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 March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number 1-11023
E'TOWN CORPORATION
(Exact name of registrant as specified in its charter)
New Jersey 22-2596330
(State of incorporation) (I.R.S. Employer Identification No.)
600 South Avenue
Westfield, New Jersey 07090
(Address of principal executive offices) (Zip)
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 March 31, 1996
E'town Corporation
without par value 7,596,585
Elizabethtown Water Company 1,974,902
without par value*
* All shares are owned by E'town Corporation
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 1-2
- Consolidated Balance Sheets 3
- Statements of Consolidated Capitalization 5
- Statements of Consolidated Shareholders' Equity 6
- Statements of Consolidated Cash Flows 7-8
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
__________________________________________
- Statements of Consolidated Income 9-10
- Consolidated Balance Sheets 11
- Statements of Consolidated Capitalization 13
- Statements of Consolidated Shareholder's Equity 14
- Statements of Consolidated Cash Flows 15-16
E'TOWN CORPORATION AND SUBSIDIARIES AND
_______________________________________
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
__________________________________________
- Notes to Consolidated Financial Statements 17
Item 2. Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations 23
PART II - OTHER INFORMATION
___________________________
Items 1 - 5 32
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
March 31,
1996 1995
____________ ___________
Operating Revenues $ 25,760,090 $ 25,174,395
____________ ____________
Operating Expenses:
Operation 10,967,043 10,423,708
Maintenance 1,473,960 1,365,679
Depreciation 2,343,661 2,127,257
Revenue taxes 3,227,630 3,123,259
Real estate, payroll and other taxes 837,009 725,168
Federal income taxes 1,342,599 1,564,264
____________ ____________
Total operating expenses 20,191,902 19,329,335
____________ ____________
Operating Income 5,568,188 5,845,060
____________ ____________
Other Income (Expense):
Allowance for equity funds used
during construction 1,098,971 618,321
Write-down of non-utility property
and other investments (Note 6) (106,826)
Federal income taxes (435,786) (211,749)
Other - net 146,133 93,502
____________ ____________
Total other income (expense) 809,318 393,248
____________ ____________
Total Operating and Other Income 6,377,506 6,238,308
____________ ____________
Interest Charges:
Interest on long-term debt 3,451,284 2,895,982
Other interest expense - net 412,847 588,875
Capitalized interest (962,933) (553,970)
Amortization of debt discount - net 96,743 89,493
____________ ____________
Total interest charges 2,997,941 3,020,380
____________ ____________
Income Before Preferred Stock Dividends
of Subsidiary 3,379,565 3,217,928
Preferred Stock Dividends 203,250 203,250
____________ ____________
Net Income $ 3,176,315 $ 3,014,678
____________ ____________
____________ ____________
Earnings Per Share of Common Stock:
Primary $ .42 $ .45
____________ ____________
____________ ____________
Fully Diluted $ .42 $ .45
____________ ____________
____________ ____________
Average Number of Shares Outstanding for
the Calculation of Earnings Per Share:
Primary 7,573,477 6,635,878
____________ ____________
____________ ____________
Fully Diluted 7,867,226 6,938,157
____________ ____________
____________ ____________
Dividends Paid Per Common Share $ .51 $ .51
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-1-
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
Twelve Months Ended
March 31,
1996 1995
____________ ___________
Operating Revenues $108,983,800 $102,549,511
____________ ____________
Operating Expenses:
Operation 44,691,342 41,430,562
Maintenance 5,913,792 6,415,442
Depreciation 9,024,573 8,058,572
Revenue taxes 13,695,583 12,775,023
Real estate, payroll and other taxes 2,965,010 2,770,179
Federal income taxes 7,389,724 6,896,295
____________ ____________
Total operating expenses 83,680,024 78,346,073
____________ ____________
Operating Income 25,303,776 24,203,438
____________ ____________
Other Income (Expense):
Litigation settlement (932,203)
Allowance for equity funds used
during construction 3,456,940 1,642,580
Write-down of non-utility property
and other investments (Note 6) (243,493) (398,858)
Federal income taxes (1,365,808) (326,224)
Other - net 794,028 618,493
____________ ____________
Total other income (expense) 2,641,667 603,788
____________ ____________
Total Operating and Other Income 27,945,443 24,807,226
____________ ____________
Interest Charges:
Interest on long-term debt 12,251,485 11,606,083
Other interest expense - net 2,213,656 1,055,409
Capitalized interest (3,155,091) (1,585,977)
Amortization of debt discount - net 365,223 357,973
____________ ____________
Total interest charges 11,675,273 11,433,488
____________ ____________
Income Before Preferred Stock Dividends
of Subsidiary 16,270,170 13,373,738
Preferred Stock Dividends 813,000 808,030
____________ ____________
Net Income $ 15,457,170 $ 12,565,708
____________ ____________
____________ ____________
Earnings Per Share of Common Stock:
Primary $ 2.11 $ 1.95
____________ ____________
____________ ____________
Fully Diluted $ 2.10 $ 1.94
____________ ____________
____________ ____________
Average Number of Shares Outstanding for
the Calculation of Earnings Per Share:
Primary 7,327,047 6,445,295
____________ ____________
____________ ____________
Fully Diluted 7,623,550 6,752,084
____________ ____________
____________ ____________
Dividends Paid Per Common Share $ 2.04 $ 2.04
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-2-
E'TOWN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
Assets 1996 1995
____________ ____________
Utility Plant-At Original Cost:
Utility plant in service $507,687,795 $502,572,255
Construction work in progress 108,633,251 100,212,636
____________ ____________
Total utility plant 616,321,046 602,784,891
Less accumulated depreciation and amortization 97,272,805 94,926,413
____________ ____________
Utility plant-net 519,048,241 507,858,478
____________ ____________
Non-utility Property and Other
Investments - Net (Note 6) 13,783,181 13,601,191
____________ ____________
Current Assets:
Cash and cash equivalents 1,701,955 4,925,400
Short-term investments 30,622 30,622
Customer and other accounts receivable
(less reserve: 1996, $535,021; 1995, $532,000) 16,383,478 15,984,043
Unbilled revenues 7,314,039 7,443,656
Materials and supplies-at average cost 1,733,807 1,912,015
Prepaid insurance, taxes, other 1,628,126 1,874,338
____________ ____________
Total current assets 28,792,027 32,170,074
____________ ____________
Deferred Charges:
Prepaid pension expense 422,275 512,691
Waste residual management 852,290 970,182
Unamortized debt and preferred stock expenses 9,863,585 9,938,130
Taxes recoverable through future rates 26,427,627 26,427,627
Postretirement benefit expense 3,071,215 2,900,569
Purchased water under recovery-net 48,282 37,316
Other unamortized expenses 1,432,425 739,857
____________ ____________
Total deferred charges 42,117,699 41,526,372
____________ ____________
Total $603,741,148 $595,156,115
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-3-
E'TOWN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
Capitalization and Liabilities 1996 1995
____________ ____________
Capitalization (Note 3):
Common shareholders' equity $178,351,534 $177,080,580
Cumulative preferred stock 12,000,000 12,000,000
Long-term debt - net 193,673,252 193,673,528
____________ ____________
Total capitalization 384,024,786 382,754,108
____________ ____________
Current Liabilities:
Notes payable - banks 32,500,000 27,000,000
Long-term debt - current portion 30,000 30,000
Accounts payable and other liabilities 12,569,729 16,826,104
Customers' deposits 308,135 305,349
Municipal and state taxes accrued 16,803,811 13,661,620
Federal income taxes accrued 704,864 150,735
Interest accrued 3,095,698 3,268,134
Preferred stock dividends accrued 59,000 59,000
____________ ____________
Total current liabilities 66,071,237 61,300,942
____________ ____________
Deferred Credits:
Customers' advances for construction 44,781,649 45,460,749
Federal income taxes 68,299,251 66,825,738
State income taxes 173,365 173,365
Unamortized investment tax credits 8,415,477 8,448,811
Accumulated postretirement benefits 3,106,467 2,939,217
____________ ____________
Total deferred credits 124,776,209 123,847,880
____________ ____________
Contributions in Aid of Construction 28,868,916 27,253,185
____________ ____________
Commitments and Contingent Liabilities
(Note 8)
Total $603,741,148 $595,156,115
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-4-
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CAPITALIZATION
March 31, December 31,
1996 1995
___________ ___________
E'town Corporation:
Common Shareholders' Equity:
Common stock without par value, authorized,
15,000,000 shares; issued 1996, 7,622,461
shares; 1995, 7,549,078 shares $140,619,406 $138,667,930
Paid-in capital 1,315,025 1,315,025
Capital stock expense (5,159,834) (5,159,834)
Retained earnings 42,314,221 42,994,743
Less cost of treasury stock; 1996 and 1995,
25,876 shares (737,284) (737,284)
____________ ____________
Total common shareholders' equity 178,351,534 177,080,580
____________ ____________
Elizabethtown Water Company:
Cumulative Preferred Stock:
$100 par value, authorized, 200,000
shares; $5.90 series, issued and
outstanding, 120,000 shares 12,000,000 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 11,748,000 11,751,000
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
5.60% Debentures, due 2025 40,000,000 40,000,000
7 1/4% Debentures, due 2028 50,000,000 50,000,000
The Mount Holly Water Company:
Notes Payable (due serially through 2000) 110,000 117,500
____________ ____________
Total long-term debt 194,858,000 194,868,500
Unamortized discount-net (1,184,748) (1,194,972)
____________ ____________
Total long-term debt-net 193,673,252 193,673,528
____________ ____________
Total capitalization $384,024,786 $382,754,108
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-5-
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
Three Months Year
Ended Ended
March 31, December 31,
1996 1995
____________ ____________
Common Stock:
Balance at Beginning of Period $138,667,930 $114,136,195
Public sale of common stock,
660,000 shares 17,737,500
Common stock issued under Dividend
Reinvestment and Stock Purchase Plan,
1996, 73,383 shares; 1995, 248,846 shares 1,951,476 6,388,716
Exercise of stock options, 15,569 shares 405,519
____________ ____________
Balance at End of Period 140,619,406 138,667,930
____________ ____________
Paid-in Capital: 1,315,025 1,315,025
____________ ____________
Capital Stock Expense:
Balance at Beginning of Period (5,159,834) (4,286,194)
Expenses incurred for the issuance and
sale of common stock (873,640)
____________ ____________
Balance at End of Period (5,159,834) (5,159,834)
____________ ____________
Retained Earnings:
Balance at Beginning of Period 42,994,743 42,439,552
Net Income 3,176,315 15,295,533
Dividends on common stock, 1996,
$.51; 1995; $2.04 (3,856,837) (14,740,342)
____________ ____________
Balance at End of Period 42,314,221 42,994,743
____________ ____________
Treasury Stock:
Balance at Beginning of Period (737,284) (633,976)
Cost of shares redeemed to
exercise stock options, 3,844 shares (103,308)
____________ ____________
Balance at End of Period (737,284) (737,284)
____________ ____________
Total Common Shareholders' Equity $178,351,534 $177,080,580
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-6-
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
Three Months Ended
March 31,
1996 1995
___________ ___________
Cash Flows from Operating Activities:
Net Income $ 3,176,315 $ 3,014,678
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 2,343,661 2,127,257
Write-down of non-utility property and other
investments 106,826
Decrease (increase) in deferred charges (495,226) (753,400)
Deferred income taxes and investment tax
credits - net 1,440,179 634,505
Capitalized interest and AFUDC (2,061,904) (1,172,291)
Other operating activities-net (62,889) 154,591
Change in current assets and current liabilities
excluding cash, short-term investments and
current portion of debt:
Customer and other accounts receivable (399,435) (671,641)
Unbilled revenues 129,617 (187,533)
Accounts payable and other liabilities (4,253,589) (6,750,305)
Accrued/prepaid interest and taxes 3,770,096 5,392,513
Other 178,208 28,863
____________ ____________
Net cash provided by operating activities 3,765,033 1,924,063
____________ ____________
Cash Flows Provided by Financing Activities:
Proceeds from issuance of common stock 1,951,476 1,363,212
Debt and preferred stock issuance/amortization costs 74,545 105,517
Repayment of long-term debt (10,500) (182,500)
Contributions and advances for construction-net 936,631 613,148
Net increase in notes payable - banks 5,500,000 12,000,000
Dividends paid on common stock (3,856,837) (3,381,220)
____________ ____________
Net cash provided by financing activities 4,595,315 10,518,157
____________ ____________
Cash Flows Used for Investing Activities:
Utility plant expenditures (excluding allowance
for funds used during construction) (11,547,109) (11,449,391)
Development costs of land (36,684) (33,563)
____________ ____________
Cash used for investing activities (11,583,793) (11,482,954)
____________ ____________
Net (Decrease) Increase in Cash and Cash Equivalents (3,223,445) 959,266
Cash and Cash Equivalents at Beginning of Period 4,925,400 4,254,708
____________ ____________
Cash and Cash Equivalents at End of Period $ 1,701,955 $ 5,213,974
____________ ____________
____________ ____________
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 3,074,251 $ 2,352,388
Income taxes $ 398,350 $ -0-
Preferred stock dividends $ 177,000 $ 177,000
See Notes to Consolidated Financial Statements.
-7-
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
Twelve Months Ended
March 31,
1996 1995
___________ ___________
Cash Flows from Operating Activities:
Net Income $ 15,457,170 $ 12,565,708
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 9,024,573 8,058,572
Write-down of non-utility property and other
investments 243,493 398,858
Decrease (increase) in deferred charges 400,991 313,015
Deferred income taxes and investment tax
credits - net 5,236,672 3,895,401
Capitalized interest and AFUDC (6,612,031) (3,228,557)
Other operating activities-net (201,153) 239,499
Change in current assets and current liabilities
excluding cash, short-term investments and
current portion of debt:
Customer and other accounts receivable (3,364,966) (1,092,528)
Unbilled revenues 34,977 (114,959)
Accounts payable and other liabilities 1,099,694 5,083,138
Accrued/prepaid interest and taxes (298,997) 901,034
Other (37,701) 15,898
____________ ____________
Net cash provided by operating activities 20,982,722 27,035,079
____________ ____________
Cash Flows Provided by Financing Activities:
Decrease in funds held by Trustee for
construction expenditures 284
Proceeds from issuance of debentures 40,000,000
Proceeds from issuance of common stock 24,143,051 24,950,402
Debt and preferred stock issuance/amortization costs (373,377) (810,865)
Repayment of long-term debt (280,800) (483,000)
Contributions and advances for construction-net 3,764,425 3,073,429
Net increase (decrease) in notes payable - banks (2,500,000) 35,000,000
Dividends paid on common stock (15,215,959) (13,374,256)
____________ ____________
Net cash provided by financing activities 49,537,340 48,355,994
____________ ____________
Cash Flows Used for Investing Activities:
Utility plant expenditures (excluding allowance
for funds used during construction) (73,887,006) (77,293,772)
Development costs of land (145,075) (165,397)
____________ ____________
Cash used for investing activities (74,032,081) (77,459,169)
____________ ____________
Net Decrease in Cash and Cash Equivalents (3,512,019) (2,068,096)
Cash and Cash Equivalents at Beginning of Period 5,213,974 7,282,070
____________ ____________
Cash and Cash Equivalents at End of Period $ 1,701,955 $ 5,213,974
____________ ____________
____________ ____________
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 9,072,745 $ 10,058,402
Income taxes $ 5,144,526 $ 5,746,254
Preferred stock dividends $ 708,000 $ 679,141
See Notes to Consolidated Financial Statements.
-8-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED INCOME
Three Months Ended
March 31,
1996 1995
____________ ___________
Operating Revenues $ 25,760,090 $ 25,174,395
____________ ____________
Operating Expenses:
Operation 10,789,057 10,263,167
Maintenance 1,473,960 1,365,679
Depreciation 2,343,661 2,127,257
Revenue taxes 3,227,630 3,123,259
Real estate, payroll and other taxes 819,341 706,003
Federal income taxes 1,455,502 1,682,820
____________ ____________
Total operating expenses 20,109,151 19,268,185
____________ ____________
Operating Income 5,650,939 5,906,210
____________ ____________
Other Income (Expense):
Allowance for equity funds used
during construction 1,098,971 618,321
Federal income taxes (433,442) (238,313)
Other - net 139,436 62,572
____________ ____________
Total other income (expense) 804,965 442,580
____________ ____________
Total Operating and Other Income 6,455,904 6,348,790
____________ ____________
Interest Charges:
Interest on long-term debt 3,252,986 2,693,561
Other interest expense - net 407,946 423,742
Allowance for debt funds used
during construction (887,343) (502,035)
Amortization of debt discount - net 88,139 80,889
____________ ____________
Total interest charges 2,861,728 2,696,157
____________ ____________
Income Before Preferred Stock Dividends 3,594,176 3,652,633
Preferred Stock Dividends 203,250 203,250
____________ ____________
Earnings Applicable to Common Stock $ 3,390,926 $ 3,449,383
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-9-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED INCOME
Twelve Months Ended
March 31,
1996 1995
____________ ___________
Operating Revenues $108,983,800 $102,549,511
____________ ____________
Operating Expenses:
Operation 43,658,290 40,772,068
Maintenance 5,913,792 6,415,442
Depreciation 9,024,573 8,058,572
Revenue taxes 13,695,583 12,775,023
Real estate, payroll and other taxes 2,885,054 2,692,222
Federal income taxes 7,774,974 7,324,829
____________ ____________
Total operating expenses 82,952,266 78,038,156
____________ ____________
Operating Income 26,031,534 24,511,355
____________ ____________
Other Income:
Litigation settlement (932,203)
Allowance for equity funds used
during construction 3,456,940 1,642,580
Federal income taxes (1,354,347) (396,705)
Other - net 412,627 416,407
____________ ____________
Total other income 2,515,220 730,079
____________ ____________
Total Operating and Other Income 28,546,754 25,241,434
____________ ____________
Interest Charges:
Interest on long-term debt 11,451,554 10,774,196
Other interest expense - net 2,328,107 595,745
Allowance for debt funds used
during construction (2,830,401) (1,246,329)
Amortization of debt discount - net 330,807 323,557
____________ ____________
Total interest charges 11,280,067 10,447,169
____________ ____________
Income Before Preferred Stock Dividends 17,266,687 14,794,265
Preferred Stock Dividends 813,000 808,030
____________ ____________
Earnings Applicable to Common Stock $ 16,453,687 $ 13,986,235
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-10-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
Assets 1996 1995
____________ ____________
Utility Plant - At Original Cost:
Utility plant in service $507,687,795 $502,572,255
Construction work in progress 108,633,251 100,212,636
____________ ____________
Total utility plant 616,321,046 602,784,891
Less accumulated depreciation and amortization 97,272,805 94,926,413
____________ ____________
Utility plant - net 519,048,241 507,858,478
____________ ____________
Non-utility Property 152,101 83,178
____________ ____________
Current Assets:
Cash and cash equivalents 1,165,645 3,796,757
Customer and other accounts receivable
(less reserve: 1996, $535,021; 1995, $532,000) 15,505,955 16,943,725
Unbilled revenues 7,314,039 7,443,656
Materials and supplies-at average cost 1,733,807 1,912,015
Prepaid insurance, taxes, other 1,628,126 1,874,338
____________ ____________
Total current assets 27,347,572 31,970,491
____________ ____________
Deferred Charges:
Prepaid pension expense 493,728 580,534
Waste residual management 852,290 970,182
Unamortized debt and preferred stock expenses 9,318,668 9,384,609
Taxes recoverable through future rates 26,427,627 26,427,627
Postretirement benefit expense 3,071,215 2,900,569
Purchased water under recovery-net 48,282 37,316
Other unamortized expenses 1,298,265 594,875
____________ ____________
Total deferred charges 41,510,075 40,895,712
____________ ____________
Total $588,057,989 $580,807,859
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-11-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
Capitalization and Liabilities 1996 1995
____________ ____________
Capitalization (Note 3):
Common shareholder's equity $176,796,279 $176,684,773
Cumulative preferred stock 12,000,000 12,000,000
Long-term debt - net 181,925,252 181,922,528
____________ ____________
Total capitalization 370,721,531 370,607,301
____________ ____________
Current Liabilities:
Notes payable - banks 32,000,000 27,000,000
Long-term debt - current portion 30,000 30,000
Accounts payable and other liabilities 12,486,417 16,723,904
Customers' deposits 308,135 305,349
Municipal and state taxes accrued 16,803,896 13,661,620
Federal income taxes accrued 1,197,973 533,286
Interest accrued 2,961,052 2,937,637
Preferred stock dividends accrued 59,000 59,000
____________ ____________
Total current liabilities 65,846,473 61,250,796
____________ ____________
Deferred Credits:
Customers' advances for construction 44,781,649 45,460,749
Federal income taxes 66,359,961 64,886,448
Unamortized investment tax credits 8,415,477 8,448,811
Accumulated postretirement benefits 3,063,982 2,900,569
____________ ____________
Total deferred credits 122,621,069 121,696,577
____________ ____________
Contributions in Aid of Construction 28,868,916 27,253,185
____________ ____________
Commitments and Contingent Liabilities
(Note 8)
____________ ____________
Total $588,057,989 $580,807,859
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-12-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED CAPITALIZATION
March 31, December 31,
1996 1995
___________ ____________
Common Shareholder's Equity:
Common stock without par value, authorized,
10,000,000 shares; issued 1996 and 1995,
1,974,902 shares $ 15,740,602 $ 15,740,602
Paid-in capital 112,734,705 112,157,348
Capital stock expense (484,702) (484,702)
Retained earnings 48,805,674 49,271,525
____________ ____________
Total common shareholder's equity 176,796,279 176,684,773
____________ ____________
Cumulative Preferred Stock:
$100 par value, authorized, 200,000
shares; $5.90 series, issued and
outstanding, 120,000 shares 12,000,000 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
5.60% Debentures, due 2025 40,000,000 40,000,000
7 1/4% Debentures, due 2028 50,000,000 50,000,000
The Mount Holly Water Company:
Notes Payable (due serially through 2000) 110,000 117,500
____________ ____________
Total long-term debt 183,110,000 183,117,500
Unamortized discount - net (1,184,748) (1,194,972)
____________ ____________
Total long-term debt - net 181,925,252 181,922,528
____________ ____________
Total capitalization $370,721,531 $370,607,301
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-13-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED SHAREHOLDER'S EQUITY
Three Months Year
Ended Ended
March 31, December 31,
1996 1995
____________ ____________
Common Stock: $ 15,740,602 $ 15,740,602
____________ ____________
Paid-in Capital:
Balance at Beginning of Period 112,157,348 88,868,632
Capital contributed by parent company 577,357 23,288,716
____________ ____________
Balance at End of Period 112,734,705 112,157,348
____________ ____________
Capital Stock Expense: (484,702) (484,702)
____________ ____________
Retained Earnings:
Balance at Beginning of Period 49,271,585 47,499,723
Income Before Preferred Stock
Dividends 3,594,176 17,325,144
Dividends on Common Stock (3,856,837) (14,740,342)
Preferred Stock Dividends (203,250) (813,000)
____________ ____________
Balance at End of Period 48,805,674 49,271,525
____________ ____________
Total Common Shareholder's Equity $176,796,279 $176,684,773
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-14-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED CASH FLOWS
Three Months Ended
March 31,
1996 1995
___________ ___________
Cash Flows from Operating Activities:
Income Before Preferred Stock Dividends $ 3,594,176 $ 3,652,633
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 2,343,661 2,127,257
Decrease (increase) in deferred charges (509,658) (727,356)
Deferred income taxes and investment tax
credits - net 1,440,179 634,563
Allowance for debt and equity funds used
during construction (AFUDC) (1,986,314) (1,120,356)
Other operating activities-net (92,123) 124,207
Change in current assets and current liabilities
excluding cash, short-term investments and
current portion of debt:
Customer and other accounts receivable 1,437,770 (1,051,124)
Unbilled revenues 129,617 (187,533)
Accounts payable and other liabilities (4,234,701) (6,707,699)
Accrued/prepaid interest and taxes 4,076,590 5,582,330
Other 178,208 28,863
____________ ____________
Net cash provided by operating activities 6,377,405 2,355,785
____________ ____________
Cash Flows Provided by Financing Activities:
Debt and preferred stock issuance/amortization costs 65,941 96,913
Capital contributed by parent company 577,357 1,363,212
Repayment of long-term debt (7,500) (10,500)
Contributions and advances for construction-net 936,631 613,148
Net increase in notes payable - banks 5,000,000 12,000,000
Dividends paid on common and preferred stock (4,033,837) (3,558,220)
____________ ____________
Net cash provided by financing activities 2,538,592 10,504,553
____________ ____________
Cash Flows Used for Investing Activities:
Utility plant expenditures (excluding allowance
for funds used during construction) (11,547,109) (11,449,391)
____________ ____________
Cash used for investing activities (11,547,109) (11,449,391)
____________ ____________
Net (Decrease) Increase in Cash and Cash Equivalents (2,631,112) 1,410,947
Cash and Cash Equivalents at Beginning of Period 3,796,757 1,485,115
____________ ____________
Cash and Cash Equivalents at End of Period $ 1,165,645 $ 2,896,062
____________ ____________
____________ ____________
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 2,750,758 $ 1,992,685
Income taxes $ 398,350 $ -0-
Preferred stock dividends $ 177,000 $ 177,000
See Notes to Consolidated Financial Statements.
-15-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED CASH FLOWS
Twelve Months Ended
March 31,
1996 1995
___________ ___________
Cash Flows from Operating Activities:
Income Before Preferred Stock Dividends $ 17,266,687 $ 14,794,265
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 9,024,573 8,058,572
Decrease (increase) in deferred charges 448,347 380,350
Deferred income taxes and investment tax
credits - net 5,292,524 4,253,957
Allowance for debt and equity funds used
during construction (AFUDC) (6,287,341) (2,888,909)
Other operating activities-net (277,920) 11,725
Change in current assets and current liabilities
excluding cash, short-term investments and
current portion of debt:
Customer and other accounts receivable (2,104,029) (2,255,907)
Unbilled revenues 34,977 (114,959)
Accounts payable and other liabilities 1,057,834 4,947,651
Accrued/prepaid interest and taxes 847,508 333,199
Other (37,701) 15,899
____________ ____________
Net cash provided by operating activities 25,265,459 27,535,843
____________ ____________
Cash Flows Provided by Financing Activities:
Decrease in funds held by Trustee for
construction expenditures 284
Capital contributed by parent company 22,502,861 26,709,250
Proceeds from issuance of debentures 40,000,000
Debt and preferred stock issuance/amortization costs (416,397) (845,281)
Repayment of long-term debt (35,800) (42,000)
Contributions and advances for construction-net 3,764,425 3,073,429
Net increase in notes payable - banks (3,000,000) 35,000,000
Dividends paid on common and preferred stock (15,923,959) (14,023,219)
____________ ____________
Net cash provided by financing activities 46,891,130 49,872,463
____________ ____________
Cash Flows Used for Investing Activities:
Utility plant expenditures (excluding allowance
for funds used during construction) (73,887,006) (77,293,772)
____________ ____________
Cash used for investing activities (73,887,006) (77,293,772)
____________ ____________
Net (Decrease) Increase in Cash and Cash Equivalents (1,730,417) 114,534
Cash and Cash Equivalents at Beginning of Period 2,896,062 2,781,528
____________ ____________
Cash and Cash Equivalents at End of Period $ 1,165,645 $ 2,896,062
____________ ____________
____________ ____________
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 8,591,428 $ 9,563,558
Income taxes $ 4,556,443 $ 5,746,254
Preferred stock dividends $ 708,000 $ 679,141
See Notes to Consolidated Financial Statements.
-16-
E'TOWN CORPORATION AND SUBSIDIARIES
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 1995 Annual
Report to Shareholders and the 1995 Form 10-K should be
read in conjunction with this report.
Certain prior year amounts have been reclassified to conform
to the current year's presentation.
3. CAPITALIZATION
E'town routinely makes equity contributions to
Elizabethtown which represent a portion of the proceeds
of common stock issued under E'town's Dividend
Reinvestment and Stock Purchase Plan (DRP). E'town
contributed $577,357 from the proceeds of DRP issuances
to Elizabethtown for the three months ended March 31,
1996.
4. LINES OF CREDIT
In 1994, Elizabethtown executed a committed revolving
credit agreement (Agreement) with an agent bank and
five additional banks. The Agreement allows
Elizabethtown to borrow, repay and reborrow up to
$60,000,000 during 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 percentage 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. As of March 31, 1996, the percentage
of Elizabethtown's common and preferred equity to total
capitalization was 47%. For the twelve months ended
March 31, 1996, Elizabethtown's pre-tax interest
coverage ratio, calculated in accordance with the
Agreement, was 3.0 to 1. At March 31, 1996, Elizabethtown
had short-term borrowings outstanding of $32,000,000 under
the Agreement at interest rates from 5.38 to 6.00%, at a
weighted average interest rate of 5.82%. E'town has $30,000,000 of
-17
uncommitted lines of credit with several banks in addition
to the lines under the Agreement of which $17,000,000 is
available to Elizabethtown.
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, which reflect the
assumption that 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. Reference is made to
Exhibit 11 for the computations of earnings per share.
6. NON-UTILITY PROPERTY AND OTHER INVESTMENTS
Included in Non-utililty Property and Other Investments
at March 31, 1996 is an investment of $1,367,997
($270,972 net of related deferred taxes) in a limited
partnership that owns Solar Electric Generating System
V (SEGS), located in California.
Also included in Non-utility Property and Other Investments
at March 31, 1996 is $12,253,693 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
1995, the estimated net realizable value of each property
exceeds its respective carrying value as of March 31, 1996.
Properties continues to seek permits for its Mansfield
property and, accordingly, continues to capitalize various
carrying charges. During 1993, the carrying value of the
Mansfield property exceeded its estimated net realizable
value. This was due to the fact that the Mansfield property
was not ready for its intended use and various carrying
charges were being capitalized while, based upon prior
appraisals, the market value of the property had remained
constant. Charges of $243,493 for the twelve months ended
March 31, 1996 to adjust the carrying value of the Mansfield
property, have been reflected in the Statements of
Consolidated Income and Consolidated Balance Sheets.
Properties expects to continue capitalizing carrying charges
on the Mansfield property until it is ready for its intended
use. In October 1995, Properties obtained more favorable
zoning treatment for the Mansfield property. As a result of
the rezoning an appraisal has revealed that the market value
of the property has increased to extent that, barring any
significant changes in the circumstances surrounding this
-18-
property, further adjustments to reduce the carrying value
by the amount of the capitalized carrying charges are not
presently expected. Consequently, no charges to the
carrying value have been reflected for the three months
ended March 31, 1996.
The Corporation will continue to monitor the relationship
between the carrying and net realizable values of its
properties through updated appraisals and its investment in
SEGS based upon information provided by SEGS management and
through cash flow analyses.
Properties has entered into an agreement to sell a parcel of
land to a developer. The agreement requires the buyer to
obtain all approvals required by governmental agencies in
order to develop the property. Properties may cancel the
agreement if the closing does not occur by December 31,
1996. Other milestones have been established during this
period, at which time either the buyer or Properties may
cancel the agreement if certain criteria, generally relating
to the development potential of the property, are not met.
7. REGULATORY MATTERS
Rates
Elizabethtown
In November 1995, Elizabethtown filed a petition with the
BPU for an increase in rates of $31,634,500 or 29.6%. The
largest portion of the request, $22,925,227, is to recover
the cost to finance and operate the Canal Road Water
Treatment Plant (Plant) (see Note 8). The remainder of the
rate request, $8,709,273, is needed to recover the cost to
finance additional construction projects and to recover
increases in operating expenses since rates were last
established in February 1995.
On May 14, 1996 the Administrative Law Judge assigned to the
Elizabethtown rate case approved an agreement (1996
Stipulation) reached by the principle parties in the case,
which will yield a $21,800,000 rate increase. Under the
1996 Stipulation, the increase will be effective upon the
completion of the Canal Road Water Treatment Plant, which is
expected to be in the third quarter of 1996. The parties
involved in the case were the Company, the staff of the BPU,
the Department of Ratepayer Advocate and several
municipalities and major customers. The settlement requires
approval by the BPU. The 1996 Stipulation reflects a full
-19-
allowance for all capital and operating costs for the Plant
and an authorized rate of return on common equity of 11.25%.
Depreciation on Contributions in Aid of Construction or
Customers' Advances for Construction is not reflected in the
rate increase. Also, the 1996 Stipulation contains a
provision that the Company will not be required to record
such depreciation expense for the period that this rate
increase is in effect. The 1996 Stipulation also allows the
Company to continue to defer the transition obligation and
interest associated with postretirement benefits.
Furthermore, the settlement reflects the decrease in the
unit cost of water purchased from the New Jersey Water
Supply Authority (NJWSA). Therefore, upon approval by the
BPU of the 1996 Stipulation, the Company will withdraw its
petition filed with the BPU in February 1996 to change its
Purchased Water Adjustment Clause.
In August 1993, the BPU approved a stipulation (1993 Plant
Stipulation) signed by the Department of Ratepayer Advocate,
the BPU staff and several of Elizabethtown's major wholesale
customers, all of whom typically participate in
Elizabethtown's rate cases. The 1993 Plant Stipulation
states that the Plant is necessary and that the Company's
estimates regarding the Plant's cost, $87,000,000 at that
time, and construction period are reasonable (see Note 8).
In April 1994, Elizabethtown notified all parties
to the 1993 Plant Stipulation that the estimated cost of
the Plant had increased. The 1993 Plant Stipulation
authorized the Company 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 1993 Plant Stipulation also
provides that the rate of return on common shareholder's
equity used to calculate the rate for the equity component
of the Allowance for Funds Used During Construction (AFUDC)
for the Plant will be 1.5% less than the rate of return on
common shareholder's equity established in the Company's
most recent base rate case. The authorized rate of return
on common shareholder's equity is currently 11.5%.
Mount Holly
In June 1995, Mount Holly petitioned the BPU for an increase
in rates, to take place in two phases. In the first phase
rates would be increased by $851,171, and in the second
phase by $2,794,002. The first phase is necessary to
recover costs that were not reflected in rates last
increased in October 1986. The second phase would recover
the cost of a new water supply, treatment and transmission
-20-
system necessary to obtain water outside a designated
portion of an aquifer currently used by Mount Holly, and
to treat and pump the water into the Mount Holly
distribution system. Management believes this project is
the most cost-effective alternative available to Mount Holly
to comply with recent state legislation that restricts the
amount of water than can be withdrawn from an aquifer in
certain areas of southern New Jersey. The project is
currently estimated to cost $16,500,000. The land for the
supply and treatment facilities has been purchased and wells
have been drilled and can produce the required supply. On
October 5, 1995, the New Jersey Department of Environmental
Protection granted Mount Holly a water allocation diversion
permit for four wells that are to be the water supply for
this project. On October 20, 1995, New Jersey-American
Water Company requested, and was subsequently granted, an
adjudicatory hearing on the permit. The Company and Mount
Holly believe that the permit in question will be upheld,
but cannot predict the outcome of the objection. In the
event that the objection is successful and the permit is
rescinded, Mount Holly would utilize the alternative plan of
purchasing water from New Jersey-American Water Company.
On January 24, 1996, the BPU approved a stipulation (Mount
Holly Stipulation) for an increase in rates of $550,000,
effective as of that date. The Mount Holly Stipulation has,
effectively, concluded the first phase of the rate
proceeding. Mount Holly is continuing with the second phase
of the petition. While management believes that the water
supply, treatment and transmission system planned for Mount
Holly is the most cost-effective response to the state
legislation affecting the area, management cannot predict
the ultimate outcome of the rate proceeding at this time.
8. COMMITMENTS AND CONTINGENT LIABILITIES
In April 1994, following a competitive bidding process,
Elizabethtown executed a lump-sum contract for the
construction of the Plant. The project is currently
estimated to cost $100,000,000, excluding AFUDC. The
project is on schedule and the construction contract is on
budget. The Company has expended $87,255,961 excluding
AFUDC of $9,043,417, on the Plant as of March 31, 1996.
Construction is expected to be completed in the third
quarter of 1996.
-21-
9. NEW ACCOUNTING PRONOUNCEMENTS
The Corporation has adopted Statement of Financial
Accounting Standards (SFAS) 123 "Accounting for Stock-Based
Compensation." SFAS 123 includes certain elective provisions
which, if followed, would require the Corporation to record
compensation for awards made under the E'town Corporation
1987 Stock Option Plan (Stock Option Plan). The Corporation
has elected to continue to account for its Stock Option Plan
using the method prescribed by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees."
SFAS 123 will not have any effect on the results of
operations but will require expanded disclosure regarding
the pro-forma effect on net income and earnings per share,
This pro-forma disclosure will be required upon the
issuancance of any new options in 1996. There were no new
options issued in the first quarter of 1996.
-22-
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. Mount Holly
contributed 3% of the Company's consolidated operating
revenues for the twelve months ended March 31, 1996. The
following analysis sets forth significant events affecting
the financial condition of E'town and Elizabethtown at March
31, 1996, and the results of operations for the three and
twelve months ended March 31, 1996 and 1995.
LIQUIDITY AND CAPITAL RESOURCES
Capital Expenditures Program
Capital expenditures, primarily for water utility
plant, were $11.6 million for the first three months of
1996. Capital expenditures for the three-year period ending
December 31, 1998 are estimated to be $149.8 million, of
which $148.9 million is for utility plant ($128.4 million
for Elizabethtown and $20.5 million for Mount Holly), and
$.9 million is for non-utility expenditures.
A major portion of the utilities' capital outlays will
occur in the first nine months of the three-year period as
Elizabethtown completes its new water treatment plant
(discussed below). After this project is completed in the
third quarter of 1996, the capital outlays for Elizabethtown
are expected to return to levels experienced in the early
1990s. Mount Holly expects to incur significant capital
expenditures in 1997 as it constructs new water supply,
treatment and transmission facilities as discussed
below.
Elizabethtown
Elizabethtown's capital program includes the
construction of a new water treatment plant, the Canal Road
Water Treatment Plant (Plant), near Elizabethtown's existing
plant. The Plant, which will have an initial rated
production capacity of 40 million gallons per day (mgd) and
has been designed to permit expansion of 200 mgd, 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. Expansion of the Plant's
production capacity beyond 40 mgd is not expected to occur
-23-
in the foreseeable future. Elizabethtown's construction
program also includes additional mains and storage
facilities necessary to serve existing and future customers.
In April 1994, Elizabethtown executed a lump-sum
contract for the construction of the Plant. The estimated
cost of the Plant is approximately $100 million, excluding
an Allowance for Funds Used During Construction (AFUDC).
The Company had expended $87.3 million, excluding AFUDC of
$9.0 million, on the Plant as of March 31, 1996. The
project is proceeding on schedule, the construction contract
remains on budget and the project is expected to be
completed during the third quarter of 1996.
In August 1993, the New Jersey Board of Public
Utilities (BPU) approved a stipulation (1993 Plant
Stipulation) signed by the Department of Ratepayer Advocate,
the BPU staff and several of Elizabethtown's major wholesale
customers, all of whom typically participate in
Elizabethtown's rate cases. The 1993 Plant Stipulation
states the Plant's cost, at that time, $87 million, and
construction period are reasonable. In April 1994,
Elizabethtown notified all parties to the 1993 Plant
Stipulation that the estimated cost of the Plant had
increased.
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 pre-tax
interest coverage has remained above the 2.0 times trigger
level and therefore, the surcharge has not been required.
The 1993 Plant Stipulation also provides that the rate of
return on common shareholder'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 shareholder's equity established in
Elizabethtown's most recent base rate case. The authorized
rate of return on Elizabethtown's common shareholder's
equity is currently 11.5%. Elizabethtown has filed, and has
reached a settlement, subject to BPU approval, for a rate
increase to reflect the financing and operating costs of the
Plant (see Economic Outlook).
Mount Holly
To ensure an adequate supply of quality water from an
aquifer serving parts of southern New Jersey, state
legislation requires 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
approval from the New Jersey Department of Environmental
Protection (NJDEP) for its plan to develop a new water
supply, treatment and transmission system necessary to
-24-
obtain water outside the designated portion of the aquifer,
and to treat the water and pump it into the Mount Holly
system. This is referred to as the Mansfield Project. The
project is currently estimated to cost $16.5 million,
excluding AFUDC, and is expected to be completed in 1997.
The land for the supply and treatment facilities has been
purchased and wells have been drilled and can produce the
required supply. Mount Holly has filed for rate relief
relating to the Mansfield Project (see Economic Outlook).
On October 5, 1995, the NJDEP granted Mount Holly a
water allocation diversion permit for four wells that are to
be the water supply for the Mansfield Project. On October
20, 1995, New Jersey-American Water Company requested, and
was subsequently granted, an adjudicatory hearing on the
water allocation diversion permit. The Company and Mount
Holly believe that the permit in question will be upheld but
cannot predict the outcome of the objection. In the event
that the objection is successful and the permit is
rescinded, Mount Holly would utilize the alternative plan of
purchasing water from New Jersey-American Water Company.
For the three-year period ending December 31, 1998,
Elizabethtown, including Mount Holly, estimates that 34% of
its capital expenditures will be financed with internally
generated funds (after payment of common stock dividends).
The balance will be financed with a combination of proceeds
from the sale of E'town common stock, long-term debentures,
proceeds of tax-exempt New Jersey Economic Development
Authority (NJEDA) bonds and short-term borrowings under the
revolving credit agreement. The NJEDA has granted
preliminary approval for the financing of almost all of
Elizabethtown's major projects and the Mansfield Project
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. The
Company's senior debt is rated A3 and A by Moody's Investors
Service and Standard & Poor's Ratings Group, respectively.
Elizabethtown continues to obtain a portion of the
funds required for its capital program through borrowings
under its revolving credit agreement (Agreement) with an
agent bank and five additional banks. The Agreement
provides up to $60.0 million in revolving short-term
financing, which together with internal funds, other
short-term financing, proceeds of future issuances of
long-term debt and capital contributions from E'town, is
expected to be sufficient to finance Elizabthtown's and
Mount Holly's capital needs throughout 1998. The Agreement
allows Elizabethtown to borrow, repay and reborrow up to
$60.0 million during the first three years, after which time
Elizabethtown may convert any outstanding balances to a
five-year, fully amortizing term loan. The Agreement
-25-
further provides that, among other covenants, Elizabethtown
must maintain a percentage 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. As of March
31, 1996, the percentage of Elizabethtown's common and
preferred equity total capitalization, as calculated in
accordance with Agreement, was 47%. For the 12 months ended
March 31, 1996, Elizabethtown's pre-tax interest coverage
ratio, calculated in accordance with the Agreement, was 3.0
to 1. At March 31, 1996 Elizabethtown had borrowings
outstanding of $32.0 million under the Agreement at interest
rates from 5.38% to 6.00% at a weighted average rate of
5.82%.
In late 1996, Elizabethtown intends to issue
approximately $30.0million of tax-exempt debentures through
the NJEDA to repay a portion of the balances outstanding
under the revolving credit agreement incurred for qualified
capital expenditures.
RESULTS OF OPERATIONS
Net Income for the three months ended March 31, 1996
was $3.2 million or $.42 per share as compared to $3.0
million or $.45 per share for the same period in 1995. Net
income for the twelve months ended March 31, 1996 was $15.5
million or $2.11 per share as compared to $12.6 million or
$1.95 per share for 1995. An increase in operating revenues
and AFUDC which was somewhat offset by an increase in
operating expenses accounted for the increase in net income
for the three months ended March 31, 1996. An increase in
operating revenues, primarily from a February 1, 1995 rate
increase, a somewhat smaller increase in operating expenses
and a non-recurring litigation charge in late 1994 all
contributed to the increase in net income for the twelve
months ended March 31, 1996.
Operating Revenues increased $.6 million or 2.3% for
the three months ended March 31, 1996 compared to the
comparable period in 1995. Included in this increase is $.4
million attributable to a rate increase for Elizabethtown,
which was effective February 1, 1995. Sales to retail
customers related to water usage increased $.1 million.
Sales to other water systems and to large industrial
customers increased $.2 million each. Fire service
revenues decreased $.3 million from the 1995 amount as these
rev-enues are being recorded ratably throughout the year
rather than in the quarter billed.
Operating Revenues increased $6.4 million or 6.3% for
the twelve months ended March 31, 1996 over the comparable
period in 1995. Included in this increase is $5.1 million,
attributable to a rate increase for Elizabethtown effective
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February 1, 1995. Also, sales to retail customers increased
$1.1 million and sales to industrial and fire service
customers increased $.4 million and decreased $.2 million,
respectively.
Operation Expenses increased $.5 million or 5.2% and
$3.3 million or 7.9% for the three and twelve months ended
March 31, 1996, respectively, compared to the comparable
1995 periods. The increases are due primarily to increased
costs for labor, benefits and miscellaneous expenses in
addition to the cost of chemicals used in the water
treatment process. Benefit costs increased due, primarily,
to an increase in the actuarially calculated pension expense
in addition to the current service cost portion of
postemployment benefits which is reflected in rates.
Maintenance Expenses increased $.1 million or 7.9% and
decreased $.5 million or 7.8% for the three and twelve
months ended March 31, 1996, respectively, compared to the
comparable 1995 periods. The decrease for the twelve month
period is due to the results of preventive maintenance at
various operating facilities throughout the Company.
Depreciation Expense increased $.2 million or 10.2% and
$1.0 million or 12.0% for the three and twelve month periods
ended March 31, 1996, respectively, compared to the
comparable 1995 periods. The increases are due to higher
depreciation rates as a result of Elizabethtown's rate
increase effective February 1995 as well as a higher level
of depreciable plant in service.
Revenue Taxes increased $.1 million and $.9 million for
the three and twelve month periods ended March 31, 1996
compared to the 1995 periods due to the higher level of
revenues on which these taxes are calculated.
Real Estate, Payroll and Other Taxes increased $.1
million or 15.4% and $.2 million or 7.0% for the three and
twelve months ended March 31, 1996, respectively compared to
the comparable 1995 periods. The increases are due to
increased payroll taxes resulting from labor cost increases
in addition to increases in real estate taxes for various
parcels related to utility operations.
Federal Income Taxes decreased $.2 million or 14.2% and
increased $.5 million or 7.2% for the three and twelve
months ended March 31, 1996, respectively, compared to the
comparable 1995 periods due to the changes in the components
of taxable income discussed herein.
Other Income (Expense) increased $.4 million and $2.0
million for the three and twelve months ended March 31,
1996, respectively, compared to the comparable periods in
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1995. Increases in the equity component of AFUDC of $.5
million and $1.8 million for the three and twelve month
periods, respectively, resulted from increased construction
expenditures, primarily related to the Plant. Included in
the net increase for the twelve month period is a
non-recurring litigation settlement of $.9 million in 1994.
Federal income taxes, as a result of all of the above,
increased $.2 million and $1.0 million for the three and
twelve month periods, respectively.
Total Interest Charges decreased less than $.1 million
and increased $.2 million for the three and twelve month
periods ended March 31, 1996, respectively compared to the
1995 months. The net decrease for the three month period is
due to somewhat lower interest rates on a marginally lower
level of short-term borrowings under the revolving credit
agreement incurred to finance Elizabethtown's capital
program on an interim basis. Interest on long-term debt
increased $.6 million for both the three and twelve month
periods due to the issuance of $40.0 million of NJEDA
tax-exempt debentures in December 1995 to refinance balances
previously incurred under the revolving credit agreement.
This was offset by an increase in the debt component of
AFUDC resulting from Elizabethtown's higher level of
construction activity, primarily due to the Plant.
ECONOMIC OUTLOOK
Consolidated earnings for E'town for the next several
years will be determined primarily by Elizabethtown's and
Mount Holly's ability to obtain adequate and timely rate
relief in connection with their additions to utility plant
and, to a lesser degree, the ability of Properties and
E'town to generate earnings from their unregulated
businesses.
Elizabethtown and Subsidiary
Over the last several years, governmental water quality
and service regulations have required Elizabethtown and
Mount Holly to make significant investments in water supply,
treatment, transmission and storage facilities, including
the Plant and the Mansfield Project, to augment existing
facilities. Currently, Elizabethtown and Mount Holly
believe they are in compliance with all water quality
standards in all material respects.
Accordingly, the timing and amount of rate increases
obtained by Elizabethtown and Mount Holly, in response to
the pending rate requests discussed below, will be a major
factor affecting earnings in 1996 and beyond. Once the new
facilities, referred to above, are constructed and reflected
in rates, Elizabethtown expects its internally generated
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cash flow to increase and capital outlays to return to
levels experienced in the early 1990s. As a result, the
need for external financing and rate relief are expected to
become less frequent. Therefore, more so than in recent
years, management's ongoing efforts to grow unit sales and
control operating costs will benefit the customer by
reducing the frequency of rate increases and will benefit
shareholders by positively affecting earnings.
On November 20, 1995, Elizabethtown filed a petition
with the BPU for an increase in rates of $31.6 million, or
29.6%. The largest portion of the request, $22.9 million is
needed to recover the costs to finance and operate the
Plant. The remainder of the rate increase, $8.7 million, is
needed to recover the cost to finance additional
construction projects and to recover increases in operating
expenses since rates were last established in February 1995.
On May 14, 1996 the Administrative Law Judge assigned
to the Elizabethtown rate case approved an agreement (1996
Stipulation) reached by the principle parties in the case,
which will yield a $21.8 million rate increase. Under the
1996 Stipulation, the increase will be effective upon the
completion of the Canal Road Water Treatment Plant, which is
expected to be in the third quarter of 1996. The parties
involved in the case were the Company, the staff of the BPU,
the Department of Ratepayer Advocate and
several municipalities and major customers. The settlement
requires approval by the BPU.
The 1996 Stipulation reflects a full allowance for all
capital and operating costs for the Plant and an authorized
rate of return on common equity of 11.25%. Depreciation on
Contributions in Aid of Construction or Customers' Advances
for Construction is not reflected in the rate increase.
Also, the 1996 Stipulation contains a provision that the
Company will not be required to record such depreciation
expense for the period that this rate increase is in effect.
The 1996 Stipulation also allows the Company to continue to
defer the transition obligation and interest associated with
postretirement benefits. Furthermore, the settlement
reflects the decrease in the unit cost of water purchased
from the New Jersey Water Supply Authority (NJWSA).
Therefore, upon approval by the BPU of the 1996 Stipulation,
the Company will withdraw its petition filed with the BPU in
February 1996 to change its Purchased Water Adjustment
Clause.
On June 26, 1995, Mount Holly petitioned the BPU for an
increase in rates, to take place in two phases. In the
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first phase rates would be increased by $.9 million and in
the second phase by $2.8 million. The first phase is
necessary to recover costs that were not reflected in rates
last increased in October 1986. The second phase would
recover the cost of the Mansfield Project as discussed
above. The project is currently estimated to cost $16.5
million. Construction is expected to begin upon final
issuance of the water allocation diversion permit from the
NJDEP, and the project is expected to be completed in 1997.
On January 24, 1996, the BPU approved a stipulation
(Mount Holly Stipulation) for an increase in rates of $.6
million effective as of that date. The Mount Holly
Stipulation has, effectively, concluded the first phase of
the rate proceeding. Mount Holly is continuing with the
adjudicatory process with respect to the second phase of the
petition. While management believes that the water supply,
treatment and transmission project planned for Mount Holly
is the most cost-effective response to the state legislation
affecting the area, management cannot predict the ultimate
outcome of the rate proceeding at this time.
E'TOWN
Included Non-utility Property and Other Investments at
March 31, 1996 is an investment of $1.4 million ($.3 million
net of related deferred taxes) in a limited partnership that
owns Solar Electric Generating System V, located in
California.
Properties
Also included in Non-utility Property and Other
Investments in the Consolidated Balance Sheets of E'town at
March 31, 1996 is $12.3 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 1995, the
estimated net realizable value of each property exceeds its
respective carrying value as of March 31, 1996.
Properties continues to seek permits for its Mansfield
property and, accordingly, continues to capitalize various
carrying charges. During 1993, the carrying value of the
Mansfield Property exceeded its estimated net realizable
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value. 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,
based upon prior appraisals, the estimated net realizable
value of the property had remained constant. Charges of $.2
million, for the twelve months ended March 31, 1996, to
adjust the carrying value of the Mansfield property, have
been reflected in the Statements of Consolidated Income and
Consolidated Balance Sheets. Properties expects to continue
capitalizing carrying charges on the Mansfield property
until it is ready for its intended use. In October 1995,
Properties obtained more favorable zoning treatment for the
Mansfield property. As a result of the rezoning, an
appraisal has revealed that the market value
of the property has increased to the extent that, barring
any significant changes in the circumstances surrounding
this property, no further adjustments to the carrying value
are presently expected. Consequently, no charges to the
carrying value have been reflected for the three months
ended March 31, 1996.
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 and through cash flow analyses.
Properties has entered into an agreement to sell a
parcel of land to a developer. The agreement requires the
buyer to obtain all approvals required by governmental
agencies in order to develop the property. Properties may
cancel the agreement if the closing does not occur by
December 31, 1996. Other milestones have been established
during this period, at which time either the buyer or
Properties may cancel the agreement if certain criteria,
generally relating to the development potential of the
property, are not met.
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PART II - OTHER INFORMATION
Items 1 - 5:
Nothing to report.
Item 6(a) - Exhibits
Exhibits to Parts I:
Exhibit 11 - E'town Corporation and Subsidiaries -
Exhibit 12 - Elizabethtown Water Company - Computation of
Exhibit 27 - E'town Corporation and Subsidiaries and
Item 6(b) - Reports on Form 8-K
None
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E'TOWN CORPORATION
ELIZABETHTOWN WATER COMPANY
SIGNATURES
__________
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Date: May 15, 1996 E'TOWN CORPORATION
/s/ Andrew M. Chapman
______________________________________
Andrew M. Chapman
Chief Financial Officer
(Principal Financial & Accounting Officer)
/s/ Walter M. Braswell
______________________________________
Walter M. Braswell
Secretary
ELIZABETHTOWN WATER COMPANY
/s/ Gail P. Brady
______________________________________
Gail P. Brady
Treasurer
(Principal Financial Officer)
/s/ Dennis W. Doll
______________________________________
Dennis W. Doll
Controller
(Principal Accounting Officer)
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