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 September 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 September 30, 1994
E'town Corporation
without par value 6,552,927
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 32
(b) - Reports on Form 8-K 32
SIGNATURES 33
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
Three Months Ended
September 30,
1994 1993
____________ ___________
Operating Revenues $ 27,369,703 $ 28,946,588
____________ ____________
Operating Expenses:
Operation 10,499,101 10,421,938
Maintenance 1,635,510 1,508,264
Depreciation 1,975,572 1,828,124
Revenue taxes 3,479,035 3,664,692
Real estate, payroll and other taxes 641,008 612,893
Federal income taxes 2,225,605 2,843,378
____________ ____________
Total operating expenses 20,455,831 20,879,289
____________ ____________
Operating Income 6,913,872 8,067,299
____________ ____________
Other Income (Expense):
Litigation settlement (Note 9) (932,203)
Gain on sale of land 1,685,521
Allowance for equity funds used
during construction 316,282 145,262
Write-down of non-utility property
and other investments (Note 6) (94,407) (83,574)
Federal income taxes 180,582 (633,324)
Other - net 179,203 105,398
____________ ____________
Total other income (expense) (350,543) 1,219,283
____________ ____________
Total Operating and Other Income (Expense) 6,563,329 9,286,582
____________ ____________
Interest Charges:
Interest on long-term debt 2,903,918 3,123,589
Other interest expense - net 10,986 5,661
Capitalized interest (317,175) (222,458)
Amortization of debt discount - net 89,493 62,801
____________ ____________
Total interest charges 2,687,222 2,969,593
____________ ____________
Income Before Preferred Stock Dividends
of Subsidiary 3,876,107 6,316,989
Preferred Stock Dividends 203,250 262,500
____________ ____________
Net Income $ 3,672,857 $ 6,054,489
____________ ____________
____________ ____________
Earnings Per Share of Common Stock:
Primary $ .56 $ 1.09
____________ ____________
____________ ____________
Fully Diluted $ .56 $ 1.05
____________ ____________
____________ ____________
Average Number of Shares Outstanding for
the Calculation of Earnings Per Share:
Primary 6,524,975 5,578,234
____________ ____________
____________ ____________
Fully Diluted 6,833,385 5,891,495
____________ ____________
____________ ____________
Dividends Paid Per Common Share $ .51 $ .50
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-1-
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
Nine Months Ended
September 30,
1994 1993
____________ ___________
Operating Revenues $ 77,235,460 $ 75,946,996
____________ ____________
Operating Expenses:
Operation 31,249,624 28,758,221
Maintenance 4,834,087 4,345,320
Depreciation 5,849,438 5,447,114
Revenue taxes 9,718,032 9,555,728
Real estate, payroll and other taxes 2,086,417 2,101,827
Federal income taxes 5,264,925 5,696,914
____________ ____________
Total operating expenses 59,002,523 55,905,124
____________ ____________
Operating Income 18,232,937 20,041,872
____________ ____________
Other Income (Expense):
Litigation settlement (Note 9) (932,203)
Gain on sale of land 1,685,521
Allowance for equity funds used
during construction 650,563 336,539
Write-down of non-utility property
and other investments (Note 6) (383,154) (176,091)
Federal income taxes 92,475 (691,884)
Other - net 392,800 178,883
____________ ____________
Total other income (expense) (179,519) 1,332,968
____________ ____________
Total Operating and Other Income (Expense) 18,053,418 21,374,840
____________ ____________
Interest Charges:
Interest on long-term debt 8,708,105 9,360,627
Other interest expense - net 15,060 87,158
Capitalized interest (764,350) (619,842)
Amortization of debt discount - net 264,568 188,403
____________ ____________
Total interest charges 8,223,383 9,016,346
____________ ____________
Income Before Preferred Stock Dividends
of Subsidiary 9,830,035 12,358,494
Preferred Stock Dividends 655,767 787,500
____________ ____________
Net Income $ 9,174,268 $ 11,570,994
____________ ____________
____________ ____________
Earnings Per Share of Common Stock:
Primary $ 1.51 $ 2.21
____________ ____________
____________ ____________
Fully Diluted $ 1.50 $ 2.16
____________ ____________
____________ ____________
Average Number of Shares Outstanding for
the Calculation of Earnings Per Share:
Primary 6,084,631 5,240,160
____________ ____________
____________ ____________
Fully Diluted 6,394,628 5,554,517
____________ ____________
____________ ____________
Dividends Paid Per Common Share $ 1.53 $ 1.50
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-2-
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
Twelve Months Ended
September 30,
1994 1993
____________ ___________
Operating Revenues $101,284,584 $ 98,077,104
____________ ____________
Operating Expenses:
Operation 41,772,323 37,572,200
Maintenance 6,204,924 5,903,673
Depreciation 7,687,633 7,173,031
Revenue taxes 12,664,108 12,254,101
Real estate, payroll and other taxes 2,691,037 2,668,270
Federal income taxes 6,738,417 6,900,572
___________ ____________
Total operating expenses 77,758,442 72,471,847
___________ ____________
Operating Income 23,526,142 25,605,257
___________ ____________
Other Income (Expense):
Litigation settlement (Note 9) (932,203)
Gain on sale of land 1,685,521
Allowance for equity funds used
during construction 759,363 509,496
Write-down of non-utility property
and other investments (Note 6) (476,378) (356,091)
Federal income taxes (5,961) (714,719)
Other - net 610,432 253,089
____________ ____________
Total other income (expense) (44,747) 1,377,296
____________ ____________
Total Operating and Other Income (Expense) 23,481,395 26,982,553
____________ ____________
Interest Charges:
Interest on long-term debt 11,721,702 12,470,267
Other interest expense - net 23,750 133,200
Capitalized interest (950,390) (950,758)
Amortization of debt discount - net 334,964 250,977
____________ ____________
Total interest charges 11,130,026 11,903,686
____________ ____________
Income Before Preferred Stock Dividends
of Subsidiary 12,351,369 15,078,867
Preferred Stock Dividends 918,267 1,050,000
____________ ____________
Net Income $ 11,433,102 $ 14,028,867
____________ ____________
____________ ____________
Earnings Per Share of Common Stock:
Primary $ 1.92 $ 2.73
____________ ____________
____________ ____________
Fully Diluted $ 1.91 $ 2.67
____________ ____________
____________ ____________
Average Number of Shares Outstanding for
the Calculation of Earnings Per Share:
Primary 5,969,557 5,140,925
____________ ____________
____________ ____________
Fully Diluted 6,280,165 5,456,367
____________ ____________
____________ ____________
Dividends Paid Per Common Share $ 2.04 $ 2.00
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-3-
E'TOWN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
Assets 1994 1993
____________ ____________
Utility Plant-At original cost:
Utility plant in service $447,321,156 $438,178,824
Construction work in progress 42,123,676 17,242,088
____________ ____________
Total utility plant 489,444,832 455,420,912
Less accumulated depreciation and amortization 87,716,720 82,128,023
____________ ____________
Utility plant-net 401,728,112 373,292,889
____________ ____________
Non-utility Property and Other
Investments - Net (Note 6) 13,556,017 13,545,589
____________ ____________
Funds Held by Trustee for Construction
Expenditures 331 382,306
____________ ____________
Current Assets:
Cash and cash equivalents 4,639,662 7,376,472
Short-term investments 30,622 30,622
Customer and other accounts receivable
(less reserve: 1994, $412,988; 1993, $434,000) 13,099,272 12,031,414
Unbilled revenues 8,015,435 7,248,322
Materials and supplies-at average cost 1,686,829 1,623,702
Prepaid insurance, taxes, other 1,664,404 1,603,955
____________ ____________
Total current assets 29,136,224 29,914,487
____________ ____________
Deferred Charges:
Prepaid pension expense 894,035 962,595
Abandonments 95,061 152,097
Waste residual management 391,236 587,589
Unamortized debt expenses 8,424,463 8,648,030
Other unamortized expenses 3,048,587 598,179
Postretirement benefit expense 1,804,930 1,004,556
Taxes recoverable through future rates 26,643,663 26,643,663
____________ ____________
Total deferred charges 41,301,975 38,596,709
____________ ____________
Total $485,722,659 $455,731,980
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-4-
E'TOWN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
Capitalization and Liabilities 1994 1993
____________ ____________
Capitalization (Note 3):
Common shareholders' equity $152,240,036 $128,374,207
Cumulative preferred stock - redeemable 12,000,000 12,000,000
Long-term debt - net 154,207,706 154,406,533
____________ ____________
Total capitalization 318,447,742 294,780,740
____________ ____________
Current Liabilities:
Notes payable - banks 4,000,000
Long-term debt - current portion 42,000 42,000
Accounts payable and other liabilities 10,003,969 9,645,055
Customers' deposits 280,629 276,497
Municipal and state taxes accrued 9,921,628 12,569,445
Federal income taxes accrued 1,049,634 947,274
Interest accrued 2,311,027 3,052,160
Preferred stock dividends accrued 63,970 89,178
____________ ____________
Total current liabilities 27,672,857 26,621,609
____________ ____________
Deferred Credits:
Customers' advances for construction 45,775,941 45,149,522
Federal income taxes 60,400,956 58,363,510
State income taxes 151,538
Unamortized investment tax credits 8,719,151 8,852,487
Emergency water projects 33,023 127,704
Accumulated postretirement benefits 1,817,389 1,015,004
____________ ____________
Total deferred credits 116,746,460 113,659,765
____________ ____________
Contributions in Aid of Construction 22,855,600 20,669,866
____________ ____________
Commitments and Contingent Liabilities
(Notes 8 and 10)
____________ ____________
Total $485,722,659 $455,731,980
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-5-
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CAPITALIZATION
September 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, 6,574,959
shares; 1993, 5,661,504 shares $112,963,254 $ 87,842,657
Paid-in capital 1,315,025 1,315,025
Capital stock expense (4,286,194) (3,357,165)
Retained earnings 42,881,927 43,207,666
Less cost of treasury stock; 1994 and
1993, 22,032 shares (633,976) (633,976)
____________ ____________
Total common shareholders' equity 152,240,036 128,374,207
____________ ____________
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 12,299,000 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) 154,800 186,300
____________ ____________
Total long-term debt 155,453,800 155,683,300
Unamortized discount-net (1,246,094) (1,276,767)
____________ ____________
Total long-term debt-net 154,207,706 154,406,533
____________ ____________
Total capitalization $318,447,742 $294,780,740
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-6-
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
Three Months Ended
September 30,
1994 1993
___________ ___________
Cash Flows from Operating Activities:
Net Income $ 3,672,857 $ 6,054,489
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,975,572 1,828,124
Write-down of non-utility property and other
investments 94,407
Increase in deferred charges (480,686) (331,325)
Deferred income taxes and investment tax
credits - net 594,009 609,927
Capitalized interest and AFUDC (633,457) (367,720)
Other operating activities-net (25,816) 72,352
Change in current assets and current liabilities
excluding cash, short-term investments and
current portion of debt:
Customer and other accounts receivable (540,632) (2,509,280)
Unbilled revenues 101,240 (236,948)
Accounts payable and other liabilities 2,506,837 1,473,335
Accrued/prepaid interest and taxes (4,374,125) (2,160,301)
Other 50,735 (88,505)
____________ ____________
Net cash provided by operating activities 2,940,941 4,344,148
____________ ____________
Cash Flows Provided by Financing Activities:
(Increase) Decrease in funds held by Trustee
for construction expenditures (3) 4,413,829
Proceeds from issuance of common stock 2,186,421 1,493,173
Repayment of long-term debt (114,500) (45,500)
Contributions and advances for construction-net 1,367,089 278,797
Net increase in notes payable - banks 4,000,000
Dividends paid on common stock (3,327,962) (2,783,315)
____________ ____________
Net cash provided by financing activities 4,111,045 3,356,984
____________ ____________
Cash Flows Used for Investing Activities:
Utility plant expenditures (excluding allowance
for funds used during construction) (20,129,242) (8,256,463)
Development costs of land (34,624) (99,864)
Net decrease in short-term investments 17,012,000
Sale of land 1,760,718
____________ ____________
Cash used for investing activities (3,151,866) (6,595,609)
____________ ____________
Net Increase in Cash and Cash Equivalents 3,900,120 1,105,523
Cash and Cash Equivalents at Beginning of Period 739,542 8,130,607
____________ ____________
Cash and Cash Equivalents at End of Period $ 4,639,662 $ 9,236,130
____________ ____________
____________ ____________
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 3,328,399 $ 3,321,688
Income taxes $ 1,941,254 $ 2,386,449
Preferred stock dividends $ 177,000 $ 262,500
See Notes to Consolidated Financial Statements.
-7-
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
Nine Months Ended
September 30,
1994 1993
___________ ___________
Cash Flows from Operating Activities:
Net Income $ 9,174,268 $ 11,570,994
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 5,849,438 5,447,114
Write-down of non-utility property and other
investments 383,154
Increase in deferred charges (1,904,892) (1,053,062)
Deferred income taxes and investment tax
credits - net 1,752,572 1,913,429
Capitalized interest and AFUDC (1,414,913) (956,381)
Other operating activities-net (55,698) 154,035
Change in current assets and current liabilities
excluding cash, short-term investments and
current portion of debt:
Customer and other accounts receivable (1,067,858) (3,104,251)
Unbilled revenues (767,113) (1,824,843)
Accounts payable and other liabilities 337,838 (632,030)
Accrued/prepaid interest and taxes (3,347,039) 364,861
Other (63,127) (34,892)
____________ ____________
Net cash provided by operating activities 8,876,630 11,844,974
____________ ____________
Cash Flows Provided by Financing Activities:
Decrease in funds held by Trustee for
construction expenditures 381,975 6,872,564
Proceeds from issuance of common stock 24,191,568 21,084,316
Repayment of long-term debt (229,500) (209,500)
Contributions and advances for construction-net 2,812,153 1,568,196
Net increase (decrease) in notes payable - banks 4,000,000 (6,500,000)
Dividends paid on common stock (9,500,007) (7,985,249)
____________ ____________
Net cash provided by financing activities 21,656,189 14,830,327
____________ ____________
Cash Flows Used for Investing Activities:
Utility plant expenditures (excluding allowance
for funds used during construction) (33,155,907) (21,437,261)
Development costs of land (113,722) (171,057)
Sale of land 1,760,718
____________ ____________
Cash used for investing activities (33,269,629) (19,847,600)
____________ ____________
Net (Decrease) Increase in Cash and Cash Equivalents (2,736,810) 6,827,701
Cash and Cash Equivalents at Beginning of Period 7,376,472 2,408,429
____________ ____________
Cash and Cash Equivalents at End of Period $ 4,639,662 $ 9,236,130
____________ ____________
____________ ____________
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 8,223,509 $ 8,655,132
Income taxes $ 4,596,254 $ 3,486,449
Preferred stock dividends $ 628,475 $ 787,500
See Notes to Consolidated Financial Statements.
-8-
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
Twelve Months Ended
September 30,
1994 1993
___________ ___________
Cash Flows from Operating Activities:
Net Income $ 11,433,102 $ 14,028,867
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 7,687,633 7,173,031
Write-down of non-utility property and other
investments 476,378
Gain on sale of land (1,685,521)
Increase in deferred charges (3,685,795) (16,186)
Deferred income taxes and investment tax
credits - net 3,113,197 3,589,008
Capitalized interest and AFUDC (1,709,753) (1,460,254)
Other operating activities-net (423,873) 322,135
Change in current assets and current liabilities
excluding cash, short-term investments and
current portion of debt:
Customer and other accounts receivable 1,037,876 (3,070,127)
Unbilled revenues 369,129 (1,339,972)
Accounts payable and other liabilities 1,632,705 84,156
Accrued/prepaid interest and taxes (2,427,945) 1,045,717
Other (35,105) 17,043
____________ ____________
Net cash provided by operating activities 15,782,028 20,373,418
____________ ____________
Cash Flows Provided by Financing Activities:
Decrease in funds held by Trustee for
construction expenditures 2,029,288 9,218,329
Proceeds from issuance of debentures 50,000,000
Proceeds from issuance of common stock 25,752,099 22,205,451
Repayment of long-term debt (50,265,000) (305,000)
Contributions and advances for construction-net 3,153,862 2,763,155
Net increase (decrease) in notes payable - banks 4,000,000 (5,500,000)
Dividends paid on common stock (12,365,119) (10,405,012)
____________ ____________
Net cash provided by financing activities 22,305,130 17,976,923
____________ ____________
Cash Flows Used for Investing Activities:
Utility plant expenditures (excluding allowance
for funds used during construction) (44,235,401) (31,967,928)
Development costs of land (137,507) (178,780)
Proceeds from sale of land 1,689,282 1,760,718
____________ ____________
Cash used for investing activities (42,683,626) (30,385,990)
____________ ____________
Net (Decrease) Increase in Cash and Cash Equivalents (4,596,468) 7,964,351
Cash and Cash Equivalents at Beginning of Period 9,236,130 1,271,779
____________ ____________
Cash and Cash Equivalents at End of Period $ 4,639,662 $ 9,236,130
____________ ____________
____________ ____________
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 11,864,885 $ 11,011,002
Income taxes $ 6,990,813 $ 5,062,223
Preferred stock dividends $ 890,975 $ 1,050,000
See Notes to Consolidated Financial Statements.
-9-
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
Nine Months Year
Ended Ended
September 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, 223,455 shares; 1993, 200,878 shares) 5,973,097 6,009,298
Exercise of stock options (1993, 4,050 shares) 105,971
____________ ____________
Balance at End of Period 112,963,254 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 (929,029) (877,178)
____________ ____________
Balance at End of Period (4,286,194) (3,357,165)
____________ ____________
Retained Earnings:
Balance at Beginning of Period 43,207,666 40,228,199
Net Income 9,174,268 13,829,828
Dividends on common stock (1994,
$1.53; 1993 $2.01) (9,500,007) (10,850,361)
____________ ____________
Balance at End of Period 42,881,927 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 $152,240,036 $128,374,207
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-10-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED INCOME
Three Months Ended
September 30,
1994 1993
____________ ___________
Operating Revenues $ 27,369,703 $ 28,946,588
____________ ____________
Operating Expenses:
Operation 10,351,504 10,220,058
Maintenance 1,635,510 1,508,264
Depreciation 1,975,572 1,828,124
Revenue taxes 3,479,035 3,664,692
Real estate, payroll and other taxes 631,515 601,832
Federal income taxes 2,320,716 2,954,612
____________ ____________
Total operating expenses 20,393,852 20,777,582
____________ ____________
Operating Income 6,975,851 8,169,006
____________ ____________
Other Income (Expense):
Litigation settlement (Note 9) (932,203)
Gain on sale of land 122,400
Allowance for equity funds used
during construction 316,282 145,262
Federal income taxes 164,000 (115,071)
Other - net 133,568 60,672
____________ ____________
Total other income (expense) (318,353) 213,263
____________ ____________
Total Operating and Other Income (Expense) 6,657,498 8,382,269
____________ ____________
Interest Charges:
Interest on long-term debt 2,693,560 2,917,022
Other interest expense - net 10,987 5,640
Allowance for debt funds used
during construction (220,867) (121,486)
Amortization of debt discount - net 80,889 54,197
____________ ____________
Total interest charges 2,564,569 2,855,373
____________ ____________
Income Before Preferred Stock Dividends 4,092,929 5,526,896
Preferred Stock Dividends 203,250 262,500
____________ ____________
Earnings Applicable to Common Stock $ 3,889,679 $ 5,264,396
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-11-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED INCOME
Nine Months Ended
September 30,
1994 1993
____________ ___________
Operating Revenues $ 77,235,460 $ 75,946,996
____________ ____________
Operating Expenses:
Operation 30,685,863 28,187,179
Maintenance 4,834,087 4,345,320
Depreciation 5,849,438 5,447,114
Revenue taxes 9,718,032 9,555,728
Real estate, payroll and other taxes 2,055,117 1,926,642
Federal income taxes 5,593,010 6,136,075
____________ ____________
Total operating expenses 58,735,547 55,598,058
____________ ____________
Operating Income 18,499,913 20,348,938
____________ ____________
Other Income (Expense):
Litigation settlement (Note 9) (932,203)
Gain on sale of land 122,400
Allowance for equity funds used
during construction 650,563 336,539
Federal income taxes (6,214) (205,148)
Other - net 299,916 134,326
____________ ____________
Total other income (expense) 12,062 388,117
____________ ____________
Total Operating and Other Income (Expense) 18,511,975 20,737,055
____________ ____________
Interest Charges:
Interest on long-term debt 8,080,451 8,725,434
Other interest expense - net 15,061 69,233
Allowance for debt funds used
during construction (480,778) (300,259)
Amortization of debt discount - net 238,756 162,591
____________ ____________
Total interest charges 7,853,490 8,656,999
____________ ____________
Income Before Preferred Stock Dividends 10,658,485 12,080,056
Preferred Stock Dividends 655,767 787,500
____________ ____________
Earnings Applicable to Common Stock $ 10,002,718 $ 11,292,556
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-12-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED INCOME
Twelve Months Ended
September 30,
1994 1993
____________ ___________
Operating Revenues $101,284,584 $ 98,077,104
____________ ____________
Operating Expenses:
Operation 41,027,833 36,813,939
Maintenance 6,204,924 5,913,481
Depreciation 7,687,633 7,173,031
Revenue taxes 12,664,108 12,254,101
Real estate, payroll and other taxes 2,642,366 2,484,470
Federal income taxes 7,115,705 7,433,591
____________ ____________
Total operating expenses 77,342,569 72,072,613
____________ ____________
Operating Income 23,942,015 26,004,491
____________ ____________
Other Income (Expense):
Litigation settlement (Note 9) (932,203)
Gain on sale of land 122,400
Allowance for equity funds used
during construction 759,363 509,496
Federal income taxes (59,090) (301,562)
Other - net 335,064 244,939
____________ ____________
Total other income (expense) 103,134 575,273
____________ ____________
Total Operating and Other Income (Expense) 24,045,149 26,579,764
____________ ____________
Interest Charges:
Interest on long-term debt 10,882,318 11,617,538
Other interest expense - net 23,749 107,239
Allowance for debt funds used
during construction (572,414) (484,121)
Amortization of debt discount - net 300,548 216,561
____________ ____________
Total interest charges 10,634,201 11,457,217
____________ ____________
Income Before Preferred Stock Dividends 13,410,948 15,122,547
Preferred Stock Dividends 918,267 1,050,000
____________ ____________
Earnings Applicable to Common Stock $ 12,492,681 $ 14,072,547
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-13-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
Assets 1994 1993
____________ ____________
Utility Plant - At original cost:
Utility plant in service $447,321,156 $438,178,824
Construction work in progress 42,123,676 17,242,088
____________ ____________
Total utility plant 489,444,832 455,420,912
Less accumulated depreciation and amortization 87,716,720 82,128,023
____________ ____________
Utility plant - net 401,728,112 373,292,889
____________ ____________
Non-utility Property 85,931 87,582
____________ ____________
Funds Held by Trustee for Construction
Expenditures 331 382,306
____________ ____________
Current Assets:
Cash and cash equivalents 2,373,514 3,263,456
Customer and other accounts receivable
(less reserve: 1994, $412,988; 1993, $434,000) 12,420,014 11,887,985
Unbilled revenues 8,015,435 7,248,322
Materials and supplies-at average cost 1,686,829 1,623,702
Prepaid insurance, taxes, other 1,664,404 1,603,955
____________ ____________
Total current assets 26,160,196 25,627,420
____________ ____________
Deferred Charges:
Prepaid pension expense 945,393 1,003,145
Abandonments 95,061 152,097
Waste residual management 391,236 587,589
Unamortized debt expenses 7,827,922 8,025,677
Other unamortized expenses 3,048,398 598,179
Postretirement benefit expense 1,804,930 1,004,556
Taxes recoverable through future rates 26,643,663 26,643,663
____________ ____________
Total deferred charges 40,756,603 38,014,906
____________ ____________
Total $468,731,173 $437,405,103
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-14-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
Capitalization and Liabilities 1994 1993
____________ ____________
Capitalization:
Common shareholder's equity $150,252,266 $125,764,979
Cumulative preferred stock - redeemable 12,000,000 12,000,000
Long-term debt - net 141,908,706 141,909,533
____________ ____________
Total capitalization 304,160,972 279,674,512
____________ ____________
Current Liabilities:
Notes payable - banks 4,000,000
Long-term debt - current portion 42,000 42,000
Accounts payable and other liabilities 9,958,400 9,589,716
Customers' deposits 280,629 276,497
Municipal and state taxes accrued 9,925,489 12,569,445
Federal income taxes accrued 1,063,553 704,771
Interest accrued 2,172,241 2,699,483
Preferred stock dividends accrued 63,970 89,178
____________ ____________
Total current liabilities 27,506,282 25,971,090
____________ ____________
Deferred Credits:
Customers' advances for construction 45,775,941 45,149,522
Federal income taxes 57,875,274 55,955,366
Unamortized investment tax credits 8,719,151 8,852,487
Emergency water projects 33,023 127,704
Accumulated postretirement benefits 1,804,930 1,004,556
____________ ____________
Total deferred credits 114,208,319 111,089,635
____________ ____________
Contributions in Aid of Construction 22,855,600 20,669,866
____________ ____________
Commitments and Contingent Liabilities
(Notes 8 and 10)
____________ ____________
Total $468,731,173 $437,405,103
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-15-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED CAPITALIZATION
September 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 87,507,170 63,522,594
Capital stock expense (484,702) (484,702)
Retained earnings 47,489,196 46,986,485
____________ ____________
Total common shareholder's equity 150,252,266 125,764,979
____________ ____________
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) 154,800 186,300
____________ ____________
Total long-term debt 143,154,800 143,186,300
Unamortized discount - net (1,246,094) (1,276,767)
____________ ____________
Total long-term debt - net 141,908,706 141,909,533
____________ ____________
Total capitalization $304,160,972 $279,674,512
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-16-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED CASH FLOWS
Three Months Ended
September 30,
1994 1993
___________ ___________
Cash Flows from Operating Activities:
Income Before Preferred Stock Dividends $ 4,092,929 $ 5,526,896
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,975,572 1,828,124
Increase in deferred charges (492,196) (347,882)
Deferred income taxes and investment tax
credits - net 594,011 609,928
Allowance for debt and equity funds used
during construction (AFUDC) (537,149) (266,748)
Other operating activities-net (21,489) (13,597)
Change in current assets and current liabilities
excluding cash, short-term investments and
current portion of debt:
Customer and other accounts receivable (783,967) (2,444,312)
Unbilled revenues 101,240 (236,948)
Accounts payable and other liabilities 2,632,000 1,486,575
Accrued/prepaid interest and taxes (4,127,364) (2,486,762)
Other 50,735 (88,505)
____________ ____________
Net cash provided by operating activities 3,484,322 3,566,769
____________ ____________
Cash Flows Provided by Financing Activities:
(Increase) Decrease in funds held by Trustee for
construction expenditures (3) 4,413,829
Capital contributed by parent company 2,507,257 4,188,899
Repayment of long-term debt (10,500) (10,500)
Contributions and advances for construction-net 1,367,089 278,797
Net increase in notes payable - banks 4,000,000
Dividends paid on common and preferred stock (3,531,212) (3,045,815)
____________ ____________
Net cash provided by financing activities 4,332,631 5,825,210
____________ ____________
Cash Flows Used for Investing Activities:
Utility plant expenditures (excluding allowance
for funds used during construction) (20,129,242) (8,256,463)
Decrease in short-term investments 14,012,000
Sale of land 7,000
____________ ____________
Cash used for investing activities (6,117,242) (8,249,463)
____________ ____________
Net Increase in Cash and Cash Equivalents 1,699,711 1,142,516
Cash and Cash Equivalents at Beginning of Period 673,803 2,573,483
____________ ____________
Cash and Cash Equivalents at End of Period $ 2,373,514 $ 3,715,999
____________ ____________
____________ ____________
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 3,005,482 $ 2,951,354
Income taxes $ 1,941,254 $ 2,386,449
Preferred stock dividends $ 177,000 $ 262,500
See Notes to Consolidated Financial Statements.
-17-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED CASH FLOWS
Nine Months Ended
September 30,
1994 1993
___________ ___________
Cash Flows from Operating Activities:
Income Before Preferred Stock Dividends $ 10,658,485 $ 12,080,056
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 5,849,438 5,447,114
Gain on sale of land
Increase in deferred charges (1,941,323) (1,086,646)
Deferred income taxes and investment tax
credits - net 1,786,572 1,835,632
Allowance for debt and equity funds used
during construction (AFUDC) (1,131,341) (636,798)
Other operating activities-net (59,770) (38,817)
Change in current assets and current liabilities
excluding cash, short-term investments and
current portion of debt:
Customer and other accounts receivable (532,029) (2,404,880)
Unbilled revenues (767,113) (1,824,843)
Accounts payable and other liabilities 347,608 (622,204)
Accrued/prepaid interest and taxes (2,872,865) (665,453)
Other (63,127) (34,892)
____________ ____________
Net cash provided by operating activities 11,274,535 12,048,269
____________ ____________
Cash Flows Provided by Financing Activities:
Decrease in funds held by Trustee for
construction expenditures 381,975 6,872,564
Capital contributed by parent company 23,984,576 16,651,729
Repayment of long-term debt (31,500) (31,500)
Contributions and advances for construction-net 2,812,153 1,568,196
Net increase (decrease) in notes payable - banks 4,000,000 (5,500,000)
Dividends paid on common and preferred stock (10,155,774) (8,772,749)
____________ ____________
Net cash provided by financing activities 20,991,430 10,788,240
____________ ____________
Cash Flows Used for Investing Activities:
Utility plant expenditures (excluding allowance
for funds used during construction) (33,155,907) (21,437,261)
Sale of land 7,000
____________ ____________
Cash used for investing activities (33,155,907) (21,430,261)
____________ ____________
Net (Decrease) Increase in Cash and Cash Equivalents (889,942) 1,406,248
Cash and Cash Equivalents at Beginning of Period 3,263,456 2,309,751
____________ ____________
Cash and Cash Equivalents at End of Period $ 2,373,514 $ 3,715,999
____________ ____________
____________ ____________
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 7,807,654 $ 8,101,848
Income taxes $ 4,596,254 $ 3,600,000
Preferred stock dividends $ 628,475 $ 787,500
See Notes to Consolidated Financial Statements.
-18-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED CASH FLOWS
Twelve Months Ended
September 30,
1994 1993
___________ ___________
Cash Flows from Operating Activities:
Income Before Preferred Stock Dividends $ 13,410,948 $ 15,122,547
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 7,687,633 7,173,031
Gain on sale of land (122,400)
Increase in deferred charges (3,733,648) (59,763)
Deferred income taxes and investment tax
credits - net 3,283,498 2,811,154
Allowance for debt and equity funds used
during construction (AFUDC) (1,331,777) (993,617)
Other operating activities-net (470,745) (50,717)
Change in current assets and current liabilities
excluding cash, short-term investments and
current portion of debt:
Customer and other accounts receivable 1,032,366 (2,885,022)
Unbilled revenues 369,129 (1,339,972)
Accounts payable and other liabilities 1,638,890 83,026
Accrued/prepaid interest and taxes (1,974,671) 407,235
Other (35,105) 17,043
____________ ____________
Net cash provided by operating activities 19,754,118 20,284,945
____________ ____________
Cash Flows Provided by Financing Activities:
Decrease in funds held by Trustee for
construction expenditures 2,029,288 9,218,329
Capital contributed by parent company 27,142,144 19,079,449
Proceeds from issuance of debentures 50,000,000
Repayment of long-term debt (50,042,000) (42,000)
Contributions and advances for construction-net 3,153,862 2,763,155
Net decrease in notes payable - banks 4,000,000 (5,000,000)
Dividends paid on common and preferred stock (13,283,386) (11,455,012)
____________ ____________
Net cash provided by financing activities 22,999,908 14,563,921
____________ ____________
Cash Flows Used for Investing Activities:
Utility plant expenditures (excluding allowance
for funds used during construction) (44,218,911) (31,967,928)
Selling costs of land (1,600)
Sale of land 124,000 7,000
____________ ____________
Cash used for investing activities (44,096,511) (31,960,928)
____________ ____________
Net (Decrease) Increase in Cash and Cash Equivalents (1,342,485) 2,887,938
Cash and Cash Equivalents at Beginning of Period 3,715,999 828,061
____________ ____________
Cash and Cash Equivalents at End of Period $ 2,373,514 $ 3,715,999
____________ ____________
____________ ____________
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 11,543,153 $ 10,592,987
Income taxes $ 6,990,813 $ 4,661,449
Preferred stock dividends $ 890,975 $ 1,050,000
See Notes to Consolidated Financial Statements.
-19-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED SHAREHOLDER'S EQUITY
Nine Months Year
Ended Ended
September 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 23,984,576 19,809,297
____________ ____________
Balance at End of Period 87,507,170 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 10,658,485 14,832,519
Dividends on Common Stock (9,500,007) (10,850,361)
Preferred Stock Dividends (655,767) (1,050,000)
____________ ____________
Balance at End of Period 47,489,196 46,986,485
____________ ____________
Total Common Shareholder's Equity $150,252,266 $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 $18,218,471. The net proceeds were used to fund an
equity contribution to Elizabethtown of $16,000,000. This
contribution has been used to partially fund Elizabethtown's
construction program, the predominant portion of which relates to
the Canal Road Water Treatment Plant (See Note 8). The balance of
the net proceeds is being used to fund working capital requirements
of the Corporation.
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 banks to replace its
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 and Mount
Holly'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 September 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 $94,407,
$283,154 and $376,378 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, nine and
twelve months ended September 30, 1994, respectively, and the
Consolidated Balance Sheets of E'town as of September 30, 1994.
7. 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
utility plant and increased costs of power, labor and employee
benefits. A decision is expected by the BPU 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
-22-
(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.
8. 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. The Company has
expended $18,615,472 as of September 30, 1994. Construction of the
project is proceeding on schedule and is expected to be completed
in 1996.
9. LEGAL MATTERS
As previously reported, a developer asserted in a suit filed in
1991 against Elizabethtown that the Company failed to install
facilities necessary to provide water service to a new development
in a timely manner. The developer 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 recently alleged that
his economic losses from the decline in real estate values were
$4,000,000.
In November 1994 the Company settled this matter by paying the
developer $1,750,000. As part of the settlement, the Company
agreed to reimburse the developer all funds deposited under a main
extension loan agreement for the construction of the facilities.
In addition, the Company has applied a portion of the settlement
against an insurance reserve. The effect on earnings is $932,203
or $615,254 net of federal income taxes. The Company is seeking
recovery from its insurance carriers.
10. TAX MATTERS
The Internal Revenue Service (Service) is currently auditing the
Corporation's federal income tax returns for the tax years 1987
through 1992. The Service has raised issues related to tax
deductions taken initially in 1988 for certain land transactions.
While the Service has not issued a Revenue Agent Report at this
juncture, they have indicated they are seeking to reduce a portion
of the tax deduction taken by E'town for these items and
assess taxes on whatever amount is disallowed plus related interest
since 1988. The Corporation continues to hold discussions with the
Service in efforts to resolve this matter favorably. Although the
Corporation does not believe the Service will be successful in
disallowing these deductions in their entirety, the ultimate
outcome of this matter is uncertain 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
September 30, 1994, and the results of operations for the three, nine
and twelve months ended September 30, 1994 and 1993.
LIQUIDITY AND CAPITAL RESOURCES
Capital Expenditures Program
Consolidated capital expenditures, primarily for water utility
plant, were $33.3 million for the first nine 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 utility
plant ($182.4 million for Elizabethtown and $14.1 million for Mount
Holly) 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'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
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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
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 is
proceeding on schedule and is expected to be completed in 1996.
To assure an adequate supply of quality water from an aquifer serving
parts of southern New Jersey, recent state legislation will require
Mount Holly, as well as other suppliers obtaining water from designated
portions of this aquifer, to reduce pumpage from its wells. Mount
Holly has received preliminary approval from the New Jersey Department
of Environmental Protection (NJDEP) for its conceptual plan to develop
a new water supply and treatment and transmission system necessary to
obtain water outside the designated portion of the aquifer. The
preliminary current estimate of the cost of this project is $15.0
million.
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.
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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. This
contribution has been used to partially fund Elizabethtown's
construction program, the predominant portion of which relates to
the Plant. 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.
Elizabethtown has executed a committed revolving credit agreement
with an agent bank and five additional banks to replace its
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 and Mount Holly'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 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.
During the nine months ended September 30, 1994, 223,455 shares
of common stock were issued for proceeds of $5,973,097 under
E'town's Dividend Reinvestment and Stock Purchase Plan. The
proceeds are used on an ongoing basis to make capital contributions
to Elizabethtown to partially fund its capital program.
RESULTS OF OPERATIONS
Net Income for the three months ended September 30, 1994 decreased
$2.4 million from the comparable 1993 amount due primarily to a
decrease in revenues of $1.6 million, resulting from more normal
weather conditions in 1994, a litigation settlement in 1994 (see
Note 9 to the Notes to Consolidated Financial Statements) of
$.9 million and a gain on the sale of land in August 1993 of
$1.7 million.
Net income for the nine and twelve months ended September 30, 1994
decreased $2.4 million and $2.6 million, respectively, from the
comparable 1993 amounts due primarily to higher operating expenses
which were partially offset by increased revenues combined with the
litigation settlement in 1994 and the gain from the land sale in
1993 referred to above.
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Earnings per share for the three, nine and twelve months ended
September 30, 1994 decreased from the comparable 1993 periods due to
the effects on net income discussed above coupled with an increased
number of common shares outstanding.
Operating revenues decreased $1.6 million or 5.4% for the three
months ended September 30, 1994 from the comparable period in 1993.
This was primarily the result of decreased sales of $1.7 million to
residential customers due to the return to more normal weather
conditions partially offset by the effect of the rate increase
effective July 1, 1994 for the Purchased Water Adjustment Clause
(PWAC) of $.1 million (see Economic Outlook).
Operating revenues increased $1.3 million or 1.7% for the nine
months ended September 30, 1994 over the comparable period in 1993.
Sales to residential customers, due to the return to more normal
weather conditions in 1994, decreased by $1.3 million, and were
offset by customer growth in 1994, in addition to increases in sales
to wholesale, large industrial and fire service customers of
$.5 million, $.5 million and $.4 million, respectively. Also,
revenues increased by $1.1 million for the effect of the rate
increase effective March 1993 and the PWAC.
Operating revenues increased $3.2 million or 3.3% for the twelve
months ended September 30, 1994 over the comparable period in 1993.
Sales to residential customers, due to the return to more normal
weather conditions in 1994, decreased by $.9 million, and were offset
by customer growth in 1994, in addition to increases in sales to
wholesale, large industrial and fire service customers of
$.6 million, $.6 million and $.4 million, respectively. Also,
revenues increased by $2.4 million for the effect of the rate
increases referred to above.
Operation expenses increased by $.1 million or .7%, $2.5 million or
8.7% and $4.2 million or 11.2% for the three, nine and twelve month
periods ended September 30, 1994, respectively, over the comparable
amounts in 1993. These increases in operating expenses for the nine
and twelve month periods are due to higher quantities of power and
raw water purchased to meet the higher customer demand and the unit
cost of such raw water. Additionally, the cost of labor, benefits
and various other miscellaneous items increased.
Maintenance Expenses increased $.1 million or 8.4%, $.5 million or
11.2% and $.3 million or 5.1% for the three, nine and twelve month
periods ended September 30, 1994, respectively, over the comparable
amounts in 1993. These increased expenses are due to increased
maintenance at various operating facilities. In addition, higher
than normal expenses were incurred due to adverse winter weather
conditions during the first quarter of 1994.
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Depreciation Expense increased $.1 million or 8.1%, $.4 million or
7.4% and $.5 million or 7.2% for the three, nine and twelve month
periods ended September 30, 1994, respectively, over the comparable
1993 amounts. This was the result of additional depreciable plant
placed in service during these periods.
Revenue Taxes decreased $.2 million or 5.1%, increased $.2 million
or 1.7% and increased $.4 million or 3.3% for the three, nine and
twelve month periods ended September 30, 1994, respectively,
relative to the comparable periods in 1993, based upon the changes
in revenues explained above.
Real Estate, Payroll and Other Taxes changed by less than
$.1 million for the three, nine and twelve month periods ended
September 30, 1994 from the comparable amounts in 1993.
Federal Income Taxes decreased $1.4 million, $1.2 million and
$.9 million for the three, nine and twelve month periods ended
September 30, 1994, respectively, from the comparable 1993 amounts
due to the changes in taxable income discussed herein.
Other Income decreased $1.6 million, $1.5 million and $1.4 million
for the three, nine and twelve month periods ended September 30,
1994 from the comparable 1993 amounts. These net changes are
comprised of several items. Included in these net decreases is
a litigation settlement of $.9 million in 1994 (see Note 9 to the
Notes to Consolidated Financial Statements). Also included in the
net changes for the three, nine and twelve months ended
September 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 less than $.1 million, $.2 million and
$.1 million for the three, nine 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, increases in the equity
component of the Allowance for Funds Used During Construction
resulted from increased construction expenditures, primarily related
to the Plant. 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 9.5%, $.8 million or
8.8% and $.8 million or 6.5% during the three, nine and twelve month
periods ended September 30, 1994, respectively, relative to the
comparable 1993 amounts. These changes were due primarily to
savings from refinancing of long-term debt in 1993.
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.
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Elizabethtown and Subsidiary
Currently, Elizabethtown and Mount Holly believe they are in
compliance with all water quality standards. Looking forward,
however, governmental water quality and service regulations will
require Elizabethtown and Mount Holly to make significant
investments in water supply, water treatment, transmission and
storage facilities including, for Elizabethtown, the Plant, and for
Mount Holly, a new water supply and treatment and transmission
systems to augment existing facilities. This capital program will
require regular external financing and rate relief for the next
several years.
Because Elizabethtown and Mount Holly expect their rate bases to
grow more quickly than pumpage over the next several years,
Elizabethtown and Mount Holly will file for rate increases regularly
over the next several years so that the utilities may have the
opportunity to realize satisfactory returns on equity.
Elizabethtown filed for a rate increase in 1994 and Mount Holly
expects to file for a rate increase in early 1995. 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 Elizabethtown and Mount
Holly 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 1995-1996, 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
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.
Rate increases of more than 100% in excess of current rates will
be required by Mount Holly during the period 1995-1996, the
predominant portion of which will be required to recover the
expected costs of the new supply, treatment and transmission
facilities.
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 and
increased costs of power, labor and employee benefits. A decision
is expected by the BPU 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)
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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
September 30, 1994 in the Consolidated Balance Sheets of E'town
Corporation is $12.0 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 September 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, $.3 million and $.4 million
for the three, nine and twelve months ended September 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.
Also included in non-utility property and other investments at
September 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
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.
Item 1:
Legal Proceedings
As previously reported, a developer asserted in a suit filed in
1991 against Elizabethtown that the Company failed to install
facilities necessary to provide water service to a new
development in a timely manner. The developer 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 recently alleged that his economic losses from the
decline in real estate values were $4,000,000.
In November 1994 the Company settled this matter by paying the
developer $1,750,000. As part of the settlement, the Company
agreed to reimburse the developer all funds deposited under a
main extension loan agreement for the construction of the
facilities. In addition, the Company has applied a portion of
the settlement against an insurance reserve. The effect on
earnings is $932,203 or $615,254 net of federal income taxes.
The Company is seeking recovery from its insurance carriers.
Items 2 - 4:
Nothing to report.
Item 5: Other Information
Tax Matters
The Internal Revenue Service (Service) is currently auditing
the Corporation's federal income tax returns for the tax years
1987 through 1992. The Service has raised issues related to
tax deductions taken initially in 1988 for certain land
transactions. While the Service has not issued a Revenue Agent
Report at this juncture, they have indicated they are seeking
to reduce a portion of the tax deduction taken by E'town for
these items and assess taxes on whatever amount is disallowed
plus related interest since 1988. The Corporation continues to
hold discussions with the Service in efforts to resolve this
matter favorably. Although the Corporation does not believe
the Service will be successful in disallowing these deductions
in their entirety, the ultimate outcome of this matter is
uncertain at this time.
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PART II - OTHER INFORMATION (Continued)
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
Exhibit 27 - Financial Data Schedules
E'town Corporation
Elizabethtown Water Company and Subsidiary
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: November 14, 1994 E'TOWN CORPORATION
/s/ Andrew M. Chapman
______________________________________
Andrew M. Chapman
Chief Financial Officer
/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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