===============================================================================
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number 1-11023
E'TOWN CORPORATION
(Exact name of registrant as specified in its charter)
New Jersey 22-2596330
(State of incorporation) (I.R.S. Employer Identification No.)
600 South Avenue
Westfield, New Jersey 07090
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (908) 654-1234
Title of each class Name of each exchange on which registered
Common Stock, without par value New York Stock Exchange
Commission file number 0-628
ELIZABETHTOWN WATER COMPANY
(Exact name of registrant as specified in its charter)
New Jersey 22-1683171
(State of incorporation) (I.R.S. Employer Identification No.)
600 South Avenue
Westfield, New Jersey 07090
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (908) 654-1234
Title of each class Name of each exchange on which registered
None None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes __X__ No_____
Indicate the number of shares outstanding of each of the Registrant's classes of
Common Stock as of the latest practicable date
Outstanding at
Class of Common Stock: March 31, 1997
E'town Corporation (without par value) 7,844,010
Elizabethtown Water Company (without par value)* 1,974,902
* All shares are owned by E'town Corporation
===============================================================================
<PAGE>
E'TOWN CORPORATION AND SUBSIDIARIES
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
INDEX
- -------------------------------------------------------------------------------
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
E'TOWN CORPORATION AND SUBSIDIARIES
- Statements of Consolidated Income 1
- Consolidated Balance Sheets 2-3
- Statements of Consolidated Capitalization 4
- Statements of Consolidated Shareholders' Equity 5
- Statements of Consolidated Cash Flows 6
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
- Statements of Consolidated Income 7
- Consolidated Balance Sheets 8-9
- Statements of Consolidated Capitalization 10
- Statements of Consolidated Shareholder's Equity 11
- Statements of Consolidated Cash Flows 12
E'TOWN CORPORATION AND SUBSIDIARIES AND
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
- Notes to Consolidated Financial Statements 13
Item 2. Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations 16
PART II - OTHER INFORMATION 21
Items 1 - 5
Item 6 (a) - Exhibits 21
(b) - Reports on Form 8-K 21
SIGNATURES 22
<PAGE>
<TABLE>
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(In Thousands Except Per Share Amounts)
<CAPTION>
Three Months Ended Twelve Months Ended
March 31, March 31,
1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating Revenues $ 30,121 $ 25,760 $ 114,770 $ 108,984
- ---------------------------------------------------------------------------------------------------------------------------
Operating Expenses:
Operation 11,120 10,967 44,960 44,691
Maintenance 1,475 1,474 5,860 5,914
Depreciation 3,022 2,344 10,571 9,025
Revenue taxes 3,779 3,228 14,371 13,695
Real estate, payroll and other taxes 823 837 2,938 2,965
Federal income taxes 1,891 1,342 7,340 7,390
- ---------------------------------------------------------------------------------------------------------------------------
Total operating expenses 22,110 20,192 86,040 83,680
- ---------------------------------------------------------------------------------------------------------------------------
Operating Income 8,011 5,568 28,730 25,304
- ---------------------------------------------------------------------------------------------------------------------------
Other Income (Expense):
Allowance for equity funds used during
construction 44 1,099 2,670 3,457
Write-down of non-utility property and
other investments (243)
Federal income taxes (41) (436) (1,175) (1,366)
Other - net 74 146 688 794
- ---------------------------------------------------------------------------------------------------------------------------
Total other income (expense) 77 809 2,183 2,642
- ---------------------------------------------------------------------------------------------------------------------------
Total Operating and Other Income 8,088 6,377 30,913 27,946
- ---------------------------------------------------------------------------------------------------------------------------
Interest Charges:
Interest on long-term debt 3,447 3,451 13,796 12,252
Other interest expense - net 986 413 3,218 2,214
Capitalized interest (116) (963) (2,677) (3,155)
Amortization of debt discount and expense-net 98 97 396 365
- ---------------------------------------------------------------------------------------------------------------------------
Total interest charges 4,415 2,998 14,733 11,676
- ---------------------------------------------------------------------------------------------------------------------------
Income Before Preferred Stock Dividends
of Subsidiary 3,673 3,379 16,180 16,270
Preferred Stock Dividends 203 203 813 813
- ---------------------------------------------------------------------------------------------------------------------------
Net Income $ 3,470 $ 3,176 $ 15,367 $ 15,457
===========================================================================================================================
Earnings Per Share of Common Stock:
- ---------------------------------------------------------------------------------------------------------------------------
Primary $ 0.44 $ 0.42 $ 1.99 $ 2.11
Fully Diluted $ 0.44 $ 0.42 $ 1.98 $ 2.10
- ---------------------------------------------------------------------------------------------------------------------------
Average Number of Shares Outstanding for
the Calculation of Earnings Per Share:
- ---------------------------------------------------------------------------------------------------------------------------
Primary 7,829 7,574 7,737 7,327
Fully Diluted 8,116 7,868 8,027 7,624
- ---------------------------------------------------------------------------------------------------------------------------
Dividends Paid Per Common Share $ .51 $ .51 $ 2.04 $ 2.04
===========================================================================================================================
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
-1-
<PAGE>
<TABLE>
E'TOWN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<CAPTION>
March 31, December 31,
Assets 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
Utility Plant-At Original Cost:
<S> <C> <C>
Utility plant in service $ 656,555 $ 654,713
Construction work in progress 9,700 7,994
- ---------------------------------------------------------------------------------------------------------------------------
Total utility plant 666,255 662,707
Less accumulated depreciation
and amortization 105,707 102,683
- ---------------------------------------------------------------------------------------------------------------------------
Utility plant-net 560,548 560,024
- ---------------------------------------------------------------------------------------------------------------------------
Non-utility Property and Other
Investments - Net 14,231 14,113
- ---------------------------------------------------------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents 3,495 3,228
Short-term investments 31 31
Customer and other accounts receivable
(less reserve: 1997, $644; 1996, $566) 17,937 16,187
Unbilled revenues 9,221 9,356
Materials and supplies-at average cost 1,934 2,045
Prepaid insurance, taxes, other 2,765 3,918
- ---------------------------------------------------------------------------------------------------------------------------
Total current assets 35,383 34,765
- ---------------------------------------------------------------------------------------------------------------------------
Deferred Charges:
Waste residual management 935 1,064
Unamortized debt and preferred stock expenses 9,395 9,508
Taxes recoverable through future rates 30,435 30,435
Postretirement benefit expense 3,606 3,478
Other unamortized expenses 2,248 1,820
- ---------------------------------------------------------------------------------------------------------------------------
Total deferred charges 46,619 46,305
- ---------------------------------------------------------------------------------------------------------------------------
Total $ 656,781 $ 655,207
===========================================================================================================================
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
-2-
<PAGE>
<TABLE>
E'TOWN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<CAPTION>
March 31, December 31,
Capitalization and Liabilities 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
Capitalization (Note 3):
<S> <C> <C>
Common shareholders' equity $ 184,801 $ 183,512
Cumulative preferred stock 12,000 12,000
Long-term debt - net 193,375 193,481
- ---------------------------------------------------------------------------------------------------------------------------
Total capitalization 390,176 388,993
- ---------------------------------------------------------------------------------------------------------------------------
Current Liabilities:
Notes payable - banks 69,000 69,000
Long-term debt - current portion 30 30
Accounts payable and other liabilities 11,242 16,197
Customers' deposits 300 300
Municipal and state taxes accrued 17,528 13,887
Interest accrued 4,010 3,483
Preferred stock dividends accrued 59 59
- ---------------------------------------------------------------------------------------------------------------------------
Total current liabilities 102,169 102,956
- ---------------------------------------------------------------------------------------------------------------------------
Deferred Credits:
Customers' advances for construction 39,738 43,636
Federal income taxes 76,653 75,942
State income taxes 185 185
Unamortized investment tax credits 8,212 8,245
Accumulated postretirement benefits 3,916 3,651
- ---------------------------------------------------------------------------------------------------------------------------
Total deferred credits 128,704 131,659
- ---------------------------------------------------------------------------------------------------------------------------
Contributions in Aid of Construction 35,732 31,599
- ---------------------------------------------------------------------------------------------------------------------------
Commitments and Contingent Liabilities
- ---------------------------------------------------------------------------------------------------------------------------
Total $ 656,781 $ 655,207
===========================================================================================================================
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
-3-
<PAGE>
<TABLE>
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CAPITALIZATION
(In Thousands Except Share Amounts)
<CAPTION>
March 31, December 31,
1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
E'town Corporation:
Common Shareholders' Equity:
Common stock without par value, authorized,
15,000,000 shares, issued 1997, 7,869,886
shares; 1996, 7,807,751 shares $ 147,464 $ 145,660
Paid-in capital 1,315 1,315
Capital stock expense (5,160) (5,160)
Retained earnings 41,919 42,434
Less cost of treasury stock;
1997 and 1996, 25,876 shares (737) (737)
- ---------------------------------------------------------------------------------------------------------------------------
Total common shareholders' equity 184,801 183,512
- ---------------------------------------------------------------------------------------------------------------------------
Elizabethtown Water Company:
Cumulative Preferred Stock
$100 par value, authorized, 200,000 shares; $5.90
series, issued and outstanding, 120,000 shares 12,000 12,000
Cumulative Preferred Stock:
$25 par value, authorized, 500,000 shares;
none issued
- ---------------------------------------------------------------------------------------------------------------------------
Long-Term Debt:
E'town Corporation:
6 3/4% Convertible Subordinated
Debentures, due 2012 11,436 11,548
Elizabethtown Water Company:
7.20% Debentures, due 2019 10,000 10,000
7 1/2% Debentures, due 2020 15,000 15,000
6.60% Debentures, due 2021 10,500 10,500
6.70% Debentures, due 2021 15,000 15,000
8 3/4% Debentures, due 2021 27,500 27,500
8% Debentures, due 2022 15,000 15,000
5.60% Debentures, due 2025 40,000 40,000
7 1/4% Debentures, due 2028 50,000 50,000
The Mount Holly Water Company:
Notes Payable (due serially through 2000) 83 87
- ---------------------------------------------------------------------------------------------------------------------------
Total long-term debt 194,519 194,635
Unamortized discount-net (1,144) (1,154)
- ---------------------------------------------------------------------------------------------------------------------------
Total long-term debt-net 193,375 193,481
- ---------------------------------------------------------------------------------------------------------------------------
Total Capitalization $ 390,176 $ 388,993
===========================================================================================================================
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
-4-
<PAGE>
<TABLE>
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
(In Thousands Except Share Amounts
<CAPTION>
Year Ended
March 31, December 31,
1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
Common Stock:
<S> <C> <C>
Balance at Beginning of Period $ 145,661 $ 138,667
Common stock issued under Dividend
Reinvestment and Stock Purchase Plan (1997,
59,635 shares; 1996, 258,673 shares) 1,735 6,993
Exercise of stock options (1997, 2,500 shares) 68
- ---------------------------------------------------------------------------------------------------------------------------
Balance at End of Period 147,464 145,660
- ---------------------------------------------------------------------------------------------------------------------------
Paid-in Capital: 1,315 1,315
- ---------------------------------------------------------------------------------------------------------------------------
Capital Stock Expense: (5,160) (5,160)
- ---------------------------------------------------------------------------------------------------------------------------
Retained Earnings:
Balance at Beginning of Period 42,434 42,995
Net Income 3,470 15,073
Dividends on common stock
(1997, $.51, 1996, $2.04) (3,985) (15,634)
- ---------------------------------------------------------------------------------------------------------------------------
Balance at End of Period 41,919 42,434
- ---------------------------------------------------------------------------------------------------------------------------
Treasury Stock: (737) (737)
- ---------------------------------------------------------------------------------------------------------------------------
Total Common Shareholders' Equity $ 184,801 $ 183,512
===========================================================================================================================
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
-5-
<PAGE>
<TABLE>
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(In Thousands)
<CAPTION>
Three Months Ended Twelve Months Ended
March 31, March 31,
1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities:
<S> <C> <C> <C> <C>
Net Income $ 3,470 $ 3,176 $ 15,367 $ 15,457
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 3,022 2,344 10,571 9,025
Write-down of non-utility property and
other investments 243
(Increase) decrease in deferred charges (299) (495) (442) 401
Deferred income taxes and investment tax
credits-net 678 1,440 4,155 5,237
Capitalized interest and AFUDC (160) (2,062) (5,347) (6,612)
Other operating activities-net 148 (63) 516 (201)
Change in current assets and current liabilities
excluding cash, short-term investments and
current portion of debt:
Customer and other accounts receivable (1,750) (399) (1,554) (3,365)
Unbilled revenues 135 130 (1,907) 35
Accounts payable and other liabilities (4,955) (4,254) (1,335) 1,100
Accrued/prepaid interest and taxes 5,321 3,770 (204) (299)
Other 111 178 (200) (38)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 5,721 3,765 19,620 20,983
- ---------------------------------------------------------------------------------------------------------------------------
Cash Flows Provided by Financing Activities:
Proceeds from issuance of common stock 1,803 1,951 6,845 24,143
Proceed from issuance of debentures 40,000
Debt and preferred stock issuance and
amortization costs 112 75 467 (373)
Repayment of long-term debt (116) (10) (339) (281)
Contributions and advances for construction-net 235 937 1,819 3,764
Net increase in notes payable - banks 5,500 36,500 (2,500)
Dividends paid on common stock (3,985) (3,857) (15,762) (15,216)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash (used) provided by financing activities (1,951) 4,596 29,530 49,537
- ---------------------------------------------------------------------------------------------------------------------------
Cash Flows Used for Investing Activities:
Utility plant expenditures (excluding allowance
for funds used during construction) (3,466) (11,547) (47,044) (73,887)
Development costs of land (excluding
capitalized interest) (37) (37) (313) (145)
- ---------------------------------------------------------------------------------------------------------------------------
Cash used for investing activities (3,503) (11,584) (47,357) (74,032)
- ---------------------------------------------------------------------------------------------------------------------------
Net (Decrease) Increase in Cash and
Cash Equivalents 267 (3,223) 1,793 (3,512)
Cash and Cash Equivalents at
Beginning of Period 3,228 4,925 1,702 5,214
- ---------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 3,495 $ 1,702 $ 3,495 $ 1,702
===========================================================================================================================
Supplemental Disclosures of Cash
Flow Information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 3,791 $ 3,074 $ 9,683 $ 9,073
Income taxes $ -0- $ 398 $ 5,325 $ 5,145
Preferred stock dividends $ 177 $ 177 $ 708 $ 708
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
-6-
<PAGE>
<TABLE>
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED INCOME
(In Thousands)
<CAPTION>
Three Months Ended Twelve Months Ended
March 31, March 31,
1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating Revenues $ 30,013 $ 25,760 $ 114,611 $ 108,984
- ---------------------------------------------------------------------------------------------------------------------------
Operating Expenses:
Operation 10,840 10,789 43,764 43,658
Maintenance 1,475 1,474 5,860 5,914
Depreciation 3,022 2,344 10,571 9,025
Revenue taxes 3,779 3,228 14,371 13,696
Real estate, payroll and other taxes 804 819 2,854 2,885
Federal income taxes 2,001 1,455 7,906 7,775
- ---------------------------------------------------------------------------------------------------------------------------
Total operating expenses 21,921 20,109 85,326 82,953
- ---------------------------------------------------------------------------------------------------------------------------
Operating Income 8,092 5,651 29,285 26,031
- ---------------------------------------------------------------------------------------------------------------------------
Other Income (Expense):
Allowance for equity funds used during
construction 44 1,099 2,670 3,457
Federal income taxes (46) (433) (1,075) (1,354)
Other - net 88 139 401 413
- ---------------------------------------------------------------------------------------------------------------------------
Total other income (expense) 86 805 1,996 2,516
- ---------------------------------------------------------------------------------------------------------------------------
Total Operating and Other Income 8,178 6,456 31,281 28,547
- ---------------------------------------------------------------------------------------------------------------------------
Interest Charges:
Interest on long-term debt 3,253 3,253 13,011 11,451
Other interest expense - net 986 408 3,218 2,328
Allowance for funds used during construction (35) (887) (2,357) (2,830)
Amortization of debt discount and expense-net 89 88 363 331
- ---------------------------------------------------------------------------------------------------------------------------
Total interest charges 4,293 2,862 14,235 11,280
- ---------------------------------------------------------------------------------------------------------------------------
Income Before Preferred Stock Dividends 3,885 3,594 17,046 17,267
Preferred Stock Dividends 203 203 813 813
- ---------------------------------------------------------------------------------------------------------------------------
EARNINGS APPLICABLE TO COMMON STOCK $ 3,682 $ 3,391 $ 16,233 $ 16,454
===========================================================================================================================
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
-7-
<PAGE>
<TABLE>
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<CAPTION>
March 31, December 31,
Assets 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
Utility Plant-At Original Cost:
<S> <C> <C>
Utility plant in service $ 656,555 $ 654,713
Construction work in progress 9,700 7,994
- ---------------------------------------------------------------------------------------------------------------------------
Total utility plant 666,255 662,707
Less accumulated depreciation
and amortization 105,707 102,683
- ---------------------------------------------------------------------------------------------------------------------------
Utility plant-net 560,548 560,024
- ---------------------------------------------------------------------------------------------------------------------------
Non-utility Property 80 81
- ---------------------------------------------------------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents 3,306 3,122
Customer and other accounts receivable
(less reserve: 1997, $644; 1996, $566) 17,025 16,725
Unbilled revenues 9,221 9,356
Materials and supplies-at average cost 1,934 2,045
Prepaid insurance, taxes, other 2,483 3,742
- ---------------------------------------------------------------------------------------------------------------------------
Total current assets 33,969 34,990
- ---------------------------------------------------------------------------------------------------------------------------
Deferred Charges:
Waste residual management 935 1,064
Unamortized debt and preferred stock expenses 8,884 8,989
Taxes recoverable through future rates 30,435 30,435
Postretirement benefit expense 3,606 3,564
Other unamortized expenses 2,050 1,632
- ---------------------------------------------------------------------------------------------------------------------------
Total deferred charges 45,910 45,684
- ---------------------------------------------------------------------------------------------------------------------------
Total $ 640,507 $ 640,779
===========================================================================================================================
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
-8-
<PAGE>
<TABLE>
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<CAPTION>
March 31, December 31,
Capitalization and Liabilities 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
Capitalization (Note 3):
<S> <C> <C>
Common shareholder's equity $ 182,491 $ 182,293
Cumulative preferred stock 12,000 12,000
Long-term debt - net 181,939 181,933
- ---------------------------------------------------------------------------------------------------------------------------
Total capitalization 376,430 376,226
- ---------------------------------------------------------------------------------------------------------------------------
Current Liabilities:
Notes payable - banks 69,000 69,000
Long-term debt - current portion 30 30
Accounts payable and other liabilities 11,169 17,093
Customers' deposits 300 300
Municipal and state taxes accrued 17,528 13,887
Interest accrued 3,881 3,158
Preferred stock dividends accrued 59 59
- ---------------------------------------------------------------------------------------------------------------------------
Total current liabilities 101,967 103,527
- ---------------------------------------------------------------------------------------------------------------------------
Deferred Credits:
Customers' advances for construction 39,738 43,636
Federal income taxes 74,662 73,950
Unamortized investment tax credits 8,212 8,245
Accumulated postretirement benefits 3,766 3,596
- ---------------------------------------------------------------------------------------------------------------------------
Total deferred credits 126,378 129,427
- ---------------------------------------------------------------------------------------------------------------------------
Contributions in Aid of Construction 35,732 31,599
- ---------------------------------------------------------------------------------------------------------------------------
Commitments and Contingent Liabilities
- ---------------------------------------------------------------------------------------------------------------------------
Total $ 640,507 $ 640,779
===========================================================================================================================
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
-9-
<PAGE>
<TABLE>
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED CAPITALIZATION
(In Thousands Except Share Amounts)
<CAPTION>
March 31, December 31,
1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Shareholder's Equity:
Common stock without par value, authorized,
10,000,000 shares, issued 1997 and 1996,
1,974,902 shares $ 15,741 $ 15,741
Paid-in capital 117,957 117,457
Capital stock expense (485) (485)
Retained earnings 49,278 49,580
- ---------------------------------------------------------------------------------------------------------------------------
Total common shareholder's equity 182,491 182,293
- ---------------------------------------------------------------------------------------------------------------------------
Cumulative Preferred Stock
$100 par value, authorized, 200,000 shares; $5.90 series,
issued and outstanding, 120,000 shares 12,000 12,000
Cumulative Preferred Stock:
$25 par value, authorized, 500,000 shares;
none issued
- ---------------------------------------------------------------------------------------------------------------------------
Long-Term Debt:
7.20% Debentures, due 2019 10,000 10,000
7 1/2% Debentures, due 2020 15,000 15,000
6.60% Debentures, due 2021 10,500 10,500
6.70% Debentures, due 2021 15,000 15,000
8 3/4% Debentures, due 2021 27,500 27,500
8% Debentures, due 2022 15,000 15,000
5.60% Debentures, due 2025 40,000 40,000
7 1/4% Debentures, due 2028 50,000 50,000
The Mount Holly Water Company:
Notes Payable (due serially through 2000) 83 87
- ---------------------------------------------------------------------------------------------------------------------------
Total long-term debt 183,083 183,087
Unamortized discount-net (1,144) (1,154)
- ---------------------------------------------------------------------------------------------------------------------------
Total long-term debt-net 181,939 181,933
- ---------------------------------------------------------------------------------------------------------------------------
Total Capitalization $ 376,430 $ 376,226
===========================================================================================================================
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
-10-
<PAGE>
<TABLE>
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
(In Thousands)
<CAPTION>
Year Ended
March 31, December 31,
1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock: $ 15,741 $ 15,741
- ---------------------------------------------------------------------------------------------------------------------------
Paid-in Capital:
Balance at Beginning of Period 117,457 112,157
Capital contributed by parent company 500 5,300
- ---------------------------------------------------------------------------------------------------------------------------
Balance at End of Period 117,957 117,457
- ---------------------------------------------------------------------------------------------------------------------------
Capital Stock Expense: (485) (485)
- ---------------------------------------------------------------------------------------------------------------------------
Retained Earnings:
Balance at Beginning of Period 49,581 49,272
Earnings applicable to common stock 3,885 16,755
Dividends on common stock (3,985) (15,634)
Dividends on preferred stock (203) (813)
- ---------------------------------------------------------------------------------------------------------------------------
Balance at End of Period 49,278 49,580
- ---------------------------------------------------------------------------------------------------------------------------
Total Common Shareholder's Equity $ 182,491 $ 182,293
===========================================================================================================================
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
-11-
<PAGE>
<TABLE>
LIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED CASH FLOWS
(In Thousands)
<CAPTION>
Three Months Ended Twelve Months Ended
March 31, March 31,
1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities:
<S> <C> <C> <C> <C>
Income before preferred stock dividends of subsidiary $ 3,885 $ 3,594 $ 17,046 $ 17,267
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 3,022 2,344 10,571 9,025
(Increase) decrease in deferred charges (289) (510) (392) 448
Deferred income taxes and investment tax
credits-net 679 1,440 4,092 5,293
Allowance for funds used during construction (79) (1,986) (5,027) (6,287)
Other operating activities-net 113 (93) 274 (278)
Change in current assets and current liabilities
excluding cash, short-term investments and
current portion of debt:
Customer and other accounts receivable (300) 1,438 (1,520) (2,104)
Unbilled revenues 135 130 (1,907) 35
Accounts payable and other liabilities (5,924) (4,235) (1,324) 1,058
Accrued/prepaid interest and taxes 5,623 4,077 (409) 847
Other 111 178 (200) (38)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 6,976 6,377 21,204 25,266
- ---------------------------------------------------------------------------------------------------------------------------
Cash Flows Provided by Financing Activities:
Capital contributed by parent company 500 577 5,223 22,503
Proceed from issuance of debentures 40,000
Debt and preferred stock issuance and
amortization costs 105 66 435 (416)
Repayment of long-term debt (4) (7) (27) (36)
Contributions and advances for construction-net 235 937 1,819 3,764
Net increase in notes payable - banks 5,000 37,000 (3,000)
Dividends paid on common and preferred stock (4,162) (4,034) (16,470) (15,924)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash (used) provided by financing activities (3,326) 2,539 27,980 46,891
- ---------------------------------------------------------------------------------------------------------------------------
Cash Flows Used for Investing Activities:
Utility plant expenditures (excluding allowance
for funds used during construction) (3,466) (11,547) (47,044) (73,887)
- ---------------------------------------------------------------------------------------------------------------------------
Cash used for investing activities (3,466) (11,547) (47,044) (73,887)
- ---------------------------------------------------------------------------------------------------------------------------
Net (Decrease) Increase in Cash and
Cash Equivalents 184 (2,631) 2,140 (1,730)
Cash and Cash Equivalents at
Beginning of Period 3,122 3,797 1,166 2,896
- ---------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 3,306 $ 1,166 $ 3,306 $ 1,166
===========================================================================================================================
Supplemental Disclosures of Cash
Flow Information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 3,482 $ 2,751 $ 9,212 $ 8,591
Income taxes $ -0- $ 398 $ 5,325 $ 4,556
Preferred stock dividends $ 177 $ 177 $ 708 $ 708
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
-12-
<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) and owner of a 65% interest in
Applied Watershed Management, LLC (AWM). The Mount Holly Water Company (Mount
Holly) is a wholly owned subsidiary of Elizabethtown
2. INTERIM FINANCIAL STATEMENTS
The financial statements reflect all adjustments
which, in the opinion of management, are necessary for a fair presentation. The
Notes to Consolidated Financial Statements accompanying the 1996 Annual Report
to Shareholders and the 1996 Form 10-K should be read in conjunction with this
report.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period
Certain prior year amounts have been reclassified to conform to the current
year's presentation.
3. CAPITALIZATION
E'town routinely makes equity contributions to Elizabethtown which represent a
portion of the proceeds of common stock issued under E'town's Dividend
Reinvestment and Stock Purchase Plan (DRP). E'town contributed $500,000 from the
DRP proceeds of $1,735,000 (59,635 shares) to Elizabethtown for the three months
ended March 31, 1997.
4. LINES OF CREDIT
Elizabethtown has a committed revolving credit agreement (Agreement) with an
agent bank and five additional banks. The Agreement was executed in 1994 to
provide up to $60,000,000 in revolving short-term financing to partially finance
Elizabethtown's capital program. The Agreemenexpires in July 1997 at which time
the Company may convert any outstanding balances to a five-year, fully
amortizing term loan. After July 1997, the Company expects to meet its
short-term financing needs with uncommitted lines of credit. These lines,
together with internal funds and proceeds of future issuances of debt and
preferred stock by Elizabethtown and capital contributions by E'town, are
expected to be sufficient to finance Elizabethtown's and Mount Holly's capital
needs. At March 31, 1997, Elizabethtown had outstanding borrowings of
$60,000,000 under the Agreement and $9,000,000 of borrowings under uncommitted
lines of credit. Of the $60,000,000 outstanding under the Agreement at March 31,
1997, $50,000,000 is expected to be repaid with the proceeds of tax-exempt
Variable Rate Demand Notes to be issued in the second quarter of 1997.
E'town has $20,000,000 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.
5. EARNINGS PER SHARE
Primary earnings per share are computed on the basis of the weighted average
number of shares outstanding, plus common stock equivalents, which reflect the
assumption that all stock options are exercised. Fully diluted earnings per
share assume both the conversion of the 6 3/4% Convertible Subordinated
Debentures and the common stock equivalents. Reference is made to Exhibit 11 for
the computations of earnings per share.
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<PAGE>
6. NON-UTILITY PROPERTY AND OTHER INVESTMENTS
Included in Non-utililty Property and Other Investments at March 31, 1997 is an
investment of $1,254,715 ($191,764 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 March 31, 1997 is
$12,888,317 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 1996, the estimated
net realizable value of each property exceeds its respective carrying value as
of March 31, 1997. No information has come to the attention of management since
these appraisals were last performed that would indicate the aggregate carrying
value of these parcels has been impaired.
The Corporation will continue to monitor the relationship between the carrying
and net realizable values of its properties through updated appraisals and its
investment in SEGS based upon information provided by SEGS management and
through cash flow analyses.
7. REGULATORY MATTERS
Rates
Elizabethtown On October 25, 1996 Elizabethtown received a rate increase under a
stipulation resulting in an increase in annual revenues of $21,800,000. The rate
increase reflects a full allowance for the estimated capital cost as well as a
full allowance for the operating costs of the Canal Road Water Treatment Plant
(Plant). The Plant was placed in service on October 24, 1996 for a cost of
$101,554,469 plus an Allowance for Funds Used During Construction of
$13,499,744.
On April 21, 1997 Elizabethtown and Mount Holly filed petitions for rate
increases, to be effective January 1, 1998, for the recovery of costs associated
with Statement of Financial Accounting Standards (SFAS) No. 106 "Employers'
Accounting For Postretirement Benefits Other Than Pensions." The resulting rate
increases would reflect recovery over a fifteen year period of amounts
previously deferred on the Consolidated Balance Sheets for postretirement
benefits since 1993 and prospectively, the difference between the amounts
currently recovered in rates and the full SFAS No. 106 expense on an accrual
basis. The petitions were filed in connection with a generic stipulation signed
by several New Jersey public utilities, as well as the New Jersey Board of
Public Utilities and the New Jersey Division of Ratepayer Advocate. The
settlement was designed to provide a generic mechanism for New Jersey utilities
to recover postretirement costs that have been deferred since the adoption of
SFAS 106. The increases in operating revenues resulting from these petitions are
expected to be $581,332 and $16,417 for Elizabethtown and Mount Holly,
respectively
Mount Holly
In June 1995, Mount Holly petitioned the BPU for an increase in rates, to take
place in two phases. The first phase was stipulated for a rate increase
effective February 1996 of $550,000. The second phase would recover the cost of
a new water supply, treatment and transmission system necessary to obtain water
outside a designated portion of an aquifer currently used by Mount Holly, and to
treat and pump the water into the Mount Holly distribution system. Management
believes this project is the most cost-effective alternative available to Mount
Holly to comply with recent state legislation that restricts the amount of water
that can be withdrawn from an aquifer in certain areas of southern New Jersey.
The project, referred to as the Mansfield project, is currently estimated to
-14-
<PAGE>
cost $16,500,000, excluding AFUDC. Mount Holly has expended $2,863,691 on the
Mansfield Project as of March 31, 1997, excluding AFUDC. The land for the supply
and treatment facilities has been purchased and test wells have been drilled and
can produce the required supply. On October 5, 1995, the New Jersey Department
of Environmental Protection (NJDEP) granted Mount Holly a water allocation
permit for four wells that are to be the water supply for this project. On
October 20, 1995, another water purveyor requested of the NJDEP, and was
subsequently granted, an adjudicatory hearing in opposition to the permit.
Hearings on the matter before an administrative law judge are pending. A
decision is expected later in 1997. The Company and Mount Holly believe that the
permit in question will be upheld, but cannot predict with certainty the outcome
of the matter. In the event that the objector is successful and the permit is
rescinded, Mount Holly would meet its regulatory obligation to provide an
alternate source of water by purchasing water from that purveyor
8. NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued SFAS No. 128,"Earnings Per
Share" which is effective for financial statements issued after December 15,
1997. The pronouncement simplifies the calculation of earnings per share in that
a calculation of "basic" earnings per share is reported in lieu of primary
earnings per share. Basic earnings per share includes only the weighted average
number of common shares outstanding for the period and does not consider the
dilutive effect of the Corporatio's outstanding stock options. There would be
no effect on the Corporation's calculation of earnings per share if the
pronouncement were applied currently.
The Financial Accounting Standards Board has also issued SFAS No. 129,
"Disclosure of Information about Capital Structure," which is also effective for
financial statements issued after December 15, 1997. The Corporation has
historically disclosed the information required by the pronouncement and
therefore, the adoption of SFAS No. 129 will have no effect on the Corporation's
financial statements.
9. PRIVATIZATION CONTRACT
Following a competitive selection process, Edison Township chose to negotiate
with E'town for a 20-year contract to operate the Township's water supply
system. This system serves about 11,000 residential, commercial and industrial
customers. The parties have completed negotiations. The transaction still
requires state agency approvals. Under the terms of the contract E'town would
make expenditures of approximately $25,000,000 over the 20-year period. Of this
total approximately $14,000,000 would be expended in the first three years.
-15-
<PAGE>
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) and owner of a 65% interest in Applied
Watershed Management, LLC (AWM). The Mount Holly Water Company (Mount Holly) is
a wholly owned subsidiary of Elizabethtown. The assets and operating results of
Elizabethtown constitute the predominant portions of E'town's assets and
operating results. Mount Holly contributed 3% of the Company's consolidated
operating revenues for 1996. The following analysis sets forth significant
events affecting the financial condition of E'town and Elizabethtown at March
31, 1997, and the results of operations for the three and twelve months ended
March 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Capital Expenditures Program
Capital expenditures, primarily for water utility plant, were $3.5 million for
the first quarter of 1997. Capital expenditures for the three-year period ending
December 31, 1999 are estimated to be $126.1 million, of which $125.3 million is
for utility plant ($105.8 million for Elizabethtown and $19.5 million for Mount
Holly), and $.8 million for non-utility expenditures. Elizabethtown's three-year
capital program includes $69.3 million for projects of a routine nature. This
program also includes $56.0 million of major projects such as new transmission
mains, improvements to pumping facilities, construction of a new operations
center in the western portion of our service territory and other miscellaneous
projects
Mount Holly expects to incur significant capital expenditures later in 1997 and
1998 to construct new water supply, treatment and transmission facilities as
discussed below.
To ensure an adequate supply of quality water from an aquifer serving parts of
southern New Jersey, state legislation requires Mount Holly, as well as other
suppliers obtaining water from designated portions of this aquifer, to reduce
pumpage from its wells. Mount Holly has received approval from the New Jersey
Department of Environmental Protection (NJDEP) for its plan to develop a new
water supply, treatment and transmission system necessary to obtain water
outside the designated portion of the aquifer, and to treat the water and pump
it into the Mount Holly system. This is referred to as the Mansfield Project.
The project is currently estimated to cost $16.5 million, excluding AFUDC, of
which $13.6 million is anticipated to be spent over the next three years. Mount
Holly has expended $2.9 million on the Mansfield Project as of March 31, 1997,
excluding AFUDC. The land for the supply and treatment facilities has been
purchased and wells have been drilled and can produce the required supply.
In October 1995, the NJDEP granted Mount Holly a water allocation permit for
four wells that are to be the water supply for the Mansfield Project. Later that
month, another water purveyor requested of the NJDEP, and was subsequently
granted, an adjudicatory hearing in opposition to the permit. Hearings on the
matter before an administrative law judge are pending. A decision is expected
later in 1997. The Company and Mount Holly believe that the permit in question
will be upheld, but cannot predict with certainty the outcome of the matter. In
the event that the objector is successful and the permit is rescinded, Mount
Holly would meet its regulatory obligation to provide an alternate source of
water by purchasing water from that purveyor. Management believes the Mansfield
Project is the most cost-effective alternative available to Mount Holly to
comply with recent state legislation that restricts the amount of water that can
be withdrawn from the aquifer.
In June 1995, Mount Holly petitioned the New Jersey Board of Public Utilities
(BPU) for an increase in rates, to take place in two phases. The first phase was
stipulated for a rate increase effective February 1996 of $.6 million. The
second phase would recover the cost of the Mansfield project.
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<PAGE>
On October 25, 1996 Elizabethtown received a rate increase under a stipulation
resulting in an increase in annual revenues of $21,800,000. The rate increase
reflects a full allowance for the estimated capital cost as well as a full
allowance for the operating costs of the Canal Road Water Treatment Plant
(Plant). The Plant was placed in service on October 24, 1996 for a cost of
$101.6 million plus an Allowance for Funds Used During Construction of $13.5
million.
Capital Resources
For the three-year period ending December 31, 1999, Elizabethtown, including
Mount Holly, estimates that 57% of its capital expenditures are expected to be
financed with internally generated funds (after payment of common stock
dividends). The balance will be financed with a combination of proceeds from the
sale of E'town common stock, long-term debentures, proceeds of tax-exempt New
Jersey Economic Development Authority (NJEDA) bonds and short-term borrowings.
The NJEDA has granted preliminary approval for the financing of almost all of
Elizabethtown's major projects during the next three years and the Mansfield
Project. Elizabethtown expects to pursue tax-exempt financing to the extent that
final allocations are granted by the NJEDA. The Company's senior debt is
currently rated A3 and A by Moody's Investors Service and Standard & Poor's
Ratings Group, respectively. Standard & Poors has recently reaffirmed the
Company's A rating and has upgraded its rating outlook from "negative" to
"stable."
In the second quarter of 1997, Elizabethtown expects to issue $50.0 million of
tax-exempt Variable Rate Demand Notes through the NJEDA. The proceeds of the
issue are expected to be used to repay amounts outstanding under the revolving
credit agreement discussed below.
Elizabethtown continues to obtain a portion of the funds required for its
capital program through borrowings under a revolving credit agreement
(Agreement) with an agent bank and five additional banks. The Agreement was
executed in 1994 to provide up to $60.0 million in revolving short-term
financing to partially fund Elizabethtown's capital program, the predominant
portion of which was the Plant , which was placed in service in October 1996. At
March 31, 1997 Elizabethtown had outstanding borrowings of $60.0 million under
the Agreement and $9.0 million of borrowings under uncommitted lines of credit.
The Agreement expires in July 1997 and provides that the Company may convert any
outstanding balances to a five-year, fully amortizing term loan. However, upon
expiration of the Agreement and after the refinancing discussed above, the
Company expects to meet its short-term financing needs with uncommitted lines of
credit.
RESULTS OF OPERATIONS
Net Income for the three months ended March 31, 1997 was $3.5 million or $.44
per share as compared to $3.2 million or $.42 per share for the same period in
1996. Net income for the twelve months ended March 31, 1997 was $15.4 million or
$1.99 per share as compared to $15.5 million or $2.11 per share for the same
period in 1996. Net income increased $.3 million for the three month period,
primarily due to higher revenues related to an increase in rates effective
October 1996 offset by the financing and operating costs of the Plant. Net
income decreased $.1 million for the twelve month period, primarily due to
increases in financing and operating costs.
Operating Revenues increased $4.4 million or 16.9% for the first quarter of 1997
compared to the same period in 1996. The increase resulted primarily from rate
increases of $21.8 million and $.6 million for Elizabethtown and Mount Holly in
October and January 1996, respectively. The combined effect of these increases
in rates accounted for an increase in operating revenues of $5.0 million. Fire
service revenues increased $.2 million as a result of the installation of
additional facilities upon which these revenues are billed. Miscellaneous
revenues increased $.2 million. These increases were offset by a decrease in
water consumption primarily in the wholesale and industrial customer classes of
$.7 million and $.3 million, respectively.
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<PAGE>
Operating revenues increased $5.8 million or 5.3% for the twelve months ended
March 31, 1997 compared to the same period in 1996. The increase resulted
primarily from the effect of the increases in rates, as indicated above,
totaling $9.1 million. Fire service revenues increased $.6 million, primarily
for the reason indicated above. Miscellaneous revenues were higher by $.2
million. These increases were offset by a decrease in water consumption of $2.0
million for retail customers, $1.6 million for wholesale customers and $.6
million for industrial customers. This reduced consumption was due primarily, to
unusually cool, wet weather during the summer months of 1996.
Operation Expenses increased $.2 million or 1.4% for the first quarter of 1997
compared to the same period in 1996 and increased $.3 million or .6% for the
twelve months ended March 31, 1997 compared to the same period in 1996. These
increases were due primarily, to ongoing cost control efforts in various
operating areas within the Company.
Maintenance Expenses changed by insignificant amounts for the three and twelve
month periods ended March 31, 1997, compared to the same periods in 1996, as
Elizabethtown and Mount Holly continue to realize the benefits of various
preventive maintenance programs instituted in recent years.
Depreciation Expense increased $.7 million or 28.9% and $1.5 million or 17.1%
for the three and twelve month periods ended March 31, 1997, compared to the
same periods in 1996. The increases were due primarily to a higher level of
depreciable plant in service, of which the predominant portion was related the
Plant. The Plant accounted for increases of $.7 million and $1.2 million for the
three and twelve month periods, respectively. Elizabethtown's rate increase
reflected a full allowance for the depreciation expense associated with the
Plant. In addition, under the terms of Elizabethtown's rate decision, which was
effective in October 1996, the Company is no longer required to record
depreciation on assets acquired through Customers' Advances for Construction and
Contributions in Aid of Construction. This accounted for decreases in
depreciation expense of $.2 million and $.3 million for the three and twelve
month periods, respectively.
Revenue Taxes increased $.6 million, or 17.1% and $.7 million or 4.9% for the
three and twelve month periods ended March 31, 1997, compared to the same
periods in 1996 based upon the increases in operating revenues, as discussed
above, upon which these taxes are calculated.
Real Estate, Payroll and Other Taxes Expenses changed by insignificant amounts
for the three and twelve month periods ended March 31, 1997, compared to the
same periods in 1996.
Federal Income Taxes as a component of operating expenses increased $.5 million
or 41.0% for the first quarter of 1997 compared to the comparable period in 1996
and decreased an insignificant amount for the twelve month period ended March
31, 1997 compared to the comparable period in 1996 due to the changes in the
components of taxable income discussed herein.
Other Income (Expense) decreased $.7 million or 90.5% and $.5 million or 17.4%
for the three and twelve month periods ended March 31, 1997, compared to the
same periods in 1996. These decreases are due primarily, to the reduction in the
Allowance for Funds Used During Construction (AFUDC), the largest portion of
which was recorded while the Plant was under construction. These decreases were
offset by the associated federal income taxes.
Total Interest Charges increased $1.4 million or 47.3% for the first
quarter of 1997 compared to the same period in 1996 due primarily to a
reduction in the debt component of AFUDC. This reduction in AFUDC was
related to the completion of the Plant in October 1996. This increase in
total interest charges was further affected by an increase in short-term
borrowings incurred under the revolving credit agreement to finance the
construction of Elizabethtown's ongoing capital program, the predominant
portion of which was the Plant.
Total Interest Charges increased $3.1 million or 26.2% for the twelve
months ended March 31, 1997 compared to the same period in 1996. The
increase was due primarily, to the effect of the issuance of additional
borrowings to finance Elizabethtown's and Mount Holly's ongoing capital
program.
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<PAGE>
ECONOMIC OUTLOOK
Forward Looking Information
Certain information included in this report contains forward looking
statements within the meaning of the Federal securities laws. Any forward
looking statements are based upon information currently available and are
subject to risks and uncertainties that could cause actual results to
differ materially from those expressed in the statements. Such risks and
uncertainties include, without limitation, actions of regulators, the
effects of weather on water consumption, changes in historical patterns of
water consumption and demand, including changes through increased use of
water-conserving devices, conditions in capital markets, increases in
operating expenses due to factors beyond the Corporation's control, changes
in environmental regulation and associated costs of compliance, natural
disasters and other claims or assessments made upon the Corporation.
E'town Corporation and Subsidiaries
Consolidated earnings for E'town for the next several years will be
determined by (i) Elizabethtown's ability to increase sales and to further
control operating expenses through improved productivity, (ii) Mount
Holly's, and later Elizabethtown's, ability to obtain adequate and timely
rate relief in connection with future utility plant additions and, to a
lesser degree, (iii) the ability of E'town and Properties to generate
returns from their unregulated businesses. E'town still expects earnings
and earnings per share to improve for the year. However, because our first
quarter results are lower than expected, our original goal to increase
earnings per share by 15% for 1997 may be difficult to attain. This
expectation assumes a return to normal water consumption patterns for the
remainder of 1997 as well as the absence of adverse conditions which could
occur as noted in the description of forward looking information detailed
above.
Elizabethtown and Subsidiary - Regulated Utilities
On October 25, 1996, a rate increase under a stipulation (1996 Stipulation)
went into effect for Elizabethtown. This will result in an increase in
annual operating revenues of $21.8 million. Elizabethtown, excluding Mount
Holly, earned a rate of return on common equity of 9.0% in 1996.
Elizabethtown's authorized rate of return on common equity is currently
11.25%. In 1997, Elizabethtown expects to close this gap between its earned
return on common equity in 1996 and its authorized return. This assumes a
return to normal water consumption patterns in 1997. Realizing rates of
return in 1998 comparable to authorized levels will require continued
customer additions and the success of ongoing cost control efforts, as well
as rate relief later in that year.
Mount Holly earned a rate of return on common equity of 3.5% in 1996,
compared to an authorized rate of return of 11.25% established in its most
recent rate proceeding. Mount Holly contributed $.02 to E'town's
consolidated earnings per share in 1996. Management expects Mount Holly to
increase its contribution to E'town's earnings per share by obtaining
additional rate relief upon the completion of Mount Holly's Mansfield
project for recovery of the costs of that and other projects. Such rate
relief should also enable Mount Holly to realize rates of return comparable
to authorized levels.
E'town and Properties
The activities of E'town and Properties are not regulated by the BPU.
E'town
Following a competitive selection process, Edison Township chose to
negotiate with E'town for a 20-year contract to operate the Township's
water supply system. This system serves about 11,000 residential,
commercial and industrial customers. The parties have completed
negotiations. The transaction still requires state agency approvals. Under
the terms of the contract E'town would make expenditures of approximately
$25 million over the 20-year period. Of this total approximately $14
million would be expended in the first three years. E'town expects to
realize a return on its investment in the project comparable to that
realized by E'tow's regulated utility operations. The earnings effect is
expected to be small during the first few years and is expected to increase
after year five.
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<PAGE>
In order to form AWM, in 1995 the Corporation entered into a three-year
joint venture agreement with Applied Wastewater General Partnership (AWG) a
unit of several privately held and affiliated companies providing design,
engineering, construction and operating services for water and wastewater
facilities. AWM has been pursuing opportunities to design, finance,
engineer, construct, own, operate and/or sell water and wastewater
facilities for municipal and corporate clients, primarily in New Jersey.
E'town has agreed to provide capital contributions to AWM of up to $.5
million to finance AWM's working capital needs. E'town may provide
additional financing for particular projects of AWM. AWG has been providing
the substantial portion of the operations-related services required to be
performed by AWM. Either party may terminate the agreement at any time.
E'town formed AWM to expand its range of services to include wastewater,
particularly to the smaller communities that surround the franchise areas
of Elizabethtown and Mount Holly.
On January 1, 1997, AWM commenced a three-year contract to operate the
wastewater collection and treatment facilities owned by Environmental
Disposal Corporation (EDC), which serves portions of Bedminster, Far Hills,
and Peapack-Gladstone.
Included in Non-Utility Property and Other Investments at March 31, 1997 is
an investment of $1.3 million ($.2 million net of related deferred taxes)
in a limited partnership that owns Solar Electric Generating System V
(SEGS), located in California.
Properties
E'town Properties and E'town Corporation own various parcels of undeveloped
land in New Jersey carried as investments of $12.9 million in Non-Utility
Property and Other Investments - Net in the Consolidated Balance Sheets of
E'town at March 31, 1997. During the next few years, E'town and Properties
will seek to sell such properties and expect to invest the sale proceeds
into water and wastewater utility investments that produce a current
return.
The carrying value of each parcel includes the original cost plus any real
estate taxes, interest and, where applicable, direct costs capitalized
while rezoning or governmental approvals are or were being sought. Such
costs are capitalized until the property is offered for sale, after which
time such costs are expensed. Based on independent appraisals received at
various times prior to 1996, management believes that the estimated net
realizable value of each property exceeds its respective carrying value as
of March 31, 1997.
E'town will continue to monitor the relationship between the carrying and
net realizable values of its properties through updated appraisals, when
appropriate, and of its investment in SEGS based on information provided by
SEGS management.
New Accounting Pronouncements
See Note 8 of the Notes to Consolidated Financial Statements for a
discussion of two new accounting standards that will be effective for
financial statements issued after December 15, 1997.
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<PAGE>
PART II - OTHER INFORMATION
Items 1 - 5:
Nothing to Report.
Item 6(a) - Exhibits
Exhibits to Part I:
Exhibit 11- E'town Corporation and Subsidiaries - Statement Regarding
Computation of Per Share Earnings
Exhibit 12- Elizabethtown Water Company - Computation of Ratio of
Earnings to Fixed Charges and Preferred Dividends and
Computation of Ratio of earnings to Fixed Charges
Exhibit 27- E'town Corporation and Subsidiaries and Elizabethtown Water
Company and Subsidiary - Financial Data Schedules
Item 6(b) - Reports on Form 8-K
None
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<PAGE>
E'TOWN CORPORATION
ELIZABETHTOWN WATER COMPANY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 14, 1997 E'TOWN CORPORATION
/s/ Andrew M. Chapman
Andrew M. Chapman
Chief Financial Officer
/s/ Walter M. Braswell
Walter M. Braswell
Secretary
ELIZABETHTOWN WATER COMPANY
/s/ Gail P. Brady
Gail P. Brady
Treasurer
/s/ Dennis W. Doll
Dennis W. Doll
Controller
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<TABLE>
E'TOWN CORPORATION AND SUBSIDIARIES Exhibit 11
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
(In Thousands Except Per Share Amounts)
<CAPTION>
Three Months Ended Twelve Months Ended
March 31, March 31,
1997 1996 1997 1996
PRIMARY
EARNINGS
Income Before Preferred Stock
<S> <C> <C> <C> <C>
Dividends of Subsidiary $ 3,673 $ 3,379 $ 16,180 $ 16,270
Deduct: Preferred Stock Dividends (203) (203) (813) (813)
--------- --------- ---------- -----------
Net Income Available for Common Stock $ 3,470 $ 3,176 $ 15,367 $ 15,457
========= ========= ========== ===========
SHARES
Weighted Average Number of Common Shares Outstanding 7,818 7,568 7,730 7,324
Assuming Exercise of Options Reduced by the Number of
Shares Which Could Have Been Purchased With the Proceeds
From Exercise of Such Options 11 6 7 3
Weighted Average Number of Common Shares
--------- --------- ---------- -----------
Outstanding As Adjusted 7,829 7,574 7,737 7,327
--------- --------- ---------- -----------
Primary Earnings Per Share of Common Stock $ 0.44 $ 0.42 $ 1.99 $ 2.11
========= ========= ========== ===========
ASSUMING FULL DILUTION
EARNINGS
Income Before Preferred Stock Dividends of Subsidiary $ 3,673 $ 3,379 $ 16,180 $ 16,270
Deduct: Preferred Stock Dividends (203) (203) (813) (813)
Add: After Tax Interest Expense Applicable to 6 3/4%
Convertible Subordinated Debentures 124 128 509 522
--------- --------- ---------- ----------
Adjusted Net Income $ 3,594 $ 3,304 $ 15,876 $ 15,979
========= ========= ========== ===========
SHARES
Weighted Average Number of Common Shares Outstanding 7,818 7,568 7,730 7,324
Assuming Exercise of Options Reduced by the Number of
Shares Which Could Have Been Purchased With the Proceeds 11 6 7 3
From Exercise of Such Options Assuming Conversion of 6 3/4%
Convertible Subordinated Debentures (a) 287 294 290 297
Weighted Average Number of Common Shares Outstanding
--------- --------- ---------- ----------
as Adjusted 8,116 7,868 8,027 7,624
--------- --------- ---------- -----------
Fully Diluted Earnings Per Share of Common Stock $ 0.44 $ 0.42 $ .98 $ 2.10
========= ========= ========== ===========
<FN>
(a) Convertible at $40 per share.
</FN>
</TABLE>
<TABLE>
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY Exhibit 12
Computation of Ratio of Earnings to Fixed Charges
and Preferred Dividends
(In Thousands Except Ratios)
<CAPTION>
Three Months Ended Twelve Months Ended
March 31, March 31,
1997 1996 1997 1996
EARNINGS:
<S> <C> <C> <C> <C>
Income before preferred stock dividends $ 3,885 $ 3,594 $ 17,046 $ 17,267
Federal income taxes 2,047 1,888 8,981 9,129
Interest charges 4,293 2,862 14,235 11,280
------------- ------------- ------------- -------------
Earnings available to cover fixed charges $ 10,225 $ 8,344 $ 40,262 $ 37,676
============= ============= ============= =============
FIXED CHARGES AND PREFERRED DIVIDENDS:
Interest on long-term debt $ 3,253 $ 3,253 $ 13,011 $ 11,451
Preferred dividend requirement (1) 310 310 1,241 1,243
Other interest 986 408 3,218 2,328
Amortization of debt discount - net 89 88 363 331
------------- ------------- ------------- -------------
Total fixed charges $ 4,638 $ 4,059 $ 17,833 $ 15,353
============= ============= ============= =============
Ratio of Earnings to Fixed Charges
and Preferred Dividends 2.20 2.06 2.26 2.45
============= ============= ============= =============
(1) Preferred Dividend Requirement:
Preferred dividends $ 203 $ 203 $ 813 $ 813
Effective tax rate 34.51% 34.44% 34.51% 34.58%
------------- ------------- ------------- -------------
Preferred dividend requirement $ 310 $ 310 $ 1,241 $ 1,243
============= ============= ============= =============
<FN>
Earnings to Fixed Charges and Preferred Dividends represents the sum of
Income Before Preferred Stock Dividends, Federal income taxes and Interest
Charges (which is reduced by Allowance for Debt Funds Used During
Construction), divided by Fixed Charges. Fixed Charges and Preferred
Dividends consist of interest on long and short-term debt (which is not
reduced by Allowance for Debt Funds Used During Construction), dividends
on Preferred Stock on a pre-tax basis and Amortization of debt discount.
Page 1 of 2
</FN>
</TABLE>
<PAGE>
<TABLE>
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY Exhibit 12
Computation of Ratio of Earnings to Fixed Charges
(In Thousands Except Ratios)
<CAPTION>
Three Months Ended Twelve Months Ended
March 31, March 31,
1997 1996 1997 1996
EARNINGS:
<S> <C> <C> <C> <C>
Income before preferred stock dividends $ 3,885 $ 3,594 $ 17,046 $ 17,267
Federal income taxes 2,047 1,888 8,981 9,129
Interest charges 4,293 2,862 14,235 11,280
------------- ------------- ------------- -------------
Earnings available to cover fixed charges $ 10,225 $ 8,344 $ 40,262 $ 37,676
============= ============= ============= =============
FIXED CHARGES:
Interest on long-term debt $ 3,253 $ 3,253 $ 13,011 $ 11,451
Other interest 986 408 3,218 2,328
Amortization of debt discount - net 89 88 363 331
------------- ------------- ------------- -------------
Total fixed charges $ 4,328 $ 3,749 $ 16,592 $ 14,110
============= ============= ============= =============
Ratio of Earnings to Fixed Charges 2.36 2.23 2.43 2.67
============= ============= ============= =============
<FN>
Earnings to Fixed Charges represents the sum of Income Before Preferred Stock
Dividends, Federal income taxes and Interest Charges (which is reduced by
Allowance for Debt Funds Used During Construction), divided by Fixed Charges.
Fixed Charges consist of interest on long and short-term debt (which is not
reduced by Allowance for Debt Funds Used During Construction), and
Amortization of debt discount.
Page 2 of 2
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000764403
<NAME> E'TOWN CORPORATION
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 560,548
<OTHER-PROPERTY-AND-INVEST> 14,231
<TOTAL-CURRENT-ASSETS> 35,383
<TOTAL-DEFERRED-CHARGES> 46,619
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 656,781
<COMMON> 146,727
<CAPITAL-SURPLUS-PAID-IN> 1,315
<RETAINED-EARNINGS> 41,919
<TOTAL-COMMON-STOCKHOLDERS-EQ> 189,961
0
12,000
<LONG-TERM-DEBT-NET> 193,375
<SHORT-TERM-NOTES> 69,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 0
30
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 197,575
<TOT-CAPITALIZATION-AND-LIAB> 661,941
<GROSS-OPERATING-REVENUE> 30,121
<INCOME-TAX-EXPENSE> 1,891
<OTHER-OPERATING-EXPENSES> 20,219
<TOTAL-OPERATING-EXPENSES> 22,110
<OPERATING-INCOME-LOSS> 8,011
<OTHER-INCOME-NET> 77
<INCOME-BEFORE-INTEREST-EXPEN> 8,088
<TOTAL-INTEREST-EXPENSE> 4,415
<NET-INCOME> 3,673
203
<EARNINGS-AVAILABLE-FOR-COMM> 3,470
<COMMON-STOCK-DIVIDENDS> 3,985
<TOTAL-INTEREST-ON-BONDS> 3,447
<CASH-FLOW-OPERATIONS> 5,721
<EPS-PRIMARY> .44
<EPS-DILUTED> .44<F1>
<FN>
<F1>ALL AMOUNTS IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000032379
<NAME> ELIZABETHTOWN WATER CO
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 560,548
<OTHER-PROPERTY-AND-INVEST> 80
<TOTAL-CURRENT-ASSETS> 33,969
<TOTAL-DEFERRED-CHARGES> 45,910
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 640,507
<COMMON> 15,741
<CAPITAL-SURPLUS-PAID-IN> 117,472
<RETAINED-EARNINGS> 49,278
<TOTAL-COMMON-STOCKHOLDERS-EQ> 182,491
0
12,000
<LONG-TERM-DEBT-NET> 181,939
<SHORT-TERM-NOTES> 69,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 30
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 195,047
<TOT-CAPITALIZATION-AND-LIAB> 640,507
<GROSS-OPERATING-REVENUE> 30,013
<INCOME-TAX-EXPENSE> 2,001
<OTHER-OPERATING-EXPENSES> 19,920
<TOTAL-OPERATING-EXPENSES> 21,921
<OPERATING-INCOME-LOSS> 8,092
<OTHER-INCOME-NET> 86
<INCOME-BEFORE-INTEREST-EXPEN> 8,178
<TOTAL-INTEREST-EXPENSE> 4,293
<NET-INCOME> 3,885
203
<EARNINGS-AVAILABLE-FOR-COMM> 3,682
<COMMON-STOCK-DIVIDENDS> 3,985
<TOTAL-INTEREST-ON-BONDS> 3,253
<CASH-FLOW-OPERATIONS> 6,976
<EPS-PRIMARY> 0
<EPS-DILUTED> 0<F1>
<FN>
<F1>ALL AMOUNTS IN THOUSANDS OF DOLLARS
</FN>
</TABLE>
