FORM 10-Q
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 June 30, 1994
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 0-18595
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)
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)
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 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 June 30, 1994
E'town Corporation
without par value 6,467,179
E'TOWN CORPORATION
ELIZABETHTOWN WATER COMPANY
INDEX
_____
_______________________________________________________________________
PART I - FINANCIAL INFORMATION PAGE
______________________________ ____
Item 1. Financial Statements
E'TOWN CORPORATION AND SUBSIDIARIES
___________________________________
- Statements of Consolidated Income 1-3
- Consolidated Balance Sheets 4
- Statements of Consolidated Capitalization 6
- Statements of Consolidated Cash Flows 7-9
- Statements of Consolidated Shareholders' Equity 10
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
__________________________________________
- Statements of Consolidated Income 11-13
- Consolidated Balance Sheets 14
- Statements of Consolidated Capitalization 16
- Statements of Consolidated Cash Flows 17-19
- Statements of Consolidated Shareholder's Equity 20
E'TOWN CORPORATION AND SUBSIDIARIES AND
_______________________________________
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
__________________________________________
- Notes to Consolidated Financial Statements 21
Item 2. Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations 24
PART II - OTHER INFORMATION
___________________________
Items 1 - 5 31
Item 6.(a) - Exhibits 31
(b) - Reports on Form 8-K 31
SIGNATURES 32
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
Three Months Ended
June 30,
1994 1993
____________ ___________
Operating Revenues $ 25,208,368 $ 24,864,753
____________ ____________
Operating Expenses:
Operation 10,383,535 9,381,217
Maintenance 1,624,568 1,479,726
Depreciation 1,945,001 1,819,407
Revenue taxes 3,142,600 3,109,492
Real estate, payroll and other taxes 703,674 654,098
Federal income taxes 1,602,464 1,803,276
____________ ____________
Total operating expenses 19,401,842 18,247,216
____________ ____________
Operating Income 5,806,526 6,617,537
____________ ____________
Other Income:
Allowance for equity funds used
during construction 180,407 108,953
Write-down of non-utility property
and other investments (Note 6) (99,025) (6,991)
Federal income taxes (63,612) (48,726)
Other - net 105,710 41,358
____________ ____________
Total other income 123,480 94,594
____________ ____________
Total Operating and Other Income 5,930,006 6,712,131
____________ ____________
Interest Charges:
Interest on long-term debt 2,903,511 3,118,089
Other interest expense - net 570 43,270
Capitalized interest (231,516) (211,123)
Amortization of debt discount - net 89,493 62,801
____________ ____________
Total interest charges 2,762,058 3,013,037
____________ ____________
Income Before Preferred Stock Dividends
of Subsidiary 3,167,948 3,699,094
Preferred Stock Dividends 203,250 262,500
____________ ____________
Net Income $ 2,964,698 $ 3,436,594
____________ ____________
____________ ____________
Earnings Per Share of Common Stock:
Primary $ .49 $ .66
____________ ____________
____________ ____________
Fully Diluted $ .49 $ .64
____________ ____________
____________ ____________
Average Number of Shares Outstanding for
the Calculation of Earnings Per Share:
Primary 6,036,383 5,236,597
____________ ____________
____________ ____________
Fully Diluted 6,346,978 5,550,729
____________ ____________
____________ ____________
Dividends Paid Per Common Share $ .51 $ .50
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-1-
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
Six Months Ended
June 30,
1994 1993
____________ ___________
Operating Revenues $ 49,865,757 $ 47,000,408
____________ ____________
Operating Expenses:
Operation 20,750,523 18,336,283
Maintenance 3,198,577 2,837,056
Depreciation 3,873,866 3,618,990
Revenue taxes 6,238,997 5,891,036
Real estate, payroll and other taxes 1,445,409 1,488,934
Federal income taxes 3,039,320 2,853,536
____________ ____________
Total operating expenses 38,546,692 35,025,835
____________ ____________
Operating Income 11,319,065 11,974,573
____________ ____________
Other Income:
Allowance for equity funds used
during construction 334,281 191,277
Write-down of non-utility property
and other investments (Note 6) (288,747) (92,517)
Federal income taxes (88,107) (58,560)
Other - net 213,597 73,485
____________ ____________
Total other income 171,024 113,685
____________ ____________
Total Operating and Other Income 11,490,089 12,088,258
____________ ____________
Interest Charges:
Interest on long-term debt 5,804,187 6,237,038
Other interest expense - net 4,074 81,497
Capitalized interest (447,175) (397,384)
Amortization of debt discount - net 175,075 125,602
____________ ____________
Total interest charges 5,536,161 6,046,753
____________ ____________
Income Before Preferred Stock Dividends
of Subsidiary 5,953,928 6,041,505
Preferred Stock Dividends 452,517 525,000
____________ ____________
Net Income $ 5,501,411 $ 5,516,505
____________ ____________
____________ ____________
Earnings Per Share of Common Stock:
Primary $ .94 $ 1.09
____________ ____________
____________ ____________
Fully Diluted $ .94 $ 1.08
____________ ____________
____________ ____________
Average Number of Shares Outstanding for
the Calculation of Earnings Per Share:
Primary 5,860,810 5,068,321
____________ ____________
____________ ____________
Fully Diluted 6,171,613 5,383,235
____________ ____________
____________ ____________
Dividends Paid Per Common Share $ 1.02 $ 1.00
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-2-
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
Twelve Months Ended
June 30,
1994 1993
____________ ___________
Operating Revenues $102,861,469 $ 92,942,162
____________ ____________
Operating Expenses:
Operation 41,695,160 36,396,747
Maintenance 6,077,678 5,884,943
Depreciation 7,540,185 7,019,911
Revenue taxes 12,849,765 11,583,482
Real estate, payroll and other taxes 2,662,922 2,638,013
Federal income taxes 7,356,190 5,790,528
___________ ____________
Total operating expenses 78,181,900 69,313,624
___________ ____________
Operating Income 24,679,569 23,628,538
___________ ____________
Other Income:
Gain on sale of land 1,685,521
Allowance for equity funds used
during construction 588,343 534,779
Write-down of non-utility property
and other investments (Note 6) (465,545) (272,517)
Federal income taxes (819,867) (129,212)
Other - net 536,627 117,782
____________ ____________
Total other income 1,525,079 250,832
____________ ____________
Total Operating and Other Income 26,204,648 23,879,370
____________ ____________
Interest Charges:
Interest on long-term debt 11,941,373 12,167,640
Other interest expense - net 18,425 235,927
Capitalized interest (855,673) (1,033,614)
Amortization of debt discount - net 308,272 248,683
____________ ____________
Total interest charges 11,412,397 11,618,636
____________ ____________
Income Before Preferred Stock Dividends
of Subsidiary 14,792,251 12,260,734
Preferred Stock Dividends 977,517 1,050,000
____________ ____________
Net Income $ 13,814,734 $ 11,210,734
____________ ____________
____________ ____________
Earnings Per Share of Common Stock:
Primary $ 2.41 $ 2.27
____________ ____________
____________ ____________
Fully Diluted $ 2.38 $ 2.24
____________ ____________
____________ ____________
Average Number of Shares Outstanding for
the Calculation of Earnings Per Share:
Primary 5,730,926 4,944,830
____________ ____________
____________ ____________
Fully Diluted 6,042,757 5,262,422
____________ ____________
____________ ____________
Dividends Paid Per Common Share $ 2.03 $ 2.00
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-3-
E'TOWN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
Assets 1994 1993
____________ ____________
Utility Plant-At original cost:
Utility plant in service $443,104,071 $438,178,824
Construction work in progress 25,861,745 17,242,088
____________ ____________
Total utility plant 468,965,816 455,420,912
Less accumulated depreciation and amortization 85,928,506 82,128,023
____________ ____________
Utility plant-net 383,037,310 373,292,889
____________ ____________
Non-utility Property and Other
Investments - Net (Note 6) 13,520,729 13,545,589
____________ ____________
Funds Held by Trustee for Construction
Expenditures 328 382,306
____________ ____________
Current Assets:
Cash and cash equivalents 739,542 7,376,472
Short-term investments (Note 7) 17,042,622 30,622
Customer and other accounts receivable
(less reserve: 1994, $391,649; 1993, $434,000) 12,558,640 12,031,414
Unbilled revenues 8,116,675 7,248,322
Materials and supplies-at average cost 1,737,564 1,623,702
Prepaid insurance, taxes, other 1,725,863 1,603,955
____________ ____________
Total current assets 41,920,906 29,914,487
____________ ____________
Deferred Charges:
Prepaid pension expense 916,305 962,595
Abandonments 114,073 152,097
Waste residual management 456,687 587,589
Unamortized debt expenses 8,499,144 8,648,030
Other unamortized expenses 2,386,487 598,179
Postretirement benefit expense 1,538,138 1,004,556
Taxes recoverable through future rates 26,643,663 26,643,663
____________ ____________
Total deferred charges 40,554,497 38,596,709
____________ ____________
Total $479,033,770 $455,731,980
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-4-
E'TOWN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
Capitalization and Liabilities 1994 1993
____________ ____________
Capitalization (Note 3):
Common shareholders' equity $149,708,720 $128,374,207
Cumulative preferred stock - redeemable 12,000,000 12,000,000
Long-term debt - net 154,311,982 154,406,533
____________ ____________
Total capitalization 316,020,702 294,780,740
____________ ____________
Current Liabilities:
Long-term debt - current portion 42,000 42,000
Accounts payable and other liabilities 7,496,189 9,645,055
Customers' deposits 281,572 276,497
Municipal and state taxes accrued 13,818,072 12,569,445
Federal income taxes accrued 858,312 947,274
Interest accrued 3,041,489 3,052,160
Preferred stock dividends accrued 63,970 89,178
____________ ____________
Total current liabilities 25,601,604 26,621,609
____________ ____________
Deferred Credits:
Customers' advances for construction 45,906,102 45,149,522
Federal income taxes 59,605,408 58,363,510
State income taxes 151,538 151,538
Unamortized investment tax credits 8,769,152 8,852,487
Emergency water projects 65,304 127,704
Accumulated postretirement benefits 1,555,610 1,015,004
____________ ____________
Total deferred credits 116,053,114 113,659,765
____________ ____________
Contributions in Aid of Construction 21,358,350 20,669,866
____________ ____________
Commitments and Contingent Liabilities (Note 9)
____________ ____________
Total $479,033,770 $455,731,980
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-5-
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CAPITALIZATION
June 30, December 31,
1994 1993
___________ ___________
E'town Corporation:
Common Shareholders' Equity (Note 3):
Common stock without par value, authorized,
15,000,000 shares; issued 1994, 6,489,211
shares; 1993, 5,661,504 shares $110,774,733 $ 87,842,657
Paid-in capital 1,315,025 1,315,025
Capital stock expense (4,284,094) (3,357,165)
Retained earnings 42,537,032 43,207,666
Less cost of treasury stock; 1994 and
1993, 22,032 shares (633,976) (633,976)
____________ ____________
Total common shareholders' equity 149,708,720 128,374,207
____________ ____________
Elizabethtown Water Company:
Cumulative Preferred Stock-Redeemable:
$100 par value, authorized, 200,000
shares; $5.90 series, issued and
outstanding, 120,000 shares (Note 3) 12,000,000
____________
Cumulative Preferred Stock-Redeemable:
$100 par value, authorized, 200,000
shares; $8.75 series, issued and
outstanding, 120,000 shares (Note 3) 12,000,000
____________
Cumulative Preferred Stock:
$25 par value, authorized, 500,000 shares;
none issued
Long-Term Debt:
E'town Corporation:
6 3/4% Convertible Subordinated Debentures,
due 2012 12,403,000 12,497,000
Elizabethtown Water Company:
7.20% Debentures, due 2019 10,000,000 10,000,000
7 1/2% Debentures, due 2020 15,000,000 15,000,000
6.60% Debentures, due 2021 10,500,000 10,500,000
6.70% Debentures, due 2021 15,000,000 15,000,000
8 3/4% Debentures, due 2021 27,500,000 27,500,000
8% Debentures, due 2022 15,000,000 15,000,000
7 1/4% Debentures, due 2028 50,000,000 50,000,000
The Mount Holly Water Company:
Notes Payable (due serially through 2000) 165,300 186,300
____________ ____________
Total long-term debt 155,568,300 155,683,300
Unamortized discount-net (1,256,318) (1,276,767)
____________ ____________
Total long-term debt-net 154,311,982 154,406,533
____________ ____________
Total capitalization $316,020,702 $294,780,740
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-6-
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
Three Months Ended
June 30,
1994 1993
___________ ___________
Cash Flows from Operating Activities:
Net Income $ 2,964,698 $ 3,436,594
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,945,001 1,819,407
Write-down of non-utility property and other
investments 99,025 6,991
Increase in deferred charges (224,075) (96,923)
Deferred income taxes and investment tax
credits - net 554,042 635,716
Capitalized interest and AFUDC (411,923) (320,076)
Other operating activities-net (13,379) (12,936)
Change in current assets and current liabilities
excluding cash, short-term investments and
current portion of debt:
Customer and other accounts receivable (632,656) (359,954)
Unbilled revenues (882,618) (1,570,304)
Accounts payable and other liabilities 1,057,521 1,252,261
Accrued/prepaid interest and taxes (2,382,200) 4,412
Other (25,560) 115,091
____________ ____________
Net cash provided by operating activities 2,047,876 4,910,279
____________ ____________
Cash Flows Provided by Financing Activities:
(Increase) Decrease in funds held by Trustee
for construction expenditures (44) 1,690,582
Proceeds from issuance of common stock 20,227,828 18,128,314
Repayment of long-term debt (41,500) (30,500)
Contributions and advances for construction-net 451,741 372,504
Net decrease in notes payable - banks (8,000,000)
Dividends paid on common stock (3,279,046) (2,757,358)
____________ ____________
Net cash provided by financing activities 17,358,979 9,403,542
____________ ____________
Cash Flows Used for Investing Activities:
Utility plant expenditures (excluding allowance
for funds used during construction) (8,890,427) (8,230,266)
Development costs of land (46,956) (38,926)
Net increase in short-term investments (17,012,000)
____________ ____________
Cash used for investing activities (25,949,383) (8,269,192)
____________ ____________
Net (Decrease) Increase in Cash and Cash Equivalents (6,542,528) 6,044,629
Cash and Cash Equivalents at Beginning of Period 7,282,070 2,085,978
____________ ____________
Cash and Cash Equivalents at End of Period $ 739,542 $ 8,130,607
____________ ____________
____________ ____________
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 2,184,408 $ 1,952,678
Income taxes $ 1,630,000 $ 400,000
Preferred stock dividends $ 148,141 $ 262,500
See Notes to Consolidated Financial Statements.
-7-
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
Six Months Ended
June 30,
1994 1993
___________ ___________
Cash Flows from Operating Activities:
Net Income $ 5,501,411 $ 5,516,505
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 3,873,866 3,618,990
Write-down of non-utility property and other
investments 288,747 92,517
Increase in deferred charges (1,424,206) (721,737)
Deferred income taxes and investment tax
credits - net 1,158,563 1,303,502
Capitalized interest and AFUDC (781,456) (588,661)
Other operating activities-net (29,882) (10,834)
Change in current assets and current liabilities
excluding cash, short-term investments and
current portion of debt:
Customer and other accounts receivable (527,226) (594,971)
Unbilled revenues (868,353) (1,587,895)
Accounts payable and other liabilities (2,168,999) (2,105,365)
Accrued/prepaid interest and taxes 1,027,086 2,525,162
Other (113,862) 53,613
____________ ____________
Net cash provided by operating activities 5,935,689 7,500,826
____________ ____________
Cash Flows Provided by Financing Activities:
Decrease in funds held by Trustee for
construction expenditures 381,978 2,458,735
Proceeds from issuance of common stock 22,005,147 19,591,143
Repayment of long-term debt (115,000) (164,000)
Contributions and advances for construction-net 1,445,064 1,289,399
Net decrease in notes payable - banks (6,500,000)
Dividends paid on common stock (6,172,045) (5,201,934)
____________ ____________
Net cash provided by financing activities 17,545,144 11,473,343
____________ ____________
Cash Flows Used for Investing Activities:
Utility plant expenditures (excluding allowance
for funds used during construction) (13,026,665) (13,180,798)
Development costs of land (79,098) (71,193)
Net increase in short-term investments (17,012,000)
____________ ____________
Cash used for investing activities (30,117,763) (13,251,991)
____________ ____________
Net (Decrease) Increase in Cash and Cash Equivalents (6,636,930) 5,722,178
Cash and Cash Equivalents at Beginning of Period 7,376,472 2,408,429
____________ ____________
Cash and Cash Equivalents at End of Period $ 739,542 $ 8,130,607
____________ ____________
____________ ____________
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 4,895,110 $ 5,333,444
Income taxes $ 2,655,000 $ 1,100,000
Preferred stock dividends $ 451,475 $ 525,000
See Notes to Consolidated Financial Statements.
-8-
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
Twelve Months Ended
June 30,
1994 1993
___________ ___________
Cash Flows from Operating Activities:
Net Income $ 13,814,734 $ 11,210,734
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 7,540,185 7,019,911
Write-down of non-utility property and other
investments 465,545 272,517
Gain on sale of land (1,685,521)
Increase in deferred charges (3,536,434) (334,921)
Deferred income taxes and investment tax
credits - net 3,129,115 3,552,354
Capitalized interest and AFUDC (1,444,016) (1,568,393)
Other operating activities-net (409,279) 9,499
Change in current assets and current liabilities
excluding cash, short-term investments and
current portion of debt:
Customer and other accounts receivable (930,772) (1,028,691)
Unbilled revenues 30,941 (965,602)
Accounts payable and other liabilities 599,203 (2,429,951)
Accrued/prepaid interest and taxes (214,121) 985,456
Other (174,345) (16,020)
____________ ____________
Net cash provided by operating activities 17,185,235 16,706,893
____________ ____________
Cash Flows Provided by Financing Activities:
Decrease in funds held by Trustee for
construction expenditures 6,443,120 9,073,329
Proceeds from issuance of debentures 50,000,000 15,000,000
Proceeds from issuance of common stock 25,058,851 22,379,974
Repayment of long-term debt (50,196,000) (433,000)
Contributions and advances for construction-net 2,065,570 2,730,435
Net decrease in notes payable - banks (15,500,000)
Dividends paid on common stock (11,820,472) (10,020,579)
____________ ____________
Net cash provided by financing activities 21,551,069 23,230,159
____________ ____________
Cash Flows Used for Investing Activities:
Utility plant expenditures (excluding allowance
for funds used during construction) (32,362,622) (33,714,475)
Development costs of land (202,747) (294,614)
Proceeds from sale of land 3,450,000
Net increase in short-term investments (17,012,000)
____________ ____________
Cash used for investing activities (46,127,369) (34,009,089)
____________ ____________
Net (Decrease) Increase in Cash and Cash Equivalents (7,391,065) 5,927,963
Cash and Cash Equivalents at Beginning of Period 8,130,607 2,202,644
____________ ____________
Cash and Cash Equivalents at End of Period $ 739,542 $ 8,130,607
____________ ____________
____________ ____________
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 11,858,174 $ 10,846,376
Income taxes $ 7,436,008 $ 3,900,774
Preferred stock dividends $ 976,475 $ 1,050,000
See Notes to Consolidated Financial Statements.
-9-
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
Six Months Year
Ended Ended
June 30, December 31,
1994 1993
____________ ____________
Common Stock:
Balance at Beginning of Period $ 87,842,657 $ 64,261,763
Public sale of common stock (1994,
690,000 shares; 1993, 575,000 shares) 19,147,500 17,465,625
Common stock issued under Dividend
Reinvestment and Stock Purchase Plan
(1994, 137,707 shares; 1993, 200,878 shares) 3,784,576 6,009,298
Exercise of stock options (1993, 4,050 shares) 105,971
____________ ____________
Balance at End of Period 110,774,733 87,842,657
____________ ____________
Paid-in Capital: 1,315,025 1,315,025
____________ ____________
Capital Stock Expense:
Balance at Beginning of Period (3,357,165) (2,479,987)
Expenses incurred for the issuance and
sale of common stock (926,929) (877,178)
____________ ____________
Balance at End of Period (4,284,094) (3,357,165)
____________ ____________
Retained Earnings:
Balance at Beginning of Period 43,207,666 40,228,199
Net Income 5,501,411 13,829,828
Dividends on common stock (1994,
$1.02; 1993 $2.01) (6,172,045) (10,850,361)
____________ ____________
Balance at End of Period 42,537,032 43,207,666
____________ ____________
Treasury Stock:
Balance at Beginning of Period (633,976) (575,107)
Cost of shares redeemed to exercise stock
options (1993, 1,676 shares) (58,869)
____________ ____________
Balance at End of Period (633,976) (633,976)
____________ ____________
____________ ____________
Total Common Shareholders' Equity $149,708,720 $128,374,207
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-10-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED INCOME
Three Months Ended
June 30,
1994 1993
____________ ___________
Operating Revenues $ 25,208,368 $ 24,864,753
____________ ____________
Operating Expenses:
Operation 10,120,280 9,184,696
Maintenance 1,624,568 1,479,726
Depreciation 1,945,001 1,819,407
Revenue taxes 3,142,600 3,109,492
Real estate, payroll and other taxes 692,754 642,475
Federal income taxes 1,737,907 1,913,771
____________ ____________
Total operating expenses 19,263,110 18,149,567
____________ ____________
Operating Income 5,945,258 6,715,186
____________ ____________
Other Income:
Allowance for equity funds used
during construction 180,407 108,953
Federal income taxes (91,007) (50,063)
Other - net 87,261 38,292
____________ ____________
Total other income 176,661 97,182
____________ ____________
Total Operating and Other Income 6,121,919 6,812,368
____________ ____________
Interest Charges:
Interest on long-term debt 2,693,518 2,903,776
Other interest expense - net 570 38,068
Allowance for debt funds used
during construction (137,104) (99,854)
Amortization of debt discount - net 80,889 54,197
____________ ____________
Total interest charges 2,637,873 2,896,187
____________ ____________
Income Before Preferred Stock Dividends 3,484,046 3,916,181
Preferred Stock Dividends 203,250 262,500
____________ ____________
Earnings Applicable to Common Stock $ 3,280,796 $ 3,653,681
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-11-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED INCOME
Six Months Ended
June 30,
1994 1993
____________ ___________
Operating Revenues $ 49,865,757 $ 47,000,408
____________ ____________
Operating Expenses:
Operation 20,334,359 17,967,121
Maintenance 3,198,577 2,837,056
Depreciation 3,873,866 3,618,990
Revenue taxes 6,238,997 5,891,036
Real estate, payroll and other taxes 1,423,602 1,324,810
Federal income taxes 3,272,294 3,181,463
____________ ____________
Total operating expenses 38,341,695 34,820,476
____________ ____________
Operating Income 11,524,062 12,179,932
____________ ____________
Other Income:
Allowance for equity funds used
during construction 334,281 191,277
Federal income taxes (170,214) (90,077)
Other - net 166,348 73,654
____________ ____________
Total other income 330,415 174,854
____________ ____________
Total Operating and Other Income 11,854,477 12,354,786
____________ ____________
Interest Charges:
Interest on long-term debt 5,386,891 5,808,412
Other interest expense - net 4,074 63,593
Allowance for debt funds used
during construction (259,911) (178,773)
Amortization of debt discount - net 157,867 108,394
____________ ____________
Total interest charges 5,288,921 5,801,626
____________ ____________
Income Before Preferred Stock Dividends 6,565,556 6,553,160
Preferred Stock Dividends 452,517 525,000
____________ ____________
Earnings Applicable to Common Stock $ 6,113,039 $ 6,028,160
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-12-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED INCOME
Twelve Months Ended
June 30,
1994 1993
____________ ___________
Operating Revenues $102,861,469 $ 92,942,162
____________ ____________
Operating Expenses:
Operation 40,896,387 35,710,958
Maintenance 6,077,678 5,884,943
Depreciation 7,540,185 7,019,911
Revenue taxes 12,849,765 11,583,482
Real estate, payroll and other taxes 2,612,683 2,455,827
Federal income taxes 7,749,601 6,290,086
____________ ____________
Total operating expenses 77,726,299 68,945,207
____________ ____________
Operating Income 25,135,170 23,996,955
____________ ____________
Other Income:
Gain on sale of land 122,400
Allowance for equity funds used
during construction 588,343 534,779
Federal income taxes (338,161) (230,719)
Other - net 262,168 143,804
____________ ____________
Total other income 634,750 447,864
____________ ____________
Total Operating and Other Income 25,769,920 24,444,819
____________ ____________
Interest Charges:
Interest on long-term debt 11,105,780 11,309,702
Other interest expense - net 18,402 203,590
Allowance for debt funds used
during construction (473,033) (521,249)
Amortization of debt discount - net 273,856 214,267
____________ ____________
Total interest charges 10,925,005 11,206,310
____________ ____________
Income Before Preferred Stock Dividends 14,844,915 13,238,509
Preferred Stock Dividends 977,517 1,050,000
____________ ____________
Earnings Applicable to Common Stock $ 13,867,398 $ 12,188,509
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-13-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
Assets 1994 1993
____________ ____________
Utility Plant - At original cost:
Utility plant in service $443,104,071 $438,178,824
Construction work in progress 25,861,745 17,242,088
____________ ____________
Total utility plant 468,965,816 455,420,912
Less accumulated depreciation and amortization 85,928,506 82,128,023
____________ ____________
Utility plant - net 383,037,310 373,292,889
____________ ____________
Non-utility Property 86,482 87,582
____________ ____________
Funds Held by Trustee for Construction
Expenditures 328 382,306
____________ ____________
Current Assets:
Cash and cash equivalents 673,803 3,263,456
Short-term investments (Note 7) 14,012,000
Customer and other accounts receivable
(less reserve: 1994, $391,649; 1993, $434,000) 11,636,047 11,887,985
Unbilled revenues 8,116,675 7,248,322
Materials and supplies-at average cost 1,737,564 1,623,702
Prepaid insurance, taxes, other 1,725,863 1,603,955
____________ ____________
Total current assets 37,901,952 25,627,420
____________ ____________
Deferred Charges:
Prepaid pension expense 964,644 1,003,145
Abandonments 114,073 152,097
Waste residual management 456,687 587,589
Unamortized debt expenses 7,893,999 8,025,677
Other unamortized expenses 2,386,411 598,179
Postretirement benefit expense 1,538,138 1,004,556
Taxes recoverable through future rates 26,643,663 26,643,663
____________ ____________
Total deferred charges 39,997,615 38,014,906
____________ ____________
Total $461,023,687 $437,405,103
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-14-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
Capitalization and Liabilities 1994 1993
____________ ____________
Capitalization:
Common shareholder's equity $147,183,292 $125,764,979
Cumulative preferred stock - redeemable 12,000,000 12,000,000
Long-term debt - net 141,908,982 141,909,533
____________ ____________
Total capitalization 301,092,274 279,674,512
____________ ____________
Current Liabilities:
Notes payable - banks
Long-term debt - current portion 42,000 42,000
Accounts payable and other liabilities 7,325,457 9,589,716
Customers' deposits 281,572 276,497
Municipal and state taxes accrued 13,818,788 12,569,445
Federal income taxes accrued 837,482 704,771
Interest accrued 2,693,836 2,699,483
Preferred stock dividends accrued 63,970 89,178
____________ ____________
Total current liabilities 25,063,105 25,971,090
____________ ____________
Deferred Credits:
Customers' advances for construction 45,906,102 45,149,522
Federal income taxes 57,231,262 55,955,366
Unamortized investment tax credits 8,769,152 8,852,487
Emergency water projects 65,304 127,704
Accumulated postretirement benefits 1,538,138 1,004,556
____________ ____________
Total deferred credits 113,509,958 111,089,635
____________ ____________
Contributions in Aid of Construction 21,358,350 20,669,866
____________ ____________
Commitments and Contingent Liabilities (Note 9)
____________ ____________
Total $461,023,687 $437,405,103
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-15-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED CAPITALIZATION
June 30, December 31,
1994 1993
___________ ____________
Common Shareholder's Equity:
Common stock without par value, authorized,
10,000,000 shares; issued 1993 and 1992,
1,974,902 shares $ 15,740,602 $ 15,740,602
Paid-in capital 84,999,913 63,522,594
Capital stock expense (484,702) (484,702)
Retained earnings 46,927,479 46,986,485
____________ ____________
Total common shareholder's equity 147,183,292 125,764,979
____________ ____________
Cumulative Preferred Stock - Redeemable:
$100 par value, authorized, 200,000
shares; $5.90 series, issued and
outstanding, 120,000 shares (Note 3) 12,000,000
____________
Cumulative Preferred Stock - Redeemable:
$100 par value, authorized, 200,000
shares; $8.75 series, issued and
outstanding, 120,000 shares (Note 3) 12,000,000
____________
Cumulative Preferred Stock:
$25 par value, authorized, 500,000 shares;
none issued
Long-Term Debt:
Elizabethtown Water Company:
7.20% Debentures, due 2019 10,000,000 10,000,000
7 1/2% Debentures, due 2020 15,000,000 15,000,000
6.60% Debentures, due 2021 10,500,000 10,500,000
6.70% Debentures, due 2021 15,000,000 15,000,000
8 3/4% Debentures, due 2021 27,500,000 27,500,000
8% Debentures, due 2022 15,000,000 15,000,000
7 1/4% Debentures, due 2028 50,000,000 50,000,000
The Mount Holly Water Company:
Notes Payable (due serially through 2000) 165,300 186,300
____________ ____________
Total long-term debt 143,165,300 143,186,300
Unamortized discount - net (1,256,318) (1,276,767)
____________ ____________
Total long-term debt - net 141,908,982 141,909,533
____________ ____________
Total capitalization $301,092,274 $279,674,512
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-16-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED CASH FLOWS
Three Months Ended
June 30,
1994 1993
___________ ___________
Cash Flows from Operating Activities:
Income Before Preferred Stock Dividends $ 3,484,046 $ 3,916,181
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,945,001 1,819,407
Increase in deferred charges (237,562) (103,444)
Deferred income taxes and investment tax
credits - net 555,421 635,716
Allowance for debt and equity funds used
during construction (AFUDC) (317,511) (208,807)
Other operating activities-net (19,861) (12,935)
Change in current assets and current liabilities
excluding cash, short-term investments and
current portion of debt:
Customer and other accounts receivable (490,028) (406,495)
Unbilled revenues (882,618) (1,570,304)
Accounts payable and other liabilities 822,932 1,223,059
Accrued/prepaid interest and taxes (2,529,845) (283,271)
Other (25,560) 115,091
____________ ____________
Net cash provided by operating activities 2,304,415 5,124,198
____________ ____________
Cash Flows Provided by Financing Activities:
Decrease in funds held by Trustee for
construction expenditures (44) 1,690,582
Capital contributed by parent company 21,477,319 12,462,830
Repayment of long-term debt (10,500) (10,500)
Contributions and advances for construction-net 451,741 372,504
Net increase in notes payable - banks (7,000,000)
Dividends paid on common and preferred stock (3,428,229) (3,019,858)
____________ ____________
Net cash provided by financing activities 18,490,287 4,495,558
____________ ____________
Cash Flows Used for Investing Activities:
Utility plant expenditures (excluding allowance
for funds used during construction) (8,890,427) (8,230,266)
Increase in short-term investments (14,012,000)
____________ ____________
Cash used for investing activities (22,902,427) (8,230,266)
____________ ____________
Net (Decrease) Increase in Cash and Cash Equivalents (2,107,725) 1,389,490
Cash and Cash Equivalents at Beginning of Period 2,781,528 1,183,993
____________ ____________
Cash and Cash Equivalents at End of Period $ 673,803 $ 2,573,483
____________ ____________
____________ ____________
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 2,420,207 $ 2,105,943
Income taxes $ 1,630,000 $ 400,000
Preferred stock dividends $ 148,141 $ 262,500
See Notes to Consolidated Financial Statements.
-17-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED CASH FLOWS
Six Months Ended
June 30,
1994 1993
___________ ___________
Cash Flows from Operating Activities:
Income Before Preferred Stock Dividends $ 6,565,556 $ 6,553,160
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 3,873,866 3,618,990
Gain on sale of land
Increase in deferred charges (1,449,127) (738,764)
Deferred income taxes and investment tax
credits - net 1,192,561 1,225,704
Allowance for debt and equity funds used
during construction (AFUDC) (594,192) (370,050)
Other operating activities-net (38,281) (25,220)
Change in current assets and current liabilities
excluding cash, short-term investments and
current portion of debt:
Customer and other accounts receivable 251,938 39,432
Unbilled revenues (868,353) (1,587,895)
Accounts payable and other liabilities (2,284,392) (2,108,779)
Accrued/prepaid interest and taxes 1,254,499 1,821,309
Other (113,862) 53,613
____________ ____________
Net cash provided by operating activities 7,790,213 8,481,500
____________ ____________
Cash Flows Provided by Financing Activities:
Decrease in funds held by Trustee for
construction expenditures 381,978 2,458,735
Capital contributed by parent company 21,477,319 12,462,830
Repayment of long-term debt (21,000) (21,000)
Contributions and advances for construction-net 1,445,064 1,289,399
Net decrease in notes payable - banks (5,500,000)
Dividends paid on common and preferred stock (6,624,562) (5,726,934)
____________ ____________
Net cash provided by financing activities 16,658,799 4,963,030
____________ ____________
Cash Flows Used for Investing Activities:
Utility plant expenditures (excluding allowance
for funds used during construction) (13,026,665) (13,180,798)
Increase in short-term investments (14,012,000)
____________ ____________
Cash used for investing activities (27,038,665) (13,180,798)
____________ ____________
Net (Decrease) Increase in Cash and Cash Equivalents (2,589,653) 263,732
Cash and Cash Equivalents at Beginning of Period 3,263,456 2,309,751
____________ ____________
Cash and Cash Equivalents at End of Period $ 673,803 $ 2,573,483
____________ ____________
____________ ____________
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 4,802,172 $ 5,150,494
Income taxes $ 2,655,000 $ 1,100,000
Preferred stock dividends $ 451,475 $ 525,000
See Notes to Consolidated Financial Statements.
-18-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED CASH FLOWS
Twelve Months Ended
June 30,
1994 1993
___________ ___________
Cash Flows from Operating Activities:
Income Before Preferred Stock Dividends $ 14,844,915 $ 13,238,509
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 7,540,185 7,019,911
Gain on sale of land (122,400)
Increase in deferred charges (3,589,334) (369,234)
Deferred income taxes and investment tax
credits - net 3,299,415 2,774,499
Allowance for debt and equity funds used
during construction (AFUDC) (1,061,376) (1,056,028)
Other operating activities-net (462,853) (184,887)
Change in current assets and current liabilities
excluding cash, short-term investments and
current portion of debt:
Customer and other accounts receivable (627,979) (872,716)
Unbilled revenues 30,941 (965,602)
Accounts payable and other liabilities 493,465 (2,460,715)
Accrued/prepaid interest and taxes (334,069) 879,690
Other (174,345) (16,020)
____________ ____________
Net cash provided by operating activities 19,836,565 17,987,407
____________ ____________
Cash Flows Provided by Financing Activities:
Decrease in funds held by Trustee for
construction expenditures 6,443,120 9,073,329
Capital contributed by parent company 28,823,786 16,102,163
Proceeds from issuance of debentures 50,000,000 15,000,000
Repayment of long-term debt (50,042,000) (42,000)
Contributions and advances for construction-net 2,065,570 2,730,435
Net decrease in notes payable - banks (15,500,000)
Dividends paid on common and preferred stock (12,797,989) (11,070,578)
____________ ____________
Net cash provided by financing activities 24,492,487 16,293,349
____________ ____________
Cash Flows Used for Investing Activities:
Utility plant expenditures (excluding allowance
for funds used during construction) (32,346,132) (33,714,475)
Selling costs of land (1,600)
Proceeds from sale of land 131,000
Increase in short-term investments (14,012,000)
____________ ____________
Cash used for investing activities (46,228,732) (33,714,475)
____________ ____________
Net (Decrease) Increase in Cash and Cash Equivalents (1,899,680) 566,281
Cash and Cash Equivalents at Beginning of Period 2,573,483 2,007,202
____________ ____________
Cash and Cash Equivalents at End of Period $ 673,803 $ 2,573,483
____________ ____________
____________ ____________
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 11,489,025 $ 10,504,196
Income taxes $ 7,436,008 $ 3,900,774
Preferred stock dividends $ 976,475 $ 1,050,000
See Notes to Consolidated Financial Statements.
-19-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED SHAREHOLDER'S EQUITY
Six Months Year
Ended Ended
June 30, December 31,
1994 1993
____________ ____________
Common Stock: $ 15,740,602 $ 15,740,602
____________ ____________
Paid-in Capital:
Balance at Beginning of Period 63,522,594 43,713,297
Capital contributed by parent company 21,477,319 19,809,297
____________ ____________
Balance at End of Period 84,999,913 63,522,594
____________ ____________
Capital Stock Expense: (484,702) (484,702)
____________ ____________
Retained Earnings:
Balance at Beginning of Period 46,986,485 44,054,327
Income Before Preferred Stock
Dividends 6,565,556 14,832,519
Dividends on Common Stock (6,172,045) (10,850,361)
Preferred Stock Dividends (452,517) (1,050,000)
____________ ____________
Balance at End of Period 46,927,479 46,986,485
____________ ____________
Total Common Shareholder's Equity $147,183,292 $125,764,979
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-20-
E'TOWN CORPORATION AND SUBSIDIARIES
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
E'town Corporation (E'town or Corporation), a New Jersey holding
company, is the parent company of Elizabethtown Water Company
(Elizabethtown or Company) and E'town Properties, Inc.,
(Properties). The Mount Holly Water Company (Mount Holly) is a
wholly owned subsidiary of Elizabethtown.
2. INTERIM FINANCIAL STATEMENTS
The financial statements reflect all adjustments which, in the
opinion of management, are necessary for a fair presentation. The
notes accompanying the 1993 Annual Report to Shareholders and the
1993 Form 10-K should be read in conjunction with this report.
Certain prior year amounts have been reclassified to conform to the
current year presentation.
3. CAPITALIZATION
Common Stock
On May 24, 1994, E'town issued 690,000 shares of common stock for
net proceeds of $18,220,571. The net proceeds were used to fund an
equity contribution to Elizabethtown of $16,000,000. Elizabethtown
has invested this equity contribution on a temporary basis until
needed for forthcoming construction expenditures (see Note 7). The
balance of the proceeds is being used to fund working capital
requirements of the Corporation.
During the six months ended June 30, 1994, 137,707 shares
($3,784,576) of common stock were issued under E'town's Dividend
Reinvestment and Stock Purchase Plan.
Cumulative Preferred Stock-Redeemable
On March 16, 1994, Elizabethtown issued 120,000 shares of $100 par
value, $5.90 Cumulative Preferred Stock for proceeds of $12,000,000
at an effective rate of 7.37%. The proceeds were used to redeem
$12,000,000 of the Company's $8.75 Cumulative Preferred Stock. The
redemption premium of $1,050,000 was paid from general Company
funds.
4. LINES OF CREDIT
Elizabethtown has executed a committed revolving credit agreement
with an agent bank and five additional participating banks to
replace its existing uncommitted lines of credit. The agreement
provides up to $60,000,000 in revolving short-term financing which,
together with internal funds, proceeds of future issuances of debt
and preferred stock by Elizabethtown and capital contributions from
E'town, is expected to be sufficient to finance Elizabethtown's
capital needs, which are estimated to be $196,500,000 through 1996.
-21-
The agreement allows Elizabethtown to borrow, repay and reborrow up
to $60,000,000 for the first three years, after which time
Elizabethtown may convert any outstanding balances to a five-year
fully amortizing term loan. The agreement further provides that,
among other covenants, Elizabethtown must maintain a ratio of
common and preferred equity to total capitalization of not less
than 35% and a pre-tax interest coverage ratio of at least 1.5
to 1.
5. EARNINGS PER SHARE
Primary earnings per share are computed on the basis of the
weighted average number of shares outstanding, plus common stock
equivalents assuming all stock options are exercised. Fully
diluted earnings per share assume both the conversion of the
6 3/4% Convertible Subordinated Debentures and the common stock
equivalents referred to above. Reference is made to Exhibit 11 for
the computations of earnings per share.
6. NON-UTILITY PROPERTY AND OTHER INVESTMENTS
Included in non-utility property and other investments at June 30,
1994 is an investment of $1,456,473 or $444,271 net of related
deferred taxes, in a limited partnership that owns Solar Electric
Generating System V (SEGS), located in California. In March 1994,
based upon revised projections of future cash distributions
provided by SEGS management, E'town reduced the carrying value of
the investment by $100,000 in order to present the investment at
management's estimate of its approximate net realizable value.
Carrying charges on the Mansfield property held by Properties
continue to be capitalized as the property is not yet ready for its
intended use. However, the estimated net realizable value of the
property remains unchanged. Consequently, adjustments of $99,025,
$188,747 and $365,545 to reduce the carrying value of the Mansfield
property to its estimated net realizable value have been reflected
in the Statements of Consolidated Income for the three, six and
twelve months ended June 30, 1994, respectively, and Consolidated
Balance Sheets of E'town as of June 30, 1994.
7. SHORT-TERM INVESTMENTS
E'town and Elizabethtown have invested funds, representing a
substantial portion of the proceeds of the common stock sale in
May, with a Trustee on a short-term basis. All investments are in
repurchase agreements which are collateralized by U.S. Government
Securities and which mature on various dates ending September 1994.
The investments have been timed to mature in conjunction with
anticipated expenditures for Elizabethtown's capital program, the
predominant portion of which is the Canal Road Water Treatment
Plant, and for E'town's working capital requirements.
8. REGULATORY MATTERS
On August 5, 1994, Elizabethtown filed with the New Jersey Board of
Public Utilities (BPU) for an $11,783,690 or 11.9% rate increase to
recover financing costs associated with additional investments in
-22-
utility plant in addition to increased costs of power, labor and
employee benefits. A decision by the BPU is expected in early
1995.
On June 23, 1994, the BPU approved a Stipulation for a Purchased
Water Adjustment Clause, a procedure established by BPU Rules,
which allows Elizabethtown to recover in rates the increase in the
cost of water purchased from the New Jersey Water Supply Authority
(NJWSA) without a complete rate case. The Stipulation resulted in
an increase in rates, effective July 1, 1994, of $334,611. The
NJWSA, effective July 1, 1994, increased charges for water from
$220.47 to $229.50 per million gallons.
9. COMMITMENTS AND CONTINGENT LIABILITIES
Canal Road Water Treatment Plant
On April 28, 1994, Elizabethtown executed a lump-sum contract for
the construction of the Canal Road Water Treatment Plant. The
project is currently estimated to cost $100,000,000, excluding an
Allowance for Funds Used During Construction. Construction of the
project has commenced and is expected to be completed in 1996.
Legal Matters
A developer has asserted in a suit filed in 1991 against
Elizabethtown that the Company failed to install new water mains
necessary to provide water service to a new development and obtain
permits for the construction of a related required storage tank in
a timely manner. The developer has further asserted that this
delay took place during a period of generally declining real estate
values, thereby allegedly preventing the developer from selling his
lots at more favorable prices. The developer has recently alleged
that his economic losses from the decline in real estate values
were $4,000,000. The Company has engaged an expert witness to
evaluate the underlying facts and testimony presented by the
developer's real estate witness. The case is expected to go to
trial in the fall of 1994.
The Company believes that its actions were reasonable under the
circumstances and is vigorously contesting the developer's claims.
The litigation process is inherently uncertain and accordingly,
based upon the information currently available, management cannot
predict the ultimate outcome of this matter at this time.
-23-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
E'town Corporation (E'town or Corporation), a New Jersey holding
company, is the parent company of Elizabethtown Water Company
(Elizabethtown or Company) and E'town Properties, Inc. (Properties).
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. The following analysis sets forth significant
events affecting the financial condition of E'town and Elizabethtown at
June 30, 1994, and the results of operations for the three, six and
twelve months ended June 30, 1994 and 1993.
LIQUIDITY AND CAPITAL RESOURCES
Capital Expenditures Program
Consolidated capital expenditures, primarily for water utility
plant, were $13.1 million for the first six months of 1994. Capital
expenditures for the three-year period ending December 31, 1996, are
estimated to be $196.9 million, of which $196.5 million is for
Elizabethtown and Mount Holly's utility plant and $.4 million is for
real estate-related expenditures.
Elizabethtown's construction program includes additional mains and
storage facilities necessary to serve existing and future customers.
In addition, Elizabethtown anticipates upgrading its existing surface
water treatment plant by rehabilitating certain components and adding
facilities designed to maximize its capacity. These projects are
designed to ensure the plant's compliance with proposed water quality
and other environmental regulations.
Elizabethtown and Mount Holly's estimated capital expenditures
through 1996 include $100.0 million, excluding an Allowance for Funds
Used During Construction (AFUDC), for construction of a new water
treatment plant, the Canal Road Water Treatment Plant (Plant), near
Elizabethtown's existing plant. The Plant is scheduled to be completed
in 1996. The Plant, which will have an initial rated production
capacity of 40 million gallons per day and can be expanded to 200
million gallons per day, is necessary to meet existing and anticipated
customer demands and to replace groundwater supplies withdrawn from
service as a result of more restrictive water quality regulations and
groundwater contamination.
In August 1993, the New Jersey Board of Public Utilities (BPU)
approved a stipulation (1993 Plant Stipulation) signed by the principal
participants in Elizabethtown's rate cases. The 1993 Plant Stipulation
states that the Plant is necessary and that the Company's estimate
regarding the Plant's cost, at that time of $87 million, and
construction period are reasonable. The 1993 Plant Stipulation
authorizes Elizabethtown to levy a rate surcharge during the Plant's
construction period if the Company's pre-tax interest coverage ratio
for any 12 month historical period drops below 2.0 times. The
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surcharge would equal 20% of the Company's gross interest expense for
the prior 12 months, adjusted for revenue taxes. The surcharge would
go into effect at the same time as the Company's next base rate
increase after the coverage ratio falls below 2.0 times, but in no
event prior to January 1, 1995. Also, the surcharge would remain in
effect for 12 months and could be extended by the BPU for up to six
additional months. The 1993 Plant Stipulation also provides that the
rate of return on common stockholder's equity used to calculate the
rate for the equity component of the AFUDC for the Plant will be 1.5%
less than the rate of return on common stockholder's equity established
in Elizabethtown's most recent base rate case. The authorized rate of
return on Elizabethtown's common stockholder's equity is currently
11.5%.
On April 28, 1994, Elizabethtown executed a lump-sum contract for the
construction of the Plant. The current estimated cost of the plant is
approximately $100 million, excluding AFUDC. Elizabethtown has
notified all parties to the 1993 Plant Stipulation that the estimated
cost of the Plant has increased. Construction of the project has
commenced and is expected to be completed in 1996.
CAPITAL RESOURCES
For the three-year period ending December 31, 1996,
Elizabethtown, including Mount Holly, estimates that 15% of its
capital expenditures will be financed with internally generated
funds (after payment of common stock dividends). The balance is
expected to be financed with a combination of proceeds from capital
contributions from E'town (funded by the sale of its Common Stock),
future issuances of long-term debentures, tax-exempt New Jersey
Economic Development Authority (NJEDA) bonds, preferred stock and,
on a interim basis, short-term borrowings under the revolving credit
agreement discussed below. The NJEDA has granted preliminary
approval for the financing of almost all of Elizabethtown's major
projects over the next three years, including the Plant.
Elizabethtown expects to pursue tax-exempt financing to the extent
that final allocations are granted by the NJEDA.
On May 24, 1994, E'town issued 690,000 shares of common stock for
net proceeds of $18.2 million. The net proceeds were used to fund an
equity contribution to Elizabethtown of $16.0 million. Elizabethtown
has invested this equity contribution on a temporary basis until needed
for forthcoming construction expenditures. The balance of the proceeds
is being used to fund working capital requirements of the
Corporation.
On March 16, 1994 Elizabethtown issued 120,000 shares of $100 par
value, $5.90 Cumulative Preferred Stock for proceeds of $12.0 million
at an effective rate of 7.37%. The proceeds were used to redeem $12.0
million of the Company's $8.75 Cumulative Preferred Stock. The
redemption premium of $1.0 million was paid from general Company funds.
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Elizabethtown has executed a committed revolving credit agreement
with an agent bank and five additional participating banks to replace
its existing uncommitted lines of credit. The agreement provides up to
$60 million in revolving short-term financing which, together with
internal funds, proceeds of future issuances of debt and preferred
stock and capital contributions from E'town, is expected to be
sufficient to finance Elizabethtown's capital needs, which are
estimated to be $196.5 million through 1996. The agreement allows
Elizabethtown to borrow, repay and reborrow up to $60 million for
the first three years, after which time Elizabethtown may convert
any outstanding balances to a five-year fully amortizing term loan.
The agreement will further provide that, among other covenants,
Elizabethtown must maintain a ratio of common and preferred equity
to total capitalization of not less than 35% and a pre-tax interest
coverage ratio of at least 1.5 to 1.
During the six months ended June 30, 1994, 137,707 shares
($3,784,576) of common stock were issued under E'town's Dividend
Revinvestment and Stock Purchase Plan.
RESULTS OF OPERATIONS
Net Income for the three and six months ended June 30, 1994
decreased from the comparable 1993 amounts due to increases in
various operation and maintenance expenses which were partially
offset by increased revenues from higher consumption and the effect
of the March 1993 rate increase.
Net income and earnings per share for the twelve months ended
June 30, 1994 exceeded the results for the comparable 1993 period
because of higher levels of outdoor water use due to abnormally hot
and dry summer weather in 1993, an after-tax gain from a sale of
land in August 1993 of $1.1 million and the effect of the rate
increase effective March 1993. The percentage increase in earnings
per share for the twelve months ended June 30, 1994 was less than
the percentage increase in net income because of the additional
common shares issued during this period. Accordingly, management
does not regard these results of operations for the twelve months
ended June 30, 1994 to be indicative of performance for the fiscal
year 1994.
Operating Revenues increased $.3 million or 1.4%, $2.9 million or
6.1% and $9.9 million or 10.7% for the three, six and twelve month
periods ended June 30, 1994, respectively, over the same periods in
1993. Of the increases for the six and twelve month periods
ended June 30, 1994, $1.0 million and $3.7 million, respectively,
relate to the rate increase effective March 1993. The remainder of
the increases for these periods is due to increased sales. The
increase for the three and six months ended June 30, 1994 is the
result of increased sales to wholesale and large industrial
customers.
The increase in sales for the twelve month period ended June 30,
1994 is attributable to abnormally hot, dry summer weather in the
third fiscal quarter of 1993.
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Operation Expenses rose by 1.0 million or 10.7%, $2.4 million or
13.2% and $5.3 million or 14.6% for the three, six and twelve month
periods ended June 30, 1994, respectively, over the comparable
amounts in 1993. These increases in operating expenses are due to
higher quantities of power and raw water purchased to meet the
higher customer demand for water and the unit costs of power and
purchased water. Additionally, the cost of labor, benefits and
other miscellaneous items increased.
Maintenance Expenses increased $.1 million or 9.8%, $.4 million or
12.7% and $.2 million or 3.3% for the three, six and twelve month
periods ended June 30, 1994, respectively, over the comparable
amounts in 1993. These increases in maintenance expenses are due to
fluctuations in routine maintenance at various operating facilities.
In addition, higher than normal expenses were incurred due to
adverse weather conditions during the winter months of the first
quarter of 1994.
Depreciation Expense increased $.1 million or 6.9%, $.3 million or
7.0% and $.5 million or 7.4% for the three, six and twelve month
periods ended June 30, 1994, respectively, over the comparable 1993
amounts. This was the result of additional depreciable plant placed
in service during these periods.
Revenue Taxes increased less than $.1 million or 1.1%, $.3 million
or 5.9% and $1.3 million or 10.9% for the three, six and twelve
month periods ended June 30, 1994, respectively, over the same
periods in 1993 due to higher taxes on the higher revenues explained
above.
Real Estate, Payroll and Other Taxes increased by less than
$.1 million for the three and twelve month periods ended June 30,
1994 over the comparable amounts in 1993 and decreased by less than
$.1 million for the six months ended June 30, 1994.
Federal Income Taxes decreased $.2 million or 11.1% and increased
$.2 million or 6.5% and $1.6 million or 27.0% for the three, six and
twelve month periods ended June 30, 1994, respectively, from and
above the comparable 1993 amounts due to the changes in taxable
income discussed previously.
Other Income increased less than $.1 million for the three and six
month periods ended June 30, 1994 over the comparable 1993 amounts.
Other income increased $1.3 million for the twelve months ended
June 30, 1994 over the comparable 1993 amount. These net increases
are comprised of several items. Included in the net increase in
other income for the twelve months ended June 30, 1994 is a gain on
the sale of real estate in August 1993 of $1.7 million or $1.1
million net of federal income taxes. Other income decreased by $.1
million,
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$.2 million and $.2 million for the three, six and twelve month
periods due to the effect of adjusting the carrying values of
certain investments downward to their estimated net realizable
values (see "Economic Outlook-Properties"). In addition, minor
fluctuations in the equity component of the Allowance for Funds Used
During Construction resulted from variances in the timing of
construction expenditures. Other fluctuations resulted from various
miscellaneous items, and the federal income taxes associated with
all of the above.
Total Interest Charges decreased $.3 million or 8.3%, $.5 million or
8.4% and $.2 million or 1.8% during the three, six and twelve month
periods ended June 30, 1994, respectively, relative to the
comparable 1993 amounts. These changes were due primarily to
savings from refinancing of long-term debt in 1993 offset by an
increase in interest expense for long-term debt issued in September
1992.
ECONOMIC OUTLOOK
Consolidated earnings for E'town for the next several years will
be determined primarily by Elizabethtown's ability to generate adequate
earnings and, to a lesser degree, the ability of Properties and E'town
to generate adequate returns on their real estate investments.
Elizabethtown and Subsidiary
Elizabethtown believes that it has sufficient surface and well
water supplies to meet its customers' needs and that it is, and will
remain, in compliance with all water quality standards. Nonetheless,
governmental water quality and service regulations will require
Elizabethtown and Mount Holly to make significant investments in
water treatment, transmission and storage facilities including, most
significantly, the Plant. This capital program will require regular
external financing and rate relief for the next several years.
Because Elizabethtown expects its rate base to grow more quickly
than pumpage over the next several years, Elizabethtown filed for a
rate increase in 1994 (see below), and will file regularly
thereafter, so that it may have the opportunity to realize
satisfactory returns on equity. Adequate equity returns will be
necessary for Elizabethtown to continue to attract external capital
to finance improvements necessary to maintain safe and adequate
service. Future earnings of the Company will be primarily affected
by weather and customer usage, the magnitude and timing of capital
expenditures, the rate of growth of revenues and expenses, and the
adequacy and timeliness of regulatory relief.
Rate increases of approximately 35% in excess of current rates
will be required by Elizabethtown during the period 1994-1996, a
major portion of which will be needed to recover the expected costs
of the Plant. In light of the approval by the BPU of the 1993
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Plant Stipulation, Elizabethtown expects the BPU to grant timely
and adequate rate relief for the Plant, but cannot predict the
ultimate outcome of any rate proceeding.
On August 5, 1994, Elizabethtown filed with the BPU for an
$11.8 million or 11.9% rate increase to recover financing costs
associated with additional investments in utility plant in addition
to increased costs of power, labor and employee benefits. A
decision by the BPU is expected in early 1995.
On June 23, 1994 the BPU approved a stipulation for a
Purchased Water Adjustment Clause, a procedure established by BPU
Rules, which allows Elizabethtown to recover in rates the increase
in the cost of water purchased from the New Jersey Water Supply
Authority (NJWSA) without a complete rate case. The Stipulation
resulted in an increase in rates effective July 1, 1994, of
$334,611. The NJWSA, effective July 1, 1994, increased charges for
water from $220.47 to $229.50 per million gallons.
Properties
Included in non-utility property and other investments at
March 31, 1994 in the Consolidated Balance Sheets of E'town
Corporation is $11.9 million of investments in various parcels of
undeveloped land in New Jersey. The carrying value of each parcel
includes the original cost plus any real estate taxes, interest
and, where applicable, direct costs capitalized while rezoning or
governmental approvals are or were being sought. Based upon
independent appraisals received at various times prior to, and
during 1993, the estimated net realizable value of each property
exceeds its respective carrying value as of June 30, 1994, after
the adjustments to the Mansfield property discussed below.
Properties continues to seek permits and more favorable zoning
treatment for its Mansfield property and, therefore, continues to
capitalize various carrying charges. During the second quarter of
1993, the carrying value of the Mansfield property held by
Properties exceeded its estimated net realizable value and, as a
result, carrying charges incurred after that date were, and
continue to be, adjusted monthly. This is due to the fact that the
Mansfield property is not yet ready for its intended use and,
therefore, various carrying charges continue to be capitalized
while, the estimated net realizable value of the property remains
unchanged. An allowance of $.1 million, $.2 million and $.4
million for the three, six and twelve months ended June 30, 1994,
to adjust the carrying value of the Mansfield property, has been
reflected in the Statements of Consolidated Income and Consolidated
Balance Sheets. As Properties expects to continue capitalizing
carrying charges on the Mansfield property until it is ready for
its intended use, further adjustments for these capitalized
carrying charges, reflecting management's estimate of the net
realizable value of the property, should be expected.
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Also included in non-utility property and other investments at
June 30, 1994 is an investment of $1.5 million or $.4 million net
of related deferred taxes, in a limited partnership that owns Solar
Electric Generating System V (SEGS), located in California. In
March 1994, based upon revised projections of future cash
distributions, provided by SEGS management, E'town reduced the
carrying value of the investment by $.1 million in order to
present the investment at management's estimate of its approximate
net realizable value.
The Corporation will continue to monitor the relationship
between the carrying and net realizable values of its properties
through updated appraisals and of its investment in SEGS based upon
information provided by SEGS management through cash flow analysis.
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PART II - OTHER INFORMATION
Item 1:
Reference is made to the Corporation's Annual Report on Form 10-K
for the year ended December 31, 1993 for a description of certain
legal proceedings in which the Corporation is currently engaged.
Legal Proceedings
A developer has asserted in a suit filed in 1991 against
Elizabethtown that the Company failed to install new water
mains necessary to provide water service to a new
development and obtain permits for the construction of a
related required storage tank in a timely manner. The
developer has further asserted that this delay took place
during a period of generally declining real estate values,
thereby allegedly preventing the developer from selling
his lots at more favorable prices. The developer has
recently alleged that his economic losses from the decline
in real estate values were $4,000,000. The Company has
engaged an expert witness to evaluate the underlying facts
and testimony presented by the developer's real estate witness.
The case is expected to go to trial in the fall of 1994.
The Company believes that its actions were reasonable under
the circumstances and is vigorously contesting the
developer's claims. The litigation process is inherently
uncertain and accordingly, based upon the information
currently available, management cannot predict the ultimate
outcome of this matter at this time.
Items 2 - 5: Nothing to Report.
Item 6(a) - Exhibits
Exhibits to Part I:
Exhibit 11 - E'town Corporation and Subsidiaries - Statement
Regarding Computation of Per Share Earnings
Exhibit 12 - Elizabethtown Water Company and Subsidiary -
Computation of Ratio of Earnings to Fixed Charges
and Preferred Dividends
Item 6(b) - Reports on Form 8-K
Items Reported: 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: August 12, 1994 E'TOWN CORPORATION
/s/ Frank Critelli
______________________________________
Frank Critelli
Controller
/s/ Walter M. Braswell
______________________________________
Walter M. Braswell
Secretary
ELIZABETHTOWN WATER COMPANY
/s/ Gail P. Brady
______________________________________
Gail P. Brady
Vice President - Finance and Treasurer
/s/ Dennis W. Doll
______________________________________
Dennis W. Doll
Controller
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