FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
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 0-18595
E'TOWN CORPORATION
(Exact name of registrant as specified in its charter)
New Jersey 22-2596330
(State of incorporation) (I.R.S. Employer Identification No.)
600 South Avenue
Westfield, New Jersey 07090
(Address of principal executive offices) (Zip)
Registrant's telephone number including area code: (908) 654-1234
Title of each class Name of each exchange on which registered
Common Stock, without par value New York Stock Exchange
Commission file number 0-628
ELIZABETHTOWN WATER COMPANY
(Exact name of registrant as specified in its charter)
New Jersey 22-1683171
(State of incorporation) (I.R.S. Employer Identification No.)
600 South Avenue
Westfield, New Jersey 07090
(Address of principal executive offices) (Zip)
Registrant's telephone number including area code: (908) 654-1234
Title of each class Name of each exchange on which registered
Common stock, without par value None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the Registrant's classes
of Common Stock as of the latest practicable date.
Outstanding at
Class of Common Stock March 31, 1994
E'town Corporation
without par value 5,700,712
E'TOWN CORPORATION
ELIZABETHTOWN WATER COMPANY
INDEX
_____
_______________________________________________________________________
PART I - FINANCIAL INFORMATION PAGE
______________________________ ____
Item 1. Financial Statements
E'TOWN CORPORATION AND SUBSIDIARIES
___________________________________
- Statements of Consolidated Income 1-2
- Consolidated Balance Sheets 3
- Statements of Consolidated Capitalization 5
- Statements of Consolidated Cash Flows 6-7
- Statements of Consolidated Shareholders' Equity 8
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
__________________________________________
- Statements of Consolidated Income 9-10
- Consolidated Balance Sheets 11
- Statements of Consolidated Capitalization 13
- Statements of Consolidated Cash Flows 14-15
- Statements of Consolidated Shareholder's Equity 16
E'TOWN CORPORATION AND SUBSIDIARIES AND
_______________________________________
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
__________________________________________
- Notes to Consolidated Financial Statements 17
Item 2. Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations 19
PART II - OTHER INFORMATION
___________________________
Items 1 - 5 25
Item 6.(a) - Exhibits 25
(b) - Reports on Form 8-K 25
SIGNATURES 26
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
Three Months Ended
March 31,
1994 1993
____________ ___________
Operating Revenues $ 24,657,389 $ 22,135,655
____________ ____________
Operating Expenses:
Operation 10,366,988 8,955,066
Maintenance 1,574,009 1,357,330
Depreciation 1,928,865 1,799,583
Revenue taxes 3,096,397 2,781,544
Real estate, payroll and other taxes 741,735 834,836
Federal income taxes 1,436,856 1,050,260
____________ ____________
Total operating expenses 19,144,850 16,778,619
____________ ____________
Operating Income 5,512,539 5,357,036
____________ ____________
Other Income:
Allowance for equity funds used
during construction 153,874 82,324
Write-down of non-utility property
and other investments (Note 5) (189,722) (85,526)
Federal income taxes (24,495) (9,834)
Other - net 107,887 32,127
0
____________ ____________
Total other income 47,544 19,091
____________ ____________
Total Operating and Other Income 5,560,083 5,376,127
____________ ____________
Interest Charges:
Interest on long-term debt 2,900,676 3,118,949
Other interest expense - net 3,504 38,227
Capitalized interest (215,659) (186,261)
Amortization of debt discount - net 85,582 62,801
____________ ____________
Total interest charges 2,774,103 3,033,716
____________ ____________
Income Before Preferred Stock Dividends
of Subsidiary 2,785,980 2,342,411
Preferred Stock Dividends 249,267 262,500
____________ ____________
Net Income $ 2,536,713 $ 2,079,911
____________ ____________
____________ ____________
Earnings Per Share of Common Stock:
Primary $ .45 $ .42
____________ ____________
____________ ____________
Fully Diluted $ .45 $ .42
____________ ____________
____________ ____________
Average Number of Shares Outstanding for
the Calculation of Earnings Per Share:
Primary 5,683,286 4,898,176
____________ ____________
____________ ____________
Fully Diluted 5,994,299 4,898,176
____________ ____________
____________ ____________
Dividends Paid Per Common Share $ .51 $ .50
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-1-
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
Twelve Months Ended
March 31,
1994 1993
____________ ___________
Operating Revenues $102,517,854 $ 90,500,204
___________ ____________
Operating Expenses:
Operation 40,692,842 36,084,377
Maintenance 5,932,836 5,730,833
Depreciation 7,414,591 6,842,680
Revenue taxes 12,816,657 11,276,310
Real estate, payroll and other taxes 2,613,346 2,626,835
Federal income taxes 7,557,002 5,409,135
___________ ____________
Total operating expenses 77,027,274 67,970,170
___________ ____________
Operating Income 25,490,580 22,530,034
___________ ____________
Other Income:
Gain on sale of land 1,685,521
Allowance for equity funds used
during construction 516,889 543,299
Write-down of non-utility property
and other investments (Note 5) (373,511) (265,526)
Federal income taxes (804,981) (96,233)
Other - net 472,275 5,267
____________ ____________
Total other income 1,496,193 186,807
____________ ____________
Total Operating and Other Income 26,986,773 22,716,841
____________ ____________
Interest Charges:
Interest on long-term debt 12,155,951 11,650,104
Other interest expense - net 61,125 511,984
Capitalized interest (835,280) (1,085,303)
Amortization of debt discount - net 281,580 246,389
____________ ____________
Total interest charges 11,663,376 11,323,174
____________ ____________
Income Before Preferred Stock Dividends
of Subsidiary 15,323,397 11,393,667
Preferred Stock Dividends 1,036,767 1,050,000
____________ ____________
Net Income $ 14,286,630 $ 10,343,667
____________ ____________
____________ ____________
Earnings Per Share of Common Stock:
Primary $ 2.58 $ 2.15
____________ ____________
____________ ____________
Fully Diluted $ 2.54 $ 2.13
____________ ____________
____________ ____________
Average Number of Shares Outstanding for
the Calculation of Earnings Per Share:
Primary 5,531,527 4,800,182
____________ ____________
____________ ____________
Fully Diluted 5,844,241 5,120,282
____________ ____________
____________ ____________
Dividends Paid Per Common Share $ 2.02 $ 2.00
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-2-
E'TOWN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
Assets 1994 1993
____________ ____________
Utility Plant-At original cost:
Utility plant in service $439,621,089 $438,178,824
Construction work in progress 20,136,829 17,242,088
____________ ____________
Total utility plant 459,757,918 455,420,912
Less accumulated depreciation and amortization 83,982,627 82,128,023
____________ ____________
Utility plant-net 375,775,291 373,292,889
____________ ____________
Non-utility Property and Other
Investments - Net (Note 5) 13,479,624 13,545,589
____________ ____________
Funds Held by Trustee for Construction
Expenditures 284 382,306
____________ ____________
Current Assets:
Cash and cash equivalents 7,282,070 7,376,472
Short-term investments 30,622 30,622
Customer and other accounts receivable
(less reserve: 1994, $380,638; 1993, $434,000) 11,925,984 12,031,414
Unbilled revenues 7,234,057 7,248,322
Materials and supplies-at average cost 1,712,004 1,623,702
Prepaid insurance, taxes, other 1,348,100 1,603,955
____________ ____________
Total current assets 29,532,837 29,914,487
____________ ____________
Deferred Charges:
Prepaid pension expense 973,107 962,595
Abandonments 133,085 152,097
Waste residual management 522,138 587,589
Taxes recoverable through future rates 26,643,663 26,643,663
Unamortized debt expenses 8,573,826 8,648,030
Postretirement benefit expense 1,238,339 1,004,556
Other unamortized expenses 1,946,465 598,179
____________ ____________
Total deferred charges 40,030,623 38,596,709
____________ ____________
Total $458,818,659 $455,731,980
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-3-
E'TOWN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
Capitalization and Liabilities 1994 1993
____________ ____________
Capitalization (Note 3):
Common shareholders' equity $129,795,240 $128,374,207
Cumulative preferred stock - redeemable 12,000,000 12,000,000
Long-term debt - net 154,343,257 154,406,533
____________ ____________
Total capitalization 296,138,497 294,780,740
____________ ____________
Current Liabilities:
Long-term debt - current portion 42,000 42,000
Accounts payable and other liabilities 6,467,267 9,645,055
Customers' deposits 281,832 276,497
Municipal and state taxes accrued 15,544,598 12,569,445
Federal income taxes accrued 1,301,578 947,274
Interest accrued 2,876,134 3,052,160
Preferred stock dividends accrued 35,111 89,178
____________ ____________
Total current liabilities 26,548,520 26,621,609
____________ ____________
Deferred Credits:
Customers' advances for construction 45,953,613 45,149,522
Federal income taxes 59,001,365 58,363,510
State income taxes 151,538 151,538
Unamortized investment tax credits 8,819,153 8,852,487
Emergency water projects 96,858 127,704
Accumulated postretirement benefits 1,250,017 1,015,004
____________ ____________
Total deferred credits 115,272,544 113,659,765
____________ ____________
Contributions in Aid of Construction 20,859,098 20,669,866
____________ ____________
Commitments and Contingent Liabilities (Note 7)
____________ ____________
Total $458,818,659 $455,731,980
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-4-
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CAPITALIZATION
March 31, December 31,
1994 1993
___________ ___________
E'town Corporation:
Common Shareholders' Equity (Note 3):
Common stock without par value, authorized,
15,000,000 shares; issued 1994, 5,722,744
shares; 1993, 5,661,504 shares $ 89,619,976 $ 87,842,657
Paid-in capital 1,315,025 1,315,025
Capital stock expense (3,357,165) (3,357,165)
Retained earnings 42,851,380 43,207,666
Less cost of treasury stock; 1994 and
1993, 22,032 shares (633,976) (633,976)
____________ ____________
Total common shareholders' equity 129,795,240 128,374,207
____________ ____________
Elizabethtown Water Company:
Cumulative Preferred Stock-Redeemable:
$100 par value, authorized, 200,000
shares; $5.90 series, issued and
outstanding, 120,000 shares (Note 3) 12,000,000
____________
Cumulative Preferred Stock-Redeemable:
$100 par value, authorized, 200,000
shares; $8.75 series, issued and
outstanding, 120,000 shares (Note 3) 12,000,000
____________
Cumulative Preferred Stock:
$25 par value, authorized, 500,000 shares;
none issued
Long-Term Debt:
E'town Corporation:
6 3/4% Convertible Subordinated Debentures,
due 2012 12,434,000 12,497,000
Elizabethtown Water Company:
7.20% Debentures, due 2019 10,000,000 10,000,000
7 1/2% Debentures, due 2020 15,000,000 15,000,000
6.60% Debentures, due 2021 10,500,000 10,500,000
6.70% Debentures, due 2021 15,000,000 15,000,000
8 3/4% Debentures, due 2021 27,500,000 27,500,000
8% Debentures, due 2022 15,000,000 15,000,000
7 1/4% Debentures, due 2028 50,000,000 50,000,000
The Mount Holly Water Company:
Notes Payable (due serially through 2000) 175,800 186,300
____________ ____________
Total long-term debt 155,609,800 155,683,300
Unamortized discount-net (1,266,543) (1,276,767)
____________ ____________
Total long-term debt-net 154,343,257 154,406,533
____________ ____________
Total capitalization $296,138,497 $294,780,740
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-5-
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
Three Months Ended
March 31,
1994 1993
___________ ___________
Cash Flows from Operating Activities:
Net Income $ 2,536,713 $ 2,079,911
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,928,865 1,799,583
Write-down of non-utility property and other
investments 189,722 85,526
Increase in deferred charges (1,200,131) (624,814)
Deferred income taxes and investment tax
credits - net 604,521 667,786
Capitalized interest and AFUDC (369,533) (268,585)
Other operating activities-net (16,503) 2,102
Change in current assets and current liabilities
excluding cash, short-term investments and
current portion of debt:
Customer and other accounts receivable 105,430 (235,017)
Unbilled revenues 14,265 (17,591)
Accounts payable and other liabilities (3,226,520) (3,357,626)
Accrued/prepaid interest and taxes 3,409,286 2,520,750
Other (88,302) (61,478)
____________ ____________
Net cash provided by operating activities 3,887,813 2,590,547
____________ ____________
Cash Flows Provided by Financing Activities:
Decrease in funds held by Trustee for
construction expenditures 382,022 768,153
Proceeds from issuance of common stock 1,777,319 1,462,829
Repayment of long-term debt (73,500) (133,500)
Contributions and advances for construction-net 993,323 916,895
Net increase in notes payable - banks 0 1,500,000
Dividends paid on common stock (2,892,999) (2,444,576)
____________ ____________
Net cash provided by financing activities 186,165 2,069,801
____________ ____________
Cash Flows Used for Investing Activities:
Utility plant expenditures (excluding allowance
for funds used during construction) (4,136,238) (4,950,532)
Development costs of land (32,142) (32,267)
____________ ____________
Cash used for investing activities (4,168,380) (4,982,799)
____________ ____________
Net Increase (Decrease) in Cash and Cash Equivalents (94,402) (322,451)
Cash and Cash Equivalents at Beginning of Period 7,376,472 2,408,429
____________ ____________
Cash and Cash Equivalents at End of Period $ 7,282,070 $ 2,085,978
____________ ____________
____________ ____________
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 2,710,702 $ 3,380,766
Income taxes $ 1,025,000 $ 700,000
Preferred stock dividends $ 303,334 $ 262,500
See Notes to Consolidated Financial Statements.
-6-
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
Twelve Months Ended
March 31,
1994 1993
___________ ___________
Cash Flows from Operating Activities:
Net Income $ 14,286,630 $ 10,343,667
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 7,414,591 6,842,680
Write-down of non-utility property and other
investments 373,511 265,526
Gain on sale of land (1,685,521) 0
Increase in deferred charges (3,409,282) (14,643)
Deferred income taxes and investment tax
credits - net 3,210,789 3,478,782
Capitalized interest and AFUDC (1,352,169) (1,628,602)
Other operating activities-net (494,362) 10,874
Change in current assets and current liabilities
excluding cash, short-term investments and
current portion of debt:
Customer and other accounts receivable (658,070) (380,731)
Unbilled revenues (656,745) (281,711)
Accounts payable and other liabilities 793,943 (872,595)
Accrued/prepaid interest and taxes 2,172,491 (1,608,624)
Other 51,832 36,662
____________ ____________
Net cash provided by operating activities 20,047,638 16,191,285
____________ ____________
Cash Flows Provided by Financing Activities:
Decrease in funds held by Trustee for
construction expenditures 8,133,746 10,362,760
Proceeds from issuance of debentures 50,000,000 15,000,000
Proceeds from issuance of common stock 22,959,337 17,989,501
Repayment of long-term debt (50,185,000) (505,000)
Contributions and advances for construction-net 1,986,333 3,883,536
Net decrease in notes payable - banks (8,000,000) (21,750,000)
Dividends paid on common stock (11,298,784) (9,630,602)
____________ ____________
Net cash provided by financing activities 13,595,632 15,350,195
____________ ____________
Cash Flows Used for Investing Activities:
Utility plant expenditures (excluding allowance
for funds used during construction) (31,702,461) (33,970,940)
Development costs of land (194,717) (289,220)
Proceeds from sale of land 3,450,000 0
____________ ____________
Cash used for investing activities (28,447,178) (34,260,160)
____________ ____________
Net Increase (Decrease) in Cash and Cash Equivalents 5,196,092 (2,718,680)
Cash and Cash Equivalents at Beginning of Period 2,085,978 4,804,658
____________ ____________
Cash and Cash Equivalents at End of Period $ 7,282,070 $ 2,085,978
____________ ____________
____________ ____________
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 11,626,444 $ 12,894,499
Income taxes $ 6,206,008 $ 4,179,567
Preferred stock dividends $ 1,090,834 $ 1,050,000
See Notes to Consolidated Financial Statements.
-7-
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
Three Months Year
Ended Ended
March 31, December 31,
1994 1993
____________ ____________
Common Stock:
Balance at Beginning of Period $ 87,842,657 $ 64,261,763
Public sale of common stock (1993,
575,000 shares) 17,465,625
Common stock issued under Dividend
Reinvestment and Stock Purchase Plan
(1994, 61,240 shares; 1993, 200,878 shares) 1,777,319 6,009,298
Exercise of stock options (1993, 4,050 shares) 105,971
____________ ____________
Balance at End of Period 89,619,976 87,842,657
____________ ____________
Paid-in Capital: 1,315,025 1,315,025
____________ ____________
Capital Stock Expense:
Balance at Beginning of Period (3,357,165) (2,479,987)
Expenses incurred for the issuance and
sale of common stock (877,178)
____________ ____________
Balance at End of Period (3,357,165) (3,357,165)
____________ ____________
Retained Earnings:
Balance at Beginning of Period 43,207,666 40,228,199
Net Income 2,536,713 13,829,828
Dividends on common stock (1994,
$.51; 1993 $2.01) (2,892,999) (10,850,361)
____________ ____________
Balance at End of Period 42,851,380 43,207,666
____________ ____________
Treasury Stock:
Balance at Beginning of Period (633,976) (575,107)
Cost of shares redeemed to exercise stock
options (1993, 1,676 shares) (58,869)
____________ ____________
Balance at End of Period (633,976) (633,976)
____________ ____________
____________ ____________
Total Common Shareholders' Equity $129,795,240 $128,374,207
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-8-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED INCOME
Three Months Ended
March 31,
1994 1993
____________ ___________
Operating Revenues $ 24,657,389 $ 22,135,655
____________ ____________
Operating Expenses:
Operation 10,214,079 8,782,425
Maintenance 1,574,009 1,357,330
Depreciation 1,928,865 1,799,583
Revenue taxes 3,096,397 2,781,544
Real estate, payroll and other taxes 730,848 682,335
Federal income taxes 1,534,387 1,267,692
____________ ____________
Total operating expenses 19,078,585 16,670,909
____________ ____________
Operating Income 5,578,804 5,464,746
____________ ____________
Other Income:
Allowance for equity funds used
during construction 153,874 82,324
Federal income taxes (79,207) (40,014)
Other - net 79,087 35,362
____________ ____________
Total other income 153,754 77,672
____________ ____________
Total Operating and Other Income 5,732,558 5,542,418
____________ ____________
Interest Charges:
Interest on long-term debt 2,693,373 2,904,636
Other interest expense - net 3,504 25,525
Allowance for debt funds used
during construction (122,807) (78,919)
Amortization of debt discount - net 76,978 54,197
____________ ____________
Total interest charges 2,651,048 2,905,439
____________ ____________
Income Before Preferred Stock Dividends 3,081,510 2,636,979
Preferred Stock Dividends 249,267 262,500
____________ ____________
Earnings Applicable to Common Stock $ 2,832,243 $ 2,374,479
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-9-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED INCOME
Twelve Months Ended
March 31,
1994 1993
____________ ___________
Operating Revenues $102,517,854 $ 90,500,204
____________ ____________
Operating Expenses:
Operation 39,960,803 35,374,583
Maintenance 5,932,836 5,730,833
Depreciation 7,414,591 6,842,680
Revenue taxes 12,816,657 11,276,310
Real estate, payroll and other taxes 2,562,404 2,445,984
Federal income taxes 7,925,465 5,908,701
____________ ____________
Total operating expenses 76,612,756 67,579,091
____________ ____________
Operating Income 25,905,098 22,921,113
____________ ____________
Other Income:
Gain on sale of land 122,400
Allowance for equity funds used
during construction 516,889 543,299
Federal income taxes (297,217) (194,003)
Other - net 213,199 27,294
____________ ____________
Total other income 555,271 376,590
____________ ____________
Total Operating and Other Income 26,460,369 23,297,703
____________ ____________
Interest Charges:
Interest on long-term debt 11,316,038 10,784,725
Other interest expense - net 55,900 475,210
Allowance for debt funds used
during construction (435,783) (538,408)
Amortization of debt discount - net 247,164 211,973
____________ ____________
Total interest charges 11,183,319 10,933,500
____________ ____________
Income Before Preferred Stock Dividends 15,277,050 12,364,203
Preferred Stock Dividends 1,036,767 1,050,000
____________ ____________
Earnings Applicable to Common Stock $ 14,240,283 $ 11,314,203
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-10-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
Assets 1994 1993
____________ ____________
Utility Plant - At original cost:
Utility plant in service $439,621,089 $438,178,824
Construction work in progress 20,136,829 17,242,088
____________ ____________
Total utility plant 459,757,918 455,420,912
Less accumulated depreciation and amortization 83,982,627 82,128,023
____________ ____________
Utility plant - net 375,775,291 373,292,889
____________ ____________
Non-utility Property 87,032 87,582
____________ ____________
Funds Held by Trustee for Construction
Expenditures 284 382,306
____________ ____________
Current Assets:
Cash and cash equivalents 2,781,528 3,263,456
Customer and other accounts receivable
(less reserve: 1994, $380,638; 1993, $434,000) 11,146,019 11,887,985
Unbilled revenues 7,234,057 7,248,322
Materials and supplies-at average cost 1,712,004 1,623,702
Prepaid insurance, taxes, other 1,348,100 1,603,955
____________ ____________
Total current assets 24,221,708 25,627,420
____________ ____________
Deferred Charges:
Prepaid pension expense 1,016,657 1,003,145
Abandonments 133,085 152,097
Waste residual management 522,138 587,589
Unamortized debt expenses 7,960,077 8,025,677
Other unamortized expenses 1,946,295 598,179
Postretirement benefit expense 1,238,339 1,004,556
Taxes recoverable through future rates 26,643,663 26,643,663
____________ ____________
Total deferred charges 39,460,254 38,014,906
____________ ____________
Total $439,544,569 $437,405,103
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-11-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
Capitalization and Liabilities 1994 1993
____________ ____________
Capitalization:
Common shareholder's equity $125,704,223 $125,764,979
Cumulative preferred stock - redeemable 12,000,000 12,000,000
Long-term debt - net 141,909,257 141,909,533
____________ ____________
Total capitalization 279,613,480 279,674,512
____________ ____________
Current Liabilities:
Notes payable - banks
Long-term debt - current portion 42,000 42,000
Accounts payable and other liabilities 6,477,057 9,589,716
Customers' deposits 281,832 276,497
Municipal and state taxes accrued 15,544,477 12,569,445
Federal income taxes accrued 1,219,969 704,771
Interest accrued 2,737,742 2,699,483
Preferred stock dividends accrued 35,111 89,178
____________ ____________
Total current liabilities 26,338,188 25,971,090
____________ ____________
Deferred Credits:
Customers' advances for construction 45,953,613 45,149,522
Federal income taxes 56,625,840 55,955,366
Unamortized investment tax credits 8,819,153 8,852,487
Emergency water projects 96,858 127,704
Accumulated postretirement benefits 1,238,339 1,004,556
____________ ____________
Total deferred credits 112,733,803 111,089,635
____________ ____________
Contributions in Aid of Construction 20,859,098 20,669,866
____________ ____________
Commitments and Contingent Liabilities (Note 7)
____________ ____________
Total $439,544,569 $437,405,103
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-12-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED CAPITALIZATION
March 31, December 31,
1994 1993
___________ ____________
Common Shareholder's Equity:
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 63,522,594
Capital stock expense (484,702) (484,702)
Retained earnings 46,925,729 46,986,485
____________ ____________
Total common shareholder's equity 125,704,223 125,764,979
____________ ____________
Cumulative Preferred Stock - Redeemable:
$100 par value, authorized, 200,000
shares; $5.90 series, issued and
outstanding, 120,000 shares 12,000,000
____________
Cumulative Preferred Stock - Redeemable:
$100 par value, authorized, 200,000
shares; $8.75 series, issued and
outstanding, 120,000 shares 12,000,000
____________
Cumulative Preferred Stock:
$25 par value, authorized, 500,000 shares;
none issued
Long-Term Debt:
Elizabethtown Water Company:
7.20% Debentures, due 2019 10,000,000 10,000,000
7 1/2% Debentures, due 2020 15,000,000 15,000,000
6.60% Debentures, due 2021 10,500,000 10,500,000
6.70% Debentures, due 2021 15,000,000 15,000,000
8 3/4% Debentures, due 2021 27,500,000 27,500,000
8% Debentures, due 2022 15,000,000 15,000,000
7 1/4% Debentures, due 2028 50,000,000 50,000,000
The Mount Holly Water Company:
Notes Payable (due serially through 2000) 175,800 186,300
____________ ____________
Total long-term debt 143,175,800 143,186,300
Unamortized discount - net (1,266,543) (1,276,767)
____________ ____________
Total long-term debt - net 141,909,257 141,909,533
____________ ____________
Total capitalization $279,613,480 $279,674,512
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-13-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED CASH FLOWS
Three Months Ended
March 31,
1994 1993
___________ ___________
Cash Flows from Operating Activities:
Income Before Preferred Stock Dividends $ 3,081,510 $ 2,636,979
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,928,865 1,799,583
Increase in deferred charges (1,211,565) (635,320)
Deferred income taxes and investment tax
credits - net 637,140 589,988
Allowance for debt and equity funds used
during construction (AFUDC) (276,681) (161,243)
Other operating activities-net (18,420) (12,285)
Change in current assets and current liabilities
excluding cash, short-term investments and
current portion of debt:
Customer and other accounts receivable 741,966 445,927
Unbilled revenues 14,265 (17,591)
Accounts payable and other liabilities (3,107,324) (3,331,838)
Accrued/prepaid interest and taxes 3,784,344 2,104,580
Other (88,302) (61,478)
____________ ____________
Net cash provided by operating activities 5,485,798 3,357,302
____________ ____________
Cash Flows Provided by Financing Activities:
Decrease in funds held by Trustee for
construction expenditures 382,022 768,153
Repayment of long-term debt (10,500) (10,500)
Contributions and advances for construction-net 993,323 916,895
Net increase in notes payable - banks 0 1,500,000
Dividends paid on common and preferred stock (3,196,333) (2,707,076)
____________ ____________
Net cash provided by financing activities (1,831,488) 467,472
____________ ____________
Cash Flows Used for Investing Activities:
Utility plant expenditures (excluding allowance
for funds used during construction) (4,136,238) (4,950,532)
____________ ____________
Cash used for investing activities (4,136,238) (4,950,532)
____________ ____________
Net Increase (Decrease) in Cash and Cash Equivalents (481,928) (1,125,758)
Cash and Cash Equivalents at Beginning of Period 3,263,456 2,309,751
____________ ____________
Cash and Cash Equivalents at End of Period $ 2,781,528 $ 1,183,993
____________ ____________
____________ ____________
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 2,381,965 $ 3,044,551
Income taxes $ 1,025,000 $ 700,000
Preferred stock dividends $ 303,334 $ 262,500
See Notes to Consolidated Financial Statements.
-14-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED CASH FLOWS
Twelve Months Ended
March 31,
1994 1993
___________ ___________
Cash Flows from Operating Activities:
Income Before Preferred Stock Dividends $ 15,277,050 $ 12,364,203
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 7,414,591 6,842,680
Gain on sale of land (122,400)
Increase in deferred charges (3,455,216) (148,463)
Deferred income taxes and investment tax
credits - net 3,379,710 2,700,927
Allowance for debt and equity funds used
during construction (AFUDC) (952,672) (1,081,707)
Other operating activities-net (455,927) (183,512)
Change in current assets and current liabilities
excluding cash, short-term investments and
current portion of debt:
Customer and other accounts receivable (544,446) (59,452)
Unbilled revenues (656,745) (281,711)
Accounts payable and other liabilities 893,592 (739,551)
Accrued/prepaid interest and taxes 1,912,505 (2,073,342)
Other (33,694) 36,662
____________ ____________
Net cash provided by operating activities 22,656,348 17,376,734
____________ ____________
Cash Flows Provided by Financing Activities:
Decrease in funds held by Trustee for
construction expenditures 8,133,746 10,362,760
Capital contributed by parent company 19,809,297 15,331,713
Proceeds from issuance of debentures 50,000,000 15,000,000
Repayment of long-term debt (50,042,000) (42,000)
Contributions and advances for construction-net 1,986,333 3,883,536
Net decrease in notes payable - banks (7,000,000) (20,500,000)
Dividends paid on common and preferred stock (12,389,618) (10,680,602)
____________ ____________
Net cash provided by financing activities 10,497,758 13,355,407
____________ ____________
Cash Flows Used for Investing Activities:
Utility plant expenditures (excluding allowance
for funds used during construction) (31,685,971) (33,970,940)
Selling costs of land (1,600) 0
Proceeds from sale of land 131,000 0
____________ ____________
Cash used for investing activities (31,556,571) (33,970,940)
____________ ____________
Net Increase (Decrease) in Cash and Cash Equivalents 1,597,535 (3,238,799)
Cash and Cash Equivalents at Beginning of Period 1,183,993 4,422,792
____________ ____________
Cash and Cash Equivalents at End of Period $ 2,781,528 $ 1,183,993
____________ ____________
____________ ____________
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 11,174,761 $ 12,664,194
Income taxes $ 6,206,008 $ 3,778,793
Preferred stock dividends $ 1,090,834 $ 1,050,000
See Notes to Consolidated Financial Statements.
-15-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED SHAREHOLDER'S EQUITY
Three Months Year
Ended Ended
March 31, December 31,
1994 1993
____________ ____________
Common Stock: $ 15,740,602 $ 15,740,602
____________ ____________
Paid-in Capital:
Balance at Beginning of Period 63,522,594 43,713,297
Capital contributed by parent company 19,809,297
____________ ____________
Balance at End of Period 63,522,594 63,522,594
____________ ____________
Capital Stock Expense: (484,702) (484,702)
____________ ____________
Retained Earnings:
Balance at Beginning of Period 46,986,485 44,054,327
Income Before Preferred Stock
Dividends 3,081,510 14,832,519
Dividends on Common Stock (2,892,999) (10,850,361)
Preferred Stock Dividends (249,267) (1,050,000)
____________ ____________
Balance at End of Period 46,925,729 46,986,485
____________ ____________
Total Common Shareholder's Equity $125,704,223 $125,764,979
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-16-
E'TOWN CORPORATION AND SUBSIDIARIES
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
E'town Corporation (E'town or Corporation), a New Jersey holding
company, is a parent company of Elizabethtown Water Company
(Elizabethtown or Company) and E'town Properties, Inc.
(Properties). The Mount Holly Water Company (Mount Holly) is a
wholly owned subsidiary of Elizabethtown.
2. INTERIM FINANCIAL STATEMENTS
The financial statements reflect all adjustments which, in the
opinion of management, are necessary for a fair presentation.
The notes accompanying the 1993 Annual Report to Shareholders and
the 1993 Form 10-K should be read in conjunction with this
report.
Certain prior year amounts have been reclassified to conform to
the current year presentation.
3. CAPITALIZATION
Common Stock
On April 22, 1994, E'town filed a registration statement with the
Securities and Exchange Commission to issue 600,000 shares of
common stock with estimated net proceeds of $16,528,000. Under
such registration statement, E'town would be permitted to issue
an additional 90,000 shares solely to cover any underwriter
over-allotments. The net proceeds of the issue will be used to
fund a $16,000,000 equity contribution to Elizabethtown.
Elizabethtown will invest this equity contribution on a temporary
basis until needed for future construction expenditures. The
balance of the proceeds will be used to fund working capital
requirements of the Corporation.
During the three months ended March 31, 1994, 61,240 shares
($1,777,319) of common stock were issued under E'town's Dividend
Reinvestment and Stock Purchase Plan.
Cumulative Preferred Stock-Redeemable
On March 16, 1994 Elizabethtown issued 120,000 shares of $100 par
value, $5.90 Cumulative Preferred Stock for proceeds of
$12,000,000 at an effective rate of 7.39%. The proceeds were
used to redeem $12,000,000 of the Company's $8.75 Cumulative
Preferred Stock. The redemption premium of $1,050,000 was paid
from general Company funds.
-17-
4. EARNINGS PER SHARE
Primary earnings per share are computed on the basis of the
weighted average number of shares outstanding, plus common stock
equivalents assuming 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 referred to above. Reference is made to Exhibit 11
for the computations of earnings per share.
5. NON-UTILITY PROPERTY AND OTHER INVESTMENTS
Included in non-utility property and other investments at
March 31, 1994 is an investment of $1,456,473, or $444,271 net of
related deferred taxes, in a limited partnership that owns Solar
Electric Generating System V (SEGS), located in California. In
March 1994, based upon revised projections of future cash
distributions, provided by SEGS management, E'town reduced the
carrying value of the investment by $100,000 in order to present
the investment at management's estimate of its approximate net
realizable value.
Carrying charges on the Mansfield property held by Properties
continue to be capitalized as the property is not yet ready for
its intended use. However, the estimated net realizable value of
the property remains unchanged. Consequently, an adjustment of
$89,722 to reduce the carrying value of the Mansfield property to
its estimated net realizable value has been reflected in the
Statements of Consolidated Income for the three months ended
March 31, 1994 and Consolidated Balance Sheets of E'town.
6. REGULATORY MATTERS
On January 4, 1994, Elizabethtown filed with the New Jersey Board
of Regulatory Commissioners (BRC) for a Purchased Water
Adjustment Clause, a procedure established by BRC Rules, which
would allow Elizabethtown to recover in rates the increase in the
cost of purchased water from the New Jersey Water Supply
Authority (NJWSA) without a complete rate case. The NJWSA gave
notice on April 4, 1994 that effective July 1, 1994 it will
increase charges for water from $220.47 to $229.50 per million
gallons, resulting in an updated request for an increase in rates
of $334,611. The Company expects the BRC to render a decision
prior to July 1994.
7. COMMITMENTS
Elizabethtown has executed a lump-sum contract for the
construction of the Canal Road Water Treatment Plant with the
project's general contractor. The project is currently estimated
to cost $100,000,000, excluding an Allowance for Funds Used
During Construction. Construction is expected to commence in the
spring of 1994 and is estimated to be completed in 1996.
-18-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
E'town Corporation (E'town or Corporation), a New Jersey holding
company, is the parent company of Elizabethtown Water Company
(Elizabethtown or Company) and E'town Properties, Inc. (Properties).
The Mount Holly Water Company (Mount Holly) is a wholly owned subsidiary
of Elizabethtown. The assets and operating results of Elizabethtown
constitute the predominant portions of E'town's assets and operating
results. The following analysis sets forth significant events affecting
the financial condition of E'town and Elizabethtown at March 31, 1994,
and the results of operations for the three and twelve months ended
March 31, 1994 and 1993.
LIQUIDITY AND CAPITAL RESOURCES
Capital Expenditures Program
Consolidated capital expenditures, primarily for water utility
plant, were $4.2 million for the first three months of 1994. Capital
expenditures for the three-year period ending December 31, 1996, are
estimated to be $196.9 million, of which $196.5 million is for
Elizabethtown's utility plant and $.4 million is for real estate-related
expenditures.
Elizabethtown's construction program includes additional mains and
storage facilities necessary to serve existing and future customers. 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
$100.0 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 principal
participants in Elizabethtown's rate cases. 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 are reasonable. The 1993 Plant Stipulation
authorizes Elizabethtown to levy a rate surcharge during the Plant's
construction period if the Company's pre-tax interest coverage ratio for
any 12 month historical period drops below 2.0 times. The surcharge
-19-
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 Elizabethtown's
most recent base rate case. The authorized rate of return on common
stockholder's equity is currently 11.5%.
The Company has executed a lump-sum contract for the construction of the
Plant with the project's general contractor. The estimated cost of the
plant is approximately $100 million, excluding AFUDC. Elizabethtown has
notified all parties to the 1993 Plant Stipulation that the estimated
cost of the Plant has increased. Construction is expected to commence
in the spring of 1994.
CAPITAL RESOURCES
For the three-year period ending December 31, 1996, Elizabethtown,
including Mount Holly, estimates that 15% of its capital expenditures
will be financed with internally generated funds (after payment of common
stock dividends). The balance is expected to be financed with a
combination of proceeds from capital contributions from E'town (funded
by the sale of its Common Stock), future issuances of long-term
debentures, tax-exempt New Jersey Economic Development Authority (NJEDA)
bonds, preferred stock and, on a interim basis, short-term borrowings
under the revolving credit agreement discussed below. 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.
On April 22, 1994, E'town filed a registration statement with the
Securities and Exchange Commission to issue 600,000 shares of common
stock with estimated net proceeds of $16.5 million. Under such
registration statement, E'town would be permitted to issue an additional
90,000 shares solely to cover any underwriter over-allotments. The net
proceeds of the issue will be used to fund a $16.0 million equity
contribution to Elizabethtown. Elizabethtown will invest this equity
contribution on a temporary basis until needed for future construction
expenditures. The balance of the proceeds will be used to fund working
capital requirements of the Corporation.
-20-
On March 16, 1994 Elizabethtown issued 120,000 shares of $100 par
value, $5.90 Cumulative Preferred Stock for proceeds of $12,000,000 at
an effective rate of 7.39%. The proceeds were used to redeem
$12,000,000 of the Company's $8.75 Cumulative Preferred Stock. The
redemption premium of $1,050,000 was paid from general Company funds.
Elizabethtown expects to execute, shortly, a revolving credit
agreement with an agent bank and five additional participating banks to
replace its existing uncommitted lines of credit. The agreement
provides up to $60 million in revolving short-term financing which,
together with internal funds, proceeds of future issuances of debt and
preferred stock and capital contributions from E'town, is expected to be
sufficient to finance Elizabethtown's capital needs, including the
Plant. The agreement will allow Elizabethtown to borrow, repay and
reborrow up to $60 million for the first three years, after which time
Elizabethtown may convert any outstanding balances to a five-year fully
amortizing term loan. The agreement will further provide that, among
other covenants, Elizabethtown 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.
RESULTS OF OPERATIONS
Net Income for the three months ended March 31, 1994 increased over the
comparable 1993 amount due to increased revenues from higher consumption
by retail and wholesale customers and the effect of the March 1993 rate
increase. This increase was partially offset by increases in various
operation and maintenance expenses.
Net income and earnings per share for the twelve months ended March 31,
1994 exceeded the results for the comparable 1993 period because of
higher levels of outdoor water use due to abnormally hot and dry summer
weather, an after-tax gain from a sale of land of $1.1 million and the
effect of the rate increase effective March 1993. The percentage
increase in earnings per share for the twelve months ended March 31,
1994 was less than the percentage increase in net income because of the
additional shares issued during this period. Accordingly, management
does not regard these results of operations for the twelve months ended
March 31, 1994 to be indicative of financial performance for 1994.
Also, earnings per share in 1994 will be further affected by the
increase in the number of common shares outstanding from the upcoming
stock sale discussed above.
Operating Revenues increased $2.5 million or 11.4% and $12.0 million or
13.3% for the three and twelve month periods ended March 31, 1994,
respectively, over the same periods in 1993. The increase for the three
months ended March 31, 1994 is comprised of $1 million from the rate
increase effective March 18, 1993 and increased sales of $1.5 million.
Of the increase for the twelve month period ended March 31, 1994, $4.8
million relates to the rate increase effective March 1993.
-21-
Also, sales to retail customers increased $4.3 million and
sales to other water systems increased $1.6 million. This
increase in sales is due to increased consumption due to
abnormally hot, dry summer weather in 1993.
Operation Expenses rose by $1.4 million or 15.8% and $4.6 million or
12.8% for the three and twelve month periods ended March 31, 1994,
respectively, over the comparable amounts in 1993. These increases in
operating expenses are due to higher quantities of power and raw water
purchased to meet the higher loads and the unit costs of power and
purchased water. Additionally, the cost of labor and other
miscellaneous items increased.
Maintenance Expenses increased $.2 million or 16.0% and or $.2 million
or 3.5% for the three and twelve month periods ended March 31, 1994,
respectively, over the comparable amounts in 1993. These increases in
maintenance expenses are due to fluctuations in routine maintenance at
various operating facilities. In addition, higher than normal expenses
were incurred due to adverse weather conditions during the winter months
of the first quarter of 1994.
Depreciation Expense increased $.3 million or 11.3% and $1.5 million or
13.7% for the three and twelve month periods ended March 31, 1994,
respectively, over the comparable 1993 amounts. This was the result of
additional depreciable plant placed in service during these periods.
Revenue Taxes increased $.3 million or 11.3% and $1.5 million or 13.7%
for the three and twelve month periods ended March 31, 1994,
respectively, over the same periods in 1993 due to higher taxes on the
higher revenues explained above.
Real Estate, Payroll and Other Taxes decreased by less than $.1 million
for the three and twelve month periods ended March 31, 1994 from the
comparable amounts in 1993.
Federal Income Taxes increased $.4 million or 36.8% and $2.1 million or
39.7% for the three and twelve month periods ended March 31, 1994,
respectively, over the comparable 1993 amounts due to the changes in
taxable income discussed previously.
Other Income increased less than $.1 million and $1.3 million for the
three and twelve month periods ended March 31, 1994 over the comparable
1993 amounts. These net increases are comprised of several items.
Included in the net increase in other income for the twelve months ended
March 31, 1994 is a gain on the sale of real estate in August 1993 of
$1.7 million or $1.1 million net of federal income taxes. Other income
decreased by $.1 million for both the three and twelve month periods for
the effect of adjusting the carrying values of certain investments
downward to their estimated net realizable values (see "Economic
-22-
Outlook-Properties"). In addition, minor fluctuations in
the equity component of the Allowance for Funds Used During
Construction resulted from variances in the timing of
construction expenditures. Other fluctuations resulted from
various miscellaneous items, and the federal income taxes
associated with all of the above.
Total Interest Charges decreased $.3 million or 8.6% and increased
$.3 million or 3.0% during the three and twelve month periods ended
March 31, 1994, respectively, relative to the comparable 1993 amounts.
These changes were due primarily to savings from refinancing of
long-term debt in 1993 offset by an increase in interest expense for
long-term debt issued in September 1992.
ECONOMIC OUTLOOK
Consolidated earnings for E'town for the next several years will
be determined primarily by Elizabethtown's ability to generate adequate
earnings and, to a lesser degree, the ability of Properties and E'town
to generate adequate returns on their real estate investments.
Elizabethtown and Subsidiary
Elizabethtown believes that it has sufficient surface and well
water supplies to meet its customers' needs and that it is, 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 be necessary for Elizabethtown to continue
to attract external capital to finance improvements necessary to
maintain safe and adequate service. Future earnings of the Company 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.
Rate increases of approximately 35% in excess of current rates will
be required by Elizabethtown during the period 1994-1996, a major
portion of which will be needed to recover the expected costs of the
Plant. In light of the approval by the BRC of the 1993 Plant
Stipulation, Elizabethtown expects the BRC to grant timely and adequate
rate relief for the Plant, but cannot predict the ultimate outcome of
any rate proceeding.
On January 4, 1994, Elizabethtown filed with the New Jersey Board
of Regulatory Commissioners (BRC) for a Purchased Water Adjustment
Clause, a procedure established by BRC Rules, which would allow
-23-
Elizabethtown to recover in rates the increase in the cost
of purchased water from the New Jersey Water Supply
Authority (NJWSA) without a complete rate case. The NJWSA
gave notice on April 4, 1994 that effective July 1, 1994 it
will increase charges for water from $220.47 to $229.50 per
million gallons, resulting in an updated request for an
increase in rates of approximately $.3 million. The Company
expects the BRC to render a decision prior to July 1994.
Properties
Included in non-utility property and other investments at
March 31, 1994 in the Consolidated Balance Sheets of E'town Corporation
is $11.9 million of investments in various parcels of undeveloped land
in New Jersey. The carrying value of each parcel includes the original
cost plus any real estate taxes, interest and, where applicable, direct
costs capitalized while rezoning or governmental approvals are or were
being sought. Based upon independent appraisals received at various
times prior to, and during 1993, the estimated net realizable value of
each property exceeds its respective carrying value as of March 31,
1994, after the adjustments to the Mansfield property discussed below.
Properties continues to seek permits and more favorable zoning
treatment for its Mansfield property and, therefore, continues to
capitalize various carrying charges. During the second quarter of 1993,
the carrying value of the Mansfield property held by Properties exceeded
its estimated net realizable value and, as a result, carrying charges
incurred after that date were, and continue to be, adjusted monthly.
This is due to the fact that the Mansfield property is not yet ready for
its intended use and, therefore, various carrying charges continue to be
capitalized while, based upon recent appraisals, the market value of the
property has remained constant. An allowance of $.1 million for the
three months ended March 31, 1994, to adjust the carrying value of the
Mansfield property, has been reflected in the Statements of Consolidated
Income and Consolidated Balance Sheets. As Properties expects to
continue capitalizing carrying charges on the Mansfield property until
it is ready for its intended use, further adjustments for these
capitalized carrying charges, reflecting management's estimate of the
net realizable value of the property, should be expected. Such carrying
costs were $.4 million for the twelve months ended March 31, 1994.
Also included in non-utility property and other investments at
March 31, 1994 is an investment of $1.5 million or $.4 million net of
related deferred taxes, in a limited partnership that owns Solar
Electric Generating System V (SEGS), located in California. In March
1994, based upon revised projections of future cash distributions,
provided by SEGS management, E'town reduced the carrying value of the
investment by $.1 million in order to present the investment at
management's estimate of its approximate net realizable value.
The Corporation will continue to monitor the relationship between
the carrying and net realizable values of its properties through updated
appraisals and of its investment in SEGS based upon information provided
by SEGS management through cash flow analysis.
-24-
PART II - OTHER INFORMATION
Items 1 - 5: Nothing to Report.
Item 6(a) - Exhibits
Exhibits to Part I:
Exhibit 11 - E'town Corporation and Subsidiaries - Statement
Regarding Computation of Per Share Earnings
Exhibit 12 - Elizabethtown Water Company and Subsidiary -
Computation of Ratio of Earnings to Fixed Charges
and Preferred Dividends
Exhibits to Part II:
Exhibit 10 - E'town Corporation - Change in Control Agreement
Item 6(b) - Reports on Form 8-K
Items Reported: None
Financial Statements Filed: Elizabethtown Water Company and Subsidiary
and related Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations for the year ended
December 31, 1993.
Date Filed: February 28, 1994
-25-
E'TOWN CORPORATION
ELIZABETHTOWN WATER COMPANY
SIGNATURES
__________
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Date: May 6, 1994 E'TOWN CORPORATION
/s/ Andrew M. Chapman
______________________________________
Andrew M. Chapman
Chief Financial Officer & Treasurer
/s/ Frank Critelli
______________________________________
Frank Critelli
Controller
ELIZABETHTOWN WATER COMPANY
/s/ Gail P. Brady
______________________________________
Gail P. Brady
Vice President - Finance and Treasurer
/s/ Dennis W. Doll
______________________________________
Dennis W. Doll
Controller
-26-
EXHIBIT INDEX
Exhibits to Part I:
Exhibit 11 - E'town Corporation and Subsidiaries - Statement
Regarding Computation of Per Share Earnings
Exhibit 12 - Elizabethtown Water Company and Subsidiary -
Computation of Ratio of Earnings to Fixed Charges
and Preferred Dividends
Exhibits to Part II:
Exhibit 10 - E'town Corporation - Change in Control Agreement
<PAGE>
EXHIBIT 11
Page 1 of 2
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
Three Months Ended
March 31,
1994 1993
_________ _________
PRIMARY
_______
EARNINGS
Income Before Preferred Stock
Dividends of Subsidiary $ 2,785,980 $ 2,342,411
Deduct: Preferred Stock Dividends 249,267 262,500
___________ ___________
Net Income Available for
Common Stock $ 2,536,713 $ 2,079,911
___________ ___________
___________ ___________
SHARES
Weighted Average Number of
Common Shares Outstanding 5,676,970 4,893,386
Assuming Exercise of Options
Reduced by the Number of Shares
Which Could Have Been Purchased
With the Proceeds From Exercise
of Such Options 6,316 4,790
___________ ___________
Weighted Average Number of Common
Shares Outstanding as Adjusted 5,683,286 4,898,176
___________ ___________
___________ ___________
Primary Earnings
Per Share of Common Stock $ 0.45 $ 0.42
___________ ___________
___________ ___________
ASSUMING FULL DILUTION
______________________
EARNINGS
Income Before Preferred Stock
Dividends of Subsidiary 2,785,980 2,342,411
Deduct: Preferred Stock Dividends 249,267 262,500
Add: After Tax Interest Expense
Applicable to 6 3/4% Convertible
Subordinated Debentures 136,659 (b)
___________ ___________
Adjusted Net Income $ 2,673,372 $ 2,079,911
___________ ___________
___________ ___________
SHARES
Weighted Average Number of
Common Shares Outstanding 5,676,970 4,893,386
Assuming Exercise of Options
Reduced by the Number of Shares
Which Could Have Been Purchased
With the Proceeds From Exercise
of Such Options 6,316 4,790
Assuming Conversion of 6 3/4%
Convertible Subordinated
Debentures (a) 311,013 (b)
___________ ___________
Weighted Average Number of Common
Shares Outstanding as Adjusted 5,994,299 4,898,176
___________ ___________
___________ ___________
Fully Diluted Earnings
Per Share of Common Stock $ 0.45 $ 0.42
___________ ___________
___________ ___________
(a) Convertible at $40 per share.
(b) Calculations are not provided as the results are anti-dilutive.
EXHIBIT 11
Page 2 of 2
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
Twelve Months Ended
March 31,
1994 1993
_________ _________
PRIMARY
_______
EARNINGS
Income Before Preferred Stock
Dividends of Subsidiary $15,323,397 $11,393,667
Deduct: Preferred Stock Dividends 1,036,767 1,050,000
___________ ___________
Net Income Available for
Common Stock $14,286,630 $10,343,667
___________ ___________
___________ ___________
SHARES
Weighted Average Number of
Common Shares Outstanding 5,523,853 4,796,931
Assuming Exercise of Options
Reduced by the Number of Shares
Which Could Have Been Purchased
With the Proceeds From Exercise
of Such Options 7,674 3,251
___________ ___________
Weighted Average Number of Common
Shares Outstanding as Adjusted 5,531,527 4,800,182
___________ ___________
___________ ___________
Primary Earnings
Per Share of Common Stock $ 2.58 $ 2.15
___________ ___________
___________ ___________
ASSUMING FULL DILUTION
______________________
EARNINGS
Income Before Preferred Stock
Dividends of Subsidiary 15,323,397 11,393,667
Deduct: Preferred Stock Dividends 1,036,767 1,050,000
Add: After Tax Interest Expense
Applicable to 6 3/4% Convertible
Subordinated Debentures 550,884 570,420
___________ ___________
Adjusted Net Income $14,837,514 $10,914,087
___________ ___________
___________ ___________
SHARES
Weighted Average Number of
Common Shares Outstanding 5,523,853 4,796,931
Assuming Exercise of Options
Reduced by the Number of Shares
Which Could Have Been Purchased
With the Proceeds From Exercise
of Such Options 7,674 3,251
Assuming Conversion of 6 3/4%
Convertible Subordinated
Debentures (a) 312,714 320,100
___________ ___________
Weighted Average Number of Common
Shares Outstanding as Adjusted 5,844,241 5,120,282
___________ ___________
___________ ___________
Fully Diluted Earnings
Per Share of Common Stock $ 2.54 $ 2.13
___________ ___________
___________ ___________
(a) Convertible at $40 per share.
<PAGE>
Exhibit 12
Elizabethtown Water Company & Subsidiary
Computation of Ratio of Earnings to Fixed Charges
and Preferred Dividends
Three Months Ended Twelve Months Ended
March 31, March 31,
1994 1993 1994 1993
________ ________ ________ ________
EARNINGS:
Income before
preferred stock
dividends $3,081,510 $2,636,979 $15,277,050 $12,364,203
Federal income taxes 1,613,594 1,307,706 8,222,682 6,102,704
Interest charges 2,651,048 2,905,439 11,183,319 10,933,500
___________ ___________ ___________ ___________
Earnings available
to cover fixed
charges $7,346,152 $6,850,124 $34,683,051 $29,400,407
___________ ___________ ___________ ___________
___________ ___________ ___________ ___________
FIXED CHARGES AND
PREFERRED DIVIDENDS:
Interest on long
term debt 2,693,373 2,904,636 11,316,038 10,784,725
Preferred dividend
requirement (1) 379,806 392,670 1,594,781 1,568,335
Other interest 3,504 25,525 55,900 475,210
Amortization of debt
discount - net 76,978 54,197 247,164 211,973
___________ ___________ ___________ ___________
Total fixed charges $3,153,661 $3,377,028 $13,213,883 $13,040,243
___________ ___________ ___________ ___________
___________ ___________ ___________ ___________
Ratio of Earnings to
Fixed Charges and
Preferred Dividends 2.33 2.03 2.62 2.25
___________ ___________ ___________ ___________
___________ ___________ ___________ ___________
(1) Preferred Dividend
Requirement:
Preferred dividends $249,267 $262,500 $1,036,767 $1,050,000
Effective tax rate 34.37% 33.15% 34.99% 33.05%
___________ ___________ ___________ ___________
Preferred dividend
requirement $379,806 $392,670 $1,594,781 $1,568,335
___________ ___________ ___________ ___________
___________ ___________ ___________ ___________
Earnings to Fixed Charges and Preferred Dividends represents the sum of
Income Before Preferred Stock Dividends, Federal income taxes and interest
expenses (which is reduced by capitalized interest), divided by fixed charges.
Fixed Charges 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.
CHANGE IN CONTROL AGREEMENT Exhibit 10
THIS AGREEMENT dated and entered into effective as of the
21st day of April, 1994, by and between E'town Corporation, a
New Jersey corporation (together with its affiliated companies, the
"Company"), and Andrew M. Chapman, residing at 22 Hawthorne Road,
Short Hills, New Jersey 07078 (the "Executive").
W I T N E S S E T H:
WHEREAS, should the Company receive a proposal from or
engage in discussions with a third person concerning a possible
business combination with or the acquisition of a substantial
portion of voting securities of the Company, the Board of Directors
of the Company (the "Board") has deemed it imperative that it and
the Company be able to rely on the Executive to continue to serve
in his position and that the Board and the Company be able to rely
upon his advice as being in the best interests of the Company and
its shareholders without concern that the Executive might be
distracted by the personal uncertainties and risks that such a
proposal or discussions might otherwise create; and
WHEREAS, the Company desires to reward the Executive for
his valuable, dedicated service to the Company should his service
be terminated under circumstances hereinafter described; and
WHEREAS, the Board therefore considers it in the best
interests of the Company and its shareholders for the Company to
enter into this Change in Control Agreement with the Executive;
NOW, THEREFORE, to assure the Company of the Executive's
continued dedication and the availability of his advice and counsel
in the event of any such proposal, to induce the Executive to re-
main in the employ of the Company and to reward the Executive for
his valuable, dedicated service to the Company should his service
be terminated under circumstances hereinafter described, and for
other good and valuable consideration, the receipt and adequacy
whereof each party acknowledges, the Company and the Executive
agree as follows:
1. OPERATION, EFFECTIVE DATE, AND TERM OF AGREEMENT.
(a) This Agreement shall commence on the date hereof and
continue in effect through December 31, 1995; provided, however,
that commencing on January 1, 1996 and each succeeding January 1
thereafter, the term of this Agreement shall be extended automatic-
ally for one additional year unless not later than September 30 of
the preceding year the Company shall have given notice to the
Executive that it does not wish to extend this Agreement.
(b) This Agreement is effective and binding on both
parties hereto as of the date hereof. Notwithstanding its present
effectiveness, the provisions of paragraphs 3 and 4 of this
Agreement shall become operative only when, as and if there has
been a "Change in Control of the Company" (as hereinafter defined).
For purposes of this Agreement, a "Change in Control of the
Company" shall be deemed to have occurred if
(X) any "person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), other than a trustee or
other fiduciary holding securities under an employee
benefit plan of the Company or a person engaging in a
transaction of the type described in clause (Z) of this
subsection but which does not constitute a change in con-
trol under such clause, hereafter becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company
representing more than 50% of the combined voting power
of the Company's then outstanding securities; or
(Y) during any period of twenty-four consecutive
months during the term of this Agreement, individuals who
at the beginning of such period constitute the Board and
any new director (other than a director designated by a
person who has entered into an agreement with the Company
to effect a transaction described in clauses (X) or (Z)
of this subsection) whose election by the Board, or nomin-
ation for election by the Company shareholders, was
approved by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors
at the beginning of the period or whose election or nom-
ination for election was previously so approved ("Contin-
uing Members"), cease for any reason to constitute a
majority thereof; or
(Z) the shareholders of the Company approve or, if no
shareholder approval is required or obtained, the Company
completes a merger, consolidation or similar transaction
of the Company with or into any other corporation, or a
binding share exchange involving the Company's secur-
ities, other than any such transaction which would result
in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either
by remaining outstanding or by being converted into
voting securities of the surviving entity) at least 75%
of the combined voting power of the voting securities of
the Company or such surviving entity outstanding
immediately after such transaction, or the shareholders
of the Company approve a plan of complete liquidation of
the Company or an agreement for the sale or disposition
by the Company of all or substantially all the Company's
assets.
2. EMPLOYMENT OF EXECUTIVE.
Nothing herein shall affect any right which the Executive
or the Company may otherwise have to terminate the Executive's
employment by the Company at any time in any lawful manner, subject
always to the Company's providing to the Executive the payments and
benefits specified in paragraphs 3 and 4 of this Agreement to the
extent hereinbelow provided.
In the event any person commences a tender or exchange
offer, circulates a proxy statement to the Company's shareholders
or takes other steps designed to effect a Change in Control of the
Company as defined in paragraph 1 of this Agreement, the Executive
agrees that he will not voluntarily leave the employ of the Company
and will continue to perform his regular duties and to render the
services provided by the Executive to the Company until such person
has abandoned or terminated his efforts to effect a Change in
Control of the Company or until a Change in Control of the Company
has occurred. Should the Executive voluntarily terminate his
employment before any such effort to effect a Change in Control of
the Company has commenced, or after any such effort has been
abandoned or terminated without effecting a Change in Control of
the Company and no such effort is then in process, this Agreement
shall automatically terminate and be of no further force or effect.
3. TERMINATION FOLLOWING CHANGE IN CONTROL.
(a) If any of the events described in paragraph 1 hereof
constituting a Change in Control of the Company shall have occur-
red, the Executive shall be entitled to the benefits provided in
paragraph 4 hereof upon the subsequent termination of his employ-
ment within the applicable period set forth in paragraph 4 hereof
following such Change in Control of the Company unless such termin-
ation is (i) due to the Executive's death; or (ii) by the Company
by reason of the Executive's Disability (as hereinafter defined) or
for Cause (as hereinafter defined); or (iii) by the Executive other
than for Good Reason (as hereinafter defined).
(b) If following a Change in Control of the Company the
Executive's employment is terminated by reason of his death or Dis-
ability, the Executive shall be entitled to death or long-term dis-
ability benefits, as the case may be, from the Company no less
favorable than the maximum benefits to which he would have been
entitled had the death or termination for Disability occurred at
any time during the six month period prior to the Change in Control
of the Company. If prior to any such termination for Disability,
the Executive fails to perform his duties as a result of incapacity
due to physical or mental illness, he shall continue to receive his
Salary (as hereinafter defined) less any benefits as may be
available to him under the Company's disability plans until his
employment is terminated for Disability.
(c) If the Executive's employment shall be terminated by
the Company for Cause or by the Executive other than for Good
Reason, the Company shall pay to the Executive his full Salary
through the Date of Termination at the rate in effect at the time
Notice of Termination is given, and the Company shall have no
further obligations to the Executive under this Agreement.
(d) For purposes of this Agreement:
(i) "Disability" shall mean the Executive's incapacity
due to physical or mental illness such that the Executive
shall have become qualified to receive benefits under the
Company's long-term disability plans or any equivalent
coverage required to be provided to the Executive
pursuant to any other plan or agreement, whichever is
applicable.
(ii) "Cause" shall mean:
(A) the conviction of the Executive for a felony,
or the willful commission by the Executive of a
criminal or other act that in the judgment of the
Board causes or will probably cause substantial
economic damage to the Company or substantial
injury to the business reputation of the Company;
(B) the commission by the Executive of an act of
fraud in the performance of such Executive's duties
on behalf of the Company that causes or will
probably cause economic damage to the Company; or
(C) the continuing willful failure of the Executive
to perform his duties, as such duties were
performed by the Executive prior to the day of the
Change of Control of the Company (other than any
such failure resulting from the Executive's
incapacity due to physical or mental illness) after
written notice thereof (specifying the particulars
thereof in reasonable detail) and a reasonable
opportunity to be heard and cure such failure are
given to the Executive by the Compensation
Committee of the Board.
For purposes of this subparagraph (d)(ii), no act, or
failure to act, on the Executive's part shall be considered "will-
ful" unless done, or omitted to be done, by him not in good faith
and without reasonable belief that his action or omission was in
the best interests of the Company.
(iii) "Good Reason" shall mean:
(A) The assignment by the Company to the Executive
of duties without the Executive's express written
consent, which (i) are materially different or
require travel significantly more time consuming or
extensive than the Executive's duties or business
travel obligations immediately prior to the Change
in Control of the Company, or (ii) result in either
a significant reduction in the Executive's
authority and responsibility as a senior corporate
executive of the Company when compared to the
highest level of authority and responsibility
assigned to the Executive at any time during the
six (6) month period prior to the Change in Control
of the Company, or, (iii) without the Executive's
express written consent, the removal of the
Executive from, or any failure to reappoint or
reelect the Executive to, the highest title held
since the date six (6) months before the Change in
Control of the Company, except in connection with a
termination of the Executive's employment by the
Company for Cause, or by reason of the Executive'
death or Disability;
(B) A reduction by the Company of the Executive's
Salary, or the failure to grant increases in the
Executive's Salary on a basis at least
substantially comparable to those granted to other
executives generally of the Company of comparable
title, salary and performance ratings, made in good
faith;
(C) The relocation of the Company's principal
executive offices to a location outside the State
of New Jersey, or the Company's requiring the
Executive to be based anywhere other than the
Company's principal executive offices except for
required travel on the Company's business to an
extent substantially consistent with the
Executive's business travel obligations immediately
prior to the Change in Control of the Company, or
in the event of any relocation of the Executive
with the Executive's express written consent, the
failure by the Company to pay (or reimburse the
Executive for) all reasonable moving expenses by
the Executive relating to a change of principal
residence in connection with such relocation and to
indemnify the Executive against any loss realized
in the sale of the Executive's principal residence
in connection with any such change of residence,
all to the effect that the Executive shall incur no
loss upon such sale on an after tax basis;
(D) The failure by the Company to continue to
provide the Executive with substantially the same
welfare benefits (which for purposes of this
Agreement shall mean benefits under all welfare
plans as that term is defined in Section 3(1) of
the Employee Retirement Income Security Act of
1974, as amended), and perquisites, including
participation on a comparable basis in the
Company's stock option plan, incentive bonus plan
and any other plan in which executives of the
Company of comparable title and salary participate
and as were provided to the Executive immediately
prior to such Change in Control of the Company, or
with a package of welfare benefits and perquisites,
that is substantially comparable in all material
respects to such welfare benefits and perquisites;
or
(E) The failure of the Company to obtain the
express written assumption of and agreement to
perform this Agreement by any successor as
contemplated in subparagraph 5(d) hereof.
(iv) "Dispute" shall mean (i) in the case of termination
of employment of the Executive with the Company by the
Company for Disability or Cause, that the Executive
challenges the existence of Disability or Cause and (ii)
in the case of termination of employment of the Executive
with the Company by the Executive for Good Reason, that
the Company challenges the existence of Good Reason.
(v) "Salary" shall mean the Executive's average annual
compensation reported on United States Internal Revenue
Service Form W-2 ("Form W-2").
(vi) "Incentive Compensation" in any year shall mean the
amount the Executive has elected to defer in such year
and the amount accrued, if any, under any plan,
arrangement or contract providing for the deferral of
compensation between the Company and the Executive which
is not reported on Form W-2, including, without
limitation, any employer contributions by the Company on
behalf of the Executive in accordance with the terms and
conditions of any 401(k) plan in which executives of the
Company of comparable title and salary participate.
(e) Any purported termination of employment by the Com-
pany by reason of the Executive's Disability or for Cause, or by
the Executive for Good Reason shall be communicated by written
Notice of Termination (as hereinafter defined) to the other party
hereto. For purposes of this Agreement, a "Notice of Termination"
shall mean a notice given by the Executive or the Company, as the
case may be, which shall indicate the specific basis for
termination and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for determination of any
payments due under this Agreement. The Executive shall not be
entitled to give a Notice of Termination that the Executive is
terminating his employment with the Company for Good Reason more
than six (6) months following the occurrence of the event alleged
to constitute Good Reason. The Executive's actual employment by
the Company shall cease on the Date of Termination (as hereinafter
defined) specified in the Notice of Termination, even though such
Date of Termination for all other purposes of this Agreement may be
extended in the manner contemplated in the second sentence of
Paragraph 3(f).
(f) For purposes of this Agreement, the "Date of Termin-
ation" shall mean the date specified in the Notice of Termination,
which shall be not more than ninety (90) days after such Notice of
Termination is given, as such date may be modified pursuant to the
next sentence. If within thirty (30) days after any Notice of Ter-
mination is given, the party who receives such Notice of Termina-
tion notifies the other party that a Dispute exists, the Date of
Termination shall be the date on which the Dispute is finally
determined, either by mutual written agreement of the parties, or
by a final judgment, order or decree of a court of competent
jurisdiction (the time for appeal therefrom having expired and no
appeal having been perfected); provided, that the Date of
Termination shall be extended by a notice of Dispute only if such
notice is given in good faith and the party giving such notice
pursues the resolution of such Dispute with reasonable diligence
and provided further that pending the resolution of any such
Dispute, the Company shall continue to pay the Executive the same
Salary and to provide the Executive with the same or substantially
comparable welfare benefits and perquisites that the Executive was
paid and provided immediately prior to the Change in Control of the
Company. Should a Dispute ultimately be determined in favor of the
Company, then all sums paid by the Company to the Executive from
the date of termination specified in the Notice of Termination
until final resolution of the Dispute pursuant to this paragraph
shall be repaid promptly by the Executive to the Company, with
interest at the average prime rate generally prevailing from time
to time among major New York City banks and all options, rights and
stock awards granted to the Executive during such period shall be
cancelled or returned to the Company. The Executive shall not be
obligated to pay to the Company the cost of providing the Executive
with welfare benefits and perquisites for such period unless the
final judgment, order or decree of a court or other body resolving
the Dispute determines that the Executive acted in bad faith in
giving a notice of Dispute. Should a Dispute ultimately be deter-
mined in favor of the Executive, then the Executive shall be
entitled to retain all sums paid to the Executive under this para-
graph 3(f) pending resolution of the Dispute and shall be entitled
to receive, in addition, the payments and other benefits provided
for in paragraph 4 hereof to the extent not previously paid
hereunder.
4. PAYMENTS UPON TERMINATION.
If within three (3) years after a Change in Control of
the Company, the Company shall terminate the Executive's employment
other than by reason of the Executive's death, Disability or for
Cause or if the Executive shall terminate his employment for Good
Reason then,
(a) The Company will continue to pay to the Executive,
for a period of thirty (30) months following the Date of
Termination, as compensation for services rendered by the
Executive on or before the Executive's Date of Termina-
tion, the Executive's Salary and Incentive Compensation
(subject to any applicable payroll taxes or other taxes
required to be withheld computed at the rate for supple-
mental payments) at the highest rate in effect during the
twenty-four (24) month period ending on the day on which
the Change in Control of the Company occurred; and
(b) For a period of thirty (30) months following the
Date of Termination, the Company shall provide, at the
Company's expense, the Executive and the Executive's
spouse and children with full benefits under any employee
benefit plan or arrangement in which the Executive
participated immediately prior to the day on which the
Change in Control of the Company occurred, including,
without limitation, any hospital, medical and dental
insurance with substantially the same coverage and
benefits as were provided to the Executive immediately
prior to the day on which the Change in Control of the
Company occurred; and
(c) The Company will pay on the date of Termination to
the Executive as compensation for services rendered on or
before the Executive's Date of Termination, in addition
to the amounts set forth in paragraph 4(a) above, a sum
equal to all Incentive Compensation and other incentive
awards due to the Executive immediately prior to the day
on which the Change in Control of the Company occurred
but not yet paid; and
(d) For a period of thirty (30) months following the Date
of Termination, the Company shall provide to the
Executive, at the Company's expense, the automobile
provided by the Company to the Executive immediately
prior to the day on which the Change in Control of the
Company occurred (or a comparable automobile) and the
Company shall reimburse the Executive any and all expense
incurred by the Executive in connection with the use of
such automobile during such thirty month period to the
extent that the Company reimburses generally other
executives of comparable title, salary and performance
ratings; and
(e) Any restricted Stock in the Executive's account as
an officer of the Company which is not vested in the
Executive as of the Change in Control of the Company
shall become vested, and all such restrictions thereon
(including, but not limited to, any restrictions on the
transferability of such Stock), and any restrictions on
any other restricted stock awarded to the Executive
through any plan or arrangement of the Company on or
before the Change in Control of the Company, shall become
null and void and of no further force and effect,
immediately upon the Change in Control of the Company;
and
(f) In event that any payment or benefit received or to
be received by the Executive in connection with a Change
in Control of the Company or the termination of the
Executive's employment (whether pursuant to the terms of
this Agreement or any other plan, arrangement or
agreement with the Company) (collectively with the
payments and benefits hereunder, "Total Payments") would
not be deductible in whole or in part by the Company as
the result of Section 280G of the Internal Revenue Code
of 1986, as amended and the regulations thereunder (the
"Code"), the payments and benefits hereunder shall be
reduced until no portion of the Total Payments is not
deductible by reducing to the extent necessary the
payment under paragraph 3(a) hereof. For purposes of
this limitation (i) no portion of the Total Payments the
receipt or enjoyment of which the Executive shall have
effectively waived in writing prior to the date of
payment shall be taken into account, (ii) no portion of
the Total Payments shall be taken into account which, in
the opinion of tax counsel selected by the Executive and
acceptable to the Company's independent auditors, is not
likely to constitute a "parachute payment" within the
meaning of Section 280G(b)(2) of the Code, and (iii) the
value of any non-cash benefit or any deferred payment or
benefit included in the Total Payments shall be
determined by the Company's independent auditors in
accordance with the principles of Sections 280G(d)(3) and
(4) of the Code.
5. GENERAL.
(a) The Executive shall retain in confidence any pro-
prietary or other confidential information known to him concerning
the Company and its business so long as such information is not
publicly disclosed and disclosure is not required by an order of
any governmental body or court. Notwithstanding anything to the
contrary contained herein, this paragraph 5(a) shall survive any
expiration or termination of this Agreement for any reason
whatsoever.
(b) Subject to paragraph 5(f) below, the Company's
obligation to pay the Executive the compensation and to make the
arrangements provided herein shall be absolute and unconditional
and shall not be affected by any circumstance, including, without
limitation, any setoff, counterclaim, recoupment, defense or other
right which the Company may have against the Executive or anyone
else. All amounts payable by the Company hereunder shall be paid
without notice or demand. Except as expressly provided herein, the
Company waives all rights which it may now have or may hereafter
have conferred upon it, by statute or otherwise, to terminate,
cancel or rescind this Agreement in whole or in part. Except as
provided in paragraph 5(f) herein, each and every payment made
hereunder by the Company shall be final and the Company will not
seek to recover for any reason all or any part of such payment from
the Executive or any person entitled thereto.
(c) The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or other-
wise) to all or substantially all of the business and/or assets of
the Company, by written agreement in form and substance satis-
factory to the Executive, to expressly assume and agree to perform
this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had
taken place.
As used in this Agreement, "Company" shall mean the
Company as hereinbefore defined and any successor to its business
and/or assets as aforesaid which executes and delivers the agree-
ment provided for in this paragraph 5 or which otherwise becomes
bound by all the terms and provisions of this Agreement by opera-
tion of law.
(d) This Agreement shall inure to the benefit of, and be
enforceable by, the Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devises
and legatees. If the Executive should die while any amounts would
still be payable to the Executive hereunder if he had continued to
live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to the
Executive's devisee, legatee or other designee or, if there be no
such designee, to the Executive's estate. The obligations of the
Executive hereunder shall not be assignable by the Executive.
(e) Nothing in this Agreement shall be deemed to entitle
the Executive to continued employment with the Company and the
rights of the Company to terminate the employment of the Executive
shall continue as fully as though this Agreement were not in
effect.
(f) The Executive shall be required to mitigate the
amount of any payment or other benefit provided for in this Agree-
ment by seeking other employment of similar responsibility, salary
and benefits and, upon any such employment of the Executive, all
payments or other benefits provided for in this Agreement then or
thereafter due to the Executive shall thereupon immediately cease
and this Agreement shall be of no further force and effect.
6. NOTICE.
For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing
and shall be deemed to have been duly given when delivered or
mailed by United States registered mail, return receipt requested,
postage prepaid, addressed as follows:
If to the Executive:
Andrew M. Chapman
22 Hawthorne Road
Short Hills, New Jersey 07078
If to the Company:
E'town Corporation
600 South Avenue
Westfield, New Jersey 07090
or to such other address as either party may have furnished to the
other in writing in accordance herewith, except that notices of
change of address shall be effective only upon receipt.
7. MISCELLANEOUS.
No provisions of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is
agreed to in writing, signed by the Executive and such officer as
may be specifically designated by the Board. No waiver by either
party hereto at any time of any breach by the other party hereto
of, or compliance with, any condition or provision of this Agree-
ment to be performed by such other party shall be deemed a waiver
of similar or dissimilar provisions or conditions at the same or at
any prior or subsequent time. No assurances or representations,
oral or otherwise, express or implied, with respect to the subject
matter hereof have been made by either party which are not set
forth expressly in this Agreement. However, this Agreement is in
addition to, and not in lieu of, any other plan providing for pay-
ments to or benefits for the Executive or any agreement now exist-
ing, or which hereafter may be entered into, between the Company
and the Executive. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the
State of New Jersey.
8. VALIDITY.
The invalidity or unenforceability of any provisions of
this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full
force and effect. Any provision in this Agreement which is prohi-
bited or unenforceable in any jurisdiction shall, as to such juris-
diction, be ineffective only to the extent of such prohibition or
unenforceability without invalidating or affecting the remaining
provisions hereof, and any such prohibition or unenforceability in
any jurisdiction shall not invalidate or render unenforceable such
provision in any other jurisdiction.
IN WITNESS WHEREOF, the parties have executed this Agree-
ment as of the date set forth above.
E'TOWN CORPORATION
By: /s/ Robert W. Kean Jr.
Name: Robert W. Kean Jr.
Title: Chairman & Chief Executive Officer
EXECUTIVE
/s/ Andrew M. Chapman
ANDREW M. CHAPMAN
