FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-11023
E'TOWN CORPORATION
(Exact name of registrant as specified in its charter)
New Jersey 22-2596330
(State of incorporation) (I.R.S. Employer Identification No.)
600 South Avenue
Westfield, New Jersey 07090
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (908) 654-1234
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, without par value New York Stock Exchange
Commission file number 0-628
ELIZABETHTOWN WATER COMPANY
(Exact name of registrant as specified in its charter)
New Jersey 22-1683171
(State of incorporation) (I.R.S. Employer Identification No.)
600 South Avenue
Westfield, New Jersey 07090
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (908) 654-1234
Securities reSecurities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
Securities registered pursuant to Section 12(g) of the Act: 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 Secrities 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 by check mark if disclosure of delinquent filers pursuant to Item 405
of regulation S-K is contained herein, and will not be contained, to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. __X__
On December 31, 1995, the aggregate market value of E'town Corporation's voting
stock held by non-affiliates was $226,636,460.
On December 31, 1995, there were 7,523,202 shares of Common Stock outstanding,
exclusive of treasury shares or shares held by subsidiaries of E'town
Corporation.
Note: All of the Common Stock of Elizabethtown Water Company is owned by E'town
Corporation.
Parts II and IV incorporate information by reference from the Annual Report to
Shareholders of E'town Corporation for the Year Ended December 31, 1995.
Part III incorporates information by reference from the definitive Proxy
Statement in connection with E'town Corporation's Annual Meeting of Shareholders
to be held on May 16, 1996.
E'TOWN CORPORATION
ELIZABETHTOWN WATER COMPANY
1995 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
ITEM PAGE
____ ____
1. Business...................................................... 1
Organization............................................... 1
Service Area and Customers................................. 1
Water Supply............................................... 2
Water Treatment Facilities and
Water Quality Regulations................................. 3
Transmission and Distribution.............................. 6
Energy Supply.............................................. 6
Environmental Matters...................................... 7
Franchises................................................. 8
Employee Relations......................................... 8
Rate Matters............................................... 8
Real Estate Matters........................................ 9
Executive Officers of the Corporation and Elizabethtown.... 11
2. Properties.................................................... 12
3. Legal Proceedings............................................. 12
4. Submission of Matters to a Vote of
Security Holders............................................. 12
PART II
ITEM
____
5. Market for the Corporation's Common Stock and
Related Stockholder Matters.................................. 12
6. Selected Financial Data....................................... 13
7. Management's Discussion and Analysis of
Consolidated Financial Condition and
Results of Operations......................................... 14
8. Financial Statements and Supplementary Data................... 23
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure....................... 23
PART III
ITEM PAGE
____ ____
10. Directors and Executive Officers of the Registrant............ 23
11. Executive Compensation........................................ 23
12. Security Ownership of Certain Beneficial
Owners and Management........................................ 23
13. Certain Relationships and Related
Transactions................................................. 23
PART IV
ITEM
____
14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K.......................................... 23
SIGNATURES........................................................... 26
APPENDIX I
Elizabethtown Water Company and Subsidiary
Consolidated Financial Statements for the Years
Ended December 31, 1995, 1994 and 1993 and
Independent Auditors' Report
<PAGE>
E'TOWN CORPORATION
ELIZABETHTOWN WATER COMPANY
Form 10-K
Annual Report
For the year ended December 31, 1995
PART I
ITEM 1. Business
ORGANIZATION
E'town Corporation (E'town or Corporation) was incorporated under
the laws of the State of New Jersey in 1985 to serve as a holding
company for Elizabethtown Water Company (Elizabethtown or Company) and
its wholly owned subsidiary, The Mount Holly Water Company (Mount
Holly). Elizabethtown and Mount Holly are regulated water utilities
which, as a consolidated entity, are referred to herein as
Elizabethtown Water Company (Elizabethtown Water Company). E'town
Properties, Inc. (Properties) was incorporated in 1987 as a wholly
owned and non-regulated subsidiary of E'town to acquire, develop and
sell real estate holdings.
Elizabethtown and Mount Holly are engaged in the distribution of
water for domestic, commercial, industrial and fire protection
purposes and for resale by other water companies and public bodies.
Elizabethtown is a New Jersey corporation, one of whose
predecessors was first incorporated in 1854. The present corporation
was formed in 1961 as a result of a consolidation of Elizabethtown
Water Company Consolidated and Plainfield-Union Water Company.
Princeton and Somerville Water Companies were merged into
Elizabethtown in 1973, and, as of January 1, 1977, Bound Brook Water
Company was also merged into Elizabethtown. Elizabethtown owns all of
the common stock of Mount Holly which contributed approximately 3% of
the Company's consolidated operating revenues for 1995.
SERVICE AREA AND CUSTOMERS
At December 31, 1995 Elizabethtown and Mount Holly furnished
water service on a retail basis to general customers and to industrial
customers served through 195,375 meters in 54 municipalities in the
counties of Union, Middlesex, Somerset, Mercer, Hunterdon, Ocean,
Morris and Burlington in the central part of New Jersey.
Elizabethtown also provides, on a wholesale basis, a portion of the
water requirements of eight additional municipalities with their own
retail water systems and of three other investor-owned water
companies. Water for fire protection service is provided to 53
municipalities and also to commercial and industrial establishments.
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The Company's operating revenues by major classifications for the
twelve months ending December 31, 1995 are as follows:
General customers 62.2%
Sales to other systems 17.3%
Larger industrial customers 7.3%
Fire protection service/miscellaneous 13.2%
The systems are substantially all metered except for fire
service.
Additional operating statistics appear on page 13.
WATER SUPPLY
The water supply systems of Elizabethtown and Mount Holly are
physically separate. During 1995, Elizabethtown's pumpage averaged
132.5 million gallons per day (MGD) and Mount Holly's pumpage averaged
3.6 MGD. Elizabethtown and Mount Holly believe they have sufficient
water supply sources to meet the current needs of their customers.
Mount Holly plans to construct additional facilities, as discussed
below, to augment its water supplies.
In 1995, surface water sources supplied approximately 88% of
Elizabethtown's supply with wells supplying the remaining 12%. All of
Mount Holly's water is produced from wells.
Substantially all of Elizabethtown's surface water is purchased
under a long-term contract with the New Jersey Water Supply Authority
(NJWSA) which requires Elizabethtown to purchase (i) 32 MGD from the
state-owned Delaware and Raritan Canal which transports water from the
Delaware River Basin plus (ii) 70 MGD from the Raritan River Basin
which includes the state-owned Spruce Run-Round Valley Reservoir
System. The safe yield of the Raritan River Basin and the Delaware
and Raritan Canal is 225 MGD of which 151 MGD is presently allocated
to Elizabethtown and others. The NJWSA has available and, as needed
to meet system demand, Elizabethtown purchases, water over and above
the Company's minimum purchase obligation.
The Company continues to analyze the potential effect of federal
and state regulations on the long-term capacity of Elizabethtown's
wells. Since 1985, wells with an aggregate capacity of 11 MGD have
been withdrawn from service due to more stringent federal and state
regulations and increased groundwater contamination at certain well
sites. Under state and federal regulations now in effect,
Elizabethtown owns and operates wells with an aggregate safe daily
yield of approximately 18 MGD. If regulations governing radionuclides
in drinking water proposed by the United States Environmental
Protection Agency (USEPA) are adopted, Elizabethtown's well capacity
will decrease to about 13 MGD.
All of Mount Holly's system delivery of 3.6 MGD in 1995 was
supplied from wells. To ensure an adequate supply of quality water
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from an aquifer serving parts of southern New Jersey, state
legislation will require Mount Holly, as well as other suppliers
obtaining water from designated portions of this aquifer, to reduce
pumpage from its wells. Mount Holly has a plan to develop a new water
supply, treatment and transmission system necessary to obtain water
outside the designated portion of the aquifer and to treat the water
and pump it into the Mount Holly system. This is referred to as the
Mansfield Project. The project is currently estimated to cost $16.5
million excluding an Allowance for Funds Used During Construction
(AFUDC). Construction is expected to begin after issuance of the
final water allocation diversion permit and is expected to be
completed in 1997. The land for the supply and treatment facilities
has been purchased and wells have been drilled and can produce the
required supply. Mount Holly has filed for rate relief relating to
the Mansfield Project.
On October 5, 1995, the New Jersey Department of Environmental
Protection (NJDEP) granted Mount Holly a water allocation diversion
permit for four wells that are to be the water supply for the
Mansfield Project. On October 20, 1995, New Jersey-American Water
Company requested, and was subsequently granted, an adjudicatory
hearing on the permit. The Company and Mount Holly believe that the
permit in question will be upheld but cannot predict the outcome of
the objection. In the event that the objection is successful and the
permit is rescinded Mount Holly would utilize the alternative plan of
purchasing water from New Jersey-American Water Company.
WATER TREATMENT FACILITIES AND WATER QUALITY REGULATIONS
Elizabethtown owns and operates a treatment plant at the
confluence of the Raritan and Millstone Rivers adjacent to the
Delaware and Raritan Canal to treat surface waters purchased from the
NJWSA. The plant can withdraw water from any of these sources, which
is an advantage in the event that one source becomes contaminated.
The plant was placed in service in 1931 and has continually been
upgraded since that time. Elizabethtown also operates smaller
treatment facilities to treat groundwater produced by certain wells.
Mount Holly operates similar groundwater treatment facilities.
Both the USEPA and the NJDEP regulate the operation of
Elizabethtown's and Mount Holly's water treatment and distribution
systems and the quality of the water Elizabethtown and Mount Holly
deliver to their customers. Currently, Elizabethtown and Mount Holly
believe they are in compliance, in all material respects, with all
present federal and state water quality standards, including all
regulations promulgated to date by the USEPA pursuant to the Federal
Safe Drinking Water Act, as amended (SDWA), and by the NJDEP pursuant
to similar state legislation. Elizabethtown has included certain
capital projects in its three-year capital expenditure plans which it
anticipates will be necessary to comply with regulations that have
been proposed by the USEPA and NJDEP. Recovery of the financing
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and operating costs of such improvements, plus those costs for any
additional projects which cannot be foreseen at this time, will be
requested in rates.
Elizabethtown has responded to recent water quality regulations
promulgated by NJDEP and the USEPA by replacing groundwater supplies
with increased withdrawals of surface water. Accordingly, the
proportion of supply produced from surface water has increased from
85% in 1986 to 88% in 1995. The Company expects this trend to
continue because it is preferable from the standpoint of operational
efficiency and cost to modify treatment processes and facilities at
one or two large plants than to attempt to constantly upgrade
treatment facilities at multiple well sites.
New Surface Water Treatment Plant
Elizabethtown's capital program includes the construction of a
new water treatment plant, the Canal Road Water Treatment Plant
(Plant) to increase Elizabethtown's sustainable production capacity
and provide the ability to continue to meet water quality regulations.
In April 1994, the Company executed a lump-sum contract for the
construction of the Plant, which will have an initial capacity of 40
MGD. Construction of the Plant is currently in progress. The current
estimated cost of the Plant is approximately $100 million, excluding
AFUDC. The Company has expended $83.0 million, excluding AFUDC of
$7.2 million, on the Plant as of December 31, 1995. The project is
proceeding on schedule, the construction contract remains on budget
and the project is expected to be completed during the third quarter
of 1996.
In August 1993, the New Jersey Board of Public Utilities (BPU)
approved a stipulation (1993 Plant Stipulation) signed by all parties
to the Company's petition filed in connection with the Plant which
states that the parties affirm the Plant is necessary and that the
Company's estimate regarding the Plant's cost, at that time of $87
million, and construction period are reasonable. 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 also provides for a potential rate setting mechanism for
the Plant during the construction period that has never been required
to be triggered.
Water Quality Regulations
As required by the SDWA, the USEPA has established maximum
contaminant levels (MCLs) for various substances found in drinking
water. As authorized by similar state legislation, the NJDEP has set
MCLs for certain substances which are more restrictive than the MCLs
set by the USEPA. In certain cases, the USEPA and NJDEP have also
mandated that certain treatment procedures be followed in addition to
satisfying MCLs established for specific contaminants. The NJDEP is
also the USEPA's agent for enforcing the SDWA in New Jersey and, in
that capacity, monitors the activities of Elizabethtown and Mount
Holly and reviews the results of water quality tests performed by
Elizabethtown and Mount Holly for adherence to applicable regulations.
-4-
Regulations generally applicable to water utilities, including
Elizabethtown and Mount Holly, include the Lead and Copper Rule (LCR),
the MCLs established for various volatile organic compounds (VOCs),
the MCLs proposed for radionuclides and the Surface Water Treatment
Rule (SWTR).
Lead and Copper Rule
The LCR requires Elizabethtown and Mount Holly to test the
quantity of lead and copper in drinking water at the customer's tap
and, if certain contaminant levels (action levels) are exceeded, to
notify customers and initiate a public information campaign advising
customers how to minimize exposure to lead and copper. The LCR also
requires Elizabethtown to add corrosion inhibitors to water to
minimize leaching of lead from piping, faucets and soldered joints
into water consumed at the tap. Results from two separate tests
completed during 1992 within Elizabethtown and Mount Holly's systems
do not indicate lead and copper concentrations above the action
levels. Accordingly, public notification and a public information
campaign have not been required. Capital projects including corrosion
inhibitor facilities for Elizabethtown will be completed later in
1996. Elizabethtown has requested that the costs of compliance be
recovered in rates in the Company's pending rate proceeding.
Volatile Organic Compounds
VOCs include various substances (primarily synthetic organic
solvents) which have percolated into groundwater aquifers from surface
sources. Elizabethtown has found VOCs in excess of the applicable
MCLs in certain of its wells and has either suspended the use of such
wells or constructed aeration towers which remove such contaminants
from the water by venting them into the atmosphere. Because
underground water flows are difficult to map, it is difficult to
predict when and where contamination will occur in the future. To the
extent that contamination in excess of applicable MCLs occurs at wells
lacking aeration towers, Elizabethtown will consider building such
facilities if feasible and cost effective, or closing such wells,
thereby increasing its reliance on surface water. To date, Mount
Holly has not been affected by VOC contamination.
Radionuclides
Radionuclides are naturally occurring radioactive substances
(primarily radon) found in groundwater. Like VOCs, radon can be
removed from groundwater using aeration towers. If the MCLs proposed
for all radionuclides are finally adopted, Elizabethtown believes that
it will abandon wells with aggregate production capacity of
approximately 5 MGD, thereby further increasing Elizabethtown's
reliance on surface water.
Surface Water Treatment Rule
The operation of Elizabethtown's existing Raritan-Millstone
treatment plant is subject to the SWTR. Elizabethtown has assessed
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the plant's sustainable production capacity, assuming operation
consistent with the requirements of the SWTR, and determined that
improvements to the existing plant are necessary.
Specifically, Elizabethtown has installed additional pumps to
increase capacity and reliability at peak times and has constructed a
new building to house offices and lab facilities. Also,
Elizabethtown is replacing existing chlorine gas disinfection
facilities with liquid sodium hypochlorite to improve community and
employee safety and will install corrosion inhibitor facilities in
conformance with the LCR.
TRANSMISSION AND DISTRIBUTION
As of December 31, 1995, Elizabethtown Water Company's
transmission and distribution system included 2,869 miles of
transmission and distribution mains. Mains range in size up to 60
inches, substantially all of which are either ductile iron, cast iron
or prestressed concrete pipe. Elizabethtown conducts an ongoing
program costing approximately $1.0 million per year to clean and line
its older cast iron mains. Such costs are capitalized and have been
included in rate base in stipulations settling recent rate cases.
As of December 31, 1995, Elizabethtown also had in service
pumping equipment having capacities of 283 MGD for low lift pumping
capacity, 577 MGD for system supply pumping capacity and 194 MGD for
transfer booster pumping capacity. Distribution storage facilities as
of December 31, 1995 consisted of standpipes, elevated and ground
storage tanks and reservoirs with an aggregate capacity of 82 MG.
Such pumping, transmission and storage facilities are necessary to
maintain adequate water pressures throughout the service territory.
Failure to maintain pressures could adversely affect domestic service
and impede local fire departments' efforts to fight fires,
particularly during peak summer loads.
On an ongoing basis, Elizabethtown assesses the capacity of its
system to maintain adequate pressures and initiates plans to construct
pumping, transmission and storage facilities as needed.
ENERGY SUPPLY
Elizabethtown pumps most of its water with electric power
purchased from two major electric utilities. The Company is replacing
certain electric pumps with natural gas fired pumps to reduce energy
costs. Elizabethtown also has diesel powered pumping and generating
facilities at its major treatment plants and at certain transfer
stations to provide basic service during possible electrical
shortages. Elizabethtown has not, to date, experienced any shortage
of electric energy or diesel fuel to operate its pumps and has
cooperated with its electric suppliers
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during their peak periods by operating non-electrical pumping
facilities upon request.
ENVIRONMENTAL MATTERS
Elizabethtown and Mount Holly are also subject to regulation by
the NJDEP with respect to water supply plans and specifications for
the construction, improvement, alteration and operation of public
water supply systems and with respect to the quality of any residuals
from treatment plants.
As a normal by-product of treating surface water, Elizabethtown's
existing surface water treatment plant generates silt removed from
untreated river water plus residue from chemicals used in the
treatment process. Historically, Elizabethtown had disposed of this
material in landfills. As a result of revised regulations governing
landfills, Elizabethtown has been reusing this material on site and is
presently removing some material off-site for beneficial reuse. Due to
limited on-site storage capacity, Elizabethtown is investigating
alternatives to dry the by-product for beneficial reuse.
During the late 1980's, Elizabethtown withdrew a well field from
service because of increased groundwater contamination and more
stringent water quality regulations. Elizabethtown commissioned an
engineering firm to determine whether it is feasible and cost
effective to install treatment facilities so that those wells not
presently complying with current regulations can be returned to
service. The study was also intended to evaluate whether the
resumption of pumping would have any effect on the local water table.
The study concluded that it is possible to treat the water at this
location and resume pumping at a quality and yield that is
satisfactory to Elizabethtown. Elizabethtown is evaluating the
cost-effectiveness of this approach in connection with a possible
governmental grant to the municipality involved for such purpose.
Preliminary cost estimates of treatment facilities necessary to return
certain wells in this area to service are included in the Company's
capital program.
Under New Jersey law, environmental matters are addressed by the
NJDEP before diversion allowances or other water supply projects are
authorized. To date, Elizabethtown has been able to construct all
plant facilities and obtain all diversion authorizations necessary to
maintain customer service. Mount Holly has also been able to
construct all facilities and obtain all diversion authorizations with
the exception of the pending objection to the diversion permit for the
Mansfield Project as discussed above.
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<PAGE>
FRANCHISES
The property and franchises of Elizabethtown and Mount Holly are
subject to rights of eminent domain of the State of New Jersey. These
rights have been delegated by statutes now in effect to municipalities
or groups of municipalities and have been or may be delegated to
various public agencies. No such rights of eminent domain have been
exercised since 1931.
EMPLOYEE RELATIONS
As of December 31, 1995, the Corporation had a total of 398
full-time employees, of which 210 were covered by union contracts.
The contracts between the Company and the Utility Workers Union of
America (A.F.L.-C.I.O.) were renegotiated on February 1, 1996 and will
expire on January 31, 1999.
The Company considers relations with both union and non-union
employees to be satisfactory.
RATE MATTERS
Elizabethtown and Mount Holly are subject to regulation by the
New Jersey Board of Public Utilities (BPU) with respect to the
issuance and sale of securities, rates and service, classification of
accounts, mergers, and other matters. Elizabethtown and Mount Holly
periodically seek rate relief to cover the cost of increased operating
expenses, increases in financing expenses due to additional
investments in utility plant, and other costs of doing business.
Elizabethtown
On November 20, 1995, Elizabethtown filed with the BPU for an
increase in rates of $31.6 million, or 29.6%. The largest portion of
the request, $22.9 million, is needed to cover the cost to finance and
operate the Plant. The remainder of the rate increase, $8.7 million,
is needed to cover the cost to finance additional construction
projects and to cover increases in operating expenses since rates were
last established in February 1995. A decision by the BPU is expected
in the summer of 1996. 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, but cannot predict the ultimate outcome of any
rate proceeding.
As mentioned previously, the 1993 Plant Stipulation, approved in
August 1993, states that the Plant is necessary and that the Company's
estimates regarding the Plant's cost, at that time of $87 million, and
construction period are reasonable. In addition, the 1993 Plant
Stipulation authorizes the Company to levy a rate surcharge if the
Company's pre-tax interest coverage ratio for any 12-month historical
period drops below 2.0 times. The pre-tax interest coverage ratio has
remained above the 2.0 times trigger level and therefore, the
surcharge has not been required. The 1993 Plant Stipulation also
provides that the rate of return on common shareholder'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
shareholder's equity established in the Company's most recent base
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rate case. The authorized rate of return on common shareholder's
equity is currently 11.5%.
In January 1995, the BPU approved a stipulation (1995
Stipulation) for Elizabethtown for a rate increase of $5.3 million 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 1994 current service cost portion of the
obligation accrued under Statement of Financial Accounting Standards
No. 106, "Employer's Accounting for Postretirement Benefits Other Than
Pensions," provided this amount is funded by the Company.
Elizabethtown funded $.3 million in 1995 which represents the 1994
current service cost allowed in the 1995 Stipulation. The rate
increase covered the cost to finance $62.0 million of construction
projects since rates were last established in March 1993. These
projects include treatment, transmission and storage facilities needed
to ensure that Elizabethtown continues to meet federal and state
regulations water quality and service. The increase also offset
increased costs for power, labor and benefits, primarily medical. The
1995 Stipulations also provides for an increase in annual depreciation
expense of approximately $.5 million. The 1995 Stipulation also
required Elizabethtown to maintain a monthly average percentage of
common equity to total capitalization of at least 45.1% for the 12
months ended January 31, 1996. The Company has met this requirement.
Mount Holly
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 cover costs that were not reflected in
rates last increased in October 1986. The second phase would cover
the cost of the Mansfield Project as discussed above.
On January 24, 1996, the BPU approved a stipulation (Mount Holly
Stipulation) for an increase in rates of $.6 million effective as of
that date. The Mount Holly Stipulation has, effectively, concluded
the first phase of the rate proceeding. Mount Holly is continuing
with the adjudicatory process with respect to the second phase of the
petition. While management believes that the water supply, treatment
and transmission project planned for Mount Holly is the most
cost-effective response to the state legislation affecting the area,
management cannot predict the ultimate outcome of the rate proceeding
at this time.
For information regarding additional rate matters see Note 8 to
the Notes to Consolidated Financial Statements contained in
Appendix I.
REAL ESTATE MATTERS
Properties and E'town currently own several parcels of land
aggregating approximately 740 acres located in central New Jersey
-9-
having an original acquisition cost of approximately $8 million.
A portion of this acreage was purchased from a third party and the
balance was land formerly owned by Elizabethtown and no longer needed
for utility purposes. These holdings are owned in fee.
The Corporation has no plans to acquire additional real estate.
Over the next several years, the Corporation expects to work with
local and state officials to obtain various approvals to enhance the
value and development potential of its real estate holdings while
minimizing expenditures.
Properties has 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.
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<PAGE>
Executive Officers of the Corporation and Elizabethtown
Name Age Positions Held
Robert W. Kean, Jr. 73 Chairman and Chief Executive Officer of
the Corporation since 1985 and
Elizabethtown since 1973.
Henry S. Patterson, II 73 President of the Corporation since March
1985 and Properties since July 1987.
Thomas J. Cawley 65 Vice Chairman of Elizabethtown since
January 1996 and President of
Elizabethtown and its subsidiary, Mount
Holly since August 1992. Executive Vice
President of Elizabethtown since January
1987 and Vice President of Mount Holly
since 1973. Previously, Vice President,
Operations since 1975.
Andrew M. Chapman 40 Chief Financial Officer of the
Corporation since August 1989 and
Treasurer of the Corporation since
November 1990. President of
Elizabethtown since January 1996 and
Executive Vice President of
Elizabethtown from May 1994 to December
1995. He served as Senior Vice
President of Elizabethtown from April
1993 to May 1994, Chief Financial
Officer of Elizabethtown from November
1990 to December 1995 and Treasurer of
Elizabethtown from August 1989 to May
1994. Prior to 1989, he was Director of
the Office of Financial Management of
the State of New Jersey, Department of
Treasury and earlier, a Vice President
at Shearson Lehman Brothers.
Anne Evans Estabrook 51 Vice President of the Corporation since
September 1987. Owner of the Elberon
Development Co., (a real estate holding
company) since 1984 and President of
David O. Evans, Inc. (a construction
company) since 1983.
Walter M. Braswell 46 Secretary of the Corporation, Properties
and Elizabethtown since December 1990
and Vice President and General Counsel
of Elizabethtown since August 1988.
Previously, Assistant Secretary and
General Attorney of Elizabethtown since
May 1983.
Norbert Wagner 60 Senior Vice President-Operations of
Elizabethtown since May 1992. Vice
President-Operations since March 1987,
Chief Engineer since October 1978.
Edward F. Cash 60 Vice President - Customer Services
of Elizabethtown since 1977.
Assistant Vice President Customer
Services since 1973.
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<PAGE>
ITEM 2. Properties
All principal plants and other materially important units of
property of Elizabethtown and Mount Holly are owned in fee. The
Company considers that the properties of Elizabethtown and Mount Holly
are in good operating condition.
ITEM 3. Legal Proceedings
As previously reported, several lawsuits had been filed against
Elizabethtown and other parties in connection with a fire that
occurred in a storage facility in 1989 resulting in damage to property
stored at that facility. This matter was settled in 1995 resulting in
a payment by Elizabethtown of approximately $.1 million. A provision
for this estimated liability was previously recorded.
In the opinion of management, other litigation in which the
Corporation or its subsidiaries is involved is in the ordinary course
of business and will not have a material adverse effect on the
consolidated financial condition of the Corporation.
ITEM 4. Submission of Matters to a Vote of Security Holders
None
PART II
ITEM 5. Market for the Corporation's Common Stock and Related
Stockholder Matters
This information is included in Exhibit 13, filed herewith, and
is incorporated herein by reference. All of the common stock of
Elizabethtown Water Company is owned by E'town.
-12-
ITEM 6. Selected Financial Data
________________________________
E'town Corporation
__________________
This information is included in Exhibit 13, filed herewith, and is incorporated
herein by reference.
<TABLE>
Elizabethtown Water Company
<CAPTION>
1995 1994 1993 1992 1991
_______________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Utility Plant (Thousands)
Utility Plant - net........ $507,858 $437,456 $373,293 $347,253 $319,421
Construction Expenditures
(excluding AFUDC)........ 73,789 69,981 32,517 33,293 27,732
Total Assets (Thousands)... $580,808 $502,848 $437,405 $386,880 $371,103
Capitalization (Thousands)
Shareholder's Equity....... $176,685 $151,624 $125,765 $103,024 $ 85,877
Preferred Stock............ 12,000 12,000 12,000 12,000 12,000
Debt (1)................... 208,952 164,951 141,952 147,841 154,984
Total Capitalization....... $397,637 $328,575 $279,717 $262,865 $252,861
Capitalization Ratios
Common Stock............... 44% 46% 45% 39% 34%
Preferred Stock............ 3% 4% 4% 5% 5%
Debt (1)................... 53% 50% 51% 56% 61%
Earnings Applicable to
Common Stock (Thousands).. $ 16,512 $ 13,369 $ 13,783 $ 11,099 $ 10,311
Operating Statistics
Revenues (Thousands)
General Customers.......... $ 67,455 $ 62,923 $ 63,100 $ 55,570 $ 54,071
Other Water Systems........ 18,720 18,082 17,187 15,080 14,082
Industrial Wholesale....... 7,947 7,458 6,652 6,044 5,846
Fire Service/Miscellaneous. 14,276 13,570 13,057 12,473 12,087
Total Revenues............. $108,398 $102,033 $ 99,996 $ 89,167 $ 86,086
Water Sales-Millions of Gallons (mg)
General Customers.......... 23,999 23,551 23,883 22,062 22,659
Other Water Systems........ 15,569 15,691 15,109 14,118 13,811
Industrial Wholesale....... 3,673 3,568 3,213 3,145 3,155
System Use and Unaccounted For 6,402 6,570 5,453 5,843 6,368
Total Water Sales 49,643 49,380 47,658 45,168 45,993
System Delivery by Source - mg
Surface.................... 42,646 42,534 40,742 38,558 39,222
Wells...................... 6,764 6,690 6,776 6,480 6,658
Purchased.................. 233 156 140 130 113
Total System Delivery...... 49,643 49,380 47,658 45,168 45,993
Millions of Gallons Pumped:
Average Day................ 136 135 131 123 126
Maximum Day................ 183 182 191 159 169
<FN>
_______________________________________________________________________________________
(1) Includes long-term debt, notes payable and current portion of long-term debt.
</TABLE>
-13-
ITEM 7. Management's Discussion and Analysis of
Consolidated Financial Condition and Results
of Operations
E'town Corporation
This information is included in Exhibit 13, filed herewith, and
is incorporated herein by reference.
Elizabethtown Water Company and Subsidiary
The water utility operations of Elizabethtown Water Company
(Elizabethtown or Company) and its subsidiary The Mount Holly Water
Company (Mount Holly), presently constitute the major portion of
E'town Corporation's (E'town or Corporation) assets and earnings.
Mount Holly contributed 3% of Elizabethtown Water Company's
consolidated operating revenues for 1995. E'town, a New Jersey
holding company, is the parent company of Elizabethtown Water Company
and E'town Properties, Inc. The following analysis sets forth
significant events affecting the financial condition at December 31,
1995 and 1994, and the results of operations for the years ended
December 31, 1995, 1994 and 1993 for Elizabethtown Water Company.
LIQUIDITY AND CAPITAL RESOURCES
Capital Expenditures Program
Capital expenditures were $73.8 million during 1995. Capital
expenditures for the three-year period ending December 31, 1998, are
estimated to be $148.9 million, of which $128.4 million is for
Elizabethtown and $20.5 million for Mount Holly. A major portion of
the capital outlays will occur in the first nine months of the
three-year period as Elizabethtown completes its new water treatment
plant. After this project is completed in late 1996, the capital
outlays for Elizabethtown are expected to return to levels experienced
in the early 1990s. Mount Holly expects to incur significant capital
expenditures in 1997 as it constructs new water supply, treatment and
transmission facilities as discussed below.
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 (mgd) and has been designed to permit expansion to 200 mgd, 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 mgd is not expected to occur in the foreseeable future.
Elizabethtown's construction program also includes additional mains
-14-
and storage facilities necessary to serve existing and future
customers.
In April 1994, Elizabethtown executed a lump-sum contract for the
construction of the Plant. The estimated cost of the Plant is
approximately $100 million, excluding an Allowance for Funds Used
During Construction (AFUDC). The Company has expended $83.0 million,
excluding AFUDC of $7.2 million on the Plant, as of December 31, 1995.
The project is proceeding on schedule, the construction contract
remains on budget and the project is expected to be completed during
the third quarter of 1996.
In August 1993, the New Jersey Board of Public Utilities (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 the Plant is necessary and the Company's estimate regarding the
Plant's cost, at that time $87 million and construction period are
reasonable. In April 1994, Elizabethtow-n 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 12-month historical period
drops below 2.0 times. The pre-tax interest coverage has remained
above the 2.0 times trigger level and therefore, the surcharge has not
been required. The 1993 Plant Stipulation also provides that the rate
of return on common shareholder'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 shareholder's equity established in
Elizabethtown's most recent base rate case. The authorized rate of
return on Elizabethtown's common shareholder's equity is currently
11.5%. Elizabethtown has filed for a rate increase to reflect the
financing and operating costs of the Plant which is expected to take
effect when the Plant is completed later this year (see Economic
Outlook).
Mount Holly
To ensure an adequate supply of quality water from an aquifer
serving parts of southern New Jersey, state legislation requires Mount
Holly, as well as other suppliers obtaining water from designated
portions of this aquifer, to reduce pumpage from its wells. Mount
Holly has received approval from the New Jersey Department of
Environmental Protection (NJDEP) for its plan to develop a new water
supply, treatment and transmission system necessary to obtain water
outside the designated portion of the aquifer and to treat the water
and pump it into the Mount Holly system. This is referred to as the
Mansfield Project. The project is currently estimated to cost
$16.5 million, excluding AFUDC, and is expected to be completed in
1997. The land for the supply and treatment facilities has been
purchased and wells have been drilled and can produce the required
supply.
-15-
Mount Holly has filed for rate relief relating to the Mansfield
Project (see Economic Outlook).
On October 5, 1995, the NJDEP granted Mount Holly a water
allocation diversion permit for four wells that are to be the water
supply for the Mansfield Project. On October 20, 1995, New
Jersey-American Water Company requested, and was subsequently granted,
an adjudicatory hearing on the permit. The Company and Mount Holly
believe that the permit in question will be upheld but cannot predict
the outcome of the objection. In the event that the objection is
successful and the permit is rescinded, Mount Holly would utilize the
alternative plan of purchasing water from New Jersey-American Water
Company.
CAPITAL RESOURCES
During 1995, Elizabethtown, including Mount Holly, financed 8.4%
of its capital expenditures from internally generated funds (after
payment of common stock dividends). The balance was financed with a
combination of proceeds from capital contributions from E'town (funded
by sale of its Common Stock), tax exempt bonds issued through the New
Jersey Economic Development Authority (NJEDA) and short-term
borrowings under a revolving credit agreement discussed below.
For the three-year period ending December 31, 1998, Elizabethtown,
including Mount Holly, estimates 34% of its capital expenditures will
be financed with internally generated funds (after payment of common
stock dividends). The balance will be financed with a combination of
capital contributions from the proceeds from the sale of E'town common
stock, long-term debentures, proceeds of tax-exempt NJEDA bonds,
short-term borrowings under the revolving credit agreement and other
short-term financing. -The NJEDA has granted preliminary approval for
the financing of almost all of Elizabethtown's and Mount Holly'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. The Company's senior
debt is rated A3 and A by Moody's and Standard & Poor's, respectively.
In June 1995, E'town issued 660,000 shares of common stock for
net proceeds of $16.9 million which were used to fund an equity
contribution to Elizabethtown. The equity contribution has been used
to repay short-term debt that 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 Plant. During 1995, 248,846 shares of common stock were issued
for proceeds of $6.4 million under E'town's Dividend Reinvestment and
Stock Purchase Plan (DRP). The proceeds are used on an ongoing basis
to make capital contributions to Elizabethtown to partially fund its
capital program.
In December 1995, Elizabethtown issued $40.0 million of 5.60%
tax-exempt Debentures through the NJEDA. The proceeds of the issue
-16-
were used to repay amounts outstanding under Elizabethtown's revolving
credit agreement.
During 1995, Elizabethtown obtained a portion of funds required
for its capital program through borrowings under its revolving credit
agreement (Agreement) with an agent bank and five additional banks.
The Agreement provides up to $60.0 million in revolving short-term
financing, which together with internal funds, other short-term
financing, proceeds of future issuances of debt and preferred stock
and capital contributions from E'town, is expected to be sufficient to
finance Elizabethtown's and Mount Holly's capital needs through 1998.
The Agreement allows Elizabethtown to borrow, repay and reborrow up to
$60.0 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 percentage of
common and preferred equity to total capitalization of not less than
35% and a pre-tax interest coverage ratio of at least 1.5 to 1. As of
December 31, 1995, the percentage o-f Elizabethtown's common and
preferred equi-ty to total capitalization, calculated in accordance
with the Agreement, was 47%. For the 12 months ended December 31,
1995, Elizabethtown's pre-tax interest coverage ratio, calculated in
accordance with the Agreement, was 3.12 to 1. At December 31, 1995,
Elizabethtown had borrowings outstanding of $27.0 million under the
Agreement at interest rates from 5.75% to 6.00%, at a weighted average
rate of 5.94%.
1994 and 1993
In May 1994, E'town issued 690,000 shares of common stock for net
proceeds of $18.2 million. The net proceeds were used to fund an
equity contribution to Elizabethtown of $16.0 million. This
contribution had been used to partially fund Elizabethtown's
construction program, the predominant portion of which related to the
Plant. During 1994, 273,159 shares of common stock were issued for
proceeds of $7.1 million under E'town's DRP. The proceeds were used
to make capital contributions to Elizabethtown to partially fund its
capital program.
In March 1994, Elizabethtown issued 120,000 shares of $100 par
value, $5.90 Cumulative Preferred Stock for proceeds of $12.0 million
at an effective rate of 7.37%. The proceeds were used to redeem
$12.0 million of the Company's $8.75 Cumulative Preferred Stock. The
redemption premium of $1.0 million was paid from general Company
funds.
In May 1993, E'town issued 575,000 shares of common stock for net
proceeds of $16.6 million. The net proceeds were used to fund equity
contributions to Elizabethtown of $11.0 million in May 1993 and
$2.8 million in September 1993. Elizabethtown used a portion of such
contributions to repay $7.0 million of short-term bank debt incurred
for construction expenditures and invested the balance on a short-term
basis to fund working capital requirements.
-17-
During 1993, 200,878 shares of common stock were issued for
proceeds of $6.0 million under E'town's DRP. Such proceeds were used
to fund equity contributions to Elizabethtown, primarily for
Elizabethtown's capital expenditures.
In November 1993, Elizabethtown issued $50.0 million of 7 1/4%
Debentures due November 1, 2028. The proceeds of the issue were used
to redeem $30.0 million of the Company's 8 5/8% Debentures due 2007
and $20.0 million of the Company's 10 1/8% Debentures due 2018. The
aggregate redemption premiums of $2.7 million were paid from general
Company funds.
RESULTS OF OPERATIONS
Earnings Applicable to Common Stock for 1995 were $16.5 million as
compared to $13.4 million for 1994. The combined effect of a $5.3
million rate increase in February 1995 (discussed below), increases in
AFUDC in 1995 and a non-recurring charge in 1994 all contributed to
the increase between 1994 and 1995.
Earnings Applicable to Common Stock for 1994 were $13.4 million
as compared to $13.8 million for 1993. A return to more normal summer
weather and water consumption patterns, the combined effect of a
non-recurring charge in 1994, and increases in operating and
depreciation expenses since March 1993, when rates were last
increased, all contributed to the decrease between 1993 and 1994.
Operating Revenues increased $6.4 million or 6.2% in 1995. Of
this increase, $4.6 million relates to the rate increase, discussed
below, effective February 1995. Increased consumption by retail
customers and an increase in the number of customers increased
revenues by $1.4 million. Revenues from industrial customers
resulting from consumption increased $.2 million while revenues from
other water systems resulting from consumption decreased $.2 million.
Revenues from fire service customers increased $.4 million.
Operating Revenues increased $2.0 million or 2.0% in 1994. Of
this increase, $1.2 million relates to a rate increase discussed
below, effective March 1993. Sales to retail customers related to
consumption decreased by $.9 million, primarily due to a return to
more normal weather patterns during the spring and summer months of
1994, compared to 1993. However, despite the return to more normal
weather patterns, sales to other water systems and to large industrial
customers related to consumption increased by $.6 million and $.7
million, respecti-vely. Due to normal growth within the service
territory, fire service revenues increased by $.4 million.
Operation Expenses increased $2.4 million or 5.9% in 1995. The
increase is due, primarily, to increased costs for labor, benefits and
the cost of purchased water calculated in accordance with a Purchased
Water Adjustment Clause (PWAC) (see Note 8 to the Notes to
Consolidated Financial Statements.) Benefit costs increased due to
increases in the actuarially calculated pension expense and the cost
of postemployment benefits, a portion of which is being expensed in
-18-
1995 as it is recognized in rates pursuant to the 1995 Stipulation
effective February 1995 (see Economic Outlook).
Operation Expenses increased $2.2 million or 5.7% in 1994. The
increase is 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 (NJWSA), which is reflected in
the PWAC, 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 $.8 million or 12.4% in 1995. The
decrease is due, primarily, to the absence in 1995 of the unusually
harsh winter weather that occurred in 1994. Also, the results of
preventive maintenance programs have contributed to an overall
decrease in maintenance expenses.
Maintenance Expenses increased $.9 million or 15.9% in 1994 due,
primarily, to the effects of unusually harsh winter weather in the
first quarter of 1994, in addition to an increased level of preventive
maintenance at various operating facilities throughout the Company.
Depreciation Expense increased $.9 million or 12.1% in 1995 and
$.6 million or 7.9% in 1994 due, primarily, to additional depreciable
plant being placed in service during those periods. Also, an increase
in authorized depreciation rates as a result of the 1995 Stipulation,
effective February 1995, accounted for $.4 million of the increase.
Revenue Taxes increased $.8 million or 6.6% in 1995 and
$.2 million or 2.0% in 1994, due to additional taxes on the higher
revenues discussed above.
Real Estate, Payroll and Other Taxes increased $.1 million or 2.0%
and $.2 million or 8.1% in 1995 and 1994, respectively, due to
increased payroll taxes resulting from labor cost increases.
Federal Income Taxes increased $.8 million or 11.5% in 1995 and
decreased $.5 million or 6.3% in 1994 due to changes in the components
of taxable income discussed herein. In addition, in 1995
Elizabethtown received tax refunds related to the years 1984 and 1985
of $.1 million.
Other Income increased $1.7 million in 1995 due, primarily, to an
increase in the equity component of AFUDC of $1.8 million and a
non-recurring litigation settlement of $.9 million in 1994 as
discussed below. These increases were offset by the federal income
taxes associated with the various components.
Other Income decreased less than $.1 million in 1994. Included in
this net decrease is a litigation settlement of $.9 million (see
Note 11 to the Notes to Consolidated Financial Statements.) In
addition, increases in the equity component of AFUDC of $.7 million
resulted from increased construction expenditures, primarily related
to the Plant. Other increases of $.3 million resulted from
-19-
miscellaneous items. Federal income taxes, as a result of all of the
above, decreased less than $.1 million.
Total Interest Charges increased $.7 million or 6.8% in 1995 due,
primarily, to an increase in interest expense of $2.1 million on
increased borrowings under Elizabethtown's revolving credit agreement
to finance the Company's ongoing capital program, the largest
component of which is the Plant. This amount was offset by an
increase in the debt component of AFUDC of $1.6 million, also
primarily related to the construction of the Plant. In addition, in
1995 Elizabethtown received interest on tax refunds related to 1984
and 1985 of $.1 million.
Total Interest Charges decreased $1.0 million or 9.1% in 1994 due,
primarily, to savings from refinancing of long-term debt in 1993.
Also, an increase in the debt component of AFUDC of $.5 million
resulted in a reduction of interest expense.
Preferred Stock Dividends decreased less than $.1 million due to
savings from the refinancing of the $8.75 series preferred stock with
$5.90 series preferred stock in March 1994.
ECONOMIC OUTLOOK
Earnings for Elizabethtown and Mount Holly for the next several
years will be determined primarily by Elizabethtown's and Mount
Holly's ability to obtain adequate and timely rate relief in
connection with their additions to utility plant.
Elizabethtown and Subsidiary
Over the last several years, governmental water quality and
service regulations have required Elizabethtown and Mount Holly to
make significant investments in water supply, water treatment,
transmission and storage facilities, including the Plant and the
Mansfield Project, to augment existing facilities. This capital
program is requiring regular external financing and rate relief.
Currently, Elizabethtown and Mount Holly believe they are in
compliance with all water quality standards in all material respects.
In November 1995, Elizabethtown filed for a $31.6 million or
29.6% rate increase primarily to cover the financing and operating
costs of the Plant. While Mount Holly received a $.6 million or 19.9%
rate increase effective January 1996, deliberations regarding the
portion of the rate case related to the Mansfield Project, in which
Mount Holly is requesting an additional 84.2% rate increase, are
ongoing and awaiting the award of the final water diversion permit.
Accordingly, the timing and amount of rate increases obtained by
Elizabethtown and Mount Holly, in response to the pending rate
requests, will be a major factor affecting earnings in 1996 and
beyond. Once the new facilities, referred to above, are constructed
and reflected in rates, Elizabethtown expects its internally generated
cash flow to increase and capital outlays to return to levels
experienced in the early 1990's. As a result, the need for external
-20-
financing and rate relief should become less frequent. Therefore,
more so than in recent years, management's ongoing efforts to grow
unit sales and control operating cost will benefit the customer by
reducing the frequency of rate increases and will benefit shareholders
by positively affecting earnings.
On November 20, 1995, Elizabethtown filed a petition with the BPU
for an increase in rates of $31.6 million, or 29.6%. The largest
portion of the request, $22.9 million, is needed to cover the costs to
finance and operate the Plant. The remainder of the rate increase,
$8.7 million, is needed to cover the cost to finance additional
construction projects and to cover increases in operating expenses
since rates were last established in February 1995. A decision by the
BPU is expected in the summer of 1996. 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, but cannot predict the ultimate
outcome of any rate proceeding.
In January 1995, the BPU approved a stipulation (1995
Stipulation) for Elizabethtown for a rate increase of $5.3 million 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 1994 current service cost portion of the
obligation accrued under Statement of Financial Accounting Standards
No. 106, "Employer's Accounting for Postretirement Benefits Other Than
Pensions," provided this amount is funded by the Company.
Elizabethtown funded $.3 million in 1995, which represents the 1994
current service cost allowed in the 1995 Stipulation. The rate
increase is covering the cost to finance $62.0 million of construction
projects since rates were last established in March 1993. These
projects include treatment, transmission and storage facilities needed
to ensure that Elizabethtown continues to meet federal and state
regulations on water quality and service. The increase is also
offsetting increased costs for power, labor and benefits, primarily
medical. The 1995 Stipulation also provides for an increase in
depreciation rates resulting in an increase in annual depreciation
expense of approximately $.5 million. The 1995 Stipulation also
required Elizabethtown to maintain a monthly average percentage of
common equity to total capitalization of at least 45.1% for the 12
months ended January 31, 1996. The Company has met this requirement.
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 cover costs that were not reflected in
rates last increased in October 1986. The second phase would cover
the cost of the Mansfield Project as discussed above. The project is
currently estimated to cost $16.5 million. Construction is expected
to begin upon final issuance of the water allocation diversion permit
from the NJDEP, and the project is expected to be completed in 1997.
-21-
On January 24, 1996, the BPU approved a stipulation (Mount Holly
Stipulation) for an increase in rates of $.6 million effective as of
that date. The Mount Holly Stipulation has, effectively, concluded
the first phase of the rate proceeding. Mount Holly is continuing
with the adjudicatory process with respect to the second phase of the
petition. While management believes that the water supply, treatment
and transmission project planned for Mount Holly is the most
cost-effective response to the state legislation affecting the area,
management cannot predict the ultimate outcome of the rate proceeding
at this time.
New Accounting Pronouncement
See Note 2 of the Notes to Consolidated Financial Statements for
a discussion of a new accounting standard that will become effective
in 1996.
-22-
<PAGE>
Item 8. Financial Statements and Supplementary Data
The information for E'town is included in Exhibit 13, filed
herewith, and is incorporated herein by reference.
The information for Elizabethtown Water Company is contained on
pages 2 through 19 of Appendix I included herein.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None
PART III
Item 10. Directors and Executive Officers of the Registrant
Information with respect to directors of E'town and Elizabethtown
is included in E'town's Proxy Statement for the 1996 Annual Meeting of
Stockholders, and is incorporated herein by reference.
Information regarding the executive officers of both E'town and
Elizabethtown follows Item 1 in Part I of this Form 10-K.
Item 11. Executive Compensation
This information for E'town and Elizabethtown is included in
E'town's Proxy Statement for the 1996 Annual Meeting of Stockholders,
and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
This information is included in E'town's Proxy Statement for the
1996 Annual Meeting of Stockholders, and is incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions
This information for E'town and Elizabethtown is included in
E'town's Proxy Statement for the 1996 Annual Meeting of Stockholders,
and is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K
(a) The following documents are filed as part of this
report:
-23-
<PAGE>
1. Financial Statements:
Elizabethtown Water Company
Statements of Consolidated Income for the years ended
December 31, 1995, 1994 and 1993.
Consolidated Balance Sheets as of December 31, 1995
and 1994.
Statements of Consolidated Capitalization as of
December 31, 1995 and 1994.
Statement of Consolidated Shareholder's Equity for the
years ended December 31, 1995, 1994 and 1993.
Statements of Consolidated Cash Flows for the years
ended December 31, 1995, 1994 and 1993.
Notes to Consolidated Financial Statements.
E'town Corporation
A portion of the 1995 Annual Report to Shareholders which
includes Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations, Consolidated Financial
Statements, Notes to Consolidated Financial Statements, Independent
Auditors' Report and Other Financial and Statistical Data is filed
herewith as Exhibit 13 and is herein incorporated by reference.
Elizabethtown Water Company
Elizabethtown Water Company's consolidated financial statements
and notes thereto are included herein on pages 2 through 19 of
Appendix I.
E'town and Elizabethtown Water Company
The Independent Auditors' Reports for E'town and
Elizabethtown Water Company appear on page 28 herein and page 1 of
Appendix I, respectively.
2. Financial Statement Schedules:
-24-
<PAGE>
All financial schedules required to be filed contain the same
data and amounts for both E'town and Elizabethtown Water Company,
except for Supplemental Schedule of Property, Plant and Equipment,
which includes property, plant and equipment for each company.
Schedule II - Valuation and Qualifying Accounts for
the Years Ended December 31, 1995, 1994 and 1993.
Supplemental Schedule of Property, Plant and Equipment at
December 31, 1995 and 1994.
Other schedules are omitted because of the absence of the
conditions under which they are required or because the required
information is included in the financial statements or the notes
accompanying each company's financial statements.
3. Exhibits
(a) Exhibits for E'town and Elizabethtown Water
Company are listed in the Exhibit Index.
(b) Reports on Form 8-K: None
-25-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
March 29, 1996 E'TOWN CORPORATION
By: /s/ Robert W. Kean, Jr.
_________________________
Chairman, Chief Executive
Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 29, 1996.
Chairman, Chief Executive Officer
and Director /s/ Robert W. Kean, Jr.
_________________________
President and Director /s/ Henry S. Patterson, II
_________________________
Vice President and Director /s/ Anne Evans Estabrook
_________________________
Chief Financial Officer, Treasurer
and Director /s/ Andrew M. Chapman
_________________________
(Principal Financial & Accounting Officer)
Director /s/ Brendan T. Byrne
_________________________
Director /s/ Thomas J. Cawley
_________________________
Director /s/ John Kean
_________________________
Director /s/ Robert W. Kean III
_________________________
Director /s/ Arthur P. Morgan
_________________________
Director /s/ Barry T. Parker
_________________________
Director /s/ Hugo M. Pfaltz, Jr.
_________________________
Director /s/ Chester A. Ring III
_________________________
-26-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
March 29, 1996 ELIZABETHTOWN WATER COMPAY
By: /s/ Robert W. Kean, Jr.
__________________________
Chairman, Chief Executive
Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 29, 1996.
Chairman, Chief Executive Officer
and Director /s/ Robert W. Kean, Jr.
__________________________
Vice Chairman and Director /s/ Thomas J. Cawley
__________________________
President and Director /s/ Andrew M. Chapman
__________________________
Vice President - Finance & Treasurer /s/ Gail P. Brady
__________________________
(Principal Financial Officer)
Controller /s/ Dennis W. Doll
__________________________
(Principal Accounting Officer)
Director /s/ Brendan T. Byrne
__________________________
Director /s/ Anne Evans Estabrook
__________________________
Director /s/ John Kean
__________________________
Director /s/ Robert W. Kean III
__________________________
Director /s/ Arthur P. Morgan
__________________________
Director /s/ Barry T. Parker
__________________________
Director /s/ Henry S. Patterson, II
__________________________
Director /s/ Hugo M. Pfaltz, Jr.
__________________________
Director /s/ Chester A. Ring III
__________________________
-27-
INDEPENDENT AUDITORS' REPORT
E'TOWN CORPORATION:
We have audited the consolidated financial statements of E'town
Corporation and its subsidiaries as of December 31, 1995 and 1994, and
for each of the three years in the period ended December 31, 1995, and
have issued our report thereon dated February 15, 1996; such
consolidated financial statements and report are included in your 1995
Annual Report to Shareholders and are incorporated herein by reference.
Our audits also included the financial statement schedules of E'town
Corporation and its subsidiaries, listed in Item 14. These financial
statement schedules are the responsibility of the Company's management.
Our responsibility is to express an opinion based on our audits. In our
opinion, such financial statement schedules, when considered in relation
to the basic consolidated financial statements taken as a whole, present
fairly in all material respects the information set forth therein.
/s/ Deloitte & Touche LLP
February 15, 1996
Parsippany, New Jersey
<PAGE>
-28-
E'TOWN CORPORATION SCHEDULE II
ELIZABETHTOWN WATER COMPANY
VALUATION AND QUALIFYING ACCOUNTS
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
________ ________ ________ ________ ________
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
_____________ _________ ___________ __________ ___________
Reserve for Uncollectible
Accounts:
Year Ended December 31, 1995 $463,000 $600,648 (A) $531,648 $532,000
Year Ended December 31, 1994 $434,000 $552,459 (A) $523,459 $463,000
Year Ended December 31, 1993 $377,000 $571,116 (A) $514,116 $434,000
_________________________________
(A) Write-off of uncollectible accounts, net of recoveries.
____________________________________________________________________________
SUPPLEMENTAL
SCHEDULE
E'TOWN CORPORATION
ELIZABETHTOWN WATER COMPANY
PROPERTY, PLANT AND EQUIPMENT
AT DECEMBER 31, 1995 AND 1994
1995 1994
_________ _________
ELIZABETHTOWN WATER COMPANY:
____________________________
UTILITY PLANT IN SERVICE:
Intangible Plant $ 250,766 $ 250,766
Source of Supply Plant 10,073,447 9,739,125
Pumping Plant 44,838,866 43,658,801
Water Treatment Plant 53,070,107 46,008,913
Transmission & Distribution Plant 378,216,166 354,703,279
General Plant 15,373,329 14,068,349
Leasehold Improvements 117,186 110,954
Acquisition Adjustments 632,388 632,388
____________ ____________
Utility Plant in Service 502,572,255 469,172,575
Construction Work in Progress 100,212,636 55,739,951
____________ ____________
Total Utility Plant 602,784,891 524,912,526
NON-UTILITY PROPERTY - net 83,178 85,690
____________ ____________
TOTAL $602,868,069 $524,998,216
____________ ____________
____________ ____________
E'TOWN CORPORATION:
___________________
UTILITY PLANT (as above) $602,784,891 $524,912,526
NON-UTILITY PROPERTY - net 12,151,496 12,061,574
____________ ____________
TOTAL $614,936,387 $536,974,100
____________ ____________
____________ ____________
<PAGE>
EXHIBIT INDEX
Certain of the following exhibits, designated with an asterisk(*), are
filed herewith. The exhibits not so designated have heretofore been
filed with the Commission and are incorporated herein by reference to
the documents indicated in brackets following the description of such
exhibits.
E'town Corporation
Exhibit
No. Description
3(a) - Certificate of Incorporation of E'town
Corp.
[Registration Statement No. 33-42509,
Exhibit 4(a)]
3(b) - By-Laws of E'town Corp. [Form 10-K for the year
1994, Exhibit 3(b)]
3(c) - Certificate of Incorporation of E'town
Properties, Inc. [Registration Statement
No. 33-32143, Exhibit 4(j)]
3(d) - By-Laws of E'town Properties, Inc.
[Registration Statement No. 33-32143,
Exhibit 4(n)]
4(a) - Rights Agreement dated as of February 4,
1991 between E'town and the Rights Agent
[Registration Statement No. 33-38566,
Exhibit 4(n)]
4(b) - Indenture dated as of January 1, 1987
from E'town Corporation to Boatmen's
Trust, Trustee, relating to the 6 3/4%
Convertible Subordinated Debentures due
2012 [Registration Statement No.
33-32143, Exhibit 4(a)]
10(a) - Incentive Stock Option Plan
[Registration Statement No. 2-99602,
Exhibit 28(a)]
10(b) - Savings and Investment Plan - 401(k) [Form 10-K
for the year 1994, Exhibit 10(b)]
10(c) - Management Incentive Plan [Registration
Statement No. 33-38566, Exhibit 10(i)]
10(d) - E'town's 1987 Stock Option Plan
[Registration Statement No. 33-42509,
Exhibit 28]
Exhibit
No. Description
10(e) - E'town's 1990 Performance Stock Program
[Registration Statement No. 33-46532,
Exhibit 10(k)]
10(f) - E'town's Dividend Reinvestment and Stock
Purchase Plan [Registration No.
33-56013, Exhibit 4(e)]
10(g) - Change of Control Agreement [Form 10-Q for
the quarter ended March 31, 1995, Exhibit 10]
*11 - Statement Regarding Computation of Per
Share Earnings
*13 - Portion of the 1995 Annual Report to
Shareholders which includes Management's
Discussion and Analysis of Consolidated
Financial Condition and Results of
Operations, Consolidated Financial
Statements, Notes to Consolidated
Financial Statements, Independent
Auditors' Report and Other Financial and
Statistical Data and is herein
incorporated by reference.
*23 - Consent of Deloitte & Touche LLP,
Independent Auditors
*27 - E'town Corporation - Financial Data Schedule
EXHIBIT INDEX
Certain of the following exhibits, designated with
an asterisk(*), are filed herewith. The exhibits not so
designated have heretofore been filed with the Commission
and are incorporated herein by reference to the documents
indicated in brackets following the description of such
exhibits.
Elizabethtown Water Company
Exhibit
No. Description
3(a) - Form of Restated Certificate of
Incorporation of Elizabethtown Water
Company [Form 10-K for the year ended
December 31, 1994, Exhibit 3(a)]
3(b) - By-Laws of Elizabethtown Water Company
4(a) - Indenture dated as of November 1, 1994
from Elizabethtown Water Company to The
Bank of New York, Trustee, relating to
the 7 1/4% Debentures due 2028. [Form 10-K
for year ended December 31, 1994, Exhibit 4(a)]
4(b) - Indenture dated as of September 1, 1992
from Elizabethtown Water Company to The
Bank of New York, Trustee, relating to
the 8% Debentures due 2022 [Form 10-K
for year ended December 31, 1993, Exhibit 4(a)]
4(c) - Indenture dated as of October 1, 1991
from Elizabethtown Water Company to The
Bank of New York, Trustee, relating to
the 8 3/4% Debentures due 2021
[Registration Statement No. 33-46532,
Exhibit 4(f)]
4(d) - Indenture dated as of August 1, 1991
from Elizabethtown Water Company to The
Bank of New York, Trustee, relating to
the 6.60% Debentures due 2021
[Registration Statement No. 33-46532,
Exhibit 4(g)]
4(e) - Indenture dated as of August 1, 1991
from Elizabethtown Water Company to The
Bank of New York, Trustee, relating to
the 6.70% Debentures due 2021
[Registration Statement No. 33-46532,
Exhibit 4(h)]
4(f) - Indenture dated as of October 1, 1990
from Elizabethtown Water Company to
Citibank, N.A., Trustee, relating to the
7 1/2% Debentures due 2020 [Registration
Statement No. 33-38566, Exhibit 4(e)]
Exhibit
No. Description
4(g) - Indenture dated as of December 1, 1989
from Elizabethtown Water Company to
Citibank, N.A., Trustee, relating to the
7.20% Debentures due 2019 [Registration
Statement No. 33-38566, Exhibit 4(f)]
*4(h) - Indenture dated as of December 1, 1995
from Elizabethtown Water Company to
The Bank of New York, Trustee, relating to the
5.60% Debentures due 2025
10(a) - Contract for service to Middlesex Water
Company. [Registration Statement No.
33-38566, Exhibit 10(a)]
10(b) - Contract for service to Edison Township.
[Registration Statement No. 2-58262,
Exhibit 13(c)]
10(c) - Contract for service to New
Jersey-American Water Company. [Form
10-K for the year ended December 31,
1993, Exhibit 10(c)]
10(d) - Contract for service to City of
Elizabeth. [Form 10-K for the year ended
December 31, 1992, Exhibit 10(d)]
10(e) - Contract for service to Franklin
Township. [Registration Statement No.
33-46532, Exhibit 10(e)]
10(f) - Contract with the New Jersey Water
Supply Authority for the purchase of
water from the Raritan Basin.
[Registration Statement No. 33-32143,
Exhibit 10(e)]
10(g) - Supplemental Executive Retirement Plan
of Elizabethtown Water Company [Form
10-K for the year ended December 31,
1992, Exhibit 10(g)]
10(h) - Medical Reimbursement Plan of
Elizabethtown Water Company [Form 10-K
for the year ended December 31, 1992,
Exhibit 10(h)]
10(i) - Supplemental Executive Retirement Plan of
Elizabethtown Water Company [Form 10-Q
for the year ended September 30, 1995,
Exhibit 10]
Exhibit
No. Description
*12(a) - Computation of Ratio of Earnings to
Fixed Charges
*12(b) - Computation of Ratio of Earnings to
Fixed Charges and Preferred Dividends
* 27 - Elizabethtown Water Company - Financial Data
Schedule.
APPENDIX I
ELIZABETHTOWN WATER COMPANY
AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995,
1994 AND 1993 AND
INDEPENDENT AUDITORS' REPORT
APPENDIX I
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
__________________________________________
TABLE OF CONTENTS
______________________________________________________________________
INDEPENDENT AUDITORS' REPORT
STATEMENTS OF CONSOLIDATED INCOME FOR THE YEARS ENDED
DECEMBER 31, 1995, 1994 AND 1993
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1995 AND 1994
STATEMENTS OF CONSOLIDATED CAPITALIZATION AS OF
DECEMBER 31, 1995 AND 1994
STATEMENTS OF CONSOLIDATED SHAREHOLDER'S EQUITY FOR THE
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
STATEMENTS OF CONSOLIDATED CASH FLOWS FOR THE YEARS ENDED
DECEMBER 31, 1995, 1994 AND 1993
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
______________________________________________________________________
APPENDIX I
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDER AND BOARD OF DIRECTORS OF ELIZABETHTOWN WATER
COMPANY:
We have audited the accompanying consolidated balance sheets and
statements of consolidated capitalization of Elizabethtown Water Company
and its subsidiary as of December 31, 1995 and 1994, and the related
consolidated statements of income, shareholder's equity, and cash flows
for each of the three years in the period ended December 31, 1995. Our
audits also included the financial statement schedules listed in the
Index at Item 14. These financial statements and financial statement
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements and
financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Elizabethtown Water
Company and its subsidiary at December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the three
years in the period ended December 31, 1995 in conformity with generally
accepted accounting principles. Also, in our opinion, such financial
statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly in
all material respects the information set forth therein.
/s/ Deloitte & Touche LLP
February 15, 1996
Parsippany, New Jersey
-1-
Elizabethtown Water Company and Subsidiary APPENDIX I
Statements of Consolidated Income
Year Ended December 31,
________________________________________
1995 1994 1993
_____________ _____________ ____________
Operating Revenues $108,398,105 $102,032,505 $99,996,120
____________ ____________ ____________
Operating Expenses:
Operation 43,132,400 40,722,980 38,529,149
Maintenance 5,805,511 6,623,772 5,716,157
Depreciation 8,808,169 7,860,180 7,285,309
Revenue taxes 13,591,212 12,748,161 12,501,804
Real estate, payroll and other taxes 2,771,716 2,717,067 2,513,891
Federal income taxes (Note 3) 8,002,292 7,176,396 7,658,770
____________ ____________ ___________
Total operating expenses 82,111,300 77,848,556 74,205,080
____________ ____________ ___________
Operating Income 26,286,805 24,183,949 25,791,040
____________ ____________ ___________
Other Income:
Litigation settlement (Note 11) (932,203)
Gain on sale of land 122,400
Allowance for equity funds used
during construction (Note 2) 2,976,290 1,178,133 445,339
Federal income taxes (Note 3) (1,159,218) (237,599) (258,024)
Other-net 335,763 432,922 169,474
____________ ____________ ___________
Total other income 2,152,835 441,253 479,189
____________ ____________ ___________
Total Operating and Other Income 28,439,640 24,625,202 26,270,229
____________ ____________ ___________
Interest Charges:
Interest on long-term debt 10,892,129 10,774,008 11,527,301
Other interest expense-net 2,343,903 175,507 77,921
Capitalized interest (Note 2) (2,445,093) (867,101) (391,895)
Amortization of debt discount-net 323,557 319,646 224,383
____________ ____________ ___________
Total interest charges 11,114,496 10,402,060 11,437,710
____________ ____________ ___________
Income Before Preferred Stock
Dividends 17,325,144 14,223,142 14,832,519
Preferred Stock Dividends 813,000 854,047 1,050,000
____________ ____________ ___________
Earnings Applicable to Common Stock $ 16,512,144 $ 13,369,095 $13,782,519
____________ ____________ ___________
____________ ____________ ___________
See Notes to Consolidated Financial Statements.
-2-
Elizabethtown Water Company and Subsidiary APPENDIX I
Consolidated Balance Sheets
December 31,
___________________________
Assets 1995 1994
____________ ____________
Utility Plant-at Original Cost:
Utility plant in service $502,572,255 $469,172,575
Construction work in progress 100,212,636 55,739,951
____________ ____________
Total utility plant 602,784,891 524,912,526
Less accumulated depreciation and amortization 94,926,413 87,456,550
____________ ____________
Utility plant-net 507,858,478 437,455,976
____________ ____________
Non-utility Property 83,178 85,690
____________ ____________
Current Assets:
Cash and cash equivalents 3,796,757 1,485,115
Customer and other accounts receivable
(less reserve: 1995, $532,000; 1994, $463,000) 16,943,725 12,350,802
Unbilled revenues 7,443,656 7,161,483
Materials and supplies-at average cost 1,912,015 1,724,969
Prepaid insurance, taxes, other 1,874,338 1,410,401
Prepaid federal income taxes 1,344,630
____________ ____________
Total current assets 31,970,491 25,477,400
____________ ____________
Deferred Charges (Note 7):
Prepaid pension expense (Note 10) 580,534 926,142
Waste residual management 970,182 546,490
Unamortized debt and preferred stock expenses 9,384,609 8,902,271
Taxes recoverable through future rates (Note 3) 26,427,627 26,339,057
Postretirement benefit expense (Note 10) 2,900,569 2,077,051
Purchased water under recovery - net 37,316 314,128
Other unamortized expenses 594,875 723,709
____________ ____________
Total deferred charges 40,895,712 39,828,848
____________ ____________
Total $580,807,859 $502,847,914
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-3-
Elizabethtown Water Company and Subsidiary APPENDIX I
Consolidated Balance Sheets
December 31,
____________________________
Capitalization and Liabilities 1995 1994
____________ ____________
Capitalization (Notes 4 and 5):
Common shareholder's equity $176,684,773 $151,624,255
Cumulative preferred stock 12,000,000 12,000,000
Long-term debt-net 181,922,528 141,908,430
____________ ____________
Total capitalization 370,607,301 305,532,685
____________ ____________
Current Liabilities:
Notes payable-banks (Note 5) 27,000,000 23,000,000
Long-term debt-current portion (Note 4) 30,000 42,000
Accounts payable and other liabilities 16,723,904 18,165,522
Customers' deposits 305,349 278,895
Municipal and state taxes accrued 13,661,620 12,831,524
Federal income taxes accrued 533,286
Interest accrued 2,937,637 2,828,464
Preferred stock dividends accrued 59,000 59,000
____________ ____________
Total current liabilities 61,250,796 57,205,405
____________ ____________
Deferred Credits:
Customer advances for construction 45,460,749 45,554,476
Federal income taxes (Note 3) 64,886,448 60,109,244
Unamortized investment tax credits 8,448,811 8,650,537
Accumulated postretirement benefits (Note 10) 2,900,569 2,077,051
____________ ____________
Total deferred credits 121,696,577 116,391,308
____________ ____________
Contributions in Aid of Construction 27,253,185 23,718,516
____________ ____________
Commitments and Contingent Liabilities (Note 9)
____________ ____________
Total $580,807,859 $502,847,914
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-4-
Elizabethtown Water Company and Subsidiary APPENDIX I
Statements of Consolidated Capitalization
December 31,
____________________________
1995 1994
____________ ____________
Common Shareholder's Equity (Notes 4 and 5):
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 112,157,348 88,868,632
Capital stock expense (484,702) (484,702)
Retained earnings 49,271,525 47,499,723
____________ ____________
Total common shareholder's equity 176,684,773 151,624,255
____________ ____________
Cumulative Preferred Stock (Note 4):
$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
Elizabethtown Water Company:
7.20% Debentures, due 2019 10,000,000 10,000,000
7 1/2% Debentures, due 2020 15,000,000 15,000,000
6.60% Debentures, due 2021 10,500,000 10,500,000
6.70% Debentures, due 2021 15,000,000 15,000,000
8 3/4% Debentures, due 2021 27,500,000 27,500,000
8% Debentures, due 2022 15,000,000 15,000,000
5.60% Debentures, due 2025 40,000,000
7 1/4% Debentures, due 2028 50,000,000 50,000,000
The Mount Holly Water Company:
Notes Payable (due serially through 2000) 117,500 144,300
____________ ____________
Total long-term debt 183,117,500 143,144,300
Unamortized discount-net (1,194,972) (1,235,870)
____________ ____________
Total long-term debt-net 181,922,528 141,908,430
____________ ____________
Total capitalization $370,607,301 $305,532,685
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-5-
Elizabethtown Water Company and Subsidiary APPENDIX I
Statements of Consolidated Shareholder's Equity
Year Ended December 31,
_______________________________________
1995 1994 1993
____________ ___________ ___________
Common Stock: $ 15,740,602 $ 15,740,602 $ 15,740,602
____________ ____________ ____________
Paid-in Capital:
Balance at Beginning of Year 88,868,632 63,522,594 43,713,297
Capital contributed by parent company 23,288,716 25,346,038 19,809,297
____________ ____________ ____________
Balance at End of Year 112,157,348 88,868,632 63,522,594
____________ ____________ ____________
Capital Stock Expense: (484,702) (484,702) (484,702)
____________ ____________ ____________
Retained Earnings:
Balance at Beginning of Year 47,499,723 46,986,485 44,054,327
Income Before Preferred Stock
Dividends 17,325,144 14,223,142 14,832,519
Dividends on Common Stock (14,740,342) (12,855,857) (10,850,361)
Preferred Stock Dividends (813,000) (854,047) (1,050,000)
____________ ____________ ____________
Balance at End of Year 49,271,525 47,499,723 46,986,485
____________ ____________ ____________
Total Common Shareholder's Equity $176,684,773 $151,624,255 $125,764,979
____________ ____________ ____________
____________ ____________ ____________
See Notes to Consolidated Financial Statements.
-6-
Elizabethtown Water Company and Subsidiary APPENDIX I
Statements of Consolidated Cash Flows
Year Ended December 31,
_____________________________________
1995 1994 1993
___________ ___________ ___________
Cash Provided by Operating Activities:
Income Before Preferred Stock Dividends $ 17,325,144 $ 14,223,142 $ 14,832,519
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 8,808,169 7,860,180 7,285,309
Gain on sale of land (122,400)
Decrease (increase) in deferred charges 327,562 (169,459) 260,600
Deferred income taxes and investment
tax credits-net 4,486,908 4,256,534 3,332,558
Allowance for debt and equity funds
used during construction (AFUDC) (5,421,383) (2,045,234) (837,234)
Other operating activities-net (61,590) (130,902) (449,792)
Change in current assets and liabilities
excluding cash, short-term investments
and current portion of debt:
Customer and other accounts receivable (4,592,923) (462,817) (840,485)
Unbilled revenues (282,173) 86,839 (688,601)
Accounts payable and other liabilities (1,415,164) 8,517,848 669,078
Accrued/prepaid interest and taxes 2,353,248 (1,464,787) 232,741
Other (187,046) (101,266) (6,870)
____________ ____________ ____________
Net cash provided by operating activities 21,340,752 30,570,078 23,667,423
____________ ____________ ____________
Cash Provided by Financing Activities:
Decrease in funds held by Trustee for
construction expenditures 382,306 8,519,877
Proceeds from issuance of debentures 40,000,000 50,000,000
Proceeds from issuance of preferred stock 12,000,000
Redemption of preferred stock (12,000,000)
Debt and preferred stock issuance costs (482,338) (876,594) (3,139,571)
Capital contributed by parent company 23,288,716 25,346,038 19,809,297
Repayment of long-term debt (38,800) (42,000) (50,042,000)
Contributions and advances for
construction-net 3,440,942 3,453,604 1,909,905
Net increase (decrease) in notes
payable-banks 4,000,000 23,000,000 (5,500,000)
Dividends paid on common and
preferred stock (15,448,342) (13,631,154) (11,900,361)
____________ ____________ ____________
Net cash provided by financing
activities 54,760,178 37,632,200 9,657,147
____________ ____________ ____________
Cash Used for Investing Activities:
Utility plant expenditures (excluding
AFUDC) (73,789,288) (69,980,619) (32,501,865)
Proceeds from sale of land 131,000
____________ ____________ ____________
Net cash used for investing activities (73,789,288) (69,980,619) (32,370,865)
____________ ____________ ____________
Net Increase (Decrease) in Cash and
Cash Equivalents 2,311,642 (1,778,341) 953,705
Cash and Cash Equivalents at
Beginning of Year 1,485,115 3,263,456 2,309,751
____________ ____________ ____________
Cash and Cash Equivalents at End of Year$ 3,796,757 $ 1,485,115 $ 3,263,456
____________ ____________ ____________
____________ ____________ ____________
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 7,833,355 $ 9,952,838 $ 11,837,347
Income taxes 4,158,093 6,771,254 5,881,008
Preferred stock dividends $ 708,000 $ 805,475 $ 1,050,000
See Notes to Consolidated Financial Statements.
-7-
<PAGE>
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Elizabethtown Water Company (Elizabethtown or Company) and its
wholly owned subsidiary, The Mount Holly Water Company (Mount
Holly), is a wholly owned subsidiary of E'town Corporation (E'town or
Corporation). E'town, a New Jersey holding company, is the parent
company of Elizabethtown Water Company and E'town Properties, Inc.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include Elizabethtown and its
subsidiary, Mount Holly. Significant intercompany accounts and
transactions have been eliminated. Elizabethtown and Mount Holly are
regulated water utilities and follow the Uniform System of Accounts,
as adopted by the New Jersey Board of Public Utilities (BPU).
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period.
Utility Plant and Depreciation
Income is charged with the cost of labor, materials and other expenses
incurred in making repairs and minor replacements and in maintaining
the properties. Utility plant accounts are charged with the cost of
improvements and major replacements of property. When depreciable
property is retired or otherwise disposed of, the cost thereof, plus
the cost of removal net of salvage, is charged to accumulated
depreciation. Depreciation generally is computed on a straight-line
basis at functional rates for various classes of assets. The
provision for depreciation, as a percentage of average depreciable
property, was 1.83% for 1995, 1.75% for 1994 and 1.74% for 1993. The
1995 rate case (see Note 8) allowed an increase in depreciation rates
effective February 1, 1995.
Allowance for Funds Used During Construction
Elizabethtown and Mount Holly capitalize, as an appropriate cost of
utility plant, an Allowance for Funds Used During Construction
(AFUDC), which represents the cost of financing major projects during
construction. AFUDC, a non-cash credit on the Statements of
Consolidated Income, is added to the construction cost of the project
and included in rate base and then recovered in rates during the
project's useful life. AFUDC is comprised of a debt component
(credited to Interest Charges), and an equity component (credited to
Other Income) in the Statements of Consolidated Income. AFUDC totaled
$5,421,383, $2,045,234 and $837,234 for 1995, 1994 and 1993,
respectively (see Note 8).
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Revenues
Revenues are recorded based on the amounts of water delivered to
customers through the end of each accounting period. This includes an
accrual for unbilled revenues for water delivered from the time meters
were last read to the end of the respective accounting periods.
Federal Income Taxes
Elizabethtown Water Company files a consolidated federal tax return
with E'town. Deferred income taxes are provided for timing
differences in the recognition of revenues and expenses for tax and
financial statement purposes to the extent permitted by the BPU.
Elizabethtown and Mount Holly account for prior years' investment tax
credits by the deferral method, which amortizes the credits over the
lives of the respective assets.
Customer Advances for Construction and Contributions in Aid of
Construction
Customer Advances for Construction and Contributions in Aid of
Construction represent capital provided by developers for main
extensions to new real estate developments. Some portion of Customer
Advances for Construction is refunded based upon the revenues that the
new developments generate. Contributions in Aid of Construction are
Customer Advances for Construction that, under the terms of individual
main extension agreements, are no longer subject to refund.
Cash Equivalents
Elizabethtown Water Company considers all highly liquid debt
instruments purchased with maturities of three months or less to be
cash equivalents.
New Accounting Pronouncement
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed of," which is effective in 1996. The statement requires
that long-lived assets be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. The resultant impairment, if any, would be
measured based on the fair value of the asset. The Company believes
that the adoption of SFAS 121 will not have any effect on the
Company's results of operations or financial position.
Reclassification
Certain prior year amounts have been reclassified to conform to the
current year's presentation.
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3. FEDERAL INCOME TAXES
The computation of federal income taxes and the reconciliation of the
tax provision computed at the federal statutory rate (35%) with the
amount reported in the Statements of Consolidated Income follow:
1995 1994 1993
-------------------------
(Thousands of Dollars)
Tax expense at statutory rate $9,270 $7,573 $7,962
Items for which deferred taxes
are not provided:
Capitalized interest (2) (2)
Difference between book and tax
depreciation 133 92 81
Investment tax credits (204) (209) (208)
Other (37) (40) 84
-----------------------
Provision for federal income taxes $9,162 $7,414 $7,917
=======================
The provision for federal income taxes
is composed of the following:
Current $6,409 $5,087 $5,926
Tax collected on main extensions (1,734) (1,931) (1,341)
Deferred:
Tax depreciation 3,492 3,366 3,222
Capitalized interest 800 384 72
Main cleaning and lining 405 396 323
Other (8) 314 (91)
Investment tax credits-net (202) (202) (194)
-----------------------
Total provision $9,162 $7,414 $7,917
=======================
Effective January 1, 1993, the Company adopted SFAS 109, "Accounting
for Income Taxes." SFAS 109 established accounting rules that changed
the manner in which income tax expense is determined for accounting
purposes. SFAS 109 utilizes a liability method under which deferred
taxes are provided at the enacted statutory rate for all temporary
differences between financial statement earnings amounts and the tax
basis of existing assets or liabilities.
In connection with the adoption of SFAS 109, Elizabethtown and Mount
Holly recorded additional deferred taxes for water utility temporary
differences not previously recognized. The increased deferred tax
liability was offset by a corresponding asset representing the future
revenue expected to be recovered through rates based on established
regulatory practice permitting such recovery.
In accordance with SFAS 109, deferred tax balances have been reflected
at E'town's current consolidated federal income tax rate, which is
35%.
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The tax effect of significant temporary differences representing
deferred income tax assets and liabilities as of December 31, 1995 and
1994 is as follows:
1995 1994
---------------------
(Thousands of Dollars)
Water utility plant-net $(56,956) $(53,517)
Taxes recoverable through future rates (9,250) (9,219)
Investment tax credit 2,957 3,028
Prepaid pension expense (203) (324)
Capitalized interest (1,308) (508)
Other assets 654 557
Other liabilities (780) (126)
-------------------
Net deferred income tax liabilities $(64,886) $(60,109)
===================
In 1995 Elizabethtown received tax refunds and interest related to the
years 1984 and 1985 that contributed to an increase in net income of
$206,948.
4. CAPITALIZATION
In June 1995, E'town issued 660,000 shares of common stock for net
proceeds of $16,863,860. The gross proceeds of $17,737,500 were used
to fund equity contributions to Elizabethtown totalling $16,900,000.
These equity contributions have been used to repay short-term debt
that 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 9).
In May 1994, E'town issued 690,000 shares of common stock for net
proceeds of $18,218,471. The net proceeds were used to fund an equity
contribution to Elizabethtown of $16,000,000. This contribution had
been used to partially fund Elizabethtown's construction program, the
predominant portion of which related to the Plant.
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 (DRP). E'town contributed
$6,388,716 and $7,146,038 in 1995 and 1994, respectively, to
Elizabethtown from the proceeds of DRP issuances.
Cumulative Preferred Stock
In March 1994, Elizabethtown issued 120,000 shares of $100 par value,
$5.90 Cumulative Preferred Stock for proceeds of $12,000,000 at an
effective rate of 7.37%. The proceeds were used to redeem $12,000,000
of the Company's $8.75 Cumulative Preferred Stock. The redemption
premium of $1,050,000 was paid from general Company funds and is being
amortized over 10 years for ratemaking purposes.
The $5.90 Cumulative Preferred Stock is not redeemable at the option
of Elizabethtown. Elizabethtown is required to redeem all 120,000
shares of the Preferred Stock on March 1, 2004 at $100 per share.
Long-term Debt
Elizabethtown's long-term debt indentures restrict the amount of
retained earnings available to Elizabethtown to pay cash dividends
(which is the primary source of funds available to the Corporation for
payment of dividends on its common stock), or acquire Elizabethtown's
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common stock, all of which is held by E'town. At December 31, 1995,
$7,753,084 of Elizabethtown's retained earnings were restricted under
the most restrictive indenture provision. Therefore, $35,241,659 of
E'town's consolidated retained earnings were unrestricted.
In December 1995, Elizabethtown issued $40,000,000 of 5.60% tax-exempt
debentures through the New Jersey Economic Development Authority
(NJEDA). The proceeds of the issue were used to repay amounts
outstanding under a revolving credit agreement (see Note 5).
5. LINES OF CREDIT
In 1994, Elizabethtown executed a committed revolving credit agreement
(Agreement) with an agent bank and five additional banks that replaced
the Company's uncommitted lines of credit. The Agreement provides up
to $60,000,000 in revolving short-term financing, which together with
internal funds, other short-term financing, proceeds of future
issuances of debt and preferred stock by Elizabethtown and capital
contributions from E'town, is expected to be sufficient to finance
Elizabethtown's and Mount Holly's capital needs, which are estimated
to be $148,905,000 through 1998. At December 31, 1995, Elizabethtown
had outstanding borrowings of $27,000,000 under the Agreement at
interest rates from 5.75% to 6.00%, at a weighted average rate of
5.94%.
The Agreement allows Elizabethtown to borrow, repay and reborrow up to
$60,000,000 during the first three years, after which time
Elizabethtown may convert any outstanding balances to a five-year,
fully amortizing term loan. The Agreement further provides that,
among other covenants, Elizabethtown must maintain a percentage of
common and preferred equity to total capitalization of not less than
35% and a pre-tax interest coverage ratio of at least 1.5 to 1. As of
December 31, 1995, the percentage of Elizabethtown's common and
preferred equity to total capitalization, as calculated in accordance
with the Agreement, was 47%. For the 12 months ended December 31,
1995, Elizabethtown's pre-tax interest coverage ratio, calculated in
accordance with the Agreement, was 3.12 to 1.
Elizabethtown has $17,000,000 of uncommitted lines of credit with
several banks in addition to the lines under the Agreement.
Information relating to bank borrowings for 1995, 1994 and 1993 is as
follows:
1995 1994 1993
-------------------------------
(Thousands of Dollars)
Maximum amount outstanding.......... $60,000 $23,000 $7,000
Average monthly amount outstanding.. $39,636 $ 2,958 $2,062
Average interest rate at year end... 5.9% 6.1% (A)
Compensating balances at year end... $ 0 $ 0 $ 195
Weighted average interest rate based
on average daily balances.......... 6.2% 5.7% 3.8%
(A) No outstanding bank borrowings at year end.
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6. FINANCIAL INSTRUMENTS
The carrying amounts and the estimated fair values, as of
December 31, 1995 and 1994, of financial instruments issued or held by
the Company, are as follows:
1995 1994
------------------------
(Thousands of Dollars)
Cumulative preferred stock (1):
Carrying amount $ 12,000 $ 12,000
Estimated fair value 11,940 10,860
Long-term debt (1):
Carrying amount $181,923 $141,908
Estimated fair value 189,664 129,355
(1) Estimated fair values are based upon quoted market prices for
these or similar securities.
7. REGULATORY ASSETS AND LIABILITIES
Certain costs incurred by Elizabethtown and Mount Holly which have
been deferred have been recognized as regulatory assets and are
being amortized over various periods as set forth below:
1995 1994
-----------------------
(Thousands of Dollars)
Waste residual management $ 970 $ 546
Unamortized debt and
preferred stock expense 9,385 8,902
Taxes recoverable through
future rates (Note 3) 26,428 26,339
Postretirement benefit expense
(Note 10) 2,901 2,077
Purchased water under
recovery-net (Note 8) 37 314
-------------------
Total $39,721 $38,178
===================
Waste Residual Management
The costs of disposing of the waste generated by Elizabethtown's
and Mount Holly's water treatment plants are being amortized
over three-year periods for ratemaking and financial statement
purposes. No return is being earned on these deferred balances.
Unamortized Debt and Preferred Stock Expenses
Costs incurred in connection with the issuance or redemption of
long-term debt have been deferred and are being amortized over the
lives
of respective issues for ratemaking and financial statement purposes.
Costs incurred in connection with the issuance and redemption of
preferred stock have been deferred and are being amortized over a
10-year period for ratemaking and financial statement purposes.
There were no regulatory liabilities at December 31, 1995 or 1994.
8. REGULATORY MATTERS
Rates
Elizabethtown
On November 20, 1995, Elizabethtown filed a petition with the BPU for
an increase in rates of $31,634,500 or 29.6%. The largest portion of
the request, $22,925,227, is to cover the cost to finance and operate
the Plant (see Note 9). The remainder of the rate request, $8,709,273
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is needed to cover the cost to finance additional construction
projects and to cover increases in operating expenses since rates were
last established in February 1995. A decision by the BPU is expected
in the summer of 1996. In light of the approval by the BPU of the
1993 Plant Stipulation (discussed below) and Elizabethtown's
experience in obtaining base rate relief, Elizabethtown expects the
BPU to grant timely and adequate rate relief, but cannot predict the
ultimate outcome of any rate proceeding.
In February 1996, Elizabethtown filed a petition with the BPU for a
decrease in rates of $390,318 under a Purchased Water Adjustment
Clause (PWAC). This procedure, established by BPU rules, allows
Elizabethtown to reflect in rates a change in the cost of water
purchased from the New Jersey Water Supply Authority (NJWSA) without a
complete rate case. The purpose of this request is to reflect in
rates the expected decrease in the rate for water purchased by
Elizabethtown from the NJWSA effective July 1, 1996.
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 9). 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 12-month historical period drops below
2.0 times. The 1993 Plant Stipulation also provides that the rate of
return on common shareholder'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 shareholder's equity established in
the Company's most recent base rate case. The authorized rate of
return on common shareholder's equity is currently 11.5%.
In January 1995, the BPU approved a stipulation (1995 Stipulation) for
Elizabethtown for a rate increase 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 SFAS 106, "Employer's Accounting for Postretirement Benefits
Other Than Pensions," provided this amount is funded by the Company
(see Note 10). The rate increase is covering the cost to finance
$62,000,000 of construction projects that were not reflected in the
rates established in March 1993. These projects include treatment,
transmission and storage facilities needed to ensure that
Elizabethtown continues to meet federal and state regulations on water
quality and service. The increase is also offsetting increased costs
for power, labor and benefits, primarily medical. The 1995 Stipulation
also provides for an increase in depreciation rates resulting in an
increase in depreciation expense of approximately $469,000. The 1995
Stipulation also required Elizabethtown to maintain a percentage of
common equity to total capitalization of at least 45.1% for the 12
months ended January 31, 1996. The Company has met this requirement.
On July 7, 1995, the BPU approved a Stipulation for a decrease in
rates under a PWAC. The Stipulation resulted in a decrease in rates
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for the PWAC, effective July 13, 1995 of $348,527. This
Stipulation reflects the decrease in rates for water purchased
from the NJWSA.
In June 1994, the BPU approved a Stipulation for an increase in rates
under a PWAC. The Stipulation resulted in an increase in rates,
effective July 1, 1994, of $334,611, reflecting the increase in rates
for water purchased from the NJWSA.
Mount Holly
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 cover costs that were not reflected in
rates last increased in October 1986. The second phase would cover
the cost of a new water supply, treatment and transmission system
necessary to obtain water outside a designated portion of an aquifer
currently used by Mount Holly and to treat and pump the water into the
Mount Holly distribution system. Management believes this project is
the most cost-effective alternative available to Mount Holly to
comply with recent state legislation which restricts the amount of
water that can be withdrawn from an aquifer in certain areas of
southern New Jersey. The project is currently estimated to cost
$16,500,000. The land for the supply and
treatment facilities has been purchased and wells have been drilled
and can produce the required supply. On October 5, 1995, the New
Jersey Department of Environmental Protection granted Mount Holly a
water allocation diversion permit for four wells that are to be the
water supply for the Mansfield Project. On October 20, 1995, New
Jersey-American Water Company requested, and was subsequently granted,
an adjudicatory hearing on the permit. The Company and Mount Holly
believe that the permit in question will be upheld, but cannot
predict the outcome of the objection. In the event that the
objection is successful and the permit is rescinded, Mount Holly
would utilize the alternative plan of purchasing water from New
Jersey-American Water Company.
On January 24, 1996, the BPU approved a stipulation (Mount Holly
Stipulation) for an increase in rates of $550,000, effective as of
that date. The Mount Holly Stipulation has, effectively, concluded
the first phase of the rate proceeding. Mount Holly is continuing
with the process with respect to the second phase of the petition.
While management believes that the water supply, treatment and
transmission system planned for Mount Holly is the most cost-effective
response to the state legislation affecting the area, we cannot
predict the ultimate outcome of the rate proceeding at this time.
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 annual 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.
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In June 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 revenues formula
are required by the Company. Based upon the New Jersey Supreme
Court's decision, the plaintiffs have withdrawn their suits.
9. COMMITMENTS
Elizabethtown is obligated, under a contract that expires in 2013, to
purchase from the NJWSA a minimum of 37 billion gallons of water
annually. The Company purchases additional water from the NJWSA on an
as-needed basis. Effective July 1, 1996, the annual cost under the
contract will be $7,861,486. The total cost of water purchased from
the NJWSA, including additional water purchased on an as-needed
basis, was $9,344,792, $8,987,472 and $8,819,212 for 1995, 1994 and
1993, respectively.
The following is a schedule by years of future minimum rental payments
required under noncancelable operating leases with terms in excess of
one year at:
December 31,
----------------------
(Thousands of Dollars)
1996 $ 909
1997 859
1998 12
1999 -0-
2000 -0-
------
Total $1,780
======
Rent expense totaled $820,481, $829,562 and $789,636 for 1995, 1994
and 1993, respectively.
Capital expenditures through 1998 are estimated to be $148,905,000
for Elizabethtown's and Mount Holly's utility plant.
Canal Road Water Treatment Plant
In April 1994, following a competitive bidding process, Elizabethtown
executed a lump-sum contract for the construction of the Canal Road
Water Treatment Plant. The project is currently estimated to cost
$100,000,000, excluding AFUDC. The project is being completed on
schedule and the construction contract is on budget. The Company
has expended $82,952,434, excluding AFUDC of $7,167,396, on the Plant
as of December 31, 1995. Construction is expected to be completed
in the third quarter of 1996.
10. PENSION PLAN AND OTHER POSTRETIREMENT BENEFITS
Elizabethtown has a trusteed, noncontributory Retirement Plan (Plan),
which covers most employees. Under the Company's funding policy, the
Company makes contributions that meet the minimum funding
requirements of the Employee Retirement Income Security Act of 1974.
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The components of the net pension costs (credits) are as follows:
1995 1994 1993
-------------------------
(Thousands of Dollars)
Service cost--benefits earned during the year .. $ 915 $1,052 $ 899
Interest cost on projected benefit obligation .. 2,156 1,946 1,973
Return on Plan assets .......................... (7,587) 939 (1,409)
Net amortization and deferral .................. 4,862 (3,860) (1,658)
-------------------------
Net pension costs (credits) .................... $ 346 $ 77 $ (195)
=========================
Plan assets are invested in publicly traded debt and equity securities.
The reconciliations of the funded status of the Plan to the amounts
recognized in the Consolidated Balance Sheets are presented below:
1995 1994
----------------------
(Thousands of Dollars)
Market value of Plan assets $36,957 $30,810
Actuarial present value of Plan benefits: ----------------
Vested benefits 25,986 20,776
Non-vested benefits 101 157
----------------
Accumulated benefit obligation 26,087 20,933
Projected increases in compensation levels 7,877 5,642
----------------
Projected benefit obligation 33,964 26,575
Excess of Plan assets over projected benefit ----------------
obligation 2,993 4,235
Unrecognized net gain (620) (1,337)
Unrecognized prior service cost 363 451
Unrecognized transition asset (2,156) (2,423)
----------------
Prepaid pension expense $ 580 $ 926
================
The assumed rates used in determining the actuarial present value of the
projected benefit obligations were as follows:
1995 1994 1993
------------------------
Discount rate 7.00% 8.00% 7.00%
Compensation increase 5.50% 5.50% 5.50%
Rate of return on Plan assets 9.00% 8.50% 8.50%
The Company provides certain health care and life insurance benefits for
substantially all of its retired employees. As a result of a contract
negotiated in February 1996 with the Company's bargaining unit, all union
and non-union employees retiring after January 1, 1997 will pay 25% of
future increases in the premiums the Company pays for postretirement
medical benefits.
Effective January 1, 1993, the Company adopted SFAS 106. Under SFAS 106,
the costs of postretirement benefits are accrued for each year the
employee renders service, based on the expected cost of providing such
benefits to the employee and the employee's beneficiaries and covered
dependents, rather than expensing these benefits on a pay-as-you-go basis
for retired employees.
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Based upon an independent actuarial study, the transition obligation,
calculated under SFAS 106, was $7,214,736 as of January 1, 1993. The
transition obligation is being amortized over 20 years. The following table
details the postretirement benefit obligation at December 31:
1995 1994
----------------------
(Thousands of Dollars)
Retirees $2,404 $2,457
Fully eligible plan participants 6,263 5,080
-----------------
Accumulated postretirement benefit
obligation 8,667 7,537
Plan assets at fair value (320) 0
Unrecognized net gain 685 1,033
Unrecognized transition obligation (6,131) (6,493)
-----------------
Accrued postretirement benefit
obligation $2,901 $2,077
=================
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation as of December 31, 1995, and for 1995, was
12%. This rate decreases linearly each successive year until it reaches 5%
in 2005, after which the rate remains constant. The assumed rates used
in determining the actuarial present value of the projected benefit
obligations were as follows:
1995 1994 1993
-------------------------
Discount rate 7.00% 8.00% 7.00%
A single percentage point increase in the assumed health care cost trend
rate for each year would increase the accumulated postretirement benefit
obligation as of December 31, 1995, and net postretirement service and
interest cost by approximately $1,260,000 and $250,000, respectively.
Based upon the independent actuarial study referred to above, the annual
postretirement cost calculated under SFAS 106 is as follows:
1995 1994 1993
----------------------------
(Thousands of Dollars)
Service cost - benefits earned
during the year $ 474 $ 369 $ 249
Interest cost on accumulated
postretirement benefit obligation 579 592 602
Amortization of transition obligation 360 361 361
---------------------------------
Total 1,413 1,322 1,212
Deferred amount for regulated
companies pending recovery (824) (1,072) (1,005)
---------------------------------
Net postretirement benefit expense $ 589 $ 250 $ 207
=================================
The rate increases allowed by the 1995 Stipulation and the Mount Holly
Stipulation include as an allowable expense the pay-as-you-go portion of
postretirement benefits as well as the current service cost, and require
that the current service cost be funded. Elizabethtown funded $318,222 in
1995. These stipulations allow Elizabethtown and Mount Holly to defer the
amount accrued in excess of these amounts for consideration in future rate
cases. Generally accepted accounting principles permit this regulatory
treatment, provided deferrals are not accumulated for a period of more than
five years. As of December 31, 1995, the amount that has been deferred is
$2,900,569.
Recovery of Elizabethtown's deferred postretirement costs has been requested
in Elizabethtown's recent rate case. Management believes that Elizabethtown
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and Mount Holly will recover the deferred postretirement costs in future
rates.
11. LEGAL MATTERS
As reported in 1994, a developer asserted in a suit filed in 1991 against
Elizabethtown that the Company failed to install facilities necessary to
provide water service to a new development in a timely manner.
In November 1994, the Company settled this matter by paying the developer
$1,750,000. As part of the settlement, the developer agreed that part of
this payment represented a refund of funds deposited under a main extension
loan agreement for the construction of the facilities. In addition, the
Company applied a portion of the settlement against an insurance reserve.
The effect on 1994 earnings was $932,203 or $605,932 net of federal income
taxes. The Company is seeking recovery from its insurance carriers.
As previously reported, several lawsuits had been filed against
Elizabethtown and other parties in connection with a fire that occurred in a
storage facility in 1989 resulting in damage to property stored at that
facility. This matter has been settled in 1995 resulting in a payment by
Elizabethtown of $114,250. A provision for this estimated liability was
previously recorded.
12. RELATED PARTY TRANSACTIONS
The Company enters into various transactions with E'town and E'town
Properties, Inc. Elizabethtown provides administrative and accounting
services to these affiliates with are billed on a monthly basis.
Elizabethtown is billed for financial services by E'town.
The total of all intercompany billings was $469,548, $426,944 and $278,191
for 1995, 1994 and 1993, respectively. In addition, various expenditures
are made to vendors which are common to the entities. Each entity absorbs
its proportionate share of these costs.
13 QUARTERLY FINANCIAL DATA (Unaudited)
A summary of financial data for each quarter of 1995 and 1994 follows:
Income Before Earnings
Operating Operating Preferred Applicable
Quarter Revenues Income Stock Dividends to Common Stock
------------------------------------------------------------------------
(Thousands of Dollars Except Per Share Amounts)
1995
1st $25,174 $ 5,906 $ 3,653 $3,449
2nd 27,101 6,542 4,377 4,174
3rd 30,451 8,085 5,720 5,517
4th 25,672 5,754 3,575 3,372
-----------------------------------------------------
Total $108,398 $26,287 $17,325 $16,512
=====================================================
1994
1st $ 24,657 $ 5,579 $ 3,082 $2,832
2nd 25,208 5,945 3,484 3,281
3rd 27,370 6,976 4,093 3,890
4th 24,798 5,684 3,564 3,366
-----------------------------------------------------
Total $102,033 $24,184 $14,223 $13,369
=====================================================<PAGE>
Water utility revenues are subject to a seasonal fluctuation due to
normal increased consumption during the third quarter of each year.
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<PAGE>
EXHIBIT 4(h)
-----------------------------------------------------------
ELIZABETHTOWN WATER COMPANY
TO
THE BANK OF NEW YORK, TRUSTEE
-----------
INDENTURE
Dated as of December 1, 1995
--------------
5.60% Debentures due 2025
-----------------------------------------------------------
<PAGE>
TABLE OF CONTENTS/1
Page
PARTIES................................................................... 1
RECITALS.................................................................. 1
Purpose of Indenture................................................... 1
Form of Debenture...................................................... 1
Compliance with legal requirements..................................... 6
ARTICLE ONE.
Definitions.
SECTION 1.01. Certain terms; other terms defined
in Trust Indenture Act of 1939 or
by reference therein in Securities
Act of 1933, as amended, to have
meanings therein assigned........................................ 6
Authority.......................................................... 7
Board of Directors................................................. 7
Board Resolution................................................... 7
Company............................................................ 7
Debenture or Debentures; "outstanding"
with reference to Debentures..................................... 7
Debentureholder.................................................... 7
Event of Default................................................... 8
Indenture.......................................................... 8
Loan Agreement..................................................... 8
Officers' Certificate.............................................. 8
Opinion of Counsel................................................. 8
Person............................................................. 8
Principal Corporate Trust Office of
the Trustee...................................................... 8
Project............................................................ 9
Responsible Officer................................................ 9
Revenue Bonds...................................................... 9
Revenue Bond Indenture............................................. 9
Revenue Bond Trustee............................................... 9
Trustee............................................................ 9
Trust Indenture Act of 1939........................................ 9
Other defined terms................................................ 10
- --------
/1 This Table of Contents does not constitute part of the Indenture and is
not to have any bearing upon the interpretation of any of its terms or
provisions.
-i-
<PAGE>
ARTICLE TWO.
Description, Execution and Exchange of Debentures.
SECTION 2.01. Maturity of Debentures............................ 10
SECTION 2.02. Form of Debentures................................ 10
SECTION 2.03. Date of Debentures and denominations.............. 10
SECTION 2.04. Execution and authentication of
Debentures....................................................... 11
SECTION 2.05. Exchange, registration and transfer
of Debentures.................................................... 11
SECTION 2.06. Mutilated, destroyed, lost or stolen
Debentures....................................................... 12
SECTION 2.07. Cancellation of surrendered
Debentures....................................................... 13
SECTION 2.08. Provisions of Indenture and
Debentures for sole benefit of
parties and Debentureholders..................................... 13
SECTION 2.09. CUSIP Numbers..................................... 13
ARTICLE THREE.
Issue of Debentures.
SECTION 3.01. Amount, authentication and delivery
of Debentures.................................................... 14
ARTICLE FOUR.
Redemption of Debentures.
SECTION 4.01. Redemption of Debentures.......................... 14
SECTION 4.02. Redemption of part only of
Debentures....................................................... 15
Notice of intention to redeem...................................... 15
SECTION 4.03. When called Debentures become due
and payable...................................................... 15
SECTION 4.04. When interest ceases on called
Debentures....................................................... 15
ARTICLE FIVE.
Particular Covenants of the Company.
SECTION 5.01. Payment of principal of and interest
on Debentures.................................................... 16
-ii-
<PAGE>
SECTION 5.02. Maintenance and designation of office
or agency for registration of
transfer, exchange and payment
of Debentures.................................................... 16
SECTION 5.03. Appointment to fill vacancy in office
of Trustee ..................................................... 17
SECTION 5.04. Appointment of paying agent other
than Trustee..................................................... 17
SECTION 5.05. Company not to incur debt, with
certain exceptions............................................... 18
Definition of "Property Additions"................................. 19
SECTION 5.06. Company covenants it will not mortgage,
pledge or permit any other lien,
with certain exceptions, upon any
of its property now owned or here-
after acquired without securing the
Debentures....................................................... 21
Covenants of the Company in the event
of merger, consolidation or sale................................. 22
Definition of "Excepted Property".................................. 24
SECTION 5.07. Limitations on dividends.......................... 24
SECTION 5.08. Special provision for retirement of
Debentures....................................................... 24
SECTION 5.09. Company to file Compliance Certificate
with Trustee annually............................................ 26
SECTION 5.10. Company to deliver documents...................... 26
ARTICLE SIX.
Debentureholders' Lists and Reports by the
Company and the Trustee.
SECTION 6.01. Company to furnish Trustee information
as to names and addresses of
Debentureholders................................................. 27
SECTION 6.02. ................................................. 27
SECTION 6.03. ................................................. 27
SECTION 6.04. ................................................. 27
ARTICLE SEVEN.
Remedies of the Trustee and Debentureholders
on Event of Default.
SECTION 7.01. Events of Default defined......................... 27
Acceleration of maturity upon
Event of Default................................................. 28
Waiver of default and rescission of
declaration of maturity.......................................... 28
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<PAGE>
SECTION 7.02. Covenant of Company to pay to Trustee
whole amount due on Debentures on
default in payment of interest or
principal........................................................ 29
Trustee may remove judgment for whole
amount due on Debentures on failure
of Company to pay................................................ 30
Filing of proof of claim by Trustee
in bankruptcy, reorganization,
receivership, or other judicial
proceedings...................................................... 30
SECTION 7.03. Application of moneys collected by
Trustee.......................................................... 31
SECTION 7.04. Limitation on suits by holders of
Debentures....................................................... 32
SECTION 7.05. Delay or omission in exercise of
rights not waiver of default..................................... 33
SECTION 7.06. ........................................... 33
SECTION 7.07. ........................................... 33
SECTION 7.08. ........................................... 33
ARTICLE EIGHT.
Concerning the Trustee.
SECTION 8.01. Duties of Trustee prior to and after
Event of Default................................................. 33
SECTION 8.02. Except as otherwise provided in
Section 8.01:.................................................... 33
(a) Trustee may rely on documents
believed genuine and properly
signed or presented............................... 33
(b) Sufficient evidence by certain
instruments provided for.......................... 34
(c) Trustee may act on Opinion of
Counsel........................................... 34
(d) Trustee may require indemnity from
Debentureholders.................................. 34
(e) Trustee not liable for actions in
good faith believed to be
authorized........................................ 34
(f) Investigation of facts by Trustee................. 34
(g) Trustee may act through agents.................... 34
(h) Trustee not required to risk own
funds............................................. 35
SECTION 8.03. Trustee not liable for recitals in
Indenture or in Debentures....................................... 35
Trustee not accountable for use of
Debentures or proceeds........................................... 35
SECTION 8.04. Trustee, paying agent or Debenture
registrar may own Debentures..................................... 35
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<PAGE>
SECTION 8.05. Moneys received by Trustee to be
held in trust.................................................... 35
SECTION 8.06. Trustee entitled to compensation,
reimbursement and indemnity...................................... 35
Obligations to Trustee to be secured
by lien prior to Debentures...................................... 36
SECTION 8.07. Right of Trustee to rely on Officers'
Certificate where no other evidence
specifically prescribed.......................................... 36
SECTION 8.08. Calculation of percentages of
securities....................................................... 36
SECTION 8.09. Requirements for eligibility of
Trustee.......................................................... 37
SECTION 8.10. (a) Resignation of Trustee..................... 37
(b) Removal of Trustee by Company or
by court on Debentureholder's
application....................................... 37
(c) Removal of Trustee by holders of
majority in principal amount of
Debentures........................................ 38
(d) Time when resignation or removal
of Trustee effective.............................. 38
SECTION 8.11. Acceptance by successor to Trustee................ 38
SECTION 8.12. Successor to Trustee by merger,
consolidation or succession to
business......................................................... 39
SECTION 8.13............................................................... 39
ARTICLE NINE.
Concerning the Debentureholders.
SECTION 9.01. Evidence of action by Debenture-
holders.......................................................... 40
SECTION 9.02. Proof of execution of instruments
and holding of Debentures........................................ 40
SECTION 9.03. Who may be deemed owners of
Debentures....................................................... 40
SECTION 9.04. Debentures owned by Company or
controlled or controlling companies
disregarded for certain purposes................................. 40
SECTION 9.05. Action by Debentureholders bind
future holders................................................... 41
-v-
<PAGE>
ARTICLE TEN.
Debentureholders' Meetings.
SECTION 10.01 Purposes for which meetings may be
called........................................................... 41
SECTION 10.02. Manner of calling meetings........................ 42
SECTION 10.03. Call of meetings by Company or
Debentureholders................................................. 42
SECTION 10.04. Who may attend and vote at meetings............... 42
SECTION 10.05. Regulations may be made by Trustee................ 42
SECTION 10.06. Manner of voting at meetings and
record to be kept................................................ 43
SECTION 10.07. Exercise of rights of Trustee or
Debentureholders may not be hindered
or delayed by call of meeting of
Debentureholders................................................. 44
ARTICLE ELEVEN.
Supplemental Indentures.
SECTION 11.01 Purposes for which supplemental
indentures may be entered into with-
out consent of Debentureholders.................................. 44
SECTION 11.02 Modification of Indenture with consent
of holders of more than 50% in
principal amount of Debentures................................... 45
SECTION 11.03. Effect of supplemental indentures................. 46
SECTION 11.04. Debentures may bear notation of
changes.......................................................... 46
SECTION 11.05. Opinion of Counsel................................ 46
ARTICLE TWELVE.
Consolidation, Merger and Sale.
SECTION 12.01. Consolidation or merger of Company
and sale or conveyances of property
of Company permitted............................................. 46
Assumption of obligations of Company
by successor company or transferee............................... 47
SECTION 12.02. Rights and duties of successor
corporation...................................................... 47
Appropriate changes may be made in
phraseology and form of Debentures............................... 47
Company may consolidate or merge into
itself or acquire properties of
other corporations............................................... 47
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<PAGE>
SECTION 12.03. Opinion of Counsel................................ 48
ARTICLE THIRTEEN.
Satisfaction and Discharge of Indenture;
Deposited Moneys.
SECTION 13.01. Satisfaction and discharge of
Indenture........................................................ 48
SECTION 13.02 Application by Trustee of funds
deposited for payment of
Debentures....................................................... 49
SECTION 13.03. Repayment of moneys held by paying
agent............................................................ 49
SECTION 13.04. Payment of deposited money to
Company after lapse of time...................................... 49
ARTICLE FOURTEEN.
Immunity of Incorporators, Stockholders,
Officers, Trustees and Directors.
SECTION 14.01. Incorporators, stockholders, officers,
trustees and directors of Company
exempt from individual liability................................. 50
ARTICLE FIFTEEN.
Miscellaneous Provisions.
SECTION 15.01. Successors and assigns of Company
bound by Indenture............................................... 51
SECTION 15.02. Acts of board, committee or officer
of successor corporation valid................................... 51
SECTION 15.03. Surrender of powers by Company.................... 51
SECTION 15.04. Required notices or demands may be
served by mail................................................... 51
SECTION 15.05. Indenture and Debentures to be
construed in accordance with laws
of State of New York............................................. 51
SECTION 15.06. Officers' Certificate and Opinion
of Counsel to be furnished upon
applications or demands by Company............................... 51
SECTION 15.07. Payments due on Sundays or holidays............... 52
SECTION 15.08. Provisions required by Trust
Indenture Act of 1939 to control................................. 53
SECTION 15.09. Effect of invalidity of provisions................ 53
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<PAGE>
SECTION 15.10. Indenture may be executed in counter-
parts............................................................ 53
ACCEPTANCE OF TRUST........................................................ 54
TESTIMONIUM................................................................ 55
-viii-
<PAGE>
INDENTURE, dated as of December 1, 1995, between ELIZABETHTOWN
WATER COMPANY, a corporation duly organized and existing under and by virtue of
the laws of the State of New Jersey (hereinafter sometimes called the
"Company"), party of the first part, and THE BANK OF NEW YORK, a New York
banking corporation (hereinafter sometimes called the "Trustee"), party of the
second part.
WHEREAS, the Company is empowered to issue debentures
for any of the objects and purposes of the Company;
WHEREAS, for its lawful corporate purposes, the Company has
duly authorized an issue of debentures designated 5.60% Debentures - due 2025
(hereinafter referred to as the "Debentures"), in an aggregate principal amount
of $40,000,000, to be issued under and pursuant to the provisions hereof; and
WHEREAS, the Debentures and the Trustee's certificate of
authentication to be borne by the Debentures are to be substantially in the
following forms, respectively:
[FORM OF DEBENTURE]
[FACE]
$___________________ No. _______________
ELIZABETHTOWN WATER COMPANY
5.60% Debenture - due 2025
ELIZABETHTOWN WATER COMPANY, a corporation duly organized and
existing under the laws of the State of New Jersey (herein referred to as the
"Company"), for value received, hereby promises to pay to
______________________, or registered assigns, on December 1, 2025 or upon the
earlier redemption hereof as hereinafter provided, the principal sum of
______________________ Dollars in such coin or currency of the United States of
America as at the time of payment shall be legal tender for the payment of
public and private debts, and to pay interest thereon at the
<PAGE>
rate per annum specified in the title of this Debenture, in like coin or
currency, semi-annually on June 1 and December 1 in each year, until payment of
said principal sum has been made or duly provided for, from the most recent
interest payment date to which interest has been paid or duly provided for
(unless the date hereof is the date to which interest on the Debentures has been
paid or duly provided for in which case from the date of this Debenture) or if
no interest has been paid or duly provided for on the Debentures from December
1, 1995. Principal and interest shall be paid at the principal corporate trust
office of The Bank of New York, New York, New York or at the office of the
Company, Westfield, New Jersey, or at the duly designated office of any duly
appointed alternate or successor paying agent.
Reference is hereby made to the further provisions of this
Debenture set forth on the reverse hereof, and such further provisions shall for
all purposes have the same effect as though fully set forth at this place.
This Debenture shall not be valid or become obligatory for any
purpose until the certificate of authentication hereon shall have been signed by
the Trustee under the Indenture.
IN WITNESS WHEREOF, ELIZABETHTOWN WATER COMPANY has caused
this Debenture to be signed in its corporate name by its President or one of its
Vice Presidents by his signature or a facsimile thereof and by its Secretary or
one of its Assistant Secretaries by his signature or a facsimile thereof, and
its corporate seal, or a facsimile thereof, to be impressed or imprinted hereon.
ELIZABETHTOWN WATER COMPANY
By___________________________
President.
(Seal)
By___________________________
Secretary.
-2-
<PAGE>
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
Dated: December __, 1995
This is one of the Debentures described in
the within-mentioned Indenture.
THE BANK OF NEW YORK,
as Trustee,
By___________________________
Authorized Signatory.
[REVERSE]
ELIZABETHTOWN WATER COMPANY
5.60% Debenture - due 2025
This Debenture is one of a duly authorized issue of Debentures
of the Company (herein referred to as the "Debentures"), limited to the
aggregate principal amount of $40,000,000, except as otherwise provided in the
Indenture referred to below, all issued or to be issued under and pursuant to an
indenture dated as of December 1, 1995 (herein referred to as the "Indenture"),
duly executed and delivered by the Company to The Bank of New York, Trustee
(herein referred to as the "Trustee"), to which Indenture and all indentures
supplemental thereto reference is hereby made for a description of the rights of
the holders of the Debentures, the rights, duties and immunities of the Trustee
and the rights and obligations of the Company thereunder. The Debentures will
not be transferable except to a successor Revenue Bond Trustee.
In case an Event of Default, as defined in the Indenture,
shall have occurred and be continuing, the principal of all of the Debentures
may be declared, and upon such declaration shall become, due and payable, in the
manner, with the effect and subject to the conditions provided in the Indenture.
The Indenture contains provisions permitting the Company and
the Trustee, with the consent of the holders of more than 50% in the aggregate
principal amount of the Debentures at the time outstanding, evidenced as in the
Indenture provided, to execute supplemental indentures adding any provisions to
or changing in any manner or eliminating any of the provisions of the Indenture
or of any indenture supplemental thereto or modifying in any manner the rights
and obligations of the holders
-3-
<PAGE>
of the Debentures and of the Company; provided, however, that no such
supplemental indenture shall (i) extend the fixed maturity of any Debenture, or
reduce the principal amount thereof, or reduce the rate or extend the time of
payment of interest thereon, without the consent of the holder of each Debenture
so affected, or (ii) reduce the aforesaid percentage of Debentures, the holders
of which are required to consent to any such supplemental indenture, without the
consent of the holders of all Debentures then outstanding. It is also provided
in the Indenture that prior to any declaration of the maturity of the Debentures
the holders of a majority in the aggregate principal amount of the Debentures at
the time outstanding may on behalf of the holders of all of the Debentures waive
any past default under the Indenture and its consequences, except a default in
the payment of interest on or the principal of any of the Debentures. Any such
consent or waiver by the registered holder of this Debenture shall be conclusive
and binding upon such holder and upon all future holders and owners of this
Debenture and of any Debenture issued in exchange herefor or in place hereof,
irrespective of whether or not any notation of such consent or waiver is made
upon this Debenture.
No reference herein to the Indenture and no provision of this
Debenture or of the Indenture shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of and
interest on this Debenture at the time and place and at the rate and in the coin
or currency herein prescribed.
The Debentures are issuable as registered Debentures without
coupons, in denominations of $5,000 and any multiple thereof. This Debenture is
transferable in the manner authorized by law. Upon due presentment of this
Debenture for registration of transfer at the office or agency to be maintained
by the Company in the Borough of Manhattan, City and State of New York, a new
Debenture or Debentures, of authorized denominations, for a like aggregate
principal amount, will be issued to the transferee as provided, and subject to
the limitations, in the Indenture. No service charge will be made for any such
registration of transfer, but the Company may require payment of a sum
sufficient to reimburse it for any tax or other governmental charge that may be
imposed in relation thereto. This Debenture may in like manner be exchanged
without service charge for one or more new Debentures of other authorized
denominations but of the same aggregate principal amount, all subject to the
terms and conditions set forth in the Indenture.
As more fully provided in the Indenture, the Debentures are
redeemable at the option of the Company in whole at any time, or in part from
time to time, prior to maturity on or after December 1, 2000, by the payment of
the principal amount thereof and accrued interest to the date fixed for
redemption, together with a premium equal to a percentage of the principal
amount
-4-
<PAGE>
thereof determined as set forth in the tabulation below under the
heading "Redemption Price".
Period
(Both Dates Inclusive) Redemption Price
---------------------- -----------------
December 1, 2005 to November 30, 2006..................................102%
December 1, 2006 to November 30, 2007 .................................101%
December 1, 2007 and thereafter........................................100%
The Debentures are subject to mandatory redemption by the
Company at any time prior to maturity by payment of the principal amount thereof
to be redeemed and accrued interest to the date fixed for redemption if, and to
the extent that, certain New Jersey Economic Development Authority 5.60% Water
Facilities Bonds (Elizabethtown Water Company Project -- 1995 Series) are called
for redemption at a price equal to the principal amount to be redeemed and
accrued interest to the date fixed for redemption. As more fully provided in the
Indenture, the Debentures are also redeemable as a whole or in part with the
proceeds of Released Property, at the principal amount thereof plus accrued
interest to the date fixed for redemption.
The Indenture provides that under the circumstances specified
therein funds or certain securities may be deposited with the Trustee in advance
of the maturity or redemption date of any of the Debentures, in trust for the
payment or redemption of such Debentures, and the interest due or to become due
thereon, and that thereupon all obligations of the Company in respect of such
Debentures shall cease and be discharged and the holders thereof shall
thereafter be restricted exclusively to such funds or securities for any and all
other claims on their part under the Indenture or with respect to such
Debentures.
The Company, the Trustee, any paying agent and any Debenture
registrar may deem and treat the registered holder hereof as the absolute owner
hereof (whether or not this Debenture shall be overdue and notwithstanding any
notice of ownership or writing hereon) for the purpose of receiving payment of
or on account of the principal hereof and interest due hereon and for all other
purposes, and neither the Company nor the Trustee nor any paying agent nor any
Debenture registrar shall be affected by any notice to the contrary. So long as
the Revenue Bond Trustee (as defined in the Indenture) is the sole registered
holder of this Debenture, and has specified an account for such payments in
writing to the Company, the Trustee and any paying agent, all payments of
interest required hereunder shall be made by wire transfer.
-5-
<PAGE>
No recourse shall be had for the payment of the principal of
or the interest on this Debenture, or for any claim based hereon, or otherwise
in respect hereof, or based on or in respect of the Indenture or any indenture
supplemental thereto, against any incorporator, stockholder, officer, trustee or
director, past, present or future, as such, of the Company or of any predecessor
or successor corporation, whether by virtue of any constitution, statute or rule
of law or equity, or by the enforcement of any assessment or penalty or
otherwise, all such liability being, by the acceptance hereof and as part of the
consideration for the issue hereof, expressly waived and released by every
holder hereof, as more fully provided in the Indenture.
----------------------
AND WHEREAS, all acts and things necessary to make the
Debentures, when executed by the Company and authenticated and delivered by the
Trustee as in this Indenture provided, the valid, binding and legal obligations
of the Company, and to constitute these presents a valid indenture and
agreement, have been done and performed, and the execution of this Indenture and
the issue hereunder of the Debentures have in all respects been duly authorized,
and the Company, in the exercise of the legal right and power in it vested,
executes this Indenture and proposes to make, execute, issue and deliver the
Debentures;
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
That in order to declare the terms and conditions upon which
the Debentures are and are to be authenticated, issued and delivered, and in
consideration of the premises, of the purchase and acceptance of the Debentures
by the holders thereof and of the sum of one dollar to it duly paid by the
Trustee at the execution of these presents, the receipt whereof is hereby
acknowledged, the Company covenants and agrees with the Trustee for the equal
and proportionate benefit of the respective holders from time to time of the
Debentures, as follows:
ARTICLE ONE.
Definitions.
Section 1.01. The terms defined in this Section (except as in
this Indenture otherwise expressly provided or unless the context otherwise
requires) for all purposes of this Indenture and of any indenture supplemental
hereto shall have the respective meanings specified in this Section. All other
terms used in this Indenture which are defined in the Trust Indenture Act of
1939 or which are by reference in such act defined in the Securities Act of
1933, as amended (except as herein otherwise
-6-
<PAGE>
expressly provided or unless the context otherwise requires), shall have the
meanings assigned to such terms in said Trust Indenture Act and in said
Securities Act as in force at the date of the execution of this Indenture.
"Authority" shall mean the New Jersey Economic Development
Authority.
"Board of Directors" shall mean the Board of Directors of the
Company or any committee thereof duly authorized by the Board of Directors to
act hereunder.
"Board Resolution" or "Resolution of the Board of Directors"
shall mean a copy of a resolution certified by the Secretary or an Assistant
Secretary of the Company to have been duly adopted by the Board of Directors and
to be in full force and effect on the date of such certification.
"Company" shall mean Elizabethtown Water Company, and, subject
to the provisions of Article Twelve, shall also include its successors and
assigns.
"Debenture" or "Debentures" shall mean any Debenture or
Debentures, as the case may be, authenticated and delivered under this
Indenture.
The term "outstanding", when used with reference to
Debentures, shall, subject to the provisions of Section 9.04 and Article
Thirteen, mean, as of any particular time, all Debentures authenticated and
delivered by the Trustee under this Indenture, except
(a) Debentures theretofore canceled by the Trustee or
delivered to the Trustee for cancellation;
(b) Debentures or portions thereof for the payment or
redemption of which moneys in the necessary amount shall have been
deposited in trust with the Trustee, provided that if such Debentures
or portions are to be redeemed prior to the maturity thereof, notice of
such redemption shall have been given as in Article Four provided, or
provision satisfactory to the Trustee shall have been made for giving
such notice; and
(c) Debentures in lieu of or in substitution for which other
Debentures shall have been authenticated and delivered pursuant to the
terms of Section 2.06, unless proof satisfactory to the Trustee is
presented that any such Debentures are held by holders for value
without notice of any defense.
"Debentureholder", "holder of Debentures", "holder", or other
similar terms, shall mean the registered holder of any Debenture. The term
"registered holder" shall mean the person or
-7-
<PAGE>
persons in whose name or names a particular Debenture shall be registered on the
register kept for that purpose in accordance with the terms of this Indenture.
"Event of Default" shall mean any event specified in Section
7.01 continued for the period of time, if any, therein designated.
"Indenture" shall mean this instrument as originally executed,
or, if amended or supplemented, as so amended or supplemented.
"Loan Agreement" shall mean the Loan Agreement dated as of
December 1, 1989 between the Company and the Authority as supplemented and
amended by a First Supplement to Loan Agreement dated as of October 1, 1990, a
Second Supplement to Loan Agreement dated as of August 1, 1991 and a Third
Supplement to Loan Agreement dated as of December 1, 1995 relating to, among
other things, the issuance of $10,000,000 principal amount of 7.20% Water
Facilities Bonds (Elizabethtown Water Company Project -- 1989 Series),
$15,000,000 principal amount of 7 1/2% Water Facilities Refunding Bonds
(Elizabethtown Water Company Project - - 1990 Series) and $10,500,000 principal
amount of 6.60% Water Facilities Refunding Bonds (Elizabethtown Water Company
Project - 1991 Series A) and $15,000,000 principal amount of 6.70% Water
Facilities Refunding Bonds (Elizabethtown Water Company Project - 1991 Series B)
and $40,000,000 principal amount of 5.60% Water Facilities Bonds (Elizabethtown
Water Company Project - 1995 Series), or if further amended or supplemented, as
so further amended or supplemented.
"Officers' Certificate" shall mean a certificate signed by the
President or a Vice President and by the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary of the Company. Each such certificate
shall include the statements provided for in Section 15.06, if and to the extent
required by the provisions thereof.
"Opinion of Counsel" shall mean an opinion in writing signed
by legal counsel who shall be satisfactory to the Trustee, and who may be an
employee of or counsel to the Company. Each such opinion shall include the
statements provided for in Section 15.06, if and to the extent required by the
provisions thereof.
"Person" shall mean an individual, partnership, corporation,
association, joint venture, trust or unincorporated association and shall
include a government or political subdivision thereof and any governmental
agency or public benefit corporation.
"Principal Corporate Trust Office" means the office of the
Trustee in New York, New York at which any particular time its corporate trust
business shall be principally administered, which office at the date hereof is
located at 101 Barclay Street,
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21st Floor, New York, New York 10286, Attention: Corporate Trust Trustee
Administration, except that, with respect to presentation of Securities for
payment or registration of transfers and exchanges and the location of the
Security Registrar, such term means the office or agency of the Trustee in said
city at which at any particular time its corporate agency business shall be
conducted, which at the date hereof is located at 101 Barclay Street, New York,
New York 10286, Attention: Corporate Trust Services Window.
"Project" shall mean those certain facilities of the Company
financed pursuant to the Loan Agreement and described therein.
"Responsible Officer" when used with respect to the Trustee
shall mean the chairman or vice chairman of the board of directors, the chairman
of the executive committee, the president, any vice president, the secretary,
the treasurer, any senior trust officer, any trust officer, any second or
assistant vice president, any assistant secretary, any assistant treasurer, any
assistant cashier, or any other officer or assistant officer of the Trustee
customarily performing functions similar to those performed by the persons who
at the time shall be such officers, respectively, or to whom any corporate trust
matter is referred because of his knowledge of and familiarity with the
particular subject.
"Revenue Bonds" shall mean the Authority's $40,000,000
principal amount of 5.60% Water Facilities Refunding Bonds (Elizabethtown Water
Company Project -- 1995 Series).
"Revenue Bond Indenture" shall mean the Indenture of Trust
dated as of December 1, 1989 between the Authority and the Revenue Bond Trustee,
as supplemented and amended by a First Supplement to Indenture of Trust dated as
of October 1, 1990, a Second Supplement to Indenture of Trust dated as of August
1, 1991 and a Third Supplement to Indenture of Trust dated as of December 1,
1995, pursuant to which the Revenue Bonds are issued, or if further amended or
supplemented, as so further amended or supplemented.
"Revenue Bond Trustee" shall mean the trustee under the
Revenue Bond Indenture for the time being, whether original or successor.
"Trustee" shall mean the Trustee under this Indenture for the
time being, whether original or successor.
"Trust Indenture Act of 1939", subject to the provisions of
Sections 11.01 and 11.02, shall mean the Trust Indenture Act of 1939 as in force
at the date of execution of this Indenture.
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Certain other terms are defined in Articles Two, Five, Seven
and Eight.
ARTICLE TWO.
Description, Execution and Exchange of Debentures.
Section 2.01. The Debentures shall mature on December 1, 2025.
Section 2.02. The Debentures and the Trustee's certificate of
authentication to be borne by the Debentures shall be substantially of the tenor
and purport as in this Indenture above recited, and may have such letters,
numbers or other marks of identification and such legends or endorsements
printed, lithographed or engraved thereon as the Company may deem appropriate
and as are not inconsistent with the provisions of this Indenture, or as may be
required to comply with any law or with any rule or regulation made pursuant
thereto or with any law or regulation of any stock exchange on which the
Debentures may be listed, or to conform to usage.
Section 2.03. The Debentures shall be issuable as registered
Debentures without coupons in denominations of $5,000 and multiples thereof.
Each Debenture shall be dated the date of its authentication
and shall bear interest, payable semi-annually on June and December 1 of each
year from the most recent interest payment date to which interest has been paid
or duly provided for (unless the date of such Debenture is the date to which
interest on the Debentures has been paid or duly provided for, in which case
from the date of such Debenture), or, if no interest has been paid or duly
provided for on the Debentures, from December 1, 1995.
The persons in whose names Debentures are registered at the
close of business on the record date with respect to a semi-annual interest
payment date shall be entitled to receive the interest payable on such interest
payment date notwithstanding the cancellation of any Debenture upon any
registration of transfer or exchange thereof subsequent to such record and prior
to such interest payment date; provided, however, that if and to the extent the
Company shall default in the payment of the interest due on such interest
payment date, such defaulted interest shall be paid to the persons in whose
names the Debentures are registered at the close of business on the day
preceding the date such defaulted interest is paid, unless a record date shall
be fixed by the Company for the payment of such defaulted interest by notice
given by mail by or on behalf of the Company to the holders of Debentures not
less than 15 days preceding such record date, which record date shall not be
more
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than 15 days before the date for such payment, then to the persons in whose
names outstanding Debentures are registered on such record date. The term
"record date" as used with respect to a semi-annual interest payment date shall
mean the close of business on the May or November 15, as the case may be, next
preceding such interest payment date, or if such May 15 or November 15 is not a
business day, the business day next preceding such May 15 or November 15, the
term "business day" meaning for this purpose a day which in The City of New York
is not a day on which banking institutions are authorized by law to close.
Section 2.04. The Debentures shall be signed on behalf of the
Company by its President or a Vice President, and by its Secretary or an
Assistant Secretary, and its corporate seal, or a facsimile thereof, shall be
thereon impressed or imprinted. The signature of any such President, Vice
President, Secretary or Assistant Secretary may be facsimile. The Company may
use the signature or facsimile signature or any person who shall be any such
officer of the Company at the time of the execution of Debentures, irrespective
of the date as of which the same shall be authenticated, or of any person who
shall have been any such officer of the Company, notwithstanding the fact that
at the time the Debentures shall be authenticated and delivered or disposed of,
he shall have ceased to be such officer of the Company.
The Company may deliver Debentures executed by the Company to
the Trustee for authentication. The Trustee shall thereupon authenticate and
make available for delivery said Debentures to or upon the written orders of the
Company. Only such Debentures as shall bear thereon a certificate of
authentication substantially in the form herein before recited, executed by the
Trustee, shall be entitled to the benefits of this Indenture or be valid or
obligatory for any purpose. Such certificate by the Trustee upon any Debenture
executed by the Company shall be conclusive evidence that the Debenture so
authenticated has been duly authenticated and delivered hereunder and that the
holder is entitled to the benefits of this Indenture.
Section 2.05. The Company shall keep at the office or agency
to be maintained by the Company as provided in Section 5.02 a register or
registers in which, subject to such reasonable regulations as it may prescribe,
it will register all Debentures, and upon due presentment for registration or
transfer of any Debenture at such office or agency, the Company shall execute
and register and the Trustee shall authenticate and deliver in the name of the
transferee or transferees a new Debenture or Debentures for a like aggregate
principal amount of Debentures of any authorized denominations, bearing numbers
not contemporaneously outstanding.
The several authorized denominations of Debentures shall be
interchangeable in equal aggregate principal amounts.
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Debentures to be exchanged shall be surrendered at the office or agency to be
maintained by the Company for the purpose as provided in Section 5.02 and the
Company shall execute and register and the Trustee shall authenticate and
deliver in exchange therefor the Debenture or Debentures which the Debenture
holder making the exchange shall be entitled to receive, bearing numbers not
contemporaneously outstanding.
All Debentures presented or surrendered for registration of
transfer, exchange, redemption or payment shall (if so required by the Company
or the Trustee) be duly endorsed by, or be accompanied by a written instrument
or instruments of transfer in form satisfactory to the Company and the Trustee
duly executed by, the registered holder or his attorney duly authorized in
writing.
For any exchange or registration of transfer of Debentures,
the Company, at its option, may require the payment of a sum sufficient to
reimburse it for any tax or other governmental charge that may be imposed in
relation thereto. No service shall be made for any such transaction.
The Company shall not be required to make registration of
transfers or exchanges of Debentures for a period of fifteen days next preceding
any selection of Debentures to be redeemed, nor shall it be required to make
registration of transfers or exchange of any Debentures or portions thereof
called or being called for redemption, except, in the case of any Debenture to
be redeemed in part only, the portion thereof not being redeemed.
Section 2.06. In case any Debenture shall become mutilated or
be destroyed, lost or stolen, the Company in its discretion may issue a new
Debenture of like tenor bearing a number not contemporaneously outstanding, in
exchange and substitution for the mutilated Debenture or in lieu of and
substitution for the Debenture so destroyed, lost or stolen. In every case the
applicant for a substituted Debenture shall furnish to the Company and to the
Trustee such security or indemnity as may be required by them to save each of
them, and, if requested, any paying agents and Debenture registrars of the
Company, harmless from all risk, however remote, and the applicant shall also
furnish to the Company and to the Trustee evidence to their satisfaction of the
mutilation, destruction, loss or theft of the applicant's Debenture and of the
ownership thereof. The Trustee shall authenticate any such substituted Debenture
and deliver the same upon the written request or authorization of any officer of
the Company. Upon the issue of any substituted Debenture, the Company may
require the payment of a sum sufficient to cover any stamp tax or other
governmental charge that may be imposed incident thereto and any other expenses,
including counsel fees and expenses, of the Company, the Trustee and any paying
agent or Debenture registrar, connected therewith. In case any Debenture which
has matured or is about to mature shall become mutilated or be destroyed, lost
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or stolen, the Company may, instead of issuing a substitute Debenture, pay or
authorize the payment of the same (without surrender thereof except in the case
of a mutilated Debenture) if the applicant for such payment shall furnish to the
Company and to the Trustee such security or indemnity as may be required by them
to save each of them harmless, and evidence to the satisfaction of the Company
and the Trustee of the mutilation, destruction, loss or theft of such Debenture
and of the ownership thereof.
Every Debenture issued pursuant to the provisions of this
Section in substitution for any Debenture which is destroyed, lost or stolen
shall constitute an additional contractual obligation of the Company, whether or
not the destroyed, lost or stolen Debenture shall be found at any time, or be
enforceable by anyone, and shall be entitled to all the benefits of this
Indenture equally and proportionately with any and all other Debentures duly
issued hereunder. All Debentures shall be held and owned upon the express
condition that the foregoing provisions are exclusive with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Debentures and
shall preclude any and all other rights or remedies, notwithstanding any law or
statute existing or hereinafter enacted to the contrary with respect to the
replacement or payment of negotiable instruments or other securities without
their surrender.
Section 2.07. All Debentures surrendered for the purpose of
payment, redemption, exchange or registration of transfer shall be delivered to
the Trustee and canceled by it, and no Debentures shall be issued in lieu of any
thereof except as expressly required or permitted by any of the provisions of
this Indenture. With the consent of the Company, the Trustee may, but shall not
be required to, destroy canceled Debentures and deliver a certificate thereof to
the Company. If the Company shall acquire any of the Debentures, however, such
acquisition shall not operate as a redemption or satisfaction of the
indebtedness represented by such Debentures unless and until the same are
delivered to the Trustee, or surrendered to the Trustee, for cancellation.
Section 2.08. Nothing in this Indenture or in the Debentures,
expressed or implied, shall give or be construed to give to any person, firm or
corporation, other than the parties hereto and the holders of the Debentures,
any legal or equitable right, remedy or claim under or in respect of this
Indenture, or under any covenant, condition or provision herein contained, all
of the covenants, conditions and provisions herein being for the sole benefit of
the parties hereto and of the holders of the Debentures.
Section 2.09. The Company in issuing the Debentures may use
"CUSIP" numbers (if then generally in use), and, if so, the Trustee shall use
"CUSIP" numbers in notices of redemption as
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a convenience to holders of Debentures; provided that any such notice may state
that no representation is made as to the correctness of such numbers either as
printed on the Debentures or as contained in any notice of a redemption and that
reliance may be placed only on the other identification numbers printed on the
Debentures, and any such redemption shall not be affected by any defect in or
omission of such numbers.
ARTICLE THREE.
Issue of Debentures.
Section 3.01. Debentures not to exceed the aggregate principal
amount of $40,000,000, except as provided in Section 2.06, may, upon the
execution of this Indenture or from time to time thereafter, be executed by the
Company and delivered to the Trustee for authentication, and the Trustee shall
thereupon authenticate and deliver said Debentures to or upon the written order
of the Company signed by its President or a Vice President and by its Treasurer
or an Assistant Treasurer or its Secretary or an Assistant Secretary, without
further action by the Company. As a general matter, the Debentures issued under
this Indenture evidence indebtedness under the Loan Agreement and are not
transferable except to a successor Revenue Bond Trustee.
ARTICLE FOUR.
Redemption of Debentures.
Section 4.01. The Debentures are redeemable prior to maturity,
in accordance with the provisions of this Article Four, at the principal amount
thereof and accrued interest to the date fixed for redemption (but if the date
fixed for redemption is a semi-annual interest payment date, the interest
installment payable on such date shall be paid to the holder at the close of
business on the record date for such interest payment date), together, in
certain cases, with a premium, all as set forth in the form of Debenture
provided for herein. The Trustee, upon the request of the Company (evidenced by
a copy of a Board Resolution, delivered to the Trustee at least 60 days prior to
the redemption date) and notification by the Revenue Bond Trustee, signed by a
Vice President or Trust Officer (delivered to the Trustee at least 35 days prior
to the redemption date), that an equal principal amount of Revenue Bonds are to
be redeemed and specifying the premium, if any, to be paid on such redemption,
shall, for and on behalf of and in the name of the Company, mail or cause to be
mailed a notice of redemption with respect to the principal amount of Debentures
specified in such request.
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Section 4.02. In case of a redemption of a part only of the
Debentures, the Trustee shall select the particular Debentures or parts thereof,
which shall be $5,000 or multiples thereof, so to be redeemed according to such
method as the Trustee shall deem proper in its discretion.
Notice of redemption to the holder of any Debenture which is
to be redeemed in whole or in part shall be mailed by or on behalf of the
Company, not less than thirty days prior to the date fixed for redemption, to
him at his last address appearing upon the registry books.
Failure duly to give such notice by mailing to the holder of
any Debenture designated for redemption in whole or in part shall not affect the
validity of the proceedings for the redemption of any other Debenture.
The notice of redemption to each holder of Debentures to be
redeemed shall specify the Debentures or parts thereof held by such holder to be
redeemed, which shall be $5,000 or multiples thereof, the date fixed for
redemption, the CUSIP numbers (if any) of such Debentures, the redemption price
at which Debentures are to be redeemed and the place where payment of the
redemption price is to be made upon surrender of the Debentures, and shall state
that interest accrued to the date fixed for redemption will be paid in the
manner specified in said notice, that from said date interest thereon will cease
to accrue, and, in the case of any Debenture which is to be redeemed in part
only, that on and after the redemption date, upon surrender of such Debenture, a
new Debenture or Debentures of authorized denominations in aggregate principal
amount equal to the unremedied portion of such Debenture will be issued. Such
notice shall also state that it is subject to the receipt of the redemption
moneys by the Trustee prior to the date fixed for redemption, and that such
notice, and the Company's request to the Trustee to mail such notice, shall be
of no effect unless such moneys are received prior to such date.
Section 4.03. Notice of redemption having been mailed, and the
Trustee having prior to the date fixed for redemption specified in the notice of
redemption received for the purpose an amount in cash sufficient to redeem all
of the Debentures called for redemption, the Debentures called for redemption
shall become due and payable on such date fixed for redemption.
Section 4.04. On and after the date fixed for redemption, if
the moneys for the redemption of the Debentures to be redeemed shall have been
received by the Trustee, such Debentures shall cease to bear interest. All
moneys on deposit with the Trustee for the redemption of Debentures shall,
subject to the provisions of Section 13.04 hereof, be held in trust for account
of the holders of the Debentures so to be redeemed, and shall be paid to them,
respectively, upon presentation and surrender of said Debentures.
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If any Debenture of a denomination larger than $5,000 shall be
called for redemption in part only, upon presentation of any such Debenture so
called for redemption, the payment with respect to said Debenture shall be made
and Debentures for the unpaid balance of the principal amount of the Debenture
so presented shall be authenticated and delivered by the Trustee without charge
therefor to the holder thereof. On and after the date fixed for such redemption,
interest shall be payable only on the portion of such Debenture not so called
for redemption and only such portion shall be deemed outstanding and continue to
be entitled to the benefits of this Indenture.
Anything in this Indenture contained to the contrary
notwithstanding, if the giving of the notice of redemption shall have been
completed as provided in Section 4.02, or if provision satisfactory to the
Trustee for the giving of such notice shall have been made, and if the Company
shall have deposited in trust with the Trustee funds sufficient to redeem the
Debentures (or parts thereof) to be redeemed on the date fixed for redemption,
together with interest accrued to the date fixed for redemption, then all
obligations of the Company in respect of such Debentures (or parts thereof)
shall cease and be discharged and the holders of such Debentures or parts
thereof) shall thereafter be restricted exclusively to such funds for any and
all claims of whatsoever nature on their part under this Indenture or in respect
to such Debentures (or parts thereof).
ARTICLE FIVE.
Particular Covenants of the Company.
The Company covenants as follows:
Section 5.01. The Company will duly and punctually pay or
cause to be paid the principal of and interest on each of the Debentures at the
time and place and in the manner provided herein and in the Debentures.
Section 5.02. As long as any of the Debentures remain
outstanding, the Company will maintain an office or agency or offices or
agencies in the Borough of Manhattan, City and State of New York, where the
Debentures may be presented for registration of transfer and exchange as in this
Indenture provided, and where notices and demands to or upon the Company in
respect of the Debentures or of this Indenture may be served, and where the
Debentures may be presented for payment. Until otherwise designated by the
Company in a notice to the Trustee, such office or agency for all of the above
purposes shall be the principal corporate trust office of the Trustee in the
Borough of Manhattan, City and State of New York.
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Section 5.03. The Company, whenever necessary to avoid or fill
a vacancy in the office of Trustee, will appoint, in the manner provided in
Section 8.10, a Trustee, so that there shall at all times be a Trustee
hereunder.
Section 5.04. (a) If the Company shall appoint a paying agent
other than the Trustee, it will cause such paying agent to execute and deliver
to the Trustee an instrument in which such agent shall agree with the Trustee,
subject to the provisions of this Section,
(1) that it will hold all sums held by it as such agent for
the payment of the principal of, premium, if any, or interest on the
Debentures (whether such sums have been paid to it by the Company or by
any other obligor on the Debentures) in trust for the benefit of the
holders of the Debentures, or of the Trustee, as the case may be,
(2) that it will give the Trustee notice of any failure by the
Company (or by any other obligor on the Debentures) to make any payment
of the principal of or interest on the Debentures when the same shall
be due and payable, and
(3) that at any time during the continuance of any Event of
Default upon the written request of the Trustee, it will forthwith pay
to the Trustee all sums so held by such paying agent.
(b) If the Company shall act as its own paying agent, it will,
on or before each due date of the principal of, premium, if any, or interest on,
the Debentures, set aside, segregate and hold in trust for the benefit of the
holders of the Debentures, a sum sufficient to pay such principal, premium, if
any, or interest so becoming due and payable and will notify the Trustee of any
failure (by it or any other obligor on the Debentures) to take such action.
(c) Whenever the Company shall have one or more paying agents,
it will, prior to each due date of the principal of, premium, if any, or
interest on, the Debentures, deposit with a paying agent a sum sufficient to pay
the principal, premium, if any, or interest, so becoming due, such sum to be
held in trust for the benefit of the persons entitled to such principal,
premium, if any, or interest, and (unless such paying agent is the Trustee) the
Company will promptly notify the Trustee of its action or failure so to act.
(d) Anything in this Section to the contrary notwithstanding,
the Company may, at any time, for the purpose of obtaining a satisfaction and
discharge of this Indenture, or for any other reason, pay or cause to be paid to
the Trustee all sums held in trust by it, or any paying agent hereunder, as
required
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by this Section, such sums to be held by the Trustee upon the trusts herein
contained.
(e) Anything in this Section to the contrary notwithstanding,
the agreement to hold sums in trust as provided in this Section is subject to
the provisions of Section 13.04 hereof.
Section 5.05. The Company covenants that, so long as any
Debentures shall be outstanding under this Indenture, it will not create, assume
or incur, or in any other manner become directly or indirectly liable in respect
of, any indebtedness, in addition to its 7.20% Debentures due 2019, its 7-1/2%
Debentures due 2020, its 6.60% Debentures due 2021, its 6.70% Debentures due
2021, its 8-3/4% Debentures due 2021, its 8% Debentures due 2022, its 7-1/4%
Debentures due 2028 and the Debentures, except the following:
(a) current operating liabilities and current or other
obligations (other than for borrowed money) incurred in the ordinary
course of business;
(b) Current Indebtedness;
(c) indebtedness (in addition to that referred to in
subdivisions (a) and (b) above and (d) below) in an aggregate amount
not in excess of $10,000,000 at any one time outstanding; and
(d) indebtedness (in addition to that referred to in
subdivisions (a), (b) and (c) above) in an aggregate amount not in
excess of the sum of $20,000,000 plus 65% of the Amount of Net Property
Additions at the time the Company first becomes liable in respect of
any such indebtedness.
The Company covenants that, so long as any Debentures shall be
outstanding under this Indenture, it will not create, assume or incur, or in any
manner become directly or indirectly liable in respect of, any indebtedness (in
addition to its 7.20% Debentures due 2019, its 7-1/2% Debentures due 2020, its
6.60% Debentures due 2021, its 6.70% Debentures due 2021, its 8-3/4% Debentures
due 2021, its 8% Debentures due 2002, its 7-1/4% Debentures due 2028, the
Debentures and that referred to in subdivisions (a), (b) and (c) above), unless
the Gross Income of the Company, for a period of 12 consecutive calendar months
within the 15 calendar months immediately preceding the incurring by the Company
of such indebtedness, shall have been at least equal to twice the Annual
Interest Charges.
The term "Current Indebtedness" as used herein shall mean
indebtedness in an aggregate amount not in excess of 20% of the total
capitalization of the Company at the time and which is expressed to be payable
on demand or to mature less than one year after the date of creation or issuance
thereof. The total
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capitalization of the Company shall be deemed to consist of the sum of (i) the
principal amount of all outstanding indebtedness of the Company represented by
bonds, debentures, notes or other evidences of indebtedness (other than Current
Indebtedness), (ii) the aggregate of the par or stated value represented by all
issued and outstanding capital stock of all classes of the Company, including
premiums received on the issue of such capital stock, and (iii) the surplus of
the Company, including earned, capital, paid-in and other surplus.
The term "Amount of Net Property Additions" as used herein
shall mean the balance, if any, remaining after deducting the Retirements from
the Amount of Property Additions, as of any particular time.
The term "Amount of Property Additions" as used herein shall
mean the Cost or, if less, the fair value to the Company at the time of the
actual acquisition by the Company, of Property Additions.
The term "Property Additions" as used herein shall mean all
tangible property owned by the Company and made, constructed or otherwise
acquired by it subsequent to December 31, 1975, which the Company is authorized
to acquire, own and operate and which is used or useful in the business of
impounding, storing, transmitting, producing, manufacturing, transporting,
distribution or supplying water for any and all purposes. Permanent
improvements, extensions, additions or replacements in the process or
construction or erection, shall be included as Property Additions as of any
particular time, insofar as actually constructed or erected after December 31,
1975, and before such particular time. There shall not be included as Property
Additions (a) Excepted Property, (b) going value or good will, as such, (c) any
item of property retired the retirement of which has not been credited to
utility plant account, (d) any item of property acquired to replace a similar
item of property whose retirement has not been credited to utility plant
account, or any item of property whose cost has been charged or is properly
chargeable to repairs, maintenance or other operating expense account or whose
cost has been charged or is not properly chargeable to utility plant account, or
(e) any property not located in the State of New Jersey or in a State contiguous
thereto.
The term "Retirements" as used herein shall mean the Cost of
Fundable Property which, subsequent to December 31, 1975, shall have become worn
out or permanently unserviceable, or shall have been lost, sold, destroyed,
abandoned, surrendered on lapse of title, taken by eminent domain, purchased by
any governmental or public body pursuant to any right reserved to or vested in
it, or otherwise disposed of by the Company or retired from service for any
reason, or shall have permanently ceased to be used or useful in the business of
the Company. Accounting adjustments of utility plant accounts or
reclassification of utility plant
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accounts or amortization of any plant account to comply with any order of any
regulatory body and which do not represent or reflect the permanent retirement
from a plant account subsequent to December 31, 1975 of any Fundable Property
shall not be included in Retirements.
The term "Fundable Property" as used herein shall mean (a) all
property owned by the Company on December 31, 1975 (except such property as
would not be included in Property Additions if acquired subsequent to December
31, 1975) and (b) Property Additions.
The term "Cost" as used herein, when used with respect to any
particular property, shall mean the cost (or, if not known, estimated cost)
thereof to the person first devoting it to public service, without deducting
therefrom applicable reserves for depreciation and/or retirements and/or
depletion and/or obsolescence. In determining Cost in cases in which property,
part of which constitutes Fundable Property and part does not, is or has been
acquired for a consideration not divided between such parts, or, in cases where
the consideration given for property is not allocated to the various items of
property acquired, the consideration may be allocated to the various parts and
items of property acquired in any reasonable manner which is in accordance with
the requirements of any systems of accounting with which the Company is
compelled to comply by any provision of law, or, if there be no such
requirements, in accordance with good accounting practice.
The term "Gross Income" as used herein shall mean gross
operating revenues from all sources (whether or not subject to refund) after
deducting therefrom operating expenses. In computing gross operating revenues,
there shall be included net non-operating revenues, if any (including income
from securities, whether of subsidiaries or not), in an amount not more than 20%
of Gross Income after deducting therefrom net non-operating revenues. In
computing operating expenses, there shall be included all operating expenses,
including accruals for taxes (except that taxes on undistributed earnings,
income and excess profits and any like taxes measured by income and charges in
lieu of any thereof made because of the deferment in payment of any such tax
shall be excluded from operating expenses, and any credit to income subsequently
made on account of any such prior charge shall be excluded from gross operating
revenues), rentals, insurance, actual charges for current repairs and
maintenance and charges to expense or income to provide for depreciation,
renewals, replacements, depletion or retirement of property and for property
loss (but excluding interest, charges deducted in computing net non-operating
revenues and charges to income for the amortization (i) of debt discount and
expense and (ii) of utility plant account or amounts transferred therefrom). If
any of the property owned by the Company at the time any computation of Gross
Income is made shall have been acquired during or after any period for which
Gross Income is to be computed, the Gross
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Income of such property (computed in the manner in this Section provided for the
computation of the Gross Income of the Company) during such period or such part
of such period as shall have preceded the acquisition thereof, to the extent
that the same have not otherwise been included and can be determined, shall be
included in the Gross Income of the Company for all purposes of this Indenture,
and the Gross Income which can be determined of any property disposed of by the
Company during or after such period shall not be treated as Gross Income of the
Company.
The term "Annual Interest Charges" as used herein shall mean
the interest requirements for twelve months upon all indebtedness of the Company
(including any indebtedness, whether or not created or assumed by the Company,
on which the Company customarily pays interest charges or which is secured by a
lien on any property of the Company, but excluding (a) indebtedness represented
by customers' deposits, (b) current operating liabilities and current or other
obligations (other than for borrowed money) incurred in the ordinary course of
business, (c) indebtedness for the purchase, payment or redemption of which
money in the necessary amount shall have been deposited in trust, and (d)
Current Indebtedness) to be outstanding upon the incurring by the Company of the
indebtedness in connection with which the computation is made.
Section 5.06. The Company covenants that, so long as any
Debentures shall be outstanding under the Indenture, it will not at any time
mortgage or pledge, or permit any other lien (other than Excepted Encumbrances)
to become a lien on, any property owned by the Company just prior to such time,
to secure any other indebtedness, without making effective provision whereby the
Debentures shall (so long as any such other indebtedness shall be so secured) be
secured (along with any other indebtedness similarly entitled to be equally and
ratably secured) by a direct lien (on all the property, other than Excepted
Property, owned by the Company just prior to the time such other lien shall have
become a lien on any of the property of the Company) prior to the lien or liens
securing any and all such other indebtedness; provided, however, that this
restriction shall not be applicable to nor prevent
(a) the pledging by the Company of its assets as security for
the payment of any tax, assessment or other similar charge demanded of
the Company by any governmental authority or public body so long as the
Company in good faith contests its liability to pay the same, or as
security to be deposited with any governmental authority or public body
for any purpose at any time required by law or governmental regulation
as a condition to the transaction of any business or the exercise of
any privilege, license or right; or
(b) the pledging by the Company of any assets for the purpose
of securing a stay or discharge or for any other
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purpose in the course of any legal proceeding in which the Company is a
party; or
(c) making good faith deposits in connection with tenders,
contracts or leases to which the Company is a party.
The Company covenants that, so long as any Debentures shall be
outstanding under this Indenture, if, upon any consolidation or merger of the
Company with or into any other corporation, or upon any sale or conveyance of
all or substantially all of the property of the Company as an entirety, or upon
any acquisition by the Company of the property of another corporation
substantially as an entirety or upon any merger of any other corporation into
the Company, any of the property (other than Excepted Property) owned by the
Company just prior thereto, would thereupon become subject to any lien (other
than Excepted Encumbrances), the Company, prior to such consolidation, merger,
sale, conveyance or acquisition, will take appropriate action whereby the
Debentures shall (so long as such property shall be subject to such lien) be
secured (along with any other indebtedness similarly entitled to be equally and
ratably secured) by a direct lien on such portion of the property of the Company
prior to all other liens, other than Excepted Encumbrances and other than any
liens existing thereon just prior to such consolidation, merger, sale,
conveyance or acquisition.
Any instrument creating a lien pursuant to the requirements of
this Section shall contain reasonable and customary provisions for the
enforcement of such lien and for the release of, or substitution for, the
property subjected to such lien. Such direct lien shall be evidenced by an
appropriate instrument or instruments executed and delivered to the Trustee (or
to the extent legally necessary, to another trustee as additional or separate
trustee). The Trustee, subject to the provisions of Section 8.01 hereof, may
receive an Opinion of Counsel as conclusive evidence that any such instrument is
in customary form and complies with the foregoing provisions of this paragraph;
and the Trustee shall not be under any duty or responsibility to any holder of
any Debenture with respect to the form, validity or enforceability of any such
instrument which it may accept in reliance in good faith upon any such opinion.
If the Company shall fail to create a direct lien to secure
the Debentures, as required by the foregoing provisions of this Section, an
equitable lien shall exist to the same extent and on the same property as though
the Company had created such direct lien.
The term "Excepted Encumbrances" as used herein shall mean as
of any particular time any of the following:
(i) liens for taxes, assessments or governmental charges
not delinquent and liens for workmen's compensation
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awards and similar obligations not delinquent and liens for taxes,
assessments or governmental charges delinquent but the validity of
which is being contested at the time by the Company in good faith by
appropriate proceedings diligently conducted;
(ii) any liens securing indebtedness neither assumed nor
guaranteed by the Company nor on which it customarily pays interest,
existing in or relating to real estate acquired by the Company for
transmission, distribution or right-of-way purposes, or in connection
with its usual operations;
(iii) easements or reservations in any property of the
Company created for the purpose of roads, railroads, railroadside
tracks, electric lines, pipe lines, sewers, water and gas transmission
and distribution mains, conduits, water rights of the State of New
Jersey or others, building and use restrictions and defects of title
to, or leases of, any parts of the property of the Company which do not
in the opinion of the Company's counsel materially impair the use of
the property as an entirety in the operation of the business of the
Company;
(iv) undetermined liens and charges incidental to current
construction, including mechanics', laborers', materialmen's and
similar liens not delinquent;
(v) any obligations or duties affecting the property of
the Company to any municipality or public authority with respect to any
franchise, grant, license, permit or certificate;
(vi) rights reserved to or vested in any municipality or
public authority to control or regulate any property of the Company or
to use such property in a manner which does not materially impair the
use of such property for the purposes for which it is held by the
Company;
(vii) judgments in course of appeal or otherwise in
contest and secured by sufficient bond or security;
(viii) any irregularities in or deficiencies of title to
any rights of way for mains or pipes and/or appurtenances thereto or
other improvements thereon and to any real estate used or to be used
primarily for right of way purposes, provided that the Company shall
have obtained from the apparent owner of the lands or estates covered
by any such right of way an instrument purporting by its terms to grant
the use thereof for the construction, operation or maintenance of such
main, pipe, appurtenance or improvement for which the same are used or
are to be used, or provided that the Company has power, under eminent
domain or similar statutes, to remove such irregularities or
deficiencies; or
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(ix) any other lien on any property owned by the Company
to secure any indebtedness so long as the aggregate principal amount of
all such indebtedness is not in excess of $10,000,000.
The term "Excepted Property" as used herein shall mean (a)
cash, bonds, stocks, obligations and other securities; (b) choses in action,
accounts and bills receivable, judgments and other evidences of indebtedness and
contracts, leases and operating agreements; (c) stock in trade, merchandise,
equipment, apparatus, materials or supplies manufactured or acquired for the
purpose of sale and/or resale in the usual course of business or consumable in
the operation of any of the properties of the Company or held for the purpose of
repairing or replacing (in whole or in part) any rolling stock, buses, motor
coaches, trucks, automobiles or other vehicles or aircraft; (d) timber, gas,
oil, minerals (including developed and undeveloped natural gas reserves and
natural gas in underground storage or otherwise), mineral rights and royalties;
(e) materials or products generated, manufactured, produced or purchased by the
Company for sale, distribution or use in the ordinary course of its business;
(f) office furniture and equipment, tools, rolling stock, buses, motor coaches,
trucks, automobiles and other vehicles and aircraft; and (g) the Company's
franchise to be a corporation.
Section 5.07. The Company covenants that, so long as any
Debentures shall be outstanding under this Indenture, it will not declare or pay
any dividends or make any other distribution (except dividends payable or
distributions made in shares of capital stock of the Company) on or in respect
of any of its Common Stock, or purchase or otherwise acquire for a consideration
any shares of its Common Stock (except out of the proceeds derived from the sale
of additional shares of its Common Stock subsequent to November 30, 1995), if
the aggregate of such dividends and distributions and such consideration for
purchase or other acquisition of shares of its Common Stock made by the Company
after December 31, 1975 would exceed the sum of (a) the earned surplus of the
Company accumulated after December 31, 1975 and determined without any deduction
on account of such dividends, distributions or acquisitions and (b) $10,000,000.
The term "consideration" as used in this Section shall mean cash or fair value
if the consideration be other than cash. Charges to earned surplus with
corresponding credits to utility plant acquisition adjustment account or utility
plant adjustment account or any similar account or to any reserve for the
purpose of ultimately disposing thereof and any provisions for amortization of
any amounts included in utility plant acquisition account or utility plant
adjustment account or in any similar account shall be disregarded in determining
earned surplus accumulated after December 31, 1975.
Section 5.08. The Company covenants that, so long as any
Debentures shall be outstanding under this Indenture, if the
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Proceeds of Released Property in any period of 12 consecutive calendar months
shall amount to $5,000,000 or more, and if, immediately subsequent to the
receipt of such $5,000,000 (or the part hereof making the total thereof
$5,000,000 or more), the ratio of the aggregate principal amount of all
outstanding indebtedness of the Company represented by bonds, debentures, notes
or other evidences of indebtedness (other than Current Indebtedness) to the net
book value of the Company's utility plant accounts exceeds 60%, then the Company
will use such Proceeds of Released Property to redeem Debentures or to redeem or
to redeem 7.20% Debentures due 2019 issued by the Company (herein called the
"7.20% Debentures due 2019") or to redeem 7-1/2% Debentures due 2020 issued by
the Company (herein called the "7-1/2% Debentures due 2020") or to redeem 6.60%
Debentures due 2021 issued by the Company (herein called the "6.60% Debentures
due 2021") or to redeem 6.70% Debentures due 2021 issued by the Company (herein
called the "6.70% Debentures due 2021") or to redeem 8-3/4% Debentures due 2021
issued by the Company (herein called the "8-3/4% Debentures due 2021") or to
redeem 8% Debentures due 2022 issued by the Company (herein called the "8%
Debentures due 2022") or to redeem 7-1/4% Debentures due 2028 issued by the
Company (herein called the "7- 1/4% Debentures due 2028") or to redeem other
debentures issued by the Company under indentures having a provision
substantially similar to this Section 5.08 ("Subsequent Debentures") at the
earliest practicable date at a redemption price equal to the principal amount
thereof plus accrued interest to the date of redemption; provided, however, that
the Company shall not be required so to use any part of such Proceeds of
Released Property as to which the Company shall have given to the Trustee
(within 30 days after such receipt) an Officers' Certificate stating that the
Company intends, within a period of one year thereafter, to apply such part to
the making, constructing or otherwise acquiring of Property Additions. If any
such Officers' Certificate shall so state, the Company covenants so to apply
such part within such one year as stated in such Officers' Certificate or, to
the extent that it does not so apply such part, to use such part within such one
year to redeem Debentures or to redeem 7.20% Debentures due 2019 or to redeem
7-1/2% Debentures due 2020 or to redeem 6.60% Debentures due 2021 or to redeem
6.70% Debentures due 2021 or to redeem 8-3/4% Debentures due 2021 or to redeem
8% Debentures due 2022 or to redeem 7-1/4% Debentures due 2028 or to redeem
Subsequent Debentures.
In lieu of using any such Proceeds of Released Property for
redemption as aforesaid, the Company may deliver to the Trustee for cancellation
Debentures or may deliver for cancellation to the trustee under the indenture
pursuant to which the 7.20% Debentures due 2019 were issued 7.20% Debentures due
2019, or may deliver for cancellation to the trustee under the indenture
pursuant to which the 7 1/2% Debentures due 2020 were issued 7-1/2% Debentures
due 2020, or may deliver for cancellation to the trustee under the indenture
pursuant to which the 6.60% Debentures due 2021 were issued 6.60% Debentures due
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2021, or may deliver for cancellation to the Trustee under the indenture
pursuant to which the 6.70% Debentures due 2021 were issued 6.70% Debentures due
2021, or may deliver for cancellation to the trustee under the indenture
pursuant to which the 8-3/4% Debentures due 2021 were issued 8-3/4% Debentures
due 2021, or may deliver for cancellation to the trustee under the indenture
pursuant to which the 8% Debentures due 2022 were issued 8% Debentures due 2022,
or may deliver for cancellation to the trustee under the indenture pursuant to
which the 7-1/4% Debentures due 2028 were issued 7-1/4% Debentures due 2028, or
may deliver for cancellation to the trustee under any indenture pursuant to
which any Subsequent Debentures were issued such Subsequent Debentures, in each
case with all unmatured coupons, if any, appertaining thereto, theretofore
reacquired by the Company and not theretofore so delivered, and in any such case
the obligation of the Company to use such Proceeds of Released Property for
redemption shall be reduced to the extent of the aggregate principal amount of
Debentures or the 7.20% Debentures due 2019 or 7 1/2% Debentures due 2020 or
6.60 Debentures due 2021 or 6.70% Debentures due 2021 or 8-3/4% Debentures due
2021 or 8% Debentures due 2022 or 7-1/4% Debentures due 2028 or Subsequent
Debentures so delivered. All Debentures so delivered to the Trustee shall be
canceled by the Trustee.
The term "Proceeds of Released Property" as used herein and in
the Debentures shall mean the aggregate amount of the consideration received or
to be received by the Company on the actual sale or other actual disposition
(subsequent to the execution of this Indenture) of any property included in
utility plant accounts (including therein an amount equivalent to any part of
such consideration consisting of other than cash at the fair value thereof to
the Company at the time of such sale or other disposition, as determined in good
faith by the Board of Directors of the Company, and excluding therefrom an
amount equivalent to any consideration received or to be received by the Company
on the sale or other disposition of any property (i) which property shall have
become worn out or permanently unserviceable and the book value of which shall
have been credited to utility plant accounts upon the retirement thereof or (ii)
to the extent that the consideration so received or to be received shall
constitute Property Additions) after deducting from such amount, to the extent
paid or payable by the Company, all expenses and all taxes (including income
taxes, if any) upon or in respect of any such sale or other disposition.
Section 5.09. The Company will deliver to the Trustee within
120 days after the end of each fiscal year of the Company the Officers'
Certificate required by Section 314(a)(4) of the Trust Indenture Act. See
Section 314(a)(4) of the Trust Indenture Act.
Section 5.10. The Company will deliver to the Trustee true and
correct copies of the Loan Agreement and the Revenue
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Bond Indenture as originally executed and all amendments or supplements thereto.
ARTICLE SIX.
Debentureholders' Lists and Reports by
the Company and the Trustee.
Section 6.01. The Company shall deliver to the Trustee,
semi-annually, not more than 15 days after each record date, the information
required by Section 312(a) of the Trust Indenture Act. See Section 312 of the
Trust Indenture Act.
Section 6.02. See Section 312 of the Trust Indenture Act.
Section 6.03. See Section 314(a) of the Trust Indenture Act.
Section 6.04. On or before June 1 in each year, beginning June
1, 1996, so long as any Debentures are outstanding hereunder, the Trustee shall
transmit by mail to the Debentureholders the report required by Section 313(a)
of the Trust Indenture Act, if such report is required. See Trust Indenture Act
Sections 311(b) and 313.
ARTICLE SEVEN.
Remedies of the Trustee and
Debentureholders on Event of Default.
Section 7.01. In case one or more of the following Events of
Default shall have occurred and be continuing, that is to say:
(a) default in the due and punctual payment of any installment
of interest upon any of the Debentures as and when the same shall
become due and payable, and continuance of such default for a period of
thirty days; or
(b) default in the due and punctual payment of the principal
of any of the Debentures as and when the same shall become due and
payable either at maturity, by declaration as authorized by this
Indenture, or otherwise; or
(c) failure on the part of the Company duly to observe or
perform any other of the covenants, conditions or agreements on the
part of the Company in the Debentures or in this Indenture contained
for a period of sixty days after
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the date on which written notice of such failure, requiring the same to
be remedied, shall have been given to the Company by the Trustee, or to
the Company and the Trustee by the holders of at least 25% in aggregate
principal amount of the Debentures at the time outstanding; or
(d) a decree or order by a court having jurisdiction in the
premises shall have been entered adjudging the Company a bankrupt or
insolvent, or approving a petition seeking reorganization of the
Company under Title 11, United States Code or any other similar
applicable Federal or State law, and such decree or order shall have
continued undischarged and unstayed for a period of sixty days; or a
decree or order of a court having jurisdiction in the premises for the
appointment of a receiver or liquidator or trustee or assignee in
bankruptcy or insolvency of the Company or of all or substantially all
of its property, or for the winding up or liquidation of its affairs
shall have been entered, and such decree or order shall have remained
in force undischarged and unstayed for a period of sixty days; or
(e) the Company shall institute proceedings to be adjudicated
a voluntary bankrupt, or shall consent to the filing of a bankruptcy
proceeding against it, or shall file a petition or answer or consent
seeking reorganization under Title 11, United States Code or any other
similar applicable Federal or State law, or shall consent to the filing
of any such petition, or shall consent to the appointment of a receiver
or liquidator or trustee or assignee in bankruptcy or insolvency of it
or of all or substantially all of its property, or shall make an
assignment for the benefit of creditors, or shall admit in writing its
inability to pay its debts generally as they become due; or
(f) an event of default, as defined in (i) any indenture or
trust agreement securing or protecting any debt of the Company now or
hereafter outstanding aggregating more than $10,000,000, or (ii) in the
Revenue Bond Indenture, shall happen and be then continuing and such
debt shall be or become due and payable, prior to the date on which the
same would otherwise become due and payable, provided that, in the case
of clause (i), such acceleration shall not be rescinded or annulled
within ten days after written notice thereof to the Company from the
Trustee or to the Company and the Trustee from the holders of not less
than 25% in principal amount of the Debentures then outstanding
hereunder;
then and in each and every such case, so long as such Event of Default shall not
have been remedied, unless the principal of all the Debentures shall have
already become due and payable, either the Trustee or the holders of not less
than 25% in aggregate principal amount of the Debentures then outstanding
hereunder, by
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notice in writing to the Company (and to the Trustee if given by the
Debentureholders), may declare the principal of all the Debentures then
outstanding to be due and payable immediately, and upon any such declaration the
same shall become and shall be immediately due payable, anything in this
Indenture or in the said Debentures contained to the contrary notwithstanding.
This provision, however, is subject to the condition that if, at any time after
the principal of the Debentures shall have been so declared due and payable, but
before the Debentures shall have become due by their terms and before any
judgment or decree for the payment of the monies due shall have been obtained or
entered as hereinafter provided, the Company shall pay or shall deposit with the
Trustee a sum sufficient to pay all matured installments of interest upon all
the Debentures then outstanding and the principal of any and all Debentures then
outstanding which shall have become due otherwise than by acceleration (with
interest upon such principal and, to the extent that payment of such interest is
enforceable under applicable law, upon overdue installments of interest, at the
rate per annum expressed in the Debentures to the date of such payment or
deposit) and the amount payable to the Trustee under Section 8.06, and any and
all defaults under the Indenture, other than the nonpayment of principal on
Debentures then outstanding which shall not have become due by their terms,
shall have been remedied or provisions shall have been made therefor to the
satisfaction of the Trustee -- then and in every such case the holders of a
majority in aggregate principal amount of the Debentures then outstanding, by
written notice to the Company and to the Trustee, may waive all defaults and
rescind and annul such declaration and its consequences; but no such waiver or
rescission and annulment shall extend to or shall affect any subsequent default,
or shall impair any right consequent thereon.
In case the Trustee shall have proceeded to enforce any right
under this Indenture and such proceedings shall have been discontinued or
abandoned because of such rescission or annulment or for any other reason or
shall have been determined adversely to the Trustee, then and in every such case
the Company and the Trustee shall be restored respectively to their former
positions and rights hereunder, and all rights, remedies and powers of the
Company and the Trustee shall continue as though no such proceedings had been
taken, subject to any applicable order or ruling in a court of competent
jurisdiction.
Section 7.02. The Company covenants that (1) in case default
shall be made in the payment of any installment of interest on any of the
Debentures, as and when the same shall become due and payable, and such default
shall have continued for a period of thirty days, or (2) in case default shall
be made in the payment of the principal of any of the Debentures when the same
shall have become due and payable, whether upon maturity of the Debentures or
upon declaration as authorized by this Indenture or otherwise -- then, upon
demand of the Trustee, the Company will pay to the Trustee, for the benefit of
the holders
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of the Debentures then outstanding, the whole amount that then shall have become
due and payable on all such Debentures for principal or interest, as the case
may be, with interest upon the overdue principal and (to the extent that payment
of such interest is enforceable under applicable law) upon overdue installments
of interest at the rate per annum expressed in the Debentures; and, in addition
thereto, such further amount as shall be sufficient to cover the costs and
expenses of collection, and the amount payable to the Trustee under Section
8.06.
In case the Company shall fail forthwith to pay such amounts
upon such demand, the Trustee, in its own name and as trustee of an express
trust, shall be entitled and empowered to institute any action or proceedings at
law or in equity for the collection of the sums so due and unpaid, and may
prosecute any such action or proceeding to judgment or final decree, and may
enforce any such judgment or final decree against the Company or other obligor
upon the Debentures and collect in the manner provided and to the extent
permitted by law out of the property of the Company or other obligor upon the
Debentures wherever situated the monies adjudged or decreed to be payable.
The Trustee shall be entitled and empowered, either in its own
name or as trustee of an express trust, or as attorney-in-fact for the holders
of the Debentures, or in any one or more of such capacities, to file such proof
of debt, amendment of proof of debt, claim, petition or other document as may be
necessary or advisable in order to have the claims of the Trustee and of the
holders of the Debentures allowed in any equity receivership, insolvency,
bankruptcy, liquidation, readjustment, reorganization or other judicial
proceedings relative to the Company or any other obligor on the Debentures or
their creditors, or affecting their property. The Trustee is hereby irrevocably
appointed (and the successive respective holders of the Debentures by taking and
holding the same shall be conclusively deemed to have so appointed the Trustee)
the true and lawful attorney-in-fact of the respective holders of the
Debentures, with authority to make and file in the respective names of the
holders of the Debentures or on behalf of the holders of the Debentures as a
class, subject to deduction from any such claims of the amounts of any claims
filed by any of the holders of the Debentures themselves, any proof of debt,
amendment of proof of debt, claim, petition or other document in any such
proceedings and to receive payment of any sums becoming distributable on account
thereof, and to execute any such other papers and documents and to do and
perform any and all such acts and things for and on behalf of such holders of
the Debentures as may be necessary or advisable in the opinion of the Trustee in
order to have the respective claims of the Trustee and of the holders of the
Debentures against the Company or its property allowed in any such proceeding,
and to receive payment of or on account of such claims; provided, however, that
nothing contained in this Indenture shall be deemed to give to the Trustee any
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right to accept or consent to any plan of reorganization or otherwise by action
of any character in any such proceeding to waive or change in any way any right
of any Debentureholder.
All rights of action and of asserting claims under this
Indenture, or under any of the Debentures, may be enforced by the Trustee
without the possession of any of the Debentures, or the production thereof on
any trial or other proceeding relative thereto, and any such suit or proceeding
instituted by the Trustee shall be brought in its own name as trustee of an
express trust, and any recovery of judgment shall be for the ratable benefit of
the holders of the Debentures, subject to the provisions of this Indenture.
In case of an Event of Default hereunder the Trustee may in
its discretion proceed to protect and enforce the rights vested in it by this
Indenture by such appropriate judicial proceedings as the Trustee shall deem
most effectual to protect and enforce any of such rights, either at law or in
equity or in bankruptcy or otherwise, whether for the specific enforcement of
any covenant or agreement contained in this Indenture or in aid of the exercise
of any power granted in this Indenture, or to enforce any other legal or
equitable right vested in the Trustee by this Indenture or by law.
Section 7.03. Any monies collected by the Trustee pursuant to
Section 7.02, shall be applied in the order following, at the date or dates
fixed by the Trustee, upon presentation of the several Debentures, and stamping
thereon the payment, if only partially paid, and upon surrender thereof if fully
paid:
First: To the payment of costs and expenses of collection and
of all amounts payable to the Trustee under Section 8.06;
Second: In case the principal of the outstanding Debentures
shall not have become due and be unpaid, to the payment of interest on
the Debentures, in the order of the maturity of the installments of
such interest, with interest (so far as may be lawful and if such
interest has been collected by the Trustee) upon the overdue
installments of interest at the rate per annum expressed in the
Debentures, such payments to be made ratably to the persons entitled
thereto, without discrimination or preference;
Third: In case the principal of the outstanding Debentures
shall have become due, by declaration as authorized by this Indenture
or otherwise, to the payment of the whole amount then owing and unpaid
upon the Debentures for principal and interest, with interest on the
overdue principal and (so far as may be lawful and if such interest has
been collected by the Trustee) upon overdue installments of interest at
the rate per annum expressed in the
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Debentures; and in case such monies shall be insufficient to pay in
full the whole amount so due and unpaid upon the Debentures, then to
the payment of such principal and interest, without preference or
priority of principal over interest, or of interest over principal, or
of any installment of interest over any other installment of interest,
or of any Debenture over any other Debenture, ratably to the aggregate
of such principal and accrued and unpaid interest; and
Fourth: To the payment of the remainder, if any, to the
Company, its successors or assigns, or to whomsoever may be lawfully
entitled to receive the same, or as a court of competent jurisdiction
may direct.
Section 7.04. Except as otherwise expressly provided in this
Section, no holder of any Debenture shall have any right by virtue or by
availing of any provision in this Indenture or otherwise to institute any suit,
action or proceeding in equity or at law upon or under or with respect to this
Indenture, for the appointment of a receiver or trustee, for the execution of
any trust or power hereof, or for any other remedy hereunder, unless such holder
previously shall have given to the Trustee written notice of default and of the
continuance thereof, as hereinbefore provided, and unless also the holders of
not less than 25% in aggregate principal amount of the Debentures then
outstanding shall have made written request upon the Trustee either to proceed
to exercise the powers hereinbefore granted or to institute such action, suit or
proceeding in its own name as trustee hereunder and shall have offered or caused
the holders of the Revenue Bonds to have offered, to the Trustee such reasonable
indemnity as it may require against the costs, expenses and liabilities to be
incurred therein or thereby, and the Trustee within a reasonable time (which in
no event shall be less than sixty days) after its receipt of such notice,
request and offer of indemnity, shall have failed to proceed to exercise such
powers or to institute any such action, suit or proceeding; it being understood
and intended, and being expressly covenanted by the taker and holder of every
Debenture with every other taker and holder and the Trustee, that no one or more
holders of Debentures shall have any right in any manner whatever by virtue or
by availing of any provision of this Indenture to affect, disturb or prejudice
the rights of the holders of any other of such Debentures, or to obtain or seek
to obtain priority over or preference to any other such holder, or to enforce
any right under this Indenture, except in the manner herein provided and for the
equal, ratable and common benefit of all holders of Debentures. For the
protection and enforcement of the provisions of this Section, each and every
Debentureholder and the Trustee shall be entitled to such relief as can be given
either at law or in equity.
Nothing herein contained shall, however, affect or impair the
right, which is absolute and unconditional, of any
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Debentureholder to receive and to institute suit to enforce the payment of the
principal of and interest on his Debentures at and after the respective due
dates (including, subject to the provisions of Section 7.01, maturity by
declaration pursuant to this Indenture or otherwise) of such principal or
interest, or the obligation of the Company, which is also absolute and
unconditional, to pay the principal of and interest on each of the Debentures to
the respective holders thereof at the times and places in the Debentures
expressed.
Section 7.05. No delay or omission of the Trustee or of any
holder of any of the Debentures to exercise any right or power accruing upon any
Event of Default shall impair any such right or power or shall be construed to
be a waiver of any such default or an acquiescence therein; and, subject to the
provisions of Section 7.04, every power and remedy given by this Article or by
law to the Trustee or to the Debentureholders may be exercised from time to
time, and as often as shall be deemed expedient, by the Trustee or by the
Debentureholders.
Section 7.06. See Section 316(a)(1) of the Trust Indenture
Act.
Section 7.07. See Section 315(b) of the Trust Indenture Act.
Section 7.08. See Section 315(e) of the Trust Indenture Act.
ARTICLE EIGHT.
Concerning the Trustee.
Section 8.01. See Trust Indenture Act, including Section
315(a), (b), (c) and (d) thereof.
Section 8.02. Except as otherwise provided in Section 8.01:
(a) The Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, Officers' Certificate,
certificate of auditors, or any other certificate, statement,
instrument, opinion, report, notice, request, consent, order,
appraisal, bond, debenture or other paper or document, including
without limitation documents delivered to it pursuant to Section 5.10
(which documents the Trustee may rely on as not being amended or
supplemented other than to the extent any amendments or supplements
have been delivered to it) believed by it to be genuine and to have
been signed or presented by the proper party or parties;
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(b) Any request, direction, order or demand of the Company
mentioned herein shall be sufficiently evidenced by an Officers'
Certificate (unless other evidence in respect thereof be herein
specifically prescribed); and any resolution of the Board of Directors
may be evidenced to the Trustee by a copy thereof certified by the
Secretary or an Assistant Secretary of the Company;
(c) The Trustee may consult with counsel of its selection and
any Opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken or suffered or omitted by it
hereunder in good faith and in accordance with such Opinion of Counsel;
(d) The Trustee shall be under no obligation to exercise any
of the trusts or powers vested in it by this Indenture at the request,
order or direction of any of the Debentureholders, pursuant to the
provisions of this Indenture, unless such Debentureholders or the
holders of the Revenue Bonds shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and
liabilities which may be incurred therein or thereby;
(e) The Trustee shall not be personally liable for any action
taken or omitted by it in good faith and believed by it to be
authorized or within the discretion or rights or powers conferred upon
it by this Indenture;
(f) Prior to the occurrence of an Event of Default hereunder
and after the curing or waiving of all Events of Default, the Trustee
shall not be bound to make any investigation into the facts or matters
stated in any resolution, certificate, statement, instrument, opinion,
report, notice, request, consent, order, approval, bond, debenture or
other paper or document unless requested in writing so to do by the
holders of not less than a majority in principal amount of the
Debentures then outstanding; provided, however, that if the payment
within a reasonable time to the Trustee of the costs, expenses or
liabilities likely to be incurred by it in the making of such
investigation is, in the opinion of the Trustee, not reasonably assured
to the Trustee by the security afforded to it by the terms of this
Indenture, the Trustee may require reasonable indemnity against such
expense or liability as a condition to so proceeding. The reasonable
expense of every such investigation shall be paid by the Company or, if
paid by the Trustee, shall be repaid by the Company upon demand;
(g) The Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys and the Trustee shall not be responsible
for any misconduct or
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negligence on the part of any agent or attorney appointed by it
hereunder; and
(h) None of the provisions of this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur any personal
financial liability in the performance of any of its duties hereunder,
or in the exercise of any of its rights or powers, if it shall have
reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably
assured to it.
Section 8.03. The recitals contained herein and in the
Debentures (other than the certificate of authentication on the Debentures)
shall be taken as the statements of the Company, and the Trustee assumes no
responsibility for the correctness of the same. The Trustee makes no
representations as to the validity or sufficiency of this Indenture or of the
Debentures. The Trustee shall not be accountable for the use or application by
the Company of any of the Debentures or of the proceeds of such Debentures, or
for the use or application of any moneys paid over by the Trustee in accordance
with any provision of this Indenture, or for the use or application of any
moneys received by any paying agent.
Section 8.04. The Trustee or any paying agent or any Debenture
registrar, in its individual or any other capacity, may become the owner or
pledgee of Debentures with the same rights it would have if it were not Trustee,
paying agent or Debenture registrar.
Section 8.05. Subject to the provisions of Section 13.04, all
moneys received by the Trustee shall, until used or applied as herein provided,
be held in trust for the purposes for which they were received, but need not be
segregated from other funds except to the extent required by law. The Trustee
shall be under no liability for interest on any moneys received by it hereunder
except such as it may agree in writing with the Company to pay thereon. So long
as no Event of Default shall have occurred and be continuing, all interest
allowed on any such moneys shall be paid from time to time upon the written
order of the Company, signed by its President, a Vice President, its Treasurer
or an Assistant Treasurer.
Section 8.06. The Company covenants and agrees to pay to the
Trustee from time to time, and the Trustee shall be entitled to, such
compensation as the Company and the Trustee shall from time to time agree to in
writing (which shall not be limited by any provision of law in regard to the
compensation of a trustee of an express trust) for all services rendered by it
in the execution of the trusts hereby created and in the exercise and
performance of any of the powers and duties hereunder of the Trustee, and the
Company will pay or reimburse the Trustee upon its request for all reasonable
expenses, disbursements and
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advances incurred or made by the Trustee in accordance with any of the
provisions of this Indenture (including the reasonable compensation and the
expenses and disbursements of its counsel and of all persons not regularly in
its employ) except any such expense, disbursement or advance as may arise from
its negligence or bad faith. The Company also covenants to indemnify the Trustee
for, and to hold it harmless against, any and all loss, damage, claims,
liability or expense incurred without negligence or bad faith on the part of the
Trustee, and arising out of or in connection with the acceptance or
administration of this trust, including the costs and expenses of defending
itself against any claim of liability in the premises. The obligations of the
Company under this Section to compensate the Trustee, to pay or reimburse the
Trustee for expenses, disbursements and advances and to indemnify the Trustee
shall constitute additional indebtedness hereunder. Such additional indebtedness
shall be secured by a lien prior to that of the Debentures upon all property and
funds held or collected by the Trustee as such, except funds held in trust for
the benefit of the holders of particular Debentures.
Section 8.07. Except as otherwise provided in Section 8.01,
whenever in the administration of the trusts of this Indenture the Trustee shall
deem it necessary or desirable that a matter be proved or established prior to
taking or suffering or omitting any action hereunder, such matter (unless other
evidence in respect thereof be herein specifically prescribed) may be deemed to
be conclusively proved and established by an Officers' Certificate, and such
certificate shall be full warrant to the Trustee for any action taken, suffered
or omitted by it under the provisions of this Indenture upon the faith thereof.
Section 8.08. See Section 310(b) of the Trust Indenture Act.
In addition, excluded from the operation of Section 310(b)(1) of the Trust
Indenture Act are the following: the Indenture dated as of December 1, 1989
between the Company and Citibank, N.A., Trustee, pursuant to which the Company's
7.20% Debentures due 2019 are outstanding, the Indenture dated as of October 1,
1990 between the Company and Citibank, N.A., Trustee, pursuant to which the
Company's 7 1/2% Debentures due 2020 are outstanding, the Indenture dated as of
August 1, 1991 between the Company and The Bank of New York, Trustee, pursuant
to which the Company's 6.60% Debentures due 2021 are outstanding, and the
Indenture dated as of August 1, 1991 between the Company and The Bank of New
York, Trustee, pursuant to which the Company's 6.70.% Debentures due 2021 are
outstanding, the Indenture dated as of October 1, 1991 between the Company and
The Bank of New York, Trustee, pursuant to which the Company's 8- 3/4.%
Debentures due 2021 are outstanding, the Indenture dated as of September 1, 1992
between the Company and The Bank of New York, Trustee, pursuant to which the
Company's 8% Debentures due 2022 are outstanding, and the Indenture dated as of
November 1, 1993 between the Company and The Bank of New York, Trustee,
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pursuant to which the Company's 7-1/4% Debentures due 2028 are outstanding.
Section 8.09. The Trustee hereunder shall at all times be a
corporation organized and doing business under the laws of the United States or
any State or Territory or of the District of Columbia authorized under such laws
to exercise corporate trust powers, having a combined capital and surplus of at
least $5,000,000, subject to supervision or examination by Federal, State,
Territorial, or District of Columbia authority. If such corporation publishes
reports of condition at least annually, pursuant to law or to the requirements
of the aforesaid supervising or examining authority, then for the purposes of
this Section, the combined capital and surplus of such corporation shall be
deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published. In case at any time the Trustee shall cease to
be eligible in accordance with the provisions of this Section, the Trustee shall
resign immediately in the manner and with the effect specified in Section 8.10.
Section 8.10. (a) The Trustee, or any successor hereafter
appointed, may at any time resign and be discharged from the trust hereby
created by mailing notice thereof to the Company and to the Debentureholders
whose names and addresses appear in the information preserved at the time by the
Trustee in accordance with the provisions of Section 6.02(a) hereof. Upon
receiving such notice of resignation, the Company shall promptly appoint a
successor trustee by written instrument, in duplicate, executed by order of the
Board of Directors of the Company, one copy of which instrument shall be
delivered to the resigning Trustee and one copy to the successor trustee. If no
successor trustee shall have been so appointed and have accepted appointment
within thirty days after the mailing of such notice of resignation, the
resigning Trustee may petition any court of competent jurisdiction for the
appointment of a successor trustee, or any Debentureholder who has been a bona
fide holder of a Debenture or Debentures for at least six months may, subject to
the provisions of Section 7.08, on behalf of himself and all others similarly
situated, petition any such court for the appointment of a successor trustee.
Such court may thereupon after such notice, if any, as it may deem proper and
prescribe, appoint a successor trustee.
(b) In case at any time any of the following shall occur--
(1) the Trustee shall fail to comply with the
provisions of Section 310(b) of the Trust Indenture Act after written
request therefor by the Company or by any Debentureholder who has been
a bona fide holder of a Debenture or Debentures for at least six
months, or
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(2) the Trustee shall cease to be eligible in
accordance with the provisions of Section 8.09 and shall fail to resign
after written request therefor by the Company or by any such
Debentureholder, or
(3) the Trustee shall become incapable of acting, or
shall be adjudged a bankrupt or insolvent, or a receiver of the Trustee
or of its property shall be appointed, or any public officer shall take
charge or control of the Trustee or of its property or affairs for the
purpose of rehabilitation, conservation or liquidation,
then, in any such case, the Company may remove the Trustee and appoint a
successor trustee by written instrument, in duplicate, executed by order of the
Board of Directors of the Company, one copy of which instrument shall be
delivered to the Trustee so removed and one copy to the successor trustee, or,
subject to the provisions of Section 7.08, any Debentureholder who has been a
bona fide holder of a Debenture or Debentures for at least six months may, on
behalf of himself and all others similarly situated, petition any court of
competent jurisdiction for the removal of the Trustee and the appointment of a
successor trustee. Such court may thereupon after such notice, if any, as it may
deem proper and prescribe, remove the Trustee and appoint a successor trustee.
(c) The holders of a majority in aggregate principal amount of
the Debentures at the time outstanding may at any time remove the Trustee and
appoint a successor trustee.
(d) Any resignation or removal of the Trustee and any
appointment of a successor trustee pursuant to any of the provisions of this
Section shall become effective upon acceptance of appointment by the successor
trustee as provided in Section 8.11.
Section 8.11. Any successor trustee appointed as provided in
Section 8.10 shall execute, acknowledge and deliver to the Company and to its
predecessor trustee an instrument accepting such appointment hereunder, and
thereupon the resignation or removal of the predecessor trustee shall become
effective and such successor trustee, without any further act, deed or
conveyance, shall become fully vested with all the rights, powers, duties and
obligations of its predecessor hereunder, with like effect as if originally
named as trustee herein. The predecessor trustee shall, nevertheless, at the
written request of the successor trustee, and upon payment of any amount then
due it pursuant to Section 8.06, pay over to the successor trustee all moneys at
the time held by it hereunder; and the Company and the predecessor trustee shall
execute and deliver such instruments and do such other things as may reasonably
be required for more fully and certainly vesting and confirming in the successor
trustee all such rights, powers, duties and obligations. Any Trustee ceasing to
act shall
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nevertheless retain a lien on all funds held or collected by such Trustee to
secure any amount due it pursuant to Section 8.06.
No successor trustee shall accept appointment as provided in
this Section unless at the time of such acceptance such successor trustee shall
be qualified under the provisions of Section 8.08 and eligible under the
provisions of Section 8.09.
Upon acceptance of appointment by a successor trustee as
provided in this Section, the Company shall mail notice of the succession of
such trustee hereunder to all Debentureholders at their last addresses appearing
upon the register. If the Company fails to mail such notice in the prescribed
manner within 10 days after the acceptance of appointment by the successor
trustee, the successor trustee shall cause such notice to be mailed at the
expense of the Company.
Section 8.12. Any corporation into which the Trustee may be
merged or with which it may be consolidated, or any corporation resulting from
any merger or consolidation to which the Trustee shall be a party, or any
corporation succeeding to the business of the Trustee, shall be the successor of
the Trustee hereunder, provided such corporation shall be qualified under the
provisions of Section 8.08 and eligible under the provisions of Section 8.09,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto, anything herein to the contrary notwithstanding.
In case at the time such successor to the Trustee shall
succeed to the trusts created by this Indenture any of the Debentures shall have
been authenticated but not delivered, any such successor to the Trustee may
adopt the certificate of authentication of any predecessor trustee, and deliver
such Debentures so authenticated; and in case at that time any of the Debentures
shall not have been authenticated, any successor to the Trustee may authenticate
such Debentures either in the name of any predecessor hereunder or in the name
of the successor trustee; and in all such cases such certificates shall have the
full force which it is anywhere in the Debentures or in this Indenture provided
that the certificate of the Trustee shall have; provided, however, that the
right to adopt the certificate of authentication of any predecessor trustee or
authenticate Debentures in the name of any predecessor trustee shall apply only
to its successor or successors by merger, conversion or consolidation.
Section 8.13. See Section 311 of the Trust Indenture Act.
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ARTICLE NINE.
Concerning the Debentureholders.
Section 9.01. Whenever in this Indenture it is provided that
the holders of a specified percentage in aggregate principal amount of the
Debentures may take any action (including the making of any demand or request,
the giving of any notice, consent or waiver or the taking of any other action),
the fact that at the time of taking any such action the holders of such
specified percentage have joined therein may be evidenced (a) by any instrument
or any number of instruments of similar tenor executed by Debentureholders in
person or by attorney or proxy appointed in writing, or (b) by the record of the
holders of Debentures voting in favor thereof at any meeting of Debentureholders
duly called and held in accordance with the provisions of Article Ten, or (c) by
a combination of such instrument or instruments and any such record of such a
meeting of Debentureholders.
Section 9.02. Subject to the provisions of Section 8.01, proof
of the execution of any instrument by a Debentureholder or his attorney or proxy
and proof of the holding by any person of any of the Debentures shall be
sufficient for any purpose of this Indenture if made in accordance with such
reasonable rules and regulations as may be prescribed by the Trustee or in such
manner as shall be satisfactory to the Trustee. The ownership of Debentures
shall be proved by the register of such Debentures or by a certificate of the
Debenture registrar.
The record of any Debentureholders' meeting shall be proved in
the manner provided in Section 10.06.
Section 9.03. The Company, the Trustee, any paying agent and
any Debenture registrar may deem and treat the person in whose name any
Debenture shall be registered upon the register as the absolute owner of such
Debenture (whether or not such Debenture shall be overdue and notwithstanding
any notice of ownership or writing thereon), for the purpose of receiving
payment of or on account of the principal of and interest and premium, if any,
on such Debenture and for all other purposes, and neither the Company nor the
Trustee nor any paying agent nor any Debenture registrar shall be affected by
any notice to the contrary. All such payments so made to any such registered
holder, for the time being or upon his order, shall be valid, and, to the extent
of the sum or sums so paid, effectual to satisfy and discharge the liability for
moneys payable upon any such Debenture.
Section 9.04. In determining whether the holders of the
requisite aggregate principal amount of Debentures have concurred in any
direction, consent or waiver under this
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Indenture, Debentures which are owned by the Company or any other obligor on the
Debentures or by any person directly or indirectly controlling or controlled by
or under direct or indirect common control with the Company or any other obligor
on the Debentures shall be disregarded and deemed not to be outstanding for the
purpose of any such determination, except that for the purpose of determining
whether the Trustee shall be protected in relying on any such direction, consent
or waiver only Debentures which the Trustee knows are so owned shall be so
disregarded. Debentures so owned which have been pledged in good faith may be
regarded as outstanding for the purposes of this Section, if the pledgee shall
establish to the satisfaction of the Trustee the pledgee's right to vote such
Debentures and that the pledgee is not a person directly or indirectly
controlling or controlled by or under direct or indirect common control with the
Company or any such other obligor. In case of a dispute as to such right, any
decision by the Trustee taken upon the advice of counsel shall be full
protection to the Trustee.
Section 9.05. Any demand, request, waiver, consent or vote of
the holder of any Debenture shall be conclusive and binding upon such holder and
upon all future holders and owners of such Debenture, and of any Debenture
issued in exchange therefor or in place thereof, irrespective of whether or not
any notation in regard thereto is made upon such Debenture. Any action taken by
the holders of the majority or percentage in aggregate principal amount of the
Debentures specified in this Indenture in connection with such action shall be
conclusively binding upon the Company, the Trustee and the holders of all the
Debentures.
ARTICLE TEN.
Debentureholders' Meetings.
Section 10.01. A meeting of Debentureholders may be called at
any time and from time to time pursuant to the provisions of this Article Ten
for any of the following purposes:
(1) to give any notice to the Company or to the Trustee, or to
give any directions to the Trustee, or to consent to the waiving of any
default hereunder and its consequences, or to take any other action
authorized to be taken by Debentureholders pursuant to any of the
provisions of Article Seven;
(2) to remove the Trustee and appoint a successor trustee
pursuant to the provisions of Article Eight;
(3) to consent to the execution of an indenture or indentures
supplemental hereto pursuant to the provisions of Section 11.02; or
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(4) to take any other action authorized to be taken by or on
behalf of the holders of any specified aggregate principal amount of
the Debentures under any other provision of this Indenture, or
authorized or permitted by law.
Section 10.02. The Trustee may at any time call a meeting of
Debentureholders to take any action specified in Section 10.01, to be held at
such time and at such place in the Borough of Manhattan, City and State of New
York, as the Trustee shall determine. Notice of every meeting of the
Debentureholders, setting forth the time and the place of such meeting and in
general terms the action proposed to be taken at such meeting, shall be mailed
not less than fifteen days prior to the date fixed for the meeting to the
Debentureholders whose names and addresses appear in the information preserved
at the time by the Trustee in accordance with the provisions of Section 6.02(a)
hereof or obtained in accordance with the provisions of Section 6.01 hereof.
Any meeting of Debentureholders shall be valid without notice
if the holders of all Debentures then outstanding are present in person or by
proxy or if notice is waived before or after the meeting by the holders of all
Debentures outstanding, and if the Company and the Trustee are either present by
duly authorized representatives or have, before or after the meeting, waived
notice.
Section 10.03. In case at any time the Company, pursuant to a
resolution of its Board of Directors or the holders of at least 20% in aggregate
principal amount of the Debentures then outstanding, shall request the Trustee
to call a meeting of Debentureholders to take any action specified in Section
10.01, by written request setting forth in reasonable detail the action proposed
to be taken at the meeting and the time and place in the Borough of Manhattan,
City and State of New York, for such meeting, the Trustee shall mail notice of
such meeting as provided in Section 10.02 within twenty days after receipt of
such request.
Section 10.04. To be entitled to vote at any meeting of
Debentureholders a person shall (a) be a holder of one or more Debentures or (b)
be a person appointed by an instrument in writing as proxy for the holder or
holders of Debentures by a holder of one or more Debentures. The only persons
who shall be entitled to be present or to speak at any meeting of
Debentureholders shall be the persons entitled to vote at such meeting and their
counsel and any representatives of the Trustee and its counsel and any
representatives of the Company and its counsel.
Section 10.05. Notwithstanding any other provision of this
Indenture, the Trustee may make such reasonable regulations as it may deem
advisable for any meeting of Debentureholders, in regard to proof of the holding
of Debentures and of the
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appointment of proxies, and in regard to the appointment and duties of
inspectors of votes, the submission and examination of proxies, certificates and
other evidence of the right to vote, and such other matters concerning the
conduct of the meeting as it shall think fit. Except as otherwise permitted or
required by any such regulations, the holding of Debentures shall be proved in
the manner specified in Section 9.02 and the appointment of any proxy shall be
proved in the manner specified in Section 9.02. Pursuant to the foregoing
authority the Trustee may fix, in advance, a date as a record date for
determining the Debentureholders entitled to notice of, or to vote at, any
meeting, such date to be not less than fifteen nor more than forty-five days
prior to the date fixed for such meeting.
The Trustee shall, by an instrument in writing, appoint a
temporary chairman of the meeting, unless the meeting shall have been called by
request of the Company or Debentureholders as provided in Section 10.03, in
which case the Company or such Debentureholders, as the case may be, shall in
like manner appoint a temporary chairman. A permanent chairman and a permanent
secretary of the meeting shall be elected by vote of the holders of a majority
in principal amount of the Debentures represented at the meeting and entitled to
vote.
Subject to the provisions of Section 9.04, at any meeting each
Debentureholder or proxy shall be entitled to one vote for each $1,000 principal
amount of Debentures, provided, however, that no vote shall be cast or counted
at any meeting in respect of any Debentures challenged as not outstanding and
ruled by the chairman of the meeting to be not outstanding. The chairman of the
meeting shall have no right to vote other than by virtue of Debentures held by
him or instruments in writing as aforesaid duly designating him as the person to
vote on behalf of other Debentureholders. Any meeting of Debentureholders duly
called pursuant to the provisions of Section 10.02 or 10.03 may be adjourned
from time to time, and the meeting may be held as so adjourned without further
notice.
Section 10.06. The vote upon any resolution submitted to any
meeting of Debentureholders shall be by written ballots on which shall be
subscribed the signatures of the holders of Debentures or of their
representatives by proxy. The permanent chairman of the meeting shall appoint
two inspectors of votes, who shall count all votes cast at the meeting for or
against any resolution and who shall make and file with the secretary of the
meeting their verified written reports in duplicate of all votes cast at the
meeting. A record in duplicate of the proceedings of each meeting of
Debentureholders shall be prepared by the secretary of the meeting and there
shall be attached to said record the original reports of the inspectors of votes
on any vote by ballot taken thereat and affidavits by one or more person having
knowledge of the facts, setting forth a copy of the notice of the meeting and
showing that said notice was mailed as provided in Section 10.02. The record
shall be signed and
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verified by the affidavits of the permanent chairman and secretary of the
meeting and one of the duplicates shall be delivered to the Company and the
other to the Trustee to be preserved by the Trustee, the latter to have attached
thereto the ballots voted at the meeting.
Any record so signed and verified shall be conclusive evidence
of the matters therein stated.
Section 10.07. Nothing in this Article Ten contained shall be
deemed or construed to authorize or permit, by reason of any call of a meeting
of Debentureholders or any rights expressly or impliedly conferred hereunder to
make such call, any hindrance or delay in the exercise of any right or rights
conferred upon or reserved to the Trustee or to the Debentureholders under any
of the provisions of this Indenture or of the Debentures.
ARTICLE ELEVEN.
Supplemental Indentures.
Section 11.01. The Company, when authorized by a resolution of
its Board of Directors, and the Trustee, subject to the conditions and
restrictions of this Indenture contained, may from time to time and at any time
enter into an indenture or indentures supplemental hereto (which shall conform
to the provisions of the Trust Indenture Act of 1939 as then in effect) for one
or more of the following purposes:
(a) to evidence the succession of another corporation to the
Company, or successive successions, and the assumption by the successor
corporation of the covenants, agreements and obligations of the Company
pursuant to Article Twelve;
(b) to add to the covenants and agreements of the Company in
this Indenture contained such further covenants and agreements
thereafter to be observed, and to surrender any right or power herein
reserved to or conferred upon the Company; and
(c) to cure any ambiguity or to correct or supplement any
defective or inconsistent provisions contained in this Indenture or in
any supplemental indenture.
The Trustee is hereby authorized to join with the Company in
the execution of any supplemental indenture authorized or permitted by the terms
of this Indenture and to make any further appropriate agreements and
stipulations which may be therein contained, but the Trustee shall not be
obligated to enter into any such supplemental indenture which affects the
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Trustee's own rights, duties or immunities under this Indenture or otherwise.
Any supplemental indenture authorized by the provisions of
this Section may be executed by the Company and the Trustee without the consent
of the holders of any of the Debentures at the time outstanding, notwithstanding
any of the provisions of Section 11.02.
Section 11.02. With the consent (evidenced as provided in
Section 9.01) of the holders (or persons entitled to vote, or to give consents
respecting the same) of more than 50% in aggregate principal amount of the
Debentures at the time outstanding, the Company, when authorized by a resolution
of its Board of Directors, and the Trustee may from time to time and at any time
enter into an indenture or indentures supplemental hereto (which shall conform
to the provisions of the Trust Indenture Act of 1939 as then in effect) for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of this Indenture or of any supplemental indenture or of
modifying in any manner the rights and obligations of the holders of the
Debentures and of the Company; provided, however, that no such supplemental
indenture shall (i) extend the fixed maturity of any Debenture, or reduce the
principal amount thereof, or reduce the rate or extend the time of payment of
interest thereon, without the consent of the holder of each Debenture so
affected, or (ii) reduce the aforesaid percentage of Debentures, the holders of
which are required to consent to any such supplemental indenture, without the
consent of the holders of all Debentures then outstanding.
Upon the request of the Company, accompanied by a copy of a
resolution of its Board of Directors certified by the secretary or an assistant
secretary of the Company authorizing the execution of any such supplemental
indenture, and upon the filing with the Trustee of evidence of the consent of
Debentureholders as aforesaid, the Trustee shall join with the Company in the
execution of such supplemental indenture unless such supplemental indenture
affects the Trustee's own rights, duties or immunities under this Indenture or
otherwise, in which case the Trustee may in its discretion but shall not be
obligated to enter into such supplemental indenture.
It shall not be necessary for the consent of the
Debentureholders under this Section to approve the particular form of any
proposed supplemental indenture, but it shall be sufficient if such consent
shall approve the substance thereof.
Promptly after the execution by the Company and the Trustee of
any supplemental indenture pursuant to the provisions of this Section, the
Company shall mail a notice, setting forth in general terms the substance of
such supplemental indenture, to all Debentureholders at their last addresses
appearing upon the register. Any failure of the Company to mail such notice, or
any
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defect therein, shall not, however, in any way impair or affect the validity of
any such supplemental indenture.
Section 11.03. Upon the execution of any supplemental
indenture pursuant to the provisions of this Article, this Indenture shall be
and be deemed to be modified and amended in accordance therewith and the
respective rights, limitation of rights, obligations, duties and immunities
under this Indenture of the Trustee, the Company and the holders of Debentures
shall thereafter be determined, exercised and enforced hereunder subject in all
respects to such modifications and amendments, and all the terms and conditions
of any such supplemental indenture shall be and be deemed to be part of the
terms and conditions of this Indenture for any and all purposes.
Section 11.04. Debentures authenticated and delivered after
the execution of any supplemental indenture pursuant to the provisions of this
Article, or after any action taken at a Debentureholders' meeting pursuant to
Article Ten, may bear a notation in form approved by the Trustee as to any
matter provided for in such supplemental indenture or as to any action taken at
any such meeting; and, in such case, suitable notation may be made upon
outstanding Debentures after proper presentation and demand. If the Company or
the Trustee shall so determine, new Debentures so modified as to conform, in the
opinion of the Trustee and the Board of Directors of the Company, to any
modification of this Indenture contained in any such supplemental indenture, or
to any action taken at any such meeting, may be prepared by the Company,
authenticated by the Trustee and delivered in exchange for the Debentures then
outstanding, upon demand of, and without cost to, the holders thereof, upon
surrender of such Debentures.
Section 11.05. The Trustee, subject to the provisions of
Section 8.01, may receive an Opinion of Counsel as conclusive evidence that any
supplemental indenture executed pursuant to this Article Eleven is authorized or
permitted by the terms of this Indenture and that it is not inconsistent
therewith.
ARTICLE TWELVE.
Consolidation, Merger and Sale.
Section 12.01. Nothing contained in this Indenture or in any
of the Debentures shall prevent any consolidation or merger of the Company with
or into any other corporation or corporations (whether or not affiliated with
the Company), or successive consolidations or mergers in which the Company or
its successor or successors shall be a party or parties, or shall prevent any
sale or conveyance (or successive sales or conveyances) of the property and
assets of the Company (or of its successor or successors) as an entirety or
substantially as an
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<PAGE>
entirety, to any other corporation (whether or not affiliated with the Company)
authorized to acquire the same; provided, however, and the Company hereby
covenants and agrees that, upon any such consolidation, merger, sale or
conveyance, the due and punctual payment of the principal of and interest on all
the Debentures, according to their tenor, and the due and punctual performance
and observance of all the terms, covenants and conditions of this Indenture to
be kept or performed by the Company, shall be expressly assumed, by indenture
supplemental hereto, satisfactory in form to the Trustee, executed and delivered
to the Trustee by the corporation formed by such consolidation, or into which
the Company shall have been merged, or by the corporation which shall have
acquired such property and assets. In the event of any such sale or conveyance
the predecessor Company may be dissolved, wound up and liquidated at any time
thereafter.
Section 12.02. In case of any such consolidation, merger, sale
or conveyance and upon the execution by the successor corporation of an
indenture supplemental hereto, as provided in Section 12.01, such successor
corporation shall succeed to and be substituted for the Company, with the same
effect as if it had been named herein as the party of the first part. Such
successor corporation thereupon may issue either in its own name or in the name
of the Company, with such suitable reference, if any, to such consolidation,
merger, sale or conveyance as may be required by the Trustee, any or all of the
Debentures issuable hereunder which theretofore shall not have been issued by
the Company and delivered to the Trustee; and, upon the written order of such
successor corporation, instead of the Company, and subject to all the terms,
conditions and limitations in this Indenture prescribed, the Trustee shall
authenticate and shall deliver any Debentures which previously shall have been
executed by the Company and any Debentures which such successor corporation
thereafter shall cause to be executed in accordance with the provisions of this
Indenture and delivered to the Trustee for that purpose. All the Debentures so
issued shall in all respects have the same legal rank and benefit under this
Indenture as the Debentures theretofore or thereafter issued in accordance with
the terms of this Indenture as though all of such Debentures had been issued at
the date of the execution hereof.
In case of any such consolidation, merger, sale or conveyance
such changes in phraseology and form (but not in substance) may be made in the
Debentures thereafter to be issued as may be appropriate).
Nothing contained in this Indenture or in any of the
Debentures shall prevent the Company from consolidating with, or merging into
itself, or acquiring by purchase or otherwise all or any part of the property
of, any other corporation (whether or not affiliated with the Company).
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<PAGE>
Section 12.03. The Trustee, subject to the provisions of
Section 8.01, may receive an Opinion of Counsel as conclusive evidence that any
such consolidation, merger, sale or conveyance, and any such assumption,
complies with the provisions of this Article.
ARTICLE THIRTEEN.
Satisfaction and Discharge of Indenture; Deposited Moneys.
Section 13.01. If:
(1) Either (i) the Company shall deliver to the Trustee for
cancellation all Debentures (other than Debentures deemed not to be outstanding
under clause (c) of the definition thereof) not theretofore canceled or
delivered to the Trustee for cancellation, or (ii) the Company shall have
deposited in trust with the Trustee cash sufficient to pay at maturity or upon
redemption (after notice of redemption has been duly given or provided for) all
of the Debentures (other than Debentures deemed not to be outstanding under
clause (c) of the definition thereof) not theretofore canceled or delivered to
the Trustee for cancellation, including principal, premium, if any, and interest
due or to become due to such date of maturity or redemption date, as the case
may be, or (iii) the Company shall have deposited in trust with the Trustee
direct obligations of the United States or obligations the principal of and
interest on which are fully guaranteed by the United States, and which are not
subject to prepayment, redemption or call prior to their stated maturity, in
such amounts and maturing at such times that the proceeds of said obligations,
together with the income that can be predetermined will accrue thereon by
reference to the terms thereof (without consideration of any reinvestment
thereof), to be received upon their respective maturities and interest payment
dates will provide funds sufficient to pay the principal, premium, if any, and
interest due or to become due to the date of maturity or to the redemption date,
as the case may be, with respect to all of the Debentures (other than Debentures
deemed not to be outstanding under clause (c) of the definition thereof) not
theretofore canceled or delivered to the Trustee for cancellation, provided that
the Trustee shall have been irrevocably instructed to apply the proceeds of said
obligations to the payment of such principal, premium and interest with respect
to such Debentures, or (iv) the Company shall have deposited in trust with the
Trustee any combination of cash or obligations referred to in (ii) and (iii),
(2) the Company shall pay or cause to be paid all other sums
payable with respect to the Debentures, and
(3) the Company shall deliver to the Trustee and the Revenue
Bond Trustee an Officers' Certificate and an Opinion of
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Counsel, each stating that all conditions precedent herein provided for relating
to the satisfaction and discharge of the entire indebtedness on the Debentures
have been complied with, then
(a) this Indenture shall cease to be of further effect (except
as otherwise provided herein) and on or after such maturity date or
redemption date, as the case may be, the Trustee, on demand of, and at
the expense of, the Company, shall execute proper instruments
acknowledging satisfaction and discharge of this Indenture; and
(b) all obligations of the Company in respect of the
Debentures shall cease and be discharged and the holders of such
Debentures shall thereafter be restricted exclusively to such funds for
any and all claims of whatever nature on their part under this
Indenture or with respect to such Debentures; provided, however, that,
in no event shall the Company be discharged from (i) any payment
obligation in respect of Debentures deemed not to be outstanding under
clause (c) of the definition thereof if such obligations continue to be
valid obligations under applicable law, (ii) any obligations under
Sections 2.05 and 2.06 (except that Debentures issued upon registration
of transfer or exchange or in lieu of mutilated, lost, destroyed or
stolen Debentures shall not be deemed to be such obligations) or (iii)
any obligations under Sections 6.01, 8.06, 13.02, 13.03 and 13.04;
further provided, however, that the rights and privileges of the
Trustee under this Indenture shall survive any such discharge.
The Company hereby agrees to reimburse the Trustee for any
costs or expenses thereafter reasonably and properly incurred by the Trustee in
connection with this Indenture or the Debentures, and without bad faith or
negligence.
Section 13.02. All moneys deposited with the Trustee pursuant
to Section 13.01 shall be held in trust and applied by it to the payment, to the
holders of the particular Debentures for the payment or redemption of which such
moneys have been deposited with the Trustee, of all sums due and to become due
thereon for principal, premium, if any, and interest.
Section 13.03. In connection with the satisfaction and
discharge of this Indenture all moneys then held by any paying agent under the
provisions of this Indenture shall, upon demand of the Company or Trustee, be
paid to the Trustee and thereupon such paying agent shall be released from all
further liability with respect to such moneys.
Section 13.04. In case the holder of any Debenture entitled to
payment hereunder at any time outstanding hereunder shall not, within two years
after the maturity date of such Debenture or the date fixed for the redemption
of any such
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<PAGE>
Debenture, claim the amount on deposit with the Trustee or other depositary for
the payment of such Debenture, the Trustee or other depositary shall pay over to
or upon the written order of the Company the amount so deposited, upon receipt
of a request signed by the President or a Vice President of the Company, and
thereupon the Trustee or other depositary shall be released from any and all
further liability with respect to the payment of such Debenture and the holder
of said Debenture shall be entitled (subject to any applicable statute of
limitations) to look only to the Company as an unsecured creditor for the
payment thereof.
ARTICLE FOURTEEN.
Immunity of Incorporators, Stockholders, Officers,
Trustees and Directors.
Section 14.01. No recourse under or upon any obligation,
covenant or agreement of this Indenture, or of any Debenture, or for any claim
based thereon or otherwise in respect thereof, shall be had against any
incorporator, stockholder, officer, trustee or director, as such, past, present
or future, of the Company or of any predecessor or successor corporation, either
directly through the Company or any such predecessor or successor corporation,
whether by virtue of any constitution, statute or rule of law or equity, or by
the enforcement of any assessment or penalty or otherwise; it being expressly
understood that this Indenture and the obligations issued hereunder are solely
corporate obligations, and that no such personal liability whatever shall attach
to, or is or shall be incurred by, the incorporators, stockholders, officers,
trustees or directors of the Company, as such, or of any predecessor or
successor corporation, or any of them, because of the creation of the
indebtedness hereby authorized, or under or by reason of the obligations,
covenants or agreements contained in this Indenture or in any of the Debentures
or implied therefrom; and that any and all such liability is hereby expressly
waived and released by every holder of Debentures as a condition of, and as a
consideration for, the execution of this Indenture and the issue of such
Debentures.
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<PAGE>
ARTICLE FIFTEEN.
Miscellaneous Provisions.
The provisions of the Trust Indenture Act which impose duties
on any person (including provisions automatically deemed included in an
indenture by the Trust Indenture Act unless the indenture provides that such
provisions are excluded which provision is hereby expressly excluded other than
Section 316(a)(2) of the Trust Indenture Act) are a part of and govern this
Indenture. If any provision hereof limits, qualifies or conflicts with any of
the duties imposed by operation of the Trust Indenture Act, the Trust Indenture
Act shall control.
Section 15.01. All the covenants, stipulations, promises and
agreements in this Indenture contained by or in behalf of the Company shall bind
its successors and assigns, whether so expressed or not.
Section 15.02. Any act or proceeding by any provision of this
Indenture authorized or required to be done or performed by any board, committee
or officer of the Company shall and may be done and performed with like force
and effect by the like board, committee or officer of any corporation that shall
at the time be the lawful successor of the Company.
Section 15.03. The Company by instruments in writing executed
by authority of its Board of Directors and delivered to the Trustee may
surrender any of the powers reserved to the Company and thereupon such power so
surrendered shall terminate both as to the Company and as to any successor
corporation.
Section 15.04. Any notice or demand which by any provision of
this Indenture is required or permitted to be given or served by the Trustee or
by the holders of Debentures to or on the Company may be given or served by
being deposited postage prepaid in a post-office letterbox addressed (until
another address is filed in writing by the Company with the Trustee), as
follows: Elizabethtown Water Company, 600 South Avenue, Westfield NJ 07090. Any
notice, election, request or demand by any Debentureholder to or upon the
Trustee shall be deemed to have been sufficiently given or made, for all
purposes, if given or made at the principal corporate trust office of the
Trustee in the Borough of Manhattan, City and State of New York.
Section 15.05. This Indenture and each Debenture shall be
deemed to be a contract made under the laws of the State of New York, and for
all purposes shall be construed in accordance with the laws of said state.
Section 15.06. Upon any application or demand by the Company
to the Trustee to take any action under any of the provisions of this Indenture,
the Company shall furnish to the
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Trustee an Officers' Certificate stating that all conditions precedent, if any,
provided for in this Indenture relating to the proposed action have been
complied with and an Opinion of Counsel stating that in the opinion of such
counsel all such conditions precedent have been complied with.
Each certificate or opinion provided for in this Indenture and
delivered to the Trustee with respect to compliance with a condition or covenant
provided for in this Indenture shall include (1) a statement that the person
making such certificate or opinion has read such covenant or condition; (2) a
brief statement as to the nature and scope of the examination or investigation
upon which the statements or opinions contained in such certificate or opinion
are based; (3) a statement that, in the opinion of such person, he has made such
examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with; and (4) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been complied with.
Any certificate, statement or opinion of an officer of the
Company may be based, in so far as it relates to legal matters, upon a
certificate or opinion of or representations by counsel, unless such officer
knows that the certificate or opinion or representations with respect to the
matters upon which his certificate, statement or opinion may be based as
aforesaid are erroneous, or in the exercise of reasonable care should know that
the same are erroneous. Any certificate, statement or opinion of counsel may be
based (in so far as it relates to factual matters information with respect to
which is in the possession of the Company) upon the certificate, statement or
opinion of or representations by an officer or officers of the Company, unless
such counsel knows that the certificate, statement or opinion or representations
with respect to the matters upon which his certificate, statement or opinion may
be based as aforesaid are erroneous, or in the exercise of reasonable care
should know that the same are erroneous.
Any certificate, statement or opinion of an officer of the
Company or of counsel may be based, in so far as it relates to accounting
matters, upon a certificate or opinion of or representations by an accountant or
firm of accountants in the employ of the Company, unless such officer or
counsel, as the case may be, knows that the certificate or opinion or
representations with respect to the accounting matters upon which his
certificate, statement or opinion may be based as aforesaid are erroneous, or in
the exercise of reasonable care should know that the same are erroneous.
Section 15.07. In any case where the date of maturity of
interest on or principal of the Debentures or the date fixed for redemption of
any Debenture shall be a Sunday or legal holiday or a date on which banking
institutions in the city of
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payment are authorized by law to close, then payment of interest, principal or
premium may be made on the next succeeding day not a Sunday or a legal holiday
or a date on which banking institutions in the city of payment are authorized by
law to close with the same force and effect as if made on the nominal date and
no interest shall accrue for the period after such nominal date.
Section 15.08. If and to the extent that any provision of this
Indenture limits, qualifies or conflicts with another provision included in this
Indenture which is required to be included in this Indenture by any of Sections
310 to 317, inclusive, of the Trust Indenture Act of 1939, such required
provision shall control.
Section 15.09. In case any one or more of the provisions
contained in this Indenture or in the Debentures shall for any reason be held to
be invalid, illegal or unenforceable in any respect, such invalidity, illegality
or unenforceability shall not affect any other provisions of this Indenture or
of such Debentures, but this Indenture and such Debentures shall be construed as
if such invalid or illegal or unenforceable provision had never been contained
herein or therein.
Section 15.10. This Indenture may be executed in any number of
counterparts, each of which shall be an original; but such counterparts shall
together constitute but one and the same instrument.
The Bank of New York, the party of the second part, hereby
accepts the trusts in this Indenture declared and provided, upon the terms and
conditions hereinabove set forth.
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<PAGE>
IN WITNESS WHEREOF, Elizabethtown Water Company, the party of
the first part, has caused this Indenture to be signed in its corporate name and
acknowledged by its President, or one of its Vice Presidents, and its corporate
seal to be affixed hereunto, duly attested by its Secretary or an Assistant
Secretary; and The Bank of New York, the party of the second part, has caused
this Indenture to be signed and acknowledged by one of its Assistant Vice
Presidents, and its corporate seal to be affixed hereunto, duly attested by one
of its Assistant Treasurers, all as of the day and year first above written.
ELIZABETHTOWN WATER COMPANY,
(Seal)
By /s/ Gail P. Brady
----------------------------
Gail P. Brady
Vice President
Attest:
/s/ Walter M. Braswell
- ---------------------------
Walter M. Braswell
Secretary
THE BANK OF NEW YORK, as Trustee
(Seal)
By /s/ Robert F. McIntyre
--------------------------------
Robert F. McIntyre
Assistant Vice President
Attest:
/s/ Marie E. Trimboli
- ---------------------------
Marie E. Trimboli
Assistant Treasurer
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<PAGE>
STATE OF NEW JERSEY )
) ss.:
COUNTY OF UNION )
On this 12th day of December, 1995, before me, the subscriber,
a Notary Public within and for the County of Union, in the State of New Jersey,
personally appeared Gail P. Brady, to me personally known, who, being by me duly
sworn, did say that she resides at 49 Howell Drive, Verona New Jersey and is a
Vice President of Elizabethtown Water Company, one of the corporations described
in and which executed the foregoing instrument; that she knows the corporate
seal of the said corporation and that the seal affixed to said instrument is the
corporate seal of said corporation; and that said instrument was signed and
sealed in behalf of said corporation by authority of its Board of Directors and
that she subscribed her name thereto by like authority; and said Walter M.
Braswell acknowledged said instrument to be the free act and deed of said
corporation.
My commission as Notary Public as aforesaid expires
/s/ Brenda H. Willis
-------------------------------
Brenda H. Willis
Notary Public of New Jersey
My Commission Expires June 22, 1999
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<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK)
On this 17th day of December, 1995, before me, the subscriber,
a Notary Public within and for the County of New York, in the State of New York,
personally appeared ROBERT F. McINTYRE, to me personally known, who, being by me
duly sworn, did say that he resides at 1108 Hudson Street, Hoboken, New Jersey
07080 and is an Assistant Vice President of The Bank of New York, one of the
corporations described in and which executed the foregoing instrument; that he
knows the corporate seal of the said corporation and that the seal affixed to
said instrument is the corporate seal of said corporation; and that said
instrument was signed and sealed in behalf of said corporation by authority of
its Board of Directors and that he subscribed his name thereto by like
authority; and said ROBERT F. McINTYRE acknowledged said instrument to be the
free act and deed of said corporation.
My commission as Notary Public as aforesaid expires
/s/ Karen Katlan
-------------------------------
Karen Katlan
Notary Public, State of New York
No. 01KA4994374
Qualified in New York County
Commission Expires April 6, 1996
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Exhibit 11
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
1995 1994 1993
_________ _________ _________
PRIMARY
_______
EARNINGS
Income Before Preferred Stock
Dividends of Subsidiary $16,108,533 $12,941,790 $14,879,828
Deduct: Preferred Stock Dividends 813,000 854,047 1,050,000
___________ ___________ ___________
Net Income Available for
Common Stock $15,295,533 12,087,743 13,829,828
___________ ___________ ___________
___________ ___________ ___________
SHARES
Weighted Average Number of
Common Shares Outstanding 7,093,027 6,207,564 5,330,641
Assuming Exercise of Options
Reduced by the Number of Shares
Which Could Have Been Purchased
With the Proceeds From Exercise
of Such Options 2,156 2,845 7,298
___________ ___________ ___________
Weighted Average Number of Common
Shares Outstanding as Adjusted 7,095,183 6,210,409 5,337,939
___________ ___________ ___________
___________ ___________ ___________
Primary Earnings
Per Share of Common Stock $ 2.16 $ 1.95 $ 2.59
___________ ___________ ___________
___________ ___________ ___________
ASSUMING FULL DILUTION
______________________
EARNINGS
Income Before Preferred Stock
Dividends of Subsidiary $16,108,533 $12,941,790 $14,879,828
Deduct: Preferred Stock Dividends 813,000 854,047 1,050,000
Add: After Tax Interest Expense
Applicable to 6 3/4% Convertible
Subordinated Debentures 524,066 542,195 550,843
___________ __________ ___________
Adjusted Net Income $15,819,599 12,629,938 14,380,671
___________ __________ ___________
___________ __________ ___________
SHARES
Weighted Average Number of
Common Shares Outstanding 7,093,027 6,207,564 5,330,641
Assuming Exercise of Options
Reduced by the Number of Shares
Which Could Have Been Purchased
With the Proceeds From Exercise
of Such Options 2,156 2,845 7,298
Assuming Conversion of 6 3/4%
Convertible Subordinated
Debentures (a) 298,613 308,943 313,869
___________ __________ ___________
Weighted Average Number of Common
Shares Outstanding as Adjusted 7,393,796 6,519,352 5,651,808
___________ __________ ___________
___________ __________ ___________
Fully Diluted Earnings
Per Share of Common Stock $ 2.14 $ 1.94 $ 2.54
___________ __________ ___________
___________ __________ ___________
(a) Convertible at $40 per share.
Exhibit 12(a)
Elizabethtown Water Company & Subsidiary
Computation of Ratio of Earnings to Fixed Charges
1995 1994 1993 1992 1991
________ ________ ________ ________ ________
EARNINGS:
Income before
preferred stock
dividends $17,325,144 $14,223,142 $14,832,519 $12,149,343 $11,361,063
Federal income taxes 9,161,510 7,413,995 7,916,794 6,021,464 5,630,265
Interest charges 11,114,496 10,402,060 11,437,710 10,623,801 11,016,414
___________ ___________ ___________ ___________ ___________
Earnings available
to cover fixed
charges $37,601,150 $32,039,197 $34,187,023 $28,794,608 $28,007,742
___________ ___________ ___________ ___________ ___________
___________ ___________ ___________ ___________ ___________
FIXED CHARGES:
Interest on long
term debt 10,892,129 10,774,008 11,527,301 10,516,521 10,585,336
Other interest 2,343,903 175,507 77,921 514,122 535,834
Amortization of debt
discount - net 323,557 319,646 224,383 209,631 287,180
___________ ___________ ___________ ___________ ___________
Total fixed charges $13,559,589 $11,269,161 $11,829,605 $11,240,274 $11,408,350
___________ ___________ ___________ ___________ ___________
___________ ___________ ___________ ___________ ___________
Ratio of Earnings to
Fixed Charges 2.77 2.84 2.89 2.56 2.46
___________ ___________ ___________ ___________ ___________
___________ ___________ ___________ ___________ ___________
Earnings to Fixed Charges represents the sum of Income Before Preferred Stock
Dividends, Federal income taxes and Interest Charges (which is reduced by
Capitalized interest), divided by Fixed Charges. Fixed Charges consist of
interest on long and short-term debt (which is not reduced by Capitalized
interest), and Amortization of debt discount.
Exhibit 12(b)
Elizabethtown Water Company & Subsidiary
Computation of Ratio of Earnings to Fixed Charges
and Preferred Dividends
1995 1994 1993 1992 1991
________ ________ ________ ________ ________
EARNINGS:
Income before
preferred stock
dividends $17,325,144 $14,223,142 $14,832,519 $12,149,343 $11,361,063
Federal income taxes 9,161,510 7,413,995 7,916,794 6,021,464 5,630,265
Interest charges 11,114,496 10,402,060 11,437,710 10,623,801 11,016,414
___________ ___________ ___________ ___________ ___________
Earnings available
to cover fixed
charges $37,601,150 $32,039,197 $34,187,023 $28,794,608 $28,007,742
___________ ___________ ___________ ___________ ___________
___________ ___________ ___________ ___________ ___________
FIXED CHARGES AND
PREFERRED DIVIDENDS:
Interest on long
term debt 10,892,129 10,774,008 11,527,301 10,516,521 10,585,336
Preferred dividend
requirement (1) 1,242,929 1,299,326 1,610,429 1,570,446 1,570,446
Other interest 2,343,903 175,507 77,921 514,122 535,834
Amortization of debt
discount - net 323,557 319,646 224,383 209,631 287,180
___________ ___________ ___________ ___________ ___________
Total fixed charges $14,802,518 $12,568,487 $13,440,034 $12,810,720 $12,978,796
___________ ___________ ___________ ___________ ___________
___________ ___________ ___________ ___________ ___________
Ratio of Earnings to
Fixed Charges and
Preferred Dividends 2.54 2.55 2.54 2.25 2.16
___________ ___________ ___________ ___________ ___________
___________ ___________ ___________ ___________ ___________
(1) Preferred Dividend
Requirement:
Preferred dividends $813,000 $854,047 $1,050,000 $1,050,000 $1,050,000
Effective tax rate 34.59% 34.27% 34.80% 33.14% 33.14%
___________ ___________ ___________ ___________ ___________
Preferred dividend
requirement $1,242,929 $1,299,326 $1,610,429 $1,570,446 $1,570,446
___________ ___________ ___________ ___________ ___________
___________ ___________ ___________ ___________ ___________
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 Capitalized interest), divided by Fixed Charges.
Fixed Charges and Preferred Dividends consist of interest on long and short-term
debt (which is not reduced by capitalized interest), dividends on Preferred
Stock on a pre-tax basis and Amortization of debt discount.
Portion of the 1995 Annual Report to Shareholders for the
year ended December 31, 1995 which is incorporated by
reference in this filing on Form 10-K.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
E'town Corporation (E'town or Corporation), a New
Jersey holding company, is the parent company of
Elizabethtown Water Company (Elizabethtown or Company) and
E'town Properties, Inc. (Properties). The Mount Holly Water
Company (Mount Holly) is a wholly owned subsidiary of
Elizabethtown. Mount Holly contributed 3% of the Company's
consolidated operating revenues for 1995. The assets and
operating results of Elizabethtown constitute the
predominant portions of E'town's assets and operating
results. The following analysis sets forth significant
events affecting the financial condition of E'town and
Elizabethtown at December 31, 1995, and the results of
operations for the years ended December 31, 1995, 1994 and
1993.
LIQUIDITY AND CAPITAL RESOURCES
Capital Expenditures Program
Consolidated capital expenditures, primarily for water
utility plant, were $73.9 million during 1995. Capital
expenditures for the three-year period ending December 31,
1998, are estimated to be $149.8 million, of which
$148.9 million is for utility plant ($128.4 million for
Elizabethtown and $20.5 million for Mount Holly) and
$.9 million is for non-utility expenditures. A major
portion of the utilities' capital outlays will occur in the
first nine months of the three-year period as Elizabethtown
completes its new water treatment plant. After this project
is completed in late 1996, the capital outlays for
Elizabethtown are expected to return to levels experienced
in the early 1990s. Mount Holly expects to incur
significant capital expenditures in 1997 as it constructs
new water supply, treatment and transmission facilities as
discussed below.
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 (mgd) and
has been designed to permit expansion to 200 mgd, 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 mgd is not expected to occur
in the foreseeable future. Elizabethtown's construction
program also includes additional mains and storage
facilities necessary to serve existing and future customers.
In April 1994, Elizabethtown executed a lump-sum
contract for the construction of the Plant. The estimated
cost of the Plant is approximately $100 million, excluding
an Allowance for Funds Used During Construction (AFUDC).
The Company has expended $83.0 million, excluding AFUDC of
$7.2 million on the Plant, as of December 31, 1995. The
project is proceeding on schedule, the construction contract
remains on budget and the project is expected to be
completed during the third quarter of 1996.
In August 1993, the New Jersey Board of Public Utilities
(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 the Plant is necessary and
the Company's estimate regarding the Plant's cost, at that
time $87 million and construction period are reasonable. In
April 1994, Elizabethtow-n 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
12-month historical period drops below 2.0 times. The
pre-tax interest coverage has remained above the 2.0 times
trigger level and therefore, the surcharge has not been
required. The 1993 Plant Stipulation also provides that the
rate of return on common shareholder'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 shareholder's equity established in Elizabethtown's
most recent base rate case. The authorized rate of return
on Elizabethtown's common shareholder's equity is currently
11.5%. Elizabethtown has filed for a rate increase to
reflect the financing and operating costs of the Plant which
is expected to take effect when the Plant, is completed
later this year (see Economic Outlook).
Mount Holly
To ensure an adequate supply of quality water from an
aquifer serving parts of southern New Jersey, state
legislation requires Mount Holly, as well as other suppliers
obtaining water from designated portions of this aquifer, to
reduce pumpage from its wells. Mount Holly has received
approval from the New Jersey Department of Environmental
Protection (NJDEP) for its plan to develop a new water
supply, treatment and transmission system necessary to
obtain water outside the designated portion of the aquifer
and to treat the water and pump it into the Mount Holly
system. This is referred to as the Mansfield Project. The
project is currently estimated to cost $16.5 million,
excluding AFUDC, and is expected to be completed in 1997.
The land for the supply and treatment facilities has been
purchased and wells have been drilled and can produce the
required supply. Mount Holly has filed for rate relief
relating to the Mansfield Project (see Economic Outlook.)
On October 5, 1995, the NJDEP granted Mount Holly a
water allocation diversion permit for four wells that are to
be the water supply for the Mansfield Project. On October
20, 1995, New Jersey-American Water Company requested, and
was subsequently granted, an adjudicatory hearing on the
permit. The Company and Mount Holly believe that the permit
in question will be upheld but cannot predict the outcome of
the objection. In the event that the objection is
successful and the permit is rescinded, Mount Holly would
utilize the alternative plan of purchasing water from New
Jersey-American Water Company.
CAPITAL RESOURCES
During 1995, Elizabethtown, including Mount Holly,
financed 8.4% of its capital expenditures from internally
generated funds (after payment of common stock dividends).
The balance was financed with a combination of proceeds from
capital contributions from E'town (funded by sale of its
Common Stock), tax exempt bonds issued through the New
Jersey Economic Development Authority (NJEDA) and short-term
borrowings under a revolving credit agreement discussed
below.
For the three-year period ending December 31, 1998,
Elizabethtown, including Mount Holly, estimates 34.4% of its
capital expenditures will be financed with internally
generated funds (after payment of common stock dividends).
The balance will be financed with a combination of proceeds
from the sale of E'town common stock, long-term debentures,
proceeds of tax-exempt NJEDA bonds and short-term borrowings
under the revolving credit agreement. -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. The Company's senior debt is
rated A3 and A by Moody's and Standard & Poor's,
respectively.
In June 1995, E'town issued 660,000 shares of common
stock for net proceeds of $16.9 million which were used to
fund an equity contribution to Elizabethtown of $16.9
million. The equity contribution has been used to repay
short-term debt that 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 Plant. During 1995, 248,846 shares
of common stock were issued for proceeds of $6.4 million
under E'town's Dividend Reinvestment and Stock Purchase Plan
(DRP). The proceeds are used on an ongoing basis to make
capital contributions to Elizabethtown to partially fund its
capital program.
In December 1995, Elizabethtown issued $40.0 million of
5.60% tax-exempt Debentures through the NJEDA. The proceeds
of the issue were used to repay amounts outstanding under
Elizabethtown's revolving credit agreement.
During 1995, Elizabethtown obtained a portion of funds
required for its capital program through borrowings under
its revolving credit agreement (Agreement) with an agent
bank and five additional banks. The Agreement provides up
to $60.0 million in revolving short-term financing, which
together with internal funds, other short-term financing,
proceeds of future issuances of debt and preferred stock and
capital contributions from E'town, is expected to be
sufficient to finance Elizabethtown's and Mount Holly's
capital needs through 1998. The Agreement allows
Elizabethtown to borrow, repay and reborrow up to $60.0
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 percentage of common and preferred equity to
total capitalization of not less than 35% and a pre-tax
interest coverage ratio of at least 1.5 to 1. As of
December 31, 1995, the percentage o-f Elizabethtown's common
and preferred equi-ty to total capitalization, calculated in
accordance with the Agreement, was 47%. For the 12 months
ended December 31, 1995, Elizabethtown's pre-tax interest
coverage ratio, calculated in accordance with the Agreement,
was 3.12 to 1. At December 31, 1995, Elizabethtown had
borrowings outstanding of $27.0 million under the Agreement
at interest rates from 5.75% to 6.00%, at a weighted average
rate of 5.94%.
1994 and 1993
In May 1994, E'town issued 690,000 shares of common
stock for net proceeds of $18.2 million. The net proceeds
were used to fund an equity contribution to Elizabethtown of
$16.0 million. This contribution had been used to partially
fund Elizabethtown's construction program, the predominant
portion of which related to the Plant. The balance of the
proceeds had been used to fund working capital requirements
of the Corporation. During 1994, 273,159 shares of common
stock were issued for proceeds of $7.1 million under
E'town's DRP. The proceeds were used to make capital
contributions to Elizabethtown to partially fund its capital
program.
In March 1994, Elizabethtown issued 120,000 shares of
$100 par value, $5.90 Cumulative Preferred Stock for
proceeds of $12.0 million at an effective rate of 7.37%.
The proceeds were used to redeem $12.0 million of the
Company's $8.75 Cumulative Preferred Stock. The redemption
premium of $1.0 million was paid from general Company funds.
In May 1993, E'town issued 575,000 shares of common
stock for net proceeds of $16.6 million. The net proceeds
were used to fund equity contributions to Elizabethtown of
$11.0 million in May 1993 and $2.8 million in September
1993. Elizabethtown used a portion of such contributions to
repay $7.0 million of short-term bank debt incurred for
construction expenditures and invested the balance on a
short-term basis to fund working capital requirements.
During 1993, 200,878 shares of common stock were issued
for proceeds of $6.0 million under E'town's DRP. Such
proceeds were used to fund equity contributions to
Elizabethtown, primarily for Elizabethtown's capital
expenditures.
In August 1993, E'town, Properties and Elizabethtown
sold three parcels of land totalling 260 acres to the
Somerset County Park Commission for $3.4 million. Of the
total proceeds received by E'town, $2.2 million was used to
fund an equity contribution to Elizabethtown and the
remainder was used to fund working capital requirements of
the Corporation.
In November 1993, Elizabethtown issued $50.0 million of
7 1/4% Debentures due November 1, 2028. The proceeds of the
issue were used to redeem $30.0 million of the Company's 8
5/8% Debentures due 2007 and $20.0 million of the Company's
10 1/8% Debentures due 2018. The aggregate redemption
premiums of $2.7 million were paid from general Company
funds.
RESULTS OF OPERATIONS
Net Income for 1995 was $15.3 million or $2.16 per share
on a primary basis as compared to $12.1 million or $1.95 per
share for 1994. The combined effect of a $5.3 million rate
increase in February 1995 (discussed below), increases in
AFUDC in 1995 and a non-recurring charge in 1994 all
contributed to the increase in net income between 1994 and
1995. Earnings Per Share of Common Stock in 1995 were
further affected by an increase in outstanding shares.
Net Income for 1994 was $12.1 million or $1.95 per share
on a primary basis, as compared to $13.8 million or $2.59
per share for 1993. A return to more normal summer weather
and water consumption patterns, the combined effect of
non-recurring charges in 1994, and increases in operating
and depreciation expenses since March 1993, when rates were
last increased, all contributed to the decrease in net
income between 1993 and 1994. Earnings Per Share of Common
Stock in 1994 were further affected by an increase in shares
outstanding.
Operating Revenues increased $6.4 million or 6.2% in
1995. Of this increase, $4.6 million relates to the rate
increase, discussed below, effective February 1995.
Increased consumption by retail customers and an increase in
the number of customers increased revenues by $1.4 million.
Revenues from industrial customers resulting from
consumption increased $.2 million while revenues from other
water systems resulting from consumption decreased $.2
million. Revenues from fire service customers increased $.4
million.
Operating Revenues increased $2.0 million or 2.0% in
1994. Of this increase, $1.2 million relates to a rate
increase discussed below, effective March 1993. Sales to
retail customers related to consumption decreased by $.9
million, primarily due to a return to more normal weather
patterns during the spring and summer months of 1994,
compared to 1993. However, despite the return to more
normal weather patterns, sales to other water systems and to
large industrial customers related to consumption increased
by $.6 million and $.7 million, respecti-vely. Due to normal
growth within the service territory, fire service revenues
increased by $.4 million.
Operation Expenses increased $2.8 million or 6.7% in
1995. The increase is due, primarily, to increased costs
for labor, benefits and the cost of purchased water
calculated in accordance with a Purchased Water Adjustment
Clause (PWAC) (see Note 10 to the Notes to Consolidated
Financial Statements.) Benefit costs increased due to
increases in the actuarially calculated pension expense and
the cost of postemployment benefits, a portions which is
being expensed in 1995 as it is recognized in rates pursuant
to the 1995 Stipulation effective February 1995 (see
Economic Outlook - Elizabethtown and Subsidiary.)
Operation Expenses increased $2.1 million or 5.3% in
1994. The increase is 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 (NJWSA), which is reflected in the PWAC, 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 $.8 million or 12.4% in
1995. The decrease is due, primarily, to the absence in
1995 of the unusually harsh winter weather that occurred in
1994. Also, the results of preventive maintenance programs
have contributed to an overall decrease in maintenance
expenses.
Maintenance Expenses increased $.9 million or 15.9% in
1994 due, primarily, to the effects of unusually harsh
winter weather in the first quarter of 1994, in addition to
an increased level of preventive maintenance at various
operating facilities throughout the Company.
Depreciation Expense increased $.9 million or 12.1% in
1995 and $.6 million or 7.9% in 1994 due, primarily, to
additional depreciable plant being placed in service during
those periods. Also, an increase in authorized depreciation
rates as a result of the 1995 Stipulation, effective
February 1995, accounted for $.4 million of the increase.
Revenue Taxes increased $.8 million or 6.6% in 1995 and
$.2 million or 2.0% in 1994, due to additional taxes on the
higher revenues discussed above.
Real Estate, Payroll and Other Taxes increased $.1
million or 2.4% and $.1 million or 3.0% in 1995 and 1994,
respectively, due to increased payroll taxes resulting from
labor cost increases.
Federal Income Taxes increased $.8 million or 12.4% in
1995 and decreased $.4 million or 5.6% in 1994 due to
changes in the components of taxable income discussed
herein. Contributing to the increase in 1995 and also
offsetting the decrease in 1994 is $.2 million and $.1
million, respectively, for the effect on federal income
taxes of the settlement with the Internal Revenue Service
from an audit of the Corporation's tax returns. In
addition, in 1995 the Corporation received tax refunds
related to the years 1984 and 1985 of $.1 million (see
Economic Outlook - E'town.)
Other Income increased $2.0 million in 1995 due,
primarily, to an increase in the equity component of AFUDC
of $1.8 million and a non-recurring litigation settlement of
$.9 million in 1994 as discussed below. These increases
were offset by the federal income taxes associated with the
various components.
Other Income decreased $1.2 million in 1994. Included
in this net decrease is a litigation settlement of $.9
million (see Note 13 to the Notes to Consolidated Financial
Statements.) Also included in the net decrease is a gain on
the sale of land in 1993 of $1.7 million. Other income
decreased by $.2 million due to the effect of
adjusting the carrying values of certain investments
downward to their estimated net realizable values (see
Economic Outlook-Properties.) This decrease included a
downward adjustment of $.1 million in the Corporation's
investment in Solar Electric Generating System V (SEGS). In
addition, increases in the equity component of AFUDC of $.7
million resulted from increased construction expenditures,
primarily related to the Plant. Other increases of $.2
million resulted from miscellaneous items. Federal income
taxes, as a result of all of the above, decreased $.8
million.
Total Interest Charges increased $.5 million or 4.6%
in 1995 due, primarily, to an increase in interest expense
of $2.1 million on increased borrowings under
Elizabethtown's revolving credit agreement to finance the
Company's ongoing capital program, the largest component of
which is the Plant. This amount was offset by an increase
in the debt component of AFUDC of $1.5 million, also
primarily related to the construction of the Plant. In
addition, in 1995 the Corporation received interest on tax
refunds related to 1984 and 1985 of $.1 million.
Total Interest Charges decreased $.7 million or 6.2% in
1994 due, primarily, to savings from refinancing of
long-term debt in 1993. Also, an increase in the debt
component of AFUDC of $.5 million resulted in a reduction of
interest expense. Offsetting the decrease in Total Interest
Charges in 1994 is $.3 million related to the tentative
settlement of the Internal Revenue Service audit referred to
above.
Preferred Stock Dividends decreased less than $.1
million 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 and
Mount Holly's ability to obtain adequate and timely rate
relief in connection with their additions to utility plant
and, to a lesser degree, the ability of Properties and
E'town to generate earnings from their unregulated
businesses.
Elizabethtown and Subsidiary
Over the last several years, governmental water quality
and service regulations have required Elizabethtown and
Mount Holly to make significant investments in water supply,
water treatment, transmission and storage facilities,
including the Plant and the Mansfield Project, to augment
existing facilities. This capital program is requiring
regular external financing and rate relief. Currently,
Elizabethtown and Mount Holly believe they are in compliance
with all water quality standards in all material respects.
In November 1995, Elizabethtown filed for a $31.6
million or 29.6% rate increase primarily to cover the
financing and operating costs of the Plant. While Mount
Holly received a $.6 million or 19.9% rate increase
effective January 1996, deliberations regarding the portion
of the rate case related to the Mansfield Project, in which
Mount Holly is requesting an additional 84.2% rate increase,
are ongoing and awaiting the award of the final water
diversion permit. Accordingly, the timing and amount of
rate increases obtained by Elizabethtown and Mount Holly, in
response to the pending rate requests, will be a major
factor affecting earnings in 1996 and beyond. Once the new
facilities, referred to above, are constructed and reflected
in rates, Elizabethtown expects its internally generated
cash flow to increase and capital outlays to return to
levels experienced in the early 1990's. As a result, the
need for external financing and rate relief should become
less frequent. Therefore, more so than in recent years,
management's ongoing efforts to grow unit sales and control
operating cost will benefit the customer by reducing the
frequency of rate increases and will benefit shareholders by
positively affecting earnings.
On November 20, 1995, Elizabethtown filed a petition
with the BPU for an increase in rates of $31.6 million, or
29.6%. The largest portion of the request, $22.9 million,
is needed to cover the costs to finance and operate the
Plant. The remainder of the rate increase, $8.7 million, is
needed to cover the cost to finance additional construction
projects and to cover increases in operating expenses since
rates were last established in February 1995. A decision by
the BPU is expected in the summer of 1996. 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, but cannot predict the ultimate outcome of any
rate proceeding.
In January 1995, the BPU approved a stipulation (1995
Stipulation) for Elizabethtown for a rate increase of $5.3
million 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 1994 current service cost portion of the obligation
accrued under Statement of Financial Accounting Standards
No. 106, "Employer's Accounting for Postretirement Benefits
Other Than Pensions," provided this amount is funded by the
Company. Elizabethtown funded $.3 million in 1995, which
represents the 1994 current service cost allowed in the 1995
Stipulation. The rate increase is covering the cost to
finance $62.0 million of construction projects since rates
were last established in March 1993. These projects include
treatment, transmission and storage facilities needed to
ensure that Elizabethtown continues to meet federal and
state regulations on water quality and service. The
increase is also offsetting increased costs for power, labor
and benefits, primarily medical. The 1995 Stipulation also
provides for an increase in depreciation rates resulting in
an increase in annual depreciation expense of approximately
$.5 million. The 1995 Stipulation also required
Elizabethtown to maintain a monthly average percentage of
common equity to total capitalization of at least 45.1% for
the 12 months ended January 31, 1996. The Company has met
this requirement.
On June 26, 1995, Mount Holly petitioned the BPU for an
increase in rates, to take place in two phases. In the
first phase rates would be increased by $.9 million and in
the second phase by $2.8 million. The first phase is
necessary to recover costs that were not reflected in rates
last increased in October 1986. The second phase would
recover the cost of the Mansfield Project as discussed
above. The project is currently estimated to cost $16.5
million. Construction is expected to begin upon final
issuance of the water allocation diversion permit from the
NJDEP, and the project is expected to be completed in 1997.
On January 24, 1996, the BPU approved a stipulation
(Mount Holly Stipulation) for an increase in rates of
$.6 million effective as of that date. The Mount Holly
Stipulation has, effectively, concluded the first phase of
the rate proceeding. Mount Holly is continuing with the
adjudicatory process with respect to the second phase of the
petition. While management believes that the water supply,
treatment and transmission project planned for Mount Holly
is the most cost-effective response to the state legislation
affecting the area, management cannot predict the ultimate
outcome of the rate proceeding at this time.
E'town
In 1995, the Corporation entered into a three-year joint
venture agreement with Applied Wastewater General
Partnership (AWG) to form a New Jersey limited liability
company, Applied Watershed Management, L.L.C. (AWM). 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, operat-e and/or
sell water and wastewater facilities for municipal and
corporate clients, primarily in New Jersey. E'town has
agreed to provide capital contributions to AWM of up to $.5
million to finance AWM's working capital needs. E'town may
provide additional financing for particular projects of AWM.
AWG 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.
Included in Non-utility Property and Other Investments
at December 31, 1995 is an investment of $1.4 million ($.3
million net of related deferred taxes), in a limited
partnership that owns SEGS, located in California.
The Internal Revenue Service (Service) has 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. In February 1995, the
Corporation reached a tentative agreement to settle this
matter with the Service. This settlement resulted in a
charge to net income for the year ended December 31, 1994 of
approximately $.3 million or $.05 per common share. An
additional charge of $.2 million or $.02 per common share
has been recognized in 1995 for the final assessment. In
addition, in 1995 the Corporation received tax refunds and
interest related to 1984 and 1985 that contributed to an
increase in net income of approximately $.2 million or $.03
per common share.
Properties
Also included in Non-utility Property and Other
Investments in the Consolidated Balance Sheets of E'town at
December 31, 1995 is $12.1 million of investments in various
parcels of undeveloped land in New Jersey. The carrying
value of each parcel includes the original cost plus any
real estate taxes, interest and, where applicable, direct
costs capitalized while rezoning or governmental approvals
are or were being sought. Based upon independent appraisals
received at various times prior to and during- 1995, the
estimated net realizable value of each property exceeds its
respective carrying value as of December 31, 1995.
Properties continues to seek permits for its Mansfield
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. 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 prior
appraisals, the estimated net realizable value of the
property had remained constant. Charges of $.4 million, $.4
million and $.2 million for 1995, 1994 and 1993,
respectively, to adjust the ca-rrying value of the Mansfield
property, have been reflected in the Statements of
Consolidated Income and Consolidated Balance Sheets.
Properties expects to continue capitalizing carrying charges
on the Mansfield property until it is ready for its intended
use. In October 1995, Properties obtained more favorable
zoning treatment for the Mansfield property. As a result of
the rezoning, a recent appraisal has revealed that the
market value of the property has increased to the extent
that, barring any significant changes in the circumstances
surrounding this property, no further adjustments to the
carrying value are presently expected.
The Corporation will continue to monitor the
relationship between the carrying and net realizable values
of its properties through updated appraisals and of its
investment in SEGS based upon information provided by SEGS
management and through cash flow analyses.
Properties has entered into an agreement to sell a
parcel of land to a developer. The agreement requires the
buyer to obtain 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.
New Accounting Pronouncements
See Note 2 of the Notes to Consolidated Financial
Statements for a discussion of two new accounting standards
that will become effective in 1996.
E'town Corporation and Subsidiaries
Statements of Consolidated Income
Year Ended December 31,
________________________________________
1995 1994 1993
____________ _____________ ____________
Operating Revenues $108,398,105 $102,032,505 $ 99,996,120
____________ ____________ ____________
Operating Expenses:
Operation 44,148,007 41,373,842 39,280,920
Maintenance 5,805,511 6,623,772 5,716,157
Depreciation 8,808,169 7,860,180 7,285,309
Revenue taxes 13,591,212 12,748,161 12,501,804
Real estate, payroll and other taxes 2,853,169 2,786,746 2,706,447
Federal income taxes (Note 3) 7,611,389 6,768,887 7,170,406
____________ ____________ ____________
Total operating expenses 82,817,457 78,161,588 74,661,043
____________ ____________ ____________
Operating Income 25,580,648 23,870,917 25,335,077
____________ ____________ ____________
Other Income:
Litigation settlement (Note 13) (932,203)
Gain on sale of land 1,685,521
Allowance for equity funds used
during construction (Note 2) 2,976,290 1,178,133 445,339
Write-down of non-utility property
and other investments (Note 7) (350,319) (481,754) (269,315)
Federal income taxes (Note 3) (1,141,771) (138,970) (790,320)
Other--net 741,397 632,878 396,515
____________ ____________ ____________
Total other income 2,225,597 258,084 1,467,740
____________ ____________ ____________
Total Operating and Other Income 27,806,245 24,129,001 26,802,817
____________ ____________ ____________
Interest Charges:
Interest on long-term debt 11,696,183 11,610,777 12,374,224
Other interest expense--net 2,389,684 470,038 95,848
Capitalized interest (Note 2) (2,746,128) (1,247,666) (805,882)
Amortization of debt discount--net 357,973 354,062 258,799
____________ ____________ ____________
Total interest charges 11,697,712 11,187,211 11,922,989
____________ ____________ ____________
Income Before Preferred Stock
Dividends of Subsidiary 16,108,533 12,941,790 14,879,828
Preferred Stock Dividends 813,000 854,047 1,050,000
____________ ____________ ____________
Net Income $ 15,295,533 $ 12,087,743 $ 13,829,828
____________ ____________ ____________
____________ ____________ ____________
Earnings Per Share of Common
Stock (Note 2):
Primary $ 2.16 $ 1.95 $ 2.59
____________ ____________ ____________
____________ ____________ ____________
Fully Diluted $ 2.14 $ 1.94 $ 2.54
____________ ____________ ____________
____________ ____________ ____________
Average Number of Shares Outstanding
for the Calculation of Earnings
Per Share:
Primary 7,095,183 6,210,409 5,337,939
____________ ____________ ____________
____________ ____________ ____________
Fully Diluted 7,393,796 6,519,352 5,651,808
____________ ____________ ____________
____________ ____________ ____________
Dividends Paid Per Common Share $ 2.04 $ 2.04 $ 2.01
____________ ____________ ____________
____________ ____________ ____________
See Notes to Consolidated Financial Statements.
E'town Corporation and Subsidiaries
Consolidated Balance Sheets
December 31,
___________________________
Assets 1995 1994
____________ ____________
Utility Plant--At Original Cost:
Utility plant in service $502,572,255 $469,172,575
Construction work in progress 100,212,636 55,739,951
____________ ____________
Total utility plant 602,784,891 524,912,526
Less accumulated depreciation and amortization 94,926,413 87,456,550
____________ ____________
Utility plant--net 507,858,478 437,455,976
____________ ____________
Non-utility Property and Other Investments (Note 7) 13,601,191 13,468,879
____________ ____________
Current Assets:
Cash and cash equivalents 4,925,400 4,254,708
Short-term investments 30,622 30,622
Customer and other accounts receivable
(less reserve: 1995, $532,000; 1994, $463,000) 15,984,043 12,346,871
Unbilled revenues 7,443,656 7,161,483
Materials and supplies--at average cost 1,912,015 1,724,969
Prepaid insurance, taxes, other 1,874,338 1,410,401
Prepaid federal income taxes 711,860
____________ ____________
Total current assets 32,170,074 27,640,914
____________ ____________
Deferred Charges (Note 9):
Prepaid pension expense (Note 12) 512,691 871,181
Waste residual management 970,182 325,785
Unamortized debt and preferred stock expenses 9,938,130 9,490,208
Taxes recoverable through future rates (Note 3) 26,427,627 26,339,057
Postretirement benefit expense (Note 12) 2,900,569 2,077,051
Purchased water under recovery-net 37,316 314,128
Other unamortized expenses 739,857 997,286
____________ ____________
Total deferred charges 41,526,372 40,414,696
____________ ____________
Total $595,156,115 $518,980,465
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
December 31,
____________________________
Capitalization and Liabilities 1995 1994
____________ ____________
Capitalization (Notes 4 and 5):
Common shareholders' equity $177,080,580 $152,970,602
Cumulative preferred stock 12,000,000 12,000,000
Long-term debt--net 193,673,528 154,073,430
____________ ____________
Total capitalization 382,754,108 319,044,032
____________ ____________
Current Liabilities:
Notes payable--banks (Note 6) 27,000,000 23,000,000
Long-term debt--current portion (Note 4) 30,000 42,000
Accounts payable and other liabilities 16,826,104 18,249,580
Customers' deposits 305,349 278,895
Municipal and state taxes accrued 13,661,620 12,831,524
Federal income taxes accrued (Note 3) 150,735
Interest accrued 3,268,134 3,173,468
Preferred stock dividends accrued 59,000 59,000
____________ ____________
Total current liabilities 61,300,942 57,634,467
____________ ____________
Deferred Credits:
Customer advances for construction 45,460,749 45,554,476
Federal income taxes (Note 3) 66,825,738 62,115,801
State income taxes (Note 3) 173,365 162,008
Unamortized investment tax credits 8,448,811 8,650,537
Accumulated postretirement benefits (Note 12) 2,939,217 2,100,628
____________ ____________
Total deferred credits 123,847,880 118,583,450
____________ ____________
Contributions in Aid of Construction 27,253,185 23,718,516
____________ ____________
Commitments and Contingent Liabilities (Note 11)
____________ ____________
Total $595,156,115 $518,980,465
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
E'town Corporation and Subsidiaries
Statements of Consolidated Capitalization
December 31,
____________________________
1995 1994
____________ ____________
E'town Corporation:
Common Shareholders' Equity (Notes 4 and 5):
Common stock without par value, authorized,
15,000,000 shares; issued 1995, 7,549,078
shares; 1994, 6,624,663 shares $138,667,930 $114,136,195
Paid-in capital 1,315,025 1,315,025
Capital stock expense (5,159,834) (4,286,194)
Retained earnings 42,994,743 42,439,552
Less cost of treasury stock; 1995, 25,876
shares; 1994, 22,032 shares (737,284) (633,976)
____________ ____________
Total common shareholders' equity 177,080,580 152,970,602
____________ ____________
Elizabethtown Water Company:
Cumulative Preferred Stock (Note 4):
$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 (Note 4):
E'town Corporation:
6 3/4% Convertible Subordinated Debentures,
due 2012 11,751,000 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
5.60% Debentures, due 2025 40,000,000
The Mount Holly Water Company:
Notes Payable (due serially through 2000) 117,500 144,300
____________ ____________
Total long-term debt 194,868,500 155,309,300
Unamortized discount--net (1,194,972) (1,235,870)
____________ ____________
Total long-term debt--net 193,673,528 154,073,430
____________ ____________
Total capitalization $382,754,108 $319,044,032
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
E'town Corporation and Subsidiaries
Statements of Consolidated Shareholders' Equity
Year Ended December 31,
_______________________________________
1995 1994 1993
____________ ___________ ___________
Common Stock:
Balance at Beginning of Year $114,136,195 $ 87,842,657 $ 64,261,763
Public sale of common stock (1995,
660,000 shares; 1994, 690,000
shares; 1993, 575,000 shares) 17,737,500 19,147,500 17,465,625
Common stock issued under Dividend
Reinvestment and Stock Purchase
Plan (1995, 248,846 shares; 1994,
273,159 shares; 1993, 200,878 shares) 6,388,716 7,146,038 6,009,298
Exercise of stock options (1995,
15,569 shares; 1993, 4,050 shares) 405,519 105,971
____________ ____________ ____________
Balance at End of Year 138,667,930 114,136,195 87,842,657
____________ ____________ ____________
Paid-in Capital: 1,315,025 1,315,025 1,315,025
____________ ____________ ____________
Capital Stock Expense:
Balance at Beginning of Year (4,286,194) (3,357,165) (2,479,987)
Expenses incurred for the issuance
and sale of common stock (873,640) (929,029) (877,178)
____________ ____________ ____________
Balance at End of Year (5,159,834) (4,286,194) (3,357,165)
____________ ____________ ____________
Retained Earnings:
Balance at Beginning of Year 42,439,552 43,207,666 40,228,199
Net income 15,295,533 12,087,743 13,829,828
Dividends on Common Stock (1995 and
1994, $2.04, 1993, $2.01) (14,740,342) (12,855,857) (10,850,361)
____________ ____________ ____________
Balance at End of Year 42,994,743 42,439,552 43,207,666
____________ ____________ ____________
Treasury Stock:
Balance at Beginning of Year (633,976) (633,976) (575,107)
Cost of shares redeemed to exercise
stock options (1995, 3,844 shares;
1993, 1,676 shares) (103,308) (58,869)
____________ ____________ ____________
Balance at End of Year (737,284) (633,976) (633,976)
____________ ____________ ____________
Total Common Shareholders' Equity $177,080,580 $152,970,602 $128,374,207
____________ ____________ ____________
____________ ____________ ____________
See Notes to Consolidated Financial Statements.
<TABLE>
E'town Corporation and Subsidiaries
Statements of Consolidated Cash Flows
Year Ended December 31,
-------------------------------------
<CAPTION>
1995 1994 1993
___________ ___________ ___________
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 15,295,533 $ 12,087,743 $ 13,829,828
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 8,808,169 7,860,180 7,285,309
Write-down of non-utility property
and other investments 350,319 481,754 269,315
Gain on sale of land (1,685,521)
Decrease (increase) in deferred charges 248,334 (159,348) 271,191
Deferred income taxes and investment
tax credits--net 4,430,998 3,865,417 3,274,054
Capitalized interest and AFUDC (5,722,418) (2,425,799) (1,251,221)
Other operating activities--net 16,327 19,833 (390,231)
Change in current assets and current
liabilities excluding cash, short-term
investments and current portion of debt:
Customer and other accounts receivable (3,637,172) (315,457) (998,517)
Unbilled revenues (282,173) 86,839 (688,601)
Accounts payable and other liabilities (1,397,022) 8,576,745 662,837
Accrued/prepaid interest and taxes 1,323,420 (1,082,193) 1,283,955
Other (187,046) (101,267) (6,870)
____________ ____________ ____________
Net cash provided by operating activities 19,247,269 28,894,447 21,855,528
____________ ____________ ____________
Cash Flows Provided by Financing Activities:
Decrease in funds held by Trustee for
construction expenditures 382,306 8,519,877
Proceeds from issuance of debentures 40,000,000 50,000,000
Proceeds from issuance of common stock 23,554,787 25,364,509 22,644,847
Proceeds from issuance of preferred stock 12,000,000
Redemption of preferred stock (12,000,000)
Debt and preferred stock issuance costs (447,922) (842,178) (3,105,156)
Repayment of long-term debt (452,800) (374,000) (50,245,000)
Contributions and advances for construction--net 3,440,942 3,453,604 1,909,905
Net increase (decrease) in notes payable--banks 4,000,000 23,000,000 (6,500,000)
Dividends paid on common stock (14,740,342) (12,855,857) (10,850,361)
____________ ____________ ____________
Net cash provided by financing activities 55,354,665 38,128,384 12,374,112
____________ ____________ ____________
Cash Flows Used for Investing Activities:
Utility plant expenditures (excluding AFUDC) (73,789,288) (69,980,619) (32,516,755)
Development costs of land (excluding
capitalized interest) (141,954) (163,976) (194,842)
Proceeds from sale of land 3,450,000
____________ ____________ ____________
Cash used for investing activities (73,931,242) (70,144,595) (29,261,597)
____________ ____________ ____________
Net Increase (Decrease) in Cash and Cash Equivalents 670,692 (3,121,764) 4,968,043
Cash and Cash Equivalents at Beginning of Year 4,254,708 7,376,472 2,408,429
____________ ____________ ____________
Cash and Cash Equivalents at End of Year $ 4,925,400 $ 4,254,708 $ 7,376,472
____________ ____________ ____________
____________ ____________ ____________
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 8,350,882 $ 10,416,716 $ 12,296,508
Income taxes 4,746,176 6,771,254 5,881,008
Preferred stock dividends of subsidiary $ 708,000 $ 805,475 $ 1,050,000
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
E'TOWN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
E'town Corporation (E'town or Corporation), a New Jersey holding
company, is the parent company of Elizabethtown Water Company
(Elizabethtown or Company) and E'town Properties, Inc. (Properties).
The Mount Holly Water Company (Mount Holly) is a wholly owned
subsidiary of Elizabethtown.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include E'town and its
subsidiaries. Significant intercompany accounts and transactions have
been eliminated. Elizabethtown and Mount Holly are regulated water
utilities and follow the Uniform System of Accounts, as adopted by the
New Jersey Board of Public Utilities (BPU).
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period.
Utility Plant and Depreciation
Income is charged with the cost of labor, materials and other expenses
incurred in making repairs and minor replacements and in maintaining
the properties. Utility plant accounts are charged with the cost of
improvements and major replacements of property. When depreciable
property is retired or otherwise disposed of, the cost thereof, plus
the cost of removal net of salvage, is charged to accumulated
depreciation. Depreciation generally is computed on a straight-line
basis at functional rates for various classes of assets. The
provision for depreciation, as a percentage of average depreciable
property, was 1.83% for 1995, 1.75% for 1994 and 1.74% for 1993. The
1995 rate case (see Note 10) allowed an increase in depreciation rates
effective February 1, 1995.
Allowance for Funds Used During Construction
Elizabethtown capitalizes, as an appropriate cost of utility plant, an
Allowance for Funds Used During Construction (AFUDC), which represents
the cost of financing major projects during construction. AFUDC, a
non-cash credit on the Statements of Consolidated Income, is added to
the construction cost of the project and included in rate base and
then recovered in rates during the project's useful life. AFUDC is
comprised of a debt component (credited to Interest Charges), and an
equity component (credited to Other Income) in the Statements of
Consolidated Income. AFUDC totaled $5,421,383, $2,045,234 and
$837,234 for 1995, 1994 and 1993, respectively (see Note 10).
Non-utility Property
Properties capitalizes direct costs, real estate taxes and interest
costs associated with real estate parcels that are being developed.
These costs are expensed on parcels ready for their intended use. The
amount of interest capitalized for 1995, 1994 and 1993 totaled
$301,035, $380,566 and $413,987, respectively (see Note 7).
Revenues
Revenues are recorded based on the amounts of water delivered to
customers through the end of each accounting period. This includes an
accrual for unbilled revenues for water delivered from the time meters
were last read to the end of the respective accounting periods.
Federal Income Taxes
E'town files a consolidated federal tax return. Deferred income taxes
are provided for temporary differences between the bases of assets and
liabilities for tax and financial statement purposes for E'town and
Properties. Deferred income taxes are also provided for each
regulated water utility to the extent permitted by the BPU.
The regulated water utilities account for prior years' investment tax
credits by the deferral method, which amortizes the credits over the
lives of the respective assets. The non-regulated companies utilize
the flow-through method to account for investment tax credits. This
method treats the credits as a reduction of federal income taxes in
the year the credits arise.
Customer Advances for Construction and Contributions in Aid of
Construction
Customer Advances for Construction and Contributions in Aid of
Construction represent capital provided by developers for main
extensions to new real estate developments. Some portion of Customer
Advances for Construction is refunded based upon the revenues that the
new developments generate. Contributions in Aid of Construction are
Customer Advances for Construction that, under the terms of individual
main extension agreements, are no longer subject to refund.
Short-term Investments
Short-term investments are stated at cost, which approximates market
value.
Earnings Per Share of Common Stock
Primary earnings per share are computed on the basis of the weighted
average number of shares outstanding, plus common stock equivalents,
assuming all stock options are exercised. Fully diluted earnings per
share assumes both the conversion of the 6 3/4% Convertible
Subordinated Debentures and the common stock equivalents referred to
above.
Cash Equivalents
The Corporation considers all highly liquid debt instruments purchased
with maturities of three months or less to be cash equivalents.
New Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed of," which is effective in 1996. The statement requires
that long-lived assets be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. The resultant impairment, if any, would be
measured based on the fair value of the asset. The Corporation
believes that the adoption of SFAS 121 will not have any effect on the
Corporation's results of operations or financial position.
<PAGE>
SFAS 123 "Accounting for Stock-Based Compensation" which will be
adopted by the Corporation in 1996, includes certain elective
provisions which, if followed, would require the Corporation to record
compensation for awards made under the E'town Corporation 1987 Stock
Option Plan (Stock Option Plan). The Corporation has elected to
continue to account for its Stock Option Plan using the method
prescribed by Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees." SFAS 123 will not have any effect on
the results of operations but will require expanded disclosure
regarding the Corporation's Stock Option Plan.
Reclassification
Certain prior year amounts have been reclassified to conform to the
current year's presentation.
<PAGE>
3. FEDERAL INCOME TAXES
The computation of federal income taxes and the reconciliation of the
tax provision computed at the federal statutory rate (35%) with the
amount reported in the Statements of Consolidated Income follow:
1995 1994 1993
------------------------
(Thousands of Dollars)
Tax expense at statutory rate ........ $8,701 $6,947 $7,994
Items for which deferred taxes
are not provided:
Capitalized interest ............... (2) (2)
Difference between book and tax
depreciation ..................... 133 92 81
Investment tax credits.............. (204) (209) (208)
Other............................... 123 80 96
-----------------------
Provision for federal income taxes.... $8,753 $6,908 $7,961
=======================
The provision for federal income taxes
is composed of the following:
Current .............................. $6,068 $4,983 $6,180
Tax collected on main extensions ..... (1,734) (1,931) (1,341)
Deferred:
Tax depreciation.................... 3,447 3,324 3,183
Capitalized interest................ 905 517 217
Main cleaning and lining............ 405 396 323
Other............................... (136) (179) (407)
Investment tax credits--net........... (202) (202) (194)
-----------------------
Total provision ...................... $8,753 $6,908 $7,961
=======================
Effective January 1, 1993, the Company adopted SFAS 109,
"Accounting for Income Taxes." SFAS 109 established
accounting rules that changed the manner in which income tax
expense is determined for accounting purposes. SFAS 109
utilizes a liability method under which deferred taxes are
provided at the enacted statutory rate for all temporary
differences between financial statement earnings amounts
and the tax basis of existing assets or liabilities.
In addition, the adoption of SFAS 109 resulted in a credit
to Federal Income Taxes of $63,271 and a charge to Real
Estate, Payroll and Other Taxes of $141,068 in 1993 to
record the changes in deferred income taxes payable by the
non-regulated companies.
In connection with the adoption of SFAS 109, Elizabethtown
and Mount Holly recorded additional deferred taxes for water
utility temporary differences not previously recognized.
The increased deferred tax liability was offset by a
corresponding asset representing the future revenue expected
to be recovered through rates based on established
regulatory practice permitting such recovery.
In accordance with SFAS 109, deferred tax balances have been
reflected at E'town's current consolidated federal income
tax rate, which is 35%.
The tax effect of significant temporary differences
representing deferred income tax assets and liabilities as
of December 31, 1995 and 1994 is as follows:
1995 1994
----------------------
(Thousands of Dollars)
Water utility plant--net $(56,956) $(53,517)
Non-utility property (955) (1,061)
Other investments (1,022) (969)
Taxes recoverable through future rates (9,250) (9,219)
Investment tax credit 2,957 3,028
Prepaid pension expense (166) (301)
Capitalized interest (1,308) (508)
Other assets 654 557
Other liabilities (780) (126)
-------------------
Net deferred income tax liabilities $(66,826) $(62,116)
===================
The Internal Revenue Service (Service) has 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. In February
1995, the Corporation reached a tentative agreement to settle this
matter with the Service. This resulted in a charge to net income for
the year ended December 31, 1994 of $310,445 or $.05 per common share.
An additional charge of $168,610 or $.02 per share has been recognized
in 1995 based upon the final assessment. In addition, in 1995 the
Corporation received tax refunds and interest related to the years
1984 and 1985 that contributed to an increase in net income of
$206,948 or $.03 per common share.
4. CAPITALIZATION
In June 1995, E'town issued 660,000 shares of common stock for net
proceeds of $16,863,860. The gross proceeds of $17,737,500 were used
to fund equity contributions to Elizabethtown totalling $16,900,000.
These equity contributions have been used to repay short-term debt
that 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 11).
In May 1994, E'town issued 690,000 shares of common stock for net
proceeds of $18,218,471. The net proceeds were used to fund an equity
contribution to Elizabethtown of $16,000,000. This contribution had
been used to partially fund Elizabethtown's construction program, the
predominant portion of which related to the Plant. The balance of the
net proceeds had been used to fund working capital requirements of the
Corporation.
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 (DRP). E'town contributed
$6,388,716 and $7,146,038 in 1995 and 1994, respectively, to
Elizabethtown from the proceeds of DRP issuances.
In January 1991, the Board of Directors of E'town adopted a
Shareholders' Rights Plan (Rights Plan). Generally, under the Rights
Plan, if a person or group acquires 10% or more of the Corporation's
common stock or announces a tender offer for the Corporation's common
stock, non-acquiring shareholders may, under certain circumstances,
exercise rights (Rights) to purchase additional shares of common stock
on terms that allow them to significantly increase their percentage of
ownership of the Corporation's common stock. Such Rights may be
redeemed by the Board of Directors.
Cumulative Preferred Stock
In March 1994, Elizabethtown issued 120,000 shares of $100 par value,
$5.90 Cumulative Preferred Stock for proceeds of $12,000,000 at an
effective rate of 7.37%. The proceeds were used to redeem $12,000,000
of the Company's $8.75 Cumulative Preferred Stock. The redemption
premium of $1,050,000 was paid from general Company funds and is being
amortized over 10 years for ratemaking purposes.
The $5.90 Cumulative Preferred Stock is not redeemable at the option
of Elizabethtown. Elizabethtown is required to redeem all 120,000
shares of the Preferred Stock on March 1, 2004 at $100 per share.
Long-term Debt
Elizabethtown's long-term debt indentures restrict the amount of
retained earnings available to Elizabethtown to pay cash dividends
(which is the primary source of funds available to the Corporation for
payment of dividends on its common stock), or acquire Elizabethtown's
common stock, all of which is held by E'town. At December 31, 1995,
$7,753,084 of Elizabethtown's retained earnings were restricted under
the most restrictive indenture provision. Therefore, $35,241,659 of
E'town's consolidated retained earnings were unrestricted.
In December 1995, Elizabethtown issued $40,000,000 of 5.60% tax-exempt
debentures through the New Jersey Economic Development Authority
(NJEDA). The proceeds of the issue were used to repay amounts
outstanding under a revolving credit agreement (see Note 6).
E'town's 6 3/4% Convertible Subordinated Debentures are convertible to
E'town common stock at $40 per share. At December 31, 1995, 293,775
shares of common stock were reserved for issuance upon exercise of the
conversion rights.
5. STOCK OPTION PLAN
E'town has a Stock Option Plan, a qualified non-compensatory
incentive plan under which options to purchase shares of E'town's
common stock have been granted to certain officers and other key
employees at prices not less than the fair market value at the
date of grant. The plan provides that any options granted may be
exercised at any time up to an expiration date, not to exceed 10
years from the date of each grant.
A summary of the details of stock option grants and outstanding
balances is presented below:
Options
Year Options Option Options Outstanding
Granted Granted Price Exercised or Expired 12/31/95 12/31/94
----------------------------------------------------------------------
1985 26,369 $26.17 2,250 (1991) (A)
3,300 (1992)
4,050 (1993)
11,819 (1995)
4,950 (1995) (A) -0- 16,769
1987 36,000 $25.67 4,050 (1989)
3,750 (1990)
3,750 (1991)
4,500 (1991) (A)
11,700 (1992)
3,750 (1995)
4,500 (1995) (A) -0- 8,250
1989 7,500 $24.67 7,500 7,500
1990 7,500 $26.67 7,500 7,500
1995 77,000 $27.12 77,000
------------------------------------------------------------------------
Total 154,369 62,369 92,000 40,019
========================================================================
(A) Expired Options
<PAGE>
6. LINES OF CREDIT
In 1994, Elizabethtown executed a committed revolving credit agreement
(Agreement) with an agent bank and five additional banks that replaced
the Company's uncommitted lines of credit. The Agreement provides up
to $60,000,000 in revolving short-term financing, which together with
internal funds, other short-term financing, proceeds of future
issuances of debt and preferred stock by Elizabethtown and capital
contributions from E'town, is expected to be sufficient to finance
Elizabethtown's and Mount Holly's capital needs, which are estimated
to be $148,905,000 through 1998. At December 31, 1995, Elizabethtown
had outstanding borrowings of $27,000,000 under the Agreement at
interest rates from 5.75% to 6.00%, at a weighted average rate of
5.94%.
The Agreement allows Elizabethtown to borrow, repay and reborrow up to
$60,000,000 during the first three years, after which time
Elizabethtown may convert any outstanding balances to a five-year,
fully amortizing term loan. The Agreement further provides that,
among other covenants, Elizabethtown must maintain a percentage of
common and preferred equity to total capitalization of not less than
35% and a pre-tax interest coverage ratio of at least 1.5 to 1. As of
December 31, 1995, the percentage of Elizabethtown's common and
preferred equity to total capitalization, as calculated in accordance
with the Agreement, was 47%. For the 12 months ended December 31,
1995, Elizabethtown's pre-tax interest coverage ratio, calculated in
accordance with the Agreement, was 3.12 to 1.
E'town has $30,000,000 of uncommitted lines of credit with several
banks in addition to the lines under the Agreement, of which
$17,000,000 is available to Elizabethtown.
Information relating to bank borrowings for 1995, 1994 and 1993 is as
follows:
1995 1994 1993
-------------------------------
(Thousands of Dollars)
Maximum amount outstanding.......... $60,000 $23,000 $8,000
Average monthly amount outstanding.. $39,636 $ 2,958 $2,514
Average interest rate at year end... 5.9% 6.1% (A)
Compensating balances at year end... $ 0 $ 0 $ 195
Weighted average interest rate based
on average daily balances.......... 6.2% 5.7% 3.8%
(A) No outstanding bank borrowings at year end.
7. NON-UTILITY PROPERTY AND OTHER INVESTMENTS
Included in Non-utility Property and Other Investments at
December 31, 1995 is an investment of $1,358,016 ($258,991
net of related deferred taxes) in a limited partnership that
owns Solar Electric Generating System V (SEGS), located in
California.
Also included in Non-utility Property and Other Investments
at December 31, 1995 and 1994 is $12,141,419 and
$12,048,749, respectively, of investments in various parcels
of undeveloped land in New Jersey. The carrying value of
each parcel includes the original cost plus any real estate
taxes, interest and, where applicable, direct costs
capitalized while rezoning or governmental approvals are, or
were, being sought. Based upon independent appraisals
received at various times, prior to and during 1995, the
estimated net realizable value of each property exceeds its
respective carrying value as of December 31, 1995.
Properties continues to seek permits for its Mansfield 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. This was due to
the fact that the Mansfield property was not ready for its intended
use and various carrying charges were being capitalized while, based
upon prior appraisals, the market value of the property had remained
constant. Charges of $350,319, $381,754 and $183,789 for the years
ended December 31, 1995, 1994 and 1993, respectively, to adjust the
carrying value of the Mansfield property, have been reflected in the
Statements of Consolidated Income and Consolidated Balance Sheets.
Properties expects to continue capitalizing carrying charges on the
Mansfield property until it is ready for its intended use. In October
1995, Properties obtained more favorable zoning treatment for the
Mansfield property. As a result of the rezoning, a recent appraisal
has revealed that the market value of the property has increased to
the extent that, barring any significant changes in the circumstances
surrounding this property, further adjustments to reduce the carrying
value by the amount of the capitalized carrying charges are not
presently expected.
The Corporation will continue to monitor the relationship between the
carrying and net realizable values of its properties through updated
appraisals and its investment in SEGS through cash flow analyses.
Properties has entered into an agreement to sell a parcel of land to a
developer. The agreement requires the buyer to obtain 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.
8. FINANCIAL INSTRUMENTS
The carrying amounts and the estimated fair values, as of
December 31, 1995 and 1994, of financial instruments issued or held
by the Corporation, are as follows:
1995 1994
------------------------
(Thousands of Dollars)
Short-term investments (1):
Carrying amount $ 31 $ 31
Estimated fair value 38 34
Cumulative preferred stock (1):
Carrying amount $ 12,000 $ 12,000
Estimated fair value 11,940 10,860
Long-term debt (1):
Carrying amount $193,674 $154,073
Estimated fair value 200,710 139,910
(1) Estimated fair values are based upon quoted market prices for
these or similar securities.
9. REGULATORY ASSETS AND LIABILITIES
Certain costs incurred by Elizabethtown and Mount Holly which have
been deferred have been recognized as regulatory assets and are
being amortized over various periods as set forth below:
1995 1994
----------------------
(Thousands of Dollars)
Waste residual management $ 970 $ 546
Unamortized debt and
preferred stock expense 9,385 8,902
Taxes recoverable through
future rates (Note 3) 26,428 26,339
Postretirement benefit expense
(Note 12) 2,901 2,077
Purchased water under
recovery-net (Note 10) 37 314
-------------------
Total $39,721 $38,178
===================
Waste Residual Management
The costs of disposing of the waste generated by Elizabethtown's
and Mount Holly's water treatment plants are being amortized
over three-year periods for ratemaking and financial statement
purposes. No return is being earned on these deferred balances.
Unamortized Debt and Preferred Stock Expenses
Costs incurred in connection with the issuance or redemption of
long-term debt have been deferred and are being amortized over the
lives of respective issues for ratemaking and financial statement
purposes. Costs incurred in connection with the issuance and
redemption of preferred stock have been deferred and are being
amortized over a 10-year period for ratemaking and financial
statement purposes.
There were no regulatory liabilities at December 31, 1995 or 1994.
10. REGULATORY MATTERS
Rates
Elizabethtown
On November 20, 1995, Elizabethtown filed a petition with the BPU
for an increase in rates of $31,634,500 or 29.6%. The largest portion
of the request, $22,925,227, is to cover the cost to finance and
operate the Plant (see Note 11). The remainder of the rate request,
$8,709,273, is needed to cover the cost to finance additional
construction projects and to cover increases in operating expenses
since rates were last established in February 1995. A decision by
the BPU is expected in the summer of 1996. In light of the approval
by the BPU of the 1993 Plant Stipulation (discussed below) and
Elizabethtown's experience in obtaining base rate relief,
Elizabethtown expects the BPU to grant timely and adequate rate
relief, but cannot predict the ultimate outcome of any rate proceeding.
In February 1996, Elizabethtown filed a petition with the BPU for a
decrease in rates of $390,318 under a Purchased Water Adjustment
Clause (PWAC). This procedure, established by BPU rules, allows
Elizabethtown to reflect in rates a change in the cost of water
purchased from the New Jersey Water Supply Authority (NJWSA) without
a complete rate case. The purpose of this request is to reflect in
rates the expected decrease in the rate for water purchased by
Elizabethtown from the NJWSA effective July 1, 1996.
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 11). 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 12-month historical period drops below
2.0 times. The 1993 Plant Stipulation also provides that the rate of
return on common shareholder'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 shareholder's equity established in
the Company's most recent base rate case. The authorized rate of
return on common shareholder's equity is currently 11.5%.
In January 1995, the BPU approved a stipulation (1995 Stipulation) for
Elizabethtown for a rate increase 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 SFAS 106, "Employer's Accounting for Postretirement
Benefits Other Than Pensions," provided this amount is funded by
the Company (see Note 12.)
The rate increase is covering the cost to finance $62,000,000 of
construction projects that were not reflected in the rates established in
March 1993. These projects include treatment, transmission and storage
facilities needed to ensure that Elizabethtown continues to meet federal
and state regulations on water quality and service. The increase is also
offsetting increased costs for power, labor and benefits, primarily
medical. The 1995 Stipulation also provides for an increase in
depreciation rates resulting in an increase in depreciation expense of
approximately $469,000. The 1995 Stipulation also required Elizabethtown
to maintain a percentage of common equity to total capitalization of
at least 45.1% for the 12 months ended January 31, 1996. The Company
has met this requirement.
On July 7, 1995, the BPU approved a Stipulation for a decrease in rates
under a PWAC. The Stipulation resulted in a decrease in rates for the
PWAC, effective July 13, 1995 of $348,527. This Stipulation reflects the
decrease in rates for water purchased from the NJWSA.
In June 1994, the BPU approved a Stipulation for an increase in rates
under a PWAC. The Stipulation resulted in an increase in rates,
effective July 1, 1994, of $334,611, reflecting the increase in rates for
water purchased from the NJWSA.
Mount Holly
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 cover costs that were not reflected in rates last
increased in October 1986. The second phase would cover the cost of a
new water supply, treatment and transmission system necessary to obtain
water outside a designated portion of an aquifer currently used by Mount
Holly and to treat and pump the water into the Mount Holly distribution
system. Management believes this project is the most cost-effective
alternative available to Mount Holly to comply with recent state
legislation which restricts the amount of water that can be withdrawn
from an aquifer in certain areas of southern New Jersey. The project is
currently estimated to cost $16,500,000. The land for the supply and
treatment facilities has been purchased and wells have been drilled
and can produce the required supply. On October 5, 1995, the New Jersey
Department of Environmental Protection granted Mount Holly a water
allocation diversion permit for four wells that are to be the water
supply for the Mansfield Project. On October 20, 1995, New
Jersey-American Water Company requested, and was subsequently granted,
an adjudicatory hearing on the permit. The Company and Mount Holly
believe that the permit in question will be upheld, but cannot
predict the outcome of the objection. In the event that the
objection is successful and the permit is rescinded, Mount Holly
would utilize the alternative plan of purchasing water from New
Jersey-American Water Company.
On January 24, 1996, the BPU approved a stipulation (Mount Holly
Stipulation) for an increase in rates of $550,000, effective as of
that date. The Mount Holly Stipulation has, effectively, concluded
the first phase of the rate proceeding. Mount Holly is continuing with
the process with respect to the second phase of the petition. While
management believes that the water supply, treatment and transmission
system planned for Mount Holly is the most cost-effective response to the
state legislation affecting the area, we cannot predict the ultimate
outcome of the rate proceeding at this time.
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 annual 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.
In June 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 revenues formula are
required by the Company. Based upon the New Jersey Supreme Court's
decision, the plaintiffs have withdrawn their suits.
11. COMMITMENTS
Elizabethtown is obligated, under a contract that expires in 2013,
to purchase from the NJWSA a minimum of 37 billion gallons of water
annually. The Company purchases additional water from the NJWSA on
an as-needed basis. Effective July 1, 1996, the annual cost under
the contract will be $7,861,486. The total cost of water purchased
from the NJWSA, including additional water purchased on an
as-needed basis, was $9,344,792, $8,987,472 and $8,819,212 for
1995, 1994 and 1993, respectively.
The following is a schedule by years of future minimum rental
payments required under noncancelable operating leases with terms
in excess of one year at:
December 31,
----------------------
(Thousands of Dollars)
1996 $ 909
1997 859
1998 12
1999 -0-
2000 -0-
------
Total $1,780
======
Rent expense totaled $820,481, $829,562 and $789,636 for 1995, 1994
and 1993, respectively.
Capital expenditures through 1998 are estimated to be $149,781,000 of
which $148,905,000 is for Elizabethtown's and Mount Holly's utility plant
and $876,000 is for non-utility expenditures.
Canal Road Water Treatment Plant
In April 1994, following a competitive bidding process, Elizabethtown
executed a lump-sum contract for the construction of the Canal Road
Water Treatment Plant. The project is currently estimated to cost
$100,000,000, excluding AFUDC. The project is being completed on
schedule and the construction contract is on budget. The Company
has expended $82,952,434, excluding AFUDC of $7,167,396, on the Plant
as of December 31, 1995. Construction is expected to be completed
in the third quarter of 1996.
Joint Venture
In March 1995, the Corporation entered into a three-year joint
venture agreement with Applied Wastewater General Partnership
(AWG) to form a New Jersey limited liability company, Applied
Watershed Management, L.L.C. (AWM). 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 for municipal and corporate clients, 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.
AWG shall provide the substantial portion of the operations-related
services required to be performed by AWM. Either party may terminate
the agreement at any time.
12. PENSION PLAN AND OTHER POSTRETIREMENT BENEFITS
Elizabethtown has a trusteed, noncontributory Retirement Plan (Plan),
which covers most employees. Under the Company's funding policy, the
Corporation makes contributions that meet the minimum funding
requirements of the Employee Retirement Income Security Act of 1974.
The components of the net pension costs (credits) are as follows:
1995 1994 1993
-------------------------
(Thousands of Dollars)
Service cost--benefits earned during the year .. $ 929 $1,068 $ 913
Interest cost on projected benefit obligation .. 2,170 1,960 1,986
Return on Plan assets .......................... (7,630) 944 (1,417)
Net amortization and deferral .................. 4,890 (3,881) (1,666)
-------------------------
Net pension costs (credits) .................... $ 359 $ 91 $ (184)
=========================
Plan assets are invested in publicly traded debt and equity securities.
The reconciliations of the funded status of the Plan to the amounts
recognized in the Consolidated Balance Sheets are presented below:
1995 1994
----------------------
(Thousands of Dollars)
Market value of Plan assets ..................... $37,171 $30,981
----------------
Actuarial present value of Plan benefits:
Vested benefits ............................... 26,115 20,864
Non-vested benefits ........................... 101 158
----------------
Accumulated benefit obligation ................ 26,216 21,022
Projected increases in compensation levels .... 8,005 5,733
----------------
Projected benefit obligation .................... 34,221 26,755
----------------
Excess of Plan assets over projected benefit
obligation ..................................... 2,950 4,226
Unrecognized net gain ........................... (636) (1,374)
Unrecognized prior service cost ................. 365 453
Unrecognized transition asset ................... (2,166) (2,434)
----------------
Prepaid pension expense.......................... $ 513 $ 871
================
The assumed rates used in determining the actuarial present value of the
projected benefit obligations were as follows:
1995 1994 1993
-----------------------------
Discount rate ...................... 7.00% 8.00% 7.00%
Compensation increase .............. 5.50% 5.50% 5.50%
Rate of return on Plan assets ...... 9.00% 8.50% 8.50%
The Corporation provides certain health care and life insurance benefits for
substantially all of its retired employees. As a result of a contract
negotiated in February 1996 with the Company's bargaining unit, all union
and non-union employees retiring after January 1, 1997 will pay 25% of
future increases in the premiums the Company pays for postretirement medical
benefits.
Effective January 1, 1993, the Corporation adopted SFAS 106. Under SFAS
106, the costs of postretirement benefits are accrued for each year the
employee renders service, based on the expected cost of providing such
benefits to the employee and the employee's beneficiaries and covered
dependents, rather than expensing these benefits on a pay-as-you-go basis
for retired employees.
Based upon an independent actuarial study, the transition obligation,
calculated under SFAS 106, was $7,255,745 as of January 1, 1993. The
transition obligation is being amortized over 20 years. The following table
details the postretirement benefit obligation at December 31:
1995 1994
----------------------
(Thousands of Dollars)
Retirees $2,404 $2,457
Fully eligible plan participants 6,366 5,134
-----------------
Accumulated postretirement benefit
obligation 8,770 7,591
Plan assets at fair value (320) 0
Unrecognized net gain 656 1,040
Unrecognized transition obligation (6,167) (6,530)
-----------------
Accrued postretirement benefit
obligation $2,939 $2,101
=================
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation as of December 31, 1995, and for 1995, was
12%. This rate decreases linearly each successive year until it reaches 5%
in 2005, after which the rate remains constant. The assumed rates used
in determining the actuarial present value of the projected benefit
obligations were as follows:
1995 1994 1993
--------------------------
Discount rate 7.00% 8.00% 7.00%
A single percentage point increase in the assumed health care cost trend
rate for each year would increase the accumulated postretirement benefit
obligation as of December 31, 1995, and net postretirement service and
interest cost by approximately $1,260,890 and $247,753, respectively.
Based upon the independent actuarial study referred to above, the annual
postretirement cost calculated under SFAS 106 is as follows:
1995 1994 1993
---------------------------------
(Thousands of Dollars)
Service cost - benefits earned
during the year $ 480 $ 376 $ 254
Interest cost on accumulated
postretirement benefit obligation 585 596 605
Amortization of transition obligation 363 363 363
---------------------------------
Total 1,428 1,335 1,222
Deferred amount for regulated
companies pending recovery (824) (1,072) (1,005)
---------------------------------
Net postretirement benefit expense $ 604 $ 263 $ 217
=================================
The rate increases allowed by the 1995 Stipulation and the Mount Holly
Stipulation include as an allowable expense the pay-as-you-go portion of
postretirement benefits as well as the current service cost, and require
that the current service cost be funded. Elizabethtown funded $318,222 in
1995. These stipulations allow Elizabethtown and Mount Holly to defer the
amount accrued in excess of these amounts for consideration in future rate
cases. Generally accepted accounting principles permit this regulatory
treatment, provided deferrals are not accumulated for a period of more than
five years. As of December 31, 1995, the amount that has been deferred is
$2,900,569.
Recovery of Elizabethtown's deferred postretirement costs has been requested
in Elizabethtown's recent rate case. Management believes that Elizabethtown
and Mount Holly will recover the deferred postretirement costs in future
rates.
13. LEGAL MATTERS
As reported in 1994, a developer asserted in a suit filed in 1991 against
Elizabethtown that the Company failed to install facilities necessary to
provide water service to a new development in a timely manner.
In November 1994, the Company settled this matter by paying the developer
$1,750,000. As part of the settlement, the developer agreed that part of
this payment represented a refund of funds deposited under a main extension
loan agreement for the construction of the facilities. In addition, the
Company applied a portion of the settlement against an insurance reserve.
The effect on 1994 earnings was $932,203 or $605,932 net of federal income
taxes. The Company is seeking recovery from its insurance carriers.
As previously reported, several lawsuits had been filed against
Elizabethtown and other parties in connection with a fire that
occurred in a storage facility in 1989 resulting in damage to
property stored at that facility. This matter has been settled in
1995 resulting in a payment by Elizabethtown of $114,250. A
provision for this estimated liability was previously recorded.
14. QUARTERLY FINANCIAL DATA (Unaudited)
A summary of financial data for each quarter of 1995 and 1994 follows:
Primary Fully Diluted
Operating Operating Net Earnings Per Earnings Per
Quarter Revenues Income Income Share Share
--------------------------------------------------------------------------
(Thousands of Dollars Except Per Share Amounts)
1995
1st $ 25,174 $ 5,845 $ 3,015 $ .45 $ .45
2nd 27,101 6,458 4,175 .61 .61
3rd 30,451 7,873 5,151 .69 .68
4th 25,672 5,405 2,955 .41 .40
-------------------------------------------------------------------
Total $108,398 $25,581 $15,296 $2.16 $2.14
===================================================================
1994
1st $ 24,657 $ 5,513 $ 2,537 $ .45 $ .45
2nd 25,208 5,807 2,965 .49 .49
3rd 27,370 6,914 3,673 .56 .56
4th 24,798 5,637 2,913 .45 .44
-------------------------------------------------------------------
Total $102,033 $23,871 $12,088 $1.95 $1.94
===================================================================
Water utility revenues are subject to a seasonal fluctuation due to
normal increased consumption during the third quarter of each year.
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF E'TOWN CORPORATION:
We have audited the accompanying consolidated balance sheets and
statements of consolidated capitalization of E'town Corporation and its
subsidiaries as of December 31, 1995 and 1994, and the related
statements of consolidated income, shareholders' equity, and cash flows
for each of the three years in the period ended December 31, 1995.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of E'town
Corporation and its subsidiaries at December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the three
years in the period ended December 31, 1995 in conformity with generally
accepted accounting principles.
/s/ Deloitte & Touche LLP
Parsippany, New Jersey
February 15, 1996
<TABLE>
OTHER FINANCIAL AND STATISTICAL DATA
<CAPTION>
1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
UTILITY PLANT (Thousands)
Utility Plant-net $ 507,858 $ 437,456 $ 373,293 $ 347,253 $ 319,421
Construction Expenditures (excluding AFUDC) 73,789 69,981 32,517 33,293 27,732
CAPITALIZATION (Thousands)
Shareholders' Equity 177,081 152,971 128,374 102,750 84,544
Preferred Stock 12,000 12,000 12,000 12,000 12,000
Debt(1) 220,703 177,115 154,448 161,541 169,648
Total Capitalization 409,784 342,086 294,822 276,291 266,192
CAPITALIZATION RATIOS
Common Stock 43% 44% 44% 37% 32%
Preferred Stock 3% 4% 4% 4% 4%
Debt(1) 54% 52% 52% 59% 64%
COMMON STOCK DATA
Earnings Per Share:
Primary $ 2.16 $ 1.95 $ 2.59 $ 2.21 $ 2.32
Fully Diluted 2.14 1.94 2.54 2.18 2.28
Dividends Per Share 2.04 2.04 2.01 2.00 2.00
Book Value Per Share 23.54 23.17 22.76 21.14 20.21
Average Shares Outstanding:
Primary 7,095,183 6,210,409 5,337,939 4,627,814 4,080,118
Fully Diluted 7,393,796 6,519,352 5,651,808 4,950,768 4,413,178
Number of Common Shareholders 5,504 5,493 5,240 4,832 3,965
OPERATING STATISTICS
Revenues (Thousands)
General Customers $ 67,455 $ 62,923 $ 63,100 $ 55,570 $ 54,071
Other Water Systems 18,720 18,082 17,187 15,080 14,082
Industrial Wholesale 7,947 7,458 6,652 6,044 5,846
Fire Service/Miscellaneous 14,276 13,570 13,057 12,473 12,087
Total Revenues $ 108,398 $ 102,033 $ 99,996 $ 89,167 $ 86,086
Net Income $ 15,296 $ 12,088 $ 13,830 $ 10,231 $ 9,485
WATER SALES - Millions of Gallons (mg)
General Customers 23,999 23,551 23,883 22,062 22,659
Other Water Systems 15,569 15,691 15,109 14,118 13,811
Industrial Wholesale 3,673 3,568 3,213 3,145 3,155
System Use and Unaccounted For 6,402 6,570 5,453 5,843 6,368
Total Water Sales 49,643 49,380 47,658 45,168 45,993
SYSTEM DELIVERY BY SOURCE - mg
Surface 42,646 42,534 40,742 38,558 39,222
Wells 6,764 6,690 6,776 6,480 6,658
Purchased 233 156 140 130 113
Total System Delivery 49,643 49,380 47,658 45,168 45,993
MILLIONS OF GALLONS PUMPED:
Average Day 136 135 131 123 126
Maximum Day 183 182 191 159 169
GENERAL INFORMATION
Meters in Service 195,375 191,622 188,677 185,028 182,019
Miles of Main 2,869 2,828 2,800 2,738 2,694
Fire Hydrants Served 15,650 15,291 14,909 14,400 13,987
Total Employees 398 386 384 379 374
<FN>
(1) Includes long-term debt, notes payable and long-term debt-current portion.
</TABLE>
STOCK PRICE AND DIVIDEND DATA - E'town's Common Stock is
traded on the New York Stock Exchange under the symbol ETW.
1995
- ----------------------------------------------------
QUARTER 1ST 2ND 3RD 4TH
CLOSING PRICE
LOW: $24.87 $25.37 $25.62 $27.00
HIGH: $26.37 $27.25 $27.00 $30.12
DIVIDEND PAID .51 .51 .51 .51
- ----------------------------------------------------
1994
- ----------------------------------------------------
QUARTER 1ST 2ND 3RD 4TH
CLOSING PRICE
LOW: $29.63 $26.13 $26.00 $23.50
HIGH: $32.00 $30.00 $27.75 $27.13
DIVIDEND PAID .51 .51 .51 .51
- ----------------------------------------------------
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in E'town Corporation's
Registration Statement No. 33-56013 on Form S-3 and Nos. 33-49812,
33-44210 and 33-42509 on Forms S-8 of our reports dated February 15,
1996 and to the incorporation by reference in Elizabethtown Water
Company's Registration Statement No. 33-19600 on Form S-8 of our report
dated February 15, 1996, appearing or incorporated by reference in this
Annual Report on Form 10-K of E'town Corporation and Elizabethtown Water
Company for the year ended December 31, 1995.
/s/ Deloitte & Touche LLP
March 28, 1996
Parsippany, New Jersey
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