SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number 1-11023
E'town CORPORATION
(Exact name of registrant as specified in its charter)
New Jersey 22-2596330
(State of incorporation) (I.R.S. Employer Identification No.)
600 South Avenue
Westfield, New Jersey 07090
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (908) 654-1234
Title of each class Name of each exchange on which registered
Common Stock, without par value New York Stock Exchange
Commission file number 0-628
ELIZABETHTOWN WATER COMPANY
(Exact name of registrant as specified in its charter)
New Jersey 22-1683171
(State of incorporation) (I.R.S. Employer Identification No.)
600 South Avenue
Westfield, New Jersey 07090
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (908) 654-1234
Title of each class Name of each exchange on which registered
Senior Unsecured Debentures None
Mandatory Redeemable Preferred Stock None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes __X__ No_____
Indicate the number of shares outstanding of each of the Registrant's classes of
Common Stock as of the latest practicable date
Outstanding at
Class of Common Stock: March 31, 2000
E'town Corporation (without par value) 8,793,511
Elizabethtown Water Company (without par value)* 1,974,902
* All shares are owned by E'town Corporation
===============================================================================
E'TOWN CORPORATION AND SUBSIDIARIES
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
INDEX
- -------------------------------------------------------------------------------
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
E'TOWN CORPORATION AND SUBSIDIARIES
- Statements of Consolidated Income 1
- Consolidated Balance Sheets 2-3
- Statements of Consolidated Capitalization 4
- Statements of Consolidated Shareholders' Equity 5
- Statements of Consolidated Cash Flows 6
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
- Statements of Consolidated Income 7
- Consolidated Balance Sheets 8-9
- Statements of Consolidated Capitalization 10
- Statements of Consolidated Shareholder's Equity 11
- Statements of Consolidated Cash Flows 12
E'TOWN CORPORATION AND SUBSIDIARIES AND
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
- Notes to Consolidated Financial Statements 13
Item 2. Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations 20
PART II - OTHER INFORMATION 28
Items 1 - 5
Item 6 (a) - Exhibits 28
(b) - Reports on Form 8-K 28
SIGNATURES 29
E'TOWN CORPORATION AND SUBSIDIARIES
(In Thousands Except Per Share Amounts) Three Months Ended
(Unaudited) March 31,
2000 1999
==========================================================================
Operating Revenues $ 38,163 $ 35,476
- --------------------------------------------------------------------------
Operating Expenses:
Operation 17,986 14,575
Maintenance 1,901 1,609
Depreciation and amortization 4,187 3,674
Revenue taxes 3,956 3,740
Real estate, payroll and other taxes 1,101 990
Federal income taxes 1,161 2,213
- --------------------------------------------------------------------------
Total operating expenses 30,292 26,801
- --------------------------------------------------------------------------
Operating Income 7,871 8,675
- --------------------------------------------------------------------------
Other Income (Expense):
Allowance for equity funds used during
construction 114 75
Federal income taxes (147) (1,243)
Gain on sale of land (Note 8) 3,197
Other - net 323 281
- --------------------------------------------------------------------------
Total other income 290 2,310
- --------------------------------------------------------------------------
Total Operating and Other Income 8,161 10,985
- --------------------------------------------------------------------------
Interest Charges:
Interest on long-term debt 4,438 4,134
Other interest expense - net 1,240 291
Capitalized interest (95) (53)
Amortization of debt discount and expense-net 114 110
- --------------------------------------------------------------------------
Total interest charges 5,697 4,482
- --------------------------------------------------------------------------
Income Before Preferred Stock Dividends
of Subsidiary 2,464 6,503
Preferred Stock Dividends 203 203
- --------------------------------------------------------------------------
Net Income $ 2,261 $ 6,300
==========================================================================
Earnings Per Share of Common Stock (Note 7):
- --------------------------------------------------------------------------
Basic $ 0.26 $ 0.74
Diluted $ 0.26 $ 0.73
- --------------------------------------------------------------------------
Average Number of Shares Outstanding for
the Calculation of Earnings Per Share:
- --------------------------------------------------------------------------
Basic 8,723 8,512
Diluted 9,016 8,797
- --------------------------------------------------------------------------
Dividends Paid Per Common Share $ 0.51 $ 0.51
==========================================================================
See Notes to Consolidated Financial Statements.
- 1 -
E'TOWN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands) March 31,
2000 December 31,
Assets (Unaudited) 1999
- --------------------------------------------------------------------------
Utility Plant-At Original Cost:
Utility plant in service $ 778,925 $ 779,485
Construction work in progress 22,684 17,441
- --------------------------------------------------------------------------
Total utility plant 801,609 796,926
Less accumulated depreciation 140,713 137,587
- --------------------------------------------------------------------------
Utility plant-net 660,896 659,339
- --------------------------------------------------------------------------
Non-utility Property and Other
Investments - Net (Note 8) 84,898 85,163
- --------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents 9,596 4,367
Customer and other accounts receivable
(less reserve: 2000, $1,327, 1999,
$1,316)(Note 8) 31,411 30,129
Mortgage and other notes receivable 2,513 4,600
Unbilled revenues 12,302 12,972
Infrastructure loan funds
receivable (Note 5) 5,657 5,657
Materials and supplies-at average cost 4,740 4,069
Prepaid federal income taxes 3,993 4,617
Prepaid insurance, taxes, other 3,312 3,663
- --------------------------------------------------------------------------
Total current assets 73,524 70,074
- --------------------------------------------------------------------------
Deferred Charges:
Waste residual management 1,474 1,538
Unamortized debt and preferred
stock expenses 9,467 9,419
Taxes recoverable through future rates 13,466 13,466
Postretirement benefit expense 3,085 3,145
Flood expenditures 6,604 5,000
Other unamortized expenses 2,098 1,164
- --------------------------------------------------------------------------
Total deferred charges 36,194 33,732
- --------------------------------------------------------------------------
Total $ 855,512 $ 848,308
==========================================================================
See Notes to Consolidated Financial Statements.
-2-
E'TOWN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands) March 31,
2000 December 31,
Capitalization and Liabilities (Unaudited) 1999
- --------------------------------------------------------------------------
Capitalization (Notes 4 and 5):
Common shareholders' equity $ 230,279 $ 229,233
Mandatory Redeemable Cumulative
Preferred Stock 12,000 12,000
Redeemable preferred stock 227 227
Long-term debt - net 295,500 266,015
- --------------------------------------------------------------------------
Total capitalization 538,006 507,475
- --------------------------------------------------------------------------
Current Liabilities:
Notes payable - banks 64,000 89,500
Long-term debt - current portion (Note 5) 589 494
Accounts payable and other liabilities 27,986 31,434
Contract obligations payable (Note 5) 19,000 19,000
Customers' deposits 261 263
Municipal and state taxes accrued 21,431 17,682
Interest accrued 4,566 4,219
Preferred stock dividends accrued 59 59
- --------------------------------------------------------------------------
Total current liabilities 137,892 162,651
- --------------------------------------------------------------------------
Deferred Credits:
Customers' advances for construction 42,243 41,321
Federal income taxes 71,911 71,236
State income taxes 302 302
Unamortized investment tax credits 7,585 7,636
Accumulated postretirement benefits 3,457 3,571
- --------------------------------------------------------------------------
Total deferred credits 125,498 124,066
- --------------------------------------------------------------------------
Contributions in Aid of Construction 54,116 54,116
- --------------------------------------------------------------------------
Commitments and Contingent Liabilities
- --------------------------------------------------------------------------
Total $ 855,512 $ 848,308
==========================================================================
See Notes to Consolidated Financial Statements.
-3-
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CAPITALIZATION
(In Thousands Except Share Amounts) March 31,
2000 December 31,
(Unaudited) 1999
- -------------------------------------------------------------------------------
Common Shareholders' Equity:
E'town Corporation:
Common stock without par value, authorized,
15,000,000 shares, issued 2000, 8,826,065
shares; 1999, 8,760,862 shares $ 183,482 $ 180,124
Paid-in capital 1,215 1,315
Capital stock expense (5,160) (5,160)
Retained earnings 51,710 53,922
Less cost of treasury stock; 2000 and
1999, 32,554 shares (968) (968)
- ------------------------------------------------------------------------------
Total common shareholders' equity 230,279 229,233
- ------------------------------------------------------------------------------
Preferred Shareholders' Equity
Elizabethtown Water Company:
Mandatory Redeemable Cumulative
Preferred Stock:
$100 par value, authorized, 200,000 shares;
$5.90 series, issued and outstanding,
120,000 shares 12,000 12,000
Cumulative Preferred Stock:
$25 par value, authorized, 500,000 shares;
none issued
Applied Wastewater Management, Inc.:
Redeemable Preferred Stock:
No par value, noncumulative, issued and
outstanding, 227 shares 227 227
- ------------------------------------------------------------------------------
Total preferred shareholders' equity 12,227 12,227
- ------------------------------------------------------------------------------
Long-term Debt (Notes 5 and 8):
E'town Corporation:
6 3/4% Convertible Subordinated Debentures,
due 2012 8,276 8,705
6.79% Senior Notes, due 2007 12,000 12,000
7.69% Senior Notes, due 2010 30,000
Applied Wastewater/Applied Water Management:
6% Note Payable (due serially through 2027) 204 204
9.65% Mortgage Note Payable (due 2001) 255 264
Elizabethtown Water Company:
7.20% Debentures, due 2019 10,000 10,000
7 1/2% Debentures, due 2020 15,000 15,000
6.60% Debentures, due 2021 10,500 10,500
6.70% Debentures, due 2021 15,000 15,000
8 3/4% Debentures, due 2021 27,500 27,500
8% Debentures, due 2022 15,000 15,000
5.60% Debentures, due 2025 40,000 40,000
7 1/4% Debentures, due 2028 50,000 50,000
Variable Rate Debentures, due 2027 50,000 50,000
The Mount Holly Water Company:
New Jersey Environmental Infrastructure Trust
Notes(due serially through 2018) 6,994 7,040
New Jersey Department of Environmental
Protection Notes (due serially through 2018) 5,640 5,677
9.65% Mortgage Note Payable (due 2001) 153 156
- ------------------------------------------------------------------------------
Total long-term debt 296,522 267,046
Unamortized (discount) premium-net (1,022) (1,031)
- ------------------------------------------------------------------------------
Total long-term debt-net 295,500 266,015
- ------------------------------------------------------------------------------
Total Capitalization $ 538,006 $ 507,475
==============================================================================
See Notes to Consolidated Financial Statements.
-4-
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
(In Thousands Except Share Amounts)
Three Months Ended
March 31, Year Ended
2000 December 31,
(Unaudited) 1999
- ------------------------------------------------------------------------------
Common Stock:
Balance at Beginning of Period $ 180,124 $ 169,324
Common stock issued under Dividend
Reinvestment and Stock Purchase Plan
(2000, 43,408 shares; 1999, 197,547 shares) 2,630 8,702
Redemption of Convertible Debentures (2000,
10,475 shares; 1999, 44,225 shares) 419 1,769
Issuance of restricted stock under compensation
programs (1999, 2,822 shares) 119
Restricted stock (redeemed) in connection with
acquisitions (1999, (25,756) shares) (867)
Exercise of stock options (2000, 11,500 shares;
1999, 37,500 shares 309 1,077
- ------------------------------------------------------------------------------
Balance at End of Period 183,482 180,124
- ------------------------------------------------------------------------------
Paid-in Capital: 1,215 1,315
- ------------------------------------------------------------------------------
Capital Stock Expense: (5,160) (5,160)
- ------------------------------------------------------------------------------
Retained Earnings:
Balance at Beginning of Period 53,922 50,961
Net Income 2,261 20,487
Dividends on common stock (2000, $.51;
1999, $2.04) (4,473) (17,526)
- ------------------------------------------------------------------------------
Balance at End of Period 51,710 53,922
- ------------------------------------------------------------------------------
Treasury Stock: (968) (968)
- ------------------------------------------------------------------------------
Total Common Shareholders' Equity $ 230,279 $ 229,233
==============================================================================
See Notes to Consolidated Financial Statements.
-5-
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(In Thousands) Three Months Ended
(Unaudited) March 31,
2000 1999
- -------------------------------------------------------------------------
Cash Flows Provided by Operating Activities:
Net Income $ 2,261 $ 6,300
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 4,187 3,674
Gain on the sale of land (3,197)
Increase in deferred charges (2,474) (367)
Deferred income taxes and investment
tax credits-net 624 844
Capitalized interest and AFUDC (209) (128)
Other operating activities-net (156) 2,971
Change in current assets and current liabilities
excluding cash, short-term investments and
current portion of debt :
Customer and other accounts receivable (1,282) (2,572)
Mortgage and other notes receivable 2,087 (3,529)
Unbilled revenues 670 (26)
Accounts payable and other liabilities (3,450) (1,165)
Accrued/prepaid interest and taxes 5,071 8,517
Other (666) 106
- -------------------------------------------------------------------------
Net cash provided by operating activities 6,663 11,428
- -------------------------------------------------------------------------
Cash Flows Provided (Used) by Financing Activities:
Proceeds from issuance of common stock 2,939 2,153
Funds held in Trust by others (72) 258
Debt and preferred stock issuance and
amortization costs (48) 126
Issuance of other long-term debt 30,000
Repayment of long-term debt (5) (243)
Contributions and advances for construction 1,892 1,728
Refunds of customer advances for construction (970) (448)
Net decrease in notes payable - banks (25,500) (2,038)
Dividends paid on common stock (4,473) (4,339)
- -------------------------------------------------------------------------
Net cash flows provided (used) by
financing activities 3,763 (2,803)
- -------------------------------------------------------------------------
Cash Flows Used for Investing Activities:
Utility plant and other capital expenditures
(excluding allowance for funds used during
construction) (5,070) (9,300)
Capital expenditures on non-regulated property (127) (286)
Proceeds from sale of land 2,069
- -------------------------------------------------------------------------
Net cash flows used for investing activities (5,197) (7,517)
- -------------------------------------------------------------------------
Net Increase in Cash
and Cash Equivalents 5,229 1,108
Cash and Cash Equivalents at
Beginning of Period 4,367 5,909
- -------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 9,596 $ 7,017
=========================================================================
Supplemental Disclosures of Cash
Flow Information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 5,365 $ 3,896
Income taxes $ 0 $ 1,600
Preferred stock dividends $ 177 $ 177
Noncash issuance of common stock $ 419 $ 242
See Notes to Consolidated Financial Statements.
-6-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED INCOME
(In Thousands)
(Unaudited)
Three Months Ended
March 31,
2000 1999
- -----------------------------------------------------------------------------
Operating Revenues $ 31,743 $ 31,066
- -----------------------------------------------------------------------------
Operating Expenses:
Operation 12,232 11,591
Maintenance 1,742 1,456
Depreciation 3,460 3,197
Revenue taxes 3,929 3,733
Real estate, payroll and other taxes 889 883
Federal income taxes 1,655 2,189
- -----------------------------------------------------------------------------
Total operating expenses 23,907 23,049
- -----------------------------------------------------------------------------
Operating Income 7,836 8,017
- -----------------------------------------------------------------------------
Other Income (Expense):
Allowance for equity funds used during construction 114 75
Federal income taxes (126) (72)
Other - net 263 128
- -----------------------------------------------------------------------------
Total other income 251 131
- -----------------------------------------------------------------------------
Total Operating and Other Income 8,087 8,148
- -----------------------------------------------------------------------------
Interest Charges:
Interest on long-term debt 3,776 3,757
Other interest expense - net 913 63
Allowance for funds used during construction (95) (53)
Amortization of debt discount and expense-net 99 98
- -----------------------------------------------------------------------------
Total interest charges 4,693 3,865
- -----------------------------------------------------------------------------
Net Income 3,394 4,283
Preferred Stock Dividends 203 203
- -----------------------------------------------------------------------------
Earnings Applicable To Common Stock $ 3,191 $ 4,080
=============================================================================
See Notes to Consolidated Financial Statements.
- 7 -
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In Thousands) March 31,
2000 December 31,
Assets (Unaudited) 1999
- --------------------------------------------------------------------------
Utility Plant-At Original Cost:
Utility plant in service $ 769,871 $ 770,251
Construction work in progress 22,653 17,495
- --------------------------------------------------------------------------
Total utility plant 792,524 787,746
Less accumulated depreciation and
amortizion 140,003 136,975
- --------------------------------------------------------------------------
Utility plant-net 652,521 650,771
- --------------------------------------------------------------------------
Non-utility Property (Note 8) 7,409 7,337
- --------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents 3,394 1,342
Customer and other accounts receivable
(less reserve: 2000, $683, 1999, $674) 17,903 19,341
Unbilled revenues 10,022 10,578
Infrastructure loan funds
receivable (Note 5) 5,657 5,657
Materials and supplies-at average cost 4,740 4,069
Prepaid federal income taxes 5,108 5,807
Prepaid insurance, taxes, other 3,043 3,229
- --------------------------------------------------------------------------
Total current assets 49,867 50,023
- --------------------------------------------------------------------------
Deferred Charges:
Waste residual management 1,474 1,538
Unamortized debt and preferred
stock expenses 8,785 8,900
Taxes recoverable through future rates 13,466 13,466
Postretirement benefit expense 3,085 3,145
Flood expenditures 6,604 5,000
Other unamortized expenses 1,836 1,007
- --------------------------------------------------------------------------
Total deferred charges 35,250 33,056
- --------------------------------------------------------------------------
Total $ 745,047 $ 741,187
==========================================================================
See Notes to Consolidated Financial Statements.
- 8 -
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In Thousands) March 31,
2000 December 31,
Capitalization and Liabilities (Unaudited) 1999
- --------------------------------------------------------------------------
Capitalization (Note 4):
Common shareholder's equity $ 221,809 $ 220,461
Mandatory redeemable cumulative
preferred stock 12,000 12,000
Long-term debt - net 244,765 244,842
- --------------------------------------------------------------------------
Total capitalization 478,574 477,303
- --------------------------------------------------------------------------
Current Liabilities:
Notes payable - banks 56,500 51,500
Long-term debt - current portion 567 481
Accounts payable and other liabilities 12,226 19,989
Customers' deposits 194 197
Municipal and state taxes accrued 21,303 17,592
Interest accrued 3,872 3,745
Preferred stock dividends accrued 59 59
- --------------------------------------------------------------------------
Total current liabilities 94,721 93,563
- --------------------------------------------------------------------------
Deferred Credits:
Customers' advances for construction 41,031 40,019
Federal income taxes 70,159 69,570
Unamortized investment tax credits 7,585 7,636
Accumulated postretirement benefits 3,280 3,399
- --------------------------------------------------------------------------
Total deferred credits 122,055 120,624
- --------------------------------------------------------------------------
Contributions in Aid of Construction 49,697 49,697
- --------------------------------------------------------------------------
Commitments and Contingent Liabilities
- --------------------------------------------------------------------------
Total $ 745,047 $ 741,187
==========================================================================
See Notes to Consolidated Financial Statements.
- 9 -
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED CAPITALIZATION
(In Thousands) March 31,
2000 December 31,
(Unaudited) 1999
- --------------------------------------------------------------------------
Common Shareholder's Equity (Note 4):
Common stock without par value, authorized,
15,000,000 shares,issued 2000 and 1999,
1,974,902 shares $ 15,741 $ 15,741
Paid-in capital 144,205 141,575
Capital stock expense (485) (485)
Retained earnings 62,348 63,630
- -----------------------------------------------------------------------------
Total common shareholder's equity 221,809 220,461
- -----------------------------------------------------------------------------
Preferred Shareholders' Equity:
Mandatory Redeemable Cumulative Preferred Stock
$100 par value, authorized, 200,000 shares;
$5.90 series, issued and outstanding, 120,00
shares 12,000 12,000
Cumulative Preferred Stock:
$25 par value, authorized, 500,000 shares;
none issued
- -----------------------------------------------------------------------------
Long-term Debt:
Elizabethtown Water Company:
7.20% Debentures, due 2019 10,000 10,000
7 1/2% Debentures, due 2020 15,000 15,000
6.60% Debentures, due 2021 10,500 10,500
6.70% Debentures, due 2021 15,000 15,000
8 3/4% Debentures, due 2021 27,500 27,500
8% Debentures, due 2022 15,000 15,000
5.60% Debentures, due 2025 40,000 40,000
7 1/4% Debentures, due 2028 50,000 50,000
Variable Rate Debentures, due 2027 50,000 50,000
The Mount Holly Water Company:
New Jersey Environmental Infrastructure Trust
Notes (due serially through 2018) 6,994 7,040
New Jersey Department of Environmental
Protection Notes (due serially through 2018) 5,640 5,677
9.65% Mortgage Note Payable (due 2001) 153 156
- -----------------------------------------------------------------------------
Total long-term debt 245,787 245,873
Unamortized discount-net (1,022) (1,031)
- -----------------------------------------------------------------------------
Total long-term debt-net 244,765 244,842
- -----------------------------------------------------------------------------
Total Capitalization $ 478,574 $ 477,303
=============================================================================
See Notes to Consolidated Financial Statements.
-10-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
(In Thousands)
Three Months Ended
March 31, Year Ended
2000 December 31,
(Unaudited) 1999
- --------------------------------------------------------------------------------
Common Stock: $ 15,741 $ 15,741
- --------------------------------------------------------------------------------
Paid-in Capital:
Balance at Beginning of Period 141,575 132,753
Capital Contributed by Parent Company from:
Common Stock Issued Under Dividend
Reinvestment and Stock Purchase Plan 2,630 8,702
Issuance of Restricted and Unrestricted
Stock Under Compensation Programs 120
- --------------------------------------------------------------------------------
Balance at End of Period 144,205 141,575
- --------------------------------------------------------------------------------
Capital Stock Expense (485) (485)
- --------------------------------------------------------------------------------
Retained Earnings:
Balance at Beginning of Period 63,630 60,564
Net income 3,394 21,405
Dividends on common stock (4,473) (17,526)
Dividends on preferred stock (203) (813)
- --------------------------------------------------------------------------------
Balance at End of Period 62,348 63,630
- --------------------------------------------------------------------------------
Total Common Shareholder's Equity $ 221,809 $ 220,461
================================================================================
See Notes to Consolidated Financial Statements.
-11-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED CASH FLOWS
(In Thousands)
(Unaudited) Three Months Ended
March 31,
2000 1999
- --------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net income $ 3,394 $ 4,283
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,460 3,197
Increase in deferred charges (2,369) (484)
Deferred income taxes and investment tax
credits-net 538 832
Allowance for funds used during construction (209) (128)
Other operating activities-net (50) (16)
Change in current assets and current liabilities
excluding cash, short-term investments and
current portion of debt :
Customer and other accounts receivable 1,438 (1,279)
Unbilled revenues 556 141
Accounts payable and other liabilities (7,766) (2,365)
Accrued/prepaid interest and taxes 4,723 7,299
Other (697) 106
- --------------------------------------------------------------------------------
Net cash provided by operating activities 3,018 11,586
- --------------------------------------------------------------------------------
Cash Flows Provided (Used) by Financing Activities:
Capital contributed by parent company 2,630 2,067
Funds held in Trust by others (72) 258
Debt and preferred stock issuance and
amortization costs 115 114
Repayment of long-term debt (7)
Contributions and advances for construction 1,982 1,728
Refunds of customer advances for construction (970) (418)
Net increase (decrease) in notes payable - banks 5,000 (2,000)
Dividends paid on common stock and
preferred stock (4,650) (4,516)
- --------------------------------------------------------------------------------
Net cash provided (used) by
financing activities 4,035 (2,774)
- --------------------------------------------------------------------------------
Cash Flows Used for Investing Activities:
Utility plant expenditures (excluding allowance
for funds used during construction) (5,001) (8,205)
- --------------------------------------------------------------------------------
Cash used for investing activities (5,001) (8,205)
- --------------------------------------------------------------------------------
Net Increase in Cash and
Cash Equivalents 2,052 607
Cash and Cash Equivalents at
Beginning of Period 1,342 3,598
- --------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 3,394 $ 4,205
================================================================================
Supplemental Disclosures of Cash
Flow Information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 4,499 $ 2,795
Income taxes $ 0 $ 1,600
Preferred stock dividends $ 177 $ 177
See Notes to Consolidated Financial Statements.
-12-
E'TOWN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
E'town Corporation (E'town), a New Jersey holding company, is the parent
company of Elizabethtown Water Company (Elizabethtown or Company), Edison
Water Company (Edison), E'town Properties, Inc. (Properties), Liberty
Water Company (Liberty), Applied Water Management, Inc. (AWM) and Applied
Wastewater Management, Inc. (AWWM). The Mount Holly Water Company (Mount
Holly) is a wholly-owned subsidiary of Elizabethtown. The Corporation and
its subsidiaries as a consolidated entity are referred to herein as the
Corporation. The assets and operating results of Elizabethtown constitute
the predominant portions of E'town's assets and operating results. The
regulated utilities, Elizabethtown, Mount Holly and AWWM, comprise the
Regulated Utilities segment, Liberty and Edison comprise the Contract
Operations segment, AWM is the Engineering/Operations and Construction
segment and E'town and Properties comprise the Financing and Investment
segment.
2. PENDING MERGER
On November 21, 1999, E'town entered into an agreement (Merger Agreement)
with Thames Water Plc (Thames Water) under which Thames Water has agreed,
subject to certain conditions, to acquire E'town for $68 per share in cash
or approximately $607 million. Thames Water will also assume the debt of
the Corporation. The acquisition will take the form of a merger (Merger)
of E'town with a newly formed subsidiary of Thames Water and E'town will
be the surviving company.
A special meeting of shareholders will be held on May 18, 2000 to
seek shareholder approval of the transaction. The review of the
acquisition by the Federal Trade Commission and the Department of
Justice under the Hart-Scott-Rodino Antitrust Improvement Act of
1976 has been completed. The acquisition is subject to approval
by the New Jersey Board of Public Utilities (BPU). Certain
clearances must also be obtained from the New Jersey
environmental regulators. The transaction is expected to close
prior to the end of 2000.
3. INTERIM FINANCIAL STATEMENTS
The financial statements reflect all adjustments which, in the opinion of
management, are necessary for a fair presentation. The Notes to
Consolidated Financial Statements accompanying the 1999 Annual Report to
Shareholders and the 1999 Form 10-K should be read in conjunction with
this report.
The preparation of financial statements in conformity with generally
accepted accounting principles 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
financial statements and the reported amounts of revenues and expenses
during the reporting period.
-13-
New Accounting Pronouncements
In 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activity". In June 1999, the FASB
issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activity - Deferral of the Effective Date of SFAS No. 133" to defer the
effective date of SFAS No. 133 for one year. Consequently, SFAS No. 133
will now be effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000. The Corporation does not believe this
Statement will have any impact on the Corporation's financial condition
and results of operations.
4. CAPITALIZATION
E'town routinely makes equity contributions to Elizabethtown from the
proceeds of common stock issued under E'town's Dividend Reinvestment and
Stock Purchase Plan (DRP). E'town contributed $2.63 million from the DRP
proceeds to Elizabethtown for the three months ended March 31, 2000.
5. LONG-TERM DEBT
In February 2000, E'town issued $30 million of 7.69% Senior Notes due 2010
in a private placement. The proceeds were used to repay short-term debt
incurred to finance the acquisition of the contract to operate the water
system of the city of Elizabeth and capital expenditures for the
non-regulated subsidiaries.
E'town has outstanding $12 million of 6.79% Senior Notes due December 15,
2007. The Note Agreements for E'town's 6.79% and 7.69% Senior Notes
require the maintenance of a consolidated fixed charges coverage ratio of
at least 1.5 to 1 and a debt to total capitalization ratio not to exceed
.65 to 1. As of March 31, 2000, the fixed charges coverage ratio was 2.22
to 1 and the debt to total capitalization ratio was .62 to 1, calculated
in accordance with the Note Agreements.
The aggregate maturities of the Corporation's long-term debt (including
the portion classified as current and contract obligations payable) as of
December 31, 1999 for each of the succeeding five years are: 2000, $19.49
million; 2001, $1.00 million; 2002, $.59 million; 2003, $.60 million and
2004, $.61 million. Included in the Corporation's amounts are
Elizabethtown's aggregate long-term debt maturities for each of the five
years succeeding December 31, 1999 : 2000, $.48 million; 2001, $.72
million; 2002, $.58 million; 2003, $.59 million and 2004, $.60 million.
In November 1998 Mount Holly closed on loan agreements that will make
available up to $13.19 million in proceeds from the issuance of unsecured
notes through the New Jersey Environmental Infrastructure Trust Financing
Program. This program provides financing through two loans. The first
loan, in the amount of $7.30 million, is through the New Jersey
Environmental Infrastructure Trust (Trust), which issued tax-exempt bonds
with average interest rates of 4.7%. The second loan, in the amount of
$5.89 million, is from the State of New Jersey, acting through the New
Jersey Department of Environmental Protection. The State is participating
in the Safe Drinking Water State Revolving Fund authorized by the Safe
Drinking Water Act amendments of 1996 whereby the federal government is
funding the state loan at no interest cost. The effective interest rate
for the combined notes is approximately 2.59%. The proceeds of the loans
will be used to repay short-term debt incurred to finance the Mansfield
Project, a construction project that was undetaken to comply with New
Jersey legislative restrictions to obtain an alternative water supply to
reduce pumpage from an aquifer and was fully in service in late December
1999 . The Company expects to request these funds from the Trust in the
second quarter of 2000.
6. LINES OF CREDIT
E'town has $115 million of uncommitted lines of credit with several banks,
of which up to $55 million is available for use by its unregulated
subsidiaries and $90 million is available to Elizabethtown. Of the lines
available to Elizabethtown, $10 million represents a committed line of
credit. These lines, together with internal funds and proceeds from the
sale of E'town's common stock or capital contributions from Thames Water
after the pending Merger, medium-term notes, long-term debt, proceeds of
tax-exempt New Jersey Economic Development Authority (NJEDA) bonds and
short-term borrowings are expected to be sufficient to finance the
Corporation's capital needs.
-14-
7. EARNINGS PER SHARE
Basic earnings per share are computed on the basis of the weighted average
number of shares outstanding. Diluted earnings per share assumes both the
conversion of the 6 3/4% Convertible Subordinated Debentures and common
stock equivalents, assuming all stock options are exercised. The
calculations of basic and diluted earnings per share for the three months
ended March 31, 2000 and 1999 follow:
Three Months Ended
March 31,
In Thousands of Dollars 2000 1999
----------------------------------------------------
Except Per Share Amounts
Basic:
Net Income $2,261 $6,300
Average common shares 8,723 8,512
outstanding
----------------------------------------------------
Basic earnings per share $ 0.26 $ 0.74
====================================================
Diluted:
Net income $2,261 $6,300
After tax interest expense
applicable to 6 3/4%
Convertible Subordinated
Debentures 92 112
----------------------------------------------------
Adjusted net income $2,353 $6,412
====================================================
Average common shares 8,723 8,512
outstanding
Additional shares from 32 25
assumed exercise of
stock options
Additional shares from 261 260
assumed conversion
of 6 3/4% Convertible
Subordinated
Debentures
Average common shares 9,016 8,797
outstanding as
adjusted
----------------------------------------------------
Diluted earnings per share $ 0.26 $ 0.73
====================================================
8. NON-UTILITY PROPERTY AND OTHER INVESTMENTS
The detail of amounts included in Non-Utility Property and Other
Investments at March 31, 2000 and December 31, 1999 is as follows:
Thousands of Dollars 2000 1999
------------------------------------------------------------------------
Except Per Share Amounts
Funds held in trust by others $ 7,336 $ 7,264
Other capital assets 73 73
------------------------------------------------------------------------
Total Elizabethtown Water & Subsidiary 7,409 7,337
Concession fees on privatization contracts - net
of amortization 53,555 53,946
Capital assets from privatization contracts - net
of amortization 6,209 6,165
Investments in real estate 9,048 9,049
Goodwill on AWM and AWWM acquisitions - net of
amortization 4,995 5,036
Investment in SEGS 1,089 1,089
Other capital assets 2,411 2,356
Other 182 185
------------------------------------------------------------------------
Total E'town Corporation & Subsidiaries $84,898 $85,163
========================================================================
-15-
E'town, through Liberty, has a 40-year privatization agreement , entered
into in July 1998 with the city of Elizabeth (Elizabeth), New Jersey to
operate its water system which serves approximately 17,600 customers.
Under the contract, Liberty made concession payments to Elizabeth of $19.7
million in 1998 and $12 million in 1999 and is obligated to make a
concession payment of $19 million in June 2000. These concession fee
payments are being amortized on a straight-line basis over the life of the
contract and are included in the table above Under the terms of the
contract, Liberty will deposit $57.8 million from customer collections
over the 40-year contract into a fund administered by Elizabeth (Fund
Deposits), of which $52.3 million is due after 2012. Elizabeth will use
the Fund Deposits to pay for capital improvements or for other water
system purposes. As these funds will be controlled by Elizabeth, they
will be accounted for as a pass-through from customers to Elizabeth and
will not be included in revenues or expenses of Liberty. Liberty is
responsible for $7.45 million of construction expenditures, primarily for
meter replacements, over the life of the contract as well as for all
operating expenses . Of the construction commitments, approximately $2.45
million is expected to be expended in the next three years. The
accumulated amortization of concession fees on privatization contracts and
on capital assets from privatization contracts were $2.3 million and $1.9
million as of March 31, 2000 and December 31, 1999, respectively. Over
the life of the contract, Liberty will bill the customers of the water
system in accordance with rate increases set forth in the contract and
receive all revenues except for the Fund Deposits . E'town has guaranteed
Liberty's performance of the contract provisions.
Liberty also performs the commercial billing operations for the wastewater
system of Elizabeth and remits all cash collected to Elizabeth. Liberty
does not operate the wastewater system. Included in the Consolidated
Balance Sheets of the Corporation as Customer and Other Accounts
Receivable at March 31, 2000 and December 31, 1999 are the receivables
from the customers of Elizabeth for wastewater services in the amount of
$4.70 million and $5.05 million, respectively. An equal amount of
liability to Elizabeth is included in Accounts Payable and Other
Liabilities to reflect Liberty's obligation to remit these funds to
Elizabeth as collected.
E'town, through Edison, has a 20-year privatization agreement, entered
into in June 1997, with the township of Edison, New Jersey to operate its
water system which serves approximately 11,500 customers. Under the
terms of the contract, Edison bills and receives all water revenues
generated as a result of operating the water system of the township of
Edison and pays all the operating expenses. Edison expects to make
expenditures of approximately $25 million during the 20-year life of the
contract of which $12.61 million has been spent as of March 31, 2000.
Construction expenditures, as they are incurred, are being amortized on a
straight-line basis over the remaining life of the contract. Expenditures
include capital improvements to the water system as well as contract
payments to the township of Edison. Of the total, approximately $2.94
million is expected to be expended in the next three years of the
contract. An initial payment of $5.7 million was made upon the closing
and has been included in the table above. The accumulated amortization of
concession fees on privatization contracts and on capital assets from
privatization contracts were $1.2 million and $1.1 million as of March 31,
2000 and December 31, 1999, respectively. E'town has guaranteed Edison's
performance of the contract provisions.
If the Elizabeth or Edison contracts were terminated by either the
township of Edison or the city of Elizabeth, the unamortized balance of
the concession fees and amounts paid for additional capital improvements
would be refunded to Liberty and Edison in accordance with the contracts
Included in Non-Utility Property and Other Investments at March 31, 2000
and December 31, 1999 are $9.05 million of investments in various
parcels of undeveloped land in New Jersey. In February 1999,
Properties sold a parcel of land which had been under contract since
1995 in Green Brook, New Jersey for $5.83 million, at a gain of $2.00
million net of taxes. Cash proceeds of $1.99 million were received in
-16-
1999. The remaining $4.33 million was financed with a 7.75% mortgage,
to be paid over 2 years. The mortgage balance, including accrued
interest, of $1.92 million is included in Mortgage and other notes
receivable in the Corporation's Consolidated Balance Sheet as of March
31, 2000. Properties sold a small parcel in Clinton, New Jersey in
1999 for $.6 million at a gain of less than $.1 million net of taxes.
The sale proceeds are being invested into water and wastewater
projects. Properties has entered into contracts for sale for all of
its remaining parcels. The eventual sale of these parcels is
contingent upon the purchaser obtaining various approvals for
development. This process could take up to several years. Based upon
the expected sales prices for these properties under the contracts,
the estimated net realizable value of each property exceeds its
respective carrying value as of March 31, 2000.
Included in Non-Utility Property and Other Investments at March 31, 2000
and December 31, 1999 is an investment of $1.09 million ($.35 million net
of related deferred taxes) in a limited partnership that owns Solar
Electric Generating System V (SEGS), located in California. E'town owns a
3.19% interest in SEGS. The investment is being accounted for on the
equity method. E'town continues to monitor the relationship between the
carrying and net realizable values of its investment in SEGS, based upon
information provided by SEGS management as well as through cash flow
analyses.
During 1999 AWM made certain investments in non-regulated wastewater
assets for $1.7 million. Of this amount $1.2 million was recorded as other
capital assets and $.5 million was recorded as goodwill. The goodwill is
being amortized over 10 years.
9. REGULATORY MATTERS
MOUNT HOLLY
In December 1999, Mount Holly completed a construction project, called the
Mansfield Project, to comply with New Jersey legislative restrictions to
obtain alternative water supplies, thereby reducing its water pumpage from
an aquifer, which had been subject to over-pumping by Mount Holly and
various local purveyors in a portion of southern New Jersey.
Effective January 1, 2000, Mount Holly received an increase in annual
rates of $1.88 million. This increase included costs for the Mansfield
Project. After elimination of a purchased water adjustment clause (PWAC),
the net rate increase was $.51 million. This increase also reflects
additional construction and financing costs, as well as higher operating
costs since base rates were last established in January 1996.
In June 1999, Mount Holly purchased Homestead Water Utility, Inc. and AWWM
purchased Homestead Treatment Utility, Inc. for a combined cash price of
$1.8 million. The entities provide water and wastewater services to
approximately 800 customers of the Homestead community in southern New
Jersey. The transactions were accounted for as purchases.
-17-
10. SEGMENT REPORTING
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," requires that companies disclose segment data based upon how
management makes decisions, allocates resources and measures performance.
Segment data for the three month
periods ended March 31, 2000 and 1999 is presented as follows :
Three Months Ended
March 31,
In Thousands of Dollars 2000 1999
---------------------------------------------------------------
Operating Revenues:
Regulated Utilities $ 31,938 $ 31,117
Contract Operations 4,869 4,774
Engineering/Operations and Construction 3,304 1,514
Intersegment Elimination (1,948) (1,929)
---------------------------------------------------------------
Consolidated Operating Revenues $ 38,163 $ 35,476
===============================================================
Operating Expenses:
Regulated Utilities $ 24,074 $ 23,128
Contract Operations 4,241 3,990
Engineering/Operations and Construction 3,731 1,438
Financing & Investment 194 174
Intersegment Elimination (1,948) (1,929)
---------------------------------------------------------------
Consolidated Operating Expenses $ 30,292 $ 26,801
===============================================================
Interest Expense:
Regulated Utilities $ 4,731 $ 3,866
Contract Operations 427 290
Engineering/Operations and Construction 45
Financing & Investment 494 326
---------------------------------------------------------------
Consolidated Interest Expense $ 5,697 $ 4,482
===============================================================
Depreciation and Amortization Expense:
Regulated Utilities $ 3,550 $ 3,224
Contract Operations 477 401
Engineering/Operations and Construction 130 11
Financing & Investment 30 38
---------------------------------------------------------------
Consolidated Depreciation and
Amortization Expense $ 4,187 $ 3,674
===============================================================
Net Income (Loss):
Regulated Utilities $ 3,178 $ 4,056
Contract Operations 232 521
Engineering/Operations and Construction (472) 75
Financing & Investment (677) 1,648
---------------------------------------------------------------
Consolidated Net Income $ 2,261 $ 6,300
===============================================================
-18-
Total Assets Total Debt
--------------------------------------------------------------------------
As of As of As of As of
March 31, December 31, March 31, December 31,
2000 1999 2000 1999
--------------------------------------------------------------------------
Regulated Utilities $754,472 $750,690 $304,407 $299,398
Contract Operations 75,132 72,921 44,323 44,624
Engineering/Operations
and Construction 8,141 7,506 2,992 2,067
Financing & Investment 54,271 51,574 61,776 59,660
Intersegment Elimination (36,504) (34,383) (34,409) (30,740)
--------------------------------------------------------------------------
Consolidated Total $855,512 $848,308 $379,089 $375,009
==========================================================================
11. OTHER MATTERS
In September 1999, Elizabethtown withdrew its primary water treatment
plant, the Raritan-Millstone Water Treatment Plant (Plant), from service
as a result of flooding from Tropical Storm Floyd (Floyd). For several
days, Elizabethtown had difficulty maintaining adequate water pressure in
portions of its distribution system because overall system production
levels were substantially less than normal. Customers in portions of a few
municipalities were without water service for approximately 3 days. Costs
incurred to repair and replace equipment damaged by the flood and to
respond to inquiries by customers, regulatory bodies and the media have
been deferred and are expected to be recoverable through insurance. The
Company has incurred $8.6 million of flood-related expenditures and has
received an advanced reimbursement of $2.0 million from its insurance
carrier. The remaining $6.6 million of flood-related expenditures is
reported on the Consolidated Balance Sheet as a deferred charge at March
31, 2000 (see Note 12 for legal matters related to Floyd).
12. LEGAL MATTERS
On September 23, 1999, two parties filed separate class action lawsuits
for compensatory damages and related fees on behalf of themselves and
similarly situated residential and commercial customers against
Elizabethtown Water Company, Edison Water Company and Liberty Water
Company. The lawsuit alleges breach of contract, breach of tariff,
negligence and products liability regarding the quantity and quality of
water services provided by the Corporation during the period in September
1999 when Elizabethtown's Plant was flooded from Floyd and was withdrawn
from service for approximately 3 days. Elizabethtown has notified its
insurance carrier of the lawsuit and has filed a motion for summary
judgment to dismiss the lawsuit as a class action proceeding prior to
answering the allegations. In March 2000, the New Jersey Superior Court
(NJSC) ruled that in the event the lawsuit is not dismissed, the case be
referred to the BPU for purposes of investigating the matter and reporting
its findings to the NJSC. The NJSC, in view of the BPU's findings, will
then determine what, if any, damages were suffered by the plaintiffs and
what liability rests with Elizabethtown. Although the insurance carrier
does not provide coverage for breach of contract and limits its liability
coverage for breach of tariff, the Corporation maintains that plaintiffs'
allegations are without merit and believes that the plaintiffs' chances of
prevailing are not probable and that those allegations specifically not
covered by insurance pose immaterial liability.
-19-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
E'town Corporation (E'town), a New Jersey holding company, is the parent
company of Elizabethtown Water Company (Elizabethtown or Company),
Edison Water Company (Edison), E'town Properties, Inc. (Properties),
Liberty Water Company (Liberty), Applied Water Management, Inc. (AWM)
and Applied Wastewater Management, Inc. (AWWM). The Mount Holly Water
Company (Mount Holly) is a wholly-owned subsidiary of Elizabethtown.
The assets and operating results of Elizabethtown constitute the
predominant portions of E'town's assets and operating results. Mount
Holly, Liberty, AWM and Edison contributed 3.2%, 5.4%, 7.4% and 1.6%,
respectively, of the Corporation's consolidated operating revenues for
1999. Reference to the Corporation and its subsidiaries as a
consolidated entity is referred to herein as E'town. The regulated
utilities, Elizabethtown, Mount Holly and AWWM, comprise the Regulated
Utilities segment, Liberty and Edison comprise the Contract Operations
segment, AWM is the Engineering/Operations and Construction segment and
E'town and Properties comprise the Financing and Investment segment (See
Note 10 to E'town's Notes to Consolidated Financial Statements). The
following analysis sets forth significant events affecting the financial
condition of the various segments at March 31, 2000 and the results of
operations for the three month periods ended March 31, 2000 and 1999.
PENDING MERGER
On November 21, 1999, E'town entered into an agreement (Merger
Agreement) with Thames Water Plc (Thames Water) under which Thames
Water has agreed, subject to certain conditions, to acquire E'town for
$68 per share in cash or approximately $607 million. Thames Water will
also assume the debt of the Corporation. The acquisition will take the
form of a merger (Merger) of E'town with a newly formed subsidiary of
Thames Water and E'town will be the surviving company.
A special meeting of shareholders will be held on May 18, 2000 to seek
shareholder approval of the transaction. The review of the acquisition
has been approved by the Federal Trade Commission and the Department of
Justice under the Hart-Scott-Rodino Antitrust Improvement Act of 1976
has been completed. The acquisition is subject to approval by the New
Jersey Board of Public Utilities (BPU). Certain clearances must also be
obtained from the New Jersey environmental regulators. The transaction
is expected to close prior to the end of 2000.
LIQUIDITY AND CAPITAL RESOURCES
Capital Expenditures Program
For the three months ended March 31, 2000, capital expenditures were
$5.2 million, principally comprised of other additions and improvements
to water utility plant and wastewater facilities. For the three years
ending December 31, 2002, capital and investment requirements for the
Corporation are estimated to be $171.4 million, consisting of (i)
expenditures for the Regulated Utilities Segment ($135.1 million for
Elizabethtown, $4.7 million for Mount Holly and $5.2 million for AWWM),
(ii) investments in the Contract Operations segment for concession
payments by Liberty and capital improvements for Liberty and Edison of
$24.4 million, and (iii) investments in the Engineering/Operations and
Construction segment of $2.0 million. These estimates do not include any
amounts for possible additional acquisitions or privatization activities
in the three-year period.
-20-
REGULATED UTILITIES SEGMENT
Elizabethtown
Elizabethtown's three-year capital program includes $62.0 million for
routine projects (services, hydrants, system rehabilitation and main
extensions not funded by developers) and $73.1 million for transmission
system upgrades, a new operations center, expansion of the Canal Road
Water Treatment Plant (Canal Road) and other projects. Canal Road will
be expanded to provide for enhanced system reliability and to
accommodate customer growth. Canal Road was designed as a 40 million
gallon per day (MGD) plant, expandable to 200 MGD.
Mount Holly
During the next three years, Mount Holly expects to spend $4.7 million,
of which $3.3 million is for routine projects (services, hydrants and
main extensions not funded by developers).
In December 1999, Mount Holly completed a construction project, called
the Mansfield Project, to comply with New Jersey legislative
restrictions to obtain alternative water supplies, thereby reducing its
water pumpage from an aquifer, which had been subject to over-pumping by
Mount Holly and various local purveyors in a portion of southern New
Jersey.
Effective January 1, 2000, Mount Holly received an increase in annual
rates of $1.88 million. This increase included costs for the Mansfield
Project. After elimination of a purchased water adjustment clause
(PWAC), the net rate increase was $.51 million. This increase also
reflects additional construction and financing costs, as well as higher
operating costs since base rates were last established in January 1996.
AWWM
AWWM expects to incur capital expenditures of $5.2 million in the next
three years for purchases of wastewater plants from developers.
CONTRACT OPERATIONS SEGMENT
LIBERTY
Under the contract to operate the water system of the city of Elizabeth,
New Jersey, Liberty made payments to Elizabeth of $19.7 million in 1998
and $12.0 million in June 1999 and is contractually obligated to make a
payment to Elizabeth of $19 million in June 2000. Under the terms of the
contract, Liberty will deposit $57.8 million from revenues earned during
the 40-year contract, of which $52.3 million is due after 2012, into a
fund administered by Elizabeth (Fund Deposits). Elizabeth will use the
Fund Deposits to pay for capital improvements or for other water system
purposes. Liberty is responsible for $7.45 million of construction
expenditures, primarily for meter replacements, during the life of the
contract. Of the total construction expenditures, approximately $2.5
million is expected to be expended in the next three years.
EDISON
Under the contract to operate the water system of the township of
Edison, New Jersey, Edison Water Company expects to spend $2.9 million
during the next three years to upgrade the system.
ENGINEERING/OPERATIONS/CONSTRUCTION SEGMENT
AWM
AWM expects to incur capital expenditures of $2.0 million during the
next three years, primarily for vehicles and equipment used in the
construction and waste hauling operations.
Capital Resources
During 1999 the Corporation financed 37.0% of its capital expenditures,
including capital expenditures for the Regulated Utilities segment and
investments in the Contract Operations and
-21-
Engineering/Operations and Construction segments, from internally
generated funds (after payment of common stock dividends). The balance
was financed with a combination of short-term borrowings under lines of
credit, proceeds from capital contributions from E'town (funded by
issuances of Common Stock under E'town's Dividend Reinvestment and Stock
Purchase Plan) and proceeds from the sale of real estate.
For the three-year period ending December 31, 2002, the Corporation
estimates that 52% of its currently projected capital expenditures and
concession fee obligations for all segments are expected to be financed
with internally generated funds (after payment of common stock
dividends, at current levels). The balance will be financed with a
combination of proceeds from the sale of E'town common stock or capital
contributions from Thames Water after the pending Merger, medium-term
notes, long-term debt, proceeds of tax-exempt New Jersey Economic
Development Authority (NJEDA) bonds and short-term borrowings.
Elizabethtown expects to pursue additional tax-exempt financing to the
extent that final allocations are granted by the NJEDA.
In February 2000 E'town issued $30 million of 7.69% Senior Notes due
2010. The proceeds were used to repay short-term debt incurred to
finance the acquisition of the contract to operate the water system of
the city of Elizabeth and capital expenditures for the non-regulated
subsidiaries.
In November 1998 Mount Holly closed on loan agreements that will make
available up to $13.2 million in proceeds from the issuance of unsecured
notes through the New Jersey Environmental Infrastructure Trust
Financing Program. This program provides financing through two loans.
The first loan, in the amount of $7.3 million, is through the New Jersey
Environmental Infrastructure Trust (Trust), which issued tax-exempt
bonds with average interest rates of 4.7%. The second loan, in the
amount of $5.9 million, is from the State of New Jersey, acting through
the New Jersey Department of Environmental Protection. The State is
participating in the Safe Drinking Water State Revolving Fund authorized
by the Safe Drinking Water Act amendments of 1996 whereby the federal
government is funding the state loan at no interest cost. The effective
interest rate for the combined notes is approximately 2.6%. The proceeds
of the loans will be used to repay short-term debt incurred to finance
a portion of the Mansfield Project. The Company expects to request these
funds from the Trust in the second quarter of 2000.
E'town' s senior debt is currently rated A3 and A and Elizabethtown's
senior debt is currently rated A2 and A+ by Moody's Investors Service
and Standard & Poor's Ratings Group, respectively.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
INTEREST RATE RISK
The Corporation is subject to the risk of fluctuating interest rates in
the normal course of business. The Corporation manages interest rates
through the use of fixed and, to a lesser extent, variable rate debt. A
hypothetical single percentage point change in interest rates for the
three months
ended March 31, 2000 would result in a $1.1 million change in interest
costs related to short-term and variable rate debt and to earnings
before tax.
-22-
RESULTS OF OPERATIONS
Net Income for the three months ended March 31, 2000 was $2.3 million
or $.26 per basic share as compared with $6.3 million or $0.74 per basic
share for the same period in 1999.
Of the $4.0 million or $.48 per basic share decrease, $ 2.1 million or
$.24 was attributable to an after-tax gain in the 1999 period on the
sale of a real estate parcel in the Financing and Investment segment in
1999. Of the remaining $1.9 million decrease, $.9 million or $.12 per
basic share is largely the result of higher operations expenses in the
Regulated Utilities segment primarily because Elizabethtown has not
recovered increases in operations expenses in rate increases, $.5
million or $.06 per share is related to higher personnel and operating
costs, reflective of growth in the Engineering/Operations and
Construction segment and $.5 million or $.06 per share consists of
interest costs on additional long-term debt in the Financing and
Investment segment and increased borrowings in the Contract Operations
segment.
Operating Revenues increased $2.7 million or 7.6% for the three months
ended March 31, 2000 as compared to the same period in 1999. Revenues
from the Engineering/Operations and Construction segment increased by
$1.8 million to $3.3 million due to AWM's additional revenues from new
contracts to design and build wastewater facilities and its acquisition
in late 1999 of a septic services business (see Economic Outlook -
Engineering/ Operations and Construction Segment). The Regulated
Utilities segment accounted for $.8 million of the increase due to new
industrial wholesale customers, higher fire service income from
commercial users and customer growth. The Contract Operations segment
provided the remaining $.1 million increase in revenues.
Operation Expenses increased $3.4 million or 23.4% for the three
months ended March 31, 2000 as compared to the same period
in 1999. Of the increase, $2.4 million is attributable to
the Engineering/Operations and Construction segment,
primarily reflecting additional personnel costs as well as
other operating costs to support recently acquired business
(see Operating Revenues above) and future customer growth
opportunities (see Economic Outlook - Engineering/
Operations and Construction Segment). The Regulated
Utilities segment comprised $ .6 million of the increase due
to labor costs for additional employees, overtime pay caused
by a harsher 2000 winter and leasing expenditures associated
with upgrading Elizabethtown's vehicle fleet, partially
offset by a reduction of purchased water expense at Mount
Holly from elimination of the PWAC. The Contract Operations
segment accounted for $.3 million of the increase,
principally due to purchased water costs. The remaining $.1
million of the increase in operating expenses is
attributable to Merger transaction costs incurred by the
Financing and Investment segment.
Maintenance Expenses increased $.3 million or 18.2% for the three month
period ended March 31, 2000 as compared to the comparable period in the
prior year primarily at the Regulated Utilities segment due to the
harsher winter weather of 2000. Maintenance costs at the other segments
remained relatively flat as compared with the same period in the prior
year.
Depreciation and Amortization Expense increased $.5 million or 14.0% for
the three month period in 2000 as compared with the first quarter of
1999. Of the increase, $.3 million is due to depreciation on additions
to utility plant in the Regulated Utilities segment, $.1 million to
depreciation on nonutility plant in the Contract Operations segment and
$.1 million to and amortization of goodwill from acquisition of a septic
services business in 1999 in the Engineering/Operations and Construction
segment.
Revenue Taxes increased $.2 million or 5.8% for the first quarter of
2000 as compared with the first quarter of 1999 due to an overall
increase in water sales by the Regulated Utilities segment.
Real Estate, Payroll and Other Taxes Expenses increased $.1 million or
11.2% for the three months ended March 31, 2000 as compared with the
first quarter of 1999 due to increased payroll taxes on higher labor
costs.
Federal Income Taxes as a component of operating expenses decreased $1.1
million or 47.6% for the three month periods ended March 31, 2000
compared to 1999 due to changes in taxable operating income for each
segment.
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Other Income (Expense) decreased $2.0 million or 87.5% for the first
quarter of 2000 as compared with the first quarter of 1999 due
principally to the sale of a parcel of land in Green Brook, New Jersey
in 1999 at a gain of $3.2 million ($2.1 million after taxes) in the
Financing and Investment segment.
Total Interest Charges increased $1.2 million or 27.1% for the three
months ended March 31, 2000. The increase is comprised of (i) $.8
million in the Regulated Utilities segment for interest expense incurred
on a higher level of short-term bank notes used to fund Elizabethtown's
and Mount Holly's capital expenditures and a higher interest rate on
Elizabethtown's long-term variable rate debt (ii) $.3 million in the
Financing and Investment segment for interest costs on new private
placement Senior Notes issued in February 2000 and (iii) $.1 million in
the Contract Operations segment to finance Liberty's scheduled
concession payment in June 1999 to the city of Elizabeth.
ECONOMIC OUTLOOK
Forward Looking Information
Information in this report includes certain forward looking statements
within the meaning of the Federal securities laws regarding future
earnings, capital expenditures and anticipated actions of regulators,
among other things. Any forward looking statements are based upon
information currently available and are subject to future events, risks
and uncertainties that could cause actual results to differ materially
from those expressed in the statements. Such events, risks and
uncertainties include, without limitation, actions of regulators, the
effects of weather, changes in historical patterns of water consumption
and demand, including changes through increased use of water-conserving
devices, conditions in capital and real estate markets, increases in
operating expenses due to factors beyond the Corporation's control, the
closing of the pending Merger with Thames Water, changes in
environmental regulation and associated costs of compliance and
additional investments or acquisitions which may be made by the
Corporation.
E'town Corporation and Subsidiaries
Earnings are expected to be lower in 2000 than in 1999 for the following
reasons:
Regulated Utilities Segment - Water consumption is assumed to return to
normal levels following a warm, dry summer in 1999. In addition,
Elizabethtown has agreed to delay the filing of a base rate case,
originally planned for early 2000 until at least August 2000 as a
condition of the Merger Agreement. A rate case is expected to be filed
early in 2001. As a result, recovery of increases in operating costs and
costs associated with additional utility plant investments since rates
were last increased in 1996 will be delayed.
Engineering/Operations and Construction Segment - Despite substantial
revenue gains for the first quarter of 2000 over the same period in
1999, increased costs, primarily related to additional personnel
incurred to support growth of this segment, led to a loss for the first
quarter of 2000. A loss is also currently expected for the year 2000.
Management is reviewing its plans and financial projections for the
remainder of the year to achieve improved financial results as the
company grows.
Financing and Investment Segment - Properties' $2.1 million contribution
to net income during the first quarter of 1999 was due to a land sale
that will not recur. Gains are expected on land sales for Properties
remaining two parcels. The sales are not expected to close before 2001.
In addition, E'town will incur expenses associated with the pending
Merger.
During the next several years, management will further seek to increase
earnings by (i) maximizing earned returns on the Regulated Utilities
segment through expansion efforts to increase sales, cost control
measures and obtaining timely and adequate rate relief and (ii)
investing in water and wastewater assets (including municipal
privatization contracts, as well as designing, constructing, operating
and purchasing wastewater assets through AWM and AWWM, discussed below).
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Regulated Utilities Segment
Elizabethtown, Mount Holly and AWWM
Elizabethtown expects lower net income in 2000 because (i) water
consumption is assumed to return to normal levels following a warm, dry
summer in 1999 and (ii) higher costs associated with operations and
capital investments incurred since rates were last established in 1996
which are not presently recovered in rates. Both factors will be
partially offset by continued growth in Elizabethtown's customer base.
Furthermore, a rate case originally planned to be filed early in 2000,
but delayed to at least August 2000 due to the Merger Agreement, is
planned to be filed early in 2001.
Management has assumed lower earnings in 2000 than in 1999 based on a
return to normal usage patterns (based on a 5-year average). Water sales
during 1999 exceeded normal levels (based on 5-year average per customer
consumption) by an estimated $2.7 million due to a drought during July
and taking into effect state-imposed restrictions on water use during
August.
Elizabethtown, which received its last rate increase in 1996, expects
lower net income in 2000 and 2001 pending the completion of the rate
case originally planned for early in 2000, but delayed due to the Merger
Agreement. Upon completion of the rate case planned for early in 2001,
Elizabethtown expects its earned returns on common equity to increase
from 9.4% (for the twelve months ended March 31, 2000) to levels
comparable to authorized rates of return. Recent returns authorized by
the New Jersey Board of Public Utilities are higher than that currently
being earned by Elizabethtown. As part of that rate case, Elizabethtown
will request rate recognition for approximately $90 million in
additional investments in utility plant since rates were last adjusted
in 1996, as well as for increases in expenses since that time.
Elizabethtown is experiencing growth in all customer classes. Total
customers increased by more than 2,000 in 1999. While sales to wholesale
customers for the first quarter of 2000 are similar to last year, in
March 2000 Elizabethtown increased its deliveries to a long-standing
wholesale customer by 2 million gallons per day (annualized revenue
impact of $1.1 million). Sales to fire service and industrial customers
also increased for the quarter.
Mount Holly had a negative rate of return on common equity of 2.6% in
1999, compared to an authorized rate of return of 11.25%, established in
its 1996 base rate case. Mount Holly earned significantly below its
authorized return in 1999 and 1998 because the Company was precluded
from filing for needed rate relief due to recently settled litigation
with another purveyor. Management expects Mount Holly to contribute to
the Corporation's earnings per share in 2000 as a result of a
Stipulation Agreement approved by the BPU whereby a rate increase of
$1.9 million, or a net increase of $.5 million after elimination of the
PWAC, was effective January 1, 2000.
AWWM expects to become profitable after it expands its customer base in
the next several years.
Contract Operations Segment
Liberty
Liberty is expected to realize a return on its capital in an amount
similar to that currently earned by the Corporation's regulated
operations.
Edison
Edison is expected to realize a return on its capital in an amount
similar to that currently earned by the Corporation's regulated
operations. Contributions to earnings will be small through 2002 and
then will increase as rate increases specified in the contract take
effect.
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E'town continues to pursue opportunities to operate municipal water and
wastewater systems under long-term contracts, primarily in New Jersey.
E'town will focus on opportunities where it may have an advantage due to
location or experience in operation.
Engineering/Operations and Construction Segment
AWM
AWM, acquired by E'town in June 1998, provides engineering, construction
and operations services for stand-alone water and wastewater treatment
facilities for industrial, commercial and residential customers, as well
as developers of such properties.
Despite increases in revenues for the quarter ended March 31, 2000
versus the comparable period in 1999, AWM incurred a loss for the
quarter due primarily to higher costs to finance growth. Such costs are
due to additional personnel to support higher business volumes as well
as startup and subsequent expansion, of an office in New England. In
addition, two construction projects anticipated for the first quarter
were delayed due to permitting issues. Customer demand remains strong
with several projects in the proposal and/or contract negotiation
stage. Management is reviewing its plans and financial projections for
the remainder of the year to achieve improved financial results as the
company grows.
Financing and Investment Segment
E'town and Properties
In 1997, E'town decided to sell its unregulated real estate assets
(Properties) and reinvest the proceeds in water and wastewater projects.
Several properties were sold during 1997 and 1998 and one property was
sold in January, 1999 for an after-tax gain of $2.0 million.
At this time, the two remaining properties are under contract to be sold
for amounts in excess of current carrying costs. The sale of these
parcels is contingent upon various municipal approvals and closings are
expected to occur in stages from 2001 through 2004. After-tax sale
proceeds are expected to be used to fund investments in water and
wastewater projects.
New Accounting Pronouncements
See Note 3 of the Corporation's Notes to Consolidated Financial
Statements for a discussion of new accounting standards.
Year 2000
State of Readiness
The Corporation has assessed its significant business systems, as well
as non-critical, peripheral support systems for compliance with the Year
2000 computer challenge. The assessment concluded that all significant
business systems (i.e. customer billing and service, financial, water
treatment operating and control, water quality laboratory information
and telemetric data acquisition systems) are Year 2000 compliant. The
assessment also included inquiries as to the state of readiness of
significant vendors whose services to the Corporation could have an
impact on the Corporation's ability to deliver service to its customers.
Management concluded that the delivery of electric power as well as
chemicals used in the water treatment process are two areas of
significant importance and received documentation from the vendors who
provide these services that indicates their ability to provide service.
Therefore, the Corporation expects no disruption in the services it
provides to its customers and expects to process transactions in its
financial, customer billing and customer services systems. See
Contingency Plan below for a discussion of alternative sources of
power. The assessment had identified certain modifications to
peripheral support systems that have since been implemented.
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The Costs To Address The Corporation's Year 2000 Issues
The significant business systems of the Corporation defined above are
Year 2000 compliant and have been operational for up to several years.
Therefore, no further costs are expected to be incurred in connection
with bringing these systems into compliance. The peripheral support
systems required the Corporation to incur costs of approximately $.3
million in 1999 to bring them into compliance.
Risks Associated With The Corporation's Year 2000 Issues
Management believes that all identifiable issues with respect to Year
2000 compliance have been addressed, or will be addressed, in sufficient
time and in sufficient detail to preclude any disruption in service or
adverse effect on the Corporation's financial profile. Management,
therefore, believes that risks associated with this issue are minimal
with respect to those areas, which are internal to the Corporation and
over which management exercises control. Those areas that are external
to the Corporation i.e. issues associated with our vendors, have been
mitigated to the extent possible through inquiry of our vendors, tests
of their claims of Year 2000 compliance and development of contingency
plans as considered appropriate.
Contingency Plan
There are operational contingency plans in place on an ongoing basis to
address issues, such as natural disasters, that could result in a
disruption of service. These procedures would be activated in the event
that certain physical facilities were not operable as a result of
failures by our vendors associated with Year 2000 issues. In addition,
Elizabethtown Water Company has alternative electric, natural gas and
diesel generation capacity that could sustain a significant level of
pumping capacity for an indefinite period of time.
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PART II - OTHER INFORMATION
Item 1 Legal Proceedings
On September 23, 1999, two parties filed separate class action lawsuits
for compensatory damages and related fees on behalf of themselves and
similarly situated residential and commercial customers against
Elizabethtown Water Company, Edison Water Company and Liberty Water
Company. The lawsuit alleges breach of contract, breach of tariff,
negligence and products liability regarding the quantity and quality of
water services provided by the Corporation during the period in
September 1999 when Elizabethtown's Plant was flooded from Floyd and was
withdrawn from service for approximately 3 days. Elizabethtown has
notified its insurance carrier of the lawsuit and has filed a motion for
summary judgment to dismiss the lawsuit as a class action proceeding
prior to answering the allegations. In March 2000, the New Jersey
Superior Court (NJSC) ruled that in the event the lawsuit is not
dismissed, the case be referred to the BPU for purposes of investigating
the matter and reporting its findings to the NJSC. The NJSC, in view of
the BPU's findings, will then determine what, if any, damages were
suffered by the plaintiffs and what liability rests with Elizabethtown.
Although the insurance carrier does not provide coverage for breach of
contract and limits its liability coverage for breach of tariff, the
Corporation maintains that plaintiffs' allegations are without merit and
believes that the plaintiffs' chances of prevailing are not probable and
that those allegations specifically not covered by insurance pose
immaterial liability.
Items 2 - 5:
Nothing to Report.
Item 6(a) - Exhibits
Exhibits to Part I:
Exhibit 4 - E'town Corporation - Note Purchase Agreement
relating to 7.69% Senior Notes due February 1, 2010
Exhibit 12 - E'town Corporation and Subsidiaries - Computation of
Ratio of Earnings to Fixed Charges
Exhibit 12(a) - Elizabethtown Water Company - Computation of Ratio of
Earnings to Fixed Charges
Exhibit 12(b) - Elizabethtown Water Company - Computation of Ratio of
Earnings to Fixed Charges and Preferred Dividends
Exhibit 27 - E'town Corporation and Subsidiaries and Elizabethtown
Water Company and Subsidiary - Financial Data Schedules
Item 6(b) - Reports on Form 8-K
None
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E'TOWN CORPORATION
ELIZABETHTOWN WATER COMPANY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date : May 12, 2000
E'TOWN CORPORATION
ELIZABETHTOWN WATER COMPANY
/s/ Gail P. Brady
____________________________________
Gail P. Brady
Treasurer
/s/ Dennis W. Doll
_____________________________________
Dennis W. Doll
Controller
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