 and 2015, respectively.

The remaining non-cancelable lease commitments for the corporate office space and leased
equipment as of December 31, 2016 were as follows: