FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
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 June 30, 1995
E'town Corporation
without par value 7,382,417
Elizabethtown Water Company
without par value * 1,974,902
* All shares are owned by E'town Corporation
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 1-3
- Consolidated Balance Sheets 4
- Statements of Consolidated Capitalization 6
- Statements of Consolidated Shareholders' Equity 7
- Statements of Consolidated Cash Flows 8-10
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
__________________________________________
- Statements of Consolidated Income 11-13
- Consolidated Balance Sheets 14
- Statements of Consolidated Capitalization 16
- Statements of Consolidated Shareholder's Equity 17
- Statements of Consolidated Cash Flows 18-20
E'TOWN CORPORATION AND SUBSIDIARIES AND
_______________________________________
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
__________________________________________
- Notes to Consolidated Financial Statements 21
Item 2. Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations 27
PART II - OTHER INFORMATION
___________________________
Items 1 Legal Proceedings 36
Items 2 - 5 36
Item 6.(a) - Exhibits 36
(b) - Reports on Form 8-K 36
SIGNATURES 37
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
Three Months Ended
June 30,
1995 1994
____________ ___________
Operating Revenues $ 27,101,389 $ 25,208,368
____________ ____________
Operating Expenses:
Operation 11,013,286 10,383,535
Maintenance 1,541,311 1,624,568
Depreciation 2,131,374 1,945,001
Revenue taxes 3,409,129 3,142,600
Real estate, payroll and other taxes 699,649 703,674
Federal income taxes 1,848,758 1,602,464
____________ ____________
Total operating expenses 20,643,507 19,401,842
____________ ____________
Operating Income 6,457,882 5,806,526
____________ ____________
Other Income:
Allowance for equity funds used
during construction 750,644 180,407
Write-down of non-utility property
and other investments (Note 6) (111,367) (99,025)
Federal income taxes (286,889) (63,612)
Other - net 180,406 105,710
____________ ____________
Total other income 532,794 123,480
____________ ____________
Total Operating and Other Income 6,990,676 5,930,006
____________ ____________
Interest Charges:
Interest on long-term debt 2,898,844 2,903,511
Other interest expense - net 363,439 570
Capitalized interest (739,512) (231,516)
Amortization of debt discount - net 89,493 89,493
____________ ____________
Total interest charges 2,612,264 2,762,058
____________ ____________
Income Before Preferred Stock Dividends
of Subsidiary 4,378,412 3,167,948
Preferred Stock Dividends 203,250 203,250
____________ ____________
Net Income $ 4,175,162 $ 2,964,698
____________ ____________
____________ ____________
Earnings Per Share of Common Stock:
Primary $ .61 $ .49
____________ ____________
____________ ____________
Fully Diluted $ .61 $ .49
____________ ____________
____________ ____________
Average Number of Shares Outstanding for
the Calculation of Earnings Per Share:
Primary 6,800,416 6,036,383
____________ ____________
____________ ____________
Fully Diluted 7,100,042 6,346,978
____________ ____________
____________ ____________
Dividends Paid Per Common Share $ .51 $ .51
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-1-
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
Six Months Ended
June 30,
1995 1994
____________ ___________
Operating Revenues $ 52,275,784 $ 49,865,757
____________ ____________
Operating Expenses:
Operation 21,436,994 20,750,523
Maintenance 2,906,990 3,198,577
Depreciation 4,258,631 3,873,866
Revenue taxes 6,532,388 6,238,997
Real estate, payroll and other taxes 1,424,817 1,445,409
Federal income taxes 3,413,022 3,039,320
____________ ____________
Total operating expenses 39,972,842 38,546,692
____________ ____________
Operating Income 12,302,942 11,319,065
____________ ____________
Other Income:
Allowance for equity funds used
during construction 1,368,965 334,281
Write-down of non-utility property
and other investments (Note 6) (218,193) (288,747)
Federal income taxes (498,638) (88,107)
Other - net 273,908 213,597
____________ ____________
Total other income 926,042 171,024
____________ ____________
Total Operating and Other Income 13,228,984 11,490,089
____________ ____________
Interest Charges:
Interest on long-term debt 5,794,826 5,804,187
Other interest expense - net 952,314 4,074
Capitalized interest (1,293,482) (447,175)
Amortization of debt discount - net 178,986 175,075
____________ ____________
Total interest charges 5,632,644 5,536,161
____________ ____________
Income Before Preferred Stock Dividends
of Subsidiary 7,596,340 5,953,928
Preferred Stock Dividends 406,500 452,517
____________ ____________
Net Income $ 7,189,840 $ 5,501,411
____________ ____________
____________ ____________
Earnings Per Share of Common Stock:
Primary $ 1.07 $ .94
____________ ____________
____________ ____________
Fully Diluted $ 1.06 $ .94
____________ ____________
____________ ____________
Average Number of Shares Outstanding for
the Calculation of Earnings Per Share:
Primary 6,718,601 5,860,810
____________ ____________
____________ ____________
Fully Diluted 7,019,547 6,171,613
____________ ____________
____________ ____________
Dividends Paid Per Common Share $ 1.02 $ 1.02
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-2-
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
Twelve Months Ended
June 30,
1995 1994
____________ ___________
Operating Revenues $104,442,532 $102,861,469
____________ ____________
Operating Expenses:
Operation 42,060,313 41,695,160
Maintenance 6,332,185 6,077,678
Depreciation 8,244,945 7,540,185
Revenue taxes 13,041,552 12,849,765
Real estate, payroll and other taxes 2,766,154 2,662,922
Federal income taxes 7,142,589 7,356,190
____________ ____________
Total operating expenses 79,587,738 78,181,900
____________ ____________
Operating Income 24,854,794 24,679,569
____________ ____________
Other Income:
Litigation settlement (932,203)
Gain on sale of land 1,685,521
Allowance for equity funds used
during construction 2,212,817 588,343
Write-down of non-utility property
and other investments (Note 6) (411,200) (465,545)
Federal income taxes (549,501) (819,867)
Other - net 693,189 536,627
____________ ____________
Total other income 1,013,102 1,525,079
____________ ____________
Total Operating and Other Income 25,867,896 26,204,648
____________ ____________
Interest Charges:
Interest on long-term debt 11,601,416 11,941,373
Other interest expense - net 1,418,278 18,425
Capitalized interest (2,093,973) (855,673)
Amortization of debt discount - net 357,973 308,272
____________ ____________
Total interest charges 11,283,694 11,412,397
____________ ____________
Income Before Preferred Stock Dividends
of Subsidiary 14,584,202 14,792,251
Preferred Stock Dividends 808,030 977,517
____________ ____________
Net Income $ 13,776,172 $ 13,814,734
____________ ____________
____________ ____________
Earnings Per Share of Common Stock:
Primary $ 2.08 $ 2.41
____________ ____________
____________ ____________
Fully Diluted $ 2.06 $ 2.38
____________ ____________
____________ ____________
Average Number of Shares Outstanding for
the Calculation of Earnings Per Share:
Primary 6,635,780 5,730,926
____________ ____________
____________ ____________
Fully Diluted 6,939,835 6,042,757
____________ ____________
____________ ____________
Dividends Paid Per Common Share $ 2.04 $ 2.03
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-3-
E'TOWN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
Assets 1995 1994
____________ ____________
Utility Plant-At Original Cost:
Utility plant in service $471,820,666 $469,172,575
Construction work in progress 85,458,275 55,739,951
____________ ____________
Total utility plant 557,278,941 524,912,526
Less accumulated depreciation and amortization 91,603,640 87,456,550
____________ ____________
Utility plant-net 465,675,301 437,455,976
____________ ____________
Non-utility Property and Other
Investments - Net (Note 6) 13,466,741 13,468,879
____________ ____________
Current Assets:
Cash and cash equivalents 2,492,368 4,254,708
Short-term investments 30,622 30,622
Customer and other accounts receivable
(less reserve: 1995, $461,713; 1994, $463,000) 13,195,382 12,346,871
Unbilled revenues 8,333,530 7,161,483
Materials and supplies-at average cost 1,596,722 1,724,969
Prepaid insurance, taxes, other 1,834,006 1,410,401
Prepaid federal income taxes 711,860
____________ ____________
Total current assets 27,482,630 27,640,914
____________ ____________
Deferred Charges:
Prepaid pension expense 823,754 871,181
Waste residual management 514,033 325,785
Unamortized debt and preferred stock expenses 9,279,174 9,490,208
Taxes recoverable through future rates 26,339,057 26,339,057
Postretirement benefit expense 2,383,040 2,077,051
Purchased water under recovery-net 46,530 314,128
Other unamortized expenses 2,194,546 997,286
____________ ____________
Total deferred charges 41,580,134 40,414,696
____________ ____________
Total $548,204,806 $518,980,465
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-4-
E'TOWN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
Capitalization and Liabilities 1995 1994
____________ ____________
Capitalization (Note 3):
Common shareholders' equity $172,981,486 $152,970,602
Cumulative preferred stock 12,000,000 12,000,000
Long-term debt - net 153,878,879 154,073,430
____________ ____________
Total capitalization 338,860,365 319,044,032
____________ ____________
Current Liabilities:
Notes payable - banks 34,000,000 23,000,000
Long-term debt - current portion 42,000 42,000
Accounts payable and other liabilities 10,108,749 18,249,580
Customers' deposits 306,366 278,895
Municipal and state taxes accrued 14,363,203 12,831,524
Federal income taxes accrued 913,620
Interest accrued 3,248,376 3,173,468
Preferred stock dividends accrued 59,000 59,000
____________ ____________
Total current liabilities 63,041,314 57,634,467
____________ ____________
Deferred Credits:
Customers' advances for construction 45,997,142 45,554,476
Federal income taxes 63,427,369 62,115,801
State income taxes 162,008 162,008
Unamortized investment tax credits 8,567,202 8,650,537
Accumulated postretirement benefits 2,634,303 2,100,628
Minority interest in joint venture 33,769
____________ ____________
Total deferred credits 120,821,793 118,583,450
____________ ____________
Contributions in Aid of Construction 25,481,334 23,718,516
____________ ____________
Commitments and Contingent Liabilities
(Note 8)
Total $548,204,806 $518,980,465
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-5-
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CAPITALIZATION
June 30, December 31,
1995 1994
___________ ___________
E'town Corporation:
Common Shareholders' Equity:
Common stock without par value, authorized,
15,000,000 shares; issued 1995, 7,404,449
shares; 1994, 6,624,663 shares $134,863,323 $114,136,195
Paid-in capital 1,315,025 1,315,025
Capital stock expense (5,061,572) (4,286,194)
Retained earnings 42,498,686 42,439,552
Less cost of treasury stock; 1995 and
1994, 22,032 shares (633,976) (633,976)
____________ ____________
Total common shareholders' equity 172,981,486 152,970,602
____________ ____________
Elizabethtown Water Company:
Cumulative Preferred Stock:
$100 par value, authorized, 200,000
shares; $5.90 series, issued and
outstanding, 120,000 shares 12,000,000 12,000,000
____________ ____________
Cumulative Preferred Stock:
$25 par value, authorized, 500,000 shares;
none issued
Long-Term Debt:
E'town Corporation:
6 3/4% Convertible Subordinated Debentures,
due 2012 11,971,000 12,165,000
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) 123,300 144,300
____________ ____________
Total long-term debt 155,094,300 155,309,300
Unamortized discount-net (1,215,421) (1,235,870)
____________ ____________
Total long-term debt-net 153,878,879 154,073,430
____________ ____________
Total capitalization $338,860,365 $319,044,032
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-6-
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
Six Months Year
Ended Ended
June 30, December 31,
1995 1994
____________ ____________
Common Stock:
Balance at Beginning of Period $114,136,195 $ 87,842,657
Public sale of common stock (1995,
660,000 shares; 1994, 690,000 shares) 17,737,500 19,147,500
Common stock issued under Dividend
Reinvestment and Stock Purchase Plan
(1995, 116,036 shares; 1994, 273,159 shares) 2,893,366 7,146,038
Exercise of stock options 96,262
____________ ____________
Balance at End of Period 134,863,323 114,136,195
____________ ____________
Paid-in Capital: 1,315,025 1,315,025
____________ ____________
Capital Stock Expense:
Balance at Beginning of Period (4,286,194) (3,357,165)
Expenses incurred for the issuance and
sale of common stock (775,378) (929,029)
____________ ____________
Balance at End of Period (5,061,572) (4,286,194)
____________ ____________
Retained Earnings:
Balance at Beginning of Period 42,439,562 43,207,666
Net Income 7,189,840 12,087,743
Dividends on common stock (1995,
$1.02; 1994 $2.04) (7,130,716) (12,855,857)
____________ ____________
Balance at End of Period 42,498,686 42,439,552
____________ ____________
Treasury Stock: (633,976) (633,976)
____________ ____________
Total Common Shareholders' Equity $172,981,486 $152,970,602
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-7-
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
Three Months Ended
June 30,
1995 1994
___________ ___________
Cash Flows from Operating Activities:
Net Income $ 4,175,162 $ 2,964,698
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 2,131,374 1,945,001
Write-down of non-utility property and other
investments 111,367 99,025
Increase in deferred charges (211,566) (224,075)
Deferred income taxes and investment tax
credits - net 593,728 554,042
Capitalized interest and AFUDC (1,490,156) (411,923)
Other operating activities-net 129,923 (13,379)
Change in current assets and current liabilities
excluding cash, short-term investments and
current portion of debt:
Customer and other accounts receivable (176,870) (632,656)
Unbilled revenues (984,514) (882,618)
Accounts payable and other liabilities (1,363,055) 1,057,521
Accrued/prepaid interest and taxes (2,584,051) (2,382,200)
Other 99,385 (25,560)
____________ ____________
Net cash provided by operating activities 430,727 2,047,876
____________ ____________
Cash Flows Provided by Financing Activities:
Decrease in funds held by Trustee for
construction expenditures (44)
Proceeds from issuance of common stock 18,588,538 20,227,828
Repayment of long-term debt (32,500) (41,500)
Contributions and advances for construction-net 1,592,336 451,741
Net increase in notes payable - banks (1,000,000)
Dividends paid on common stock (3,749,496) (3,279,046)
____________ ____________
Net cash provided by financing activities 15,398,878 17,358,979
____________ ____________
Cash Flows Used for Investing Activities:
Utility plant expenditures (excluding allowance
for funds used during construction) (18,514,035) (8,890,427)
Development costs of land (37,176) (46,956)
Net increase in short-term investments (17,012,000)
____________ ____________
Cash used for investing activities (18,551,211) (25,949,383)
____________ ____________
Net Decrease in Cash and Cash Equivalents (2,721,606) (6,542,528)
Cash and Cash Equivalents at Beginning of Period 5,213,974 7,282,070
____________ ____________
Cash and Cash Equivalents at End of Period $ 2,492,368 $ 739,542
____________ ____________
____________ ____________
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 3,113,946 $ 2,184,408
Income taxes $ 1,055,000 $ 1,630,000
Preferred stock dividends $ 177,000 $ 148,141
See Notes to Consolidated Financial Statements.
-8-
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
Six Months Ended
June 30,
1995 1994
___________ ___________
Cash Flows from Operating Activities:
Net Income $ 7,189,840 $ 5,501,411
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 4,258,631 3,873,866
Write-down of non-utility property and other
investments 218,193 288,747
Increase in deferred charges (859,449) (1,424,206)
Deferred income taxes and investment tax
credits - net 1,228,233 1,158,563
Capitalized interest and AFUDC (2,662,447) (781,456)
Other operating activities-net 284,514 (29,882)
Change in current assets and current liabilities
excluding cash, short-term investments and
current portion of debt:
Customer and other accounts receivable (848,511) (527,226)
Unbilled revenues (1,172,047) (868,353)
Accounts payable and other liabilities (8,113,360) (2,168,999)
Accrued/prepaid interest and taxes 2,808,462 1,027,086
Other 128,248 (113,862)
____________ ____________
Net cash provided by operating activities 2,460,307 5,935,689
____________ ____________
Cash Flows Provided by Financing Activities:
Decrease in funds held by Trustee for
construction expenditures 381,978
Proceeds from issuance of common stock 19,951,750 22,005,147
Proceeds from issuance of preferred stock 12,000,000
Redemption of preferred stock (12,000,000)
Repayment of long-term debt (215,000) (115,000)
Contributions and advances for construction-net 2,205,484 1,445,064
Net increase in notes payable - banks 11,000,000
Dividends paid on common stock (7,130,716) (6,172,045)
____________ ____________
Net cash provided by financing activities 25,811,518 17,545,144
____________ ____________
Cash Flows Used for Investing Activities:
Utility plant expenditures (excluding allowance
for funds used during construction) (29,963,426) (13,026,665)
Development costs of land (70,739) (79,098)
Net increase in short-term investments (17,012,000)
____________ ____________
Cash used for investing activities (30,034,165) (30,117,763)
____________ ____________
Net Decrease in Cash and Cash Equivalents (1,762,340) (6,636,930)
Cash and Cash Equivalents at Beginning of Period 4,254,708 7,376,472
____________ ____________
Cash and Cash Equivalents at End of Period $ 2,492,368 $ 739,542
____________ ____________
____________ ____________
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 5,466,334 $ 4,895,110
Income taxes $ 1,055,000 $ 2,655,000
Preferred stock dividends $ 354,000 $ 451,475
See Notes to Consolidated Financial Statements.
-9-
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
Twelve Months Ended
June 30,
1995 1994
___________ ___________
Cash Flows from Operating Activities:
Net Income $ 13,776,172 $ 13,814,734
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 8,244,945 7,540,185
Write-down of non-utility property and other
investments 411,200 465,545
Gain on sale of land (1,685,521)
Increase in deferred charges (485,341) (3,536,434)
Deferred income taxes and investment tax
credits - net 3,935,087 3,129,115
Capitalized interest and AFUDC (4,306,790) (1,444,016)
Other operating activities-net 382,801 (409,279)
Change in current assets and current liabilities
excluding cash, short-term investments and
current portion of debt:
Customer and other accounts receivable (636,742) (930,772)
Unbilled revenues (216,855) 30,941
Accounts payable and other liabilities 2,662,562 599,203
Accrued/prepaid interest and taxes 699,183 (214,121)
Other 140,843 (174,345)
____________ ____________
Net cash provided by operating activities 24,607,065 17,185,235
____________ ____________
Cash Flows Provided by Financing Activities:
Decrease in funds held by Trustee for
construction expenditures 328 6,443,120
Proceeds from issuance of debentures 50,000,000
Proceeds from issuance of common stock 23,311,112 25,058,851
Repayment of long-term debt (474,000) (50,196,000)
Proceeds from issuance of preferred stock 12,000,000
Redemption of preferred stock (12,000,000)
Contributions and advances for construction-net 4,214,024 2,065,570
Net increase (decrease) in notes payable - banks 34,000,000
Dividends paid on common stock (13,844,706) (11,820,472)
____________ ____________
Net cash provided by financing activities 47,206,758 21,551,069
____________ ____________
Cash Flows Used for Investing Activities:
Utility plant expenditures (excluding allowance
for funds used during construction) (86,917,380) (32,362,622)
Development costs of land (155,617) (202,747)
Proceeds from sale of land 3,450,000
Net increase in short-term investments 17,012,000 (17,012,000)
____________ ____________
Cash used for investing activities (70,060,997) (46,127,369)
____________ ____________
Net Increase (Decrease) in Cash and Cash Equivalents 1,752,826 (7,391,065)
Cash and Cash Equivalents at Beginning of Period 739,542 8,130,607
____________ ____________
Cash and Cash Equivalents at End of Period $ 2,492,368 $ 739,542
____________ ____________
____________ ____________
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 10,987,940 $ 11,858,174
Income taxes $ 5,171,254 $ 7,436,008
Preferred stock dividends $ 708,000 $ 976,475
See Notes to Consolidated Financial Statements.
-10-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED INCOME
Three Months Ended
June 30,
1995 1994
____________ ___________
Operating Revenues $ 27,101,389 $ 25,208,368
____________ ____________
Operating Expenses:
Operation 10,800,356 10,120,280
Maintenance 1,541,311 1,624,568
Depreciation 2,131,374 1,945,001
Revenue taxes 3,409,129 3,142,600
Real estate, payroll and other taxes 679,945 692,754
Federal income taxes 1,997,037 1,737,907
____________ ____________
Total operating expenses 20,559,152 19,263,110
____________ ____________
Operating Income 6,542,237 5,945,258
____________ ____________
Other Income:
Allowance for equity funds used
during construction 750,644 180,407
Federal income taxes (313,528) (91,007)
Other - net 145,151 87,261
____________ ____________
Total other income 582,267 176,661
____________ ____________
Total Operating and Other Income 7,124,504 6,121,919
____________ ____________
Interest Charges:
Interest on long-term debt 2,693,560 2,693,518
Other interest expense - net 616,363 570
Allowance for debt funds used
during construction (643,530) (137,104)
Amortization of debt discount - net 80,889 80,889
____________ ____________
Total interest charges 2,747,282 2,637,873
____________ ____________
Income Before Preferred Stock Dividends 4,377,222 3,484,046
Preferred Stock Dividends 203,250 203,250
____________ ____________
Earnings Applicable to Common Stock $ 4,173,972 $ 3,280,796
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-11-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED INCOME
Six Months Ended
June 30,
1995 1994
____________ ___________
Operating Revenues $ 52,275,784 $ 49,865,757
____________ ____________
Operating Expenses:
Operation 21,063,523 20,334,359
Maintenance 2,906,990 3,198,577
Depreciation 4,258,631 3,873,866
Revenue taxes 6,532,388 6,238,997
Real estate, payroll and other taxes 1,385,948 1,423,602
Federal income taxes 3,679,857 3,272,294
____________ ____________
Total operating expenses 39,827,337 38,341,695
____________ ____________
Operating Income 12,448,447 11,524,062
____________ ____________
Other Income:
Allowance for equity funds used
during construction 1,368,965 334,281
Federal income taxes (551,841) (170,214)
Other - net 207,723 166,348
____________ ____________
Total other income 1,024,847 330,415
____________ ____________
Total Operating and Other Income 13,473,294 11,854,477
____________ ____________
Interest Charges:
Interest on long-term debt 5,387,121 5,386,891
Other interest expense - net 1,040,105 4,074
Allowance for debt funds used
during construction (1,145,565) (259,911)
Amortization of debt discount - net 161,778 157,867
____________ ____________
Total interest charges 5,443,439 5,288,921
____________ ____________
Income Before Preferred Stock Dividends 8,029,855 6,565,556
Preferred Stock Dividends 406,500 452,517
____________ ____________
Earnings Applicable to Common Stock $ 7,623,355 $ 6,113,039
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-12-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED INCOME
Twelve Months Ended
June 30,
1995 1994
____________ ___________
Operating Revenues $104,442,532 $102,861,469
____________ ____________
Operating Expenses:
Operation 41,452,144 40,896,387
Maintenance 6,332,185 6,077,678
Depreciation 8,244,945 7,540,185
Revenue taxes 13,041,552 12,849,765
Real estate, payroll and other taxes 2,679,413 2,612,683
Federal income taxes 7,583,959 7,749,601
____________ ____________
Total operating expenses 79,334,198 77,726,299
____________ ____________
Operating Income 25,108,334 25,135,170
____________ ____________
Other Income:
Litigation settlement (932,203)
Gain on sale of land 122,400
Allowance for equity funds used
during construction 2,212,817 588,343
Federal income taxes (619,226) (338,161)
Other - net 474,297 262,168
____________ ____________
Total other income 1,135,685 634,750
____________ ____________
Total Operating and Other Income 26,244,019 25,769,920
____________ ____________
Interest Charges:
Interest on long-term debt 10,774,238 11,105,780
Other interest expense - net 1,211,538 18,402
Allowance for debt funds used
during construction (1,752,755) (473,033)
Amortization of debt discount - net 323,557 273,856
____________ ____________
Total interest charges 10,556,578 10,925,005
____________ ____________
Income Before Preferred Stock Dividends 15,687,441 14,844,915
Preferred Stock Dividends 808,030 977,517
____________ ____________
Earnings Applicable to Common Stock $ 14,879,411 $ 13,867,398
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-13-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
Assets 1995 1994
____________ ____________
Utility Plant - At Original Cost:
Utility plant in service $471,820,666 $469,172,575
Construction work in progress 85,458,275 55,739,951
____________ ____________
Total utility plant 557,278,941 524,912,526
Less accumulated depreciation and amortization 91,603,640 87,456,550
____________ ____________
Utility plant - net 465,675,301 437,455,976
____________ ____________
Non-utility Property 84,464 85,690
____________ ____________
Current Assets:
Cash and cash equivalents 1,542,528 1,485,115
Customer and other accounts receivable
(less reserve: 1995, $461,713; 1994, $463,000) 12,980,597 12,350,802
Unbilled revenues 8,333,530 7,161,483
Materials and supplies-at average cost 1,596,722 1,724,969
Prepaid insurance, taxes, other 1,834,006 1,410,401
Prepaid federal income taxes 1,344,630
____________ ____________
Total current assets 26,287,383 25,477,400
____________ ____________
Deferred Charges:
Prepaid pension expense 885,726 926,142
Waste residual management 514,033 325,785
Unamortized debt and preferred stock expenses 8,708,445 8,902,271
Taxes recoverable through future rates 26,339,057 26,339,057
Postretirement benefit expense 2,383,040 2,077,051
Purchased water under recovery-net 46,530 314,128
Other unamortized expenses 2,003,264 944,414
____________ ____________
Total deferred charges 40,880,095 39,828,848
____________ ____________
Total $532,927,243 $502,847,914
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-14-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
Capitalization and Liabilities 1995 1994
____________ ____________
Capitalization (Note 3):
Common shareholder's equity $171,910,258 $151,624,255
Cumulative preferred stock 12,000,000 12,000,000
Long-term debt - net 141,907,879 141,908,430
____________ ____________
Total capitalization 325,818,137 305,532,685
____________ ____________
Current Liabilities:
Notes payable - banks 34,000,000 23,000,000
Long-term debt - current portion 42,000 42,000
Accounts payable and other liabilities 10,062,137 18,165,522
Customers' deposits 306,366 278,895
Municipal and state taxes accrued 14,363,971 12,831,524
Federal income taxes accrued 1,297,405
Interest accrued 2,907,844 2,828,464
Preferred stock dividends accrued 59,000 59,000
____________ ____________
Total current liabilities 63,038,723 57,205,405
____________ ____________
Deferred Credits:
Customers' advances for construction 45,997,142 45,554,476
Federal income taxes 61,420,870 60,109,244
Unamortized investment tax credits 8,567,202 8,650,537
Accumulated postretirement benefits 2,603,835 2,077,051
____________ ____________
Total deferred credits 118,589,049 116,391,308
____________ ____________
Contributions in Aid of Construction 25,481,334 23,718,516
____________ ____________
Commitments and Contingent Liabilities
(Note 8)
Total $532,927,243 $502,847,914
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-15-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED CAPITALIZATION
June 30, December 31,
1995 1994
___________ ____________
Common Shareholder's Equity:
Common stock without par value, authorized,
10,000,000 shares; issued 1995 and 1994,
1,974,902 shares $ 15,740,602 $ 15,740,602
Paid-in capital 108,661,998 88,868,632
Capital stock expense (484,702) (484,702)
Retained earnings 47,992,360 47,499,723
____________ ____________
Total common shareholder's equity 171,910,258 151,624,255
____________ ____________
Cumulative Preferred Stock:
$100 par value, authorized, 200,000
shares; $5.90 series, issued and
outstanding, 120,000 shares 12,000,000 12,000,000
____________ ___________
Cumulative Preferred Stock:
$25 par value, authorized, 500,000 shares;
none issued
Long-Term Debt:
Elizabethtown Water Company:
7.20% Debentures, due 2019 10,000,000 10,000,000
7 1/2% Debentures, due 2020 15,000,000 15,000,000
6.60% Debentures, due 2021 10,500,000 10,500,000
6.70% Debentures, due 2021 15,000,000 15,000,000
8 3/4% Debentures, due 2021 27,500,000 27,500,000
8% Debentures, due 2022 15,000,000 15,000,000
7 1/4% Debentures, due 2028 50,000,000 50,000,000
The Mount Holly Water Company:
Notes Payable (due serially through 2000) 123,300 144,300
____________ ____________
Total long-term debt 143,123,300 143,144,300
Unamortized discount - net (1,215,421) (1,235,870)
____________ ____________
Total long-term debt - net 141,907,879 141,908,430
____________ ____________
Total capitalization $325,818,137 $305,532,685
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-16-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED SHAREHOLDER'S EQUITY
Six Months Year
Ended Ended
June 30, December 31,
1995 1994
____________ ____________
Common Stock: $ 15,740,602 $ 15,740,602
____________ ____________
Paid-in Capital:
Balance at Beginning of Period 88,868,632 63,522,594
Capital contributed by parent company 19,793,366 25,346,038
____________ ____________
Balance at End of Period 108,661,998 88,868,632
____________ ____________
Capital Stock Expense: (484,702) (484,702)
____________ ____________
Retained Earnings:
Balance at Beginning of Period 47,499,721 46,986,485
Income Before Preferred Stock
Dividends 8,029,855 14,223,142
Dividends on Common Stock (7,130,716) (12,855,857)
Preferred Stock Dividends (406,500) (854,047)
____________ ____________
Balance at End of Period 47,992,360 47,499,723
____________ ____________
Total Common Shareholder's Equity $171,910,258 $151,624,255
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-17-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED CASH FLOWS
Three Months Ended
June 30,
1995 1994
___________ ___________
Cash Flows from Operating Activities:
Income Before Preferred Stock Dividends $ 4,377,222 $ 3,484,046
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 2,131,374 1,945,001
Increase in deferred charges (114,815) (237,562)
Deferred income taxes and investment tax
credits - net 593,728 555,421
Allowance for debt and equity funds used
during construction (AFUDC) (1,394,174) (317,511)
Other operating activities-net 65,760 (19,861)
Change in current assets and current liabilities
excluding cash, short-term investments and
current portion of debt:
Customer and other accounts receivable 421,329 (490,028)
Unbilled revenues (984,514) (882,618)
Accounts payable and other liabilities (1,368,215) 822,932
Accrued/prepaid interest and taxes (1,752,073) (2,529,845)
Other 99,385 (25,560)
____________ ____________
Net cash provided by operating activities 2,075,007 2,304,415
____________ ____________
Cash Flows Provided by Financing Activities:
Decrease in funds held by Trustee for
construction expenditures (44)
Capital contributed by parent company 18,430,154 21,477,319
Repayment of long-term debt (10,500) (10,500)
Contributions and advances for construction-net 1,592,336 451,741
Net increase in notes payable - banks (1,000,000)
Dividends paid on common and preferred stock (3,926,496) (3,428,229)
____________ ____________
Net cash provided (used) by financing activities 15,085,494 18,490,287
____________ ____________
Cash Flows Used for Investing Activities:
Utility plant expenditures (excluding allowance
for funds used during construction) (18,514,035) (8,890,427)
Increase in short-term investments (14,012,000)
____________ ____________
Cash used for investing activities (18,514,035) (22,902,427)
____________ ____________
Net Decrease in Cash and Cash Equivalents (1,353,534) (2,107,725)
Cash and Cash Equivalents at Beginning of Period 2,896,062 2,781,528
____________ ____________
Cash and Cash Equivalents at End of Period $ 1,542,528 $ 673,803
____________ ____________
____________ ____________
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 3,209,388 $ 2,420,207
Income taxes $ 1,055,000 $ 1,630,000
Preferred stock dividends $ 177,000 $ 148,141
See Notes to Consolidated Financial Statements.
-18-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED CASH FLOWS
Six Months Ended
June 30,
1995 1994
___________ ___________
Cash Flows from Operating Activities:
Income Before Preferred Stock Dividends $ 8,029,855 $ 6,565,556
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 4,258,631 3,873,866
Increase in deferred charges (745,258) (1,449,127)
Deferred income taxes and investment tax
credits - net 1,228,291 1,192,561
Allowance for debt and equity funds used
during construction (AFUDC) (2,514,530) (594,192)
Other operating activities-net 189,967 (38,281)
Change in current assets and current liabilities
excluding cash, short-term investments and
current portion of debt:
Customer and other accounts receivable (629,795) 251,938
Unbilled revenues (1,172,047) (868,353)
Accounts payable and other liabilities (8,075,914) (2,284,392)
Accrued/prepaid interest and taxes 3,830,257 1,254,499
Other 128,248 (113,862)
____________ ____________
Net cash provided by operating activities 4,527,705 7,790,213
____________ ____________
Cash Flows Provided by Financing Activities:
Decrease in funds held by Trustee for
construction expenditures 381,978
Capital contributed by parent company 19,793,366 21,477,319
Proceeds from issuance of preferred stock 12,000,000
Redemption of preferred stock (12,000,000)
Repayment of long-term debt (21,000) (21,000)
Contributions and advances for construction-net 2,205,484 1,445,064
Net increase (decrease) in notes payable - banks 11,000,000
Dividends paid on common and preferred stock (7,484,716) (6,624,562)
____________ ____________
Net cash provided by financing activities 25,493,134 16,658,799
____________ ____________
Cash Flows Used for Investing Activities:
Utility plant expenditures (excluding allowance
for funds used during construction) (29,963,426) (13,026,665)
Increase in short-term investments (14,012,000)
____________ ____________
Cash used for investing activities (29,963,426) (27,038,665)
____________ ____________
Net Increase (Decrease) in Cash and Cash Equivalents 57,413 (2,589,653)
Cash and Cash Equivalents at Beginning of Period 1,485,115 3,263,456
____________ ____________
Cash and Cash Equivalents at End of Period $ 1,542,528 $ 673,803
____________ ____________
____________ ____________
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 5,202,073 $ 4,802,172
Income taxes $ 1,055,000 $ 2,655,000
Preferred stock dividends $ 354,000 $ 451,475
See Notes to Consolidated Financial Statements.
-19-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED CASH FLOWS
Twelve Months Ended
June 30,
1995 1994
___________ ___________
Cash Flows from Operating Activities:
Income Before Preferred Stock Dividends $ 15,687,441 $ 14,844,915
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 8,244,945 7,540,185
Gain on sale of land (122,400)
Increase in deferred charges (342,184) (3,589,334)
Deferred income taxes and investment tax
credits - net 4,292,264 3,299,415
Allowance for debt and equity funds used
during construction (AFUDC) (3,965,572) (1,061,376)
Other operating activities-net 97,346 (462,853)
Change in current assets and current liabilities
excluding cash, short-term investments and
current portion of debt:
Customer and other accounts receivable (1,344,550) (627,979)
Unbilled revenues (216,855) 30,941
Accounts payable and other liabilities 3,789,293 493,465
Accrued/prepaid interest and taxes 1,110,971 (334,069)
Other 140,844 (174,345)
____________ ____________
Net cash provided by operating activities 27,493,943 19,836,565
____________ ____________
Cash Flows Provided by Financing Activities:
Decrease in funds held by Trustee for
construction expenditures 328 6,443,120
Capital contributed by parent company 23,662,085 28,823,786
Proceeds from issuance of preferred stock 12,000,000
Redemption of preferred stock (12,000,000)
Proceeds from issuance of debentures 50,000,000
Repayment of long-term debt (42,000) (50,042,000)
Contributions and advances for construction-net 3,181,235 2,065,570
Net increase (decrease) in notes payable - banks 34,000,000
Dividends paid on common and preferred stock (14,521,486) (12,797,989)
____________ ____________
Net cash provided by financing activities 46,280,162 24,492,487
____________ ____________
Cash Flows Used for Investing Activities:
Utility plant expenditures (excluding allowance
for funds used during construction) (86,917,380) (32,346,132)
Selling costs of land (1,600)
Sale of land 131,000
Increase in short-term investments 14,012,000 (14,012,000)
____________ ____________
Cash used for investing activities (72,905,380) (46,228,732)
____________ ____________
Net Increase (Decrease) in Cash and Cash Equivalents 868,725 (1,899,680)
Cash and Cash Equivalents at Beginning of Period 673,803 2,573,483
____________ ____________
Cash and Cash Equivalents at End of Period $ 1,542,528 $ 673,803
____________ ____________
____________ ____________
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 10,352,739 $ 11,489,025
Income taxes $ 5,171,254 $ 7,436,008
Preferred stock dividends $ 708,000 $ 976,475
See Notes to Consolidated Financial Statements.
-20-
E'TOWN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
E'town Corporation (E'town or Corporation), a New Jersey holding
company, is the parent company of Elizabethtown Water Company
(Elizabethtown or Company), E'town Properties, Inc. (Properties) and
Applied Watershed Management, L.L.C. (AWM), a 65% owned joint venture.
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 1994 Annual Report to Shareholders and the 1994 Form
10-K should be read in conjunction with this report.
Certain prior year amounts have been reclassified to conform to the
current year's presentation.
3. CAPITALIZATION
In June 1995, E'town issued 660,000 shares of common stock for net
proceeds of $16,962,122. The net proceeds were used to fund equity
contributions to Elizabethtown totalling $16,900,000. These equity
contributions have been used to repay short-term debt which had been
issued under Elizabethtown's revolving credit agreement (see below) to
partially fund the Company's capital program, the predominant portion
of which relates to the construction of the Canal Road Water Treatment
Plant (Plant) (see Note 8). E'town routinely makes equity
contributions to Elizabethtown which represent the proceeds of common
stock issued under E'town's Dividend Reinvestment and Stock Purchase
Plan (DRIP). E'town contributed $2,893,366 from the proceeds of DRIP
issuances to Elizabethtown for the six months ended June 30, 1995.
In April 1995, the Corporation issued options to purchase a total of
77,000 shares of common stock at a price of 27 1/8 to officers and key
employees under the 1987 Stock Option Plan.
4. LINES OF CREDIT
In July 1994, Elizabethtown executed a committed revolving credit
agreement (Agreement) with an agent bank and five additional banks.
The Agreement allows Elizabethtown to borrow, repay and reborrow up to
$60,000,000 during the first three years, after which time
Elizabethtown may convert any outstanding balances to a
five-year fully amortizing term loan. The Agreement further
-21-
provides 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. As of
June 30, 1995, the ratio of Elizabethtown's common and
preferred equity to total capitalization was 51%. For the twelve
months ended June 30, 1995, Elizabethtown's pre-tax interest coverage
ratio, calculated in accordance with the Agreement, was 3.0 to 1. At
June 30, 1995, Elizabethtown had short-term borrowings outstanding of
$34,000,000 under the Agreement at interest rates from 6.2% to 6.8%,
at a weighted average interest rate of 6.3%. E'town has $20,000,000 of
uncommitted lines of credit with several banks in addition to the
lines under the Agreement.
5. EARNINGS PER SHARE
Primary earnings per share are computed on the basis of the weighted
average number of shares outstanding, plus common stock equivalents,
which reflect the assumption that all stock options are exercised.
Fully diluted earnings per share assume both the conversion of the
6 3/4% Convertible Subordinated Debentures and the common stock
equivalents. Reference is made to Exhibit 11 for the computations of
earnings per share.
6. NON-UTILITY PROPERTY AND OTHER INVESTMENTS
Included in Non-utility Property and Other Investments at June 30,
1995 is $12,049,210 of investments in various parcels of land in New
Jersey which are either held for sale or are in the process of being
zoned and permitted with the intent of offering these properties for
future sale. 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 1994, the estimated net realizable
value of each property exceeds its respective carrying value as of
June 30, 1995, after the adjustments to the Mansfield property
discussed below.
Properties continues to seek permits and more favorable zoning
treatment for its Mansfield, New Jersey property and, accordingly,
continues to capitalize various carrying charges. During the second
quarter of 1993, the carrying value of the Mansfield property 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
-22-
its intended use and, therefore, various carrying charges continue to
be capitalized while, based upon recent appraisals, the net realizable
value of the property has remained constant. Charges of $111,367,
$218,193 and $411,200 for the three, six and twelve months ended June
30, 1995, to adjust the carrying value of the Mansfield property, have
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.
The Corporation will continue to monitor the relationship between the
carrying and net realizable values of its properties through updated
appraisals.
In January 1995, Properties entered into an agreement to sell a parcel
of land to a developer. The agreement requires the buyer to obtain
all approvals required by governmental agencies in order to develop
the property. Properties may cancel the agreement if the closing does
not occur by December 31, 1996. Other events have been established
during this period at which time either the buyer or Properties may
cancel the agreement if certain criteria, generally relating to the
development potential of the property, are not met. The ultimate sale
price is dependent upon the number of buildable lots as allowed by the
municipality.
7. REGULATORY MATTERS
Rates
On January 24, 1995, the BPU approved a stipulation (1995 Stipulation)
for a rate increase for Elizabethtown of $5,300,000, or 5.34%,
effective February 1, 1995. The 1995 Stipulation provides for an
authorized rate of return on common equity of 11.5%. It also provides
for recovery of the current service cost portion of the obligation
accrued under Statement of Financial Accounting Standards 106,
"Employer's Accounting for Postretirement Benefits Other Than
Pensions," provided this amount is funded by the Company.
The 1995 Stipulation requires Elizabethtown to maintain
an average ratio of common equity to total capitalization of at least
45.1% for the twelve months ended January 31, 1996. If a lesser ratio
is realized, the revenue requirement associated with such lesser ratio
will offset the overall revenue requirement in the next base rate
case. The Company expects to sustain an average ratio of common
equity to total capitalization in excess of 45.1% for the twelve-month
period.
-23-
On July 7, 1995 the BPU approved a Stipulation for a decrease in rates
under a Purchased Water Adjustment Clause (PWAC). The Stipulation
resulted in a decrease in rates for the PWAC, effective July 13, 1995
of $209,033. This Stipulation reflects the decrease in rates for
water purchased from the New Jersey Water Supply Authority.
On June 26, 1995, Mount Holly petitioned the BPU for an increase in
rates, to take place in two phases. In the first phase rates would be
increased by $851,171 and in the second phase by $2,794,002. The
first phase is necessary to recover costs that were not reflected in
rates last increased in October 1986. The second phase would recover
the costs of a new water supply, treatment and transmission system
necessary to obtain water outside a designated portion of an aquifer
currently used by Mount Holly to supply a substantial portion of its
customers and to treat and pump the water into its Mount Holly Water
system. This project is deemed to be the most cost-effective
alternative available to Mount Holly to comply with recent State
legislation which restricts the amount of water that can be withdrawn
from the aquifer in certain areas of Southern New Jersey. The project
is currently estimated to cost $16,500,000 and is expected to be
completed by the end of 1996. A decision by the BPU on Mount
Holly's petition is expected by the end of 1995. While management
believes that the water supply, treatment and transmission project
planned for Mount Holly is a cost-effective response to State
legislation affecting the area and that the costs incurred by Mount
Holly since rates were last increased are appropriate, management
cannot predict the ultimate outcome of the rate proceeding at this
time.
In August 1993, the BPU approved a stipulation (1993 Plant
Stipulation) signed by the Department of Ratepayer Advocate, the BPU
staff and several of Elizabethtown's major wholesale customers, all of
whom typically participate in Elizabethtown's rate cases. The 1993
Plant Stipulation states that the Plant is necessary and that the
Company's estimates regarding the Plant's cost ($87,000,000 at that
time) and construction period are reasonable (See Note 8). In April
1994, Elizabethtown notified all parties to the 1993 Plant Stipulation
that the estimated cost of the Plant had increased. The 1993 Plant
Stipulation authorizes the Company to levy a rate surcharge during the
Plant's construction period if the Company's pre-tax interest coverage
ratio for any twelve-month historical period drops below 2.0 times.
The surcharge would equal 20% of the Company's gross interest expense
for the prior twelve 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.
-24-
Also, the surcharge would remain in effect for twelve
months and could be extended by the BPU for up to six
additional months. The 1993 Plant Stipulation also
provides that the rate of return on common
stockholder's equity used to calculate the rate for the
equity component of the AFUDC for the Plant will be 1.5% less
than the rate of return on common stockholder's equity
established in the Company's most recent base rate case. The
authorized rate of return on common stockholder's equity is
currently 11.5%. Elizabethtown's pre-tax interest coverage
ratio, calculated in accordance with the 1993 Plant Stipulation
for the twelve months ended June 30, 1995 was 2.7 times. Based
upon current conditions, the Company expects its pre-tax interest
coverage will remain above the 2.0 times trigger level through
the completion of the Plant's construction and that the surcharge
will be not required.
Main Extension Refunds
Previous disclosures have detailed events surrounding several
lawsuits filed by developers with respect to the BPU's suggested
refund formula for particular main extension agreements. The
BPU's formula suggests refunds of 2 1/2 times revenues for each
metered connection for water service. The plaintiffs had
received refunds in accordance with this suggested formula. The
initial petitions by the developers and the related litigation
have been ongoing since 1984 with numerous BPU decisions,
Appellate Division decisions and a New Jersey Supreme Court
Decision.
On June 6, 1995 the New Jersey Supreme Court once again reviewed
these matters and declined to hear the final appeal of the
developers. Effectively, the BPU's suggested refund formula has
been reaffirmed and therefore, no refunds in excess of the 2 1/2
times refund formula are required by the Company. There are
still some minor additional issues pertaining to some of these
agreements that will be addressed by the BPU.
8. COMMITMENTS AND CONTINGENT LIABILITIES
Capital expenditures for the three-year period ended December 31, 1997
are estimated to be $171,500,000, of which $170,400,000 is for
Elizabethtown's and Mount Holly's water utility plant ($149,500,000
for Elizabethtown and $20,900,000 for Mount Holly) and $1,100,000 is
for real estate-related expenditures and AWM.
Canal Road Water Treatment Plant
In April 1994, following a competitive bidding process, Elizabethtown
executed a fixed-price contract for the construction of the Plant.
The current estimated cost of the Plant is approximately $100,000,000,
excluding AFUDC. As of June 30, 1995, the Company has expended
$54,811,779, excluding AFUDC of $4,030,452 on the Plant.
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Joint Venture
In March 1995, the Corporation entered into a three 3-year joint
venture agreement with Applied Wastewater General Partnership
(AWG) by forming a New Jersey Limited Liability Company, Applied
Watershed Management, L.L.C.(AWM), 65% of which is owned by
E'town. AWG is a unit of several privately held and affiliated
companies providing design, engineering, construction and
operating services for water and wastewater facilities in the
western portion of Elizabethtown's service area. AWM intends to
design, finance, engineer, construct, own, operate and/or sell
water and wastewater facilities, primarily in New Jersey. E'town
has agreed to provide capital contributions to AWM of up to
$500,000 to finance AWM's working capital needs. E'town may
provide additional financing for particular projects of AWM. AWG will
provide the substantial portion of the operations-related services
required to be performed by AWM. Either party may terminate the
agreement at any time.
9. LEGAL MATTERS
Several lawsuits have been filed against Elizabethtown and other
parties in connection with a fire that occurred in a storage facility
in December 1989 resulting in damage to property stored at that
facility. The lawsuits allege that the water mains surrounding the
industrial complex failed to provide an adequate flow of water
necessary to fight the fire. The suits further allege that the
Company was negligent in failing to ensure that the sprinkler systems
were operational prior to the fire, resulting in those sprinkler
systems being without water at the time of the fire. The aggregate
amount of claims made to date against six other defendants and the
Company is approximately $3,000,000. The cause and origin of the fire
have not been definitively determined and the case has not yet
progressed to the point where the claims against Elizabethtown can be
quantified with certainty. However, counsel to Elizabethtown has
advised that, under applicable New Jersey case law, Elizabethtown's
potential exposure should not exceed $1,500,000. The actual amount
of liability, if any, depends upon the theory of liability which may
ultimately be employed and the application of available insurance.
Management is vigorously contesting the case but cannot now predict
the outcome of this litigation.
10. TAX MATTERS
In the second quarter of 1995 the Internal Revenue Service (Service)
concluded an examination of the Corporation's Federal income tax
returns for the tax years 1987 through 1992. The Service had raised
issues related to tax deductions taken initially in 1988 for certain
land transactions. The Corporation has settled this matter with the
Service. The effect on net income for the year ended
December 31, 1994 was approximately $313,400 or $.05 per common share.
An additional estimated charge of $260,000 or $.04 per common share
had been recognized in the first quarter of 1995. The final
assessment resulted in a total charge to net income of $504,372. In
addition, the Corporation has applied to the Service for refunds
related to 1984 and 1985 which result in an increase in net income of
approximately $213,000 or $.03 per share. These transactions have
been reflected in the accompanying financial statements for the second
quarter of 1995.
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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), E'town Properties, Inc. (Properties) and
Applied Watershed Management, L.L.C.(AWM), a 65%-owned joint venture.
The Mount Holly Water Company (Mount Holly) is a wholly owned
subsidiary of Elizabethtown. The assets and operating results of
Elizabethtown constitute the predominant portions of E'town's assets
and operating results. Mount Holly contributed 3% of the Company's
consolidated operating revenues for the twelve months ended June 30,
1995. The following analysis sets forth significant events affecting
the financial condition of E'town and Elizabethtown at June 30, 1995,
and the results of operations for the three, six and twelve months
ended June 30, 1995 and 1994.
LIQUIDITY AND CAPITAL RESOURCES
Capital Expenditures Program
Capital expenditures, primarily for water utility plant, were
$30.0 million for the first six months of 1995. Capital expenditures
for the three-year period ending December 31, 1997 are estimated to be
$171.5 million, of which $170.4 million is for water utility plant
($149.5 million for Elizabethtown and $20.9 million for Mount Holly),
and $1.1 million is for real estate-related expenditures and AWM.
A major portion of the utilities' capital outlays will occur in
the first 18 months of the three-year projection period through 1997
as Elizabethtown and Mount Holly invest in new water treatment and
water supply facilities, each as described below. After these
projects are completed, the capital outlays for the utilities are
expected to decrease.
Elizabethtown
Elizabethtown's capital program includes the construction of a
new water treatment plant, the Canal Road Water Treatment Plant
(Plant), near Elizabethtown's existing plant. The Plant, which will
have an initial rated production capacity of 40 million gallons per
day and can be expanded to 200 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.
Expansion of the Plant's production capacity beyond 40 million gallons
per day is not expected to occur in the foreseeable future.
Elizabethtown's capital program also includes the construction of
additional mains and storage facilities necessary to serve existing
and future customers.
In April 1994, following a competitive bidding process,
Elizabethtown executed a fixed-price contract for the construction of
the Plant. The current estimated cost of the Plant is approximately
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$100 million, excluding an Allowance for Funds Used During
Construction (AFUDC). As of June 30, 1995, the Company has
expended $54.8 million, excluding AFUDC of $4.0 million on
the Plant. The project is proceeding on schedule, the
construction contract remains on budget, and the project is
expected to be completed in mid-1996. Elizabethtown intends
to file for rate relief later in 1995, a major portion of
which will relate to the Plant (See Economic
Outlook-Elizabethtown and Subsidiary.)
In August 1993, the New Jersey Board of Public Utilities (BPU)
approved a stipulation (the 1993 Plant Stipulation) signed by the
Department of Ratepayer Advocate, the BPU staff and several of
Elizabethtown's major wholesale customers, all of whom typically
participate in Elizabethtown's rate cases. The 1993 Plant Stipulation
states the Plant is necessary and the Company's estimate regarding the
Plant's cost ($87 million at that time), and construction period are
reasonable. In April 1994, Elizabethtown notified all parties to the
1993 Plant Stipulation that the estimated cost of the Plant had
increased. 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 twelve-month
historical period drops below 2.0 times. The surcharge would equal
20% of the Company's gross interest expense for the prior twelve
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. Also, the surcharge would
remain in effect for twelve months and could be extended by the BPU
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%. Elizabethtown's pre-tax interest coverage
ratio, calculated in accordance with the 1993 Plant Stipulation, for
the twelve months ended June 30, 1995 was 2.7 times. Based upon
current conditions, the Company expects its pre-tax interest coverage
will remain above the 2.0 times trigger level through the completion
of the Plant's construction and that the surcharge will not be
required.
Mount Holly
To ensure an adequate supply of quality water from an aquifer
serving parts of southern New Jersey, State legislation is requiring
Mount Holly, as well as other suppliers obtaining water from
designated portions of this aquifer, to reduce pumpage from its wells.
Mount Holly has received preliminary approvals from the New Jersey
Department of Environmental Protection for its conceptual plan to
develop a new water supply, treatment and transmission system
necessary to obtain water outside the designated portion of the
aquifer and to treat the water and pump it into the Mount Holly
system. This is referred to as the Mansfield Project. The project is
currently estimated to cost $16.5 million and is expected to be
-28-
completed by the end of 1996. The land for the supply and
treatment facilities has been purchased and test wells have
been drilled and evaluated.
On June 26, 1995, Mount Holly petitioned the BPU for an increase
in rates, to take place in two phases. In the first phase rates would
be increased by $.9 million and in the second phase by $2.8 million.
The first phase is necessary to recover costs that were not reflected
in rates last increased in October 1986. The second phase would
recover the costs of the Mansfield Project as well as other planned
capital improvements. The Mansfield project is deemed to be the most
cost-effective alternative available to Mount Holly to comply with the
legislation discussed above. While management believes that the water
supply, treatment and transmission project planned for Mount Holly is
a cost-effective response to the State legislation affecting the area
and that the costs incurred by Mount Holly since rates were last
increased are appropriate, management cannot predict the ultimate
outcome of the rate proceeding at this time.
CAPITAL RESOURCES
For the three-year period ending December 31, 1997, Elizabethtown,
including Mount Holly, estimates 30% of its capital expenditures will
be financed with internally generated funds (after payment of common
stock dividends). Management believes that the Company will be able
to finance the balance with a combination of capital contributions
from the proceeds of E'town common stock sales, proceeds from the sale
by Elizabethtown of preferred stock, long-term debentures and from
tax-exempt New Jersey Economic Development Authority (NJEDA) bonds and
short-term borrowings by Elizabethtown under its 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.
In July 1994, Elizabethtown executed a committed revolving credit
agreement (Agreement) with an agent bank and five additional banks.
The Agreement allows Elizabethtown to borrow, repay and reborrow up to
$60 million during the first three years, after which time
Elizabethtown may convert any outstanding balances to a five-year
fully amortizing term loan. The Agreement further provides that,
among other covenants, Elizabethtown must maintain a 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. As of June
30, 1995, the ratio of Elizabethtown's common and preferred equity to
total capitalization was 51%. For the twelve months ended June 30,
1995 Elizabethtown's pre-tax interest coverage ratio, calculated in
accordance with the Agreement, was 3.0 to 1. At June 30, 1995,
Elizabethtown had short-term borrowings outstanding of $34.0 million
under the Agreement at interest rates from 6.2% to 6.8%, at a weighted
average interest rate of 6.3%.
In June 1995, E'town issued 660,000 shares of common stock for net
proceeds of $17.0 million. The proceeds were used to fund equity
contributions to Elizabethtown totalling $16.9 million. These equity
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contributions have been used to repay short-term debt which
had been issued under Elizabethtown's revolving credit
agreement to partially fund the Company's capital program,
the predominant portion of which relates to the construction
of the Canal Road Water Treatment Plant. E'town routinely
makes equity contributions to Elizabethtown which represent
the proceeds of common stock issued under E'towns Dividend
Reinvestment and Stock Purchase Plan (DRIP). E'town contributed
$2.9 million from proceeds of DRIP issuances to Elizabethtown for the
six months ended June 30, 1995.
Also in 1995, Elizabethtown intends to issue approximately
$30 million of tax-exempt debentures through the NJEDA to repay a
portion of the balances outstanding under the revolving credit
agreement incurred for qualified capital expenditures.
RESULTS OF OPERATIONS
Net Income for the three months ended June 30, 1995 was
$4.2 million or $.61 per share on a primary basis as compared to
$3.0 million or $.49 per share for the comparable 1994 period. An
increase in operating income of $.7 million accounted for the
predominant portion of the increase.
Net Income for the six months ended June 30, 1995 was
$7.2 million or $1.07 per share on a primary basis as compared to
$5.5 million or $.94 per share for the comparable 1994 period. An
increase in operating income of $1.0 million combined with an increase
in AFUDC of $1.9 million accounted for the predominant portion of the
increase.
Net Income for the twelve months ended June 30, 1995 was
$13.8 million or $2.08 per share on a primary basis as compared to
$13.8 million or $2.41 per share for the comparable 1994 period. A
small decrease in water consumption resulting in reduced revenues of
$1.1 million, in addition to a charge due to litigation of $.10 per
share in September 1994 and a gain on the sale of land of $.21 per
share in August 1993 all contributed to a minimal decrease in earnings
for the twelve months ending June 30, 1995 compared to the twelve
months ending June 30, 1994. Earnings per share was further affected
by a 16% increase in the average number of common shares outstanding
for the twelve-month period.
Operating Revenues increased $1.9 million or 7.5% for the three
months ended June 30, 1995 compared to the comparable period in 1994.
Included in this increase is $1.3 million which relates to a rate
increase for Elizabethtown, effective February 1, 1995. Sales to
retail customers increased by $.3 million. Sales to other water
systems decreased by $.1 million and sales to large industrial
customers increased by $.3 million. Due to normal growth within the
service territory, fire service revenues increased by $.1 million.
Operating revenues increased $2.4 million or 4.8% for the six
months ended June 30, 1995 compared to the comparable period in 1994.
Included in this increase, is $2.2 million which relates to the rate
increase for Elizabethtown effective February 1, 1995. Sales to
-30-
retail customers increased by $.1 million. Sales to other
water systems decreased by $.3 million and sales to large
industrial customers increased by $.2 million. Fire service
revenues increased by $.2 million.
Operating Revenues increased $1.6 million or 1.5% for the twelve
months ended June 30, 1995 over the comparable period in 1994.
Included in this increase, is $2.4 million which relates to the effect
of a $5.3 million rate increase effective February 1, 1995. Also,
sales to retail customers decreased $1.1 million and sales to
industrial and fire service customers increased by $.4 million and
$.3 million, respectively. Sales to other water systems decreased by
$.4 million.
Operation Expenses increased $.6 million or 6.1%, $.7 million or
3.3% and $.4 million or .9% for the three, six and twelve months ended
June 30, 1995, respectively, compared to the comparable periods in
1994. The increases are due primarily to increased costs for labor,
benefits, miscellaneous expenses and the unit cost of raw water
purchased from the New Jersey Water Supply Authority, which is
reflected in a Purchased Water Adjustment Clause, (see Note 7 to the
Notes to Consolidated Financial Statements) in addition to the cost of
chemicals to treat such water. Benefit costs increased due primarily
to an increase in the actuarially calculated pension expense.
Maintenance Expenses decreased $.1 million or 5.1% and $.3 million
or 9.1% and increased $.3 million or 4.2% for the three, six, and
twelve months ended June 30, 1995, respectively, compared to the
comparable periods in 1994. The decreases for the three and six month
periods are due to expenditures for the effects of unusually harsh
winter weather in the first quarter of 1994. The increase for the
twelve month period is due to an increased level of preventive
maintenance at various operating facilities throughout the Company.
Depreciation Expense increased $.2 million or 9.6%, $.4 million or
9.9% and $.7 million or 9.3% for the three, six and twelve month
periods ended June 30, 1995, respectively, compared to the comparable
periods in 1994. The increases are due to higher depreciation rates
as a result of Elizabethtown's rate increase effective February 1995
as well as a higher level of depreciable plant in service.
Revenue Taxes increased $.3 million for both the three and six
month periods and $.2 million for the twelve month period ended
June 30, 1995 compared to the 1994 periods due to increases in the
revenues on which these taxes are calculated.
Real Estate, Payroll and Other Taxes decreased less than
$.1 million for both the three and six month periods and increased
$.1 million for the twelve month period ended June 30, 1995,
respectively, compared to the comparable periods in 1994. The
increase for the twelve month period is due to payroll taxes resulting
from labor cost increases.
-31-
Federal Income Taxes increased $.2 million or 15.4% and
$.4 million or 12.3% for the three and six month periods,
respectively, and decreased $.2 million or 2.9% for the twelve month
period ended June 30, 1995, compared to the comparable periods in 1994
due to the changes in the components of taxable income discussed
herein. Included in these changes are refunds of $.1 million of
Federal income taxes for which the Corporation has applied related to
1984 and 1985.
Other Income increased $.4 million and $.8 million for the three
and six month periods, respectively, and decreased $.5 million for the
twelve month period ended June 30, 1995, compared to the comparable
periods in 1994. Included in these net increases and decreases is a
litigation settlement of $.9 million in September 1994 and a gain on
the sale of land in August 1993 of $1.7 million. In addition,
increases in the equity component of AFUDC of $.6 million,
$1.0 million and $1.6 million for the three, six and twelve month
periods, respectively, resulted from increased construction
expenditures, primarily related to the Plant. Federal income taxes,
as a result of all of the above, increased $.2 million and $.4 million
and decreased $.3 million for the three, six and twelve month periods,
respectively.
Total Interest Charges decreased $.1 million or 5.4% for the three
month period, increased $.1 million or 1.7% for the six month period
and decreased $.1 million for the twelve month period ended
June 30, 1995, compared to the 1994 amounts. The net increase for the
three month period is primarily due to the effect of an increase in
the debt component of AFUDC due to Elizabethtown's higher level of
construction activity. This was partially offset by the interest on a
higher level of short-term borrowings under the revolving credit
agreement, which borrowings were incurred as a result of
Elizabethtown's capital program. The increases in interest charges
for the three, six and twelve month periods are the result of a higher
level of borrowings under the Agreement offset by increases in AFUDC.
For the twelve month period interest on long-term debt decreased by
$.3 million for the effect of savings from refinancing a portion of
the long-term debt in 1993. Included in the net changes in interest
expense for the three, six and twelve month periods ended June 30,
1995 is interest of $.2 million on refunds of Federal income taxes for
which the Corporation has applied related to 1984 and 1985.
Preferred Stock Dividends decreased less than $.1 million and
$.2 million for the six and twelve month periods due to savings from
the refinancing of the $8.75 series preferred stock with $5.90 series
preferred stock in March 1994.
ECONOMIC OUTLOOK
Consolidated earnings for E'town for the next several years will
be determined primarily by Elizabethtown's ability to generate
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adequate earnings and, to a lesser degree, the ability of
Properties, E'town and AWM to generate earnings from their
unregulated businesses.
Elizabethtown and Subsidiary
Currently, Elizabethtown and Mount Holly believe they are, in all
material respects, in compliance with all water quality standards.
Looking forward, however, governmental water quality and service
regulations are requiring Elizabethtown and Mount Holly to make
significant investments in water supply, water treatment, transmission
and storage facilities including, for Elizabethtown, the Plant, and
for Mount Holly, a new water supply, treatment and transmission system
to augment existing facilities. This capital program will require
regular external financing and rate relief through 1996.
The timing and amount of rate increases obtained by Elizabethtown
and Mount Holly, as well as various other factors, including weather,
customer usage, the magnitude and timing of capital expenditures and
the rate of growth of revenues and expenditures, will affect earnings
going forward in 1995 and 1996. Elizabethtown and Mount Holly expect
that upon the completion and successful reflection in rates of their
respective new utility plant projects, discussed above, their capital
requirements for utility plant should decrease, thereby reducing the
need for rate increases and external financing.
On January 24, 1995, the BPU approved a Stipulation (1995
Stipulation) for a rate increase for Elizabethtown of $5.3 million or
5.3%, effective February 1, 1995. The 1995 Stipulation requires
Elizabethtown to maintain an average ratio of common equity to total
capitalization of at least 45.1% for the twelve months ended
January 31, 1996. If a lesser ratio is realized, the revenue
requirement associated with such lesser ratio will offset the overall
revenue requirement in the next base rate case. The Company expects
to sustain an average ratio of common equity to total capitalization
in excess of 45.1% for the twelve-month period.
A rate increase will be requested by Elizabethtown later in 1995,
to be effective in mid-1996, a major portion of which will be needed
to recover the expected costs of the Plant. In light of the approval
by the BPU of the 1993 Plant Stipulation and Elizabethtown's
experience in obtaining base rate relief, Elizabethtown expects the
BPU to grant timely and adequate rate relief for the Plant, but cannot
predict the ultimate outcome of any rate proceeding.
In June 1995, Mount Holly petitioned the BPU for an increase in
rates, to take place in two phases. (See Liquidity and Capital
Resources).
E'town
The Corporation has entered into a three-year joint venture
agreement with Applied Wastewater General Partnership (AWG) by forming
a New Jersey Limited Liability Company, Applied Watershed Management,
L.L.C. (AWM), 65% of which is owned by E'town. AWG is a unit of
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several privately held and affiliated companies providing
design, engineering, construction and operating services for
water and wastewater facilities in the western portion of
Elizabethtown's service area. AWM intends to design,
finance, engineer, construct, own, operate and/or sell water
and wastewater facilities primarily in New Jersey. E'town
has agreed to provide capital contributions to AWM up to $.5
million to finance AWM's working capital needs. E'town may
provide additional financing for particular projects of AWM. AWG will
provide the substantial portion of the operations-related services
required to be performed by AWM. Either party may terminate the
agreement at any time.
In the second quarter of 1995 the Internal Revenue Service
(Service) concluded an examination of the Corporation's Federal income
tax returns for the tax years 1987 through 1992. The Service had
raised issues related to tax deductions taken initially in 1988 for
certain land transactions. The Corporation has settled this matter
with the Service. The effect on net income for the year ended
December 31, 1994 was approximately $.3 million, or $.05 per common
share. An additional estimated charge of $.3 million, or $.04 per
common share had been recognized in the first quarter of 1995. The
final assessment resulted in a total charge to net income of $.5
million. In addition, the Corporation had applied to the Service for
refunds related to 1984 and 1985 which result in an increase in net
income of approximately $.3 million or $.03 per share. These
transactions have been reflected in the accompanying financial
statement for the second quarter of 1995.
Properties
Included in Non-utility Property and Other Investments in the
Consolidated Balance Sheets of E'town at June 30, 1995 is
$12.0 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 1994, the estimated net realizable
value of each property exceeds its respective carrying value as of
June 30, 1995, after the adjustments to the Mansfield property
discussed below.
Properties continues to seek permits and more favorable zoning
treatment for its Mansfield, New Jersey property and, accordingly,
continues to capitalize various carrying charges. During the second
quarter of 1993, the carrying value of the Mansfield property 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 estimated
net realizable value of the property remains constant. Charges of
$.1 million, $.2 million and $.4 million for the three, six and twelve
months ended June 30, 1995, respectively, to adjust the carrying value
-34-
of the Mansfield property, have 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 net realizable value of the property should be expected.
The Corporation will continue to monitor the relationship between
the carrying and net realizable values of its properties through
updated appraisals.
In January 1995, Properties entered into an agreement to sell a
parcel of land to a developer. The agreement requires the buyer to
obtain all approvals required by governmental agencies in order to
develop the property. Properties may cancel the agreement if the
closing does not occur by December 31, 1996. Other events have been
established during this period at which time either the buyer or
Properties may cancel the agreement if certain criteria, generally
relating to the development potential of the property, are not met.
The ultimate sale price is dependent upon the number of buildable lots
allowed by the municipality.
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PART II - OTHER INFORMATION
Item 1:
Legal Proceedings
Several lawsuits have been filed against Elizabethtown and other
parties in connection with a fire that occurred in a storage
facility in December 1989 resulting in damage to property stored
at that facility. The lawsuits allege that the water mains
surrounding the industrial complex failed to provide an adequate
flow of water necessary to fight the fire. The suits further
allege that the Company was negligent in failing to ensure that
sprinkler systems were operational prior to the fire, resulting
in those sprinkler systems being without water at the time of the
fire. The aggregate amount of claims made to date against six
other defendants and the Company is approximately $3.0 million.
The cause and origin of the fire have not been definitively
determined and the case has not yet progressed to the point where
the claims against Elizabethtown can be quantified with
certainty. However, counsel to Elizabethtown has advised that,
under applicable New Jersey case law, Elizabethtown's potential
exposure should not exceed $1.5 million. The actual amount of
liability, if any, depends upon the theory of liability which may
be ultimately employed and the application of available
insurance. Management is vigorously contesting the case but
cannot now predict the outcome of this litigation.
Items 2 - 4:
Nothing to report.
Item 5: Other Information
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 Computation of Ratio of Earnings
to Fixed Charges and Preferred Dividends
Exhibit 27 - Financial Data Schedules
Item 6(b) - Reports on Form 8-K
Items Reported: None
-36-
E'TOWN CORPORATION
ELIZABETHTOWN WATER COMPANY
SIGNATURES
__________
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Date: August 14, 1995 E'TOWN CORPORATION
/s/ Andrew M. Chapman
______________________________________
Andrew M. Chapman
Chief Financial Officer
(Principal Financial & Accounting Officer)
/s/ Walter M. Braswell
______________________________________
Walter M. Braswell
Secretary
ELIZABETHTOWN WATER COMPANY
/s/ Andrew M. Chapman
______________________________________
Andrew M. Chapman
Chief Financial Officer
(Principal Financial Officer)
/s/ Dennis W. Doll
______________________________________
Dennis W. Doll
Controller
(Principal Accounting Officer)
-37-
EXHIBIT 11
Page 1 of 3
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
Three Months Ended
June 30,
1995 1994
_________ _________
PRIMARY
_______
EARNINGS
Income Before Preferred Stock
Dividends of Subsidiary $ 4,378,412 $ 3,167,948
Deduct: Preferred Stock Dividends 203,250 203,250
___________ ___________
Net Income Available for
Common Stock $ 4,175,162 $ 2,964,698
___________ ___________
___________ ___________
SHARES
Weighted Average Number of
Common Shares Outstanding 6,799,782 6,033,057
Assuming Exercise of Options
Reduced by the Number of Shares
Which Could Have Been Purchased
With the Proceeds From Exercise
of Such Options 634 3,326
___________ ___________
Weighted Average Number of Common
Shares Outstanding as Adjusted 6,800,416 6,036,383
___________ ___________
___________ ___________
Primary Earnings
Per Share of Common Stock $ 0.61 $ 0.49
___________ ___________
___________ ___________
ASSUMING FULL DILUTION
______________________
EARNINGS
Income Before Preferred Stock
Dividends of Subsidiary 4,378,412 3,167,948
Deduct: Preferred Stock Dividends 203,250 203,250
Add: After Tax Interest Expense
Applicable to 6 3/4% Convertible
Subordinated Debentures 131,101 137,991
___________ ___________
Adjusted Net Income $ 4,306,263 $ 3,102,689
___________ ___________
___________ ___________
SHARES
Weighted Average Number of
Common Shares Outstanding 6,799,782 6,033,057
Assuming Exercise of Options
Reduced by the Number of Shares
Which Could Have Been Purchased
With the Proceeds From Exercise
of Such Options 634 3,326
Assuming Conversion of 6 3/4%
Convertible Subordinated
Debentures (a) 299,626 310,595
___________ ___________
Weighted Average Number of Common
Shares Outstanding as Adjusted 7,100,042 6,346,978
___________ ___________
___________ ___________
Fully Diluted Earnings
Per Share of Common Stock $ 0.61 $ 0.49
___________ ___________
___________ ___________
(a) Convertible at $40 per share.
EXHIBIT 11
Page 2 of 3
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
Six Months Ended
June 30,
1995 1994
_________ _________
PRIMARY
_______
EARNINGS
Income Before Preferred Stock
Dividends of Subsidiary $ 7,596,340 $ 5,953,928
Deduct: Preferred Stock Dividends 406,500 452,517
___________ ___________
Net Income Available for
Common Stock $ 7,189,840 $ 5,501,411
___________ ___________
___________ ___________
SHARES
Weighted Average Number of
Common Shares Outstanding 6,718,132 5,855,997
Assuming Exercise of Options
Reduced by the Number of Shares
Which Could Have Been Purchased
With the Proceeds From Exercise
of Such Options 469 4,813
___________ ___________
Weighted Average Number of Common
Shares Outstanding as Adjusted 6,718,601 5,860,810
___________ ___________
___________ ___________
Primary Earnings
Per Share of Common Stock $ 1.07 $ 0.94
___________ ___________
___________ ___________
ASSUMING FULL DILUTION
______________________
EARNINGS
Income Before Preferred Stock
Dividends of Subsidiary 7,596,340 5,953,928
Deduct: Preferred Stock Dividends 406,500 452,517
Add: After Tax Interest Expense
Applicable to 6 3/4% Convertible
Subordinated Debentures 261,908 274,650
___________ ___________
Adjusted Net Income $ 7,451,748 $ 5,776,061
___________ ___________
___________ ___________
SHARES
Weighted Average Number of
Common Shares Outstanding 6,718,132 5,855,997
Assuming Exercise of Options
Reduced by the Number of Shares
Which Could Have Been Purchased
With the Proceeds From Exercise
of Such Options 469 4,813
Assuming Conversion of 6 3/4%
Convertible Subordinated
Debentures (a) 300,946 310,803
___________ ___________
Weighted Average Number of Common
Shares Outstanding as Adjusted 7,019,547 6,171,613
___________ ___________
___________ ___________
Fully Diluted Earnings
Per Share of Common Stock $ 1.06 $ 0.94
___________ ___________
___________ ___________
(a) Convertible at $40 per share.
EXHIBIT 11
Page 3 of 3
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
Twelve Months Ended
June 30,
1995 1994
_________ _________
PRIMARY
_______
EARNINGS
Income Before Preferred Stock
Dividends of Subsidiary $14,584,202 $14,792,251
Deduct: Preferred Stock Dividends 808,030 977,517
___________ ___________
Net Income Available for
Common Stock $13,776,172 $13,814,734
___________ ___________
___________ ___________
SHARES
Weighted Average Number of
Common Shares Outstanding 6,635,088 5,723,996
Assuming Exercise of Options
Reduced by the Number of Shares
Which Could Have Been Purchased
With the Proceeds From Exercise
of Such Options 692 6,930
___________ ___________
Weighted Average Number of Common
Shares Outstanding as Adjusted 6,635,780 5,730,926
___________ ___________
___________ ___________
Primary Earnings
Per Share of Common Stock $ 2.08 $ 2.41
___________ ___________
___________ ___________
ASSUMING FULL DILUTION
______________________
EARNINGS
Income Before Preferred Stock
Dividends of Subsidiary 14,584,202 14,792,251
Deduct: Preferred Stock Dividends 808,030 977,517
Add: After Tax Interest Expense
Applicable to 6 3/4% Convertible
Subordinated Debentures 533,615 551,427
___________ ___________
Adjusted Net Income $14,309,787 $14,366,161
___________ ___________
___________ ___________
SHARES
Weighted Average Number of
Common Shares Outstanding 6,635,088 5,723,996
Assuming Exercise of Options
Reduced by the Number of Shares
Which Could Have Been Purchased
With the Proceeds From Exercise
of Such Options 692 6,930
Assuming Conversion of 6 3/4%
Convertible Subordinated
Debentures (a) 304,055 311,831
___________ ___________
Weighted Average Number of Common
Shares Outstanding as Adjusted 6,939,835 6,042,757
___________ ___________
___________ ___________
Fully Diluted Earnings
Per Share of Common Stock $ 2.06 $ 2.38
___________ ___________
___________ ___________
(a) Convertible at $40 per share.
Exhibit 12
Page 1 of 6
Elizabethtown Water Company & Subsidiary
Computation of Ratio of Earnings to Fixed Charges
and Preferred Dividends
Three Months Ended
June 30,
1995 1994
________ ________
EARNINGS:
Income before preferred stock dividends $4,377,222 $3,484,046
Federal income taxes 2,310,565 1,828,914
Interest charges 2,747,282 2,637,873
___________ ___________
Earnings available to cover fixed charges $9,435,069 $7,950,833
___________ ___________
___________ ___________
FIXED CHARGES AND
PREFERRED DIVIDENDS:
Interest on long-term debt 2,693,560 2,693,518
Preferred dividend requirement (1) 310,542 309,927
Other interest 616,363 570
Amortization of debt discount - net 80,889 80,889
___________ ___________
Total fixed charges $3,701,354 $3,084,904
___________ ___________
___________ ___________
Ratio of Earnings to Fixed Charges
and Preferred Dividends 2.55 2.58
___________ ___________
___________ ___________
(1) Preferred Dividend Requirement:
Preferred dividends $203,250 $203,250
Effective tax rate 34.55% 34.42%
___________ ___________
Preferred dividend requirement $310,542 $309,927
___________ ___________
___________ ___________
Earnings to Fixed Charges and Preferred Dividends represents the sum of
Income Before Preferred Stock Dividends, Federal income taxes and Interest
Charges (which is reduced by Allowance for Debt Funds Used During Construction),
divided by Fixed Charges. Fixed Charges and Preferred Dividends consist of
interest on long and short-term debt (which is not reduced by Allowance for Debt
Funds Used During Construction), dividends on Preferred Stock on a pre-tax basis
and Amortization of debt discount.
Exhibit 12
Page 2 of 6
Elizabethtown Water Company & Subsidiary
Computation of Ratio of Earnings to Fixed Charges
and Preferred Dividends
Six Months Ended
June 30,
1995 1994
________ ________
EARNINGS:
Income before preferred stock dividends $8,029,855 $6,565,556
Federal income taxes 4,231,698 3,442,508
Interest charges 5,443,439 5,288,921
___________ ___________
Earnings available to cover fixed charges $17,704,992 $15,296,985
___________ ___________
___________ ___________
FIXED CHARGES AND
PREFERRED DIVIDENDS:
Interest on long-term debt 5,387,121 5,386,891
Preferred dividend requirement (1) 620,705 689,813
Other interest 1,040,105 4,074
Amortization of debt discount - net 161,778 157,867
___________ ___________
Total fixed charges $7,209,709 $6,238,645
___________ ___________
___________ ___________
Ratio of Earnings to Fixed Charges
and Preferred Dividends 2.46 2.45
___________ ___________
___________ ___________
(1) Preferred Dividend Requirement:
Preferred dividends $406,500 $452,517
Effective tax rate 34.51% 34.40%
___________ ___________
Preferred dividend requirement $620,705 $689,813
___________ ___________
___________ ___________
Earnings to Fixed Charges and Preferred Dividends represents the sum of
Income Before Preferred Stock Dividends, Federal income taxes and Interest
Charges (which is reduced by Allowance for Debt Funds Used During Construction),
divided by Fixed Charges. Fixed Charges and Preferred Dividends consist of
interest on long and short-term debt (which is not reduced by Allowance for Debt
Funds Used During Construction), dividends on Preferred Stock on a pre-tax basis
and Amortization of debt discount.
Exhibit 12
Page 3 of 6
Elizabethtown Water Company & Subsidiary
Computation of Ratio of Earnings to Fixed Charges
and Preferred Dividends
Twelve Months Ended
June 30,
1995 1994
________ ________
EARNINGS:
Income before preferred stock dividends $15,687,441 $14,844,915
Federal income taxes 8,203,185 8,087,762
Interest charges 10,556,578 10,925,005
___________ ___________
Earnings available to cover fixed charges $34,447,204 $33,857,682
___________ ___________
___________ ___________
FIXED CHARGES AND
PREFERRED DIVIDENDS:
Interest on long-term debt 10,774,238 11,105,780
Preferred dividend requirement (1) 1,230,627 1,510,145
Other interest 1,211,538 18,402
Amortization of debt discount - net 323,557 273,856
___________ ___________
Total fixed charges $13,539,960 $12,908,183
___________ ___________
___________ ___________
Ratio of Earnings to Fixed Charges
and Preferred Dividends 2.54 2.62
___________ ___________
___________ ___________
(1) Preferred Dividend Requirement:
Preferred dividends $808,030 $977,517
Effective tax rate 34.34% 35.27%
___________ ___________
Preferred dividend requirement $1,230,627 $1,510,145
___________ ___________
___________ ___________
Earnings to Fixed Charges and Preferred Dividends represents the sum of
Income Before Preferred Stock Dividends, Federal income taxes and Interest
Charges (which is reduced by Allowance for Debt Funds Used During Construction),
divided by Fixed Charges. Fixed Charges and Preferred Dividends consist of
interest on long and short-term debt (which is not reduced by Allowance for Debt
Funds Used During Construction), dividends on Preferred Stock on a pre-tax basis
and Amortization of debt discount.
Exhibit 12
Page 4 of 6
Elizabethtown Water Company & Subsidiary
Computation of Ratio of Earnings to Fixed Charges
Three Months Ended
June 30,
1995 1994
________ ________
EARNINGS:
Income before preferred stock dividends $4,377,222 $3,484,046
Federal income taxes 2,310,565 1,828,914
Interest charges 2,747,282 2,637,873
___________ ___________
Earnings available to cover fixed charges $9,435,069 $7,950,833
___________ ___________
___________ ___________
FIXED CHARGES:
Interest on long-term debt 2,693,560 2,693,518
Other interest 616,363 570
Amortization of debt discount - net 80,889 80,889
___________ ___________
Total fixed charges $3,390,812 $2,774,977
___________ ___________
___________ ___________
Ratio of Earnings to Fixed Charges 2.78 2.87
___________ ___________
___________ ___________
Earnings to Fixed Charges represents the sum of Income Before Preferred Stock
Dividends, Federal income taxes and Interest Charges (which is reduced by
Allowance for Debt Funds Used During Construction), divided by Fixed Charges.
Fixed Charges consist of interest on long and short-term debt (which is not
reduced by Allowance for Debt Funds Used During Construction), and Amortization
of debt discount.
Exhibit 12
Page 5 of 6
Elizabethtown Water Company & Subsidiary
Computation of Ratio of Earnings to Fixed Charges
Six Months Ended
June 30,
1995 1994
________ ________
EARNINGS:
Income before preferred stock dividends $8,029,855 $6,565,556
Federal income taxes 4,231,698 3,442,508
Interest charges 5,443,439 5,288,921
___________ ___________
Earnings available to cover fixed charges $17,704,992 $15,296,985
___________ ___________
___________ ___________
FIXED CHARGES AND
Interest on long-term debt 5,387,121 5,386,891
Other interest 1,040,105 4,074
Amortization of debt discount - net 161,778 157,867
___________ ___________
Total fixed charges $6,589,004 $5,548,832
___________ ___________
___________ ___________
Ratio of Earnings to Fixed Charges 2.69 2.76
___________ ___________
___________ ___________
Earnings to Fixed Charges represents the sum of Income Before Preferred Stock
Dividends, Federal income taxes and Interest Charges (which is reduced by
Allowance for Debt Funds Used During Construction), divided by Fixed Charges.
Fixed Charges consist of interest on long and short-term debt (which is not
reduced by Allowance for Debt Funds Used During Construction), and Amortization
of debt discount.
Exhibit 12
Page 6 of 6
Elizabethtown Water Company & Subsidiary
Computation of Ratio of Earnings to Fixed Charges
Twelve Months Ended
June 30,
1995 1994
________ ________
EARNINGS:
Income before preferred stock dividends $15,687,441 $14,844,915
Federal income taxes 8,203,185 8,087,762
Interest charges 10,556,578 10,925,005
___________ ___________
Earnings available to cover fixed charges $34,447,204 $33,857,682
___________ ___________
___________ ___________
FIXED CHARGES:
Interest on long-term debt 10,774,238 11,105,780
Other interest 1,211,538 18,402
Amortization of debt discount - net 323,557 273,856
___________ ___________
Total fixed charges $12,309,333 $11,398,038
___________ ___________
___________ ___________
Ratio of Earnings to Fixed Charges 2.80 2.97
___________ ___________
___________ ___________
Earnings to Fixed Charges represents the sum of Income Before Preferred Stock
Dividends, Federal income taxes and Interest Charges (which is reduced by
Allowance for Debt Funds Used During Construction), divided by Fixed Charges.
Fixed Charges consist of interest on long and short-term debt (which is not
reduced by Allowance for Debt Funds Used During Construction), and Amortization
of debt discount.
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