Agenda

Note 12 — Transaction with the City of Nashua

Swap settlements are recorded in the statement of income with the hedged item as interest
expense. During the years ended December 31, 2015 and 2014, $144,000 and $152,000,
respectively, was reclassified pre-tax from accumulated other comprehensive income (loss)
to interest expense as a result of swap settlements. We expect to reclassify approximately
$134,000, pre-tax, from accumulated other comprehensive income (loss) to interest expense
as a result of swap settlements, over the next twelve months.

Note 11 —- Accumulated Other Comprehensive Income

The Company’s revolving credit loan facility with TD Bank contains a covenant that requires
the Company to maintain a minimum fixed charge coverage ratio of at least 1.0; at December
31, 2015 and 2014, the fixed charge coverage ratio was 1.07 and 1.12, respectively. The
Company is also required to maintain an equity capitalization ratio of not less than 35%; at
December 31, 2015 and 2014, the equity capitalization ratio was 37% and 41%, respectively.

amortized over the lives of the underlying bond obligations. The Series 2015A bonds, which
were issued at a premium, include $5.1 million to construct a new operations facility in 2016.
The $222,000 cost of issuance associated with both the Series 2015A and Series 2015B
bonds is being amortized over the 30-year and [5-year life of the debt obligations.

These bonds were issued under a new bond indenture and loan and trust agreement, which
contains certain covenant obligations upon Pennichuck Water, which are as follows:

The aggregate principal payment requirements subsequent to December 31, 2015 are as
follows:

{in thousands) Amount

2016 $ 4,120
2017 4,952
2018 5,180
2019 5,416
2020 5,680
2021 and thereafter 184,824
Total $ 210,172

Our practice is to recognize interest and/or penalties related to income tax matters in “Other,
Net” in the Consolidated Statements of Income. We incurred no interest in 2015 and 2014.
We incurred $3,000 and $0 of penalties during the years ended December 31, 2015 and 2014,

respectively.

Note 10 — Debt

Long-term debt as of December 31, 2015 and 2014 consisted of the following:

We had a federal net operating loss in 2015 and 2014 in the amounts of approximately $3.5
and $1.8 million, respectively. The federal tax benefit of the cumulative net operating loss is
approximately $3.3 million which begins to expire in 2032, and is included in deferred
income taxes in the Consolidated Balance Sheet as of December 31, 2015.

Note 9 — Income Taxes

The components of the federal and state income tax provision (benefit) as of December 31,
2015 and 2014 were as follows:

(in thousands) 2015 2014
Federal $ (79) $ 343
State 420 24]
Amortization of investment tax credits G3} (33)
Total $ 308 $ 551
Current $ (1) $ (33)
Deferred 309 584
Total $ 308 $ 551

The following is a reconciliation between the statutory federal income tax rate and the
effective income tax rate for 2015 and 2014:

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, 2015 and 2014 were

as follows:

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) $ -
December 31, 2014
(in thousands) Total Level 1 Level 2 Level 3
Liabilities:
Interest rate swap $ (583) $ - $ (583) § -

Note 7 - Commitments and Contingencies

Operating Leases

We lease our corporate office space as well as certain office equipment under operating lease
agreements. Total rent expense was approximately $307,000 and $315,000 for the years
ended December 31, 2015 and 2014, respectively.

Our remaining non-cancelable lease commitments for our corporate office space and leased
equipment as of December 31, 2015 were as follows:

(in thousands) Amount
2016 $ 301
2017 176
2018 9
2019 and thereafter -
Total $ 486