===============================================================================
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, 1997
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 Code)
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 Code)
Registrant's telephone number, including area code: (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, 1997
E'town Corporation (without par value) 7,909,808
Elizabethtown Water Company (without par value)* 1,974,902
* All shares are owned by E'town Corporation
===============================================================================
E'TOWN CORPORATION AND SUBSIDIARIES
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
INDEX
- -------------------------------------------------------------------------------
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
E'TOWN CORPORATION AND SUBSIDIARIES
- Statements of Consolidated Income 1
- Consolidated Balance Sheets 2-3
- Statements of Consolidated Capitalization 4
- Statements of Consolidated Shareholders' Equity 5
- Statements of Consolidated Cash Flows 6
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
- Statements of Consolidated Income 7
- Consolidated Balance Sheets 8-9
- Statements of Consolidated Capitalization 10
- Statements of Consolidated Shareholder's Equity 11
- Statements of Consolidated Cash Flows 12
E'TOWN CORPORATION AND SUBSIDIARIES AND
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
- Notes to Consolidated Financial Statements 13
Item 2. Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations 17
PART II - OTHER INFORMATION 22
Items 1 - 5
Item 6 (a) - Exhibits 22
(b) - Reports on Form 8-K 22
SIGNATURES 23
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(In Thousands Except Per Share Amounts)
Three Months Ended Six Months Ended Twelve Months Ended
June 30, June 30, June 30,
1997 1996 1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------
Operating Revenues $ 32,463 $27,265 $ 62,584 $53,025 $ 119,968 $ 109,147
- -------------------------------------------------------------------------------------------------
Operating Expenses:
Operation 11,652 10,931 22,772 21,898 45,681 44,609
Maintenance 1,748 1,624 3,223 3,098 5,984 5,996
Depreciation 3,035 2,367 6,057 4,711 11,239 9,261
Revenue taxes 4,064 3,438 7,843 6,666 14,997 13,725
Real estate, payroll and other taxes 834 819 1,657 1,656 2,953 3,084
Federal income taxes 2,345 1,731 4,236 3,073 7,954 7,272
- -------------------------------------------------------------------------------------------------
Total operating expenses 23,678 20,910 45,788 41,102 88,808 83,947
- -------------------------------------------------------------------------------------------------
Operating Income 8,785 6,355 16,796 11,923 31,160 25,200
- -------------------------------------------------------------------------------------------------
Other Income (Expense):
Allowance for equity funds used during
construction 54 1,115 98 2,214 1,609 3,822
Write-down of non-utility property and
other investments (132)
Federal income taxes (91) (446) (132) (882) (820) (1,525)
Other - net 208 159 282 305 737 773
- -------------------------------------------------------------------------------------------------
Total other income (expense) 171 828 248 1,637 1,526 2,938
- -------------------------------------------------------------------------------------------------
Total Operating and Other Income 8,956 7,183 17,044 13,560 32,686 28,138
- -------------------------------------------------------------------------------------------------
Interest Charges:
Interest on long-term debt 3,588 3,452 7,035 6,903 13,932 12,804
Other interest expense - net 786 553 1,772 965 3,452 2,403
Capitalized interest (124) (1,039) (240) (2,002) (1,762) (3,454)
Amortization of debt discount and expense-net 98 96 196 193 398 372
- -------------------------------------------------------------------------------------------------
Total interest charges 4,348 3,062 8,763 6,059 16,020 12,125
- -------------------------------------------------------------------------------------------------
Income Before Preferred Stock Dividends
of Subsidiary 4,608 4,121 8,281 7,501 16,666 16,013
Preferred Stock Dividends 203 203 406 406 812 812
- -------------------------------------------------------------------------------------------------
Net Income $ 4,405 $ 3,918 $ 7,875 $ 7,095 $ 15,854 $ 15,201
=================================================================================================
Earnings Per Share of Common Stock:
- -------------------------------------------------------------------------------------------------
Primary $ .56 $ .51 $ 1.00 $ .93 $ 2.03 $ 2.02
Fully Diluted $ .55 $ .51 $ 1.00 $ .93 $ 2.02 $ 2.01
- -------------------------------------------------------------------------------------------------
Average Number of Shares Outstanding for
the Calculation of Earnings Per Share:
- -------------------------------------------------------------------------------------------------
Primary 7,915 7,641 7,872 7,608 7,806 7,536
Fully Diluted 8,200 7,935 8,158 7,901 8,094 7,831
- -------------------------------------------------------------------------------------------------
Dividends Paid Per Common Share $ .51 $ .51 $ 1.02 $ 1.02 $ 2.04 $ 2.04
=================================================================================================
<FN>
See Notes to Consolidated Financial Statements.
</FN>
-1-
E'TOWN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
June 30, December 31,
Assets 1997 1996
- -------------------------------------------------------------------------------------------------
Utility Plant-At Original Cost:
Utility plant in service $658,513 $ 654,713
Construction work in progress 11,104 7,994
- -------------------------------------------------------------------------------------------------
Total utility plant 669,617 662,707
Less accumulated depreciation and amortization 108,692 102,683
- -------------------------------------------------------------------------------------------------
Utility plant-net 560,925 560,024
- -------------------------------------------------------------------------------------------------
Non-utility Property and Other
Investments - Net 19,688 14,113
- -------------------------------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents 4,532 3,228
Short-term investments 31 31
Customer and other accounts receivable
(less reserve: 1997, $739, 1996, $566) 18,335 16,187
Unbilled revenues 10,667 9,356
Materials and supplies-at average cost 1,858 2,045
Prepaid insurance, taxes, other 4,476 3,918
- -------------------------------------------------------------------------------------------------
Total current assets 39,899 34,765
- -------------------------------------------------------------------------------------------------
Deferred Charges:
Waste residual management 808 1,064
Unamortized debt and preferred stock expenses 10,252 9,508
Taxes recoverable through future rates 30,435 30,435
Postretirement benefit expense 3,606 3,478
Other unamortized expenses 2,515 1,820
- -------------------------------------------------------------------------------------------------
Total deferred charges 47,616 46,305
- -------------------------------------------------------------------------------------------------
Total $668,128 $ 655,207
=================================================================================================
<FN>
See Notes to Consolidated Financial Statements.
</FN>
-2-
E'TOWN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
June 30, December 31,
Capitalization and Liabilities 1997 1996
- -------------------------------------------------------------------------------------------------
Capitalization (Note 3):
Common shareholders' equity $187,092 $ 183,512
Cumulative preferred stock 12,000 12,000
Long-term debt - net 243,330 193,481
- -------------------------------------------------------------------------------------------------
Total capitalization 442,422 388,993
- -------------------------------------------------------------------------------------------------
Current Liabilities:
Notes payable - banks (Note 5) 26,500 69,000
Long-term debt - current portion 30 30
Accounts payable and other liabilities 11,420 16,197
Customers' deposits 297 300
Municipal and state taxes accrued 18,283 13,887
Interest accrued 3,297 3,483
Preferred stock dividends accrued 59 59
- -------------------------------------------------------------------------------------------------
Total current liabilities 59,886 102,956
- -------------------------------------------------------------------------------------------------
Deferred Credits:
Customers' advances for construction 39,419 43,636
Federal income taxes 77,312 75,942
State income taxes 185 185
Unamortized investment tax credits 8,162 8,245
Accumulated postretirement benefits 3,980 3,651
- -------------------------------------------------------------------------------------------------
Total deferred credits 129,058 131,659
- -------------------------------------------------------------------------------------------------
Contributions in Aid of Construction 36,762 31,599
- -------------------------------------------------------------------------------------------------
Commitments and Contingent Liabilities
- -------------------------------------------------------------------------------------------------
Total $668,128 $ 655,207
=================================================================================================
<FN>
See Notes to Consolidated Financial Statements.
</FN>
-3-
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CAPITALIZATION
(In Thousands Except Share Amounts)
June 30, December 31,
1997 1996
- -------------------------------------------------------------------------------------------------
E'town Corporation:
Common Shareholders' Equity:
Common stock without par value, authorized,
15,000,000 shares, issued 1997, 7,940,860 shares;
1996, 7,807,751 shares $ 149,545 $ 145,660
Paid-in capital 1,315 1,315
Capital stock expense (5,160) (5,160)
Retained earnings 42,306 42,434
Less cost of treasury stock; 1997, 31,052 shares;
1996, 25,876 shares (914) (737)
- -------------------------------------------------------------------------------------------------
Total common shareholders' equity 187,092 183,512
- -------------------------------------------------------------------------------------------------
Elizabethtown Water Company:
Cumulative Preferred Stock
$100 par value, authorized, 200,000 shares; $5.90
series, issued and outstanding, 120,000 shares 12,000 12,000
Cumulative Preferred Stock:
$25 par value, authorized, 500,000 shares; none issued
- -------------------------------------------------------------------------------------------------
Long-Term Debt (Note 4):
E'town Corporation:
6 3/4% Convertible Subordinated Debentures, due 2012 11,389 11,548
Elizabethtown Water Company:
7.20% Debentures, due 2019 10,000 10,000
7 1/2% Debentures, due 2020 15,000 15,000
6.60% Debentures, due 2021 10,500 10,500
6.70% Debentures, due 2021 15,000 15,000
8 3/4% Debentures, due 2021 27,500 27,500
8% Debentures, due 2022 15,000 15,000
5.60% Debentures, due 2025 40,000 40,000
7 1/4% Debentures, due 2028 50,000 50,000
Variable Rate Debentures, due 2027 50,000
The Mount Holly Water Company:
Notes Payable (due serially through 2000) 75 87
- -------------------------------------------------------------------------------------------------
Total long-term debt 244,464 194,635
Unamortized discount-net (1,134) (1,154)
- -------------------------------------------------------------------------------------------------
Total long-term debt-net 243,330 193,481
- -------------------------------------------------------------------------------------------------
Total Capitalization $442,422 $ 388,993
=================================================================================================
<FN>
See Notes to Consolidated Financial Statements.
</FN>
-4-
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
(In Thousands Except Share Amounts)
Six Months Ended
June 30, December 31,
1997 1996
- -------------------------------------------------------------------------------------------------
Common Stock:
Balance at Beginning of Period $145,660 $ 138,667
Common stock issued under Dividend Reinvestment and Stock
Purchase Plan (1997, 119,052 shares; 1996, 258,673 shares) 3,490 6,993
Issuance of restricted stock (4,044 shares) 123
Exercise of stock options (1997, 10,013 shares) 272
- -------------------------------------------------------------------------------------------------
Balance at End of Period 149,545 145,660
- -------------------------------------------------------------------------------------------------
Paid-in Capital: 1,315 1,315
- -------------------------------------------------------------------------------------------------
Capital Stock Expense: (5,160) (5,160)
- -------------------------------------------------------------------------------------------------
Retained Earnings:
Balance at Beginning of Period 42,434 42,995
Net Income 7,875 15,073
Dividends on common stock (1997, $1.02, 1996, $2.04) (8,003) (15,634)
- -------------------------------------------------------------------------------------------------
Balance at End of Period 42,306 42,434
- -------------------------------------------------------------------------------------------------
Treasury Stock:
Balance at Beginning of Period (737) (737)
Exercise of stock options (1997, 5,176 shares) (177)
- -------------------------------------------------------------------------------------------------
Balance at End of Period (914) (737)
- -------------------------------------------------------------------------------------------------
Total Common Shareholders' Equity $187,092 $ 183,512
=================================================================================================
<FN>
See Notes to Consolidated Financial Statements.
</FN>
-5-
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(In Thousands)
Three Months Ended Six Months Ended Twelve Months Ended
June 30, June 30, June 30,
1997 1996 1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net Income $ 4,405 $ 3,918 $ 7,875 $ 7,095 $ 15,854 $ 15,201
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 3,035 2,367 6,057 4,711 11,239 9,261
(Increase) decrease in deferred charges (140) (827) (439) (1,322) 245 (214)
Deferred income taxes and investment tax
credits-net 609 (54) 1,287 1,386 4,818 4,589
Capitalized interest and AFUDC (178) (2,154) (338) (4,216) (3,371) (7,276)
Other operating activities-net (10) 84 138 21 422 (115)
Change in current assets and current liabilities
excluding cash, short-term investments and
current portion of debt:
Customer and other accounts receivable (398) 522 (2,148) 123 (2,474) (2,666)
Unbilled revenues (1,446) (1,063) (1,311) (934) (2,289) (44)
Accounts payable and other liabilities 175 (307) (4,780) (4,560) (854) 2,156
Accrued/prepaid interest and taxes (1,669) (1,975) 3,652 1,795 102 310
Other 193 50 304 227 (57) (89)
- -------------------------------------------------------------------------------------------------
Net cash provided by operating activities 4,576 561 10,297 4,326 23,635 21,113
- -------------------------------------------------------------------------------------------------
Cash Flows Provided by Financing Activities:
Proceeds from issuance of common stock 1,782 1,826 3,585 3,777 6,800 7,381
Proceed from issuance of debentures 50,000 50,000 50,000 40,000
Debt and preferred stock issuance and
amortization costs (856) 113 (744) 187 (500) (261)
Repayment of long-term debt (55) (37) (171) (47) (357) (285)
Contributions and advances for
construction-net 711 867 946 1,804 1,663 3,039
Net increase (decrease) in notes
payable - banks (42,500) 13,500 (42,500) 19,000 (19,500) 12,000
Dividends paid on common stock (4,019) (3,894) (8,004) (7,751) (15,887) (15,360)
- -------------------------------------------------------------------------------------------------
Net cash provided by financing activities 5,063 12,375 3,112 16,970 22,219 46,514
- -------------------------------------------------------------------------------------------------
Cash Flows Used for Investing Activities:
Utility plant expenditures (excluding allowance
for funds used during construction) (3,316) (12,457) (6,782) (24,004) (37,903) (67,830)
Purchase of Edison operating contract (5,702) (5,702) (5,702)
Proceeds from sale of land 440 440 440
Development costs of land (excluding
capitalized interest) (24) (80) (61) (116) (258) (188)
- -------------------------------------------------------------------------------------------------
Cash used for investing activities (8,602) (12,537)(12,105) (24,120) (43,423) (68,018)
- -------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and
Cash Equivalents 1,037 399 1,304 (2,824) 2,431 (391)
Cash and Cash Equivalents at
Beginning of Period 3,495 1,702 3,228 4,925 2,101 2,492
- -------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 4,532 2,101 4,532 $ 2,101 $ 4,532 $ 2,101
=================================================================================================
Supplemental Disclosures of Cash
Flow Information:
Cash paid during the year for:
Interest (net of amount capitalized)$ 4,965 $ 2,705 $ 8,756 $ 5,779 $ 11,942 $ 8,664
Income taxes $ -0- $ 950 $ -0- $ 1,348 $ 4,375 $ 5,040
Preferred stock dividends $ 177 $ 177 $ 354 $ 354 $ 708 $ 708
<FN>
See Notes to Consolidated Financial Statements.
</FN>
-6-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED INCOME
(In Thousands)
Three Months Ended Six Months Ended Twelve Months Ended
June 30, June 30, June 30,
1997 1996 1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------
Operating Revenues $ 32,333 $27,263 $ 62,346 $53,023 $ 119,681 $ 109,145
- -------------------------------------------------------------------------------------------------
Operating Expenses:
Operation 11,174 10,685 22,014 21,474 44,253 43,543
Maintenance 1,748 1,624 3,223 3,098 5,984 5,996
Depreciation 3,035 2,367 6,057 4,711 11,239 9,261
Revenue taxes 4,064 3,438 7,843 6,666 14,997 13,725
Real estate, payroll and other taxes 813 801 1,617 1,620 2,866 3,006
Federal income taxes 2,518 1,864 4,519 3,320 8,559 7,642
- -------------------------------------------------------------------------------------------------
Total operating expenses 23,352 20,779 45,273 40,889 87,898 83,173
- -------------------------------------------------------------------------------------------------
Operating Income 8,981 6,484 17,073 12,134 31,783 25,972
- -------------------------------------------------------------------------------------------------
Other Income (Expense):
Allowance for equity funds used during
construction 54 1,115 98 2,214 1,609 3,822
Federal income taxes (55) (439) (101) (872) (691) (1,480)
Other - net 104 138 192 278 366 406
- -------------------------------------------------------------------------------------------------
Total other income (expense) 103 814 189 1,620 1,284 2,748
- -------------------------------------------------------------------------------------------------
Total Operating and Other Income 9,084 7,298 17,262 13,754 33,067 28,720
- -------------------------------------------------------------------------------------------------
Interest Charges:
Interest on long-term debt 3,394 3,253 6,647 6,506 13,152 12,011
Other interest expense - net 781 552 1,767 960 3,447 2,264
Allowance for funds used during construction (42) (961) (77) (1,848) (1,438) (3,148)
Amortization of debt discount and expense-net 89 88 178 176 364 338
- -------------------------------------------------------------------------------------------------
Total interest charges 4,222 2,932 8,515 5,794 15,525 11,465
- -------------------------------------------------------------------------------------------------
Income Before Preferred Stock Dividends 4,862 4,366 8,747 7,960 17,542 17,255
Preferred Stock Dividends 203 203 406 407 812 812
- -------------------------------------------------------------------------------------------------
EARNINGS APPLICABLE TO COMMON STOCK $ 4,659 $ 4,163 $ 8,341 $ 7,553 $ 16,730 $ 16,443
=================================================================================================
<FN>
See Notes to Consolidated Financial Statements.
</FN>
-7-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In Thousands)
June 30, December 31,
Assets 1997 1996
- -------------------------------------------------------------------------------------------------
Utility Plant-At Original Cost:
Utility plant in service $658,513 $ 654,713
Construction work in progress 11,104 7,994
- -------------------------------------------------------------------------------------------------
Total utility plant 669,617 662,707
Less accumulated depreciation and amortization 108,692 102,683
- -------------------------------------------------------------------------------------------------
Utility plant-net 560,925 560,024
- -------------------------------------------------------------------------------------------------
Non-utility Property 80 81
- -------------------------------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents 3,894 3,122
Customer and other accounts receivable
(less reserve: 1997, $739, 1996, $566) 17,443 16,725
Unbilled revenues 10,667 9,356
Materials and supplies-at average cost 1,858 2,045
Prepaid insurance, taxes, other 4,099 3,742
- -------------------------------------------------------------------------------------------------
Total current assets 37,961 34,990
- -------------------------------------------------------------------------------------------------
Deferred Charges:
Waste residual management 808 1,064
Unamortized debt and preferred stock expenses 9,750 8,989
Taxes recoverable through future rates 30,435 30,435
Postretirement benefit expense 3,606 3,564
Other unamortized expenses 2,326 1,632
- -------------------------------------------------------------------------------------------------
Total deferred charges 46,925 45,684
- -------------------------------------------------------------------------------------------------
Total $645,891 $ 640,779
=================================================================================================
<FN>
See Notes to Consolidated Financial Statements.
</FN>
-8-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In Thousands)
June 30, December 31,
Capitalization and Liabilities 1997 1996
- -------------------------------------------------------------------------------------------------
Capitalization (Note 3):
Common shareholder's equity $183,954 $ 182,293
Cumulative preferred stock 12,000 12,000
Long-term debt - net 231,941 181,933
- -------------------------------------------------------------------------------------------------
Total capitalization 427,895 376,226
- -------------------------------------------------------------------------------------------------
Current Liabilities:
Notes payable - banks 21,500 69,000
Long-term debt - current portion 30 30
Accounts payable and other liabilities 11,367 17,093
Customers' deposits 297 300
Municipal and state taxes accrued 18,283 13,887
Interest accrued 2,969 3,158
Preferred stock dividends accrued 59 59
- -------------------------------------------------------------------------------------------------
Total current liabilities 54,505 103,527
- -------------------------------------------------------------------------------------------------
Deferred Credits:
Customers' advances for construction 39,419 43,636
Federal income taxes 75,324 73,950
Unamortized investment tax credits 8,162 8,245
Accumulated postretirement benefits 3,824 3,596
- -------------------------------------------------------------------------------------------------
Total deferred credits 126,729 129,427
- -------------------------------------------------------------------------------------------------
Contributions in Aid of Construction 36,762 31,599
- -------------------------------------------------------------------------------------------------
Commitments and Contingent Liabilities
- -------------------------------------------------------------------------------------------------
Total $645,891 $ 640,779
=================================================================================================
<FN>
See Notes to Consolidated Financial Statements.
</FN>
-9-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED CAPITALIZATION
(In Thousands)
June 30, December 31,
1997 1996
- -------------------------------------------------------------------------------------------------
Common Shareholder's Equity:
Common stock without par value, authorized, 10,000,000
shares, issued 1997 and 1996, 1,974,902 shares $ 15,741 $ 15,741
Paid-in capital 118,780 117,457
Capital stock expense (485) (485)
Retained earnings 49,918 49,580
- -------------------------------------------------------------------------------------------------
Total common shareholder's equity 183,954 182,293
- -------------------------------------------------------------------------------------------------
Cumulative Preferred Stock
$100 par value, authorized, 200,000 shares; $5.90 series,
issued and outstanding, 120,000 shares 12,000 12,000
Cumulative Preferred Stock:
$25 par value, authorized, 500,000 shares; none issued
- -------------------------------------------------------------------------------------------------
Long-Term Debt:
7.20% Debentures, due 2019 10,000 10,000
7 1/2% Debentures, due 2020 15,000 15,000
6.60% Debentures, due 2021 10,500 10,500
6.70% Debentures, due 2021 15,000 15,000
8 3/4% Debentures, due 2021 27,500 27,500
8% Debentures, due 2022 15,000 15,000
5.60% Debentures, due 2025 40,000 40,000
7 1/4% Debentures, due 2028 50,000 50,000
Variable Rate Debentures, due 2027 50,000
The Mount Holly Water Company:
Notes Payable (due serially through 2000) 75 87
- -------------------------------------------------------------------------------------------------
Total long-term debt 233,075 183,087
Unamortized discount-net (1,134) (1,154)
- -------------------------------------------------------------------------------------------------
Total long-term debt-net 231,941 181,933
- ------------------------------------------------------------------------------------------------
Total Capitalization $427,895 $ 376,226
=================================================================================================
<FN>
See Notes to Consolidated Financial Statements.
</FN>
-10-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
(In Thousands)
Six Months
Ended
June 30, December 31,
1997 1996
- -------------------------------------------------------------------------------------------------
Common Stock: $ 15,741 $ 15,741
- -------------------------------------------------------------------------------------------------
Paid-in Capital:
Balance at Beginning of Period 117,457 112,157
Capital contributed by parent company 1,323 5,300
- -------------------------------------------------------------------------------------------------
Balance at End of Period 118,780 117,457
- -------------------------------------------------------------------------------------------------
Capital Stock Expense: (485) (485)
- -------------------------------------------------------------------------------------------------
Retained Earnings:
Balance at Beginning of Period 49,580 49,272
Income before preferred stock dividends 8,747 16,755
Dividends on common stock (8,004) (15,634)
Dividends on preferred stock (405) (813)
- -------------------------------------------------------------------------------------------------
Balance at End of Period 49,918 49,580
- -------------------------------------------------------------------------------------------------
Total Common Shareholder's Equity $183,954 $ 182,293
=================================================================================================
<FN>
See Notes to Consolidated Financial Statements.
</FN>
-11-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED CASH FLOWS
(In Thousands)
Three Months Ended Six Months Ended Twelve Months Ended
June 30, June 30, June 30,
1997 1996 1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Income before preferred stock dividend $ 4,862 $ 4,366 $ 8,747 $ 7,960 $ 17,542 $ 17,255
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 3,035 2,367 6,057 4,711 11,239 9,261
(Increase) decrease in deferred charges (149) (845) (438) (1,355) 304 (1,097)
Deferred income taxes and investment tax
credits-net 612 (54) 1,291 1,386 4,758 4,645
Allowance for funds used during construction (96) (2,076) (175) (4,063) (3,046) (6,969)
Other operating activities-net 42 51 155 (41) 264 (292)
Change in current assets and current
liabilities excluding cash, short-term
investments and current portion of debt:
Customer and other accounts receivable (418) (384) (718) 1,054 (1,554) (2,910)
Unbilled revenues (1,446) (1,063) (1,311) (934) (2,289) (44)
Accounts payable and other liabilities 195 (348) (5,729) (4,582) (782) 2,078
Accrued/prepaid interest and taxes (1,773) (2,468) 3,850 1,608 287 131
Other 76 49 187 229 (175) (86)
- -------------------------------------------------------------------------------------------------
Net cash provided by operating activities 4,940 (405) 11,916 5,973 26,548 21,972
- -------------------------------------------------------------------------------------------------
Cash Flows Provided by Financing Activities:
Capital contributed by parent company 823 2,313 1,323 2,890 3,733 6,385
Proceed from issuance of debentures 50,000 50,000 50,000 40,000
Debt and preferred stock issuance and
amortization costs (866) 104 (761) 170 (535) 502
Repayment of long-term debt (8) (8) (12) (15) (27) (33)
Contributions and advances for
construction-net 711 867 946 1,804 1,663 3,039
Net increase in notes payable - banks (47,500) 14,000 (47,500) 19,000 (24,500) 12,000
Dividends paid on common stock and
preferred stock (4,196) (4,071) (8,358) (8,105) (16,595) (16,069)
- -------------------------------------------------------------------------------------------------
Net cash provided by financing activities (1,036) 13,205 (4,362) 15,744 13,739 45,824
- -------------------------------------------------------------------------------------------------
Cash Flows Used for Investing Activities:
Utility plant expenditures (excluding
allowance for funds used during
construction) (3,316) (12,457) (6,782) (24,005) (37,902) (67,830)
- --------------------------------------------------------------------------------------------------
Cash used for investing activities (3,316) (12,457) (6,782) (24,005) (37,902) (67,830)
- -------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and
Cash Equivalents 588 343 772 (2,288) 2,385 (34)
Cash and Cash Equivalents at
Beginning of Period 3,306 1,166 3,122 3,797 1,509 1,543
- -------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 3,894 $ 1,509 $ 3,894 $ 1,509 $ 3,894 $ 1,509
=================================================================================================
Supplemental Disclosures of Cash
Flow Information:
Cash paid during the year for:
Interest (net of amount capitalized)$ 5,047 $ 2,779 $ 8,529 $ 5,530 $ 11,480 $ 8,162
Income taxes $ -0- $ 950 $ -0- $ 1,348 $ 4,375 $ 4,451
Preferred stock dividends $ 177 $ 177 $ 354 $ 354 $ 708 $ 708
<FN>
See Notes to Consolidated Financial Statements.
</FN>
-12-
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), Edison Water Company (Edison) (See Note 9)
and E'town Properties, Inc. (Properties) and owner of a 65% interest in
Applied Watershed Management, LLC (AWM). 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 1996 Annual Report to
Shareholders and the 1996 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
$1.3 million from the DRP proceeds of $3.5 million to Elizabethtown for
the six months ended June 30, 1997. The remaining $2.9 million of DRP
proceeds were used to partially finance a 20-year contract (the Edison
Contract) to operate the water system owned by the Township of Edison
(See Note 9).
4. LONG-TERM DEBT
On June 4, 1997, Elizabethtown issued a total of $50.0 million of 30-year
Variable Rate Dedentures (Debentures), $25.0 million of Series A and
$25.0 million of Series B, through the New Jersey Economic Development
Authority. The proceeds were used to repay $50.0 million of balances
outstanding under the Compan's revolving credit agreement. The Debentures
are remarketed on a weekly basis at which time the interest rates
on each issue are subject to change. The rates in effect as of June 30,
1997 were 4.10% for Series A and 3.90% for Series B.
5. LINES OF CREDIT
On July 25, 1997, Elizabethtown terminated its committed revolving
credit agreement (Agreement). The Agreement was executed in 1994 to
provide up to $60.0 million in revolving short-term financing to
partially finance Elizabethtown's capital program. Elizabethtown
replaced the Agreement with $50.0 million of uncommitted lines of
credit. E'town Corporation has $5.0 million of uncommitted lines of
credit and has borrowings outstanding under these lines of $5.0 million
as of June 30, 1997. These balances were incurred to partially finance
the Edison contract described below. The above lines, together with
internal funds and proceeds of future issuances of debt and preferred
stock by Elizabethtown and sales of common stock by E'town are expected
to be sufficient to finance the Corporation's capital needs.
-13-
6. EARNINGS PER SHARE
Primary earnings per share are computed on the basis of the weighted
average number of shares outstanding, plus common stock equivalents,
which reflect the assumption that all stock options are exercised. Fully
diluted earnings per share assume both the conversion of the
6 3/4% Convertible Subordinated Debentures and the common stock
equivalents. Reference is made to Exhibit 11 for the computations of
earnings per share.
7. NON-UTILITY PROPERTY AND OTHER INVESTMENTS
Included in Non-utililty Property and Other Investments at June 30, 1997
is an investment of $1.3 million ($.2 million 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,
1997 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 were
being sought. Based upon independent appraisals received at various times
prior to 1996, the estimated net realizable value of each property
exceeds its respective carrying value as of June 30, 1997. No information
has come to the attention of management since these appraisals were last
performed that would indicate the aggregate carrying value of these
parcels has been impaired.
One of the real estate parcels was sold in June 1997 for $.4 million,
resulting in a gain of less than $.1 million. In July 1997, E'town's
Board of Directors approved a plan to accelerate the Corporation's
efforts to sell E'town's and Properties' real estate investments.
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.
8. REGULATORY MATTERS
Rates
Elizabethtown
On October 25, 1996 Elizabethtown received a rate increase under a
stipulation resulting in an increase in annual revenues of $21.8 million.
The rate increase reflects a full allowance for the estimated capital
cost as well as a full allowance for the operating costs of the Canal
Road Water Treatment Plant (Plant). The Plant was placed in service on
October 24, 1996 for a cost of $101.6 million plus an Allowance for Funds
Used During Construction (AFUDC) of $13.5 million.
On April 21, 1997 Elizabethtown and Mount Holly filed petitions for rate
increases, to be effective January 1, 1998, for the recovery of costs
associated with Statement of Financial Accounting Standards (SFAS) No.
106 "Employers' Accounting For Postretirement Benefits Other Than
Pensions." The resulting rate increases would reflect recovery over a
fifteen year period of amounts previously deferred on the Consolidated
Balance Sheets for postretirement benefits since 1993 and prospectively,
the difference between the amounts currently recovered in rates and the
full SFAS No. 106 expense on an accrual basis. The petitions were filed
in connection with a generic stipulation signed by several New Jersey
public utilities, as well as the New Jersey Board of Public Utilities and
the New Jersey Division of Ratepayer Advocate. The settlement was
designed to provide a generic mechanism for New Jersey utilities to
recover postretirement costs that have been deferred since the adoption
of SFAS 106. The total increases in operating revenues resulting from
these petitions are expected to be $.6 million for Elizabethtown and
Mount Holly.
-14-
Mount Holly
In June 1995, Mount Holly petitioned the New Jersey Board of Public
Utilities (BPU) for an increase in rates, to take place in two phases.
The first phase was stipulated for a rate increase effective February
1996 of $.6 million. 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 that can be withdrawn
from an aquifer in certain areas of southern New Jersey. The project,
referred to as the Mansfield project, is currently estimated to cost
$16.5 million, excluding AFUDC. Mount Holly has expended $3.0 million on
the Mansfield Project as of June 30, 1997, excluding AFUDC. 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 (NJDEP)
granted Mount Holly a water allocation permit for four wells that are to
be the water supply for this project. On October 20, 1995, another water
purveyor requested of the NJDEP, and was subsequently granted, an
adjudicatory hearing in opposition to the permit. On August 5,
1997 Mount Holly settled this matter by entering into an agreement with
the other water purveyor and NJDEP. Under the agreement Mount Holly will
purchase 1.0 million gallons per day from the other purveyor until the
Mansfield project is placed into service. The other purveyor has agreed
to withdraw its objection to the water allocation permit.
9. EDISON CONTRACT
On June 25, 1997 E'town and Edison Water Company
signed an agreement to operate the water supply system of the
Township of Edison for a 20-year period. E'town formed a
wholly-owned subsidiary, Edison Water Company, for the purpose of
managing the assets and operations of the Edison Township system.
The Edison system serves about 11,000 residential, commercial and
industrial customers. Under the terms of the Edison Contract
Edison Water Company expects to make expenditures of
approximately $25.0 million over the 20-year period which, under
the terms of the agreement include capital improvements to the
water system as well as payments to the Township of Edison. Of
this total approximately $14.0 million is expected to be expended
in the first three years. An initial payment of $5.7 million was
made upon closing.
10. STOCK-BASED COMPENSATION
E'town has a Stock Option (Plan) under
which options to purchase shares of E'town 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. As
permitted under SFAS No. 123 the Corporation applies Accounting
Principles Board Opinion 25 and related Interpretations in
accounting for its Plan. Accordingly, no compensation cost is
recognized for the Plan. In May 1997, options to purchase up to
25,000 shares of common stock at a price of $29.75 were issued.
Had compensation cost for this issuance been determined based on
the fair value at the grant dates for awards under the Plan
consistent with the alternative method prescribed by SFAS No.
123, the effect on E'town's net income and earnings per share
would not be material.
11. NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued SFAS No. 128,
"arnings Per Share,"which is effective for financial statements issued
after December 15, 1997. The pronouncement simplifies the calculation of
earnings per share in that a calculation of "basic" earnings per share is
reported in lieu of primary earnings per share. Basic earnings per share
includes only the weighted average number of common shares outstanding
for the period and does not consider the dilutive effect of the
Corporation's outstanding stock options. There would be no effect on the
Corporation's calculation of earnings per share if the pronouncement were
applied currently.
-15-
The Financial Accounting Standards Board has issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information"
which is effective for financial statements issued after December 15,
1997. The pronouncement requires disclosure of selected information about
operating segments in interim financial reports. Based upon the relative
materiality of the Corporation's business segments to the consolidated
financial statements no additional disclosures would be required.
-16-
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), Edison Water Company (Edison) and E'town Properties, Inc.
(Properties) and owner of a 65% interest in Applied Watershed Management, LLC
(AWM). 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 1996. The following analysis sets forth significant
events affecting the financial condition of E'town and Elizabethtown at June
30, 1997, and the results of operations for the three, six and twelve months
ended June 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Capital Expenditures Program
Capital expenditures, primarily for water utility plant, were $6.8
million for the first six months of 1997. Capital expenditures for the
three-year period ending December 31, 1999 are estimated to be
$140.1 million, of which $125.3 million is for utility plant ($105.8 million
for Elizabethtown and $19.5 million for Mount Holly), $14.0 million for
Edison Water Company and $.8 million for non-utility expenditures.
Elizabethtown's three-year capital program includes $69.3 million for projects
of a routine nature. This program also includes $56.0 million of major
projects such as new transmission mains, improvements to pumping facilities,
construction of a new operations center in the western portion of our service
territory and other miscellaneous projects. Mount Holly expects to incur
significant capital expenditures later in 1998 and 1999 to construct new
water supply, treatment and transmission facilities as discussed below.
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 an Allowance for Funds Used During Construction (AFUDC), of which
$13.6 million is anticipated to be spent over the next three years. Mount
Holly has expended $3.0 million on the Mansfield Project as of June 30, 1997,
excluding AFUDC. The land for the supply and treatment facilities has been
purchased and wells have been drilled and can produce the required supply.
In October 1995, the NJDEP granted Mount Holly a water allocation permit
for four wells that are to be the water supply for the Mansfield Project.
Later that month, another water purveyor requested of the NJDEP, and was
subsequently granted, an adjudicatory hearing in opposition to the permit. On
August 5, 1997 Mount Holly settled this matter by entering into an agreement
with the other water purveyor and NJDEP. Under the agreement Mount Holly will
purchase 1.0 million gallons per day from the other purveyor until the
Mansfield project is placed into service. The other purveyor has agreed to
withdraw its objection to the water allocation permit.
In June 1995, Mount Holly petitioned the New Jersey Board of Public
Utilities (BPU) for an increase in rates, to take place in two phases. The
first phase was stipulated for a rate increase effective February 1996 of $.6
million. The second phase would recover the cost of the Mansfield project.
-17-
On October 25, 1996 Elizabethtown received a rate increase under a
stipulation resulting in an increase in annual revenues of $21.8 million. The
rate increase reflects a full allowance for the estimated capital cost as
well as a full allowance for the operating costs of the Canal Road Water
Treatment Plant (Plant). The Plant was placed in service on October 24, 1996
for a cost of $101.6 million plus an Allowance for Funds Used During
Construction of $13.5 million.
Capital Resources
For the three-year period ending December 31, 1999, Elizabethtown, including
Mount Holly, estimates that 57% of its capital expenditures are expected to
be financed with internally generated funds (after payment of common stock
dividends). The balance will be financed with a combination of contributions
from E'town of the 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
during the next three years and the Mansfield Project. 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. Standard & Poor's, in 1996, reaffirmed the Company's A rating
and upgraded its rating outlook from "negative" to "stable."
Expenditures required for the capital improvements required under the terms
of the contract for Edison Water Company are expected to be financed with a
combination of capital contributions from E'town of the proceeds from the
sale of E'town common stock and, on an interim basis, short-term borrowings.
Efforts to fund expenditures of Edison Water Company with longer-term debt
are in progress.
On June 4, 1997, Elizabethtown to issued $50.0 million of tax-exempt
Variable Debentures through the NJEDA. The proceeds of the issue were
used to repay amounts outstanding under the revolving credit agreement
discussed below.
In July 1997, Elizabethtown terminated its revolving credit agreement
(Agreement). The Agreement was executed in 1994 to provide up to $60.0
million in revolving short-term financing to partially fund Elizabethtown's
capital program. Elizabethtown has replaced the Agreement with $50.0 million
of uncommitted lines of credit. E'town Corporation has $5.0 million of
uncommitted lines of credit. The above lines, together with internal funds
and proceeds of future issuances of debt and preferred stock by Elizabethtown
and sales of common stock by E'town are expected to be sufficient to finance
the Corporation's capital needs.
RESULTS OF OPERATIONS
Net Income for the three months ended June 30, 1997 was $4.4 million or $.56
per share as compared to $3.9 million or $.51 per share for the same period
in 1996. Net income for the six months ended June 30, 1997 was $7.9 million
or $1.00 per share as compared to $7.1 million or $.93 per share for the same
period in 1996. Net income for the twelve months ended June 30, 1997 was
$15.9 million or $2.03 per share as compared to $15.2 million or $2.02 per
share for the same period in 1996. Net income increased for the three, six
and twelve month periods primarily due to higher revenues related to an
increase in rates for Elizabethtown effective October 1996. This increase in
revenues was offset somewhat by increases in financing and operating costs,
primarily related to the Plant.
Operating Revenues increased $5.2 million or 19.1%, $9.6 million or 18.0% and
$10.8 million or 9.9% for the three, six and twelve months ended June 30,
1997 compared to the same periods in 1996. These increases resulted from a
rate increase of $21.8 million for Elizabethtown in October 1996, which
accounted for $5.3 million, $10.3 million and $14.3 million of the increases
in operating revenues for the three, six and twelve month periods,
respectively. These increases were somewhat offset however, by decreases in
revenues for all three periods from lower water consumption.
-18-
The decreases in revenues from reduced water consumption for the three, six
and twelve month periods were $.1 million, less than $.1 million and $2.0
million respectively, for residential customers. The decreases due to
consumption were $.1 million, $.8 million and $1.7 million, respectively, for
wholesale customers and $.1 million, $.4 million and $.5 million,
respectively, for large industrial customers.
Operations Expenses increased $.7 million or 6.6%, $.9 million or 4.0% and
$1.1 million or 2.4% for the three, six and twelve months ended June 30,
1997, respectively, over the comparable periods in 1996. These increases are
attributable primarily to the costs resulting from operation of the Plant,
which went into service in October 1996. Such costs are reflected in
Elizabethtown's rate increase that become effective in October 1996.
Maintenance Expenses increased $.1 million or 7.6%, $.1 million or 4.0% and
decreased less than $.1 million or .2% for the three, six and twelve months
ended June 30, 1997, respectively, over and from the comparable 1996 amounts
due to minor changes in maintenance activities during those periods.
Depreciation Expense increased $.7 million or 28.2% $1.3 million or 28.6% and
$2.0 million or 21.4% for the three, six and twelve month periods ended June
30, 1997, compared to the same periods in 1996. The increases were due
primarily to a higher level of depreciable plant in service, of which the
predominant portion was related to the Plant. Elizabethtown's October 1996
rate increase reflected a full allowance for the depreciation expense
associated with the Plant.
Revenue Taxes increased $.6 million, or 18.2%, $1.2 million or 17.7% and $1.3
million or 9.3% for the three and twelve month periods ended June 30, 1997,
compared to the same periods in 1996 based upon the increases in operating
revenues, as discussed above, upon which these taxes are calculated.
Real Estate, Payroll and Other Taxes Expenses changed by insignificant
amounts for the three, six and twelve month periods ended June 30, 1997,
compared to the same periods in 1996.
Federal Income Taxes as a component of operating expenses increased $.6
million or 35.5%, $1.2 million or 37.8% and $.7 million or 9.4% for the
three, six and twelve month periods ended June 30, 1997 compared to the
comparable periods in 1996 due to the changes in the components of taxable
income discussed herein.
Other Income (Expense) decreased $.7 million or 79.3%, $1.4 million or 84.9%
and $1.4 million or 48.1% for the three, six and twelve month periods ended
June 30, 1997 compared to the same periods in 1996. These decreases are due
primarily to the reduction in AFUDC, the largest portion of which was
recorded while the Plant was under construction. These decreases were offset
by the decreases in associated federal income taxes.
Total Interest Charges increased $1.3 million or 42.0%, $2.7 million or 44.6%
and $3.9 million or 32.1% for the three, six and nine month periods ended
June 30,1997 compared to the same periods in 1996 due primarily to a
reduction in the debt component of AFUDC. This reduction in AFUDC was
related to the completion of the Plant in October 1996. This increase in
total interest charges was further affected by an increase in short-term
borrowings incurred under the revolving credit agreement to finance the
construction of Elizabethtown's ongoing capital program, the predominant
portion of which was the Plant.
ECONOMIC OUTLOOK
Forward Looking Information
Information in this report includes certain forward looking statements within
the meaning of the Federal securities laws. Any forward looking statements
are based upon information currently available and are subject to future
events, risks and uncertainties that could cause actual results to differ
materially from those expressed in the statements. Such events, risks and
-19-
uncertainties include, without limitation, actions of regulators, the effects
of weather on water consumption, changes in historical patterns of water
consumption and demand, including changes through increased use of
water-conserving devices, conditions in capital and real estate markets,
increases in operating expenses due to factors beyond the Corporation's
control, changes in environmental regulation and associated costs of
compliance, natural disasters and other claims or assessments made upon the
Corporation.
E'town Corporation and Subsidiaries
Consolidated earnings for E'town for the next several years are expected to
be determined by (i) Elizabethtown's ability to increase sales and to further
control operating expenses through improved productivity, (ii) Mount Holly's,
and later Elizabethtow's, ability to obtain adequate and timely rate relief
in connection with future utility plant additions and, to a lesser degree,
(iii) the ability of E'town to generate returns from its unregulated
businesses and (iv) the ability of E'town and Properties to generate returns
from the sale of their real estate for purposes of reinvestment in water and
wastewater businesses. In light of stronger financial results in the second
quarter from record water consumption since mid-June, management believes
that its original goal to increase earnings per share by approximately 15%
for 1997 is still attainable. This expectation assumes normal water
consumption patterns in the fall and winter of 1997 as well as the absence of
adverse conditions which could occur as noted in the description of forward
looking information detailed above.
Elizabethtown and Subsidiary - Regulated Utilities
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. Elizabethtown, excluding Mount
Holly, earned a rate of return on common equity of 9.0% in 1996.
Elizabethtown's authorized rate of return on common equity is currently
11.25%. In 1997, Elizabethtown expects to close this gap between its earned
return on common equity in 1996 and its authorized return. This again assumes
normal water consumption patterns in the fall and winter of 1997. Realizing
rates of return in 1998 comparable to authorized levels will require
continued customer additions and the success of ongoing cost control efforts,
as well as rate relief later in that year.
Mount Holly earned a rate of return on common equity of 3.5% in 1996,
compared to an authorized rate of return of 11.25% established in its most
recent rate proceeding. Mount Holly contributed $.02 to E'town's consolidated
earnings per share in 1996. Management expects Mount Holly to increase its
contribution to E'town's earnings per share by obtaining additional rate
relief upon the completion of Mount Holly's Mansfield project for recovery of
the costs of that and other projects. Such rate relief should also enable
Mount Holly to realize rates of return more in line with authorized levels.
E'town and Properties
The activities of E'town and Properties are not regulated by the BPU.
E'town
On June 25, 1997 E'town and Edison Water Company signed an agreement to
operate the water supply system of the Township of Edison for a 20-year
period. The Edison system serves about 11,000 residential, commercial and
industrial customers. Under the terms of the contract Edison Water Company
expects to make expenditures of approximately $25.0 million over the 20-year
period. Of this total approximately $14.0 million is expected to be expended
in the first three years. An initial payment of $5.7 million was made upon
closing. E'town expects to realize a return on its investment in the project
comparable to that realized by E'town's regulated utility operations. The
earnings effect is expected to be small during the first few years and is
expected to increase after year five.
In order to form AWM, in 1995 the Corporation entered into a three-year joint
venture agreement with Applied Wastewater General Partnership (AWG) a unit of
several privately held and affiliated companies providing design,
engineering, construction and operating services for water and wastewater
facilities. AWM has been pursuing opportunities to design, finance, engineer,
construct, own, operate and/or sell water and wastewater facilities for
-20-
municipal and corporate clients, primarily in New Jersey. E'town has agreed
to provide capital contributions to AWM of up to $.5 million to finance AWM's
working capital needs. E'town may provide additional financing for particular
projects of AWM. AWG has been providing the substantial portion of the
operations-related services required to be performed by AWM. Either party may
terminate the agreement at any time. E'town formed AWM to expand its range of
services to include wastewater, particularly to the smaller communities that
surround the franchise areas of Elizabethtown and Mount Holly.
Included in Non-Utility Property and Other Investments at June 30, 1997 is an
investment of $1.3 million ($.2 million net of related deferred taxes) in a
limited partnership that owns Solar Electric Generating System V (SEGS),
located in California.
Properties
E'town Properties and E'town Corporation own various parcels of undeveloped
land in New Jersey carried as investments of $12.6 million in Non-Utility
Property and Other Investments - Net in the Consolidated Balance Sheets of
E'town at June 30, 1997.
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. Such costs are
capitalized until the property is offered for sale, after which time such
costs are expensed.
One of the parcels was sold in June 1997 for $.4 million at a gain of less
than $.1 million. Based on independent appraisals received at various times
prior to 1996, management believes that the estimated net realizable value of
each property exceeds its respective carrying value as of June 30, 1997. In
July 1997, E'town's Board of Directors approved a plan to accelerate the
Corporation's efforts to sell E'town's and Properties' real estate
investments. E'town expects to reinvest the net sale proceeds into water and
wastewater investments in efforts to yield a current return.
'town will continue to monitor the relationship between the carrying and net
realizable values of its properties through updated appraisals, when
appropriate, and of its investment in SEGS based on information provided by
SEGS management.
New Accounting Pronouncements
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings Per Share," which is effective
for financial statements issued after December 15, 1997. The pronouncement
simplifies the calculation of earnings per share in that a calculation of
"basic" earnings per share is reported in lieu of primary earnings per share.
Basic earnings per share includes only the weighted average number of common
shares outstanding for the period and does not consider the dilutive effect of
the Corporatio's outstanding stock options. There would be no effect on the
Corporation's calculation of earnings per share if the pronouncement were
applied currently.
The Financial Accounting Standards Board has issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Informatio" which is
effective for financial statements issued after December 15, 1997. The
pronouncement requires disclosure of selected information about operating
segments in interim financial reports. Based upon the relative materiality of
the Corporation's business segments to the consolidated financial statements
no additional disclosures would be required.
-21-
PART II - OTHER INFORMATION
Items 1 - 5:
Nothing to Report.
Item 6(a) - Exhibits***
Exhibits to Part I:
Exhibit 10(a)-Contract between Edison Water Company, E'town Corporation
and the Township of Edison to Operate The Water System of
the Township of Edison, New Jersey dated as of June 25, 1997
Exhibit 10(b)-Contract between Elizabethtown Water Company and the
Township of Edison to Provide Water on a Wholesale Basis
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
***Pursuant to Paragraph (b) (4) (iii) (A) of Item 601 of
Regulation S-K Elizabethtown has not filed as an exhibit to this
Form 10-Q certain instruments with respect to long-ter debt as the
total amount of securities authorized thereunder does not exceed
10 percent of the total assets of Elizabethtown and its subsidiar
on a consolidated basis, but hereby agrees to furnish to the SEC
on request any such instruments.
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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, 1997
E'TOWN CORPORATION
ELIZABETHTOWN WATER COMPANY
/s/ Gail P. Brady
Gail P. Brady
Treasurer
/s/ Dennis W. Doll
Dennis W. Doll
Controller
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