SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
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: June 30, 1998
E'town Corporation (without par value) 8,344,967
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 17
PART II - OTHER INFORMATION 23
Items 1 - 5
Item 6 (a) - Exhibits 23
(b) - Reports on Form 8-K 23
SIGNATURES 24
<PAGE>
<TABLE>
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(In Thousands Except Per Share Amounts)
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended Twelve Months Ended
June 30, June 30, June 30,
1998 1997 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues $33,609 $32,463 $64,876 $62,584 $136,118 $119,968
- ---------------------------------------------------------------------------------------------
Operating Expenses:
Operation 11,865 11,652 23,021 22,772 48,231 45,681
Maintenance 1,665 1,748 3,234 3,223 6,617 5,984
Depreciation 3,175 3,035 6,333 6,057 12,672 11,239
Revenue taxes 4,082 4,064 7,928 7,843 16,635 14,997
Real estate, payroll and other taxes 770 834 1,616 1,657 3,111 2,953
Federal income taxes 2,676 2,345 4,913 4,236 11,164 7,954
- ---------------------------------------------------------------------------------------------
Total operating expenses 24,233 23,678 47,045 45,788 98,430 88,808
- ---------------------------------------------------------------------------------------------
Operating Income 9,376 8,785 17,831 16,796 37,688 31,160
- ---------------------------------------------------------------------------------------------
Other Income (Expense):
Allowance for equity funds used during
construction 164 54 279 98 396 1,609
Federal income taxes (166) (91) (236) (132) (512) (820)
Other - net 309 208 391 282 1,062 737
- ---------------------------------------------------------------------------------------------
Total other income (expense) 307 171 434 248 946 1,526
- ---------------------------------------------------------------------------------------------
Total Operating and Other Income 9,683 8,956 18,265 17,044 38,634 32,686
- ---------------------------------------------------------------------------------------------
Interest Charges:
Interest on long-term debt 4,048 3,588 8,033 7,035 15,805 13,932
Other interest expense - net 286 786 500 1,772 1,287 3,451
Capitalized interest (125) (124) (216) (240) (414) (1,762)
Amortization of debt discount
and expense-net 109 98 217 196 432 398
- ---------------------------------------------------------------------------------------------
Total interest charges 4,318 4,348 8,534 8,763 17,110 16,019
- ---------------------------------------------------------------------------------------------
Income Before Preferred Stock Dividends
of Subsidiary 5,365 4,608 9,731 8,281 21,524 16,667
Preferred Stock Dividends 203 203 406 406 813 813
- ---------------------------------------------------------------------------------------------
Net Income $ 5,162 $ 4,405 $ 9,325 $ 7,875 $ 20,711 $ 15,854
=============================================================================================
Earnings Per Share of Common Stock:
- ---------------------------------------------------------------------------------------------
Basic $ 0.$63 $ 0.56 $ 1.15 $ 1.01 $ 2.57 $ 2.03
Diluted $ 0.$62 $ 0.55 $ 1.15 $ 1.00 $ 2.54 $ 2.02
- ---------------------------------------------------------------------------------------------
Average Number of Shares Outstanding for
the Calculation of Earnings Per Share:
- ---------------------------------------------------------------------------------------------
Basic 8,161 7,884 8,109 7,808 8,059 7,770
Diluted 8,464 8,200 8,415 8,158 8,364 8,094
- ---------------------------------------------------------------------------------------------
Dividends Paid Per Common Share $ 0.51 $ 0.51 $ 1.02 $ 1.02 $ 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>
June 30, December 31,
1998 1997
Assets (Unaudited)
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Utility Plant-At Original Cost:
Utility plant in service $679,284 $ 678,590
Construction work in progress 26,314 9,336
- ---------------------------------------------------------------------------------------------
Total utility plant 705,598 687,926
Less accumulated depreciation and amortization 120,872 114,587
- ---------------------------------------------------------------------------------------------
Utility plant-net 584,726 573,339
- ---------------------------------------------------------------------------------------------
Non-utility Property and Other
Investments - Net 46,061 20,016
- ---------------------------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents 4,726 6,233
Short-term investments 38 31
Customer and other accounts receivable
(less reserve: 1998, $634, 1997, $612) 17,895 17,539
Unbilled revenues 11,869 10,412
Materials and supplies-at average cost 2,456 1,966
Prepaid insurance, taxes, other 1,335 3,733
- ---------------------------------------------------------------------------------------------
Total current assets 38,319 39,914
- ---------------------------------------------------------------------------------------------
Deferred Charges:
Waste residual management 648 936
Unamortized debt and preferred stock expenses 10,015 10,263
Taxes recoverable through future rates 21,439 21,439
Postretirement benefit expense 3,562 3,738
Other unamortized expenses 3,474 1,259
- ---------------------------------------------------------------------------------------------
Total deferred charges 39,138 37,635
- ---------------------------------------------------------------------------------------------
Total $708,244 $ 670,904
=============================================================================================
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
-2-
<PAGE>
<TABLE>
E'TOWN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<CAPTION>
June 30, December 31,
1998 1997
Capitalization and Liabilities (Unaudited)
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Capitalization (Notes 3 and 7):
Common shareholders' equity $206,126 $ 193,923
Cumulative preferred stock 12,000 12,000
Long-term debt - net 255,211 247,298
- ---------------------------------------------------------------------------------------------
Total capitalization 473,337 453,221
- ---------------------------------------------------------------------------------------------
Current Liabilities:
Notes payable - banks (Note 5) 34,000 23,000
Long-term debt - current portion 30 30
Accounts payable and other liabilities 12,459 11,569
Customers' deposits 250 272
Municipal and state taxes accrued 17,590 16,817
Interest accrued 3,395 3,456
Preferred stock dividends accrued 59 59
- ---------------------------------------------------------------------------------------------
Total current liabilities 67,783 55,203
- ---------------------------------------------------------------------------------------------
Deferred Credits:
Customers' advances for construction 42,143 39,131
Federal income taxes 71,425 69,916
State income taxes 196 196
Unamortized investment tax credits 8,075 8,042
Accumulated postretirement benefits 4,422 4,332
- ---------------------------------------------------------------------------------------------
Total deferred credits 126,261 121,617
- ---------------------------------------------------------------------------------------------
Contributions in Aid of Construction 40,863 40,863
- ---------------------------------------------------------------------------------------------
Commitments and Contingent Liabilities
- ---------------------------------------------------------------------------------------------
Total $708,244 $ 670,904
=============================================================================================
<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>
June 30, December 31,
1998 1997
(Unaudited)
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
E'town Corporation:
Common Shareholders' Equity:
Common stock without par value, authorized,
15,000,000 shares, issued 1998, 8,377,521
shares; 1997, 8,054,461 shares $164,400 $ 153,162
Paid-in capital 1,315 1,315
Capital stock expense (5,160) (5,160)
Retained earnings 46,539 45,560
Less cost of treasury stock; 1998, 32,554
shares; 1997, 32,208 shares (968) (954)
- ---------------------------------------------------------------------------------------------
Total common shareholders' equity 206,126 193,923
- ---------------------------------------------------------------------------------------------
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 (Note 4):
E'town Corporation:
6 3/4% Convertible Subordinated Debentures,
due 2012 11,256 11,354
6.79% Senior Notes, due 2007 12,000 4,000
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
Variable Rate Debentures, due 2027 50,000 50,000
The Mount Holly Water Company:
Notes Payable (due serially through 2000) 48 57
- ---------------------------------------------------------------------------------------------
Total long-term debt 256,304 248,411
Unamortized discount-net (1,093) (1,113)
- ---------------------------------------------------------------------------------------------
Total long-term debt-net 255,211 247,298
- ---------------------------------------------------------------------------------------------
Total Capitalization $473,337 $ 453,221
=============================================================================================
</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>
Six Months Ended Year Ended
June 30, December 31,
1998 1997
(Unaudited)
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock:
Balance at Beginning of Period $153,162 $ 145,661
Common stock issued under Dividend Reinvestment
and Stock Purchase Plan (1998, 59,643 shares;
1997, 227,992 shares) 3,990 6,980
Redemption of Convertible Debentures 20
Issuance of restricted stock for
Incentive Compensation (1998, 9,784 shares;
1997, 4,033 shares) 339 123
Issuance of restricted stock for Acquisition
(1998, 185,005 shares) (Note 7) 6,607
Exercise of stock options (1998, 7,569 shares;
1997, 14,685 shares) 282 398
- ---------------------------------------------------------------------------------------------
Balance at End of Period 164,400 153,162
- ---------------------------------------------------------------------------------------------
Paid-in Capital: 1,315 1,315
- ---------------------------------------------------------------------------------------------
Capital Stock Expense: (5,160) (5,160)
- ---------------------------------------------------------------------------------------------
Retained Earnings:
Balance at Beginning of Period 45,559 42,434
Net Income 9,325 19,260
Dividends on common stock (1998, $1.02, 1997, $2.04)(8,345) (16,134)
- ---------------------------------------------------------------------------------------------
Balance at End of Period 46,539 45,560
- ---------------------------------------------------------------------------------------------
Treasury Stock:
Balance at Beginning of Period (954) (737)
Cost of shares redeemed to exercise stock
options (1998, 346 shares; 1997, 6,332 shares) (14) (217)
- ---------------------------------------------------------------------------------------------
Balance at End of Period (968) (954)
- ---------------------------------------------------------------------------------------------
Total Common Shareholders' Equity $206,126 $ 193,923
=============================================================================================
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
-5-
<PAGE>
<TABLE>
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(In Thousands)
(Unaudited)
<CAPTION>
Six Months Ended
June 30,
1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 9,325 $ 7,875
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 6,333 6,057
Increase in deferred charges (1,932) (439)
Deferred income taxes and investment tax
credits-net 1,542 1,287
Capitalized interest and AFUDC (495) (338)
Other operating activities-net 575 138
Change in current assets and current liabilities
excluding cash, short-term investments and
current portion of debt:
Customer and other accounts receivable (356) (2,148)
Unbilled revenues (1,457) (1,311)
Accounts payable and other liabilities 867 (4,780)
Accrued/prepaid interest and taxes 3,110 3,652
Other (490) 304
- ---------------------------------------------------------------------------------------------
Net cash provided by operating activities 17,022 10,297
- ---------------------------------------------------------------------------------------------
Cash Flows Provided by Financing Activities:
Proceeds from issuance of common stock 4,617 3,585
Proceed from issuance of debentures 50,000
Debt and preferred stock issuance and
amortization costs 248 (744)
Issuance of long-term debt 8,000
Repayment of long-term debt (107) (171)
Contributions and advances for construction-net 3,012 946
Net increase (decrease) in notes payable - banks 11,000 (42,500)
Dividends paid on common stock (8,345) (8,004)
- ---------------------------------------------------------------------------------------------
Net cash provided by financing activities 18,425 3,112
- ---------------------------------------------------------------------------------------------
Cash Flows Used for Investing Activities:
Utility plant expenditures (excluding allowance
for funds used during construction) (17,225) (6,782)
Purchase of privatization contracts (19,729) (5,702)
Proceeds from sale of land 440
Development costs of land (excluding
capitalized interest) (61)
- ---------------------------------------------------------------------------------------------
Cash used for investing activities (36,954) (12,105)
- ---------------------------------------------------------------------------------------------
Net (Decrease) Increase in Cash and
Cash Equivalents (1,507) 1,304
Cash and Cash Equivalents at
Beginning of Period 6,233 3,228
- ---------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 4,726 $ 4,532
=============================================================================================
<FN>
Supplemental Disclosures of Cash
Flow Information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 8,101 $ 8,756
Income taxes $ 1,800 $ -0-
Preferred stock dividends $ 354 $ 354
See Notes to Consolidated Financial Statements.
</FN>
-6-
<PAGE>
</TABLE>
<TABLE>
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED INCOME
(In Thousands)
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended Twelve Months Ended
June 30, June 30, June 30,
1998 1997 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues $32,739 $ 32,333 $63,246 $62,346 $132,688 $119,681
- ---------------------------------------------------------------------------------------------
Operating Expenses:
Operation 11,120 11,174 21,529 22,014 44,816 44,253
Maintenance 1,404 1,748 2,859 3,223 6,184 5,984
Depreciation 3,158 3,035 6,316 6,057 12,492 11,239
Revenue taxes 4,082 4,064 7,928 7,843 16,635 14,997
Real estate, payroll and other taxes 749 813 1,573 1,617 3,020 2,866
Federal income taxes 2,892 2,518 5,305 4,519 11,812 8,559
- ---------------------------------------------------------------------------------------------
Total operating expenses 23,405 23,352 45,510 45,273 94,959 87,898
- ---------------------------------------------------------------------------------------------
Operating Income 9,334 8,981 17,736 17,073 37,729 31,783
- ---------------------------------------------------------------------------------------------
Other Income (Expense):
Allowance for equity funds used during
construction 164 54 279 98 396 1,609
Federal income taxes (125) (55) (168) (101) (315) (691)
Other - net 192 104 199 192 501 366
- ---------------------------------------------------------------------------------------------
Total other income (expense) 231 103 310 189 582 1,284
- ---------------------------------------------------------------------------------------------
Total Operating and Other Income 9,565 9,084 18,046 17,262 38,311 33,067
- ---------------------------------------------------------------------------------------------
Interest Charges:
Interest on long-term debt 3,713 3,394 7,337 6,647 14,720 13,152
Other interest expense - net 192 781 398 1,767 1,013 3,447
Allowance for funds used during
construction (125) (42) (216) (77) (305) (1,438)
Amortization of debt discount
and expense-net 98 89 195 178 393 364
- ---------------------------------------------------------------------------------------------
Total interest charges 3,878 4,222 7,714 8,515 15,821 15,525
- ---------------------------------------------------------------------------------------------
Income Before Preferred Stock Dividends 5,687 4,862 10,332 8,747 22,490 17,542
Preferred Stock Dividends 203 203 406 406 813 812
- ---------------------------------------------------------------------------------------------
EARNINGS APPLICABLE TO COMMON STOCK $ 5,484 $ 4,659 $ 9,926 $ 8,341 $ 21,677 $ 16,730
=============================================================================================
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
-7-
<PAGE>
<TABLE>
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<CAPTION>
June 30, December 31,
1998 1997
Assets (Unaudited)
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Utility Plant-At Original Cost:
Utility plant in service $678,603 $ 677,909
Construction work in progress 25,697 9,300
- ---------------------------------------------------------------------------------------------
Total utility plant 704,300 687,209
Less accumulated depreciation and amortization 120,838 114,424
- ---------------------------------------------------------------------------------------------
Utility plant-net 583,462 572,785
- ---------------------------------------------------------------------------------------------
Non-utility Property 80 79
- ---------------------------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents 3,338 4,226
Customer and other accounts receivable
(less reserve: 1998, $634, 1997, $612) 15,607 17,283
Unbilled revenues 10,815 9,663
Materials and supplies-at average cost 2,456 1,966
Prepaid insurance, taxes, other 1,182 3,461
- ---------------------------------------------------------------------------------------------
Total current assets 33,398 36,599
- ---------------------------------------------------------------------------------------------
Deferred Charges:
Waste residual management 648 936
Unamortized debt and preferred stock expenses 9,431 9,656
Taxes recoverable through future rates 21,439 21,439
Postretirement benefit expense 3,562 3,738
Other unamortized expenses 2,830 1,086
- ---------------------------------------------------------------------------------------------
Total deferred charges 37,910 36,855
- ---------------------------------------------------------------------------------------------
Total $654,850 $ 646,318
=============================================================================================
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
-8-
<PAGE>
<TABLE>
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<CAPTION>
June 30, December 31,
Capitalization and Liabilities 1997 1997
(Unaudited)
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Capitalization (Note 3):
Common shareholder's equity $199,142 $ 193,354
Cumulative preferred stock 12,000 12,000
Long-term debt - net 231,955 231,944
- ---------------------------------------------------------------------------------------------
Total capitalization 443,097 437,298
- ---------------------------------------------------------------------------------------------
Current Liabilities:
Notes payable - banks 15,000 18,000
Long-term debt - current portion 30 30
Accounts payable and other liabilities 10,654 10,626
Customers' deposits 250 272
Municipal and state taxes accrued 17,604 16,817
Federal income taxes accrued 457
Interest accrued 2,982 3,120
Preferred stock dividends accrued 59 59
- ---------------------------------------------------------------------------------------------
Total current liabilities 47,036 48,924
- ---------------------------------------------------------------------------------------------
Deferred Credits:
Customers' advances for construction 42,143 39,131
Federal income taxes 69,333 67,851
Unamortized investment tax credits 8,075 8,042
Accumulated postretirement benefits 4,303 4,209
- ---------------------------------------------------------------------------------------------
Total deferred credits 123,854 119,233
- ---------------------------------------------------------------------------------------------
Contributions in Aid of Construction 40,863 40,863
- ---------------------------------------------------------------------------------------------
Commitments and Contingent Liabilities
- ---------------------------------------------------------------------------------------------
Total $654,850 $ 646,318
=============================================================================================
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
-9-
<PAGE>
<TABLE>
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED CAPITALIZATION
(In Thousands)
<CAPTION>
June 30, December 31,
1998 1997
(Unaudited)
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Common Shareholder's Equity:
Common stock without par value, authorized,
15,000,000 shares, issued 1998 and 1997,
1,974,902 shares $ 15,741 $ 15,741
Paid-in capital 128,769 124,560
Capital stock expense (485) (485)
Retained earnings 55,117 53,538
- ---------------------------------------------------------------------------------------------
Total common shareholder's equity 199,142 193,354
- ---------------------------------------------------------------------------------------------
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
Variable Rate Debentures, due 2027 50,000 50,000
The Mount Holly Water Company:
Notes Payable (due serially through 2000) 48 57
- ---------------------------------------------------------------------------------------------
Total long-term debt 233,048 233,057
Unamortized discount-net (1,093) (1,113)
- ---------------------------------------------------------------------------------------------
Total long-term debt-net 231,955 231,944
- ---------------------------------------------------------------------------------------------
Total Capitalization $ 443,097 $ 437,298
=============================================================================================
<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>
Six Months Ended Year Ended
June 30, December 31,
1998 1997
(Unaudited)
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock: $15,741 $ 15,741
- ---------------------------------------------------------------------------------------------
Paid-in Capital:
Balance at Beginning of Period 124,560 117,457
Capital contributed by parent company 4,209 7,103
- ---------------------------------------------------------------------------------------------
Balance at End of Period 128,769 124,560
- ---------------------------------------------------------------------------------------------
Capital Stock Expense: (485) (485)
- ---------------------------------------------------------------------------------------------
Retained Earnings:
Balance at Beginning of Period 53,536 49,580
Income before preferred stock dividends 10,332 20,905
Dividends on common stock (8,345) (16,134)
Dividends on preferred stock (406) (813)
- ---------------------------------------------------------------------------------------------
Balance at End of Period 55,117 53,538
- ---------------------------------------------------------------------------------------------
Total Common Shareholder's Equity $199,142 $ 193,354
=============================================================================================
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
-11-
<PAGE>
<TABLE>
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED CASH FLOWS
(In Thousands)
(Unaudited)
<CAPTION>
Six Months Ended
June 30,
1998 1997
- ---------------------------------------------------------------------------------------------
Cash Flows from Operating Activities:
<S> <C> <C>
Income before preferred stock dividends $10,332 $ 8,747
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 6,316 6,057
Increase in deferred charges (1,456) (438)
Deferred income taxes and investment tax
credits-net 1,515 1,291
Allowance for funds used during construction (495) (175)
Other operating activities-net 236 155
Change in current assets and current liabilities
excluding cash, short-term investments and
current portion of debt:
Customer and other accounts receivable 1,676 (718)
Unbilled revenues (1,152) (1,311)
Accounts payable and other liabilities 5 (5,729)
Accrued/prepaid interest and taxes 3,385 3,850
Other (490) 187
- ---------------------------------------------------------------------------------------------
Net cash provided by operating activities 19,872 11,916
- ---------------------------------------------------------------------------------------------
Cash Flows Used by Financing Activities:
Capital contributed by parent company 4,209 1,323
Proceed from issuance of debentures 50,000
Debt and preferred stock issuance and
amortization costs 225 (761)
Repayment of long-term debt (9) (12)
Contributions and advances for construction-net 3,012 946
Net decrease in notes payable - banks (3,000) (47,500)
Dividends paid on common stock and preferred stock (8,699) (8,358)
- ---------------------------------------------------------------------------------------------
Net cash used by financing activities (4,262) (4,362)
- ---------------------------------------------------------------------------------------------
Cash Flows Used for Investing Activities:
Utility plant expenditures (excluding allowance
for funds used during construction) (16,498) (6,782)
- ---------------------------------------------------------------------------------------------
Cash used for investing activities (16,498) (6,782)
- ---------------------------------------------------------------------------------------------
Net (Decrease) Increase in Cash and
Cash Equivalents (888) 772
Cash and Cash Equivalents at
Beginning of Period 4,226 3,122
- ---------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 3,338 $ 3,894
=============================================================================================
<FN>
Supplemental Disclosures of Cash
Flow Information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 7,380 $ 8,529
Income taxes $ 1,800 $ -0-
Preferred stock dividends $ 354 $ 354
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
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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), Edison Water Company (Edison) and E'town Properties, Inc.
(Properties) and Applied Water Management, Inc. (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 1997 Annual Report to
Shareholders and the 1997 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.
New Accounting Pronouncements
The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standards (SFAS) No. 131, "Disclosures about Segments
of an Enterprise and Related Information," which is effective for fiscal
years beginning after December 15, 1997. The pronouncement requires
disclosure of selected information about operating segments in interim
financial reports. Based upon the immateriality of the Corporation's
business segments, no additional disclosures are required.
In February 1998, the FASB issued SFAS No. 132 "Employers' Disclosures
about Pensions and Other Postretirement Benefits," effective for fiscal
years beginning after December 15, 1997. The pronouncement revises certain
disclosure requirements for pension and other postretirement plans but
does not change the measurement or recognition of expenses under those
plans. The pronouncement standardizes the disclosure requirements for
pensions and other postretirement benefit obligations to the extent
practicable, requires additional information on changes in the benefit
obligations and fair values of plan assets that will facilitate financial
analysis, and eliminates disclosures that are no longer useful.
In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use." The SOP is
effective for fiscal years beginning after December 15, 1998 and
establishes criteria for capitalizing certain internal use software costs.
Adoption of the SOP will not have an effect on the Corporation's financial
statements.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities" which is effective for fiscal years beginning after
December 15, 1998 and provides guidance on the expensing of costs of
start-up activities as these costs are incurred. Adoption of the SOP will
not have a material effect on the Corporation's financial statements.
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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
$3.9 million from the DRP proceeds of $4.0 million to Elizabethtown for
the six months ended June 30, 1998. On June 12, 1998 E'town issued $6.6
million (185,005 shares) of common stock for the purchase of Applied
Wastewater General Partnership (see Note 7).
4. LONG-TERM DEBT
In December 1997, E'town signed an agreement to issue $12 million of 6.79%
Senior Notes due December 15, 2007. E'town issued $4 million of these
notes in December 1997, $6 million in January 1998 and $2 million in May
1998. The proceeds were used to make capital contributions to
Elizabethtown to finance its ongoing capital program as well as to repay
E'town's short-term debt. The Note Agreement requires the maintenance of a
consolidated fixed charges coverage ratio of at least 1.5 to 1 and a debt
to total capitalization ratio not to exceed .65 to 1. As of June 30, 1998,
the fixed charges coverage ratio was 2.7 to 1 and the debt to total
capitalization ratio was .59 to 1, calculated in accordance with the Note
Agreement.
5. LINES OF CREDIT
E'town has $98 million of uncommitted lines of credit with several banks,
of which $82.5 million was available to Elizabethtown as of June 30, 1998.
These lines, together with internal funds and proceeds of future issuances
of debt and preferred stock by Elizabethtown and sales of common stock and
issuances of short- and long-term debt by E'town, are expected to be
sufficient to finance the Corporation capital needs.
6. EARNINGS PER SHARE
Basic earnings per share are computed on the basis of the weighted average
number of shares outstanding. Diluted earnings per share assume both the
conversion of the 6 3/4% Convertible Subordinated Debentures and common
stock equivalents, which assume that all stock options whose option price
is lower than the current market value of the stock are exercised.
Reference is made to Exhibit 11 for the computations of earnings per
share.
7. NON-UTILITY PROPERTY AND OTHER INVESTMENTS
Included in Non-utililty Property and Other Investments at June 30, 1998
is an investment of $1.33 million ($.30 million 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 June 30,
1998 is $12.8 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 were
being sought. Based upon independent appraisals received at various times
prior to 1997, the estimated net realizable value of each property exceeds
its respective carrying value as of June 30, 1998. 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.
One of the real estate parcels was sold in 1997 for $.4 million, resulting
in a gain of less than $.1 million. Another parcel was sold in July 1998
for $.7 million, resulting in a gain of $47,000. E'town and Properties are
proceeding with plans to sell the remaining properties and expect to
invest the sale proceeds into water and wastewater utility investments
that produce a current return.
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In 1995, Properties entered into an agreement to sell a parcel of land to
a developer. The agreement intended that the transaction would close prior
to December 31, 1996. The developer had been unable to obtain approval
from the municipality for an appropriate number of buildable units. All of
the material issues have now been resolved and a sale is expected to be
consummated later in 1998.
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.
E'town has entered into a contract with the City of Elizabeth, New Jersey
to operate its water system under a 40-year contract. E'town has formed a
wholly owned subsidiary, Liberty Water Company (Liberty) to administer the
contract. Under the contract Liberty made a payment to the City of
Elizabeth of $19.6 million in June 1998 and will make additional
installment payments of $12 million in June 1999 and $19 million in June
2000. The remaining amount of the obligation ($31 million) was recorded in
July 1998 and the total of all the payments ($50.6 million) is being
amortized ratably over the life of the contract, which became effective
July 1998.
Under the contract Liberty is receiving all revenues generated as a
result of operating the system and is incurring all operating expenses.
Liberty will be responsible for replacing meters within the water system
over a 40-year period at an estimated cost of $7 million. Other capital
improvements will be the responsibility of the City of Elizabeth.
Performance by Liberty of the contract provisions is guaranteed by E'town.
In 1995, the Corporation entered into a three-year joint venture agreement
with Applied Wastewater Group (AWG) to form a New Jersey limited liability
company, Applied Watershed Management, LLC. AWG was a unit of several
privately held and affiliated companies providing design, engineering,
construction and operating services for water and wastewater facilities.
E'town exercised an option to purchase the operations of AWG to provide a
full complement of water and wastewater services and consequently, closed
on the transaction on June 12, 1998. The purchase price is $6.6 million
(185,005 shares) in a stock-for-stock transaction accounted for as a
purchase. The new entity is called Applied Water Management. As AWG was
primarily a service business, substantially all of the purchase price
represents goodwill which will be amortized ratably over a 40-year period
beginning July 1998. Had the acquisition been consummated as of January 1,
1997, the pro-forma effect on earnings per share for the six months ended
June 30, 1998 and twelve months ended December 31, 1997 would be
immaterial.
8. REGULATORY MATTERS
Rates
In December 1997, the BPU adopted an Order for rate increases for
Elizabethtown and Mount Holly, effective January 1, 1998, for the recovery
of costs associated with SFAS No. 106 currently recovered in rates and the
full SFAS No. 106 expense on an accrual basis. The total increases in
annual operating revenues resulting from these petitions are $.39 million
for Elizabethtown and $.02 million for 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 $.55 million. 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
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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
state legislation that restricts the amount of water that can be withdrawn
from an aquifer in certain areas of southern New Jersey. The project is
referred to as the Mansfield Project.
In September 1995, the New Jersey Department of Environmental Protection
(DEP) granted Mount Holly a water allocation permit for four wells that
are to be the water supply for the Mansfield Project. In October 1995,
another water purveyor requested of the DEP, and was subsequently granted,
an adjudicatory hearing in opposition to the permit. In August 1997, Mount
Holly settled this matter by entering into an agreement with the other
water purveyor and the DEP.
Under the agreement Mount Holly will purchase 1.0 million gallons per day
from the other purveyor for a period to include the later of two years or
the date the Mansfield Project is placed into service. On March 19, 1998,
Mount Holly began taking water under this agreement.
As a result of the agreement Mount Holly expects to continue with its plan
to construct the Mansfield Project subject to an acknowledgement by the
BPU and the parties to Mount Holly's last rate case of the need for the
Mansfield Project. This acknowledgement should also clarify the need for
and cost-effectiveness of the Mansfield Project as the method for Mount
Holly to meet the state restrictions on well water diversions.
In September 1997, Mount Holly filed a petition with the BPU to establish
a Purchased Water Adjustment Clause (PWAC) to reflect the cost of water
purchased from the other purveyor under the agreement discussed above. On
May 27, 1998 the BPU adopted an Order for an increase in annual revenues
under Mount Holly's PWAC of $1.3 million or 38.9%. Mount Holly has
deferred the increase in purchased water cost between March 19 and May 27
as Other Unamortized Expenses. Recovery of this amount will be addressed
in the next PWAC petition expected in 1999. As of June 30, 1998, Mount
Holly has deferred $.2 million of these costs.
In the third quarter of 1998, Mount Holly expects to file a petition with
the BPU for a rate increase, which will reflect additional construction
and financing costs, as well as increases in operating costs since rates
were last established in January 1996. This rate case will also include
the cost for a portion of the Mansfield Project that will be in service in
the third quarter of 1998. A decision is expected by the middle of 1999.
Mount Holly expects to file an additional rate case next year for the
remaining cost of the Mansfield Project, as well as other increases in
construction, financing and operating costs, to coincide with the
completion of the project and the expiration of the agreement to purchase
water from the other purveyor.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
E'town Corporation (E'town or Corporation), a New Jersey holding company, is
the parent company of Elizabethtown Water Company (Elizabethtown or Company),
Edison Water Company (Edison) and E'town Properties, Inc. (Properties) and
Applied Water Management, Inc. (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 the twelve months ended 1997.
The following analysis sets forth significant events affecting the financial
condition of E'town and Elizabethtown at June 30, 1998, and the results of
operations for the three, six and twelve months ended June 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
Capital Expenditures Program
Capital expenditures were $37 million for the first six months of 1998. Of
this amount, $19.6 million was for the purchase of the City of Elizabeth
contract and $17.2 million was for water utility plant. A wholly owned
subsidiary of E'town Corporation, Liberty Water Company (Liberty), was formed
in July 1998 to operate the water system under the City of Elizabeth contract
(see below).
For the three years ending December 31, 2000, capital and investment
requirements for E'town are estimated to be $191.7 million, consisting of (i)
expenditures for water utility plant ($111.8 million for Elizabethtown and
$21.9 million for Mount Holly) and, (ii) investments in non-regulated water
and wastewater operations including systems operated by E'town or its
subsidiaries under privatization contracts. The predominant portion of these
investments in non-regulated operations are expected to be $52.1 million for
Liberty, of which $19.6 million was expended in June 1998, and $4.7 million
for Edison.
Elizabethtown
While Elizabethtown's projected capital outlays have dropped from recent
years now that the Canal Road Water Treatment Plant (Plant) is completed,
Elizabethtown's facilities will continue to be upgraded and expanded to
handle customer growth. Elizabethtown's three-year capital program includes
$62.0 million for routine projects (services, hydrants and main extensions
not funded by developers) and $50.7 million for transmission system upgrades,
a new operations center and other projects. Elizabethtown expects to file for
rate relief periodically to ensure that such costs are adequately reflected
in rates. (See Economic Outlook.)
Mount Holly
During the next three years, Mount Holly expects to spend $21.9 million,
primarily for an additional supply source (the Mansfield Project) to comply
with state regulations designed to prevent further depletion of a local
aquifer. Mount Holly plans to file for rate relief to recover these costs, as
well as to increase the rates of return realized by Mount Holly and,
therefore, Mount Holly's contribution to E'town's earnings per share.
Under an August 1997 settlement agreement among Mount Holly, the New Jersey
Department of Environmental Protection (DEP) and a regional purveyor, Mount
Holly began purchasing 1.0 million gallons per day from the regional purveyor
on March 19, 1998 and expects to continue to purchase this amount until the
Mansfield Project is constructed in approximately two years.
As a result of the settlement agreement, Mount Holly expects to continue with
its plan to construct the Mansfield Project. The New Jersey Board of Public
Utilities (BPU) and the parties to Mount Holly's last rate case are
participating in a proceeding connected with the second phase of a 1995 rate
case to clarify the need for, and cost-effectiveness of, the Mansfield
Project.
In September 1997, Mount Holly filed a petition with the BPU to establish a
Purchased Water Adjustment Clause (PWAC) to reflect the cost of water
purchased from the other purveyor under the agreement discussed above. On May
27, 1998 the BPU adopted an Order for an increase in annual revenues under
Mount Holly's PWAC of $1.3 million or 38.9%. Mount Holly has deferred the
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increase in purchased water cost between March 19 and May 27 as Other
Unamortized Expenses. Recovery of this amount will be addressed in the next
PWAC petition expected in 1999. As of June 30, 1998, Mount Holly has deferred
$.2 million of these costs.
In the third quarter of 1998, Mount Holly expects to file a petition with the
BPU for a rate increase, which will reflect additional construction and
financing costs, as well as increases in operating costs since rates were
last established in January 1996. This rate case will also include the cost
for a portion of the Mansfield Project. A decision is expected by the middle
of 1999. Mount Holly expects to file an additional rate case next year for
the remaining cost of the Mansfield Project, as well as other increases in
construction, financing and operating costs, to coincide with the completion
of the project and the expiration of the agreement to purchase water from the
other purveyor.
Capital Resources
For the three-year period ending December 31, 2000, E'town estimates that
42.2% of its currently projected consolidated capital expenditures and
investments 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
debt, proceeds of tax-exempt New Jersey Economic Development Authority
(NJEDA) bonds and short-term borrowings. Additional external financing will be
required for any future acquisitions or investments in the three-year period.
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. In addition, Elizabethtown expects to pursue future tax-exempt
financing for future projects to the extent that final allocations are
granted by the NJEDA. Mount Holly has applied to the DEP State Revolving Fund
Program for low interest funding (approximately 2.5% to 3%) for the Mansfield
Project.
E'town has entered into a contract with the City of Elizabeth, New Jersey to
operate its water system under a 40-year contract. E'town has formed Liberty
Water Company to administer the contract. Under the contract Liberty made a
payment to the City of $19.6 million on June 1, 1998 and will make additional
payments of $12 million on July 1, 1999 and $19 million on July 1, 2000.
Under the contract Liberty is receiving all revenues generated as a resulted
of operating the system and is incurring all operating expenses. Liberty will
be responsible for replacing meters within the water system over a 40-year
period at an estimated cost of $7 million. Other capital improvements will be
the responsibility of the City of Elizabeth. Performance by Liberty of the
contract provisions is guaranteed by E'town.
In 1995, the Corporation entered into a three-year joint venture agreement
with Applied Wastewater to form a New Jersey limited liability company,
Applied Watershed Management, LLC. AWG was a unit of several privately held
and affiliated companies providing design, engineering, construction and
operating services for water and wastewater facilities. E'town exercised an
option to purchase the operations of AWG to provide a full complement of
water and wastewater services and consequently, closed on the transaction on
June 12, 1998. The purchase price is $6.6 million (185,005 shares) in a
stock-for-stock transaction accounted for as a purchase. The new entity is
called Applied Water Management. As AWG was primarily a service business,
substantially all of the purchase price represents goodwill which will be
amortized over a 40-year period.
The Corporation has assessed its various computer information systems for
compliance with the Year 2000. The Corporation has recently installed a new
enterprise financial system (SAP), which is Year 2000 compliant. In addition,
the Corporation uses a third-party provider for its customer billing and
information system, which was redesigned in 1997 to provide many enhancements
including Year 2000 compliance. Management believes that all integral
operating systems are Year 2000 compliant and that there will be no
significant additional costs to achieve compliance.
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RESULTS OF OPERATIONS
Net Income for the three months ended June 30, 1998 was $5.2 million or $.63
per share as compared to $4.4 million or $.56 per share for the same period
in 1997. Net income for the six months ended June 30, 1998 was $9.3 million
or $1.15 per share as compared to $7.9 million or $1.00 per share for the
same period in 1997. Net income for the twelve months ended June 30, 1998 was
$20.7 million or $2.57 per share as compared to $15.9 million or $2.03 per
share for the same period in 1997. Net income increased for the three and
six month periods primarily due to higher revenues from the operations of
Edison Water Company and ongoing cost control efforts. Revenues for
Elizabethtown Water Company were marginally higher than those of the same
periods in 1997. The increase in net income for the twelve month period
reflects a full year of Elizabethtown's base rate increase effective October
1996 for the new Canal Road Plant, favorable 1997 summer weather resulting in
higher water consumption and cost savings in labor and other operating and
interest costs. In addition the increase for the twelve month period reflects
a full year of operations under the Edison contract.
Operating Revenues increased $1.1 million or 3.5%, $2.3 million or 3.7% and
$16.2 million or 13.5% for the three, six and twelve months ended June 30,
1998, respectively, compared to the same periods in 1997. The increases for
the three and six month periods resulted primarily from revenues of Edison
Water Company which began operation in July 1997. The increase for the twelve
month period was comprised of $7.8 million from Elizabethtown's rate increase
effective October 1996 and increased water consumption of $8.2 million, of
which $2.9 million was contributed by Edison Water Company. The twelve month
period included an increase in water consumption for hot, dry weather in
July and August of 1997.
Operation Expenses increased $.2 million or 1.8%, $.2 million or 1.1% and
$2.6 million or 5.6% for the three, six and twelve months ended June 30,
1998, respectively, compared to the same periods in 1997. The increases for
the three, six and twelve month periods are comprised of an increase for the
operations of Edison Water Company which was substantially offset by lower
labor and other operating costs of Elizabethtown and Mount Holly resulting
primarily from ongoing cost control efforts.
Maintenance Expenses decreased $.1 million or 4.7%, increased less than $.1
million or .3% and increased $.6 million or 10.6% for the three, six and
twelve months ended June 30, 1998, respectively from and over the comparable
periods in 1997. The relatively small fluctuations for the three and six
month periods are due to continued cost control efforts as well as mild
weather in the winter of 1998. The increase for the twelve month period is
due primarily to costs associated with the Plant. The increase for the twelve
month period also includes $.4 million related to the costs of determining
the most cost-effective method of disposing of byproducts (waste residuals)
generated from the water treatment process at the Raritan-Millstone Plant.
Depreciation Expense increased $.1 million or 4.6%, $.3 million or 4.6% and
$1.4 million or 12.8% for the three, six and twelve months ended June 30,
1998, respectively, over the comparable 1997 amounts. The increases were due
primarily to a higher level of depreciable plant in service. The higher level
of depreciable plant for the twelve month period was primarily related to the
Plant.
Revenue Taxes increased less than $.1 million, or .4%, $.1 million or 1.1%
and $1.6 million or 10.9% for the three, six and twelve month periods ended
June 30, 1998, respectively, compared to the same periods in 1997 due to the
increases in operating revenues discussed above, upon which these taxes are
calculated.
Real Estate, Payroll and Other Taxes Expenses decreased by less than $.1
million or 7.7% and less than $.1 million or 2.5% and increased by $.2
million or 5.4% for the three, six and twelve month periods, respectively.
The decreases for the three and six month periods are due small decreases in
use taxes and property taxes. The increase for the twelve month period is due
primarily to increased property taxes associated with the Plant.
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Federal Income Taxes as a component of operating expenses increased $.3
million or 14.1%, $.7 million or 16.0% and $3.2 million or 40.4% for the
three, six and twelve months ended June 30, 1998, respectively, over the
comparable 1997 amounts due to the changes in the components of taxable
income discussed herein.
Other Income (Expense) increased $.1 million or 79.5% and $.2 million or
75.0% and decreased $.6 million or 38.0% for the three, six and twelve month
periods ended June 30, 1998, respectively, compared to the same periods in
1997. The decrease for the twelve month period is due primarily to the
reduction in AFUDC, the largest portion of which was recorded while the Plant
was under construction. These decreases were offset by the decreases in
associated federal income taxes.
Total Interest Charges decreased less than $.1 million or .7% and $.2 million
or 2.6% and increased $1.1 million or 6.8% for the three, six and twelve
month periods ended June 30, 1998, respectively, compared to the same periods
in 1997. The decrease for the three month period is due primarily to the
variable rate financing in June 1997. The decrease for the twelve month
period is 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.
ECONOMIC OUTLOOK
Forward Looking Information
Information in this report includes certain 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 future
events, risks and uncertainties that could cause actual results to differ
materially from those expressed in the statements. Such events, 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 and real estate markets,
increases in operating expenses due to factors beyond the Corporation's
control, changes in environmental regulation and associated costs of
compliance and additional investments or acquisitions which may be made by
the Corporation.
E'town Corporation and Subsidiaries
Consolidated earnings for E'town for the next several years will be
determined by related but different strategies for the regulated and
non-regulated businesses. For Elizabethtown and Mount Holly, management will
continue to focus on expansion efforts to increase sales, as well as on
controlling costs through productivity improvements so that realized returns
remain comparable to authorized levels. For the non-regulated businesses,
management seeks to invest in water and wastewater assets (including
municipal privatization contracts and wastewater assets as a result of the
AWG acquisition) which produce a current return. Capital to finance
investments in both the regulated and non-regulated businesses will be raised
from external sources and from the sale of real estate parcels owned by
E'town and Properties.
E'town expects earnings from the regulated operations to be similar to 1997
due to hot, dry weather in July and August of 1998. However, consistent with
E'town's strategy to sell its real estate properties (discussed below)
management expects to realize gains from property sales in 1998. Based upon
these factors, management currently expects earnings per share to exceed
those reported for 1997.
Elizabethtown and Subsidiary - Regulated Utilities
Elizabethtown's authorized rate of return on common equity is currently
11.25%. In 1997, Elizabethtown achieved an actual return on common equity of
11.0%. Realizing rates of return in 1998 comparable to authorized levels will
require continued customer additions and the success of ongoing cost control
efforts.
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Mount Holly earned a rate of return on common equity of 2.8% in 1997,
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 1997. Management expects Mount Holly to increase its
contribution to E'town's earnings per share later in 1999 upon receipt of
additional rate relief so that Mount Holly can realize rates of return
comparable to authorized levels.
E'town and Unregulated Subsidiaries
The activities of E'town, Properties, Edison Water Company, Liberty Water
Company and Applied Water Management are not regulated by the BPU.
The contracts for the operation of the water systems of the Township of
Edison, New Jersey and the City of Elizabeth, New Jersey as well as E'town's
investment in Applied Water Management are expected to yield marginal
contributions to earnings per share in the first several years of these
operations.
Properties
E'town Properties and E'town Corporation own various parcels of undeveloped
land in New Jersey carried as investments of $12.8 million in Non-Utility
Property and Other Investments -- Net, in the Consolidated Balance Sheets of
E'town at June 30, 1998.E'town and Properties are proceeding with plans to
sell such properties and expect to invest the sale proceeds into water and
wastewater utility investments that produce a current return.
Properties had previously entered into a contract to sell another parcel to a
developer. The parties expected that the contract would close in 1996, but
the developer was unable to obtain the required municipal approvals. The
contract has been extended and all the material issues appear to have been
resolved. Properties expects to close on several parcels during 1998,
including the parcel described above which, if consummated, would result in a
gain.
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 1997, the estimated net realizable value of each property exceeds
its respective carrying value as of June 30, 1998.
Included in Non-utililty Property and Other Investments at June 30, 1998 is
an investment of $1.33 million ($.30 million net of related deferred taxes)
in a limited partnership that owns Solar Electric Generating System V (SEGS),
located in California.
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
The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standards (SFAS) No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which is effective for fiscal years
beginning after December 15, 1997. The pronouncement requires disclosure of
selected information about operating segments in interim financial reports.
Based upon the immateriality of the Corporation's business segments, no
additional disclosures are required.
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In February 1998, the FASB issued SFAS No. 132 "Employers' Disclosures about
Pensions and Other Postretirement Benefits," effective for fiscal years
beginning after December 15, 1997. The pronouncement revises certain
disclosure requirements for pension and other postretirement plans but does
not change the measurement or recognition of expenses under those plans. The
pronouncement standardizes the disclosure requirements for pensions and other
postretirement benefit obligations to the extent practicable, requires
additional information on changes in the benefit obligations and fair values
of plan assets that will facilitate financial analysis, and eliminates
disclosures that are no longer useful.
In March 1998, the American Institute of Certified Public Accountants (AICPA)
issued Statement of Position (SOP) 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." The SOP is
effective for fiscal years beginning after December 15, 1998 and establishes
criteria for capitalizing certain internal use software costs. Adoption of
the SOP will not have an effect on the Corporation's financial statements.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of Start-Up
Activities" which is effective for fiscal years beginning after December 15,
1998 and provides guidance on the expensing of costs of start-up activities
as these costs are incurred. Adoption of the SOP will not have a material
effect on the Corporation's financial statements.
-22-
<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
-23-
<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: August 14, 1998
E'TOWN CORPORATION
ELIZABETHTOWN WATER COMPANY
/s/ Gail P. Brady
________________________________
Gail P. Brady
Treasurer
/s/ Dennis W. Doll
________________________________
Dennis W. Doll
Controller
-24-
<TABLE>
E'TOWN CORPORATION AND SUBSIDIARIES Exhibit 11
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
<CAPTION>
Three Months Ended Six Months Ended Twelve Months Ended
June 30, June 30, June 30,
1998 1997 1998 1997 1998 1997
<S> <C> <C> <C> <C> <C> <C>
BASIC
EARNINGS
Income Before Preferred Stock
Dividends of Subsidiary $ 5,365 $ 4,608 $ 9,731 $ 8,281 $ 21,524 $ 16,667
Deduct: Preferred Stock Dividends (203) (203) (406) (406) (813) (813)
---------------------------------------------------------------------
Net Income Available for Common Stock $ 5,162 $ 4,405 $ 9,325 $ 7,875 $ 20,711 $ 15,854
=====================================================================
SHARES
Weighted Average Number of Common Shares 8,161 7,884 8,109 7,808 8,059 7,770
---------------------------------------------------------------------
Basic Earnings Per Share of Common Stock $ 0.63 $ 0.56 $ 1.15 $ 1.01 $ 2.57 $ 2.03
=====================================================================
DILUTED
EARNINGS
Income Before Preferred Stock Dividends
of Subsidiary $ 5,365 $ 4,608 $ 9,731 $ 8,281 $ 21,524 $ 16,667
Deduct: Preferred Stock Dividends (203) (203) (406) (406) (813) (813)
Add: After Tax Interest Expense Applicable
to 6 3/4% Convertible Subordinated Debentures 123 125 374 249 502 505
---------------------------------------------------------------------
Adjusted Net Income $ 5,285 $ 4,53 $ 9,699 $ 8,124 $ 21,213 $ 16,359
=====================================================================
SHARES
Weighted Average Number of Common Shares 8,161 7,884 8,109 7,808 8,059 7,770
Assuming Exercise of Options Reduced By the
Number Of Shares Which Could Have Been
Purchased With the Proceeds From Exercise
of Such Options 21 31 23 64 22 36
Assuming Conversion Of 6 3/4% Convertible
Subordinated Debentures (a) 282 285 283 286 283 288
Weighted Average Number of Common Shares
---------------------------------------------------------------------
Outstanding as Adjusted 8,464 8,200 8,415 8,158 8,364 8,094
---------------------------------------------------------------------
Diluted Earnings Per Share
of Common Stock $ 0.62 $ 0.55 $ 1.15 $ 1.00 $ 2.54 $ 2.02
=====================================================================
<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 Six Months Ended Twelve Months Ended
June 30, June 30, June 30,
1998 1997 1998 1997 1998 1997
EARNINGS:
<S> <C> <C> <C> <C> <C> <C>
Income before preferred stock dividends $ 5,687 $ 4,862 $ 10,332 $ 8,747 $ 22,490 $ 17,542
Federal income taxes 3,017 2,573 5,473 4,620 12,127 9,250
Interest charges 3,878 4,222 7,714 8,515 15,821 15,525
----------------------------------------------------------------------------
Earnings available to cover fixed charges 12,582 11,657 23,519 21,882 50,438 42,317
----------------------------------------------------------------------------
FIXED CHARGES AND PREFERRED DIVIDENDS:
Interest on long-term debt 3,713 3,394 7,337 6,647 14,720 13,152
Preferred dividend requirement (1) 311 310 621 620 1,251 1,240
Other interest 192 781 398 1,767 1,013 3,447
Amortization of debt discount - net 98 89 195 178 393 364
----------------------------------------------------------------------------
Total fixed charges 4,314 4,574 8,551 9,212 17,377 18,203
----------------------------------------------------------------------------
Ratio of Earnings to Fixed Charges
and Preferred Dividends 2.92 2.55 2.75 2.38 2.90 2.32
============================================================================
(1) Preferred Dividend Requirement:
Preferred dividends 203 203 406 406 813 812
Effective tax rate 34.66% 34.61% 34.63% 34.56% 35.03% 34.53%
----------------------------------------------------------------------------
Preferred dividend requirement $ 311 $ 310 $ 621 $ 620 $ 1,251 $ 1,240
============================================================================
<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.
</FN>
</TABLE>
Page 1 of 2
<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 Six Months Ended Twelve Months Ended
June 30, June 30, June 30,
1998 1997 1998 1997 1998 1997
EARNINGS:
<S> <C> <C> <C> <C> <C> <C>
Income before preferred stock dividends $ 5,687 $ 4,862 $ 10,332 $ 8,747 $ 22,490 $ 17,542
Federal income taxes 3,017 2,573 5,473 4,620 12,127 9,250
Interest charges 3,878 4,222 7,714 8,515 15,821 15,525
----------------------------------------------------------------------------
Earnings available to cover fixed charges 12,582 11,657 23,519 21,882 50,438 42,317
----------------------------------------------------------------------------
FIXED CHARGES:
Interest on long-term debt 3,713 3,394 7,337 6,647 14,720 13,152
Other interest 192 781 398 1,767 1,013 3,447
Amortization of debt discount - net 98 89 195 178 393 364
----------------------------------------------------------------------------
Total fixed charges 4,003 4,264 7,930 8,592 16,126 16,963
----------------------------------------------------------------------------
Ratio of Earnings to Fixed Charges 3.14 2.73 2.97 2.55 3.13 2.49
============================================================================
<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.
</FN>
</TABLE>
Page 2 of 2
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000764403
<NAME> E'TOWN CORPORATION
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 584,726
<OTHER-PROPERTY-AND-INVEST> 46,061
<TOTAL-CURRENT-ASSETS> 38,319
<TOTAL-DEFERRED-CHARGES> 39,138
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 708,244
<COMMON> 163,432
<CAPITAL-SURPLUS-PAID-IN> (3,845)
<RETAINED-EARNINGS> 46,539
<TOTAL-COMMON-STOCKHOLDERS-EQ> 206,126
0
12,000
<LONG-TERM-DEBT-NET> 255,211
<SHORT-TERM-NOTES> 34,000
<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> 200,877
<TOT-CAPITALIZATION-AND-LIAB> 708,244
<GROSS-OPERATING-REVENUE> 33,609
<INCOME-TAX-EXPENSE> 2,676
<OTHER-OPERATING-EXPENSES> 21,557
<TOTAL-OPERATING-EXPENSES> 24,233
<OPERATING-INCOME-LOSS> 9,376
<OTHER-INCOME-NET> 307
<INCOME-BEFORE-INTEREST-EXPEN> 9,683
<TOTAL-INTEREST-EXPENSE> 4,318
<NET-INCOME> 5,365
203
<EARNINGS-AVAILABLE-FOR-COMM> 5,162
<COMMON-STOCK-DIVIDENDS> 4,238
<TOTAL-INTEREST-ON-BONDS> 4,048
<CASH-FLOW-OPERATIONS> 17,022
<EPS-PRIMARY> .63
<EPS-DILUTED> .62<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-31-1998
<PERIOD-END> JUN-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 583,462
<OTHER-PROPERTY-AND-INVEST> 80
<TOTAL-CURRENT-ASSETS> 33,398
<TOTAL-DEFERRED-CHARGES> 37,910
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 654,850
<COMMON> 15,741
<CAPITAL-SURPLUS-PAID-IN> 128,284
<RETAINED-EARNINGS> 55,117
<TOTAL-COMMON-STOCKHOLDERS-EQ> 199,142
0
12,000
<LONG-TERM-DEBT-NET> 231,955
<SHORT-TERM-NOTES> 15,000
<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> 196,723
<TOT-CAPITALIZATION-AND-LIAB> 654,850
<GROSS-OPERATING-REVENUE> 32,739
<INCOME-TAX-EXPENSE> 2,892
<OTHER-OPERATING-EXPENSES> 20,513
<TOTAL-OPERATING-EXPENSES> 23,405
<OPERATING-INCOME-LOSS> 9,334
<OTHER-INCOME-NET> 231
<INCOME-BEFORE-INTEREST-EXPEN> 9,565
<TOTAL-INTEREST-EXPENSE> 3,878
<NET-INCOME> 5,687
203
<EARNINGS-AVAILABLE-FOR-COMM> 5,484
<COMMON-STOCK-DIVIDENDS> 4,238
<TOTAL-INTEREST-ON-BONDS> 3,713
<CASH-FLOW-OPERATIONS> 19,872
<EPS-PRIMARY> 0
<EPS-DILUTED> 0<F1>
<FN>
<F1>All amounts in thousands of dollars except per share amounts.
</FN>
</TABLE>
