SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 September 30, 1996
E'town Corporation
without par value 7,701,544
Elizabethtown Water Company 1,974,902
without par value*
* All shares are owned by E'town Corporation
E'TOWN CORPORATION
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 24
PART II - OTHER INFORMATION
Items 1 - 5 29
Item 6.(a) - Exhibits 29
(b) - Reports on Form 8-K 29
SIGNATURES 30
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
Three Months Ended
September 30,
1996 1995
Operating Revenues $ 28,172,528 $ 30,451,380
------------ ------------
Operating Expenses:
Operation 11,207,001 11,484,544
Maintenance 1,283,542 1,537,768
Depreciation 2,385,254 2,253,330
Revenue taxes 3,558,333 3,842,174
Real estate, payroll and other taxes 771,348 714,961
Federal income taxes 1,990,035 2,746,002
Total operating expenses 21,195,513 22,578,779
------------ ------------
Operating Income 6,977,015 7,872,601
------------ ------------
Other Income (Expense):
Allowance for equity funds used during
construction 1,155,346 690,238
Write-down of non-utility property
and other investments (112,328)
Federal income taxes (465,655) (244,074)
Other - net 175,096 156,934
Total other income (expense) 864,787 490,770
------------ ------------
Total Operating and Other Income 7,841,802 8,363,371
------------ ------------
Interest Charges:
Interest on long-term debt 3,450,718 2,898,796
Other interest expense - net 752,755 639,748
Capitalized interest (1,115,616) (618,583)
Amortization of debt discount - net 96,743 89,493
------------ ------------
Total interest charges 3,184,600 3,009,454
------------ ------------
Income Before Preferred Stock Dividends
of Subsidiary 4,657,202 5,353,917
Preferred Stock Dividends 203,250 203,250
------------ ------------
Net Income $ 4,453,952 $ 5,150,667
============ ============
Earnings Per Share of Common Stock:
Primary $ 0.58 $ 0.69
Fully Diluted $ 0.57 $ 0.68
Average Number of Shares Outstanding for
the Calculation of Earnings Per Share:
Primary 7,709,185 7,425,397
Fully Diluted 8,000,053 7,723,002
Dividends Paid Per Common Share $ .51 $ .51
See Notes to Consolidated Financial Statements.
-1-
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
Nine Months Ended
September 30,
1996 1995
Operating Revenues $ 81,197,270 $ 82,727,164
------------ ------------
Operating Expenses:
Operation 33,104,838 32,921,538
Maintenance 4,381,293 4,444,758
Depreciation 7,096,345 6,511,961
Revenue taxes 10,224,135 10,374,562
Real estate, payroll and other taxes 2,427,130 2,139,778
Federal income taxes 5,063,319 6,159,024
Total operating expenses 62,297,060 62,551,621
------------ ------------
Operating Income 18,900,210 20,175,543
------------ ------------
Other Income (Expense):
Allowance for equity funds used during
construction 3,369,605 2,059,203
Write-down of non-utility property
and other investments (330,521)
Federal income taxes (1,347,544) (742,712)
Other - net 480,525 430,842
Total other income (expense) 2,502,586 1,416,812
------------ ------------
Total Operating and Other Income 21,402,796 21,592,355
------------ ------------
Interest Charges:
Interest on long-term debt 10,353,568 8,693,622
Other interest expense - net 1,718,233 1,592,062
Capitalized interest (3,117,198) (1,912,065)
Amortization of debt discount - net 290,229 268,479
------------ ------------
Total interest charges 9,244,832 8,642,098
------------ ------------
Income Before Preferred Stock Dividends
of Subsidiary 12,157,964 12,950,257
Preferred Stock Dividends 609,750 609,750
------------ ------------
Net Income $ 11,548,214 $ 12,340,507
============ ============
Earnings Per Share of Common Stock:
Primary $ 1.51 $ 1.77
Fully Diluted $ 1.50 $ 1.75
Average Number of Shares Outstanding for
the Calculation of Earnings Per Share:
Primary 7,641,675 6,956,789
Fully Diluted 7,934,361 7,256,608
Dividends Paid Per Common Share $ 1.53 $ 1.53
See Notes to Consolidated Financial Statements.
-2-
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
Twelve Months Ended
September 30,
1996 1995
Operating Revenues $106,868,211 $107,524,209
------------ ------------
Operating Expenses:
Operation 44,331,307 43,045,756
Maintenance 5,742,046 6,234,443
Depreciation 9,392,553 8,522,703
Revenue taxes 13,440,785 13,404,691
Real estate, payroll and other taxes 3,140,521 2,840,107
Federal income taxes 6,515,684 7,662,986
Total operating expenses 82,562,896 81,710,686
------------ ------------
Operating Income 24,305,315 25,813,523
------------ ------------
Other Income (Expense):
Allowance for equity funds used during
construction 4,286,692 2,586,773
Write-down of non-utility property
and other investments (19,798) (429,121)
Federal income taxes (1,746,603) (974,157)
Other - net 791,080 670,920
Total other income (expense) 3,311,371 1,854,415
------------ ------------
Total Operating and Other Income 27,616,686 27,667,938
------------ ------------
Interest Charges:
Interest on long-term debt 13,356,129 11,596,294
Other interest expense - net 2,515,855 2,047,040
Capitalized interest (3,951,261) (2,395,381)
Amortization of debt discount - net 379,723 357,973
------------ ------------
Total interest charges 12,300,446 11,605,926
------------ ------------
Income Before Preferred Stock Dividends
of Subsidiary 15,316,240 16,062,012
Preferred Stock Dividends 813,000 808,030
------------ ------------
Net Income $ 14,503,240 $ 15,253,982
============ ============
Earnings Per Share of Common Stock:
Primary $ 1.91 $ 2.22
Fully Diluted $ 1.90 $ 2.20
Average Number of Shares Outstanding for
the Calculation of Earnings Per Share:
Primary 7,607,534 6,862,736
Fully Diluted 7,900,810 7,164,067
Dividends Paid Per Common Share $ 2.04 $ 2.04
See Notes to Consolidated Financial Statements.
-3-
E'TOWN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1996 1995
Assets
Utility Plant-At Original Cost:
Utility plant in service $513,601,296 $502,572,255
Construction work in progress 135,480,077 100,212,636
------------ ------------
Total utility plant 649,081,373 602,784,891
Less accumulated depreciation and ------------ ------------
amortization 101,609,530 94,926,413
------------ ------------
Utility plant-net 547,471,843 507,858,478
------------ ------------
Non-utility Property and Other Investments-Net 14,085,059 13,601,191
------------ ------------
Current Assets:
Cash and cash equivalents 1,270,053 4,925,400
Short-term investments 30,622 30,622
Customer and other accounts receivable
(less reserve: 1996, $517,857; 1995, $532,000) 15,689,141 15,984,043
Unbilled revenues 8,586,224 7,443,656
Materials and supplies-at average cost 1,718,728 1,912,015
Prepaid insurance, taxes, other 951,715 1,874,338
------------ ------------
Total current assets 28,246,483 32,170,074
------------ ------------
Deferred Charges:
Prepaid pension expense 137,604 512,691
Waste residual management 621,275 970,182
Unamortized debt and preferred stock expenses 9,638,052 9,938,130
Taxes recoverable through future rates 26,427,627 26,427,627
Postretirement benefit expense 3,324,000 2,900,569
Other unamortized expenses 3,497,812 777,173
------------ ------------
Total deferred charges 43,646,370 41,526,372
------------ ------------
Total $633,449,755 $595,156,115
============ ============
See Notes to Consolidated Financial Statements.
-4-
E'TOWN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1996 1995
Capitalization and Liabilities
Capitalization (Note 3):
Common shareholders' equity $182,406,579 $177,080,580
Cumulative preferred stock 12,000,000 12,000,000
Long-term debt - net 193,499,701 193,673,528
------------ ------------
Total capitalization 387,906,280 382,754,108
------------ ------------
Current Liabilities:
Notes payable - banks 57,500,000 27,000,000
Long-term debt - current portion 30,000 30,000
Accounts payable and other liabilities 14,543,120 16,826,104
Customers' deposits 297,731 305,349
Municipal and state taxes accrued 10,078,901 13,661,620
Federal income taxes accrued 1,749,279 150,735
Interest accrued 4,240,428 3,268,134
Preferred stock dividends accrued 59,000 59,000
------------ ------------
Total current liabilities 88,498,459 61,300,942
------------ ------------
Deferred Credits:
Customers' advances for construction 45,739,661 45,460,749
Federal income taxes 69,040,796 66,825,738
State income taxes 173,365 173,365
Unamortized investment tax credits 8,315,475 8,448,811
Accumulated postretirement benefits 3,434,487 2,939,217
------------ ------------
Total deferred credits 126,703,784 123,847,880
------------ ------------
Contributions in Aid of Construction 30,341,232 27,253,185
------------ ------------
Commitments and Contingent Liabilities
Total $633,449,755 $595,156,115
============ ============
See Notes to Consolidated Financial Statements.
-5-
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CAPITALIZATION
September 30, December 31,
1996 1995
E'town Corporation:
Common Shareholders' Equity:
Common stock without par value,
authorized, 15,000,000 shares,issued
1996, 7,727,420 shares; 1995
7,549,078 shares $144,123,513 $138,667,930
Paid-in capital 1,315,025 1,315,025
Capital stock expense (5,159,834) (5,159,834)
Retained earnings 42,865,159 42,994,743
Less cost of treasury stock; 1996
and 1995, 25,876 shares (737,284) (737,284)
------------ ------------
Total common shareholders' equity 182,406,579 177,080,580
------------ ------------
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 11,569,000 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) 95,000 117,500
------------ ------------
Total long-term debt 194,664,000 194,868,500
------------ ------------
Unamortized discount-net (1,164,299) (1,194,972)
------------ ------------
Total long-term debt-net 193,499,701 193,673,528
------------ ------------
Total capitalization $387,906,280 $382,754,108
============ ============
See Notes to Consolidated Financial Statements.
-6-
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED SHAREHOLDER'S EQUITY
Nine Months Year
Ended Ended
September 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,
204,218 shares; 1995, 248,846 shares 5,455,583 6,388,716
Exercise of stock options, 15,569 shares 405,519
------------ ------------
Balance at End of Period 144,123,513 138,667,930
------------ ------------
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 11,548,214 15,295,533
Dividends on common stock, 1996,
$1.53; 1995, $2.04 (11,677,803) (14,740,342)
------------ ------------
Balance at End of Period 42,865,159 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 $182,406,579 $177,080,580
============ ============
See Notes to Consolidated Financial Statements.
-7-
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
Three Months Ended
September 30,
1996 1995
Cash Flows from Operating Activities:
Net Income $ 4,453,952 $ 5,150,667
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 2,385,254 2,253,330
Write-down of non-utility property and
other investments 112,328
(Increase) decrease in deferred charges (674,859) 524,112
Deferred income taxes and investment
tax credits 695,435 616,033
Capitalized interest and AFUDC (2,270,962) (1,308,821)
Other operating activities-net 14,265 35,664
Change in current assets and current
liabilities excluding cash, short-term
investments and current portion of debt:
Customer and other accounts receivable 172,137 (3,045,354)
Unbilled revenues (209,039) (601,008)
Accounts payable and other liabilities 2,269,613 1,718,181
Accrued/prepaid interest and taxes (1,883,957) (3,882,435)
Other (34,303) 49,541
------------ ------------
Net cash provided by operating activities 4,917,536 1,622,238
------------ ------------
Cash Flows Provided by Financing Activities:
Proceeds from issuance of common stock 1,678,089 1,873,230
Debt and preferred stock issuance/amortization 112,766 105,516
Repayment of long-term debt (157,500) (113,300)
Contributions and advances for construction-net 1,563,220 (479,150)
Net increase in notes payable - banks 11,500,000 21,000,000
Dividends paid on common stock (3,926,680) (3,786,613)
------------ ------------
Net cash provided by financing activities 10,769,895 18,599,683
------------ ------------
Cash Flows Used for Investing Activities:
Utility plant expenditures (excluding allowance
for funds used during construction) (16,451,685) (20,927,950)
Development costs of land (66,868) (35,709)
------------ ------------
Cash used for investing activities (16,518,553) (20,963,659)
------------ ------------
Net Decrease in Cash and Cash Equivalents (831,122) (741,738)
Cash and Cash Equivalents at Beginning
of Period 2,101,175 2,492,368
------------ ------------
Cash and Cash Equivalents at End of Period $ 1,270,053 $ 1,750,630
============ ============
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 2,204,869 $ 3,631,111
Income taxes $ 1,300,000 $ 1,750,000
Preferred stock dividends $ 177,000 $ 177,000
See Notes to Consolidated Financial Statements.
-8-
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
Nine Months Ended
September 30,
1996 1995
Cash Flows from Operating Activities
Net Income $ 11,548,214 $ 12,340,507
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 7,096,345 6,511,961
Write-down of non-utility property and
other investments 330,521
Increase in deferred charges (1,996,645) (546,370)
Deferred income taxes and investment
tax credits 2,081,722 1,844,266
Capitalized interest and AFUDC (6,486,803) (3,971,268)
Other operating activities-net 35,247 320,178
Change in current assets and current liabilities
excluding cash, short-term investments and
current portion of debt:
Customer and other accounts receivable 294,902 (3,893,865)
Unbilled revenues (1,142,568) (1,773,055)
Accounts payable and other liabilities (2,290,602) (6,395,179)
Accrued/prepaid interest and taxes (89,258) (1,073,973)
Other 193,288 177,789
------------ ------------
Net cash provided by operating activities 9,243,842 3,871,512
------------ ------------
Cash Flows Provided by Financing Activities:
Proceeds from issuance of common stock 5,455,583 21,824,980
Debt and preferred stock issuance/amortization 300,078 316,549
Repayment of long-term debt (204,500) (328,300)
Contributions and advances for construction-net 3,366,959 1,726,334
Net increase in notes payable - banks 30,500,000 32,000,000
Dividends paid on common stock (11,677,803) (10,917,329)
------------ ------------
Net cash provided by financing activities 27,740,317 44,622,234
------------ ------------
Cash Flows Used for Investing Activities:
Utility plant expenditures (excluding allowance
for funds used during construction) (40,456,217) (50,891,376)
Development costs of land (183,289) (106,448)
------------ ------------
Cash used for investing activities (40,639,506) (50,997,824)
------------ ------------
Net Decrease in Cash and Cash Equivalents (3,655,347) (2,504,078)
Cash and Cash Equivalents at Beginning
of Period 4,925,400 4,254,708
------------ ------------
Cash and Cash Equivalents at End of Period $ 1,270,053 $ 1,750,630
============ ============
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 7,984,358 $ 9,097,445
Income taxes $ 2,648,350 $ 2,805,000
Preferred stock dividends $ 531,000 $ 531,000
See Notes to Consolidated Financial Statements.
-9-
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
Twelve Months Ended
September 30,
1996 1995
Cash Flows from Operating Activities:
Net Income $ 14,503,240 $ 15,253,982
Adjustments to reconcile net income to net
cas provided by operating activities:
Depreciation 9,392,553 8,522,703
Write-down of non-utility property and
other investments 19,798 429,121
(Increase) decrease in deferred charges (1,201,941) 1,374,168
Deferred income taxes and investment
tax credits 4,668,454 3,957,111
Capitalized interest and AFUDC (8,237,953) (4,982,154)
Other operating activities-net (268,604) 444,612
Change in current assets and current
liabilies excluding cash, short-term
investments and current portion of debt:
Customer and other accounts receivable 551,595 (3,141,464)
Unbilled revenues 348,314 (919,103)
Accounts payable and other liabilities 2,707,555 1,873,906
Accrued/prepaid interest and taxes 2,308,135 1,190,873
Other (171,547) 139,649
------------ ------------
Net cash provided by operating activities 24,619,599 24,143,404
------------ ------------
Cash Flows Provided by Financing Activities:
Proceeds from issuance of debentures 40,000,000
Proceeds from issuance of common stock 7,185,390 22,997,921
Debt and preferred stock issuance/amortization (464,393) (749,195)
Repayment of long-term debt (329,000) (472,800)
Contributions and advances for construction-net 5,081,567 2,367,785
Net increase in notes payable - banks 2,500,000 51,000,000
Dividends paid on common stock (15,500,816) (14,303,357)
------------ ------------
Net cash provided by financing activities 38,472,748 60,840,354
------------ ------------
Cash Flows Used for Investing Activities:
Utility plant expenditures (excluding allowance
for funds used during construction) (63,354,129) (87,716,088)
Development costs of land (218,795) (156,702)
------------ ------------
Cash used for investing activities (63,572,924) (87,872,790)
------------ ------------
Net Decrease in Cash and Cash Equivalents (480,577) (2,889,032)
Cash and Cash Equivalents at Beginning
of Period 1,750,630 4,639,662
------------ ------------
Cash and Cash Equivalents at End of Period $ 1,270,053 $ 1,750,630
============ ============
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 7,237,795 $ 11,290,652
Income taxes $ 4,589,526 $ 4,980,000
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 Endded
September 30,
1996 1995
Operating Revenues $ 28,172,528 $ 30,451,380
------------ ------------
Operating Expenses:
Operation 10,884,440 11,276,624
Maintenance 1,283,542 1,537,768
Depreciation 2,385,254 2,253,330
Revenue taxes 3,558,333 3,842,174
Real estate, payroll and other taxes 755,068 702,069
Federal income taxes 2,159,973 2,754,704
------------ ------------
Total operating expenses 21,026,610 22,366,669
------------ ------------
Operating Income 7,145,918 8,084,711
------------ ------------
Other Income (Expense):
Allowance for equity funds used during
construction 1,155,346 690,238
Federal income taxes (443,097) (277,735)
Other - net 110,644 103,289
------------ ------------
Total other income (expense) 822,893 515,792
------------ ------------
Total Operating and Other Income 7,968,811 8,600,503
------------ ------------
Interest Charges:
Interest on long-term debt 3,252,420 2,693,512
Other interest expense - net 752,755 648,538
Allowance for debt funds used during
construction (1,035,532) (542,426)
Amortization of debt discount - net 88,139 80,889
------------ ------------
Total interest charges 3,057,782 2,880,513
------------ ------------
Income Before Preferred Stock Dividends 4,911,029 5,719,990
Preferred Stock Dividends 203,250 203,250
------------ ------------
Earnings Applicable to Common Stock $ 4,707,779 $ 5,516,740
============ ============
See Notes to Consolidated Financial Statements.
-11-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED INCOME
Nine Months Ended
September 30,
1996 1995
Operating Revenues $ 81,195,270 $ 82,727,164
------------ ------------
Operating Expenses:
Operation 32,358,453 32,340,147
Maintenance 4,381,293 4,444,758
Depreciation 7,096,345 6,511,961
Revenue taxes 10,224,135 10,374,562
Real estate, payroll and other taxes 2,374,917 2,088,017
Federal income taxes 5,479,517 6,434,561
Total operating expenses 61,914,660 62,194,006
------------ ------------
Operating Income 19,280,610 20,533,158
------------ ------------
Other Income:
Allowance for equity funds used during
construction 3,369,605 2,059,203
Federal income taxes (1,315,302) (829,576)
Other - net 388,402 311,012
------------ ------------
Total other income 2,442,705 1,540,639
------------ ------------
Total Operating and Other Income 21,723,315 22,073,797
------------ ------------
Interest Charges:
Interest on long-term debt 9,758,674 8,080,633
Other interest expense - net 1,713,088 1,688,643
Allowance for equity funds used during
construction (2,883,888) (1,687,991)
Amortization of debt discount - net 264,417 242,667
------------ ------------
Total interest charges 8,852,291 8,323,952
------------ ------------
Income Before Preferred Stock Dividends 12,871,024 13,749,845
Preferred Stock Dividends 609,750 609,750
------------ ------------
Earnings Applicable to Common Stock $ 12,261,274 $ 13,140,095
============ ============
See Notes to Consolidated Financial Statements.
-12-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED INCOME
Twelve Months Ended
September 30,
1996 1995
Operating Revenues $106,866,211 $107,524,209
------------ ------------
Operating Expenses:
Operation 43,150,706 42,377,264
Maintenance 5,742,046 6,234,443
Depreciation 9,392,553 8,522,703
Revenue taxes 13,440,785 13,404,691
Real estate, payroll and other taxes 3,058,616 2,749,967
Federal income taxes 7,047,248 8,017,947
------------ ------------
Total operating expenses 81,831,954 81,307,015
------------ ------------
Operating Income 25,034,257 26,217,194
------------ ------------
Other Income:
Allowance for equity funds used during
construction 4,286,692 2,586,773
Federal income taxes (1,644,944) (1,060,961)
Other - net 413,153 444,018
------------ ------------
Total other income 3,054,901 1,969,830
------------ ------------
Total Operating and Other Income 28,089,158 28,187,024
------------ ------------
Interest Charges:
Interest on long-term debt 12,570,170 10,774,190
Other interest expense - net 2,368,348 1,849,089
Allowance for equity funds used during
construction (3,640,990) (2,074,314)
Amortization of debt discount - net 345,307 323,557
------------ ------------
Total interest charges 11,642,835 10,872,522
------------ ------------
Income Before Preferred Stock Dividends 16,446,323 17,314,502
Preferred Stock Dividends 813,000 808,030
------------ ------------
Earnings Applicable to Common Stock $ 15,633,323 $ 16,506,472
============ ============
See Notes to Consolidated Financial Statements.
-13-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1996 1995
Assets
Utility Plant - At Original Cost:
Utility plant in service $513,601,296 $502,572,255
Construction work in progress 135,480,077 100,212,636
------------ ------------
Total utility plant 649,081,373 602,784,891
Less accumulated depreciation
and amortization 101,609,530 94,926,413
------------ ------------
Utility plant - net 547,471,843 507,858,478
------------ ------------
Non-utility Property 152,509 83,178
------------ ------------
Current Assets:
Cash and cash equivalents 969,577 3,796,757
Customer and other accounts receivable
(less reserve: 1996, $517,857;
1995, $532,000) 14,941,144 16,943,725
Unbilled revenues 8,586,224 7,443,656
Materials and supplies-at average cost 1,718,728 1,912,015
Prepaid insurance, taxes, other 951,715 1,874,338
------------ ------------
Total current assets 27,167,388 31,970,491
Deferred Charges:
Prepaid pension expense 219,032 580,534
Waste residual management 621,275 970,182
Unamortized debt and preferred stock expenses 9,110,343 9,384,609
Taxes recoverable through future rates 26,427,627 26,427,627
Postretirement benefit expense 3,324,000 2,900,569
Other unamortized expenses 3,367,671 632,191
------------ ------------
Total deferred charges 43,069,948 40,895,712
------------ ------------
Total $617,861,688 $580,807,859
============ ============
See Notes to Consolidated Financial Statements.
-14-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1996 1995
Capitalization and Liabilities
Capitalization (Note 3):
Common shareholder's equity $180,600,400 $176,684,773
Cumulative preferred stock 12,000,000 12,000,000
Long-term debt - net 181,930,701 181,922,528
------------ ------------
Total capitalization 374,531,101 370,607,301
------------ ------------
Current Liabilities:
Notes payable - banks 57,500,000 27,000,000
Long-term debt - current portion 30,000 30,000
Accounts payable and other liabilities 14,397,196 16,723,904
Customers' deposits 297,731 305,349
Municipal and state taxes accrued 10,081,508 13,661,620
Federal income taxes accrued 1,974,486 533,286
Interest accrued 4,108,792 2,937,637
Preferred stock dividends accrued 59,000 59,000
------------ ------------
Total current liabilities 88,448,713 61,250,796
------------ ------------
Deferred Credits:
Customers' advances for construction 45,739,661 45,460,749
Federal income taxes 67,101,506 64,886,448
Unamortized investment tax credits 8,315,475 8,448,811
Accumulated postretirement benefits 3,384,000 2,900,569
------------ ------------
Total deferred credits 124,540,642 121,696,577
------------ ------------
Contributions in Aid of Construction 30,341,232 27,253,185
------------ ------------
Commitments and Contingent Liabilities
Total $617,861,688 $580,807,859
============ ============
See Notes to Consolidated Financial Statements.
-15-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED CAPITALIZATION
September 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 115,489,498 112,157,348
Capital stock expense (484,702) (484,702)
Retained earnings 49,855,002 49,271,525
------------ ------------
Total common shareholder's equity 180,600,400 176,684,773
------------ ------------
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) 95,000 117,500
------------ ------------
Total long-term debt 183,095,000 183,117,500
Unamortized discount - net (1,164,299) (1,194,972)
------------ ------------
Total long-term debt - net 181,930,701 181,922,528
------------ ------------
Total capitalization $374,531,101 $370,607,301
============ ============
See Notes to Consolidated Financial Statements.
-16-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED SHAREHOLDER'S EQUITY
Nine Months Year
Ended Ended
September 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 3,332,150 23,288,716
------------ ------------
Balance at End of Period 115,489,498 112,157,348
------------ ------------
Capital Stock Expense: (484,702) (484,702)
------------ ------------
Retained Earnings:
Balance at Beginning of Period 49,271,531 47,499,723
Income Before Preferred Stock Dividends 12,871,024 17,325,144
Dividends on Common Stock (11,677,803) (14,740,342)
Preferred Stock Dividends (609,750) (813,000)
------------ ------------
Balance at End of Period 49,855,002 49,271,525
------------ ------------
Total Common Shareholder's Equity $180,600,400 $176,684,773
============ ============
See Notes to Consolidated Financial Statements.
-17-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED CASH FLOWS
Three Months Endded
September 30,
1996 1995
Cash Flows from Operating Activities:
Income Before Preferred Stock Dividends $ 4,911,029 $ 5,719,990
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 2,385,254 2,253,330
(Increase) decrease in deferred charges (670,101) 513,880
Deferred income taxes and investment
tax credits 695,435 616,033
Allowance for debt and equity funds used
during construction (AFUDC) (2,190,878) (1,232,664)
Other operating activities-net (16,619) 24,044
Change in current assets and current
liabilities excluding cash, short-term
investments and current portion of debt:
Customer and other accounts receivable 949,010 (3,161,150)
Unbilled revenues (209,039) (601,008)
Accounts payable and other liabilities 2,248,067 1,732,261
Accrued/prepaid interest and taxes (1,653,585) (3,748,873)
Other (34,304) 49,541
------------ ------------
Net cash provided by operating activities 6,414,269 2,165,384
------------ ------------
Cash Flows Provided by Financing Activities:
Debt and preferred stock issuance/amortization 104,162 96,912
Capital contributed by parent company 442,017 1,685,769
Repayment of long-term debt (7,500) 1,700
Contributions and advances for construction-net 1,563,220 (479,150)
Net increase in notes payable - banks 11,500,000 21,000,000
Dividends paid on common and preferred stock (4,103,680) (3,963,613)
------------ ------------
Net cash provided by financing activities 9,498,219 18,341,618
------------ ------------
Cash Flows Used for Investing Activities:
Utility plant expenditures (excluding allowance
for funds used during construction) (16,451,685) (20,927,950)
------------ ------------
Cash used for investing activities (16,451,685) (20,927,950)
------------ ------------
Net Decrease in Cash and Cash Equivalents (539,197) (420,948)
Cash and Cash Equivalents at Beginning
of Period 1,508,774 1,542,528
------------ ------------
Cash and Cash Equivalents at End of Period $ 969,577 $ 1,121,580
============ ============
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 1,888,480 $ 3,303,056
Income taxes $ 1,300,000 $ 1,750,000
Preferred stock dividends $ 177,000 $ 177,000
See Notes to Consolidated Financial Statements.
-18-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED CASH FLOWS
Nine Months Ended
September 30,
1996 1995
Cash Flows from Operating Activities:
Income Before Preferred Stock Dividends $ 12,871,024 $ 13,749,845
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 7,096,345 6,511,961
Increase in deferred charges (2,025,071) (425,203)
Deferred income taxes and investment
tax credits 2,081,722 1,844,324
Allowance for debt and equity funds used
during construction (AFUDC) (6,253,493) (3,747,194)
Other operating activities-net (57,403) 214,011
Change in current assets and current
liabilities excluding cash, short-term
investments and current portion of debt:
Customer and other accounts receivable 2,002,581 (3,790,945)
Unbilled revenues (1,142,568) (1,773,055)
Accounts payable and other liabilities (2,334,326) (6,343,653)
Accrued/prepaid interest and taxes (45,134) 81,384
Other 193,288 177,789
------------ ------------
Net cash provided by operating activities 12,386,965 6,499,264
------------ ------------
Cash Flows Provided by Financing Activities:
Capital contributed by parent company 3,332,150 21,479,135
Debt and preferred stock issuance/amortization 274,266 290,737
Repayment of long-term debt (22,500) (19,300)
Contributions and advances for construction-net 3,366,959 1,726,334
Net increase in notes payable - banks 30,500,000 32,000,000
Dividends paid on common and preferred stock (12,208,803) (11,448,329)
------------ ------------
Net cash provided by financing activities 25,242,072 44,028,577
------------ ------------
Cash Flows Used for Investing Activities:
Utility plant expenditures (excluding allowance
for funds used during construction) (40,456,217) (50,891,376)
------------ ------------
Cash used for investing activities (40,456,217) (50,891,376)
------------ ------------
Net Decrease in Cash and Cash Equivalents (2,827,180) (363,535)
Cash and Cash Equivalents at Beginning
of Period 3,796,757 1,485,115
------------ ------------
Cash and Cash Equivalents at End of Period $ 969,577 $ 1,121,580
============ ============
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 7,418,734 $ 8,505,129
Income taxes $ 2,648,350 $ 2,805,000
Preferred stock dividends $ 531,000 $ 531,000
See Notes to Consolidated Financial Statements.
-19-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATEDCASH FLOWS
Twelve Months Ended
September 30,
1996 1995
Cash Flows from Operating Activities:
Income Before Preferred Stock Dividends $ 16,446,323 $ 17,314,502
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 9,392,553 8,522,703
(Increase) decrease in deferred charges (1,272,306) 1,575,250
Deferred income taxes and investment
tax credits 4,724,306 4,314,286
Allowance for debt and equity funds used
during construction (AFUDC) (7,927,682) (4,661,087)
Other operating activities-net (333,004) 143,210
Change in current assets and current
liabilities short-term investments and
current portion of debt:
Customer and other accounts receivable 1,200,603 (3,721,733)
Unbilled revenues 348,314 (919,103)
Accounts payable and other liabilities 2,594,163 1,856,765
Accrued/prepaid interest and taxes 2,226,730 1,489,462
Other (171,547) 139,650
------------ ------------
Net cash provided by operating activities 27,228,453 26,053,905
------------ ------------
Cash Flows Provided by Financing Activities:
Capital contributed by parent company 5,141,731 22,840,597
Proceeds from issuance of debentures 40,000,000
Debt and preferred stock issuance/amortization (498,809) (814,446)
Repayment of long-term debt (42,000) (29,800)
Contributions and advances for construction-net 5,081,567 2,367,785
Net increase in notes payable - banks 2,500,000 51,000,000
Dividends paid on common and preferred stock (16,208,816) (14,953,887)
------------ ------------
Net cash provided by financing activities 35,973,673 60,410,249
------------ ------------
Cash Flows Used for Investing Activities:
Utility plant expenditures (excluding allowance
for funds used during construction) (63,354,129) (87,716,088)
------------ ------------
Cash used for investing activities (63,354,129) (87,716,088)
------------ ------------
Net (Decrease) Increase in Cash and
Cash Equivalents (152,003) (1,251,934)
Cash and Cash Equivalents at Beginning
of Period 1,121,580 2,373,514
------------ ------------
Cash and Cash Equivalents at End of Period $ 969,577 $ 1,121,580
============ ============
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 6,746,960 $ 10,650,313
Income taxes $ 4,001,443 $ 4,980,000
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.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period.
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 $3,332,150 from the proceeds of DRP
issuances to Elizabethtown for the nine months ended September
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 September 30, 1996,
the percentage of Elizabethtown's common and preferred equity to
total capitalization was 45%. For the twelve months ended
September 30, 1996, Elizabethtown's pre-tax interest coverage
ratio, calculated in accordance with the Agreement, was 2.8 to
1. At September 30, 1996, Elizabethtown had short-term
borrowings outstanding of $57,500,000 under the Agreement at
interest rates from 5.69 to 5.87%, at a weighted average
interest rate of 5.79%. 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.
-21-
6. NON-UTILITY PROPERTY AND OTHER INVESTMENTS
Included in Non-utililty Property and Other Investments at
September 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
September 30, 1996 is $12,558,017 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 September 30, 1996.
Properties continues to seek permits for its Mansfield property
and, accordingly, continues to capitalize various carrying
charges. Properties expects to continue capitalizing carrying
charges on the 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.
Adjustments of this nature were last recorded in the fourth
quarter of 1995.
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. A
closing is not expected to take place in 1996. Properties may
extend the agreement beyond December 31 with the consent of the
developer. Properties is currently evaluating this option.
7. REGULATORY MATTERS
Rates
Elizabethtown
On October 24 1996, the Canal Road Water Treatment Plant (Plant)
was placed into service. On October 25, 1996, a rate increase
under a stipulation (1996 Stipulation) went into effect for
Elizabethtown. This will result in an increase in annual
operating revenues of $21,800,000. The rate increase reflects a
full allowance for all estimated capital and operating costs for
the Plant and an authorized rate of return on common equity of
11.25%. Recovery of depreciation expense on Contributions in Aid
of Construction or Customers' Advances for Construction is not
reflected in the rate increase. Furthermore, under the terms of
the 1996 Stipulation, the Company is no longer required to
record, for accounting purposes, 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.
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
-22-
of southern New Jersey. The project, referred to as the
Mansfield Project, is currently estimated to cost $16,500,000,
excluding AFUDC. Mount Holly has expended $1,997,073 on the
Mansfield Project as of September 30, 1996. The land for the
supply and treatment facilities has been purchased and test
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 discovery process is ongoing and hearings
are expected early in 1997. 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. 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
Financial Accounting Standard No. 123, the effect on net income
and earnings per share would be immaterial for the three, nine
and twelve months ended September 30, 1996 and 1995.
-23-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
E'town Corporation (E'town or Corporation), a New Jersey holding
company, is the parent company of Elizabethtown Water Company
(Elizabethtown or Company) and E'town Properties, Inc.
(Properties). The Mount Holly Water Company (Mount Holly) is a
wholly owned subsidiary of Elizabethtown. The assets and
operating results of Elizabethtown constitute the predominant
portions of E'town's assets and operating results. Mount Holly
contributed 3% of the Company's consolidated operating revenues
for the twelve months ended September 30, 1996. The following
analysis sets forth significant events affecting the financial
condition of E'town and Elizabethtown at September 30, 1996, and
the results of operations for the three, nine and twelve months
ended September 30, 1996 and 1995.
LIQUIDITY AND CAPITAL RESOURCES
Capital Expenditures Program
Capital expenditures, primarily for water utility plant, were
$40.5 million for the first nine 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 have occurred
during the first nine months of the three-year projection
period, as Elizabethtown has completed and placed into service
the Canal Road Water Treatment Plant (Plant) (discussed below).
In light of the completion of the Plant, 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 expects to construct new
water supply, treatment and transmission facilities as discussed
below.
Elizabethtown
The Plant was completed and placed into service on October 24,
1996. The Plant, which has an initial rated production capacity
of 40 million gallons per day (mgd) and has been designed to
permit expansion to 200 mgd, will meet existing and anticipated
customer demands and 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.
On October 25, 1996, a rate increase under a stipulation (1996
Stipulation) went into effect for Elizabethtown. This will
result in an increase in annual operating revenues of $21.8
million. The rate increase 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%. Recovery of depreciation
expense on Contributions in Aid of Construction or Customers'
Advances for Construction is not reflected in the rate increase.
Furthermore, under the terms of the 1996 Stipulation, the
Company will not be required to record such depreciation expense
of approximately $.7 million 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.
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
-24-
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. Mount Holly has expended $2.0 million on the Mansfield
Project as of September 30, 1996. 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. 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.
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
45%. For the 12 months ended September 30, 1996,
Elizabethtown's pre-tax interest coverage ratio, calculated in
accordance with the Agreement, was 2.8 to 1. At September 30,
1996 Elizabethtown had borrowings outstanding of $57.5 million
under the Agreement at interest rates from 5.69% to 5.87% at a
weighted average rate of 5.79%.
In December 1996, Elizabethtown intends to issue approximately
$45.0million of tax-exempt debentures through the NJEDA to repay
a portion of the balances outstanding under the revolving credit
agreement.
RESULTS OF OPERATIONS
Net Income for the three months ended September 30, 1996 was
$4.5 million or $.58 per share as compared to $5.2 million or
$.69 per share for the same period in 1995. Net income for the
nine months ended September 30, 1996 was $11.5 million or $1.51
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per share as compared to $12.3 million or $1.77 per share for
the same period in 1995. Net income for the twelve months ended
September 30, 1996 was $14.5 million or $1.91 per share as
compared to $15.3 million or $2.22 per share for 1995. The
decreases are due primarily, to reduced water consumption as a
result of unusually cool, wet weather in 1996 combined with
abnormally hot, dry weather during August and September of 1995.
Operating Revenues decreased $2.3 million or 7.5% , $1.5 million
or 1.8% and $.7 million or .6% for the three, nine and twelve
months ended September 30, 1996 compared to the comparable
periods in 1995. All of the decreases were due to a reduction
in water consumption as indicated above, somewhat offset by an
increase in rates for Elizabethtown in February 1995 and a much
smaller increase in rates for Mount Holly in January 1996. These
rate increases accounted for an offsetting increase in operating
revenues of $.1 million, $.5 million and $1.8 million for the
three, nine and twelve months ended September 30, 1996,
respectively.
Operation Expenses decreased $.3 million or 2.4%, increased $.2
million or .6% and increased $1.3 million or 3.0% for the three,
nine and twelve months ended September 30, 1996, respectively,
compared to the comparable 1995 periods. The decreases include
a reduction in power costs for the three, nine and twelve month
periods in 1996 of $.5 million, $.8 million and $.5 million,
respectively, primarily due to savings from the conversion of
electric pumps to natural gas. Operation expenses further
decreased for the three, nine and twelve month periods by $.4
million, $.8 million and $.5 million, respectively, primarily as
a result of a reduction in the quantity of water purchased from
the New Jersey Water Supply Authority, due to reduced water
consumption and the price paid for such supply. These decreases
in operation expenses were partially offset, for the three month
period and wholly offset for the nine and twelve month periods,
by increases in labor, employee benefits, primarily for an
increase in actuarially calculated pension benefits, chemicals
used in the water treatment process and other miscellaneous
expenses.
Maintenance Expenses decreased $.3 million or 16.5%, $.1 million
or 1.4% and $.5 million or 7.9% for the three, nine and twelve
months ended September 30, 1996, respectively, compared to the
comparable 1995 periods. These decreases are largely due to the
results of preventive maintenance programs at various operating
facilities throughout the Company.
Depreciation Expense increased $.1 million or 5.9%, $.6 million
or 9.0% and $.9 million or 10.2% for the three, nine and twelve
month periods ended September 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 decreased $.3 million or 7.4%, $.2 million or 1.4%
and increased less than $.1 million or .3% for the three, nine
and twelve months ended September 30, 1996 compared to the 1995
periods due, primarily, for the three and nine month periods, to
the lower level of revenues on which these taxes are calculated.
Real Estate, Payroll and Other Taxes increased $.1 million or
7.9%, $.3 million or 13.4% and $.3 million or 10.6% for
the three, nine and twelve months ended
September 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 $.7 million or 27.5%, $1.1 million or 17.8% and $1.1
million or 15.0% for the three, nine and twelve months ended
September 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 $.4 million or 76.2%, $1.1
million or 76.6% and $1.5 million or 78.6% for the three, nine
and twelve months ended September 30, 1996, respectively,
compared to the comparable periods in 1995. Increases in the
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equity component of AFUDC of $.5 million, $1.3 million and $1.7
million for the three, nine and twelve month periods,
respectively, resulted from increased construction expenditures,
primarily related to the Plant. Federal income taxes as a
component of other income (expense), increased $.2 million, $.6
million and $.8 million for the three, nine and twelve month
periods, respectively.
Total Interest Charges increased $.2 million or 5.8%, $.6
million or 7.0% and $.7 million or 6.0% for the three, nine and
twelve month periods ended September 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, nine 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.
ECONOMIC OUTLOOK
Consolidated earnings for E'town for the next several years will
be determined primarily by Elizabethtown's ability to increase
sales and to further control operating costs through improved
productivity, Elizabethtown 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.
Forward Looking Information
Certain information included in this report contains, and other
materials filed or to be filed by the Corporation with the
Securities and Exchange Commission (as well as information
included in oral and written statements made or to be made by
the Corporation) contain or will contain forward looking
statements within the meaning of the Securities Acts of 1933 and
1934, as amended. Any forward looking information is or will be
based on information available at that time and is or will be
subject to risks and uncertainties that could cause actual
results to differ materially from those expressed in the
statements.
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.
Over the next several years 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 should 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. The second
phase of the petition to increase rates has not yet been
concluded pending the outcome of the appeal of the diversion
permit (as discussed above). Mount Holly is continuing with the
adjudicatory process with respect to the appeal of the diversion
permit. The discovery process is ongoing and hearings are
expected early in 1997. While management believes that the
water supply, treatment and transmission project planned for
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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 September
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 (SEGS), located in California.
Properties
Also included in Non-utility Property and Other Investments in
the Consolidated Balance Sheets of E'town at September 30, 1996
is $12.6 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.
Properties continues to seek permits for its Mansfield property
and, accordingly, continues to capitalize various carrying
charges. Properties expects to continue capitalizing carrying
charges on the 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.
Adjustments of this nature were last recorded in the fourth
quarter of 1995.
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. A
closing is not expected to take place in 1996. Properties may
extend the agreement beyond December 31 with the consent of the
developer. Properties is currently evaluating this option.
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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: November 13, 1996 E'TOWN CORPORATION
/s/ Andrew M. Chapman
---------------------
Andrew M. Chapman
Chief Financial Officer
(Principal Financial
and Accounting Officer)
/s/ Walter M. Braswell
----------------------
Walter M. Braswell
Secretary
ELIZABETHTOWN WATER COMPANY
/s/ Gail P. Brady
-----------------
Gail P. Brady
(Principal Financial
Officer)
/s/ Dennis W. Doll
------------------
Dennis W. Doll
Controller
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