SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
February 28, 1994
ELIZABETHTOWN WATER COMPANY
__________________________________________________________________________
(Exact name of registrant as specified in charter)
NEW JERSEY 0-628 22-1683171
__________________________________________________________________________
(State or other (Commission (IRS Employer
jurisdiction of File No.) Identification No.)
incorporation)
600 South Avenue Westfield, New Jersey 07091-0788
__________________________________________________________________________
(Address of principal executive office) (zip code)
Registrant's telephone number, including area code:
(908) 654-1234
No Change
__________________________________________________________________________
(Former name or former address, if
changes since last report)
ELIZABETHTOWN WATER COMPANY
Item 5. Other Events.
1. Financial Documents
Registrant hereby files the following financial documents,
including Financial Statements of Elizabethtown Water Company and
Subsidiary and related Management's Discussion and Analysis of
Consolidated Financial Condition and Results of Operations, which
documents will constitute a portion of the Registrant's 1993 Annual
Report on Form 10-K:
Page
______
Management's Discussion and Analysis of Consolidated Financial
Condition and Results of Operations 1-6
Independent Auditors' Report 7
Statements of Consolidated Income, For the Three Years Ended
December 31, 1993 8
Consolidated Balance Sheets, As of December 31, 1993 and 1992 9-10
Statements of Consolidated Capitalization, As of
December 31, 1993 and 1992 11
Statements of Consolidated Shareholder's Equity, For the
Three Years Ended December 31, 1993 12
Statements of Consolidated Cash Flows, For the Three Years
Ended December 31, 1993 13
Notes to Consolidated Financial Statements 15-26
Other Financial and Statistical Data 27
SIGNATURE 28
Item 7. Financial Statements and Exhibits
(c) Exhibits:
Exhibit No.
___________
12 Computation of Ratio of Earnings to Fixed Charges
and Preferred Dividends
23 Consents of experts and counsel:
Independent Auditors' Consent
Item 5. Other Events
1. Financial Documents
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Elizabethtown Water Company and Subsidiary
The water utility operations of Elizabethtown Water Company
(Elizabethtown or Company) and its subsidiary The Mount Holly Water
Company (Mount Holly), the consolidated entity being referred to herein
as Elizabethtown Water Company (Elizabethtown Water Company), presently
constitute the major portion of E'town Corporation's (E'town) assets and
earnings. E'town, a New Jersey holding company, is the parent company
of Elizabethtown Water Company and E'town Properties, Inc. The
following analysis sets forth significant events affecting the financial
condition at December 31, 1993 and 1992, and the results of operations
for the years ended December 31, 1993, 1992 and 1991 for Elizabethtown
Water Company.
LIQUIDITY AND CAPITAL RESOURCES
Capital Expenditures Program
Capital expenditures were $32.5 million during 1993. Capital
expenditures for the three-year period ending December 31, 1996, are
estimated to be $193.0 million.
Elizabethtown's construction program includes additional mains and
storage facilities necessary to serve customers who were added during
the last several years. In addition, Elizabethtown anticipates
upgrading its existing surface water treatment plant by rehabilitating
certain components and adding facilities designed to maximize its
capacity. These projects are designed to ensure the plant's compliance
with proposed water quality and other environmental regulations.
Elizabethtown's estimated capital expenditures through 1996 include
$96.5 million, excluding an Allowance for Funds Used During Construction
(AFUDC), for construction of a new water treatment plant, the Canal Road
Water Treatment Plant (Plant), near its existing plant. The Plant is
scheduled to be completed in 1996. The Plant, which will have a rated
production capacity of 40 million gallons per day, is necessary to meet
existing and anticipated customer demands and to replace groundwater
supplies withdrawn from service as a result of more restrictive water
quality regulations and groundwater contamination.
In August 1993, the Board of Regulatory Commissioners (BRC)
approved a stipulation (1993 Plant Stipulation) signed by the parties
to the Company's petition relating to the Plant. The 1993 Plant
Stipulation states that the Plant is necessary and that the Company's
estimate regarding the Plant's cost, at that time of $87 million, and
construction period were reasonable. The 1993 Plant Stipulation authorizes
the Company to levy a rate surcharge if the Company's pre-tax interest
coverage ratio for any 12-month historical period drops below 2.0 times.
The surcharge would
-1-
equal 20% of the Company's gross interest expense for the prior 12
months, adjusted for revenue taxes. The surcharge would go into effect
at the same time as the Company's next base rate increase after the
coverage ratio falls below 2.0 times, but in no event prior to
January 1, 1995. Also, the surcharge would remain in effect for
12 months and could be extended by the BRC for up to six additional
months. The 1993 Plant Stipulation also provides that the rate of
return on common stockholder's equity used to calculate the rate for
the equity component of the AFUDC for the Plant will be 1.5% less than
the rate of return on common stockholder's equity established in the
Company's most recent base rate case. The authorized rate of return
on common stockholder's equity is currently 11.5%.
Elizabethtown has accepted a bid, based upon competitive bidding,
from a general contrator and intends to sign a contract for the
construction of the Plant which is estimated to cost approximately
$96.5 million, excluding AFUDC. The Company has notified all parties to
the 1993 Stipulation of this revised cost of the Plant.
Also included in the capital program is $12.2 million for new
wells, treatment facilities and transmission lines to augment Mount
Holly's water supplies. Such projects are necessary for Mount Holly to
comply with recent state legislation requiring Mount Holly and other
water purveyors located in a particular area in southern New Jersey to
obtain additional sources of water to replace portions of their existing
supplies.
Capital Resources
During 1993, Elizabethtown Water Company financed 28.2% of its
capital expenditures from internally generated funds (after payment of
common stock dividends). The balance was funded from (i) capital
contributions from E'town from the sale of common stock, (ii) the
remaining proceeds of various New Jersey Economic Development Authority
(NJEDA) tax-exempt bond issues from prior years and (iii) short-term
bank debt on an interim basis.
For the three-year period ending December 31, 1996, Elizabethtown
Water Company estimates that 16% of its capital expenditures will be
financed with internally generated funds (after the payment of common
stock dividends). The balance will be financed with a combination of
capital contributions from E'town from the proceeds from the sale of
E'town common stock, long-term debentures, proceeds of tax-exempt NJEDA
bonds and short-term borrowings under a revolving credit agreement (see
below), on an interim basis. The NJEDA has granted preliminary approval
for the financing of almost all of Elizabethtown's major projects over
the next three years, including the Plant. Elizabethtown expects to
pursue tax-exempt financing to the extent that final allocations are
granted by the NJEDA.
-2-
On May 17, 1993, E'town issued 575,000 shares of common stock for
net proceeds of $16.6 million. The net proceeds were used to
fund equity contributions to Elizabethtown of $11.0 million in May 1993
and $2.8 million in September 1993. Elizabethtown used a portion of
such contributions to repay $7.0 million of short-term bank debt
incurred for construction expenditures and invested the balance on a
short-term basis until needed for construction expenditures.
During 1993, E'town raised $6.0 million from the sale of common
stock issued under its Dividend Reinvestment and Stock Purchase Plan
(DRP). Such proceeds were used to fund equity contributions to
Elizabethtown primarily for Elizabethtown's capital expenditures.
On November 9, 1993, Elizabethtown issued $50 million of 7 1/4%
Debentures due November 1, 2028. The proceeds of the issue were used to
redeem $30 million of the Company's 8 5/8% Debentures due 2007 and
$20 million of the Company's 10 1/8% Debentures due 2018. The aggregate
redemption premiums of $2.7 million were paid from general Company
funds.
During 1994, E'town Corporation expects to issue approximately
500,000 shares of common stock, through a public offering prior to
June 30, 1994, to finance additional equity contributions to
Elizabethtown. Proceeds from all stock issued under E'town's DRP will
continue to fund additional equity contributions to Elizabethtown.
Elizabethtown is negotiating a committed revolving credit
agreement, which is expected to be in place by April 1994, with an agent
bank and up to five additional participating banks to replace its
existing uncommitted lines of credit. The agreement will provide up to
$60 million in revolving short-term notes to provide sufficient
short-term financing for the Company to fund, together with other
monies, its $193.0 million capital program. The agreement will allow the
Company to borrow, repay and reborrow up to $60 million for the first
three years, after which time the Company may convert any outstanding
balances to a five-year fully amortizing term loan. The agreement will
further provide that among other covenants, the Company must maintain a
ratio of common and preferred equity to total capitalization of not less
than 35% and a pre-tax interest coverage ratio of at least 1.5 to 1.
December 31, 1992 and 1991
In April 1992, E'town issued 500,000 shares of common stock for net
proceeds of $12.7 million. Proceeds of the issue funded an $11.0
million capital contribution to Elizabethtown. Also, E'town funded
additional equity contributions of
-3-
$4.2 million to Elizabethtown from E'town's DRP. During 1992,
Elizabethtown issued $15 million of 8% Debentures to repay short-term
bank debt, of which, $9 million was incurred to repay Elizabethtown's
4 7/8% Debentures due February 1, 1992, and the remainder was incurred
to finance construction expenditures.
On February 14, 1991, E'town issued 523,700 shares of common stock
for net proceeds of $11.6 million. Proceeds of the issue funded an
$8 million capital contribution to Elizabethtown. Also, E'town funded
additional equity contributions of $1.8 million to Elizabethtown from
E'town's DRP. During 1991, Elizabethtown issued $27.5 million of 8 3/4%
Debentures to retire $25 million of 11 1/8% Debentures and, through the
NJEDA, issued a total of $25.5 million of tax-exempt debentures with interest
rates of 6.6% and 6.7% to refinance $10.5 million of tax-exempt 8.20%
Debentures and $15 million of 6.20% NJEDA Notes.
RESULTS OF OPERATIONS
Earnings Applicable to Common Stock for 1993 were $13.8 million as
compared to $11.1 million for 1992. The increase in net income resulted
from higher levels of outdoor water use due to abnormally hot and dry
summer weather. Also, rate increases received in March of 1993 and
1992, enabled the Company to cover higher levels of operating and
financial expenses in 1993 without adversely affecting net income.
Summer water use in excess of what management believes to be normal
contributed approximately $1.8 million. Assuming a return to normal
weather patterns in 1994, the Company expects that earnings for 1994
will be less than earnings realized in 1993.
Earnings Applicable to Common Stock for 1992 were $11.1 million, as
compared to $10.3 million for 1991. The increase resulted primarily
because the Company realized $3.3 million from the rate increase granted
in March 1992, which was partially offset by increased expenses.
Operating Revenues increased $10.8 million or 12.1% in 1993. Of this
increase, $4.8 million relates to the combined effect of the rate
increases of $5.0 million and $4.0 million effective March 1993 and
1992, respectively. Also, sales to retail customers increased $3.8
million and sales to other water systems increased $1.2 million due to
hot, dry summer weather.
Operating Revenues increased $ $3.1 million or 3.6% in 1992 primarily
because of the rate increase effective March 1992. Retail water
consumption dropped by $1.5 million in 1992 due to relatively wet summer
weather. However, lower consumption by retail customers was partially
offset by an increase in sales to other water systems of $.4 million.
-4-
Operation Expenses increased by $3.5 million or 10.0% in 1993 primarily
due to increases in the quantity of power and raw water purchased to
meet higher than normal summer loads. Also, the unit costs of power and
purchased water increased, as did labor costs and the cost of medical
and other benefits.
Operation Expenses increased $1.9 million or 4.9% in 1992. Increases in
labor, the price of purchased water and worker's compensation premiums
were partially offset by a reduction in hospitalization premiums.
Maintenance Expenses increased less than $.1 million or .2% in 1993 and
$.3 million or 5.7% in 1992 due to fluctuations in routine maintenance
at various operating facilities.
Depreciation Expense increased $.6 million or 9.5% in 1993 and $.4 million
or 6.3% in 1992 due to additional depreciable plant being placed in
service during those periods.
Revenue Taxes increased $1.4 million or 12.8% in 1993 and $.4 million or
3.4% in 1992 due to additional taxes on the higher revenues explained
above.
Real Estate, Payroll and Other Taxes increased $.1 million in
1993 due to increased payroll taxes resulting from labor cost increases.
Real Estate, Payroll and Other Taxes increased by $.1 million in 1992.
Federal Income Taxes increased $1.8 million or 31.2% in 1993 and
$.2 million or 3.6% in 1992 due to the changes in the components of
taxable income discussed herein. The increase in 1993 also includes
$.2 million due to the change in the federal statutory tax rate from 34%
to 35%.
Other Income increased in total by $.1 million in 1993. Other Income
increased due to a gain on the sale of land in August 1993, of $.1
million. A decrease in the equity component of AFUDC of $.2 million
resulted from the timing of construction expenditures. Other increases
of $.2 million resulted from various miscellaneous items. Federal
income taxes, as a result of all of the above, increased $.1 million.
In 1992 Other Income increased in total by $.4 million. Other
Income in 1992 includes an equity component of AFUDC of $.6 million.
Federal income taxes, as a result of the above, increased $.2 million.
Total Interest Charges increased $.8 million or 7.7% in 1993, due
primarily to an increase in interest for long-term debt issued in
September 1992 and a reduction in earnings from NJEDA trust funds due to
reduced trust fund balances. These items were partially offset by lower
interest on short-term debt due to reduced borrowings.
-5-
Total Interest Charges decreased $.4 million or 3.6% in 1992 due to
the net effect of (i) new long-term debt issued in September 1992,
(ii) lower interest costs as a result of long-term debt refinancing and
(iii) lower levels of short-term debt balances and their related rates.
ECONOMIC OUTLOOK
Earnings for Elizabethtown Water Company for the next several years will
be primarily affected by weather and customer usage, the magnitude and
timing of capital expenditures, the rate of growth of revenues and
expenses and the adequacy and timeliness of regulatory relief.
Elizabethtown and Mount Holly believe that they have sufficient
surface and well water supplies to meet their customers' needs and that
they are, and will remain, in compliance with all water quality
standards. Nonetheless, governmental water quality and service
regulations will require Elizabethtown and Mount Holly to make
significant investments in water treatment, transmission and storage
facilities including, most significantly, the Plant. This capital
program will require regular external financing and rate relief for the
next several years.
Because Elizabethtown expects its rate base to grow more quickly
than pumpage over the next several years, Elizabethtown anticipates
filing for a rate increase in 1994, and regularly thereafter, so that it
may have the opportunity to realize satisfactory returns on equity.
Adequate equity returns will enable Elizabethtown to continue to attract
external capital to finance improvements necessary to maintain safe and
adequate service.
-6-
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of Elizabethtown Water Company:
We have audited the accompanying consolidated balance sheets and
statements of consolidated capitalization of Elizabethtown Water Company
and its subsidiary as of December 31, 1993 and 1992, and the related
statements of consolidated income, shareholder's equity, and cash flows
for each of the three years in the period ended December 31, 1993.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Elizabethtown Water
Company and its subsidiary at December 31, 1993 and 1992, and the
results of their operations and their cash flows for each of the three
years in the period ended December 31, 1993 in conformity with generally
accepted accounting principles.
As discussed in Notes 3 and 10 to the consolidated financial statements,
in 1993 the Company changed its method of accounting for postretirement
benefit costs and income taxes to conform with Statements of Financial
Accounting Standards Numbers 106 and 109, respectively.
/s/ Deloitte & Touche
Parsippany, New Jersey
February 15, 1994, except for the
subsequent event discussed in
Note 8, as to which the date
is February 23, 1994
-7-
Elizabethtown Water Company and Subsidiary
Statements of Consolidated Income
Year Ended December 31,
______________________________________
1993 1992 1991
____________ ____________ ____________
Operating Revenues $99,996,120 $89,167,337 $86,086,103
____________ ____________ ___________
Operating Expenses:
Operation 38,529,149 35,041,222 33,416,310
Maintenance 5,716,157 5,704,843 5,399,139
Depreciation 7,285,309 6,654,986 6,258,302
Revenue taxes 12,501,804 11,086,349 10,717,838
Real estate, payroll and other taxes 2,513,891 2,429,446 2,281,272
Federal income taxes (Note 3) 7,658,770 5,836,464 5,632,135
___________ ___________ ___________
Total operating expenses 74,205,080 66,753,310 63,704,996
___________ ___________ ___________
Operating Income 25,791,040 22,414,027 22,381,107
___________ ___________ ___________
Other Income:
Gain on sale of land 122,400
Allowance for equity funds used
during construction (Note 2) 445,339 599,443
Federal income taxes (Note 3) (258,024) (185,000) 1,870
Other-net 169,474 (55,326) (5,500)
___________ ___________ ___________
Total other income 479,189 359,117 (3,630)
___________ ___________ ___________
___________ ___________ ___________
Total Operating and Other Income 26,270,229 22,773,144 22,377,477
___________ ___________ ___________
Interest Charges:
Interest on long-term debt 11,527,301 10,516,521 10,585,336
Other interest expense-net 77,921 514,122 535,834
Capitalized interest (Note 2) (391,895) (616,473) (391,936)
Amortization of debt discount-net 224,383 209,631 287,180
___________ ___________ ___________
Total interest charges 11,437,710 10,623,801 11,016,414
___________ ___________ ___________
Income Before Preferred Stock
Dividends 14,832,519 12,149,343 11,361,063
Preferred Stock Dividends 1,050,000 1,050,000 1,050,000
___________ ___________ ___________
Earnings Applicable to Common Stock $13,782,519 $11,099,343 $10,311,063
___________ ___________ ___________
___________ ___________ ___________
See Notes to Consolidated Financial Statements.
-8-
Elizabethtown Water Company and Subsidiary
Consolidated Balance Sheets
December 31,
___________________________
Assets 1993 1992
____________ ____________
Utility Plant-at Original Cost:
Utility plant in service $438,178,824 $411,317,989
Construction work in progress 17,242,088 11,809,783
____________ ____________
Total utility plant 455,420,912 423,127,772
Less accumulated depreciation and amortization 82,128,023 75,874,538
____________ ____________
Utility plant-net 373,292,889 347,253,234
____________ ____________
Non-utility Property 87,582 96,785
____________ ____________
Funds Held by Trustee for Construction
Expenditures (Note 2) 382,306 8,902,183
____________ ____________
Current Assets:
Cash and cash equivalents 3,263,456 2,309,751
Customer and other accounts receivable
(less reserve: 1993, $434,000; 1992, $377,000) 11,887,985 11,047,500
Unbilled revenues 7,248,322 6,559,721
Materials and supplies-at average cost 1,623,702 1,616,832
Prepaid insurance, taxes, other 1,603,955 1,606,276
____________ ____________
Total current assets 25,627,420 23,140,080
____________ ____________
Deferred Charges (Note 7):
Prepaid pension expense (Note 10) 1,003,145 808,135
Abandonments 152,097 228,146
Waste residual management 587,589 561,551
Emergency water projects 113,412 230,013
Unamortized debt expenses 8,025,677 4,886,106
Taxes recoverable through future rates (Note 3) 26,643,663
Postretirement benefit expense (Note 10) 1,004,556
Other unamortized expenses 484,767 773,765
____________ ____________
Total deferred charges 38,014,906 7,487,716
____________ ____________
Total $437,405,103 $386,879,998
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-9-
Elizabethtown Water Company and Subsidiary
Consolidated Balance Sheets
December 31,
____________________________
Capitalization and Liabilities 1993 1992
____________ ____________
Capitalization (Notes 4 and 5):
Common shareholder's equity $125,764,979 $103,023,524
Cumulative preferred stock-redeemable 12,000,000 12,000,000
Long-term debt-net 141,909,533 142,299,463
____________ ____________
Total capitalization 279,674,512 257,322,987
____________ ____________
Current Liabilities:
Notes payable-banks (Note 5) 5,500,000
Long-term debt-current portion (Note 4) 42,000 42,000
Accounts payable and other liabilities 9,589,716 8,923,897
Customers' deposits 276,497 273,238
Municipal and state taxes accrued 12,569,445 11,087,926
Federal income taxes accrued 704,771 1,466,188
Interest accrued 2,699,483 3,189,165
Preferred stock dividends accrued 89,178 89,178
____________ ____________
Total current liabilities 25,971,090 30,571,592
____________ ____________
Deferred Credits:
Customers' advances for construction 45,149,522 45,292,966
Federal income taxes (Note 3) 55,955,366 25,785,513
Unamortized investment tax credits 8,852,487 9,046,119
Emergency water projects (Note 7) 127,704 244,304
Accumulated postretirement benefits (Note 10) 1,004,556
____________ ____________
Total deferred credits 111,089,635 80,368,902
____________ ____________
Contributions in Aid of Construction 20,669,866 18,616,517
____________ ____________
Commitments and Contingent Liabilities (Note 9)
____________ ____________
Total $437,405,103 $386,879,998
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-10-
Elizabethtown Water Company and Subsidiary
Statements of Consolidated Capitalization
December 31,
____________________________
1993 1992
____________ ____________
Common Shareholder's Equity (Notes 4 and 5):
Common stock without par value, authorized,
10,000,000 shares; issued 1993 and 1992,
1,974,902 shares $ 15,740,602 $ 15,740,602
Paid-in capital 63,522,594 43,713,297
Capital stock expense (484,702) (484,702)
Retained earnings 46,986,485 44,054,327
____________ ____________
Total common shareholder's equity 125,764,979 103,023,524
____________ ____________
Cumulative Preferred Stock-Redeemable (Note 4):
$100 par value, authorized, 200,000
shares; $8.75 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
Elizabethtown Water Company:
8 5/8% Debentures, due 2007 30,000,000
10 1/8% Debentures, due 2018 20,000,000
7.20% Debentures, due 2019 10,000,000 10,000,000
7 1/2% Debentures, due 2020 15,000,000 15,000,000
6.60% Debentures, due 2021 10,500,000 10,500,000
6.70% Debentures, due 2021 15,000,000 15,000,000
8 3/4% Debentures, due 2021 27,500,000 27,500,000
8% Debentures, due 2022 15,000,000 15,000,000
7 1/4% Debentures, due 2028 50,000,000
The Mount Holly Water Company:
Notes Payable (due serially through 2000) 186,300 228,300
____________ ____________
Total long-term debt 143,186,300 143,228,300
Unamortized discount-net (1,276,767) (928,837)
____________ ____________
Total long-term debt-net 141,909,533 142,299,463
____________ ____________
Total capitalization $279,674,512 $257,322,987
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-11-
Elizabethtown Water Company and Subsidiary
Statements of Consolidated Shareholder's Equity
Year Ended December 31,
_______________________________________
1993 1992 1991
____________ ___________ __________
Common Stock: $ 15,740,602 $ 15,740,602 $ 15,740,602
____________ ____________ ____________
Paid-in Capital:
Balance at Beginning of Year 43,713,297 28,381,584 18,614,787
Capital contributed by parent company 19,809,297 15,331,713 9,766,797
____________ ____________ ____________
Balance at End of Year 63,522,594 43,713,297 28,381,584
____________ ____________ ____________
Capital Stock Expense: (484,702) (484,702) (484,702)
____________ ____________ ____________
Retained Earnings:
Balance at Beginning of Year 44,054,327 42,239,144 40,210,223
Income Before Preferred Stock
Dividends 14,832,519 12,149,343 11,361,063
Dividends on Common Stock (10,850,361) (9,284,160) (8,282,142)
Preferred Stock Dividends (1,050,000) (1,050,000) (1,050,000)
____________ ____________ ____________
Balance at End of Year 46,986,485 44,054,327 42,239,144
____________ ____________ ____________
Total Common Shareholder's Equity $125,764,979 $103,023,524 $ 85,876,628
____________ ____________ ____________
____________ ____________ ____________
See Notes to Consolidated Financial Statements.
-12-
Elizabethtown Water Company and Subsidiary
Statements of Consolidated Cash Flows
Year Ended December 31,
_____________________________________
1993 1992 1991
___________ ____________ ____________
Cash Provided by Operating Activities:
Income Before Preferred Stock Dividends $ 14,832,519 $ 12,149,343 $ 11,361,063
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 7,285,309 6,654,986 6,258,302
Gain on sale of land (122,400)
Amortization of deferred charges 1,354,404 1,939,272 3,610,811
Increase in deferred charges (4,233,375) (1,847,202) (7,502,504)
Deferred income taxes and investment
tax credits-net 3,332,558 2,685,426 4,129,615
Allowance for debt and equity funds
used during construction (AFUDC) (837,234) (1,215,916) (391,936)
Other operating activities-net (449,792) (182,669) (499,536)
Change in current assets and liabilities
excluding cash, short-term investments
and current portion of debt:
Customer and other accounts receivable (840,485) 1,308,263 (1,477,943)
Unbilled revenues (688,601) (164,241) (450,793)
Accounts payable and other liabilities 669,078 (934,312) 1,802,083
Accrued/prepaid interest and taxes 232,741 678,208 1,827,388
Other (6,870) 3,473 (34,699)
____________ ____________ ____________
Net cash provided by operating activities 20,527,852 21,074,631 18,631,851
____________ ____________ ____________
Cash Provided by Financing Activities:
Decrease in funds held by Trustee for
construction expenditures 8,519,877 12,390,518 6,650,299
Proceeds from issuance of debentures 50,000,000 15,000,000 53,000,000
Capital contributed by parent company 19,809,297 15,331,713 9,766,797
Repayment of short-term notes (15,000,000)
Repayment of long-term debt (50,042,000) (9,042,000) (35,639,500)
Contributions and advances for
construction-net 1,909,905 3,066,832 5,270,774
Net decrease in notes payable-banks (5,500,000) (13,000,000) (6,000,000)
Dividends paid on common and
preferred stock (11,900,361) (10,334,160) (9,332,142)
____________ ____________ ____________
Net cash provided by financing
activities 12,796,718 13,412,903 8,716,228
____________ ____________ ____________
Cash Used for Investing Activities:
Utility plant expenditures (excluding
AFUDC) (32,500,265) (33,292,602) (27,732,407)
Selling costs of land (1,600)
Proceeds from sale of land 131,000
____________ ____________ ____________
Net cash used for investing activities (32,370,865) (33,292,602) (27,732,407)
____________ ____________ ____________
Net Increase (Decrease) in Cash and
Cash Equivalents 953,705 1,194,932 (384,328)
Cash and Cash Equivalents at
Beginning of Year 2,309,751 1,114,819 1,499,147
____________ ____________ ____________
Cash and Cash Equivalents at End of Year $ 3,263,456 $ 2,309,751 $ 1,114,819
____________ ____________ ____________
____________ ____________ ____________
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 11,837,347 $ 11,332,836 $ 12,496,837
Income taxes 5,881,008 3,875,774 3,898,793
Preferred stock dividends $ 1,050,000 $ 1,050,000 $ 1,050,000
See Notes to Consolidated Financial Statements.
-13-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Elizabethtown Water Company (Elizabethtown or Company) and its wholly
owned subsidiary, The Mount Holly Water Company (Mount Holly), the
consolidated entity referred to herein as Elizabethtown Water Company
(Elizabethtown Water Company), is a wholly owned subsidiary of E'town
Corporation (E'town or Corporation). E'town, a New Jersey holding
company, is the parent company of Elizabethtown Water Company and
E'town Properties, Inc.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
The consolidated financial statements include Elizabethtown and its
subsidiary, Mount Holly. Significant intercompany accounts and
transactions have been eliminated. Elizabethtown and Mount Holly are
regulated water utilities and follow the Uniform System of Accounts,
as adopted by the New Jersey Board of Regulatory Commissioners (BRC).
Utility Plant and Depreciation
Income is charged with the cost of labor, materials and other expenses
incurred in making repairs and minor replacements and in maintaining
the properties. Utility plant accounts are charged with the cost of
improvements and major replacements of property. When depreciable
property is retired or otherwise disposed of, the cost thereof, plus
the cost of removal net of salvage, is charged to accumulated
depreciation.
Depreciation generally is computed on a straight-line basis at
functional rates for various classes of assets. The provision for
depreciation, as a percentage of average depreciable property,
was 1.74% for 1993 and 1.72% for 1992 and 1991.
Allowance for Funds Used During Construction
Elizabethtown capitalizes, as an appropriate cost of utility plant, an
Allowance for Funds Used During Construction (AFUDC), which represents
the cost of financing major projects during construction. AFUDC is
added to the construction cost of the project and included in rate
base and then recovered in rates during the project's useful life.
AFUDC is comprised of a debt component, credited to Interest Charges,
and an equity component, credited to Other Income, in the Statements of
Consolidated Income. (See Note 8). The equity component considers the
increased reliance on equity contributions to Elizabethtown from E'town's
stock sales. Such equity contributions have become an integral part of
the financing of Elizabethtown's construction program. AFUDC totaled
$837,234, $1,215,916 and $391,936 for 1993, 1992 and 1991, respectively.
-14-
Revenues
Revenues are recorded based on the amounts of water delivered to
customers through the end of each accounting period. This includes an
accrual for unbilled revenues for water delivered from the time meters
were last read to the end of the respective accounting periods.
Federal Income Taxes
Elizabethtown water Company files a consolidated federal tax return with
E'town and E'town properties Inc. Deferred income taxes are provided for
timing differences in the recognition of revenues and expenses for tax and
financial statement purposes to the extent permitted by the BRC.
Elizabethtown and Mount Holly account for prior years' investment tax
credits by the deferral method, which amortizes the credits over the
lives of the respective assets.
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards (SFAS) 109, "Accounting for Income Taxes." (See
Note 3).
Customer Advances for Construction and Contributions in Aid of
Construction
Customer Advances for Construction and Contributions in Aid of
Construction represent capital provided by developers for main
extensions to new real estate developments. Some portion of Customer
Advances for Construction is refunded based upon the revenues that the
new developments generate. Contributions in Aid of Construction are
Customer Advances for Construction that are no longer subject to
refund.
Postretirement Benefits
Effective January 1, 1993, the Company adopted SFAS 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." (See
Note 10).
Funds Held by Trustee for Construction Expenditures
Proceeds from New Jersey Economic Development Authority financings are
held in trust until such time as qualified project expenditures are
incurred. Income received from the investment of the trust fund
assets is recorded as an offset to the related interest expense.
Cash Equivalents
Elizabethtown Water Company considers all highly liquid debt
instruments purchased with maturities of three months or less to be
cash equivalents for purposes of the Statements of Consolidated Cash
Flows.
-15-
Reclassification
Certain prior year amounts have been reclassified to conform to the
current year presentation.
3. FEDERAL INCOME TAXES
The computation of federal income taxes and the reconciliation of the
tax provision computed at the federal statutory rate (35% in 1993, 34%
in 1992 and 1991) with the amount reported in the Statements of
Consolidated Income follow:
1993 1992 1991
----------------------
(Thousands of Dollars)
Tax expense at statutory rate ....... $7,962 $6,178 $5,777
Items for which deferred taxes
are not provided:
Capitalized interest ............... (2) (3) 16
Difference between book and tax
depreciation ...................... 81 66 50
Investment tax credits.............. (208) (210) (210)
Other .............................. 84 (10) (3)
------ ------ ------
Provision for federal income taxes... $7,917 $6,021 $5,630
====== ====== ======
The provision for federal income taxes
is composed of the following:
Current ............................ $5,926 $5,318 $5,070
Tax collected on main extensions ... (1,341) (1,982) (3,127)
Deferred:
Tax depreciation................... 3,222 2,980 2,804
Alternative minimum tax............ (412) 600
Capitalized interest............... 72 118 (65)
Other.............................. 232 201 552
Investment tax credits-net.......... (194) (202) (204)
------ ------ ------
Total provision .................... $7,917 $6,021 $5,630
====== ====== ======
Effective January 1, 1993, Elizabethtown Water Company adopted SFAS
109, "Accounting for Income Taxes." SFAS 109 establishes new
accounting rules that change the manner in which income tax expense is
determined for accounting purposes. SFAS 109 utilizes a liability
method under which deferred taxes are provided at the enacted
statutory rate for all temporary differences between financial
statement earnings amounts and the tax basis of existing assets or
liabilities.
In connection with the adoption of SFAS 109, Elizabethtown Water
Company recorded additional deferred taxes for water utility temporary
-16-
differences not previously recognized. The increased deferred tax
liability was offset by a corresponding asset representing the future
revenue expected to be recovered through rates based on established
regulatory practice permitting such recovery. The increased deferred
tax liability totaled $25,352,412 at January 1, 1993 and $26,643,663
at December 31, 1993.
In accordance with SFAS 109, deferred tax balances have been reflected
at E'town's current consolidated federal income tax rate, which
is 35%. The increase in the statutory tax rate, retroactive to
January 1, 1993, from 34% to 35%, is the result of the Omnibus Budget
Reconciliation Act of 1993, which was passed by Congress on
August 2, 1993. The increase in the statutory tax rate resulted in
the recognition of additional federal income tax expense of $168,798
and an additional deferred federal income tax liability of $100,744.
The net deferred income tax liability as of December 31, 1993 is
comprised of the following:
1993
----------------------
(Thousands of Dollars)
Deferred tax assets.......................... $ 3,804
Deferred tax liabilities..................... (59,759)
--------
Net deferred income tax liabilities.......... $(55,955)
========
The tax effect of significant temporary differences representing
deferred income tax assets and liabilities as of December 31, 1993
is as follows:
1993
----------------------
(Thousands of Dollars)
Water utility plant-net...................... $(49,582)
Taxes recoverable............................ (9,326)
Investment tax credit........................ 3,098
Pension expenditures......................... (351)
Other-net.................................... 206
--------
Net deferred income tax liabilities.......... $(55,955)
========
4. CAPITALIZATION
Cumulative Preferred Stock - Redeemable
Elizabethtown's $8.75 Cumulative Preferred Stock has optional
redemption privileges beginning in 1994 at $108.75 per share, which
diminish annually until 2009, when redemption is at par ($100).
Beginning in December 1994, sinking fund payments of $600,000 are
required annually through 2018.
-17-
Elizabethtown proposes to issue 120,000 shares of $100 par value
Cumulative Preferred Stock in March 1994. The proceeds of the issue
will be used to redeem $12,000,000 of the Company's $8.75 Cumulative
Preferred Stock. The redemption premium of $1,050,000 will be paid
from general Company funds.
Long-term Debt
Elizabethtown's long-term debt indentures restrict the amount of
retained earnings available to Elizabethtown to pay cash dividends
(which is the primary source of funds available to the Corporation for
payment of dividends on its common stock) or acquire Elizabethtown's
common stock, all of which is held by E'town. At December 31, 1993,
$12,831,414 of Elizabethtown's retained earnings were restricted under
the most restrictive indenture provision. Therefore, $34,155,071 of
consolidated retained earnings were unrestricted.
On November 9, 1993, Elizabethtown issued $50,000,000 of 7 1/4%
Debentures due November 1, 2028. The proceeds of the issue were used
to redeem $30,000,000 of the Company's 8 5/8% Debentures due 2007 and
$20,000,000 of the Company's 10 1/8% Debentures due 2018. The
aggregate redemption premiums of $2,681,000 were paid from general
Company funds.
On September 16, 1992, Elizabethtown issued $15,000,000 of 8% Debentures
due September 1, 2022. The proceeds of this issue were used to repay
short-term bank debt, of which $9,000,000 was incurred to repay
Elizabethtown's 4 7/8% Debentures on their February 1, 1992 maturity date
and the remainder was incurred to finance construction expenditures.
5. LINES OF CREDIT
Elizabethtown has existing uncommitted lines of credit with several
banks aggregating $34,000,000 for which compensating balances are
maintained. Information relating to bank borrowings and compensating
balances is as follows:
1993 1992 1991
----------------------------
(Thousands of Dollars)
Maximum amount outstanding.......... $7,000 $27,500 $23,000
Average monthly amount outstanding.. 2,062 $15,457 $16,371
Average interest rate at year end... (A) 4.1% 5.6%
Compensating balances at year end... $ 195 $ 205 $ 230
Weighted average interest rate based
on average daily balances.......... 3.8% 4.6% 6.8%
(A) No outstanding bank borrowings at year end.
Elizabethtown is negotiating a committed revolving credit agreement,
which is expected to be in place by April 1994, with an agent bank and
up to five additional participating banks to replace its existing
uncommitted lines of credit discussed above. The agreement provides up
-18-
to $60,000,000 in revolving short-term notes to provide sufficient
short-term financing for the Company to fund, together with other
monies, its capital program, which is estimated to be $192,981,000
through 1996. The agreement wil allow the Company to borrow, repay
and reborrow up to $60,000,000 for the first three years, after which
time the Company may convert any outstanding balances to a five-year,
fully amortizing term loan. The agreement will further provide that
among other covenants, the Company must maintain a ratio of common
and preferred equity to total capitalization of not less than 35%
and a pre-tax interest coverage ratio of at least 1.5 to 1.
6. FINANCIAL INSTRUMENTS
The carrying amounts and the estimated fair values, as of
December 31, 1993 and 1992 of financial instruments issued by
Elizabethtown Water Company are as follows:
1993 1992
---------------------
(Thousands of Dollars)
Cash (1):
Carrying amount................... $ 3,263 $ 2,310
Estimated fair value.............. 3,263 2,310
Cumulative preferred stock (2):
Carrying amount................... $ 12,000 $ 12,000
Estimated fair value.............. 13,020 12,960
Long-term debt (2):
Carrying amount................... $141,910 $142,299
Estimated fair value.............. 155,097 148,179
(1) Fair value approximates the carrying amount.
(2) Estimated fair values are based upon quoted market prices for
similar securities.
7. DEFERRED CHARGES AND CREDITS
Abandonments
The abandonment cost of a small filter plant has been deferred and
is being amortized for ratemaking purposes over a 10-year period ending
in 1995.
Waste Residual Management
The costs of the waste residual management programs are being amortized
over three-year periods for ratemaking purposes.
No return is being earned on either of the above unamortized deferred
charge balances.
-19-
Emergency Water Projects
The 1984 assessment for Elizabethtown's proportionate share of the
cost of emergency water projects is being recovered through rates and
amortized over a 10-year period.
Unamortized Debt Expenses
Costs incurred in connection with the issuance or redemption of
long-term debt have been deferred and are being amortized over the lives
of the respective issues.
8. REGULATORY MATTERS
Rates
In August 1993, the BRC approved a stipulation (1993 Plant Stipulation)
signed by the parties to the Company's petition relating to the Canal
Road Water Treatment Plant (Plant). The 1993 Plant Stipulation states
that the Plant is necessary and that the Company's estimates regarding
the Plant's cost, at that time of $87,000,000, and construction period
are reasonable. The 1993 Plant Stipulation authorizes the Company to
levy a rate surcharge if the Company's pre-tax interest coverage ratio
for any 12 month historical period drops below 2.0 times. The surcharge
would equal 20% of the Company's gross interest expense for the prior
12 months, adjusted for revenue taxes. The surcharge would go into
effect at the same time as the Company's next base rate increase after
the coverage ratio falls below 2.0 times, but in no event prior to
January 1, 1995. Also, the surcharge would remain in effect for
12 months and could be extended by the BRC for up to six additional
months. The 1993 Plant Stipulation also provides that the rate of
return on common stockholder's equity used to calculate the rate for
the equity component of the AFUDC for the Plant will be 1.5% less than
the rate of return on common stockholder's equity established in the
Company's most recent base rate case. The authorized rate of return
on common stockholder's equity is currently 11.5%.
On January 4, 1994, Elizabethtown filed with the BRC for a Purchased
Water Adjustment Clause, a procedure established by BRC Rules, which
would allow Elizabethtown to recover in rates $529,291 for the
increase in the cost of purchased water from the New Jersey Water
Supply Authority (NJWSA) without a complete rate case. The NJWSA has
given notice that effective July 1, 1994, it will increase charges for
water from $220.47 to $232.65 per million gallons. The Company
expects the BRC to render a decision prior to July 1994.
On March 18, 1993, the BRC approved a stipulation (1993 Stipulation)
for a rate increase of $5,000,000, effective as of that date. The
1993 Stipulation contains a provision allowing for the deferral of
expenses, calculated under SFAS 106, for postretirement benefits
accrued that are in excess of the cash benefits paid. Recovery of
-20-
such deferrals will be considered in future rate cases. (See
Note 10).
On March 18, 1992, the BRC approved a stipulation for a rate increase
of $4,050,000, effective as of that date.
Main Extension Refunds
In a case captioned Van Holten, et al v. Elizabethtown Water Company
(Van Holten), several developers petitioned the BRC in 1984 and 1985
seeking an Order which would require Elizabethtown to refund to the
developers all of their on-site and off-site customer advances for
construction. For on-site mains, Elizabethtown received a final BRC
decision in September 1987, requiring refunds in accordance with the
BRC's suggested refund formula, which was less than the amounts
requested by the developers. For the off-site mains, the developers
were denied any refund. The developers appealed the BRC decision to
the Appellate Division of the New Jersey Superior Court (Appellate
Division), which in October 1988 upheld the decision of the BRC.
Since 1986, additional petitions dealing with this issue have been
filed by other developers. In these additional proceedings, all
parties have agreed to abide by the final decision of the New Jersey
Supreme Court in the Van Holten case. For all customer advances,
Elizabethtown has and will continue to make the refunds in accordance
with the BRC's suggested refund formula.
In response to an appeal of the 1988 Appellate Division decision, in
August 1990, the New Jersey Supreme Court (Court) rendered a decision
upholding the BRC's authority to implement what the BRC had
established as an appropriate refund formula in the Van Holten case.
The BRC's suggested formula provides for a refund of 2 1/2 times the
annual revenues for each metered connection. Although the Court ruled
that the BRC has the jurisdiction to determine what is an appropriate
refund formula, it remanded the case to the BRC to further develop the
record on why the BRC deemed the 2 1/2 times formula to be appropriate
in the Van Holten case.
In June 1991, the BRC issued an Order on Remand reaffirming the 2 1/2
times annual revenue formula. Addressing the reasonableness of this
formula, the BRC indicated in its decision that the 2 1/2 times
formula fairly allocates the costs of the main extensions among the
developers, Elizabethtown and the rate payers. Again, developers
appealed the Order on Remand to the Appellate Division, and in
December 1992, the Appellate Division remanded the matter to the BRC
for more complete findings and statements of reasons in support of its
decision.
By Order dated January 19, 1994, the BRC again deemed the 2 1/2 times
formula to be appropriate in the Van Holten case. In addition to the
previous rationale it gave for employing this formula in this case,
-21-
the BRC indicated that on a per-customer basis, the initial cost of
the extension was, in most instances, far higher than Elizabethtown's
average cost of plant invested for existing customers at the time
petitions were filed in 1984. Therefore, a full refund would clearly
result in a significant subsidization of the developers by
Elizabethtown's existing customers. The BRC concluded that such a
subsidization would be unjust and unreasonable.
On February 23, 1994, the developers appealed the January 19, 1994
BRC Order on Remand to the Appellate Division.
The maximum potential refund for the Van Holten case, and all
subsequently filed cases, is approximately $3,000,000, which would be
capitalized and, therefore, would not have a material adverse effect
on earnings. Management believes the final outcome of this matter
will be favorable and no additional refunds will be necessary.
9. COMMITMENTS
Elizabethtown is obligated, under a contract that expires in 2013, to
purchase from the NJWSA a minimum of 37 billion gallons of water
annually. The Company purchases additional water from the NJWSA on an
as-needed basis. Effective July 1, 1994, the annual cost under the
contract will be $8,661,559. The total cost of water purchased from
the NJWSA, including additional water purchased on an as-needed basis,
was $8,819,212, $7,827,058 and $7,527,662 for 1993, 1992 and 1991,
respectively.
The following is a schedule by years of future minimum rental payments
required under noncancelable operating leases with terms in excess of
one year at December 31, 1993:
1993
----------------------
(Thousands of Dollars)
1994........................................ $ 832
1995........................................ 785
1996........................................ 780
1997........................................ 720
1998........................................ -0-
------
Total....................................... $3,117
======
Rent expense totaled $789,636, $719,624 and $740,801 for 1993, 1992
and 1991, respectively.
Capital expenditures through 1996 are estimated to be $192,981,000 for
Elizabethtown's and Mount Holly's utility plant.
Elizabethtown has accepted a bid, based upon competitive bidding, from
a general contractor and intends to sign a contract for the
construction of the Plant, which is estimated to cost approximately
-22-
$96,530,000, excluding AFUDC. The Company has notified all parties
to the 1993 Plant Stipulation of this revised cost of the Plant. The
Plant will take approximately 2 1/2 years to construct, beginning in the
spring of 1994. The Company has recorded $6,825,354 as construction
costs on the Plant as of December 31, 1993.
10. PENSION PLAN AND OTHER POSTRETIREMENT BENEFITS
Elizabethtown has a trusteed, noncontributory Retirement Plan (Plan),
which covers most employees. Under the Company's funding policy,
Elizabethtown Water Company makes contributions that meet the minimum
funding requirements of the Employee Retirement Income Security Act of
1974. The components of the net pension credits are as follows:
1993 1992 1991
----------------------
(Thousands of Dollars)
Service cost-benefits earned during the year .. $ 899 $ 843 $ 780
Interest cost on projected benefit obligation . 1,973 1,836 1,715
Return on Plan assets ......................... (1,409) (970) (5,677)
Net amortization and deferral ................. (1,658) (2,235) 3,051
------ ------ ------
Net pension credit ............................ $ (195) $ (526) $ (131)
====== ====== ======
Plan assets are invested in publicly traded debt and equity securities.
The reconciliations of the funded status of the Plan to the amounts
recognized in the Consolidated Balance Sheets are presented below:
1993 1992
---------------------
(Thousands of Dollars)
Market value of Plan assets ..................... $33,032 $32,710
Actuarial present value of Plan benefits: ------- -------
Vested benefits ................................. 20,708 16,929
Non-vested benefits ............................. 227 98
------- -------
Accumulated benefit obligation .................. 20,935 17,027
Projected increases in compensation levels ...... 6,541 6,799
------- -------
Projected benefit obligation .................... 27,476 23,826
Excess of Plan assets over projected benefit ------- -------
obligation ..................................... 5,556 8,884
Unrecognized net gain ........................... (2,403) (5,748)
Unrecognized prior service cost ................. 539 627
Unrecognized transition asset ................... (2,689) (2,955)
------- -------
Prepaid pension expense.......................... $ 1,003 $ 808
======= =======
-23-
The assumed rates used in determining the actuarial present value of the
projected benefit obligations were as follows:
1993 1992
----- -----
Discount rate ................................... 7.00% 8.50%
Compensation increase ........................... 5.50% 7.50%
Rate of return on Plan assets ................... 8.50% 8.50%
Elizabethtown and Mount Holly provide certain health care and life
insurance benefits for substantially all of their retired employees.
Effective January 1, 1993, Elizabethtown Water Company adopted SFAS 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions."
Under SFAS 106, the costs of such benefits are accrued for each year the
employee renders service, based on the expected cost of providing such
benefits to the employee and the employee's beneficiaries and covered
dependents rather than expensing these benefits on a pay-as-you-go basis
for retired employees. Based upon an independent actuarial study, the
transition obligation, which Elizabethtown Water Company has not funded,
was $7,214,736 as of January 1, 1993. The transition obligation is being
amortized over 20 years. The following table details the unfunded
postretirement benefit obligation at December 31, 1993:
1993
---------------------
(Thousands of Dollars)
Retirees......................................... $3,133
Fully eligible plan participants................. 5,403
------
Accumulated postretirement benefit obligation.... 8,536
Unrecognized net gain............................ (677)
Unrecognized transition obligation............... (6,854)
------
Accumulated postretirement benefits.............. $1,005
======
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation as of December 31, 1993, and for 1993,
was 12%. This rate decreases linearly each successive year until it
reaches 5% in 2003, after which the rate remains constant. The assumed
discount rate used in determining the accumulated postretirement benefit
obligation at December 31, 1993, and for 1993, was 7.0% and 8.5%,
respectively. A one-percentage-point increase in the assumed health care
cost trend rate for each year would increase the accumulated
postretirement benefit obligation as of January 1, 1993, and net
postretirement service cost and interest cost by approximately $924,000
and $140,000, respectively.
-24-
Based upon an independent actuarial study, the annual postretirement cost
calculated under SFAS 106 for 1993 is as follows:
1993
----------------------
(Thousands of Dollars)
Service cost - benefits earned
during the year.................................. $ 249
Interest cost on accumulated
postretirement benefit obligation................ 602
Amortization of transition obligation.............. 361
------
Total............................................ 1,212
Deferred amount for regulated
companies pending recovery....................... (1,005)
------
Net postretirement benefit expense................. $ 207
======
The Company recognized as an expense (on a pay-as-you-go basis)
$252,000 for both 1992 and 1991 for postretirement health care and life
insurance benefits.
The rate increase for the 1993 Stipulation includes as an allowable
expense, only the pay-as-you-go portion of postretirement benefits. The
1993 Stipulation allows Elizabethtown to defer the amount accrued in
excess of the pay-as-you-go portion, for consideration in future rate
cases. In addition, in a separate proceeding, Mount Holly had
petitioned the BRC for permission to defer the amount accrued in excess
of the pay-as-you-go portion of its expenses calculated under SFAS 106,
and consequently, has been granted such authority. Generally accepted
accounting principles permit this regulatory treatment, provided
deferrals are not accumulated for a period of more than five years.
As of December 31, 1993, the amount that has been deferred is
$1,004,556. Recovery of deferred postretirement costs will be
requested in Elizabethtown's and Mount Holly's next base rate case.
Management believes that Elizabethtown and Mount Holly will recover the
deferred postretirement costs in future rates.
11. RELATED PARTY TRANSACTIONS
The Company enters into various transactions with E'town and E'town
Properties, Inc. Elizabethtown provides administrative and accounting
services to these affiliates which are billed on a monthly basis. These
amounts totaled $246,442, $236,839 and $227,665 for 1993, 1992 and 1991,
respectively. In addition, various expenditures are made to vendors which
are common to the entities. Each entity absorbs its proportionate share
of the costs. The most significant of these items is rent which totaled
$31,749, $33,600 and $31,608 for 1993, 1992 and 1991, respectively.
-25-
12. QUARTERLY FINANCIAL DATA (Unaudited)
A summary of financial data for each quarter of 1993 and 1992 follows:
Income Before Earnings
Operating Operating Preferred Applicable to
Quarter Revenues Income Stock Dividends Common Stock
------------------------------------------------------------------
(Thousands of Dollars)
1993
1st $22,136 $ 5,465 $ 2,637 $ 2,374
2nd 24,865 6,715 3,916 3,654
3rd 28,947 8,169 5,527 5,264
4th 24,048 5,442 2,753 2,491
------- ------- ------- -------
Total $99,996 $25,791 $14,833 $13,783
======= ======= ======= =======
1992
1st $20,803 $ 4,958 $ 2,422 $ 2,160
2nd 22,423 5,639 3,042 2,779
3rd 23,812 6,161 3,643 3,380
4th 22,129 5,656 3,042 2,780
------- ------- ------- -------
Total $89,167 $22,414 $12,149 $11,099
======= ======= ======= =======
Water utility revenues are subject to a seasonal fluctuation due to
normal increased consumption during the third quarter of each year.
-26-
Elizabethtown Water Company
Other Financial and Statistical Data
1993 1992 1991 1990 1989
- -----------------------------------------------------------------------------
Utility Plant (Thousands)
Utility Plant--net ....... $373,293 $347,253 $319,421 $297,577 $275,588
Construction Expenditures
(excluding AFUDC)........ 32,500 33,293 27,732 27,301 38,589
Total Assets............... 437,405 386,880 371,103 350,487 316,701
Capitalization (Thousands)
Shareholders' Equity ..... 125,765 103,024 85,877 74,081 72,215
Redeemable Preferred Stock 12,000 12,000 12,000 12,000 12,000
Debt (l) ................. 141,952 147,841 154,984 159,049 131,567
Total Capitalization ..... $279,717 $262,865 $252,861 $245,130 $215,782
Capitalization Ratios
Common Stock ............. 45% 39% 34% 30% 33%
Preferred Stock .......... 4% 5% 5% 5% 6%
Debt (1) ................. 51% 56% 61% 65% 61%
Earnings Applicable to
Common Stock (Thousands).. $ 13,783 $ 11,099 $ 10,311 $ 6,929 $ 6,074
Operating Statistics
Revenues (Thousands)
General Customers ....... $ 63,100 $ 55,570 $ 54,071 $ 48,267 $ 45,088
Other Water Systems ..... 17,187 15,080 14,082 12,947 11,060
Industrial Wholesale .... 6,652 6,044 5,846 5,515 5,183
Fire Service/Miscellaneous 13,057 12,473 12,087 11,386 9,906
Total Revenues .......... $ 99,996 $ 89,167 $ 86,086 $ 78,115 $ 71,237
Water Sales - Millions of
Gallons (mg)
General Customers ....... 23,883 22,062 22,659 21,686 21,119
Other Water Systems ..... 15,109 14,118 13,811 14,379 14,450
Industrial Wholesale .... 3,213 3,145 3,155 3,313 3,757
System Use and Unaccounted
For 5,453 5,843 6,368 5,854 6,297
Total Water Sales ....... 47,658 45,168 45,993 45,232 45,623
System Delivery by Source - mg
Surface ................. 40,742 38,558 39,222 40,343 38,937
Wells ................... 6,776 6,480 6,658 4,805 6,587
Purchased ............... 140 130 113 84 99
Total System Delivery ... 47,658 45,168 45,993 45,232 45,623
Millions of Gallons Pumped:
Average Day ............. 131 123 126 124 125
Maximum Day ............. 191 159 169 155 148
_____________________________________________________________________________
(1)Includes long-term debt, notes payable and long-term debt-current portion.
-27-
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this Current Report on Form 8-K to
be signed on its behalf by the undersigned hereunto duly authorized.
ELIZABETHTOWN WATER COMPANY
By: /s/ Gail P. Brady
_____________________________
Gail P. Brady
Vice President - Controller
Date: February 28, 1994
-28-
Exhibit 12
Elizabethtown Water Company & Subsidiary
Computation of Ratio of Earnings to Fixed Charges
and Preferred Dividends
1989 1990 1991 1992 1993
________ ________ ________ ________ ________
EARNINGS:
Income before
preferred stock
dividends $7,124,469 $7,978,778 $11,361,063 $12,149,343 $14,832,519
Federal income taxes 3,343,747 3,990,799 5,630,265 6,021,464 7,916,794
Interest charges 9,207,026 10,582,686 11,016,414 10,623,801 11,437,710
___________ ___________ ___________ ___________ ___________
Earnings available
to cover fixed
charges $19,675,242 $22,552,263 $28,007,742 $28,794,608 $34,187,023
___________ ___________ ___________ ___________ ___________
___________ ___________ ___________ ___________ ___________
FIXED CHARGES AND
PREFERRED DIVIDENDS:
Interest on long
term debt 8,769,218 9,587,723 10,585,336 10,516,521 11,527,301
Preferred dividend
requirement (1) 1,543,097 1,575,158 1,570,446 1,570,446 1,610,429
Other interest 864,984 1,187,500 535,834 514,122 77,921
Amortization of debt
discount - net 71,340 279,103 287,180 209,631 224,383
___________ ___________ ___________ ___________ ___________
Total fixed charges $11,248,639 $12,629,484 $12,978,796 $12,810,720 $13,440,034
___________ ___________ ___________ ___________ ___________
___________ ___________ ___________ ___________ ___________
Ratio of Earnings to
Fixed Charges and
Preferred Dividends 1.75 1.79 2.16 2.25 2.54
___________ ___________ ___________ ___________ ___________
___________ ___________ ___________ ___________ ___________
(1) Preferred Dividend
Requirement:
Preferred dividends $1,050,232 $1,050,000 $1,050,000 $1,050,000 $1,050,000
Effective tax rate 31.94% 33.34% 33.14% 33.14% 34.80%
___________ ___________ ___________ ___________ ___________
Preferred dividend
requirement $1,543,097 $1,575,158 $1,570,446 $1,570,446 $1,610,429
___________ ___________ ___________ ___________ ___________
___________ ___________ ___________ ___________ ___________
Earnings to Fixed Charges and Preferred Dividends represents the sum of Income
Income Before Preferred Stock Dividends, Federal income taxes and interest
expenses (which is reduced by capitalized interest), divided by fixed charges.
Fixed Carges and Preferred Dividends consist of interest on long and short-term
debt (which is not reduced by capitalized interest), dividends on Preferred
Stock on a pre-tax basis and amortization of debt discount.
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement
Nos. 33-51917 and 33-68578 of Elizabethtown Water Company on Forms S-3
of our report dated February 15, 1994, except for the subsequent event
discussed in Note 8, as to which the date is February 23, 1994,
appearing in this Current Report on Form 8-K of Elizabethtown Water
Company for the year ended December 31, 1993.
/s/ Deloitte & Touche
Parsippany, New Jersey
February 28, 1994
