FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number 1-11023
E'TOWN CORPORATION
(Exact name of registrant as specified in its charter)
New Jersey 22-2596330
(State of incorporation) (I.R.S. Employer Identification No.)
600 South Avenue
Westfield, New Jersey 07090
(Address of principal executive offices) (Zip Code)
Registrant's telephone number (908) 654-1234
Title of each class Name of each exchange on which registered
Common Stock, without par value New York Stock Exchange
Commission file number 0-628
ELIZABETHTOWN WATER COMPANY
(Exact name of registrant as specified in its charter)
New Jersey 22-1683171
(State of incorporation) (I.R.S. Employer Identification No.)
600 South Avenue
Westfield, New Jersey 07090
(Address of principal executive offices) (Zip Code)
Registrant's telephone number (908) 654-1234
Title of each class Name of each exchange on which registered
None None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes __X__ No_____
Indicate the number of shares outstanding of each of the Registrant's
classes of Common Stock as of the latest practicable date.
Outstanding at
Class of Common Stock: June 30, 1996
E'town Corporation(without par value) 7,665,546
Elizabethtown Water Company 1,974,902
* All shares are owned by E'town Corporation
E'TOWN CORPORATION AND SUBSIDIARIES
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
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 Shareholders' Equit 7
- Statements of Consolidated Cash Flows 8-10
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
- Statements of Consolidated Income 11-13
- Consolidated Balance Sheets 14
- Statements of Consolidated Capitalization 16
- Statements of Consolidated Shareholder's Equit 17
- Statements of Consolidated Cash Flows 18-20
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 25
PART II - OTHER INFORMATION
Items 1 - 5 31
Item 6.(a) - Exhibits 31
(b) - Reports on Form 8-K 31
SIGNATURES 32
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
E'TOWN CORPORATION AND SUBDIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
Three Months Ended
June 30,
1996 1995
---- ----
Operating Revenues $ 27,264,652 $ 27,101,389
------------ ------------
Operating Expenses:
Operation 10,930,794 11,013,286
Maintenance 1,623,791 1,541,311
Depreciation 2,367,430 2,131,374
Revenue taxes 3,438,172 3,409,129
Real estate, payroll and other taxes 818,773 699,649
Federal income taxes 1,730,685 1,848,758
------------ ------------
Total operating expenses 20,909,645 20,643,507
------------ ------------
Operating Income 6,355,007 6,457,882
------------ ------------
Other Income (Expense):
Allowance for equity funds used during
construction 1,115,288 750,644
Write-down of non-utility property
and other investments (Note 6) (111,367)
Federal income taxes (446,103) (286,889)
Other - net 159,296 180,406
------------ ------------
Total other income (expense) 828,481 532,794
------------ ------------
Total Operating and Other Income 7,183,488 6,990,676
------------ ------------
Interest Charges:
Interest on long-term debt 3,451,566 2,898,844
Other interest expense - net 552,631 363,439
Capitalized interest (1,038,649) (739,512)
Amortization of debt discount - net 96,743 89,493
------------ ------------
Total interest charges 3,062,291 2,612,264
------------ ------------
Income Before Preferred Stock Dividends
of Subsidiary 4,121,197 4,378,412
Preferred Stock Dividends 203,250 203,250
------------ ------------
Net Income $ 3,917,947 $ 4,175,162
============ ============
Earnings Per Share of Common Stock:
Primary $ .51 $ .61
============ ============
Fully Diluted $ .51 $ .61
============ ============
Average Number of Shares Outstanding for
the Calculation of Earnings Per Share:
Primary 7,641,622 6,800,146
============ ============
Fully Diluted 7,935,083 7,100,042
============ ============
Dividends Paid Per Common Share $ .51 $ .51
============ ============
See Notes to Consolidated Financial Statements.
-1-
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
Six Months Ended
June 30,
1996 1995
---- ----
Operating Revenues $ 53,024,742 $ 52,275,784
------------ ------------
Operating Expenses:
Operation 21,897,837 21,436,994
Maintenance 3,097,751 2,906,990
Depreciation 4,711,091 4,258,631
Revenue taxes 6,665,802 6,532,388
Real estate, payroll and other taxes 1,655,782 1,424,817
Federal income taxes 3,073,284 3,413,022
------------ ------------
Total operating expenses 41,101,547 39,972,842
------------ ------------
Operating Income 11,923,195 12,302,942
------------ ------------
Other Income (Expense):
Allowance for equity funds used during
construction 2,214,259 1,368,965
Write-down of non-utility property
and other investments (Note 6) (218,193)
Federal income taxes (881,889) (498,638)
Other - net 305,429 273,908
------------ ------------
Total other income (expense) 1,637,799 926,042
------------ ------------
Total Operating and Other Income 13,560,994 13,228,984
------------ ------------
Interest Charges:
Interest on long-term debt 6,902,850 5,794,826
Other interest expense - net 965,478 952,314
Capitalized interest (2,001,582) (1,293,482)
Amortization of debt discount - net 193,486 178,986
------------ ------------
Total interest charges 6,060,232 5,632,644
------------ ------------
Income Before Preferred Stock Dividends
of Subsidiary 7,500,762 7,596,340
Preferred Stock Dividends 406,500 406,500
------------ ------------
Net Income $ 7,094,262 $ 7,189,840
============ ============
Earnings Per Share of Common Stock:
Primary $ .93 $ 1.07
============ ============
Fully Diluted $ .93 $ 1.06
============ ============
Average Number of Shares Outstanding for
the Calculation of Earnings Per Share:
Primary 7,607,550 6,718,601
============ ============
Fully Diluted 7,901,155 7,019,547
============ ============
Dividends Paid Per Common Share $ 1.02 $ 1.02
============ ============
See Notes to Consolidated Financial Statements.
-2-
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
Twelve Months Ended
June 30,
1996 1995
---- ----
Operating Revenues $109,147,063 $104,442,532
------------ ------------
Operating Expenses:
Operation 44,608,850 42,060,313
Maintenance 5,996,272 6,332,185
Depreciation 9,260,629 8,244,945
Revenue taxes 13,724,626 13,041,552
Real estate, payroll and other taxes 3,084,134 2,766,154
Federal income taxes 7,271,651 7,142,589
------------ ------------
Total operating expenses 83,946,162 79,587,738
------------ ------------
Operating Income 25,200,901 24,854,794
------------ ------------
Other Income (Expense):
Litigation settlement (932,203)
Allowance for equity funds used during
construction 3,821,584 2,212,817
Write-down of non-utility property
and other investments (Note 6) (132,126) (411,200)
Federal income taxes (1,525,022) (549,501)
Other - net 772,918 693,189
------------ ------------
Total other income (expense) 2,937,354 1,013,102
------------ ------------
Total Operating and Other Income 28,138,255 25,867,896
------------ ------------
Interest Charges:
Interest on long-term debt 12,804,207 11,601,416
Other interest expense - net 2,402,848 1,418,278
Capitalized interest (3,454,228) (2,093,973)
Amortization of debt discount - net 372,473 357,973
------------ ------------
Total interest charges 12,125,300 11,283,694
------------ ------------
Income Before Preferred Stock Dividends
of Subsidiary 16,012,955 14,584,202
Preferred Stock Dividends 813,000 808,030
------------ ------------
Net Income $ 15,199,955 $ 13,776,172
============ ============
Earnings Per Share of Common Stock:
Primary $ 2.02 $ 2.08
============ ============
Fully Diluted $ 2.01 $ 2.06
============ ============
Average Number of Shares Outstanding for
the Calculation of Earnings Per Share:
Primary 7,536,199 6,635,780
============ ============
Fully Diluted 7,831,169 6,939,835
============ ============
Dividends Paid Per Common Share $ 2.04 $ 2.04
============ ============
See Notes to Consolidated Financial Statements.
-3-
E'TOWN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1996 1995
Assets -------- --------
Utility Plant-At Original Cost:
Utility plant in service $508,973,173 $502,572,255
Construction work in progress 121,542,467 100,212,636
------------ ------------
Total utility plant 630,515,640 602,784,891
Less accumulated depreciation and amortization 99,301,106 94,926,413
------------ ------------
Utility plant-net 531,214,534 507,858,478
------------ ------------
Non-utility Property and Other Investments-Net 13,938,203 13,601,191
------------ ------------
Current Assets:
Cash and cash equivalents 2,101,175 4,925,400
Short-term investments 30,622 30,622
Customer and other accounts receivable
(less reserve:1996, $517,857; 1995, $532,000) 15,861,278 15,984,043
Unbilled revenues 8,377,185 7,443,656
Materials and supplies-at average cost 1,684,424 1,912,015
Prepaid insurance, taxes, other 1,329,139 1,874,338
------------ ------------
Total current assets 29,383,823 32,170,074
------------ ------------
Deferred Charges:
Prepaid pension expense 274,779 512,691
Waste residual management 736,782 970,182
Unamortized debt and preferred stock expenses 9,750,818 9,938,130
Taxes recoverable through future rates 26,427,627 26,427,627
Postretirement benefit expense 3,182,856 2,900,569
Purchased water under recovery-net 48,282 37,316
Other unamortized expenses 2,521,989 739,857
------------ ------------
Total deferred charges 42,943,133 41,526,372
------------ ------------
Total $617,479,693 $595,156,115
============ ============
See Notes to Consolidated Financial Statements.
-4-
E'TOWN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1996 1995
Capitalization and Liabilities ------ ------
Capitalization (Note 3):
Common shareholders' equity $180,201,218 $177,080,580
Cumulative preferred stock 12,000,000 12,000,000
Long-term debt - net 193,646,977 193,673,528
------------ ------------
Total capitalization 385,848,195 382,754,108
------------ ------------
Current Liabilities:
Notes payable - banks 46,000,000 27,000,000
Long-term debt - current portion 30,000 30,000
Accounts payable and other liabilities 14,393,720 16,826,104
Customers' deposits 301,057 305,349
Municipal and state taxes accrued 14,322,790 13,661,620
Federal income taxes accrued 650,897 150,735
Interest accrued 3,356,302 3,268,134
Preferred stock dividends accrued 59,000 59,000
------------ ------------
Total current liabilities 79,113,766 61,300,942
------------ ------------
Deferred Credits:
Customers' advances for construction 42,734,516 45,460,749
Federal income taxes 68,295,360 66,825,738
State income taxes 173,365 173,365
Unamortized investment tax credits 8,365,476 8,448,811
Accumulated postretirement benefits 3,289,397 2,939,217
------------ ------------
Total deferred credits 122,858,114 123,847,880
------------ ------------
Contributions in Aid of Construction 29,659,618 27,253,185
------------ ------------
Commitments and Contingent Liabilities (Note 8)
Total $617,479,693 $595,156,115
============ ============
See Notes to Consolidated Financial Statements.
-5-
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CAPITALIZATION
June 30, December 31,
1996 1995
E'town Corporation: ------ ------
Common Shareholders' Equity:
Common stock without par value, authorized,
15,000,000 shares,issued 1996, 7,691,422
shares; 1995 7,549,078 shares $142,445,424 $138,667,930
Paid-in capital 1,315,025 1,315,025
Capital stock expense (5,159,834) (5,159,834)
Retained earnings 42,337,887 42,994,743
Less cost of treasury stock; 1996 and 1995,
25,876 shares (737,284) (737,284)
------------ ------------
Total common shareholders' equity 180,201,218 177,080,580
------------ ------------
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 11,719,000 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) 102,500 117,500
------------ ------------
Total long-term debt 194,821,500 194,868,500
------------ ------------
Unamortized discount-net (1,174,523) (1,194,972)
------------ ------------
Total long-term debt-net 193,646,977 193,673,528
------------ ------------
Total capitalization $385,848,195 $382,754,108
============ ============
See Notes to Consolidated Financial Statements.
-6-
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
Six Months Year
Ended Ended
June 30, 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, 142,344 shares; 1995, 248,846 shares 3,777,494 6,388,716
Exercise of stock options, 15,569 shares 405,519
------------ ------------
Balance at End of Period 142,445,424 138,667,930
------------ ------------
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 42,994,748 42,439,552
Net Income 7,094,262 15,295,533
Dividends on common stock, 1996, $1.02;
1995, $2.04 (7,751,123) (14,740,342)
------------ ------------
Balance at End of Period 42,337,887 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 $180,201,218 $177,080,580
============ ============
See Notes to Consolidated Financial Statements.
-7-
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
Three Months Ended
June 30,
1996 1995
---- ----
Cash Flows from Operating Activities:
Net Income $ 3,917,947 $ 4,175,162
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 2,367,430 2,131,374
Write-down of non-utility property and
other investments 111,367
Decrease (increase) in deferred charges (826,559) (317,083)
Deferred income taxes and investment tax
credits - net (53,892) 593,728
Capitalized interest and AFUDC (2,153,937) (1,490,156)
Other operating activities-net 83,871 129,923
Change in current assets and current liabilities
excluding cash, short-term investments and
current portion of debt:
Customer and other accounts receivable 522,200 (176,870)
Unbilled revenues (1,063,146) (984,514)
Accounts payable and other liabilities (1,975,397) (1,363,055)
Accrued/prepaid interest and taxes (1,975,397) (2,584,051)
Other 49,383 99,385
------------ ------------
Net cash provided by operating activities 561,273 325,210
------------ ------------
Cash Flows Provided by Financing Activities:
Proceeds from issuance of common stock 1,826,018 18,588,538
Debt and preferred stock issuance/amortization 112,767 105,517
Repayment of long-term debt (36,500) (32,500)
Contributions and advances for construction-net 867,108 1,592,336
Net increase(decrease) in notes payable-banks 13,500,000 (1,000,000)
Dividends paid on common stock (3,894,286) (3,749,496)
------------ ------------
Net cash provided by financing activities 12,375,107 15,504,395
------------ ------------
Cash Flows Used for Investing Activities:
Utility plant expenditures (excluding allowance
for funds used during construction) (12,457,423) (18,514,035)
Development costs of land (79,737) (37,176)
------------ ------------
Cash used for investing activities (12,537,160) (18,551,211)
------------ ------------
Net Increase (Decrease) in Cash and
Cash Equivalents 399,220 (2,721,606)
Cash and Cash Equivalents at Beginning of Period 1,701,955 5,213,974
------------ ------------
Cash and Cash Equivalents at End of Period $ 2,101,175 $ 2,492,368
============ ============
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 2,705,238 $ 3,113,946
Income taxes $ 950,000 $ 2,005,000
Preferred stock dividends $ 177,000 $ 177,000
See Notes to Consolidated Financial Statements.
-8-
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
Six Months Ended
June 30,
1996 1995
---- ----
Cash Flows from Operating Activities:
Net Income $ 7,094,262 $ 7,189,840
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 4,711,091 4,258,631
Write-down of non-utility property and
other investments 218,193
Increase in deferred charges (1,321,786) (1,070,483)
Deferred income taxes and investment tax
credits - net 1,386,287 1,228,233
Capitalized interest and AFUDC (4,215,841) (2,662,447)
Other operating activities-net 20,982 284,514
Change in current assets and current
liabilities excluding cash, short-term
investments and current portion of debt:
Customer and other accounts receivable 122,765 (848,511)
Unbilled revenues (933,529) (1,172,047)
Accounts payable and other liabilities (4,560,215) (8,113,360)
Accrued/prepaid interest and taxes 1,794,699 2,808,462
Other 227,591 128,248
------------ ------------
Net cash provided by operating activities 4,326,306 2,249,273
------------ ------------
Cash Flows Provided by Financing Activities:
Proceeds from issuance of common stock 3,777,494 19,951,750
Debt and preferred stock issuance/amortization 187,312 211034
Repayment of long-term debt (47,000) (215,000)
Contributions and advances for construction-net 1,803,739 2,205,484
Net increase in notes payable - banks 19,000,000 11,000,000
Dividends paid on common stock (7,751,123) (7,130,716)
------------ ------------
Net cash provided by financing activities 16,970,422 26,022,552
------------ ------------
Cash Flows Used for Investing Activities:
Utility plant expenditures (excluding allowance
for funds used during construction) (24,004,532) (29,963,426)
Development costs of land (116,421) (70,739)
------------ ------------
Cash used for investing activities (24,120,953) (30,034,165)
------------ ------------
Net Decrease in Cash and Cash Equivalents (2,824,225) (1,762,340)
Cash and Cash Equivalents at Beginning of Period 4,925,400 4,254,708
------------ ------------
Cash and Cash Equivalents at End of Period $ 2,101,175 $ 2,492,368
============ ============
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 5,779,489 $ 5,466,334
Income taxes $ 1,348,350 $ 1,055,000
Preferred stock dividends $ 354,000 $ 354,000
See Notes to Consolidated Financial Statements.
-9-
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
Twelve Months End
June 30,
1996 1995
---- ----
Cash Flows from Operating Activities:
Net Income $ 15,199,955 $ 13,776,172
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 9,260,629 8,244,945
Write-down of non-utility property and other 132,126 411,200
Decrease (increase) in deferred charges (214,003) 899,834
Deferred income taxes and investment
tax credits - net 4,589,052 3,935,087
Capitalized interest and AFUDC (7,275,812) (4,306,790)
Other operating activities-net (247,205) 382,801
Change in current assets and current
liabilities excluding cash, short-term
investments and current portion of debt:
Customer and other accounts receivable (2,665,896) (636,742)
Unbilled revenues (43,655) (216,855)
Accounts payable and other liabilities 2,156,123 2,662,562
Accrued/prepaid interest and taxes 309,657 699,183
Other (87,703) 140,843
------------ ------------
Net cash provided by operating activities 21,113,268 25,992,240
------------ ------------
Cash Flows Provided by Financing Activities:
Decrease in funds held by Trustee for
construction expenditures 328
Proceeds from issuance of debentures 40,000,000
Proceeds from issuance of common stock 7,380,531 23,311,112
Debt and preferred stock issuance/amortization (260,610) (1,385,175)
Repayment of long-term debt (284,800) (474,000)
Contributions and advances for construction-net 3,039,197 4,214,024
Net increase in notes payable - banks 12,000,000 34,000,000
Dividends paid on common stock (15,360,749) (13,844,706)
------------ ------------
Net cash provided by financing activities 46,513,569 45,821,583
------------ ------------
Cash Flows Used for Investing Activities:
Utility plant expenditures (excluding allowance
for funds used during construction) (67,830,394) (86,917,380)
Development costs of land (187,636) (155,617)
Net increase in short-term investments 17,012,000
------------ ------------
Cash used for investing activities (68,018,030) (70,060,997)
------------ ------------
Net(Decrease)Increase in Cash and Cash Equivalents(391,193) 1,752,826
Cash and Cash Equivalents at Beginning of Period 2,492,368 739,542
------------ ------------
Cash and Cash Equivalents at End of Period $ 2,101,175 $ 2,492,368
============ ============
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 8,664,037 $ 10,987,940
Income taxes $ 5,039,526 $ 5,171,254
Preferred stock dividends $ 708,000 $ 708,000
See Notes to Consolidated Financial Statements.
-10-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED INCOME
Three Months Ended
June 30,
1996 1995
---- ----
Operating Revenues $ 27,262,652 $ 27,101,389
------------ ------------
Operating Expenses:
Operation 10,684,956 10,800,356
Maintenance 1,623,791 1,541,311
Depreciation 2,367,430 2,131,374
Revenue taxes 3,438,172 3,409,129
Real estate, payroll and other taxes 800,508 679,945
Federal income taxes 1,864,042 1,997,037
------------ ------------
Total operating expenses 20,778,899 20,559,152
------------ ------------
Operating Income 6,483,753 6,542,237
------------ ------------
Other Income (Expense):
Allowance for equity funds used during
construction 1,115,288 750,644
Federal income taxes (438,763) (313,528)
Other - net 138,322 145,151
------------ ------------
Total other income (expense) 814,847 582,267
------------ ------------
Total Operating and Other Income 7,298,600 7,124,504
------------ ------------
Interest Charges:
Interest on long-term debt 3,253,268 2,693,560
Other interest expense - net 552,387 616,363
Allowance for debt funds used during
construction (961,013) (643,530)
Amortization of debt discount - net 88,139 80,889
------------ ------------
Total interest charges 2,932,781 2,747,282
------------ ------------
Income Before Preferred Stock Dividends 4,365,819 4,377,222
Preferred Stock Dividends 203,250 203,250
------------ ------------
Earnings Applicable to Common Stock $ 4,162,569 $ 4,173,972
============ ============
See Notes to Consolidated Financial Statements.
-11-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED INCOME
Six Months Ended
June 30,
1996 1995
---- ----
Operating Revenues $ 53,022,742 $ 52,275,784
------------ ------------
Operating Expenses:
Operation 21,474,013 21,063,523
Maintenance 3,097,751 2,906,990
Depreciation 4,711,091 4,258,631
Revenue taxes 6,665,802 6,532,388
Real estate, payroll and other taxes 1,619,849 1,385,948
Federal income taxes 3,319,544 3,679,857
------------ ------------
Total operating expenses 40,888,050 39,827,337
------------ ------------
Operating Income 12,134,692 12,448,447
Other Income:
Allowance for equity funds used during
construction 2,214,259 1,368,965
Federal income taxes (872,205) (551,841)
Other - net 277,758 207,723
------------ ------------
Total other income 1,619,812 1,024,847
------------ ------------
Total Operating and Other Income 13,754,504 13,473,294
------------ ------------
Interest Charges:
Interest on long-term debt 6,506,254 5,387,121
Other interest expense - net 960,333 1,040,105
Allowance for equity funds used during
construction (1,848,356) (1,145,565)
Amortization of debt discount - net 176,278 161,778
------------ ------------
Total interest charges 5,794,509 5,443,439
------------ ------------
Income Before Preferred Stock Dividends 7,959,995 8,029,855
Preferred Stock Dividends 406,500 406,500
------------ ------------
Earnings Applicable to Common Stock $ 7,553,495 $ 7,623,355
============ ============
See Notes to Consolidated Financial Statements.
-12-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED INCOME
Twelve Months Ended
June 30,
1996 1995
---- ----
Operating Revenues $109,145,063 $104,442,532
------------ ------------
Operating Expenses:
Operation 43,542,890 41,452,144
Maintenance 5,996,272 6,332,185
Depreciation 9,260,629 8,244,945
Revenue taxes 13,724,626 13,041,552
Real estate, payroll and other taxes 3,005,617 2,679,413
Federal income taxes 7,641,979 7,583,959
------------ ------------
Total operating expenses 83,172,013 79,334,198
------------ ------------
Operating Income 25,973,050 25,108,334
------------ ------------
Other Income:
Litigation settlement (932,203)
Allowance for equity funds used during
construction 3,821,584 2,212,817
Federal income taxes (1,479,582) (619,226)
Other - net 405,798 474,297
------------ ------------
Total other income 2,747,800 1,135,685
------------ ------------
Total Operating and Other Income 28,720,850 26,244,019
------------ ------------
Interest Charges:
Interest on long-term debt 12,011,262 10,774,238
Other interest expense - net 2,264,131 1,211,538
Allowance for equity funds used during
construction (3,147,884) (1,752,755)
Amortization of debt discount - net 338,057 323,557
------------ ------------
Total interest charges 11,465,566 10,556,578
------------ ------------
Income Before Preferred Stock Dividends 17,255,284 15,687,441
Preferred Stock Dividends 813,000 808,030
------------ ------------
Earnings Applicable to Common Stock $ 16,442,284 $ 14,879,411
============ ============
See Notes to Consolidated Financial Statements.
-13-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1996 1995
Assets ------- ----------
Utility Plant - At Original Cost:
Utility plant in service $508,973,173 $502,572,255
Construction work in progress 121,542,467 100,212,636
------------ ------------
Total utility plant 630,515,640 602,784,891
Less accumulated depreciation and amortization 99,301,106 94,926,413
------------ ------------
Utility plant - net 531,214,534 507,858,478
------------ ------------
Non-utility Property 151,917 83,178
------------ ------------
Current Assets:
Cash and cash equivalents 1,508,774 3,796,757
Customer and other accounts receivable
(less reserve:1996, $517,857; 1995, $532,000) 15,890,154 16,943,725
Unbilled revenues 8,377,185 7,443,656
Materials and supplies-at average cost 1,684,424 1,912,015
Prepaid insurance, taxes, other 1,329,139 1,874,338
------------ ------------
Total current assets 28,789,676 31,970,491
------------ ------------
Deferred Charges:
Prepaid pension expense 350,114 580,534
Waste residual management 736,782 970,182
Unamortized debt and preferred stock expenses 9,214,505 9,384,609
Taxes recoverable through future rates 26,427,627 26,427,627
Postretirement benefit expense 3,182,856 2,900,569
Purchased water under recovery-net 48,282 37,316
Other unamortized expenses 2,402,699 594,875
------------ ------------
Total deferred charges 42,362,865 40,895,712
------------ ------------
Total $602,518,992 $580,807,859
============ ============
See Notes to Consolidated Financial Statements.
-14-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1996 1995
Capitalization and Liabilities -------- ----------
Capitalization (Note 3):
Common shareholder's equity $179,377,285 $176,684,773
Cumulative preferred stock 12,000,000 12,000,000
Long-term debt - net 181,927,977 181,922,528
------------ ------------
Total capitalization 373,305,262 370,607,301
------------ ------------
Current Liabilities:
Notes payable - banks 46,000,000 27,000,000
Long-term debt - current portion 30,000 30,000
Accounts payable and other liabilities 14,269,342 16,723,904
Customers' deposits 301,057 305,349
Municipal and state taxes accrued 14,322,959 13,661,620
Federal income taxes accrued 846,345 533,286
Interest accrued 3,026,491 2,937,637
Preferred stock dividends accrued 59,000 59,000
------------ ------------
Total current liabilities 78,855,194 61,250,796
------------ ------------
Deferred Credits:
Customers' advances for construction 42,734,516 45,460,749
Federal income taxes 66,356,070 64,886,448
Unamortized investment tax credits 8,365,476 8,448,811
Accumulated postretirement benefits 3,242,856 2,900,569
------------ ------------
Total deferred credits 120,698,918 121,696,577
------------ ------------
Contributions in Aid of Construction 29,659,618 27,253,185
------------ ------------
Commitments and Contingent Liabilities (Note 8)
Total $602,518,992 $580,807,859
============ ============
See Notes to Consolidated Financial Statements.
-15-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED CAPITALIZATION
June 30, 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 115,047,481 112,157,348
Capital stock expense (484,702) (484,702)
Retained earnings 49,073,904 49,271,525
------------ ------------
Total common shareholder's equity 179,377,285 176,684,773
------------ ------------
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) 102,500 117,500
------------ ------------
Total long-term debt 183,102,500 183,117,500
Unamortized discount - net (1,174,523) (1,194,972)
------------ ------------
Total long-term debt - net 181,927,977 181,922,528
------------ ------------
Total capitalization $373,305,262 $370,607,301
============ ============
See Notes to Consolidated Financial Statements.
-16-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED SHAREHOLDER'S EQUITY
Six Months Year
Ended Ended
June 30, 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 2,890,133 23,288,716
------------ ------------
Balance at End of Period 115,047,481 112,157,348
------------ ------------
Capital Stock Expense: (484,702) (484,702)
------------ ------------
Retained Earnings:
Balance at Beginning of Period 49,271,532 47,499,723
Income Before Preferred Stock Dividends 7,959,995 17,325,144
Dividends on Common Stock (7,751,123) (14,740,342)
Preferred Stock Dividends (406,500) (813,000)
------------ ------------
Balance at End of Period 49,073,904 49,271,525
------------ ------------
Total Common Shareholder's Equity $179,377,285 $176,684,773
============ ============
See Notes to Consolidated Financial Statements.
-17-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED CASH FLOWS
Three Months Ended
June 30,
1996 1995
Cash Flows from Operating Activities: ------ ------
Income Before Preferred Stock Dividends $ 4,365,819 $ 4,377,222
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 2,367,430 2,131,374
Decrease (increase) in deferred charges (845,312) (211,728)
Deferred income taxes and investment
tax credits-net (53,892) 593,728
Allowance for debt and equity funds used
during construction (AFUDC) (2,076,301) (1,394,174)
Other operating activities-net 51,339 65,760
Change in current assets and current
liabilities excluding cash, short-term
investments and current portion of debt:
Customer and other accounts receivable (384,199) 421,329
Unbilled revenues (1,063,146) (984,514)
Accounts payable and other liabilities (347,692) (1,368,215)
Accrued/prepaid interest and taxes (2,468,139) (1,752,073)
Other 49,384 99,385
------------ ------------
Net cash provided by operating activities (404,709) 1,978,094
------------ ------------
Cash Flows Provided by Financing Activities:
Debt and preferred stock issuance/amortization 104,163 96,913
Capital contributed by parent company 2,312,776 18,430,154
Repayment of long-term debt (7,500) (10,500)
Contributions and advances for construction-net (867,108) 1,592,336
Net increase (decrease) in notes payable-banks 14,000,000 (1,000,000)
Dividends paid on common and preferred stock (4,071,286) (3,926,496)
------------ ------------
Net cash provided by financing activities 13,205,261 15,182,407
------------ -----------
Cash Flows Used for Investing Activities:
Utility plant expenditures (excluding allowance
for funds used during construction) (12,457,423) (18,514,035)
------------ ------------
Cash used for investing activities (12,457,423) (18,514,035)
------------ ------------
Net Increase (Decrease) in Cash and
Cash Equivalents 343,129 (1,353,534)
Cash and Cash Equivalents at Beginning of Period 1,165,645 2,896,062
------------ ------------
Cash and Cash Equivalents at End of Period $ 1,508,774 $ 1,542,528
============ ============
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 2,779,496 $ 3,209,388
Income taxes $ 950,000 $ 1,055,000
Preferred stock dividends $ 177,000 $ 177,000
See Notes to Consolidated Financial Statements.
-18-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED CASH FLOWS
Six Months Ended
June 30,
1996 1995
Cash Flows from Operating Activities: ------ ------
Income Before Preferred Stock Dividends $ 7,959,995 $ 8,029,855
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 4,711,091 4,258,631
Increase in deferred charges (1,354,970) 69,188
Deferred income taxes and investment
tax credits - net 1,386,287 1,228,291
Allowance for debt and equity funds used
during construction (AFUDC) (4,062,615) (2,514,530)
Other operating activities-net (40,784) 189,967
Change in current assets and current
liabilities excluding cash, short-term
investments and current portion of debt:
Customer and other accounts receivable 1,053,571 (629,795)
Unbilled revenues (933,529) (1,172,047)
Accounts payable and other liabilities (4,582,393) (8,075,914)
Accrued/prepaid interest and taxes 1,608,451 3,830,257
Other 227,592 128,248
------------ ------------
Net cash provided by operating activities 5,972,696 5,342,151
------------ ------------
Cash Flows Provided by Financing Activities:
Capital contributed by parent company 2,890,133 19,793,366
Debt and preferred stock issuance/amortization 170,104 (814,446)
Repayment of long-term debt (15,000) (21,000)
Contributions and advances for construction-net 1,803,739 2,205,484
Net increase in notes payable - banks 19,000,000 11,000,000
Dividends paid on common and preferred stock (8,105,123) (7,484,716)
------------ ------------
Net cash provided by financing activitie 15,743,853 24,678,688
------------ ------------
Cash Flows Used for Investing Activities:
Utility plant expenditures (excluding allowance
for funds used during construction) (24,004,532) (29,963,426)
------------ ------------
Cash used for investing activities (24,004,532) (29,963,426)
------------ ------------
Net Decrease in Cash and Cash Equivalents (2,287,983) (950,859)
Cash and Cash Equivalents at Beginning of Period 3,796,757 1,485,115
------------ ------------
Cash and Cash Equivalents at End of Period $ 1,508,774 $ 1,542,528
============ ============
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 5,530,254 $ 5,202,073
Income taxes $ 1,348,350 $ 1,055,000
Preferred stock dividends $ 354,000 $ 354,000
See Notes to Consolidated Financial Statements.
-19-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED CASH FLOWS
Twelve Months Ended
June 30,
1996 1995
Cash Flows from Operating Activities: ------ ------
Income Before Preferred Stock Dividends $ 17,255,284 $ 15,687,441
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 9,260,629 8,244,945
Decrease (increase) in deferred charges (1,096,596) 472,262
Deferred income taxes and investment
tax credits - net 4,644,904 4,292,264
Allowance for debt and equity funds used
during construction (AFUDC) (6,969,468) (3,965,572)
Other operating activities-net (292,341) 97,346
Change in current assets and current
liabilities, short-term investments and
current portion of debt:
Customer and other accounts receivable (2,909,557) (1,344,550)
Unbilled revenues (43,655) (216,855)
Accounts payable and other liabilities 2,078,357 3,789,293
Accrued/prepaid interest and taxes 131,442 1,110,971
Other (87,702) 140,844
------------ ------------
Net cash provided by operating activities 21,971,297 28,308,389
------------ ------------
Cash Flows Provided by Financing Activities:
Decrease in funds held by Trustee for
construction expenditures 328
Capital contributed by parent company 6,385,483 23,662,085
Proceeds from issuance of debentures 40,000,000
Debt and preferred stock issuance/amortization 502,212 (814,446)
Repayment of long-term debt (32,800) (42,000)
Contributions and advances for construction-net 3,039,197 3,181,235
Net increase in notes payable - banks 12,000,000 34,000,000
Dividends paid on common and preferred stock (16,068,749) (14,521,486)
------------ ------------
Net cash provided by financing activities 45,825,343 45,465,716
------------ ------------
Cash Flows Used for Investing Activities:
Utility plant expenditures (excluding allowance
for funds used during construction) (67,830,394) (86,917,380)
Net increase in short-term investments 14,012,000
------------ ------------
Cash used for investing activities (67,830,394) (72,905,380)
------------ ------------
Net (Decrease) Increase in Cash and
Cash Equivalents (33,754) 868,725
Cash and Cash Equivalents at Beginning of Period 1,542,528 673,803
------------ ------------
Cash and Cash Equivalents at End of Period $ 1,508,774 $ 1,542,528
============ ============
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 8,161,536 $ 10,352,739
Income taxes $ 4,451,443 $ 5,171,254
Preferred stock dividends $ 708,000 $ 708,000
See Notes to Consolidated Financial Statements.
-20-
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 to Consolidated Financial Statements 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 $2,890,133 from the proceeds of DRP
issuances to Elizabethtown for the six months ended June 30,
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 June 30, 1996, the
percentage of Elizabethtown's common and preferred equity to
total capitalization was 46%. For the twelve months ended June
30, 1996, Elizabethtown's pre-tax interest coverage ratio,
calculated in accordance with the Agreement, was 3.0 to 1. At
June 30, 1996, Elizabethtown had short-term borrowings
outstanding of $46,000,000 under the Agreement at interest rates
from 5.63 to 5.90%, at a weighted average interest rate of
5.77%. E'town has $30,000,000 of 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 63/4% 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 June
30, 1996 is an investment of $1,366,517 ($269,492 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
June 30, 1996 is $12,411,066 of investments in various parcels
of undeveloped land in New Jersey. The carrying value of each
-21-
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 June
30, 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 $132,126 for
the twelve months ended June 30, 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
property, further adjustments to reduce the carrying value by
the amount of the capitalized carrying charges are not presently
expected. Consequently, no charges to adjust the carrying value
have been reflected for the three months ended June 30, 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
certain development 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,
was 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 June 19, 1996 the BPU approved an agreement (1996
Stipulation) reached by the principal 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 Treatment Plant, which is expected to be late
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 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 expense on
Contributions in Aid of Construction or Customers' Advances for
Construction is not reflected in the rate increase. Also, the
-22-
1996 Stipulation contains a provision that the Company will not
be required to record such depreciation expense of approximately
$700,000 annually 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 Supplt Authority (NJWSA). Therefore, the Company
expects to withdraw its petition filed with the BPU in February
1996 to change its Purchased Water Adjustment Clause.
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 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, excluding AFUDC. 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. The second phase of the petition to increase rates
has not yet been concluded pending the outcome of the appeal of
the diversion permit. Construction of the Mansfield Project
would be expected to be completed approximately 12 months after
the final issuance of the diversion permit. 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.
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 $92,734,692 excluding AFUDC of $10,964,368, on the
Plant as of June 30, 1996. Construction is expected to be
completed late in the third quarter of 1996.
9. STOCK-BASED COMPENSATION
E'town has a Stock Option Plan (Plan) under which options to
purchase shares of E'town's common stock have been granted to
certain officers and other key employees at prices not less than
the fair market value at the date of grant. The Corporation
applies Accounting Principles Board Opinion 25 and related
Interpretations in accounting for its Plan. Accordingly, no
compensation cost has been recognized for the Plan. Had
compensation cost for the Plan been determined based on the fair
value at the grant dates for awards under the Plan consistent
with the method prescribed by Statement of
-23-
Financial Accounting Standard No. 123, the Corporation's net
income and earnings per share would have been reduced to the
proforma amounts as indicated below for the three, six and
twelve months ended June 30, 1996 and 1995 as follows:
Three Months Six Months Twelve Months
Ended Ended Ended
1996 1995 1996 1995 1996 1995
------ ------ ------ ------ ------ ------
Net income:
As Reported $3,917,947 $4,175,162 $7,094,262 $7,189,840 $15,199,955 $13,776,172
Proforma $3,915,113 $4,133,120 $7,091,428 $7,147,798 $15,197,121 $13,734,130
Primary Earnings
Per Share:
As Reported $.51 $.61 $.93 $1.07 $2.02 $2.08
Proforma $.51 $.61 $.93 $1.06 $2.02 $2.07
Fully Diluted Earnings
Per Share:
As Reported $.51 $.61 $.93 $1.06 $2.01 $2.06
Proforma $.51 $.60 $.93 $1.06 $2.01 $2.06
-24-
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 June 30, 1996. The following
analysis sets forth significant events affecting the financial
condition of E'town and Elizabethtown at June 30, 1996, and the
results of operations for the three, six and twelve months ended
June 30, 1996 and 1995.
LIQUIDITY AND CAPITAL RESOURCES
Capital Expenditures Program
Capital expenditures, primarily for water utility plant, were
$24.1 million for the first six 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 late 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
to 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 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 has expended
$92.7 million, excluding AFUDC of $11.0 million, on the Plant as
of June 30, 1996. The project is proceeding on schedule, the
construction contract remains on budget and the project is
expected to be completed late in the third quarter of 1996.
On June 19, 1996, the BPU approved an agreement (1996
Stipulation) reached by the principal parties in the case, which
will yield a $21.8 million increase in annual revenues. Under
the 1996 Stipulation, the increase will be effective upon the
completion of the Canal Road 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 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 expense 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 of approximately
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$700,000 annually 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, the Company
expects to withdraw its petition filed with the BPU in February
1996 to change its Purchased Water Adjustment Clause.
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 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. 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. Construction of the
Mansfield Project would be expected to be completed
approximately 12 months after the final issuance of the
diversion permit. 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.
Capital Resources
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 as well as other short-term bank
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 currently rated A3 and A by Moody's Investors Service and
Standard & Poor's Ratings Group, respectively.
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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 Elizabethtown's
and Mount Holly's capital needs throughout 1998. The Agreement
allows Elizabethtown to borrow, repay and reborrow up to $60.0
million until July 1997, 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 June 30, 1996, the percentage of
Elizabethtown's common and preferred equity total
capitalization, as calculated in accordance with Agreement, was
46%. For the 12 months ended June 30, 1996, Elizabethtown's
pre-tax interest coverage ratio, calculated in accordance with
the Agreement, was 3.0 to 1. At June 30, 1996 Elizabethtown had
borrowings outstanding of $46.0 million under the Agreement at
interest rates from 5.63% to 5.90% at a weighted average rate of
5.77%.
In late 1996, Elizabethtown intends to issue approximately
$30.0 million 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 June 30, 1996 was $3.9
million or $.51 per share as compared to $4.2 million or $.61
per share for the same period in 1995. Net income for the six
months ended June 30, 1996 was $7.1 million or $.93 per share as
compared to $7.2 million or $1.07 for the same period in 1995.
Net income for the twelve months ended June 30, 1996 was $15.2
million or $2.02 per share as compared to $13.8 million or $2.08
per share for 1995. An increase in operating revenues and AFUDC
which was more than offset by an increase in operating and
interest expenses accounted for the decrease in net income for
the three and six months and ended June 30, 1996. An increase
in operating revenues, primarily from a February 1, 1995 rate
increase and an increase in AFUDC were offset by a somewhat
smaller increase in operating and interest expenses resulting in
an increase in net income for the twelve months ended
June 30, 1996.
Operating Revenues increased $.2 million or .6% for the three
months ended June 30, 1996 compared to the comparable period in
1995. Included in this increase, is $.1 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 decreased less than $.1 million and
decreased $.2 million, respectively, from the comparable 1995
amounts. Fire service revenues increased $.2 million from the
1995 amount because such revenues for the first six months of
1996 were recorded in the second quarter ,whereas fire service
revenues for all of 1995 were recorded entirely in the first
quarter of 1995.
Operating revenues increased $.7 million or 1.4% for the six
months ended June 30, 1996 over the comparable period in 1995.
Included in this increase is $.4 million attributable to the
rate increase effective February 1, 1995. Sales to retail
customers related to water useage increased $.2 million. Sales
to other water systems and to large industrial customers
increased $.2 million and decreased less than $.1 million,
respectively, from the comparable 1995 amounts. Fire service
revenues decreased less than $.1 million from the comparable
1995 amount.
Operating Revenues increased $4.7 million or 4.5% for the twelve
months ended June 30, 1996 over the comparable period in 1995.
Included in this increase is $3.1 million attributable to the
rate increase effective February 1, 1995. Sales to retail
customers increased $1.2 million. Sales to other water systems
and to large industrial customers increased $.2 million and less
than $.1 million, respectively, from the comparable 1995
amounts. Sales to fire service customers increased $.1 million
over the 1995 amount. Unusually hot, dry weather during the
third quarter of 1995 contributed to increases in water
consumption for retail customers as well for other water systems
for the twelve months ended June 30, 1996.
Operation Expenses decreased $.1 million or .7%, increased $.5
million or 2.1% and increased $2.5 million or 6.1% for the
three, six and twelve months ended June 30, 1996, respectively,
compared to the comparable 1995 periods. The decrease for the
three month period includes a reduction in power costs in 1996
of $.2 million, primarily due to savings from the conversion of
electric pumps to natural gas. Operation expenses further
decreased for the three month period as a result of a reduction
in the unit cost of water purchased from the New Jersey Water
Supply Authority of $.1 million in addition to a reduction of
$.2 million for the effect in the second quarter of 1995 of an
over recovery of expenses under Elizabethtown's Purchased Water
Adjustment Clause (PWAC). These decreases were substantially
offset by increases in labor, employee benefits, primarily for
an increase in actuarially calculated pension benefits,
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chemicals used in the water treatment process and other
miscellaneous expenses. The increases in Operation Expenses for
the six and twelve month periods ended June 30, 1996 are due,
primarily, to increases in labor and benefits costs for these
periods as well as increases in purchased water, power and
chemicals costs for the twelve month period. The increases for
the twelve month period are due, primarily, from water
consumption resulting from unusually hot, dry weather in the
third quarter of 1995.
Maintenance Expenses increased $.1 million or 5.4% and $.2
million or 6.6% and decreased $.3 million or 5.3% for the three,
six and twelve months ended June 30, 1996, respectively,
compared to the comparable 1995 periods. The increases for the
three and six month periods are largely due to the timing of
various maintenance expenditures. The decrease for the twelve
month period is due to the results of preventive maintenance
programs at various operating facilities throughout the Company.
Depreciation Expense increased $.2 million or 11.1%, $.5 million
or 10.6% and $1.0 million or 12.3% for the three, six and twelve
month periods ended June 30, 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 less than $.1 million, $.1 million and
$.7 million for the three, six and twelve month periods ended
June 30, 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
17.0%, $.2 million or 16.2% and $.3 million or
11.5% for the three, six and twelve months ended
June 30, 1996, respectively, compared to the comparable 1995
periods. The increases are due, primarily, to increased payroll
taxes resulting from labor cost increases.
Federal Income Taxes as a component of operating expenses
decreased $.1 million or 6.4% and $.4 million
or 10.0% and increased $.1 million or 1.8% for the
three, six and twelve months ended June 30, 1996, respectively,
compared to the comparable periods in 1995 due to the changes in
the components of taxable income discussed herein.
Other Income (Expense) increased $.3 million or 55.5%, $.7
million or 76.9% and $1.9 million or 189.9% for the three, six
and twelve months ended June 30, 1996, respectively, compared to
the comparable periods in 1995. Increases in the equity
component of AFUDC of $.4 million, $.8 million and $1.6 million
for the three, six 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 component of
other income (expense), as a result of all of the above,
increased $.2 million, $.4 million and $1.0 million for the
three, six and twelve month periods, respectively.
Total Interest Charges increased $.5 million or 17.2%, $.5
million or 7.6% and $.8 million or 7.5% for the three, six and
twelve month periods ended June 30, 1996, respectively compared
to the 1995 months. The increases are due, primarily, to
increased interest on long-term debt 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. A higher level of short-term borrowings under
the revolving credit agreement incurred to finance
Elizabethtown's capital program on an interim basis has also
contributed to the increases for the three, six and twelve month
periods. These increases were offset by increases in the debt
component of AFUDC resulting from Elizabethtown's higher level
of construction activity, primarily due to the Plant.
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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 rate requests
discussed herein, will be a major factor affecting earnings in
the later part of 1996 and beyond. Once the new facilities,
referred to above, are constructed and reflected in rates,
Elizabethtown expects its internally generated 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 should
benefit the customer by reducing the frequency of rate increases
and will benefit shareholders by positively affecting earnings.
On June 26, 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 $.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 within
approximately 12 months from that time.
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, pending the outcome of the appeal
of the diversion permit. 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 June 30,
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 June 30, 1996 is
$12.4 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 June 30, 1996.
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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 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 $.1 million, for the
twelve months ended June 30, 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
or six months ended June 30, 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
certain development 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 Part I:
Exhibit 11- E'town Corporation and Subsidiaries - Statement
Regarding Computation of Per Share Earnings
Exhibit 12- Elizabethtown Water Company - Computation of Ratio of
Earnings to Fixed Charges and Preferred Dividends and
Computation of Ratio of earnings to Fixed Charges
Exhibit 27- E'town Corporation and Subsidiaries and Elizabethtown
Water Company and Subsidiary - Financial Data Schedules
Item 6(b) - Reports on Form 8-K
None
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E'TOWN CORPORATION
ELIZABETHTOWN WATER COMPANY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Date: August 14, 1996 E'TOWN CORPORATION
/s/ Andrew M. Chapman
Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/ Walter M. Braswell
Secretary
ELIZABETHTOWN WATER COMPANY
/s/ Gail P. Brady
(Principal Financial Officer)
/s/ Dennis W. Doll
Controller
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