10-K
1
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-18595
E'TOWN CORPORATION
(Exact name of registrant as specified in its charter)
New Jersey 22-2596330
(State of incorporation) (I.R.S. Employer Identification No.)
600 South Avenue
Westfield, New Jersey 07090
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (908) 654-1234
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, without par value New York Stock Exchange
Commission file number 0-628
ELIZABETHTOWN WATER COMPANY
(Exact name of registrant as specified in its charter)
New Jersey 22-1683171
(State of incorporation) (I.R.S. Employer Identification No.)
600 South Avenue
Westfield, New Jersey 07090
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (908) 654-1234
Securities reSecurities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Secrities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes __X__ No_____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of regulation S-K is contained herein, and will not be contained, to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. ____
On December 31, 1994, the aggregate market value of E'town Corporation's voting
stock held by non-affiliates was $174,144,393.
On December 31, 1994, there were 6,602,631 shares of Common Stock outstanding,
exclusive of treasury shares or shares held by subsidiaries of E'town
Corporation.
Note: All of the Common Stock of Elizabethtown Water Company is owned by E'town
Corporation.
Parts II and IV incorporate information by reference from the Annual Report to
Shareholders of E'town Corporation for the Year Ended December 31, 1994.
Part III incorporates information by reference from the definitive Proxy
Statement in connection with E'town Corporation's Annual Meeting of Shareholders
to be held on May 18, 1995.
E'TOWN CORPORATION
ELIZABETHTOWN WATER COMPANY
1994 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
ITEM
1. Business............................................. 1
Organization........................................ 1
Service Area and Customers.......................... 1
Water Supply........................................ 2
Water Treatment Facilities
and Water Quality Regulations...................... 3
Transmission and Distribution....................... 6
Energy Supply....................................... 7
Environmental Matters............................... 7
Franchises.......................................... 8
Employee Relations.................................. 8
Rate Matters........................................ 8
Real Estate Matters................................. 10
2. Properties........................................... 12
3. Legal Proceedings.................................... 12
4. Submission of Matters to a Vote of
Security Holders.................................... 12
PART II
ITEM
5. Market for the Corporation's Common Stock and
Related Stockholder Matters......................... 12
6. Selected Financial Data.............................. 13
7. Management's Discussion and Analysis of
Consolidated Financial Condition and
Results of Operations............................... 14
8. Financial Statements and Supplementary Data.......... 22
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.............. 22
PART III
ITEM
PAGE
10. Directors and Executive Officers of the Registrant... 22
11. Executive Compensation............................... 22
12. Security Ownership of Certain Beneficial
Owners and Management.............................. 22
13. Certain Relationships and Related
Transactions....................................... 22
PART IV
ITEM
14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K................................ 22
SIGNATURES................................................... 25
APPENDIX I
Elizabethtown Water Company and Subsidiary
Consolidated Financial Statements for the Years
Ended December 31, 1994, 1993 and 1992 and
Independent Auditors' Report
E'TOWN CORPORATION
ELIZABETHTOWN WATER COMPANY
Form 10-K
Annual Report
For the year ended December 31, 1994
PART I
ITEM 1. Business
ORGANIZATION
E'town Corporation (E'town or Corporation) was incorporated under
the laws of the State of New Jersey in 1985 to serve as a holding
company for Elizabethtown Water Company, (Elizabethtown or Company)
and its wholly owned subsidiary, The Mount Holly Water Company (Mount
Holly). Elizabethtown and Mount Holly are regulated water utilities
which, as a consolidated entity, are referred to herein as
Elizabethtown Water Company (Elizabethtown Water Company). E'town
Properties, Inc. (Properties) was incorporated in 1987 as a wholly
owned and non-regulated subsidiary of E'town to acquire, develop and
sell real estate holdings.
Elizabethtown and Mount Holly are engaged in the distribution of
water for domestic, commercial, industrial and fire protection
purposes and for resale by other water companies and public bodies.
Elizabethtown is a New Jersey corporation, one of whose
predecessors was first incorporated in 1854. The present corporation
was formed in 1961 as a result of a consolidation of Elizabethtown
Water Company Consolidated and Plainfield-Union Water Company.
Princeton and Somerville Water Companies were merged into
Elizabethtown in 1973, and, as of January 1, 1977, Bound Brook Water
Company was also merged into Elizabethtown. Elizabethtown owns all of
the common stock of Mount Holly which contributed approximately 3% of
the Company's consolidated operating revenues for 1994.
SERVICE AREA AND CUSTOMERS
At December 31, 1994 Elizabethtown and Mount Holly furnished
water service on a retail basis to general customers and to industrial
customers served through 191,622 meters in 54 municipalities in the
counties of Union, Middlesex, Somerset, Mercer, Hunterdon, Ocean,
Morris and Burlington in the central part of New Jersey, serving a
population of approximately 570,000. Elizabethtown also provides, on
a wholesale basis, a portion of the water requirements of eight
additional municipalities with their own retail water systems and of
three other investor-owned water companies. Water for fire protection
service is provided to 53 municipalities and also to commercial and
industrial establishments.
-1-
The Company's operating revenues by major classifications for the
twelve months ending December 31, 1994 are as follows:
General customers 61.7%
Sales to other systems 17.7%
Larger industrial customers 7.3%
Fire protection service/miscellaneous 13.3%
The systems are substantially all metered except for fire
service.
Additional operating statistics appear on page 13.
WATER SUPPLY
The water supply systems of Elizabethtown and Mount Holly are
physically separate. During 1994, Elizabethtown's pumpage averaged
131.8 million gallons per day (MGD) and Mount Holly's pumpage averaged
3.5 MGD. Elizabethtown and Mount Holly believe they have sufficient
water supply sources to meet the current needs of their customers.
Mount Holly plans to construct additional facilities, as discussed
below, to augment its water supplies.
In 1994, surface water sources supplied about 89% of
Elizabethtown's supply with wells supplying the remaining 11%. All of
Mount Holly's water is produced from wells.
Substantially all of Elizabethtown's surface water is purchased
under a long-term contract with the New Jersey Water Supply Authority
(NJWSA) which requires Elizabethtown to purchase (i) 32 MGD from the
state-owned Delaware and Raritan Canal which transports water from the
Delaware River Basin plus (ii) an average of 70 MGD from the Raritan
River Basin which includes the state-owned Spruce Run-Round Valley
Reservoir System. The safe yield of the Raritan River Basin and the
Delaware and Raritan Canal is 225 MGD of which 151 MGD is presently
allocated to Elizabethtown and others. Elizabethtown has available and,
as needed to meet system demand, purchases water over and above its
minimum purchase obligation.
The Company continues to analyze the potential effect of federal
and state regulations on the long-term capacity of Elizabethtown's
wells. Since 1985, wells with an aggregate capacity of 11 MGD have
been withdrawn from service due to more stringent federal and state
regulations and increased groundwater contamination at certain well
sites. Under state and federal regulations now in effect,
Elizabethtown owns and operates wells with an aggregate safe daily
yield of approximately 18 MGD. If regulations governing radionuclides
in drinking water proposed by the United States Environmental
Protection Agency (USEPA) are adopted, Elizabethtown's well capacity
will decrease to about 13 MGD.
-2-
All of Mount Holly's system delivery of 3.5 MGD in 1994 was
supplied from wells. To ensure an adequate supply of quality water
from an aquifer serving parts of southern New Jersey, state
legislation will require Mount Holly, as well as other suppliers
obtaining water from designated portions of this aquifer, to reduce
pumpage from its wells by the earlier of: (i) the date a new regional
system planned by another purveyor is completed or (ii) the date Mount
Holly develops its own alternate sources. Mount Holly's pumpage for
1994 was 1,268 million gallons (MG) and, under the state legislation,
Mount Holly must reduce its pumpage to 538 MG from its existing wells.
Mount Holly has received preliminary approval from the New Jersey
Department of Environmental Protection (NJDEP) for its conceptual plan
to develop a new water supply, treatment and transmission system
necessary to obtain water outside the designated portion of the
aquifer and to treat such water and pump it into the Mount Holly
system. The current estimate of the the cost of this project is
$16.5 million, excluding an allowance for funds used during
construction (AFUDC). The land for the supply and treatment facilities
has been purchased and test wells have been drilled and evaluated.
Mount Holly expects to file for a rate incre-ase, in two phases, in the
second quarter of 1995 providing for rate relief for the entire
project in the second phase.
WATER TREATMENT FACILITIES AND WATER QUALITY REGULATIONS
Elizabethtown owns and operates a treatment plant at the
confluence of the Raritan and Millstone Rivers adjacent to the
Delaware and Raritan Canal to treat surface waters purchased from the
NJWSA. The plant can withdraw water from any of these sources, which
is an advantage in the event that one source becomes contaminated.
The plant was placed in service in 1931 and has continually been
upgraded since that time. Elizabethtown also operates smaller
treatment facilities to treat groundwater produced by certain wells.
Mount Holly operates similar groundwater treatment facilities.
Both the USEPA and the NJDEP regulate the operation of
Elizabethtown's and Mount Holly's water treatment and distribution
systems and the quality of the water Elizabethtown and Mount Holly
deliver to their customers. Currently, Elizabethtown and Mount Holly
believe they are in compliance with all present federal and state
water quality standards, including all regulations promulgated to date
by the USEPA pursuant to the Federal Safe Drinking Water Act, as
amended (SDWA), and by the NJDEP pursuant to similar state
legislation. However, Elizabethtown has included certain capital
projects in its three-year capital expenditure plans which it
anticipates will be necessary to comply with regulations that have
been proposed by the USEPA and NJDEP. Recovery of the financing and
operating costs of such improvements, plus those costs for any
additional projects which cannot be foreseen at this time, will be
requested in rates.
-3-
Elizabethtown has responded to recent water quality regulations
promulgated by NJDEP and the USEPA by replacing groundwater supplies
with increased withdrawals of surface water. Accordingly, the
proportion of supply produced from surface water has increased from 85%
in 1986 to 89% in 1994. The Company expects this trend to continue
because it is preferable from the standpoint of operational efficiency
and cost to modify treatment processes and facilities at one or two
large plants than to attempt to constantly upgrade treatment facilities
at multiple well sites.
New Surface Water Treatment Plant
Elizabethtown's capital program includes the construction of a
new water treatment plant, the Canal Road Water Treatment Plant
(Plant) to increase Elizabethtown's sustainable production capacity
and provide the ability to continue to meet water quality regulations.
In April 1994, the Company executed a lump-sum contract for the
construction of the Plant, which will have an initial capacity of 40
MGD. Construction of the Plant is currently in progress. The current
estimated cost of the Plant is approximately $100 million, excluding
AFUDC. The Company has expended $38.4 million, excluding AFUDC of
$2.0 million, as of December 31, 1994 on the Plant. The project is
proceeding on schedule, the construction contract remains on budget
and the project is expected to be completed in mid-1996.
The Plant has been designed by a joint venture of two engineering
firms, who are nationally recognized as experts in the field. One of
the partners of the joint venture which designed the Plant is also
managing the construction.
In August 1993, the New Jersey Board of Public Utilities (BPU)
approved a stipulation (1993 Plant Stipulation) signed by all parties
to the Company's petition filed in connection with the Plant which
states that the parties affirm the Plant is necessary and that the
Company's estimate regarding the Plant's cost, at that time of $87
million, and construction period are reasonable. The 1993 Plant
Stipulation also provides for a rate setting mechanism for the Plant
during the construction period. In April 1994, Elizabethtown notified
all parti-es to the 1993 Plant Stipulation that the estimated cost of
the Plant had increased (See "Rate Matters").
Water Quality Regulations
As required by the SDWA, the USEPA has established maximum
contaminant levels (MCLs) for various substances found in drinking
water. As authorized by similar state legislation, the NJDEP has set
MCLs for certain substances which are more restrictive than the MCLs
-4-
set by the USEPA. In certain cases, the USEPA and NJDEP have also
mandated that certain treatment procedures be followed in addition to
satisfying MCLs established for specific contaminants. The NJDEP is
also the USEPA's agent for enforcing the SDWA in New Jersey and, in
that capacity, monitors the activities of Elizabethtown and Mount
Holly and reviews the results of water quality tests performed by
Elizabethtown and Mount Holly for adherence to applicable regulations.
Regulations generally applicable to water utilities, including
Elizabethtown and Mount Holly, include the Lead and Copper Rule (LCR),
the MCLs established for various volatile organic compounds (VOCs),
the MCLs proposed for radionuclides and the Surface Water Treatment
Rule (SWTR).
Lead and Copper Rule
The LCR requires Elizabethtown and Mount Holly to test the
quantity of lead and copper in drinking water at the customer's tap
and, if certain contaminant levels (action levels) are exceeded, to
notify customers and initiate a public information campaign advising
customers how to minimize exposure to lead and copper. The LCR also
requires Elizabethtown to add corrosion inhibitors to water to
minimize leaching of lead from piping, faucets and soldered joints
into water consumed at the tap. Results from two separate tests
completed during 1992 within Elizabethtown and Mount Holly's systems
do not indicate lead and copper concentrations above the action
levels. Accordingly, public notification and a public information
campaign have not been required. Capital costs of corrosion inhibitor
facilities of $2.9 million have been included in Elizabethtown's
five-year capital projections. Elizabethtown will request that the
costs of compliance be recovered in rates.
Volatile Organic Compounds
VOCs include various substances (primarily synthetic organic
solvents) which have percolated into groundwater aquifers from surface
sources. Elizabethtown has found VOCs in excess of the applicable
MCLs in certain of its wells and has either suspended the use of such
wells or constructed aeration towers which remove such contaminants
from the water by venting them into the atmosphere. Because
underground water flows are difficult to map, it is difficult to
predict when and where contamination will occur in the future. To the
extent that contamination in excess of applicable MCLs occurs at wells
lacking aeration towers, Elizabethtown will consider building such
facilities if feasible and cost effective, or closing such wells,
thereby increasing its reliance on surface water. To date, Mount
Holly has not been affected by VOC contamination.
-5-
Radionuclides
Radionuclides are naturally occurring radioactive substances
(primarily radon) found in groundwater. Like VOCs, radon can be
removed from groundwater using aeration towers. If the MCLs proposed
for all radionuclides are finally adopted, Elizabethtown believes that
it will abandon wells with aggregate production capacity of
approximately 5 MGD, thereby further increasing Elizabethtown's
reliance on surface water.
Surface Water Treatment Rule
The operation of Elizabethtown's existing Raritan-Millstone
treatment plant is subject to the SWTR. Elizabethtown has assessed
the plant's sustainable production capacity, assuming operation
consistent with the requirements of the SWTR, and determined that
improvements to the existing plant are necessary.
Specifically, Elizabethtown has installed additional pumps to
increase capacity and reliability at peak times and has constructed a
new building to house offices and lab facilities. Also,
Elizabethtown, will replace existing chlorine gas disinfection
facilities with liquid sodium hypoclorite to improve community and
employee safety, will install corrosion inhibitor facilities in
conformance with the LCR, will construct facilities to handle waste
materials generated from the treatment process (See "Environmental
Matters"). Elizabethtown has included the capital costs of these
facilities in its capital program and will request that the costs of
these facilities be recovered in rates (See "Capital Expenditures
Program" at Item 7).
TRANSMISSION AND DISTRIBUTION
As of December 31, 1994, Elizabethtown Water Company's
transmission and distribution system included 2,828 miles of
transmission and distribution mains. Mains range in size up to 60
inches, substantially all of which are either ductile iron, cast iron
or prestressed concrete pipe. Elizabethtown conducts an ongoing
program costing approximately $1 million per year to clean and line
its older cast iron mains. Such costs are capitalized and have been
included in rate base in stipulations settling recent rate cases.
As of December 31, 1994, Elizabethtown also had in service
pumping equipment having capacities of 283 MGD for low lift pumping
capacity, 577 MGD for system supply pumping capacity and 194 MGD for
transfer booster pumping capacity. Distribution storage facilities as
of December 31, 1994 consisted of standpipes, elevated and ground
storage tanks and reservoirs with an aggregate capacity of 82 MG.
Such pumping, transmission and storage facilities are necessary to
maintain adequate water pressures throughout the service territory.
Failure to maintain pressures could adversely affect domestic service
and impede local fire departments' efforts to fight fires,
particularly during peak summer loads.
-6-
On an ongoing basis, Elizabethtown assesses the capacity of its
system to maintain adequate pressures under all load conditions and
initiates plans to construct pumping, transmission and storage
facilities as needed.
ENERGY SUPPLY
Elizabethtown pumps substantially all of its water with electric
power purchased from two major electric utilities. Elizabethtown also
has diesel powered pumping and generating facilities at its major
treatment plants and at certain transfer stations to provide basic
service during possible electrical shortages. Elizabethtown has not,
to date, experienced any shortage of electric energy or diesel fuel to
operate its pumps and has cooperated with its electric suppliers
during their peak periods by operating non-electrical pumping
facilities upon request.
ENVIRONMENTAL MATTERS
Elizabethtown and Mount Holly are also subject to regulation by
the NJDEP with respect to water supply plans and specifications for
the construction, improvement, alteration and operation of public
water supply systems and with respect to the quality of any effluent
from treatment plants.
As a normal by-product of treating surface water, Elizabethtown's
existing surface water treatment plant generates silt removed from
untreated river water plus residue from chemicals used in the
treatment process. Historically, Elizabethtown has disposed of this
material in landfills. As a result of revised regulations governing
landfills, Elizabethtown has been reusing this material on site. Due
to limited on site storage capacity, Elizabethtown is designing a
facility to dry the by-product for beneficial reuse. Estimated
expenditures for this facility are included in the Company's capital
program.
During the late 1980's, Elizabethtown withdrew a well field from
service because of increased groundwater contamination and more
stringent water quality regulations. Subsequently, residents in the
area have claimed that Elizabethtown's decision to withdraw such wells
from service has caused the local water table to rise to the level
where basement flooding occurs during periods of heavy rain.
Elizabethtown commissioned an engineering firm to determine whether it
is feasible and cost effective to install treatment facilities so that
those wells not presently complying with current regulations can be
returned to service. The study was also intended to evaluate whether
the resumption of pumping would have any effect on the local water
table. The study concluded that it is possible to treat the water at
this location and resume pumping at a quality and yield that is
satisfactory to Elizabethtown. Elizabethtown is evaluating the
cost-effectiveness of this approach in connection with a possible
governmental grant to the municipality involved, for such purpose.
Preliminary cost estimates of treatment facilities necessa-ry to return
certain wells in this area to service are included in the Company's
capital program.
-7-
Under New Jersey law, environmental matters are addressed by the
NJDEP before diversion allowances or other water supply projects are
authorized. To date, Elizabethtown and Mount Holly have been able to
construct all plant facilities and obtain all diversion authorizations
necessary to maintain customer service.
FRANCHISES
The property and franchises of Elizabethtown and Mount Holly are
subject to rights of eminent domain of the State of New Jersey. These
rights have been delegated by statutes now in effect to municipalities
or groups of municipalities and have been or may be delegated to
various public agencies. No such rights of eminent domain have been
exercised since 1931.
EMPLOYEE RELATIONS
As of December 31, 1994, the Corporation had a total of 386
full-time employees, of which 207 were covered by union contracts.
The contracts between the Company and the Utility Workers Union of
America (A.F.L.-C.I.O.), were renegotiated on February 1, 1993 and
will expire on January 31, 1996.
The Company considers relations with both union and non-union
employees to be satisfactory.
RATE MATTERS
Elizabethtown and Mount Holly are subject to regulation by the
BPU with respect to the issuance and sale of securities, rates and
service, classification of accounts, mergers, and other matters.
Elizabethtown and Mount Holly periodically seek rate relief to cover
the cost of increased operating expenses, increases in financing
expenses due to additional investments in utility plant, and other
costs of doing business. Rate increases of approximately 30% in
excess of current rates will be required by Elizabethtown during 1996,
a major portion of which will be needed- to recover the expected costs
of the Plant. In light of the approval by the BPU of the 1993 Plant
Stipulation discussed below, and Elizabethtown's experience obtaining
base rate relief, Elizabethtown expects the BPU to grant timely and
adequate rate relief for the Plant, but cannot predict the ultimate
outcome of any rate proceeding.
As mentioned previously, the 1993 Plant Stipulation, approved in
August 1993, states that the Plant is necessary and that the Company's
estimates regarding the Plant's cost, at that time of $87 million, and
construction period are reasonable. In addition, the 1993 Plant
Stipulation authorizes the Company to levy a rate surcharge if the
Company's pre-tax interest coverage ratio for any 12-month historical
period drops below 2.0 times. The surcharge would equal 20% of the
Company's gross interest expense for the prior 12 months, adjusted for
revenue taxes. The surcharge would go into effect at the same time as
the Company's next base rate increase after the coverage ratio falls
below 2.0 times. Also, the surcharge would remain in effect for
-8-
12 months and could be extended by the BPU for up to six additional
months. Based upon current conditions, Elizabethtown expects its
pre-tax interest coverage will remain above the 2.0 times trigger
level through the completion of the Plant's construction and that the
surcharge will not be required. The 1993 Plant Stipulation also
provides that the rate of return on common stockholder's equity used
to calculate the rate for the equity component of the AFUDC for the
Plant will be 1.5% less than the rate of return on common
stockholder's equity established in the Company's most recent base
rate case. The authorized rate of return on common stockholder's
equity is currently 11.5%.
As indicated above under "Water Supply", Mount Holly expects to
petition the BPU for a rate increase in the second quarter of 1995
requesting an increase in rates to take place in two phases. The
first phase is necessary to recover costs to finance construction
projects that were not reflected in rates last established in October
1986. The proposed increase will also seek recovery of increased
costs for various operations and maintenance expenses since 1986. The
second phase will seek recovery of the cost of the new water supply,
treatment and transmission system discussed above.
On January 24, 1995, the BPU approved a stipulation (1995
Stipulation) for a rate increase for Elizabethtown of $5.3 million,
effective February 1, 1995. The 1995 Stipulation provides for an
authorized rate of return on common equity of 11.5%. It also provides
for recovery of the current service cost portion of the obligation
accrued under Statement of Financial Accounting Standards 106,
"Employer's Accounting for Postretirement Benefits Other Than
Pensions," provided this amount is funded by the Company. The rate
increase will cover the cost to finance $62.0 million of construction
projects that were not reflected in the rates last established in
March 1993. The increase will offset costs for power, labor and
benefits, primarily medical. The 1995 Stipulation also provides for
an increase in depreciation rates resulting in an increase in
depreciation expense of approximately $.4 million. The 1995
Stipulation requires Elizabethtown to maintain an average ratio of
common equity to total capitalization of at least 45.1% for the 12
months ended January 31, 1996. If a lessor ratio is maintained, the
revenue requirement associated with such lesser ratio will offset the
overall revenue requirement in the next base rate case.
On January 11, 1995, Elizabethtown filed with the BPU for a rate
increase of $.9 million for a change in the Purchased Water Adjustment
Clause (PWAC) rate based on a proposed change in the unit cost of
water purchased from the NJWSA, to be effective July 1, 1995. This
procedure, established by BPU Rules, allows Elizabethtown to reflect
in rates the change in the cost of water purchased from the NJWSA
without a complete rate case. Included in this request is the
amortization of the anticipated balance, as of July 1, 1995, of the
net under-recovery for the 1994 PWAC of $.4 million. The Company
expects the BPU to render a decision prior to July 1, 1995.
In June 1994, the BPU approved a Stipulation for an increase in
rates under a PWAC. The Stipulation resulted in an increase in rates,
effective July 1, 1994, of $.3 million.
-9-
REAL ESTATE MATTERS
Properties and E'town currently own several parcels of land
aggregating approximately 740 acres located in central New Jersey
having an original acquisition cost of approximately $8 million.
Approximately half of this acreage was purchased from a third party
and the balance was land formerly owned by Elizabethtown and no longer
needed for utility purposes. These holdings are owned in fee.
The Corporation has no plans to acquire additional real estate.
Over the next several years, the Corporation expects to work with
local and state officials to obtain various approvals to enhance the
value and development potential of its real estate holdings while
minimizing expenditures.
In January 1995, Properties entered into an agreement to sell a
parcel of land to a developer. The agreement allowed either party to
cancel such agreement by March 23, 1995 and has been extended to March
31, 1995 and allows the buyer until July 23, 1996 to obtain all
approvals required by governmental agencies in order to develop the
property. Other significant dates have been established during this
period upon which either the buyer or Properties may cancel the
agreement if certain criteria are not met. The ultimate sale price is
depen-dent upon the number of buildable lots as allowed by the
municipality.
In August 1993, E'town, Properties and Elizabethtown sold three
parcels of land totalling 260 acres to the Somerset County Park
Commission for $3.4 million. The sale produced an after-tax gain of
approximately $1.1 million or $.21 per share.
-10-
Executive Officers of the Corporation and Elizabethtown
Name Age Positions Held
Robert W. Kean, Jr. 72 Chairman and Chief Executive Officer of
the Corporation since 1985 and
Elizabethtown since 1973.
Henry S. Patterson, II 72 President of the Corporation since March
1985 and its subsidiary, E'town
Properties, Inc., since July 1987.
Thomas J. Cawley 64 President of Elizabethtown and its
subsidiary, Mount Holly since August
1992. Executive Vice President of
Elizabethtown since January 1987 and
Vice President of Mount Holly since
1973. Previously, Vice President,
Operations since 1975.
Andrew M. Chapman 39 Served as Chief Financial Officer of the
Corporation since August 1989 and
Treasurer of the Corporation since
November 1990 and since May 1994,
Executive Vice President and Chief
Financial Officer of Elizabethtown. He
served as Senior Vice President of
Elizabethtown from April 1993 to May
1994, Chief Financial Officer of
Elizabethtown from November 1990 to May
1994 and Treasurer of Elizabethtown from
August 1989 to May 1994. Prior to 1989,
he was Director of the Office of
Financial Management of the State of New
Jersey, Department of Treasury and
earlier, a Vice President at Shearson
Lehman Brothers.
Anne Evans Estabrook 50 Vice President of the Corporation since
September 1987. Owner of the Elberon
Development Co., (a real estate holding
company) since 1984 and President of
David O. Evans, Inc. (a construction
company) since 1983.
Walter M. Braswell 45 Secretary of the Corporation, Properties
and Elizabethtown since December 1990 and
Vice President and General Counsel and
Assistant Secretary of Elizabethtown since
August 1988. Previously, Assistant
Secretary and General Attorney of
Elizabethtown since May 1983.
Norbert Wagner 59 Senior Vice President-Operations of
Elizabethtown since May 1992. Vice
President-Operations since March 1987,
Chief Engineer since October 1978.
Edward F. Cash 59 Vice President - Customer Services of
Elizabethtown since 1977. Assistant Vice
President Customer Services since 1973.
-11-
ITEM 2. Properties
All principal plants and other materially important units of
property of Elizabethtown and Mount Holly are owned in fee. The
Company considers that the properties of Elizabethtown and Mount Holly
are in good operating condition.
ITEM 3. Legal Proceedings
As reported during 1994, a developer asserted in a suit filed in
1991 against Elizabethtown that the Company failed to install
facilities necessary to provide water service to a new development in
a timely manner. The developer further asserted that this delay took
place during a period of generally declining real estate values,
thereby allegedly, preventing the developer from selling his lots at
more favorable prices. The developer alleged that his economic losses
from the decline in real estate -values were $4.0 million.
In November 1994, the Company settled this matter by paying the
developer $1.7 million. The Company will seek recovery from its
insurance carriers.
Several lawsuits have been filed, initially in March 1991 in New
Jersey Superior Court, against Elizabethtown and other parties in
connection with a fire that occurred in a storage facility in December
1989 resulting in damage to property stored at that facility. The
lawsuits allege that the water mains surrounding the industrial
complex failed to provide an adequate flow of water necessary to fight
the fire. The suits further allege that the Company was negligent in
failing to ensure that sprinkler systems were operational prior to the
fire, resulting in those sprinkler systems being without water at the
time of the fire. Management cannot now predict the outcome of this
litigation.
ITEM 4. Submission of Matters to a Vote of Security Holders
None
PART II
ITEM 5. Market for the Corporation's Common Stock and Related
Stockholder Matters
This information is included in Exhibit 13, filed
herewith, and is incorporated herein by reference. All of
the common stock of Elizabethtown Water Company is owned by
E'town.
-12-
ITEM 6. Selected Financial Data
E'town Corporation
This information is included in Exhibit 13, filed herewith, and is incorporated
herein by reference.
Elizabethtown Water Company
1994 1993 1992 1991 1990
_______________________________________________________________________________________
Utility Plant (Thousands)
Utility Plant - net........ $437,456 $373,293 $347,253 $319,421 $297,577
Construction Expenditures
(excluding AFUDC)........ 69,981 32,517 33,293 27,732 27,301
Total Assets (Thousands)... $502,848 $437,405 $386,880 $371,103 $350,487
Capitalization (Thousands)
Shareholder's Equity....... $151,624 $125,765 $103,024 $ 85,877 $ 74,081
Preferred Stock............ 12,000 12,000 12,000 12,000 12,000
Debt (1)................... 164,951 141,952 147,841 154,984 159,049
Total Capitalization....... $328,575 $279,717 $262,865 $252,861 $245,130
Capitalization Ratios
Common Stock............... 46% 45% 39% 34% 30%
Preferred Stock............ 4% 4% 5% 5% 5%
Debt (1)................... 50% 51% 56% 61% 65%
Earnings Applicable to
Common Stock.............. $ 13,369 $ 13,783 $ 11,099 $ 10,311 $ 6,929
Operating Statistics
Revenues (Thousands)
General Customers.......... $ 62,923 $ 63,100 $ 55,570 $ 54,071 $ 48,267
Other Water Systems........ 18,082 17,187 15,080 14,082 12,947
Industrial Wholesale....... 7,458 6,652 6,044 5,846 5,515
Fire Service/Miscellaneous. 13,570 13,057 12,473 12,087 11,386
Total Revenues............. $102,033 $ 99,996 $ 89,167 $ 86,086 $ 78,115
Water Sales-Millions of Gallons (mg)
General Customers.......... 23,551 23,883 22,062 22,659 21,686
Other Water Systems........ 15,691 15,109 14,118 13,811 14,379
Industrial Wholesale....... 3,568 3,213 3,145 3,155 3,313
System Use and Unaccounted For 6,570 5,453 5,843 6,368 5,854
Total Water Sales 49,380 47,658 45,168 45,993 45,232
System Delivery by Source - mg
Surface.................... 42,534 40,742 38,558 39,222 40,343
Wells...................... 6,690 6,776 6,480 6,658 4,805
Purchased.................. 156 140 130 113 84
Total System Delivery...... 49,380 47,658 45,168 45,993 45,232
Millions of Gallons Pumped:
Average Day................ 135 131 123 126 124
Maximum Day................ 182 191 159 169 155
_______________________________________________________________________________________
(1) Includes long-term debt, notes payable and current portion of long-term debt.
-13-
ITEM 7. Management's Discussion and Analysis of
Consolidated Financial Condition and Results
of Operations
E'town Corporation
This information is included in Exhibit 13, filed herewith, and
is incorporated herein by reference.
Elizabethtown Water Company and Subsidiary
The water utility operations of Elizabethtown Water Company
(Elizabethtown or Company) and its subsidiary The Mount Holly Water
Company (Mount Holly), the consolidated entity being referred to
herein as Elizabethtown Water Company (Elizabethtown Water Company),
presently constitute the major portion of E'town Corporation's
(E'town) assets and earnings. Mount Holly contributed 3% of
Elizabethtown Water Company's consolidated operating revenues for
1994. E'town, a New Jersey holding company, is the parent company of
Elizabethtown Water Company and E'town Properties, Inc. The following
analysis sets forth significant events affecting the financial
condition at December 31, 1994 and 1993, and the results of operations
for the years ended December 31, 1994, 1993 and 1992 for Elizabethtown
Water Company.
LIQUIDITY AND CAPITAL RESOURCES
Capital Expenditures Program
Capital expenditures were $70.0 million during 1994. Capital
expenditures for the three-year period ending December 31, 1997, are
estimated to be $169.4 million.
Elizabethtown
Elizabethtown's capital program includes the construction of a
new water treatment plant, the Canal Road Water Treatment Plant
(Plant), near Elizabethtown's existing plant. The Plant, which will
have an initial rated production capacity of 40 million gallons per
day and can be expanded to 200 million gallons per day, is necessary
to meet existing and anticipated customer demands and to replace
groundwater supplies withdrawn from service as a result of more
restrictive water quality regulations and g-roundwater contamination.
Elizabethtown's construction program also includes additional mains
and storage facilities necessary to serve existing and future
customers.
In April 1994, Elizabethtown executed a lump-sum contract for the
construction of the Plant. The current estimated cost of the Plant is
approximately $100 million, excluding an Allowance for Funds Used
-14-
During Construction (AFUDC). The Company has expended $38.4 million,
excluding AFUDC of $2.0 million, as of December 31, 1994 on the Plant.
The project is proceeding on schedule, the construction contract
remains on budget and the project is expected to be completed in
mid-1996.
In August 1993, the New Jersey Board of Public Utilities (BPU)
approved a stipulation (1993 Plant Stipulation) signed by the
Department of Ratepayer Advocate, the BPU staff and several of
Elizabethtown's major wholesale customers, all of whom typically
participate in Elizabethtown's rate cases. The 1993 Plant Stipulation
states the Plant is necessary and that the Company's estimate
regarding the Plant's cost, at that time of $87 million, and
construction period are reasonable. In April 1994, Elizabethtown
notified all parties to the 1993 Plant Stipulation that the estimated
cost of the Plant had increased. The 1993 Plant Stipulation
authorizes Elizabethtown to levy a rate surcharge during the Plant's
construction period if the Company's pre-tax interest coverage ratio
for any 12-month historical period drops below 2.0 times. The
surcharge would equal 20% of the Company's gross interest expense for
the prior 12 months, adjusted for revenue taxes. The surcharge would
go into effect at the same time as the Company's next base rate
increase after the coverage ratio falls below 2.0 times. Also, the
surcharge would remain in effect for 12 months and could be extended
by the BPU for up to six additional months. The 1993 Plant
Stipulation also provides that the rate of return on common
stockholder's equity used to calculate the rate for the equity
component of the AFUDC for the Plant will be 1.5% less than the rate
of return on common stockholder's equity established in the Company's
most recent base rate case. The authorized rate of return on common
stockholder's equity is currently 11.5%.
Elizabethtown's pre-tax interest coverage ratio, calculated in
accordance with the 1993 Plant Stipulation, for the twelve months
ended December 31, 1994 was 2.8 times, which is in excess of the 2.0
times trigger level for the rate surcharge authorized by the 1993
Plant Stipulation. Based upon current conditions, the Company expects
its pre-tax interest coverage will remain above the 2.0 times trigger
level through the completion of the Plant's construction and that the
surcharge will not be required-.
Mount Holly
To ensure an adequate supply of quality water from an aquifer
serving parts of southern New Jersey, state legislation is requiring
Mount Holly, as well as other suppliers obtaining water from
designated portions of this aquifer, to reduce pumpage from its wells.
Mount Holly has received preliminary approvals from the New Jersey
Department of Environmental Protection for its conceptual plan to
develop a new water supply and treatment and transmission system
necessary to obtain water outside the desig-nated portion of the
aquifer and to treat such water and pump it into the Mount Holly
-15-
system. The current estimate of the cost of this project is
$16.5 million. The land for the supply and treatment facilities has
been purchased and test wells have been drilled and evaluated. Mount
Holly expects to file for a rate increase, in two phases, in the
second quarter of 1995 providing for rate relief for the entire
project in the second phase.
Capital Resources
During 1994, Elizabethtown Water Company financed 24.1% of its
capital expenditures from internally generated funds (after payment of
common stock dividends). The balance was financed with a combination
of proceeds from capital contributions from E'town (funded by sale of
its Common Stock) and short-term borrowings under the revolving credit
agreement discussed below.
For the three-year period ending December 31, 1997, Elizabethtown
Water Company estimates that 30% of its capital expenditures will be
financed with internally generated funds (after the payment of common
stock dividends). The balance will be financed with a combination of
capital contributions from E'town from the 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 under the revolving credit agreement discussed below. The
NJEDA has granted preliminary approval for the financing of almost all
of Elizabethtown's major projects over the next three years, including
the Plant. Elizabethtown expects to pursue tax-exempt financing to
the extent that final allocations are granted by the NJEDA. The
Company's senior debt is rated A3 and A by Moody's and Standard and
Poor's, respectively.
In May 1994, E'town issued 690,000 shares of common stock for net
proceeds of $18.2 million. The net proceeds were used to fund an
equity contribution to Elizabethtown of $16.0 million. This
contribution has been used to partially fund Elizabethtown's
construction program, the predominant portion of which relates to the
Plant.
In March 1994, Elizabethtown issued 120,000 shares of $100 par
value, $5.90 Cumulative Preferred Stock for proceeds of $12.0 million
at an effective rate of 7.37%. The proceeds were used to redeem
$12.0 million of the Company's $8.75 Cumulative Preferred Stock. The
redemption premium of $1.0 million was paid from general Company
funds.
Elizabethtown has executed a committed revolving credit
agreement (Agreement) with an agent bank and five additional
participating banks to replace its uncommitted lines of credit. The
Agreement provides up to $60 million in revolving short-term financing
which, together with internal funds, proceeds of future
-16-
issuances of debt and preferred stock and capital contributions from
E'town, is expected to be sufficient to finance Elizabethtown's and
Mount Holly's capital needs through 1997. The Agre-ement allows
Elizabethtown to borrow, repay and reborrow up to $60 million during
the first three years, after which time Elizabethtown may convert any
outstanding balances to a five-year fully amortizing term loan. The
Agreement further provides that among other covenants, Elizabethtown
must maintain a ratio of common and preferred equity to total
capitalization of not less than 35% and a pre-tax interest coverage
ratio of at least 1.5 to 1. As of December 31, 1994, Elizabethtown
had borrowings outstanding of $23.0 million under the Agreement at
interest rates from 5.6% to 6.4 %, at a weighted average rate of 6.1%.
During 1994, 273,159 shares of common stock were issued for
proceeds of $7.1 million under E'town's Dividend Reinvestment and
Stock Purchase Plan (DRP). The proceeds are used on an ongoing basis
to make capital contributions to Elizabethtown to partially fund its
capital program.
During 1995, E'town Corporation expects to issue approximately
500,000 shares of common stock through a public offering in order to
finance additional equity contributions to Elizabethtown to fund the
Company's capital program, the predominant portion of which is the
Plant.
Also in 1995, Elizabethtown intends to issue approximately
$30 million of tax-exempt debentures through the NJEDA to repay
balances outstanding under the revolving credit agreement incurred for
qualified capital expenditures.
1993 and 1992
In May 1993, E'town issued 575,000 shares of common stock for net
proceeds of $16.6 million. The net proceeds were used to fund equity
contributions to Elizabethtown of $11.0 million in May 1993 and
$2.8 million in September 1993. Elizabethtown used a portion of such
contributions to repay $7.0 million of short-term bank debt incurred
for construction expenditures and invested the balance on a short-term
basis.
During 1993, E'town raised $6.0 million from the sale of common
stock under its DRP. Such proceeds were used to fund equity
contributions to Elizabethtown, primarily for Elizabethtown's capital
expenditures.
In August 1993, E'town, Properties and Elizabethtown sold three
parcels of land totalling 260 acres to the Somerset County Park
Commission for $3.4 million. Of the total proceeds, $2.2 million was
used to fund an equity contribution to Elizabethtown.
-17-
In November 1993, Elizabethtown issued $50 million of 7 1/4%
Debentures due November 1, 2028. The proceeds of the issue were used
to redeem $30 million of the Company's 8 5/8% Debentures due 2007 and
$20 million of the Company's 10 1/8% Debentures due 2018. The
aggregate redemption premiums of $2.7 million were paid from general
Company funds.
In April 1992, E'town issued 500,000 shares of common stock for
net proceeds of $12.7 million. Proceeds of the issue funded an $11.0
million capital contribution to Elizabethtown. Also, E'town funded
additional equity contributions of $4.2 million to Elizabethtown from
E'town's DRP.
During 1992, Elizabethtown issued $15 million of 8%
Debentures to repay short-term bank debt, of which, $9 million was
incurred to repay Elizabethtown's 4 7/8% Debentures due February 1,
1992, and the remainder was incurred to finance construction
expenditures.
RESULTS OF OPERATIONS
Earnings Applicable to Common Stock for 1994 were $13.4 million
as compared to $13.8 million for 1993. A return to more normal summer
weather and water consumption patterns, a non-recurring charge related
to litigation, an increase in both the debt and equity components of
AFUDC and increases in operating and depreciation expenses since March
1993, when rates were last increased, all contributed to the overall
decrease between 1993 and 1994.
Earnings Applicable to Common Stock for 1993 were $13.8 million
as compared to $11.1 million for 1992. The increase in earnings
resulted from higher levels of outdoor water use due to abnormally hot
and dry summer weather. Also, a rate increase received in March 1993
enabled Elizabethtown to cover higher levels of operating expenses in
1993 without adversely affecting earnings. Summer water use in excess
of what management believed to be normal contributed approximately
$1.8 million to the increase.
Operating Revenues increased $2.0 million or 2.0% in 1994. Of
this increase, $1.2 million relates to a rate increase, effective
March 1993. Sales to retail customers decreased by $.9 million,
primarily due to a return to more normal weather patterns during the
spring and summer months of 1994 compared to 1993. However, despite
the return to more normal weather patterns, sales to other water
systems and to large industrial customers increased by $.6 million and
$.7 million, respectively. Due to nor-mal growth within the service
territory, fire service revenues increased by $.4 million.
Operating Revenues increased $10.8 million or 12.1% in 1993. Of
this increase, $4.8 million relates to the combined effect of the rate
increases of $5.0 million and $4.0 million effective March 1993 and
1992, respectively. Also, sales to retail customers increased $3.8
million and sales to other water systems increased $1.2 million due to
hot, dry summer weather.
-18-
Operation Expenses increased by $2.2 million or 5.7%. The
increase is due primarily to increased costs for labor, benefits,
miscellaneous expenses and the unit cost of raw water purchased from
the NJWSA, which is reflected in the PWAC (see Note 8 to the Notes to
Consolidated Financial Statements) in addition to the cost of
chemicals to treat such water. Benefit costs increased due,
primarily, to an increase in the actuarially calculated pension expense.
Operation Expenses increased by $3.5 million or 10.0% in 1993
primarily due to increases in the quantity of power and raw water
purchased to meet higher than normal summer loads. Also, the unit
costs of power and purchased water increased, as did labor costs and
the cost of medical and other benefits.
Maintenance Expenses increased by $.9 million or 15.9% due to the
effects of unusually harsh winter weather in the first quarter of 1994
in addition to an increased level of preventive maintenance at various
operating facilities throughout the Company.
Maintenance Expenses increased by an insignificant amount in
1993.
Depreciation Expense increased $.6 million or 7.9% in 1994 and
$.6 million or 9.5% in 1993 due to additional depreciable plant being
placed in service during those periods.
Revenue Taxes increased $.2 million or 2.0% in 1994 and $1.4
million or 12.8% in 1993 due to additional taxes on the higher
revenues discussed above.
Real Estate, Payroll and Other Taxes increased by $.2 million or
8.1% in 1994 due to increased payroll taxes resulting from labor cost
increases. Real estate, payroll and other taxes increased $.1 million
in 1993 also due to increased payroll taxes.
Federal Income Taxes decreased $.5 million or 6.3% in 1994 and
increased $1.8 million or 31.2% in 1993 due to the changes in the
components of taxable income discussed herein. The increase in 1993
also includes $.2 million due to a change in the federal statutory tax
rate from 34% to 35%.
Other Income decreased in total by less than $.1 million in 1994.
Included in this net decrease is a litigation settlement of $.9
million (see Note 11 to the Notes to Consolidated Financial
Statements). Also included in the net decrease is a an increase in
the equity component of AFUDC of $.7 million resulting from increased
construction expenditures, primarily related to the Plant. Other
increases of $.3 million resulted from various miscellaneous items.
Federal income taxes, as a result of all of the above, decreased less
than $.1 million.
-19-
Other Income increased in total by $.1 million in 1993. Other
Income increased, primarily, due to a gain on the sale of land by
Elizabethtown. A decrease in the equity component of AFUDC of $.2
million resulted from the timing of construction expenditures. Other
increases of $.2 million resulted from various miscellaneous items.
Federal income taxes, as a result of all of the above, increased $.1
million.
Total Interest Charges decreased $1.0 million or 9.1% in 1994 due
primarily to savings from refinancing of long-term debt in 1993.
Also, an increase in the debt component of AFUDC of $.5 million,
resulted in a reduction of interest expense.
Total Interest Charges increased $.8 million or 7.7% in 1993, due
primarily to an increase in interest for long-term debt issued in
September 1992 and a reduction in earnings from NJEDA trust funds due
to the use of trust fund balances for construction expenditures.
These items were partially offset by lower interest on short-term debt
due to reduced borrowings.
Preferred Stock Dividends decreased $.2 million or 18.7% in 1994
as a result of savings from the refinancing of the $8.75 series
preferred stock with $5.90 series preferred stock in March 1994.
ECONOMIC OUTLOOK
Currently, Elizabethtown and Mount Holly believe they are in
compliance with all water quality standards. Looking forward,
however, governmental water quality and service regulations will
require Elizabethtown and Mount Holly to make significant investments
in water supply, water treatment, transmission and storage facilities
including, for Elizabethtown, the Plant, and for Mount Holly, a new
water supply, treatment and transmission system to augment existing
facilities. This capital program will require regular external
financing and rate relief through 1996.
The timing and amount of rate increases obtained by Elizabethtown
and Mount Holly, as well as various other factors which will always
affect the financial performance of a water utility, such as weather,
customer usage, the magnitude and timing of capital expenditures and
the rate of growth of revenues and expenditures, will drive earnings
going forward in 1995 and 1996. Once the new facilities, referred to
above, are constructed and reflected in rates, Elizabethtown expects
its internally generated -cash flow to increase and capital outlays to
return to more normal levels. As a result, external financing and
rate relief needs should become less frequent. Therefore, more than
in recent years, management's ongoing efforts to grow unit sales and
control operating costs will benefit the customer by reducing the
frequency of rate increases, and will benefit shareholders by
positively affecting earnings.
-20-
The BPU approved a $5.3 million, or 5.3%, rate increase (1995
Stipulation) effective February 1, 1995 which will favorably impact
earnings in 1995. Among other provisions, the 1995 Stipulation
requires Elizabethtown to maintain an average ratio of common equity
to total capitalization of at least 45.1% for the twelve months ended
January 31, 1996. If a lesser ratio is maintained, the revenue
requirement associated with such lesser ratio will offset the overall
revenue requirement in the next base rate case.
The Company expects to sustain an average ratio of common equity
to total capitalization in excess of 45.1% for such 12-month period.
Looking further forward, rate increases of approximately 30% in excess
of current rates will be required by Elizabethtown during 1996, a
major portion of which will be needed to recover the expected costs of
the Plant. In light of the approval by the BPU of the 1993 Plant
Stipulation, and Elizabethtown's experience obtaining base rate
relief, Elizabethtown expects the BPU to gra-nt timely and adequate
rate relief for the Plant, but cannot predict the ultimate outcome of
any rate proceeding.
Rate increases of more than 100% in excess of current rates will
be required by Mount Holly during the period 1995-1996, the
predominant portion of which will be required to recover the expected
costs of the new supply, treatment and transmission facilities. Mount
Holly expects to file for a rate increase in two phases in the second
quarter of 1995, providing for rate relief for the entire project in
the second phase. Mount Holly expects the BPU to grant timely and
adequate rate relief, but cannot predict the ultimate o-utcome at this
time.
-21-
Item 8. Financial Statements and Supplementary Data
The information for E'town is included in Exhibit 13, filed
herewith, and is incorporated herein by reference.
The information for Elizabethtown Water Company is contained on
pages 2 through 21 of Appendix I included herein.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None
PART III
Item 10. Directors and Executive Officers of the Registrant
Information with respect to directors of E'town and Elizabethtown
is included in E'town's Proxy Statement for the 1995 Annual Meeting of
Stockholders, and is incorporated herein by reference.
Information regarding the executive officers of both E'town and
Elizabethtown follows Item 1 in Part I of this Form 10-K.
Item 11. Executive Compensation
This information for E'town and Elizabethtown is included in
E'town's Proxy Statement for the 1995 Annual Meeting of Stockholders,
and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
This information is included in E'town's Proxy Statement for the
1995 Annual Meeting of Stockholders, and is incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions
This information for E'town and Elizabethtown is included in
E'town's Proxy Statement for the 1995 Annual Meeting of Stockholders,
and is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K
(a) The following documents are filed as part of this
report:
-22-
1. Financial Statements:
Elizabethtown Water Company
Statements of Consolidated Income for the years ended
December 31, 1994, 1993 and 1992.
Consolidated Balance Sheets as of December 31, 1994
and 1993.
Statements of Consolidated Capitalization as of
December 31, 1994 and 1993.
Statement of Consolidated Shareholder's Equity for the
years ended December 31, 1994, 1993 and 1992.
Statements of Consolidated Cash Flows for the years
ended December 31, 1994, 1993 and 1992.
Notes to Consolidated Financial Statements.
E'town Corporation
A portion of the 1994 Annual Report to Shareholders which
includes Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations, Consolidated Financial
Statements, Notes to Consolidated Financial Statements, Independent
Auditors' Report and Other Financial and Statistical Data is filed
herewith as Exhibit 13 and is herein incorporated by reference.
Elizabethtown Water Company
Elizabethtown Water Company's consolidated financial statements
and notes thereto are included herein on pages 2 through 21 of
Appendix I.
E'town and Elizabethtown Water Company
The Independent Auditors' Reports for E'town and
Elizabethtown Water Company appear on page 27 herein and page 1 of
Appendix I, respectively.
2. Financial Statement Schedules:
-23-
All financial schedules required to be filed contain the same
data and amounts for both E'town and Elizabethtown Water Company,
except for Supplemental Schedule of Property, Plant and Equipment,
which includes property, plant and equipment for each company.
Schedule II - Valuation and Qualifying Accounts for
the Years Ended December 31, 1994, 1993 and 1992.
Supplemental Schedule of Property, Plant and Equipment at
December 31, 1994 and 1993.
Other schedules are omitted because of the absence of the
conditions under which they are required or because the required
information is included in the financial statements or the notes
accompanying each company's financial statements.
3. Exhibits
(a) Exhibits for E'town and Elizabethtown Water
Company are listed in the Exhibit Index.
(b) Reports on Form 8-K: None
-24-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
March 29, 1995 E'TOWN CORPORATION
By: /s/ Robert W. Kean, Jr.
-------------------------
Chairman, Chief Executive
Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 29, 1995.
Chairman, Chief Executive Officer
and Director /s/ Robert W. Kean, Jr.
-------------------------
President and Director /s/ Henry S. Patterson II
-------------------------
Vice President and Director /s/ Anne Evans Estabrook
-------------------------
Chief Financial Officer and Treasurer /s/ Andrew M. Chapman
(Principal Financial and Accounting Officer) -------------------------
Director /s/ Brendan T. Byrne
-------------------------
Director /s/ Thomas J. Cawley
-------------------------
Director /s/ John Kean
-------------------------
Director /s/ Robert W. Kean III
-------------------------
Director /s/ Arthur P. Morgan
-------------------------
Director /s/ Barry T. Parker
-------------------------
Director /s/ Hugo M. Pfaltz, Jr.
-------------------------
Director /s/ Chester A. Ring III
-------------------------
-25-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
March 29, 1995 ELIZABETHTOWN WATER COMPANY
By: /s/ Robert W. Kean, Jr.
--------------------------
Chairman, Chief Executive
Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 29, 1995.
Chairman, Chief Executive Officer
and Director /s/ Robert W. Kean, Jr.
--------------------------
President and Director /s/ Thomas J. Cawley
--------------------------
Chief Financial Officer and Treasurer /s/ Andrew M. Chapman
(Principal Financial Officer) --------------------------
Controller /s/ Dennis W. Doll
(Principal Accounting Officer) --------------------------
Director /s/ Brendan T. Byrne
--------------------------
Director /s/ Anne Evans Estabrook
--------------------------
Director /s/ John Kean
--------------------------
Director /s/ Robert W. Kean, III
--------------------------
Director /s/ Arthur P. Morgan
--------------------------
Director /s/ Barry T. Parker
--------------------------
Director /s/ Henry S. Patterson, II
--------------------------
Director /s/ Hugo M. Pfaltz, Jr.
--------------------------
Director /s/ Chester A. Ring III
--------------------------
-26-
INDEPENDENT AUDITORS' REPORT
E'TOWN CORPORATION:
We have audited the consolidated financial statements of E'town
Corporation and its subsidiaries as of December 31, 1994 and 1993, and
for each of the three years in the period ended December 31, 1994, and
have issued our report thereon dated February 17, 1995, except for the
subsequent events discussed in Notes 3 and 11, as to which the dates
are February 23, 1995 and March 9, 1995, respectively; such
consolidated financial statements and report are included in your 1994
Annual Report to Shareholders and are incorporated herein by
reference. Our audits also included the financial statement schedules
of E'town Corporation and its subsidiaries, listed in Item 14. These
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion based on our
audits. In our opinion, such financial statement schedules, when
considered in relation to the basic consolidated financial statements
taken as a whole, present fairly in all material respects the
information set forth therein.
/s/ Deloitte & Touche LLP
Parsippany, New Jersey
February 17, 1995, except for the
subsequent events discussed in
Notes 3 and 11, as to which the
dates are February 23, 1995 and
March 9, 1995, respectively
-27-
E'TOWN CORPORATION SCHEDULE II
ELIZABETHTOWN WATER COMPANY
VALUATION AND QUALIFYING ACCOUNTS
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
________ ________ ________ ________ ________
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
______________ __________ ___________ __________ __________
Reserve for Uncollectible
Accounts:
Year Ended December 31, 1994 $434,000 $552,459 (A) $523,459 $463,000
Year Ended December 31, 1993 $377,000 $571,116 (A) $514,116 $434,000
Year Ended December 31, 1992 $281,800 $472,261 (A) $377,061 $377,000
____________________________
(A) Write-off of uncollectible accounts, net of recoveries.
_______________________________________________________________________________
SUPPLEMENTAL
SCHEDULE
E'TOWN CORPORATION
ELIZABETHTOWN WATER COMPANY
PROPERTY, PLANT AND EQUIPMENT
AT DECEMBER 31, 1994 AND 1993
1994 1993
_________ _________
ELIZABETHTOWN WATER COMPANY:
____________________________
UTILITY PLANT IN SERVICE:
Intangible Plant $ 250,766 $ 250,766
Source of Supply Plant 9,739,125 8,616,493
Pumping Plant 43,658,801 41,570,388
Water Treatment Plant 46,008,913 44,492,959
Transmission & Distribution Plant 354,703,279 328,843,648
General Plant 14,068,349 13,567,318
Leasehold Improvements 110,954 69,264
Acquisition Adjustments 632,388 767,988
____________ ____________
Utility Plant in Service 469,172,575 438,178,824
Construction Work in Progress 55,739,951 17,242,088
____________ ____________
Total Utility Plant 524,912,526 455,420,912
NON-UTILITY PROPERTY - net 85,690 87,582
____________ ____________
TOTAL $524,998,216 $455,508,494
____________ ____________
____________ ____________
E'TOWN CORPORATION:
___________________
UTILITY PLANT (as above) $524,912,526 $455,420,912
NON-UTILITY PROPERTY - net 12,061,574 11,989,116
____________ ____________
TOTAL $536,974,100 $467,410,028
____________ ____________
____________ ____________
EXHIBIT INDEX
Certain of the following exhibits, designated with
an asterisk(*), are filed herewith. The exhibits not so
designated have heretofore been filed with the Commission
and are incorporated herein by reference to the documents
indicated in brackets following the description of such
exhibits.
E'town Corporation
Exhibit
No. Description
3(a) - Certificate of Incorporation of E'town
Corp.
[Registration Statement No. 33-42509,
Exhibit 4(a)]
*3(b) - By-Laws of E'town Corp.
3(c) - Certificate of Incorporation of E'town
Properties, Inc. [Registration Statement
No. 33-32143, Exhibit 4(j)]
3(d) - By-Laws of E'town Properties, Inc.
[Registration Statement No. 33-32143,
Exhibit 4(n)]
4(a) - Rights Agreement dated as of February 4,
1991 between E'town and the Rights Agent
[Registration Statement No. 33-38566,
Exhibit 4(n)]
4(b) - Indenture dated as of January 1, 1987
from E'town Corporation to Boatmen's
Trust, Trustee, relating to the 6 3/4%
Convertible Subordinated Debentures due
2012 [Registration Statement No.
33-32143, Exhibit 4(a)]
10(a) - Incentive Stock Option Plan
[Registration Statement No. 2-99602,
Exhibit 28(a)]
*10(b) - Savings and Investment Plan
10(c) - Management Incentive Plan [Registration
Statement No. 33-38566, Exhibit 10(i)]
10(d) - E'town's 1987 Stock Option Plan
[Registration Statement No. 33-42509,
Exhibit 28]
10(e) - E'town's 1990 Performance Stock Program
[Registration Statement No. 33-46532,
Exhibit 10(k)]
10(f) - E'town's Dividend Reinvestment and Stock
Purchase Plan [Registration No.
33-56013, Exhibit 4(e)]
10(g) - Change of Control Agreement [Form 10-Q for
the quarter ended March 31, 1994, Exhibit 10]
*11 - Statement Regarding Computation of Per
Share Earnings
*13 - Portion of the 1994 Annual Report to
Shareholders which includes Management's
Discussion and Analysis of Consolidated
Financial Condition and Results of
Operations, Consolidated Financial
Statements, Notes to Consolidated
Financial Statements, Independent
Auditors' Report and Other Financial and
Statistical Data and is herein
incorporated by reference.
*23 - Consent of Deloitte & Touche LLP,
Independent Auditors
*27 - E'town Corporation - Financial Data Schedule
EXHIBIT INDEX
Certain of the following exhibits, designated with
an asterisk(*), are filed herewith. The exhibits not so
designated have heretofore been filed with the Commission
and are incorporated herein by reference to the documents
indicated in brackets following the description of such
exhibits.
Elizabethtown Water Company
Exhibit
No. Description
3(a) - Form of Restated Certificate of
Incorporation of Elizabethtown Water
Company [Form 10-K for the year ended
December 31, 1993, Exhibit 3(a)]
3(b) - By-Laws of Elizabethtown Water Company
4(a) - Indenture dated as of November 1, 1993
from Elizabethtown Water Company to The
Bank of New York, Trustee, relating to
the 7 1/4% Debentures due 2028. [Form 10-K
for year ended December 31, 1993, Exhibit 4(a)]
4(b) - Indenture dated as of September 1, 1992
from Elizabethtown Water Company to The
Bank of New York, Trustee, relating to
the 8% Debentures due 2022 [Form 10-K
for year ended December 31, 1992, Exhibit 4(a)]
4(c) - Indenture dated as of October 1, 1991
from Elizabethtown Water Company to The
Bank of New York, Trustee, relating to
the 8 3/4% Debentures due 2021
[Registration Statement No. 33-46532,
Exhibit 4(f)]
4(d) - Indenture dated as of August 1, 1991
from Elizabethtown Water Company to The
Bank of New York, Trustee, relating to
the 6.60% Debentures due 2021
[Registration Statement No. 33-46532,
Exhibit 4(g)]
4(e) - Indenture dated as of August 1, 1991
from Elizabethtown Water Company to The
Bank of New York, Trustee, relating to
the 6.70% Debentures due 2021
[Registration Statement No. 33-46532,
Exhibit 4(h)]
4(f) - Indenture dated as of October 1, 1990
from Elizabethtown Water Company to
Citibank, N.A., Trustee, relating to the
7 1/2% Debentures due 2020 [Registration
Statement No. 33-38566, Exhibit 4(e)]
Exhibit
No. Description
4(g) - Indenture dated as of December 1, 1989
from Elizabethtown Water Company to
Citibank, N.A., Trustee, relating to the
7.20% Debentures due 2019 [Registration
Statement No. 33-38566, Exhibit 4(f)]
10(a) - Contract for service to Middlesex Water
Company. [Registration Statement No.
33-38566, Exhibit 10(a)]
10(b) - Contract for service to Edison Township.
[Registration Statement No. 2-58262,
Exhibit 13(c)]
10(c) - Contract for service to New
Jersey-American Water Company. [Form
10-K for the year ended December 31,
1992, Exhibit 10(c)]
10(d) - Contract for service to City of
Elizabeth. [Form 10-K for the year ended
December 31, 1992, Exhibit 10(d)]
10(e) - Contract for service to Franklin
Township. [Registration Statement No.
33-46532, Exhibit 10(e)]
10(f) - Contract with the New Jersey Water
Supply Authority for the purchase of
water from the Raritan Basin.
[Registration Statement No. 33-32143,
Exhibit 10(e)]
10(g) - Supplemental Executive Retirement Plan
of Elizabethtown Water Company [Form
10-K for the year ended December 31,
1992 Exhibit 10(g)]
10(h) - Medical Reimbursement Plan of
Elizabethtown Water Company [Form 10-K
for the year ended December 31, 1992
Exhibit 10(h)]
*12(a) - Computation of Ratio of Earnings to
Fixed Charges
*12(b) - Computation of Ratio of Earnings to
Fixed Charges and Preferred Dividends
* 27 - Elizabethtown Water Company - Financial Data
Schedule.
APPENDIX I
ELIZABETHTOWN WATER COMPANY
AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994,
1993 AND 1992 AND
INDEPENDENT AUDITORS' REPORT
APPENDIX I
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
__________________________________________
TABLE OF CONTENTS
__________________________________________________________________________
PAGE
____
INDEPENDENT AUDITORS' REPORT 1
STATEMENTS OF CONSOLIDATED INCOME FOR THE YEARS ENDED
DECEMBER 31, 1994, 1993 AND 1992 2
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1994 AND 1993 3
STATEMENTS OF CONSOLIDATED CAPITALIZATION AS OF
DECEMBER 31, 1994 AND 1993 5
STATEMENTS OF CONSOLIDATED SHAREHOLDER'S EQUITY FOR THE
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 6
STATEMENTS OF CONSOLIDATED CASH FLOWS FOR THE YEARS ENDED 7
DECEMBER 31, 1994, 1993 AND 1992
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8
__________________________________________________________________________
APPENDIX I
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDER AND BOARD OF DIRECTORS OF ELIZABETHTOWN WATER
COMPANY:
We have audited the accompanying consolidated balance sheets and
statements of consolidated capitalization of Elizabethtown Water
Company and its subsidiary as of December 31, 1994 and 1993, and the
related consolidated statements of income, shareholder's equity, and
cash flows for each of the three years in the period ended December
31, 1994. Our audits also included the financial statement schedules
listed in the Index at Item 14. These financial statements and
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on the
financial statements and financial statement schedules based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Elizabethtown Water
Company and its subsidiary at December 31, 1994 and 1993, and the
results of their operations and their cash flows for each of the three
years in the period ended December 31, 1994 in conformity with generally
accepted accounting principles. Also, in our opinion, such financial
statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly in
all material respects the information set forth therein.
/s/ Deloitte & Touche LLP
Parsippany, New Jersey
February 17, 1995
-1-
Elizabethtown Water Company and Subsidiary APPENDIX I
Statements of Consolidated Income
Year Ended December 31,
_______________________________________
1994 1993 1992
_____________ ____________ ____________
Operating Revenues $102,032,505 $99,996,120 $89,167,337
____________ ____________ ____________
Operating Expenses:
Operation 40,722,980 38,529,149 35,041,222
Maintenance 6,623,772 5,716,157 5,704,843
Depreciation 7,860,180 7,285,309 6,654,986
Revenue taxes 12,748,161 12,501,804 11,086,349
Real estate, payroll and other taxes 2,717,067 2,513,891 2,429,446
Federal income taxes (Note 3) 7,176,396 7,658,770 5,836,464
____________ ___________ ___________
Total operating expenses 77,848,556 74,205,080 66,753,310
____________ ___________ ___________
Operating Income 24,183,949 25,791,040 22,414,027
____________ ___________ ___________
Other Income:
Litigation settlement (Note 11) (932,203)
Gain on sale of land 122,400
Allowance for equity funds used
during construction (Note 2) 1,178,133 445,339 599,443
Federal income taxes (Note 3) (237,599) (258,024) (185,000)
Other-net 432,922 169,474 (55,326)
____________ ___________ ___________
Total other income 441,253 479,189 359,117
____________ ___________ ___________
____________ ___________ ___________
Total Operating and Other Income 24,625,202 26,270,229 22,773,144
____________ ___________ ___________
Interest Charges:
Interest on long-term debt 10,774,008 11,527,301 10,516,521
Other interest expense-net 175,507 77,921 514,122
Capitalized interest (Note 2) (867,101) (391,895) (616,473)
Amortization of debt discount-net 319,646 224,383 209,631
____________ ___________ ___________
Total interest charges 10,402,060 11,437,710 10,623,801
____________ ___________ ___________
Income Before Preferred Stock
Dividends 14,223,142 14,832,519 12,149,343
Preferred Stock Dividends 854,047 1,050,000 1,050,000
____________ ___________ ___________
Earnings Applicable to Common Stock $ 13,369,095 $13,782,519 $11,099,343
____________ ___________ ___________
____________ ___________ ___________
See Notes to Consolidated Financial Statements.
-2-
Elizabethtown Water Company and Subsidiary APPENDIX I
Consolidated Balance Sheets
December 31,
___________________________
Assets 1994 1993
____________ ____________
Utility Plant-at Original Cost:
Utility plant in service $469,172,575 $438,178,824
Construction work in progress 55,739,951 17,242,088
____________ ____________
Total utility plant 524,912,526 455,420,912
Less accumulated depreciation and amortization 87,456,550 82,128,023
____________ ____________
Utility plant-net 437,455,976 373,292,889
____________ ____________
Non-utility Property 85,690 87,582
____________ ____________
Funds Held by Trustee for Construction
Expenditures (Note 2) 382,306
____________
Current Assets:
Cash and cash equivalents 1,485,115 3,263,456
Customer and other accounts receivable
(less reserve: 1993, $434,000; 1992, $377,000) 12,350,802 11,887,985
Unbilled revenues 7,161,483 7,248,322
Materials and supplies-at average cost 1,724,969 1,623,702
Prepaid insurance, taxes, other 1,410,401 1,603,955
Prepaid federal income taxes 1,344,630
____________ ____________
Total current assets 25,477,400 25,627,420
____________ ____________
Deferred Charges (Note 7):
Prepaid pension expense (Note 10) 926,142 1,003,145
Abandonments 76,049 152,097
Waste residual management 325,785 587,589
Unamortized debt and preferred stock expenses 8,902,271 8,025,677
Taxes recoverable through future rates (Note 3) 26,339,057 26,643,663
Postretirement benefit expense (Note 10) 2,077,051 1,004,556
Purchased water under recovery - net 314,128
Other unamortized expenses 868,365 598,179
____________ ____________
Total deferred charges 39,828,848 38,014,906
____________ ____________
Total $502,847,914 $437,405,103
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-3-
Elizabethtown Water Company and Subsidiary APPENDIX I
Consolidated Balance Sheets
December 31,
____________________________
Capitalization and Liabilities 1994 1993
____________ ____________
Capitalization (Notes 4 and 5):
Common shareholder's equity $151,624,255 $125,764,979
Cumulative preferred stock 12,000,000 12,000,000
Long-term debt-net 141,908,430 141,909,533
____________ ____________
Total capitalization 305,532,685 279,674,512
____________ ____________
Current Liabilities:
Notes payable-banks (Note 5) 23,000,000 0
Long-term debt-current portion (Note 4) 42,000 42,000
Accounts payable and other liabilities 18,165,522 9,589,716
Customers' deposits 278,895 276,497
Municipal and state taxes accrued 12,831,524 12,569,445
Federal income taxes accrued 704,771
Interest accrued 2,828,464 2,699,483
Preferred stock dividends accrued 59,000 89,178
____________ ____________
Total current liabilities 57,205,405 25,971,090
____________ ____________
Deferred Credits:
Customer advances for construction 45,554,476 45,149,522
Federal income taxes (Note 3) 60,109,244 55,955,366
Unamortized investment tax credits 8,650,537 8,852,487
Emergency water projects 127,704
Accumulated postretirement benefits (Note 10) 2,077,051 1,004,556
____________ ____________
Total deferred credits 116,391,308 111,089,635
____________ ____________
Contributions in Aid of Construction 23,718,516 20,669,866
____________ ____________
Commitments and Contingent Liabilities (Note 9)
____________ ____________
Total $502,847,914 $437,405,103
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-4-
Elizabethtown Water Company and Subsidiary APPENDIX I
Statements of Consolidated Capitalization
December 31,
____________________________
1994 1993
____________ ____________
Common Shareholder's Equity (Notes 4 and 5):
Common stock without par value, authorized,
10,000,000 shares; issued 1994 and 1993,
1,974,902 shares $ 15,740,602 $ 15,740,602
Paid-in capital 88,868,632 63,522,594
Capital stock expense (484,702) (484,702)
Retained earnings 47,499,723 46,986,485
____________ ____________
Total common shareholder's equity 151,624,255 125,764,979
____________ ____________
Cumulative Preferred Stock (Note 4):
$100 par value, authorized, 200,000
shares; $5.90 series, issued and
outstanding, 120,000 shares 12,000,000
____________
Cumulative Preferred Stock-Redeemable (Note 4):
$100 par value, authorized, 200,000
shares; $8.75 series, issued and
outstanding, 120,000 shares 12,000,000
____________
Cumulative Preferred Stock:
$25 par value, authorized, 500,000 shares;
none issued
Elizabethtown Water Company:
7.20% Debentures, due 2019 10,000,000 10,000,000
7 1/2% Debentures, due 2020 15,000,000 15,000,000
6.60% Debentures, due 2021 10,500,000 10,500,000
6.70% Debentures, due 2021 15,000,000 15,000,000
8 3/4% Debentures, due 2021 27,500,000 27,500,000
8% Debentures, due 2022 15,000,000 15,000,000
7 1/4% Debentures, due 2028 50,000,000 50,000,000
The Mount Holly Water Company:
Notes Payable (due serially through 2000) 144,300 186,300
____________ ____________
Total long-term debt 143,144,300 143,186,300
Unamortized discount-net (1,235,870) (1,276,767)
____________ ____________
Total long-term debt-net 141,908,430 141,909,533
____________ ____________
Total capitalization $305,532,685 $279,674,512
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-5-
Elizabethtown Water Company and Subsidiary APPENDIX I
Statements of Consolidated Shareholder's Equity
Year Ended December 31,
_______________________________________
1994 1993 1992
____________ ___________ ___________
Common Stock: $ 15,740,602 $ 15,740,602 $ 15,740,602
____________ ____________ ____________
Paid-in Capital:
Balance at Beginning of Year 63,522,594 43,713,297 28,381,584
Capital contributed by parent company 25,346,038 19,809,297 15,331,713
____________ ____________ ____________
Balance at End of Year 88,868,632 63,522,594 43,713,297
____________ ____________ ____________
Capital Stock Expense: (484,702) (484,702) (484,702)
____________ ____________ ____________
Retained Earnings:
Balance at Beginning of Year 46,986,485 44,054,327 42,239,144
Income Before Preferred Stock
Dividends 14,223,142 14,832,519 12,149,343
Dividends on Common Stock (12,855,857) (10,850,361) (9,284,160)
Preferred Stock Dividends (854,047) (1,050,000) (1,050,000)
____________ ____________ ____________
Balance at End of Year 47,499,723 46,986,485 44,054,327
____________ ____________ ____________
Total Common Shareholder's Equity $151,624,255 $125,764,979 $103,023,524
____________ ____________ ____________
____________ ____________ ____________
See Notes to Consolidated Financial Statements.
-6-
Elizabethtown Water Company and Subsidiary APPENDIX I
Statements of Consolidated Cash Flows
Year Ended December 31,
_____________________________________
1994 1993 1992
___________ ___________ ____________
Cash Provided by Operating Activities:
Income Before Preferred Stock Dividends $ 14,223,142 $ 14,832,519 $ 12,149,343
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 7,860,180 7,285,309 6,654,986
Gain on sale of land (122,400)
(Increase) decrease in deferred charges (1,046,053) (2,878,971) 92,070
Deferred income taxes and investment
tax credits-net 4,256,534 3,332,558 2,685,426
Allowance for debt and equity funds
used during construction (AFUDC) (2,045,234) (837,234) (1,215,916)
Other operating activities-net (130,902) (449,792) (182,669)
Change in current assets and liabilities
excluding cash, short-term investments
and current portion of debt:
Customer and other accounts receivable (462,817) (840,485) 1,308,263
Unbilled revenues 86,839 (688,601) (164,241)
Accounts payable and other liabilities 8,548,026 669,078 (934,312)
Accrued/prepaid interest and taxes (1,464,787) 232,741 678,208
Other (101,266) (6,870) 3,473
____________ ____________ ____________
Net cash provided by operating activities 29,723,662 20,527,852 21,074,631
____________ ____________ ____________
Cash Provided by Financing Activities:
Decrease in funds held by Trustee for
construction expenditures 382,306 8,519,877 12,390,518
Proceeds from issuance of debentures 50,000,000 15,000,000
Proceeds from issuance of preferred stock 12,000,000
Redemption of preferred stock (12,000,000)
Capital contributed by parent company 25,346,038 19,809,297 15,331,713
Repayment of long-term debt (42,000) (50,042,000) (9,042,000)
Contributions and advances for
construction-net 3,453,604 1,909,905 3,066,832
Net increase (decrease) in notes
payable-banks 23,000,000 (5,500,000) (13,000,000)
Dividends paid on common and
preferred stock (13,661,332) (11,900,361) (10,334,160)
____________ ____________ ____________
Net cash provided by financing
activities 38,478,616 12,796,718 13,412,903
____________ ____________ ____________
Cash Used for Investing Activities:
Utility plant expenditures (excluding
AFUDC) (69,980,619) (32,501,865) (33,292,602)
Proceeds from sale of land 131,000
____________ ____________ ____________
Net cash used for investing activities (69,980,619) (32,370,865) (33,292,602)
____________ ____________ ____________
Net Increase (Decrease) in Cash and
Cash Equivalents (1,778,341) 953,705 1,194,932
Cash and Cash Equivalents at
Beginning of Year 3,263,456 2,309,751 1,114,819
____________ ____________ ____________
Cash and Cash Equivalents at End of Year$ 1,485,115 $ 3,263,456 $ 2,309,751
____________ ____________ ____________
____________ ____________ ____________
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 9,952,838 $ 11,837,347 $ 10,970,625
Income taxes 6,771,254 5,881,008 3,875,774
Preferred stock dividends $ 805,475 $ 1,050,000 $ 1,050,000
See Notes to Consolidated Financial Statements.
-7-
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Elizabethtown Water Company (Elizabethtown or Company) and its
wholly owned subsidiary, The Mount Holly Water Company (Mount
Holly), the consolidated entity referred to herein as
Elizabethtown Water Company, is a wholly owned subsidiary of
E'town Corporation (E'town or Corporation). E'town, a New Jersey
holding company, is the parent company of Elizabethtown Water
Company and E'town Properties, Inc.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
The consolidated financial statements include Elizabethtown and
its subsidiary, Mount Holly. Significant intercompany accounts
and transactions have been eliminated. Elizabethtown and Mount
Holly are regulated water utilities and follow the Uniform System
of Accounts, as adopted by the New Jersey Board of Public
Utilities (BPU).
Utility Plant and Depreciation
Income is charged with the cost of labor, materials and other
expenses incurred in making repairs and minor replacements and in
maintaining the properties. Utility plant accounts are charged
with the cost of improvements and major replacements of property.
When depreciable property is retired or otherwise disposed of,
the cost thereof, plus the cost of removal net of salvage, is
charged to accumulated depreciation. Depreciation generally is
computed on a straight-line basis at functional rates for various
classes of assets. The provision for depreciation, as a
percentage of average depreciable property, was 1.75% for 1994,
1.74% for 1993 and 1.72% for 1992.
Allowance for Funds Used During Construction
Elizabethtown capitalizes, as an appropriate cost of utility
plant, an Allowance for Funds Used During Construction (AFUDC),
which represents the cost of financing major projects during
construction. AFUDC is added to the construction cost of the
project and included in rate base and then recovered in rates
during the project's useful life. AFUDC is comprised of a debt
component (credited to Interest Charges), and an equity component
(credited to Other Income) in the Statements of Consolidated
Income (See Note 8). The equity component considers the
increased reliance on equity contributions to Elizabethtown from
E'town's stock sales. Such equity contributions have become an
integral part of the financing of Elizabethtown's construction
program. AFUDC totaled $2,045,234, $837,234 and $1,215,916 for
1994, 1993 and 1992, respectively.
-8-
Revenues
Revenues are recorded based on the amounts of water delivered to
customers through the end of each accounting period. This
includes an accrual for unbilled revenues for water delivered
from the time meters were last read to the end of the respective
accounting periods.
Federal Income Taxes
Elizabethtown Water Company files a consolidated federal tax
return with E'town and E'town Properties, Inc. Deferred income
taxes are provided for timing differences in the recognition of
revenues and expenses for tax and financial statement purposes to
the extent permitted by the BPU. Elizabethtown and Mount Holly
account for prior years' investment tax credits by the deferral
method, which amortizes the credits over the lives of the
respective assets.
Customer Advances for Construction and Contributions in Aid of
Construction
Customer Advances for Construction and Contributions in Aid of
Construction represent capital provided by developers for main
extensions to new real estate developments. Some portion of
Customer Advances for Construction is refunded based upon the
revenues that the new developments generate. Contributions in
Aid of Construction are Customer Advances for Construction that
are no longer subject to refund.
Preferred Stock Dividends
The amortization of a premium of $1,050,000, paid in March 1994,
on the redemption of Elizabethtown's $8.75 Cumulative Preferred
Stock, is recorded as Preferred Stock Dividends in the Statements
of Consolidated Income. The premium is being amortized over 10
years for ratemaking purposes (See Note 4).
Funds Held by Trustee for Construction Expenditures
Proceeds from New Jersey Ecomomic Development Authority
financings were held in trust until such time as qualified
project expenditures were incurred. Income received from the
investment of the trust fund assets was recorded as an offset to
the related interest expense.
Cash Equivalents
Elizabethtown Water Company considers all highly liquid debt
instruments purchased with maturities of three months or less to
be cash equivalents.
-9-
Reclassification
Certain prior year amounts have been reclassified to conform to
the current year's presentation.
3. FEDERAL INCOME TAXES
The computation of federal income taxes and the reconciliation of
the tax provision computed at the federal statutory rate (35% in
1994 and 1993 and 34% in 1992) with the amount reported in the
Statements of Consolidated Income follow:
1994 1993 1992
----------------------
(Thousands of Dollars)
Tax expense at statutory rate ........ $7,573 $7,962 $6,178
Items for which deferred taxes
are not provided:
Capitalized interest ............... (2) (2) (3)
Difference between book and tax
depreciation ..................... 92 81 66
Investment tax credits.............. (209) (208) (210)
Other............................... (40) 84 (10)
------ ------ ------
Provision for federal income taxes.... $7,414 $7,917 $6,021
====== ====== ======
The provision for federal income taxes
is composed of the following:
Current .............................. $5,087 $5,926 $5,318
Tax collected on main extensions ..... (1,931) (1,341) (1,982)
Deferred:
Tax depreciation.................... 3,366 3,222 2,980
Alternative minimum tax............. (412)
Capitalized interest................ 384 72 118
Main cleaning and lining............ 396 323 271
Other............................... 314 (91) (70)
Investment tax credits-net............ (202) (194) (202)
------ ------ ------
Total provision ...................... $7,414 $7,917 $6,021
====== ====== ======
Effective January 1, 1993, Elizabethtown Water Company adopted
Statement of Financial Accounting Standards (SFAS) 109,
"Accounting for Income Taxes." SFAS 109 established accounting
rules that change the manner in which income tax expense is
determined for accounting purposes. SFAS 109 utilizes a
liability method under which deferred taxes are provided at the
enacted statutory rate for all temporary differences between
financial statement earnings amounts and the tax basis of
existing assets or liabilities.
In connection with the adoption of SFAS 109, Elizabethtown Water
Company and Mount Holly recorded additional deferred taxes for
water utility temporary differences not previously recognized.
The increased deferred tax liability was offset by a
corresponding asset representing the future revenue expected to
be recovered through rates based on established regulatory
practice permitting such recovery.
-10-
In accordance with SFAS 109, deferred tax balances have been
reflected at E'town's current consolidated federal income tax
rate, which is 35%. The increase in the statutory tax rate from
34% to 35% in 1993 resulted in the recognition of additional
federal income tax expense of $168,798 and an additional deferred
federal income tax liability of $100,744 in 1993. The net
deferred income tax liability as of December 31, 1994 and 1993 is
comprised of the following:
1994 1993
----------------------
(Thousands of Dollars)
Deferred tax assets $ 3,585 $ 3,804
Deferred tax liabilities (63,694) (59,759)
-------- --------
Net deferred income tax liabilities $(60,109) $(55,955)
======== ========
The tax effect of significant temporary differences representing
deferred income tax assets and liabilities as of December 31,
1994 and 1993 is as follows:
1994 1993
----------------------
(Thousands of Dollars)
Water utility plant--net $(53,517) $(49,582)
Taxes recoverable through future rates (9,219) (9,326)
Investment tax credit 3,028 3,098
Prepaid pension expense (324) (351)
Other assets 557 706
Other liabilities (634) (500)
-------- --------
Net deferred income tax liabilities $(60,109) $(55,955)
======== ========
4. CAPITALIZATION
In May 1994, E'town issued 690,000 shares of common stock for net
proceeds of $18,218,471. The net proceeds were used to fund an
equity contribution to Elizabethtown of $16,000,000. This
contribution has been used to partially fund Elizabethtown's
construction program, the predominant portion of which relates to
the Canal Road Water Treatment Plant (Plant) (See Note 9).
E'town routinely makes an equity contribution to Elizabethtown
which represents the proceeds of common stock issued under
E'town's Dividend Reinvestment and Stock Purchase Plan (DRP).
Amounts contributed for 1994 and 1993 were $7,146,038 and
$6,009,298, respectively.
In May 1993, E'town issued 575,000 shares of common stock for net
proceeds of $16,591,927. The net proceeds were used to fund
equity contributions to Elizabethtown of $11,000,000 in May 1993
and $2,800,000 in September 1993. Elizabethtown used a portion
of such contributions to repay $7,000,000 of short-term bank debt
incurred for construction expenditures.
-11-
Cumulative Preferred Stock
In March 1994, Elizabethtown issued 120,000 shares of $100 par
value, $5.90 Cumulative Preferred Stock for proceeds of
$12,000,000 at an effective rate of 7.37%. The proceeds were
used to redeem $12,000,000 of the Company's $8.75 Cumulative
Preferred Stock. The redemption premium of $1,050,000 was paid
from general Company funds and is being amortized over 10 years
for ratemaking purposes (See Note 2).
The $5.90 Cumulative Preferred Stock is not redeemable at the
option of Elizabethtown. Elizabethtown is required to redeem all
120,000 shares of the Preferred Stock on March 1, 2004 at $100
per share.
Long-term Debt
Elizabethtown's long-term debt indentures restrict the amount of
retained earnings available to Elizabethtown to pay cash
dividends (which is the primary source of funds available to the
Corporation for payment of dividends on its common stock) or
acquire Elizabethtown's common stock, all of which is held by
E'town. At December 31, 1994, $7,816,323 of Elizabethtown's
retained earnings were restricted under the most restrictive
indenture provision. Therefore, $39,683,400 of retained earnings
were unrestricted.
In November 1993, Elizabethtown issued $50,000,000 of 7 1/4%
Debentures due November 1, 2028. The proceeds of the issue were
used to redeem $30,000,000 of the Company's 8 5/8% Debentures due
2007 and $20,000,000 of the Company's 10 1/8% Debentures due
2018. The aggregate redemption premiums of $2,681,000 were paid
from general Company funds.
5. LINES OF CREDIT
Elizabethtown has executed a committed revolving credit agreement
(Agreement) with an agent bank and five additional banks which
replaces its uncommitted lines of credit. The Agreement provides
up to $60,000,000 in revolving short-term financing which,
together with internal funds, proceeds of future issuances of
debt and preferred stock by Elizabethtown and capital
contributions from E'town, is expected to be sufficient to
finance Elizabethtown's and Mount Holly's capital needs, which
are estimated to be $169.4 million through 1997. At December 31,
1994, Elizabethtown had borrowings outstanding of $23,000,000
under the Agreement at interest rates from 5.6% to 6.4%, at a
weighted average rate of 6.1%.
The Agreement allows Elizabethtown to borrow, repay and reborrow
up to $60,000,000 during the first three years, after which time
Elizabethtown may convert any outstanding balances to a
five-year, fully amortizing term loan. The Agreement further
provides that, among other covenants, Elizabethtown must maintain
-12-
a ratio of common and preferred equity to total capitalization of
not less than 35% and a pre-tax interest coverage ratio of at
least 1.5 to 1.
Elizabethtown has $15,000,000 of uncommitted lines of credit with
several banks in addition to the lines under the Agreement.
Information relating to bank borrowings for 1994, other than
under the Agreement, and borrowings for 1993 and 1992, is as
follows:
1994 1993 1992
------------------------
(Thousands of Dollars)
Maximum amount outstanding.......... $10,000 $7,000 $27,500
Average monthly amount outstanding.. $ 583 $2,062 $15,457
Average interest rate at year end... (A) (A) 4.1%
Compensating balances at year end... $ 0 $ 195 $ 205
Weighted average interest rate based
on average daily balances.......... 4.4% 3.8% 4.6%
(A) No outstanding bank borrowings at year end.
6. FINANCIAL INSTRUMENTS
The carrying amounts and the estimated fair values, as of
December 31, 1994 and 1993 of financial instruments issued or
held by Elizabethtown Water Company, are as follows:
1994 1993
----------------------
(Thousands of Dollars)
Cumulative preferred stock (1):
Carrying amount $ 12,000 $ 12,000
Estimated fair value 10,860 13,020
Long-term debt (1):
Carrying amount $141,908 $141,910
Estimated fair value 129,355 155,097
(1) Estimated fair values are based upon quoted market prices for
these or similar securities.
7. DEFERRED CHARGES AND CREDITS
Abandonments
The abandonment cost of a small filter plant has been deferred and
is being amortized for ratemaking purposes over a 10-year period
ending in 1995.
Waste Residual Management
The costs of the waste residual management programs are being
amortized over three-year periods for ratemaking purposes.
-13-
Purchased Water Under Recovery-Net
As discussed in Note 8, in June 1994, the BPU approved a Purchased
Water Adjustment Clause (PWAC) which allows Elizabethtown to reflect in
rates the effect of differences in consumption billed for the
PWAC and the volume of water purchased by Elizabethtown from the
New Jersey Water Supply Authority (NJWSA) since the Company's
last base rate case. A deferral of $314,128 has been recorded
which represents an amount not yet recovered in rates under the
PWAC.
No return is being earned on the above deferred charge balances.
Unamortized Debt and Preferred Stock Expenses
Costs incurred in connection with the issuance or redemption of
long-term debt have been deferred and are being amortized over the
lives of respective issues for ratemaking purposes. Costs incurred in
connection with the issuance and redemption of preferred stock have
been deferred and are being amortized over a 10-year period for
ratemaking purposes (See Note 2).
8. REGULATORY MATTERS
Rates
On January 24, 1995 the BPU approved a stipulation (1995 Stipulation)
for a rate increase of $5,300,000, or 5.34%, effective
February 1, 1995. The 1995 Stipulation provides for an authorized
rate of return on common equity of 11.5%. It also provides for
recovery of the current service cost portion of the obligation accrued
under SFAS 106, "Employer's Accounting for Postretirement Benefits
Other Than Pensions," provided this amount is funded by the Company
(See Note 10). The rate increase will cover the cost to finance
$62,000,000 of construction projects that were not reflected in the
rates last established in March 1993. These projects include
treatment, transmission and storage facilities needed to ensure that
Elizabethtown continues to meet the Safe Drinking Water Act
regulations on water quality and service. The increase will offset
costs for power, labor and benefits, primarily medical. The 1995
Stipulation provides for an increase in depreciation rates resulting
in an increase in depreciation expense of approximately $469,000.
The 1995 Stipulation also requires Elizabethtown to maintain an
average ratio of common equity to total capitalization of at least
45.1% for the twelve months ended January 31, 1996. If a lesser
ratio is maintained, the revenue requirement associated with such
lesser ratio will offset the overall revenue requirement in the next
base rate case. The Company expects to sustain an average of common
equity to total capitalization in excess of 45.1% for such 12-month
period.
On January 11, 1995, Elizabethtown filed with the BPU for a rate
increase of $886,166 for a change in the Purchased Water Adjustment
Clause (PWAC) rate based on a proposed change in the unit cost of
water purchased from the NJWSA, to be effective July 1, 1995. This
procedure, established by BPU rules, allows Elizabethtown to reflect
-14-
in rates the change in the cost of water purchased from the NJWSA
without a complete rate case. Included in this request is the
amortization of the anticipated balance, as of July 1, 1995, of the
net under-recovery from the 1994 PWAC of $440,526. A decision is
expected by the BPU prior to July 1, 1995 (See Note 9).
In June 1994, the BPU approved a Stipulation for an increase in rates
under a PWAC. The Stipulation resulted in an increase in rates,
effective July 1, 1994, of $334,611.
In the second quarter of 1995, Mount Holly expects to petition the BPU
for an increase in rates to take place in two phases. The first phase
is necessary to recover costs to finance construction projects that
were not reflected in rates last established in October 1986. The
proposed increase will also seek recovery of increased costs for
various operations and maintenance expenses since 1986. The second
phase includes a new water supply, treatment and transmission system
necessary to obtain water outside a designated portion of an aquifer
currently used by Mount Holly to supply a substantial portion of its
customers. This project is deemed to be the most cost-effective
alternative available to Mount Holly as a result of state legislation
which restricts the amount of water that can be withdrawn from the
aquifer in certain areas of Southern New Jersey. The project is
currently estimated to cost $16,500,000. A decision by the BPU on
Mount Holly's petition would be expected by the end of 1995.
In August 1993, the BPU approved a stipulation (1993 Plant
Stipulation) signed by the parties to the Company's petition relating
to the Canal Road Water Treatment Plant (Plant). The 1993 Plant
Stipulation states that the Plant is necessary and that the Company's
estimates regarding the Plant's cost, at that time of $87,000,000, and
construction period are reasonable (See Note 9). The 1993 Plant
Stipulation authorizes the Company to levy a rate surcharge if the
Company's pre-tax interest coverage ratio for any 12-month historical
period drops below 2.0 times. The surcharge would equal 20% of the
Company's gross interest expense for the prior 12 months, adjusted for
revenue taxes. The surcharge would go into effect at the same time as
the Company's next base rate increase after the coverage ratio falls
below 2.0 times. Also, the surcharge would remain in effect for 12
months and could be extended by the BPU for up to six additional
months. The 1993 Plant Stipulation also provides that the rate of
return on common stockholder's equity used to calculate the rate for
the equity component of the AFUDC for the Plant will be 1.5% less than
the rate of return on common stockholder's equity established in the
Company's most recent base rate case. The authorized rate of return
on common stockholder's equity is currently 11.5%.
In March 1993, the BPU approved a stipulation for a rate increase of
$5,000,000, effective as of that date.
Main Extension Refunds
In a case captioned Van Holten, et al v. Elizabethtown Water Company,
(Van Holten) several developers petitioned the BPU in 1984 and 1985
seeking an Order which would require Elizabethtown to refund to the
-15-
developers all of their on-site and off-site customer advances for
construction. For on-site mains, Elizabethtown received a final BPU
decision in September 1987, requiring refunds in accordance with the
BPU's suggested refund formula, which was less than the amounts
requested by the developers. For the off-site mains, the developers
were denied any refund. The developers appealed the BPU decision to
the Appellate Division of the New Jersey Superior Court (Appellate
Division), which in October 1988 upheld the decision of the BPU.
Since 1986, additional petitions dealing with this issue have been
filed by other developers. In these additional proceedings, all
parties have agreed to abide by the final decision of the New Jersey
Supreme Court in the Van Holten case. For all customer advances,
Elizabethtown has and will continue to make the refunds in accordance
with the BPU's suggested refund formula.
In response to an appeal of the 1988 Appellate Division decision, in
August 1990, the New Jersey Supreme Court (Court) rendered a decision
upholding the BPU's authority to implement what the BPU had
established as an appropriate refund formula in the Van Holten case.
The BPU's suggested formula provides for a refund of 2 1/2 times the
annual revenues for each metered connection. Although the Court ruled
that the BPU has the jurisdiction to determine what is an appropriate
refund formula, it remanded the case to the BPU to further develop the
record on why the BPU deemed the 2 1/2 times formula to be appropriate
in the Van Holten case.
In June 1991, the BPU issued an Order on Remand reaffirming the 2 1/2
times annual revenue formula. Addressing the reasonableness of this
formula, the BPU indicated in its decision that the 2 1/2 times
formula fairly allocates the costs of the main extensions among the
developers, Elizabethtown and the rate payers. Again, developers
appealed the Order on Remand to the Appellate Division, and in
December 1992, the Appellate Division remanded the matter to the BPU
for more complete findings and statements of reasons in support of its
decision.
By Order on Remand dated January 19, 1994, the BPU again deemed the
2 1/2 times formula to be appropriate in the Van Holten case. In
addition to the previous rationale it gave for employing this formula
in this case, the BPU indicated that on a per-customer basis, the
initial cost of the extension was, in most instances, far higher than
Elizabethtown's average cost of plant invested for existing customers
at the time petitions were filed in 1984. Therefore, a full refund
would clearly result in a significant subsidization of the developers
by Elizabethtown's existing customers. The BPU concluded that such a
subsidization would be unjust and unreasonable.
-16-
On February 23, 1994, the developers appealed the January 19, 1994 BPU
Order on Remand to the Appellate Division. On February 1, 1995, the
Appellate Division affirmed the BPU Remand dated January 19, 1994. On
February 14, 1995, the developers appealed the decision to the New
Jersey Supreme Court.
The maximum potential refund for the Van Holten case, and all
subsequently filed cases, is approximately $2,500,000, which would be
capitalized and, therefore, would not have a material adverse effect
on earnings. Management believes the final outcome of this matter
will be favorable and no additional refunds will be necessary.
9. COMMITMENTS
Elizabethtown is obligated, under a contract that expires in 2013, to
purchase from the NJWSA a minimum of 37 billion gallons of water annually.
The Company purchases additional water from the NJWSA on an as-needed
basis. Effective July 1, 1995, the annual cost under the contract will
be $8,857,389. The total cost of water purchased from the NJWSA,
including additional water purchased on an as-needed basis, was
$8,987,472, $8,819,212 and $7,827,058 for 1994, 1993 and 1992,
respectively.
The following is a schedule by years of future minimum rental payments
required under noncancelable operating leases with terms in excess of one
year at December 31, 1994:
1994
----------------------
(Thousands of Dollars)
1995 $ 886
1996 907
1997 869
1998 12
1999 0
------
Total $2,674
======
Rent expense totaled $829,562, $789,636 and $719,624 for 1994, 1993
and 1992, respectively.
Capital expenditures through 1997 are estimated to be $169.4 million
for Elizabethtown's and Mount Holly's utility plant.
Canal Road Water Treatment Plant
In April 1994, following a competitive bidding process, Elizabethtown
executed a lump-sum contract for the construction of the Canal Road
Water Treatment Plant. The project is currently estimated to cost
$100,000,000, excluding AFUDC. The Company has expended $38,393,301,
excluding AFUDC of $2,018,698, as of December 31, 1994. Construction
is expected to be completed in mid-1996.
-17-
10. PENSION PLAN AND OTHER POSTRETIREMENT BENEFITS
Elizabethtown has a trusteed, noncontributory Retirement Plan (Plan),
which covers most employees. Under the Company's funding policy, the
Company makes contributions that meet the minimum funding requirements
of the Employee Retirement Income Security Act of 1974. The components
of the net pension costs (credits) are as follows:
1994 1993 1992
---------------------------
(Thousands of Dollars)
Service cost-benefits earned during
the year ............................. $1,052 $ 899 $ 843
Interest cost on projected benefit
obligation ........................... 1,946 1,973 1,836
Return on Plan assets ................. 939 (1,409) (970)
Net amortization and deferral ......... (3,860) (1,658) (2,235)
------ ------ ------
Net pension costs (credits) ........... $ 77 $ (195) $ (526)
====== ====== ======
Plan assets are invested in publicly traded debt and equity securities.
The reconciliations of the funded status of the Plan to the amounts
recognized in the Consolidated Balance Sheets are presented below:
1994 1993
----------------------
(Thousands of Dollars)
Market value of Plan assets ..................... $30,810 $33,032
------- -------
Actuarial present value of Plan benefits:
Vested benefits ............................... 20,776 20,708
Non-vested benefits ........................... 157 227
------- -------
Accumulated benefit obligation ................ 20,933 20,935
Projected increases in compensation levels .... 5,642 6,541
------- -------
Projected benefit obligation .................... 26,575 27,476
------- -------
Excess of Plan assets over projected benefit
obligation ..................................... 4,235 5,556
Unrecognized net gain ........................... (1,337) (2,403)
Unrecognized prior service cost ................. 451 539
Unrecognized transition asset ................... (2,423) (2,689)
------- -------
Prepaid pension expense.......................... $ 926 $ 1,003
======= =======
The assumed rates used in determining the actuarial present value of the
projected benefit obligations were as follows:
1994 1993
------------------
Discount rate ................................... 8.00% 7.00%
Compensation increase ........................... 5.50% 5.50%
Rate of return on Plan assets ................... 8.50% 8.50%
Elizabethtown and Mount Holly provide certain health care and life
insurance benefits for substantially all of their retired employees.
-18-
Effective January 1, 1993, Elizabethtown Water Company adopted SFAS 106.
Under SFAS 106, the cost of postretirement benefits are accrued for each
year the employee renders service, based on the expected cost of providing
such benefits to the employee and the employee's beneficiaries and covered
dependents rather than expensing these benefits on a pay-as-you-go basis
for retired employees.
Based upon an independent actuarial study, the transition obligation,
calculated under SFAS 106, which Elizabethtown Water Company has not
funded, was $7,214,736 as of January 1, 1993. The transition obligation
is being amortized over 20 years. The following table details the
unfunded postretirement benefit obligation at December 31, 1994 and 1993:
1994 1993
----------------------
(Thousands of Dollars)
Retirees $2,457 $3,133
Fully eligible plan participants 5,080 5,403
------ ------
Accumulated postretirement benefit
obligation 7,537 8,536
Plan assets at fair value 0 0
Unrecognized net gain 1,033 (677)
Unrecognized transition obligation (6,493) (6,854)
------ ------
Accrued postretirement benefit
obligation $2,077 $1,005
====== ======
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation as of De-cember 31, 1994, and for 1994,
was 12%. This rate decreases linearly each successive year until it
reaches 5% in 2003, after which the rate remains constant. The assumed
discount rate used in determining the accumulated postretirement benefit
obligation at December 31, 1994 and 1993 and for the years 1994 and 1993
was 8.0%, 7.0%, 7.0% and 8.5%, respectively. A single percentage point
increase in the assumed health care cost trend rate for each year would
increase the accumulated postretirement benefit obligation as of
December 31, 1994, and net postretirement service and interest cost by
approximately $2,280,000 and $138,000, respectively.
Based upon the independent actuarial study referred to above, the annual
postretirement cost calculated under SFAS 106 for 1994 and 1993 is as
follows:
1994 1993
----------------------
(Thousands of Dollars)
Service cost - benefits earned
during the year $ 369 $ 249
Interest cost on accumulated
postretirement benefit obligation 592 602
Amortization of transition obligation 361 361
------ ------
Total 1,322 1,212
Deferred amount for pending recovery (1,072) (1,005)
------ ------
Net postretirement benefit expense $ 250 $ 207
====== ======
-19-
The rate increase for the 1995 Stipulation includes as an allowable
expense the pay-as-you-go portion of postretirement benefits as well
as the current service cost, and requires that the current service
cost be funded. The 1995 Stipulation allows Elizabethtown to defer
the amount accrued in excess of these amounts for consideration in
future rate cases. Mount Holly currently has BPU approval to defer
the amount accrued in excess of the pay-as-you-go portion of its
expenses calculated under SFAS 106. Generally accepted accounting
principles permit this regulatory treatment, provided deferrals are
not accumulated for a period of more than five years. As of
December 31, 1994, the amount that has been deferred is $2,077,051.
Recovery of deferred postretirement costs will be requested in
Elizabethtown's and Mount Holly's next base rate cases. Management
believes that Elizabethtown and Mount Holly will recover the deferred
postretirement costs in future rates.
11. LEGAL MATTERS
As reported during 1994, a developer asserted in a suit filed in 1991
against Elizabethtown that the Company failed to install facilities
necessary to provide water service to a new development in a timely
manner. The developer further asserted that this delay took place
during a period of generally declining real estate values, thereby
allegedly preventing the developer from selling his lots at more
favorable prices. The developer alleged that his economic losses from
the decline in real estate values were $4,000,000.
In November 1994, the Company settled this matter by paying the
developer $1,750,000. As part of the settlement, the developer agreed
that part of this payment represented a refund of funds deposited
under a main extension loan agreement for the construction of the
facilities. In addition, the Company has applied a portion of the
settlement against an insurance reserve. The effect on earnings is
$932,203 or $605,932 net of federal income taxes. The Company will
seek recovery from its insurance carriers.
Several lawsuits have been filed against Elizabethtown and other
parties in connection with a fire that occurred in a storage facility
in December 1989 resulting in damage to property stored at that
facility. The lawsuits allege that the water mains surrounding the
industrial complex failed to provide an adequate flow of water
necessary to fight the fire. The suits further allege that the
Company was negligent in failing to ensure that sprinkler systems were
operational prior to the fire, resulting in those sprinkler systems
being without water at the time of the fire. Management cannot now
predict the outcome of this litigation.
12. RELATED PARTY TRANSACTIONS
The Company enters into various transactions with E'town and E'town
Properties, Inc. Elizabethtown provides administrative and accounting
services to these affiliates which are billed on a monthly basis;
effective in 1994, Elizabethtown is billed for financial services by
E'town.
-20-
The total of all intercompany billings was $426,944, $278,191 and
$270,439 for 1994, 1993 and 1992, respectively. In addition, various
expenditures are made to vendors which are common to the entities.
Each entity absorbs its proportionate share of the costs.
13. QUARTERLY FINANCIAL DATA (Unaudited)
A summary of financial data for each quarter of 1994 and 1993 follows:
Income Before Earnings
Operating Operating Preferred Applicable to
Quarter Revenues Income Stock Dividends Common Stock
----------------------------------------------------------------
(Thousands of Dollars Except Per Share Amounts)
1994
1st $ 24,657 $ 5,579 $ 3,082 $ 2,832
2nd 25,208 5,945 3,484 3,281
3rd 27,370 6,976 4,093 3,890
4th 24,798 5,684 3,564 3,366
-------- ------- ------- -------
Total $102,033 $24,184 $14,223 $13,369
======== ======= ======= =======
1993
1st $ 22,136 $ 5,465 $ 2,637 $ 2,374
2nd 24,865 6,715 3,916 3,654
3rd 28,947 8,169 5,527 5,264
4th 24,048 5,442 2,753 2,491
-------- ------- ------- -------
Total $ 99,996 $25,791 $14,833 $13,783
======== ======= ======= =======
Water utility revenues are subject to a seasonal fluctuation due to
normal increased consumption during the third quarter of each year.
-21-
EX-3
2
E'TOWN CORPORATION
600 South Avenue
Westfield, New Jersey 07090
BY-LAWS
ADOPTED -- March 5, 1985
REVISED -- June 18, 1987
REVISED -- May 16, 1991
REVISED -- September 17, 1992
REVISED -- February 16, 1995
BY-LAWS
OF
E'TOWN CORPORATION
ARTICLE I
STOCKHOLDERS
Section 1. Annual Meeting. A meeting of the
stockholders of the company shall be held annually in the
State of New Jersey at a location selected by the Chairman
and approved by the Board of Directors between the hours of
eleven and twelve o'clock in the forenoon, on the first
Monday of May in each year, if not a legal holiday, and if a
legal holiday, then on the next succeeding Monday not a
legal holiday or at such other time and place during regular
business hours as may be fixed by the Board of Directors,
for the purpose of electing directors and for the
transaction of such other business as may be properly
brought before the meeting.
Written notice of the Annual Meeting, stating the
day, hour and place thereof, and the business to be
transacted thereat, shall be mailed at least 10 days prior
to the meeting to each stockholder of record at his address
as the same appears on the stock books of the company. A
failure to mail such notice, or any irregularity in such
notice, shall not affect the validity of any annual meeting,
or of any proceedings at any such meeting.
Section 2. Notice of Stockholder Business.
(1) At an annual meeting of the stockholders, only such
business shall be conducted as shall have been brought
before the meeting (a) pursuant to the company's notice of
meeting, (b) by or at the direction of the Board of
Directors or (c) by any stockholder of the company who is a
stockholder of record at the time of giving of the notice
provided for in this By-law, who shall be entitled to vote
at such meeting and who complies with the notice procedures
set forth in this By-law.
(2) For business to be properly brought before an
annual meeting by a stockholder pursuant to clause (c) of
paragraph 1 of this By-law, the stockholder must have given
timely notice thereof in writing to the Secretary of the
company. To be timely, a stockholder's notice must be
delivered to or mailed and received at the principal office
of the company not less than 60 days nor more than 90 days
prior to the first anniversary of the preceding year's
annual meeting; provided, however, that in the event that
the date of the meeting is changed by more than 30 days from
such anniversary date, notice by the stockholder to be
timely must be received no later than the close of business
on the 10th day following the earlier of the day on which
notice of the date of the meeting was mailed or public
disclosure was made. A stockholder's notice to the
Secretary shall set forth as to each matter the stockholder
proposes to bring before the meeting (a) a brief description
of the business desired to be brought before the meeting and
the reasons for conducting such business at the meeting, (b)
the name and address, as they appear on the company's books,
of the stockholder proposing such business, and the name and
address of the beneficial owner, if any, on whose behalf the
proposal is made, (c) the class and number of shares of the
company which are owned beneficially and of record by such
stockholder of record and by the beneficial owner, if any,
on whose behalf the proposal is made, together with
documentary support for any claim of beneficial ownership,
and (d) any material interest of such stockholder of record
and the beneficial owner, if any, on whose behalf the
proposal is made in such business.
(3) Notwithstanding anything in these By-laws to
the contrary, no business shall be conducted at an annual
meeting except in accordance with the procedures set forth
in this By-law. The Chairman of the meeting shall, if the
facts warrant, determine and declare to the meeting that
business was not properly brought before the meeting and in
accordance with the procedures prescribed by these By-laws,
and if he should so determine, he shall so declare to the
meeting and any such business not properly brought before
the meeting shall not be transacted. Notwithstanding the
foregoing provisions of this By-law, a stockholder shall
also comply with all applicable requirements of the
Securities Exchange Act of 1934, as amended, and the rules
and regulations thereunder with respect to the matters set
forth in this By-law.
Section 3. Special Meetings. Special meetings of
the stockholders of the company may be held in the State of
New Jersey at a location selected by the Chairman and
approved by the Board of Directors, or at such other place
as may be fixed by the Board of Directors, whenever called
in writing by the Chairman, by a vote of the Board of
Directors, or upon written request addressed to the
Secretary by stockholders holding at least forty per cent
(40%) of the capital stock. Such request shall state the
purpose or purposes of the proposed meeting.
Written notice of each special meeting, stating
the day, hour and place thereof, and the business to be
transacted thereat, shall be mailed at least 10 days prior
to the meeting to each stockholder of record at his address
as the same appears on the stock books of the company.
Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
Section 4. Quorum. At any meeting of the
stockholders the holders of the majority of the capital
stock issued and outstanding, present in person or
represented by proxy, shall constitute a quorum for all
purposes.
If the holders of the amount of stock necessary to
constitute a quorum shall fail to attend in person or by
proxy at the time and place fixed by these By-laws for an
annual meeting, or fixed by notice as above provided for a
special meeting, a majority in interest of the stockholders
present in person or by proxy may adjourn, from time to
time, until holders of the amount of stock requisite to
constitute a quorum shall attend.
Section 5. Voting. At each meeting of the
stockholders every stockholder shall be entitled to vote in
person, or by proxy appointed by instrument in writing,
subscribed by said stockholder or by his duly authorized
attorney, and delivered to the inspectors at the meeting;
and each stockholder shall have one vote for each share of
capital stock having voting powers standing registered in
his name, but no share of capital stock shall be voted on at
any meeting which has been transferred on the books of the
company subsequent to the record date fixed by the Board of
Directors.
All voting for election of Directors shall be by
ballot.
At each meeting of the stockholders a full, true
and complete list in alphabetical order of all stockholders
entitled to vote at such meeting, and indicating the number
of shares held by each, certified by the Secretary or by the
Treasurer, shall be furnished for the inspection of any
stockholder for reasonable periods during the meeting. Only
the persons in whose names shares of capital stock stand on
the books of the company, as evidenced by the list of the
stockholders so furnished, shall be entitled to vote in
person or by proxy on the shares so standing in their names.
Section 6. Inspectors. At each meeting of the
stockholders the polls shall be opened and closed, the
proxies and ballots shall be received and taken in charge,
and all questions touching the qualifications of voters and
the validity of proxies and the acceptance or rejection of a
voter, shall be decided upon by one or more inspectors. The
inspectors shall be appointed by the Chairman of the meeting
and the inspectors shall be sworn to faithfully perform
their duties, and shall, in writing, certify the returns
showing the result of the election or ballot. The
inspectors may or may not be stockholders, but any inspector
may not be a candidate for the office of Director. In case
of failure to appoint inspectors, the stockholders at any
meeting may elect an inspector or inspectors to act at the
meeting. The Board of Directors may also appoint one or
more inspectors to discharge the duties set forth above in
respect of the qualification and tabulation of written
consents of stockholders without a meeting.
ARTICLE II
BOARD OF DIRECTORS
Section 1. Management of Company. The property,
business, and affairs of the company shall be managed and
controlled by its Board of Directors.
The Directors shall act only as a board and the
individual Directors shall have no power as such.
Section 2. Number, Term of Office and
Qualifications of Board. The Board of Directors shall
consist of eleven (11) persons1, subject to change from time
to time by the Board of Directors pursuant to a resolution
adopted by a majority of the total number of authorized
directors (whether or not there exist any vacancies in
previously authorized directorships at the time any such
resolution is presented to the Board for adoption).
Directors need not be stockholders. No person who has
reached age 72 shall stand for election or re-election as a
Director.
The term of office of the various Directors shall
be as provided in Article Fourth of the Corporation's
Certificate of Incorporation.
___________________
1. Pursuant to a resolution adopted by the company's Board
of Directors on February 16, 1995, the Board of Directors
shall consist of twelve (12) persons effective as of
May 18, 1995.
Section 3. Nominations of Directors. (1) Only
persons who are nominated in accordance with the procedures
set forth in these By-laws shall be eligible to serve as
Directors. Nominations of persons for election to the Board
of Directors of the company may be made at a meeting of
stockholders (a) by or at the direction of the Board of
Directors or (b) by any stockholder of the company who is a
stockholder of record at the time of giving of notice
provided for in this By-law, who shall be entitled to vote
for the election of Directors at the meeting and who
complies with the notice procedures set forth in this By-
law.
(2) Nominations by stockholders shall be made
pursuant to timely notice in writing to the Secretary. To
be timely, a stockholder's notice shall be delivered to or
mailed and received at the principal office of the company
(a) in the case of an annual meeting, not less than 60 days
nor more than 90 days prior to the first anniversary of the
preceding year's annual meeting; provided, however, that in
the event that the date of the annual meeting is changed by
more than 30 days from such anniversary date, notice by the
stockholder to be timely must be so received not later than
the close of business on the 10th day following the earlier
of the day on which notice of the date of the meeting was
mailed or public disclosure was made, and (b) in the case of
a special meeting at which Directors are to be elected, not
later than the close of business on the 10th day following
the earlier of the day on which notice of the date of the
meeting was mailed or public disclosure was made. Such
stockholder's notice shall set forth (a) as to each person
whom the stockholder proposes to nominate for election or
reelection as a Director all information relating to such
person that is required to be disclosed in solicitations of
proxies for election of Directors, or is otherwise required,
in each case pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (including such person's
written consent to being named in the proxy statement as a
nominee and to serving as a Director if elected); (b) as to
the stockholder giving the notice (i) the name and address,
as they appear on the company's books, of such stockholder
and (ii) the class and number of shares of the company which
are beneficially owned by such stockholder and also which
are owned of record by such stockholder; and (c) as to the
beneficial owner, if any, on whose behalf the nomination is
made, (i) the name and address of such person, (ii) the
class and number of shares of the company which are
beneficially owned by such person, and (iii) documentary
support for such claim of beneficial ownership. At the
request of the Board of Directors, any person nominated by
the Board of Directors for election as a Director shall
furnish to the Secretary that information required to be set
forth in a stockholder's notice of nomination which pertains
to the nominee.
(3) Except as provided in Section 4 of this
Article II, no person shall be eligible to serve as a
Director of the company unless nominated in accordance with
the procedures set forth in this By-law. The Chairman of
the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in
accordance with the procedures prescribed by these By-laws,
and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded.
Notwithstanding the foregoing provisions of this By-law, a
stockholder shall also comply with all applicable
requirements of the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder with
respect to the matters set forth in this By-law.
Section 4. Vacancies. Whenever any vacancy shall
occur in the Board, including a vacancy caused by an
increase in the number of Directors, it may be filled by a
majority of the remaining Directors, even though less than a
quorum.
Section 5. Place of Meeting. The Directors may
hold their meetings, and keep the books of the company at
the office of the company in Westfield, New Jersey, or at
such other place or places as the Board from time to time
may lawfully determine.
Section 6. Regular Meetings. Regular meetings of
the Board of Directors shall be held monthly on the third
Thursday of each month, if not a legal holiday, and if a
legal holiday, then on the next succeeding Thursday not a
legal holiday (or at such other time as may be fixed by the
Board of Directors). No notice shall be required for any
such regular meetings of the Board.
Section 7. Special Meetings. Special meetings of
the Board of Directors shall be held whenever called by the
Chairman, President, or by not less than one-third of the
Directors for the time being in office.
The Secretary shall give notice of each special
meeting by mailing the same at least two days before the
meeting or by telegraphing the same at least one day before
the meeting to each Director, but such notice may be waived
by any Director. At any time at which every Director shall
be present, even though without notice, any business may be
transacted.
Section 8. Quorum. A majority of the Board of
Directors for the time being in office shall constitute a
quorum for the transaction of business, but if at any
meeting of the Board there be less than a quorum present a
majority of those present may adjourn the meeting from time
to time until a quorum shall be present.
Section 9. Committees. The Board of Directors
may delegate, from time to time, to suitable committees any
duties that are required to be executed during the intervals
between the meetings of the Board, and such committee shall
report to the Board of Directors when and as required.
Section 10. Designation of Depositories. The
Board of Directors shall designate the trust company, or
trust companies, bank or banks in which shall be deposited
the money or securities of the company.
Section 11. Contracts with Directors, etc.
Inasmuch as the Directors of this company are or may be
persons of large and diversified business interest, and are
likely to be connected with other corporations with which
from time to time this company must have business dealings,
no material contract or other transaction between this
company and any other corporation shall be affected by the
fact that Directors of this company are interested in, or
are Directors or Officers of, such other corporation.
The Board of Directors in its discretion may
submit any contract or act for approval or ratification at
any annual meeting of the stockholders, or at any meeting of
the stockholders called for the purpose of considering any
such act or contract; and any contract or act that shall be
approved or be ratified by the vote of the holders of a
majority of the capital stock of the company which is
represented in person or by proxy at such meeting (provided
that a lawful quorum of stockholders be there represented in
person or by proxy) shall be valid and as binding upon the
company and upon all the stockholders as though it had been
approved or ratified by every stockholder of the company.
Section 12. Compensation of Directors. For
attendance at any meeting of the Board of Directors or
participation in such meeting as provided in Section 13
hereof, every Director may receive reasonable Director's
fees to be fixed by the Board for attendance at each
meeting. The Board may provide for the payments to
committee members of reasonable fees for attendance at a
meeting of a committee.
Section 13. Compensation of Officers and
Employees. The compensation of all Officers shall be fixed
by the Board of Directors and of all employees not mentioned
in these By-laws by the Officer or Officers so authorized by
the Board of Directors.
Section 14. Telephone Meetings. Any regular or
special meeting of the Board or any committee may be held
entirely or partially by telephone conference call or
similar communication equipment provided that all members of
the Board or any committee are able to hear each other at
one time.
ARTICLE III
OFFICERS
Section 1. Enumeration of, Election, Removal of.
The Officers of the company shall be a Chairman, President,
Secretary, Treasurer, and such other Officers as shall from
time to time be provided for by the Board of Directors. The
Chairman and President shall be Directors of the company and
any one person may hold any two or more of the offices
enumerated above, as the Board of Directors may provide.
The Officers of the company shall be appointed at the first
meeting of the Board of Directors after the annual election
of Director's, which may be on the day of the annual
election, and they shall hold office for one year, and until
their respective successors shall have been duly appointed
and qualified, provided, however, that all Officers, agents
and employees of the company shall be subject to removal at
any time by the affirmative vote of a majority of the whole
Board of Directors. In its discretion, the Board of
Directors, by a vote of the majority thereof, may leave
unfilled for such period as it may fix by resolution any
office.
Section 2. Powers and Duties of Chairman. The
Chairman shall be the Chief Executive Officer of the
company. He shall preside at all meetings of the
stockholders and the Board of Directors. He shall have
general charge and supervision of the business of the
company. He may sign and execute all authorized bonds,
debentures, contracts, notes or obligations in the name of
the company, and with the Treasurer, and Assistant
Treasurer, or Secretary, or Assistant Secretary, may sign
all certificates of the share in the capital stock of the
company. He shall from time to time make such reports of
the affairs of the company as the Board of Directors may
require and shall annually present a report of the preceding
year's business to the Board of Directors, which report may
be read at the annual meeting of the stockholders. He shall
do and perform such other duties as may be from time to time
assigned to him by the Board of Directors.
Section 3. Powers and Duties of President. The
President shall possess the powers and may perform the
duties of the Chairman in his absence or disability. He
shall have charge of the general management of the company
under the supervision of the Chairman. He may sign and
execute all authorized bonds, debentures, contracts, and
with the Treasurer, Assistant Treasurer, Secretary or
Assistant Secretary, may sign all certificates of the shares
of the capital stock of the company. He shall do and
perform such other duties as may be from time to time
assigned to him by the Board of Directors.
Section 4. Powers and Duties of Secretary. The
Secretary shall keep the minutes of all meetings of the
stockholders and all meetings of the Board of Directors. He
shall attend to the giving and service of all notices of the
company; he may sign with the Chairman, President, Executive
Vice President or Vice President in the name of the company
all contracts authorized by the Board of Directors and when
required by the Board of Directors, or permitted by these
By-laws he shall affix the seal of the company thereto; he
shall have charge of all books and papers as the Board of
Directors may direct, all of which shall, at all reasonable
times, be open to the examination of any Director, upon
application at the office of the company during business
hours; he may sign with the Chairman, President, Executive
Vice President or a Vice President, all certificates of
shares of capital stock; he shall in general perform all of
the duties incident to the office of the Secretary, subject
to the control of the Board of Directors and shall do and
perform such other duties as may from time to time be
assigned to him by the Board of Directors.
Section 5. Powers and Duties of Treasurer. The
Treasurer shall have custody of all funds and securities of
the company; when necessary or proper, he shall endorse on
behalf of the company for collection, checks, notes and
other obligations, and shall deposit the same to the credit
of the company in such bank, or banks, or depository as the
Board of Directors may designate; he shall execute jointly
with such other Officer as may be designated by By-law or by
resolution of the Board of Directors, all bills of exchange
and promissory notes of the company; he may sign with the
Chairman, President, Executive Vice President, or a Vice
President, all certificates of shares in capital stock;
whenever required by the Board of Directors, he shall render
a statement of his cash account; he shall regularly in books
of the company to be kept by him for the purpose, keep a
full and accurate amount of all moneys received and paid by
him on account of the company; he shall, at all reasonable
times, exhibit his books and accounts to any Director of the
company upon application at the office of the company during
business hours; he shall perform all acts incident to the
position of Treasurer, subject to the control of the Board
of Directors; and he shall have such other powers and he
shall perform such other duties as may be assigned to him by
the Board of Directors, from time to time. He shall give
bond for the faithful performance of his duties as Treasurer
as the Board of Directors may direct.
Section 6. Indemnification of Directors and
Officers. The company shall indemnify each Director or
Officer of the company and any person who, at the request of
the company, has served as a Director, Officer, or trustee
of another corporation in which the company has a financial
interest against reasonable costs, expenses and counsel fees
paid or incurred (including any judgments, fines or
reasonable settlements exclusive of any amount paid to the
company in settlement) in connection with the defense of any
action, suit or proceeding in which such person is named as
a party by reason of having been such Director, Officer, or
trustee or by reason of any action taken or not taken in
such capacity unless such Officer, Director or trustee is
finally adjudged to have been derelict in the performance of
his duties as Director, Officer or trustee. If any action,
suit or proceeding is settled or otherwise terminated as
against such Director, Officer or trustee without a final
determination on the merits and the Board of Directors of
the company shall determine that such Director, Officer or
trustee has not in any substantial way been derelict in the
performance of his duties as charged in such action, suit or
proceeding, the company shall indemnify such Director,
Officer or trustee as aforesaid.
Such rights of indemnification are not exclusive
of any rights to which a Director or Officer of the company
may have pursuant to statute or otherwise.
ARTICLE IV
CAPITAL STOCK
Section 1. Certificate of Shares. Each holder of
capital stock of the company shall be entitled to a stock
certificate signed by the Chairman, President, or a Vice
President and either the Treasurer or an Assistant
Treasurer, or the Secretary or an Assistant Secretary,
certifying the number of shares owned by him in the company.
However, when the certificate is signed by the transfer
agent, or an assistant transfer agent, or by a transfer
clerk on behalf of the company and a registrar, the
signature of the Chairman, President, Vice President,
Treasurer, Assistant Treasurer, Secretary or Assistant
Secretary may be facsimiles.
All certificates shall be consecutively numbered.
The name of the person owning the shares represented
thereby, with the number of such shares and the date of
issue, shall be entered in the company's books.
No certificate shall be valid unless it is signed
as provided above in this Section 1 of Article IV of the
By-laws.
All certificates surrendered to the company shall
be canceled, and no new certificate shall be issued until
the former certificate shall have been surrendered and
canceled, or such proof that the certificate has been lost,
damaged or destroyed as the Board of Directors may require
and in such event a new certificate may be issued, but the
Board of Directors may require such security as they deem
appropriate.
Section 2. Transfer of Shares. Shares in the
capital stock of the company shall be transferred on the
books of the company by the holder thereof in person, or by
his attorney, upon surrender and cancellation of
certificates for a like number of shares.
Section 3. Rules and Regulations as to Issue,
Transfer and Registration of Shares of Stock. The Board of
Directors shall have power and authority to make all such
rules and regulations as they deem expedient concerning the
issue, transfer and registration of certificates for shares
of the capital stock of the company. The Board of Directors
may appoint a transfer agent and registrar of transfers, and
require all stock certificates to bear the signature of such
transfer agent and of such registrar of transfers.
Section 4. Closing of Transfer Books. The stock
transfer books may be closed for the meetings of the
stockholders, and for the payment of dividends, during such
periods as from time to time may be fixed by the Board of
Directors, and during such periods no stock shall be
transferrable.
Section 5. Fixing Date for Determination of
Stockholders' Rights. (1) The Board of Directors is
authorized from time to time to fix in advance a date as a
record date for the determination of the stockholders
entitled to notice of and to vote at any meeting of
stockholders, or with regard to any other corporate action
or event, as provided in the New Jersey Business Corporation
Act, and in such case only stockholders of record on the
date so fixed shall be entitled to such notice of and to
vote at any such meeting, or to participate in or otherwise
be included with respect to any other corporate action or
event, and notwithstanding any transfer of any stock on the
books of the company after any such record date fixed as
aforesaid. Any record date for determining stockholders
entitled to give a written consent to any action without a
meeting shall be fixed as provided in paragraph (2) of this
By-law.
(2) The Board of Directors may fix a record date
for determining the stockholders entitled to consent to
corporate action in writing without a meeting and may also
fix a date for tabulation of consents. Such record date
shall not be more than 60 days before the date fixed for
tabulation of the consents or, if no date has been fixed for
tabulation, more than 60 days before the last day on which
consents received may be counted as provided by the New
Jersey Business Corporation Act. Any stockholder of record
seeking to have the stockholders authorize or take corporate
action by written consent shall, by written notice to the
Secretary, request the Board of Directors to fix a record
date and a date for tabulation of consents. If no record
date has been fixed by resolution of the Board of Directors
within 10 days of the date on which such a request is
received, the record date for determining stockholders
entitled to consent to corporate action in writing without a
meeting, when no prior action by the Board of Directors is
required by applicable law, shall be the first date on which
a signed written consent setting forth the action taken or
proposed to be taken is delivered to the company by delivery
to its principal place of business to the attention of the
Secretary. Delivery shall be by hand or by certified or
registered mail, return receipt requested. If no record
date has been fixed by the Board of Directors and prior
action by the Board of Directors is required by applicable
law, the record date for determining stockholders entitled
to consent to corporate action in writing without a meeting
shall be at the close of business on the date on which the
Board of Directors adopts the resolution taking such prior
action. If no date for the tabulation of consents has been
fixed by the Board of Directors within 10 days of the date
on which the request described above is received, such
tabulation shall be the 55th day after the record date fixed
by the Board of Directors (or otherwise established)
pursuant to this By-law; provided, however, that if such day
falls on a Saturday, Sunday or legal holiday, the tabulation
date shall be the next following day which is not a
Saturday, Sunday or legal holiday.
(3) In the event of the delivery to the company
of a written consent or consents purporting to authorize or
take corporate action and/or related revocations (each such
written consent and related revocation is referred to in
this paragraph as a "Consent"), the Secretary shall provide
for the safekeeping of such Consent and shall conduct such
reasonable investigation as such Officer deems necessary or
appropriate for the purpose of ascertaining the validity of
such Consent and all matters incident thereto, including,
without limitation, whether the holders of shares having the
requisite voting power to authorize or take the action
specified in the Consent have given consent and whether the
corporate action purported to be authorized or taken may
legally be taken by the stockholders of the company;
provided, however, that if the Board of Directors designates
one or more inspectors in connection with such matters as
provided in Article I, Section 6 of these By-laws, such
inspectors shall discharge the functions of the Secretary
under this paragraph. Notwithstanding any tabulation of
consents or investigation as described above, the Consent
shall not become effective as stockholder action until (i)
all requirements for notice to non-consenting stockholders
prescribed by the New Jersey Business Corporation Action are
met, and (ii) the final termination of any proceedings which
may have been commenced in any court of competent
jurisdiction for an adjudication of any legal issue incident
to determining the validity of the Consent has occurred,
unless such court shall have determined that such
proceedings are not being pursued expeditiously and in good
faith. In conducting the investigation required by this
paragraph, the Secretary or the inspectors (as the case may
be) may, at the expense of the company, retain special legal
counsel and any other necessary or appropriate professional
advisors, and such other personnel as they may deem
necessary or appropriate, to assist them.
ARTICLE V
DIVIDENDS
Section 1. Dividends. Dividends may be declared
by the Board of Directors from time to time as may be
permitted by the laws of the State of New Jersey, and shall
be payable at such times as the Board may determine.
ARTICLE VI
CHECKS, NOTES, CONTRACTS, ETC.
Section 1. Checks and Notes. Payment shall be
made by checks or check voucher, all of which shall be
signed by the Chairman, or President and the Treasurer or
Assistant Treasurer, or by any two Officers of the company
as the Board of Directors may from time to time direct,
except that the Board of Directors may provide by resolution
for special subsidiary checking accounts and their manner of
operation for payroll, dividend and other purposes. Bills
receivable, drafts and other evidence of indebtedness to the
company, shall be endorsed for the purpose of discount or
collection by the Treasurer or Assistant Treasurer, or such
other Officer or Officers of the company as the Board of
Directors may from time to time by resolution designate. No
bills or notes or other evidence of indebtedness shall be
executed by or on behalf of the company unless the Board of
Directors shall authorize the same. Such authority may be
general or confined to specific instances.
Section 2. Contracts and Instruments. The Board
of Directors may authorize any Officer or Officers, agent or
agents, to enter into any contract or execute and deliver
any conveyance or instrument in the name of and on behalf of
the company, and such authority may be general or confined
to specific instances.
When the execution of any contract, conveyance or
other instrument has been authorized without specification
of the executing Officers, the Chairman, President,
Secretary or Treasurer may execute the same in the name and
behalf of the company and may affix the corporate seal and
attest thereto, unless otherwise directed or required by the
Board of Directors, or required by law.
ARTICLE VII
MISCELLANEOUS PROVISIONS
Section 1. Fiscal Year. The fiscal year of the
company shall begin on the first day of January in each and
every year, and all accounts shall be brought up to the
close of the year.
Section 2. Principal Office. The principal
office of this company shall be at 600 South Avenue,
Westfield, New Jersey, but the Board of Directors may at any
regular or special meeting change the place of such office,
upon the adoption of a resolution providing therefor by the
votes of at least two-thirds of its members.
This company may have other offices at such places
as the Board of Directors shall designate and the business
of this company may require.
Section 3. Officers' Voting Stock. The Chairman,
President, or a Vice President, shall have full power and
authority on behalf of this company to attend and act, and
to vote in person or by proxy at any meeting of stockholders
of any corporation in which this corporation may own and
hold stock, and at any such meeting shall possess and may
exercise any and all rights and powers incident to the
ownership of such stock and which, as the owner thereof, the
company might have possessed and exercised if present. The
Board of Directors, by resolution, from time to time, may
confer like powers upon any person or persons.
ARTICLE VIII
CORPORATE SEAL
Section 1. The corporate seal of this company
shall be as shown by the following impression:
ARTICLE IX
AMENDMENT OF BY-LAWS
Section 1. These by-laws may be amended, altered
or repealed by the Board of Directors.
EX-11
3
Exhibit 11
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
1994 1993 1992
_________ _________ _________
PRIMARY
_______
EARNINGS
Income Before Preferred Stock
Dividends of Subsidiary $12,941,790 $14,879,828 $11,281,012
Deduct: Preferred Stock Dividends 854,047 1,050,000 1,050,000
___________ __________ __________
Net Income Available for
Common Stock $12,087,743 $13,829,828 $10,231,012
___________ __________ __________
___________ __________ __________
SHARES
Weighted Average Number of
Common Shares Outstanding 6,207,564 5,330,641 4,624,310
Assuming Exercise of Options
Reduced by the Number of Shares
Which Could Have Been Purchased
With the Proceeds From Exercise
of Such Options 2,845 7,298 3,504
___________ __________ __________
Weighted Average Number of Common
Shares Outstanding as Adjusted 6,210,409 5,337,939 4,627,814
___________ __________ __________
___________ __________ __________
Primary Earnings
Per Share of Common Stock $ 1.95 $ 2.59 $ 2.21
___________ __________ __________
___________ __________ __________
ASSUMING FULL DILUTION
______________________
EARNINGS
Income Before Preferred Stock
Dividends of Subsidiary $12,941,790 $14,879,828 $11,281,012
Deduct: Preferred Stock Dividends 854,047 1,050,000 1,050,000
Add: After Tax Interest Expense
Applicable to 6 3/4% Convertible
Subordinated Debentures 542,195 550,843 577,082
___________ __________ __________
Adjusted Net Income $12,629,938 $14,380,671 $10,808,094
___________ __________ __________
___________ __________ __________
SHARES
Weighted Average Number of
Common Shares Outstanding 6,207,564 5,330,641 4,624,310
Assuming Exercise of Options
Reduced by the Number of Shares
Which Could Have Been Purchased
With the Proceeds From Exercise
of Such Options 2,845 7,298 3,504
Assuming Conversion of 6 3/4%
Convertible Subordinated
Debentures (a) 308,943 313,869 322,954
___________ __________ __________
Weighted Average Number of Common
Shares Outstanding as Adjusted 6,519,352 5,651,808 4,950,768
___________ __________ __________
___________ __________ __________
Fully Diluted Earnings
Per Share of Common Stock $ 1.94 $ 2.54 $ 2.18
___________ __________ __________
___________ __________ __________
(a) Convertible at $40 per share.
EX-12
4
Exhibit 12(a)
Elizabethtown Water Company & Subsidiary
Computation of Ratio of Earnings to Fixed Charges
1990 1991 1992 1993 1994
________ ________ ________ ________ ________
EARNINGS:
Income before
preferred stock
dividends $7,978,778 $11,361,063 $12,149,343 $14,832,519 $14,223,142
Federal income taxes 3,990,799 5,630,265 6,021,464 7,916,794 7,413,995
Interest charges 10,582,686 11,016,414 10,623,801 11,437,710 10,402,060
___________ ___________ ___________ ___________ ___________
Earnings available
to cover fixed
charges $22,552,263 $28,007,742 $28,794,608 $34,187,023 $32,039,197
___________ ___________ ___________ ___________ ___________
___________ ___________ ___________ ___________ ___________
FIXED CHARGES:
Interest on long
term debt $ 9,587,723 $10,585,336 $10,516,521 $11,527,301 $10,774,008
Other interest 1,187,500 535,834 514,122 77,921 175,507
Amortization of debt
discount - net 279,103 287,180 209,631 224,383 319,646
___________ ___________ ___________ ___________ ___________
Total fixed charges $11,054,326 $11,408,350 $11,240,274 $11,829,605 $11,269,161
___________ ___________ ___________ ___________ ___________
___________ ___________ ___________ ___________ ___________
Ratio of Earnings to
Fixed Charges 2.04 2.46 2.56 2.89 2.84
___________ ___________ ___________ ___________ ___________
___________ ___________ ___________ ___________ ___________
Earnings to Fixed Charges represents the sum of Income Before Preferred Stock
Dividends, Federal income taxes and Interest Charges (which is reduced by
Capitalized interest), divided by Fixed Charges. Fixed Charges consist of
interest on long and short-term debt (which is not reduced by Capitalized
interest), and Amortization of debt discount.
EX-12
5
Exhibit 12(b)
Elizabethtown Water Company & Subsidiary
Computation of Ratio of Earnings to Fixed Charges
and Preferred Dividends
1990 1991 1992 1993 1994
________ ________ ________ ________ ________
EARNINGS:
Income before
preferred stock
dividends $7,978,778 $11,361,063 $12,149,343 $14,832,519 $14,223,142
Federal income taxes 3,990,799 5,630,265 6,021,464 7,916,794 7,413,995
Interest charges 10,582,686 11,016,414 10,623,801 11,437,710 10,402,060
___________ ___________ ___________ ___________ ___________
Earnings available
to cover fixed
charges $22,552,263 $28,007,742 $28,794,608 $34,187,023 $32,039,197
___________ ___________ ___________ ___________ ___________
___________ ___________ ___________ ___________ ___________
FIXED CHARGES AND
PREFERRED DIVIDENDS:
Interest on long
term debt $ 9,587,723 $10,585,336 $10,516,521 $11,527,301 $10,774,008
Preferred dividend
requirement (1) 1,575,158 1,570,446 1,570,446 1,610,429 1,299,326
Other interest 1,187,500 535,834 514,122 77,921 175,507
Amortization of debt
discount - net 279,103 287,180 209,631 224,383 319,646
___________ ___________ ___________ ___________ ___________
Total fixed charges $12,629,484 $12,978,796 $12,810,720 $13,440,034 $12,568,487
___________ ___________ ___________ ___________ ___________
___________ ___________ ___________ ___________ ___________
Ratio of Earnings to
Fixed Charges and
Preferred Dividends 1.79 2.16 2.25 2.54 2.55
___________ ___________ ___________ ___________ ___________
___________ ___________ ___________ ___________ ___________
(1) Preferred Dividend
Requirement:
Preferred dividends $1,050,000 $1,050,000 $1,050,000 $1,050,000 $854,047
Effective tax rate 33.34% 33.14% 33.14% 34.80% 34.27%
___________ ___________ ___________ ___________ ___________
Preferred dividend
requirement $1,575,158 $1,570,446 $1,570,446 $1,610,429 $1,299,326
___________ ___________ ___________ ___________ ___________
___________ ___________ ___________ ___________ ___________
Earnings to Fixed Charges and Preferred Dividends represents the sum of
Income Before Preferred Stock Dividends, Federal income taxes and Interest
Charges (which is reduced by Capitalized interest), divided by Fixed Charges.
Fixed Charges and Preferred Dividends consist of interest on long and short-
term debt (which is not reduced by capitalized interest), dividends on
Preferred Stock on a pre-tax basis and Amortization of debt discount.
EX-13
6
Exhibit 13
E'TOWN CORPORATION
Portion of the 1994 Annual Report to Shareholders which is
incorporated by reference into this filing on Form 10-K for
the year ended December 31, 1994.
INDEX
Page
----
Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations 1
Consolidated Financial Statements 11
Notes to Consolidated Financial Statements 17
Independent Auditors' Report 47
Other Financial and Statistical Data 48
Stock Price and Dividend Data 49
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
E'town Corporation (E'town or Corporation), a New Jersey
holding company, is the parent company of Elizabethtown Water
Company (Elizabethtown or Company) and E'town Properties, Inc.
(Properties). The Mount Holly Water Company (Mount Holly) is a
wholly owned subsidiary of Elizabethtown. The assets and
operating results of Elizabethtown constitute the predominant
portions of E'town's assets and operating results. Mount Holly
contributed 3% of the Company's consolidated operating revenues
for 1994. The following analysis sets forth significant events
affecting the financial condition of E'town and Elizabethtown at
December 31, 1994, and the results of operations for the years
ended December 31, 1994 and 1993.
LIQUIDITY AND CAPITAL RESOURCES
Capital Expenditures Program
Consolidated capital expenditures, primarily for water
utility plant, were $70.1 million during 1994. Capital
expenditures for the three-year period ending December 31, 1997,
are estimated to be $ 171.5 million, of which $169.4 million is
for utility plant ($149.5 million for Elizabethtown and $20.9
million for Mount Holly), $.6 million is for real estate-related
expenditures and $.5 million is allocated to E'town's joint
venture (see Economic Outlook-E'town). A major portion of the
utilities' capital outlays will occur in the first 18 months of
the three-year projection period as Elizabethtown and Mount Holly
invest in new water treatment and water supply facilities, each
as described below. After these projects are completed in
mid-1996, the capital outlays for the utilities are expected to
return to more normal levels.
Elizabethtown
Elizabethtown's capital program includes the construction of
a new water treatment plant, the Canal Road Water Treatment Plant
(Plant), near Elizabethtown's existing plant. The Plant, which
will have an initial rated production capacity of 40 million
gallons per day and can be expanded to 200 million gallons per
day, is necessary to meet existing and anticipated customer
demands and to replace groundwater supplies withdrawn from
service as a result of more restrictive water quality regulations
and groundwater contamination. Elizabethtown's construction
program also includes additional mains and storage facilities
necessary to serve existing and future customers.
In April 1994, Elizabethtown executed a lump-sum contract
for the construction of the Plant. The current estimated cost of
the Plant is approximately $100 million, excluding an Allowance
for Funds Used During Construction (AFUDC). The Company has
expended $38.4 million, excluding AFUDC of $2.0 million, as of
December 31, 1994 on the Plant. The project is proceeding on
schedule, the construction contract remains on budget and the
project is expected to be completed in mid-1996.
In August 1993, the New Jersey Board of Public Utilities
(BPU) approved a stipulation (1993 Plant Stipulation) signed by
-1-
the Department of Ratepayer Advocate, the BPU staff and several
of Elizabethtown's major wholesale customers, all of whom
typically participate in Elizabethtown's rate cases. The 1993
Plant Stipulation states the Plant is necessary and the Company's
estimate regarding the Plant's cost, at that time of $87 million,
and construction period are reasonable. In April 1994,
Elizabethtow-n notified all parties to the 1993 Plant Stipulation
that the estimated cost of the Plant had increased. The 1993
Plant Stipulation authorizes Elizabethtown to levy a rate
surcharge during the Plant's construction period if the Company's
pre-tax interest coverage ratio for any 12-month historical
period drops below 2.0 times. The surcharge would equal 20% of
the Company's gross interest expense for the prior 12 months,
adjusted for revenue taxes. The surcharge would go into effect
at the s-ame time as t-he Company's next base rate increase after
the coverage ratio falls below 2.0 times. Also, the surcharge
would remain in effect for 12 months and could be extended by the
BPU for up to six additional months. The 1993 Plant Stipulation
also provides that the rate of return on common stockholder's
equity used to calculate the rate for the equity component of the
AFUDC for the Plant will be 1.5% less than the rate of return on
common stockholder's equity established in Elizabethtown's most
recent base rate case. The authorized rate of return on
Elizabethtown's common stockholder's equity is currently 11.5%.
Elizabethtown's pre-tax interest coverage ratio, calculated
in accordance with the 1993 Plant Stipulation, for the twelve
months ended December 31, 1994 was 2.8 times, which is in excess
of the 2.0 times trigger level for the rate surcharge authorized
by the 1993 Plant Stipulation. Based upon current conditions,
the Company expects its pre-tax interest coverage will remain
above the 2.0 times trigger level through the completion of the
Plant's construction and that the surcharge will not be required.
Mount Holly
To assure an adequate supply of quality water from an aquifer
serving parts of southern New Jersey, state legislation is
requiring Mount Holly, as well as other suppliers obtaining water
from designated portions of this aquifer, to reduce pumpage from
its wells. Mount Holly has received preliminary approval from
the New Jersey Department of Environmental Protection for its
conceptual plan to develop a new water supply and treatment and
transmission system necessary to obtain water outside the
designated portion of the aquifer and to treat such water and
pump it into the Mount Holly system. The current estimate of the
cost of this project is $16.5 million. The land for the supply
and treatment facilities has been purchased and test wells have
been drilled and evaluated. Mount Holly expects to file for a
rate increase, in two phases, in the second quarter of 1995
providing for rate relief for the entire project in the second
phase.
CAPITAL RESOURCES
During 1994, Elizabethtown, including Mount Holly, financed
24.1% of its capital expenditures from internally generated funds
(after payment of common stock dividends). The balance was
financed with a combination of proceeds from capital
contributions from E'town (funded by sale of its Common Stock)
and short-term borrowings under the revolving credit agreement
discussed below.
-2-
For the three-year period ending December 31, 1997,
Elizabethtown, including Mount Holly, estimates 30% of its
capital expenditures will be financed with internally generated
funds (after payment of common stock dividends). 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 under the revolving credit agreement
discussed below. The NJEDA has granted preliminary approval for
the financing of almost all of Elizabethtown's major projects
over the next three years, including the Plant. Elizabethtown
expects to pursue tax-exempt financing to the extent that final
allocations are granted by the NJEDA. The Company's senior debt
is rated A3 and A by Moody's and Standard & Poor's, respectively.
In May 1994, E'town issued 690,000 shares of common stock for
net proceeds of $18.2 million. The net proceeds were used to fund
an equity contribution to Elizabethtown of $16.0 million. This
contribution has been used to partially fund Elizabethtown's
construction program, the predominant portion of which relates to
the Plant. The balance of the proceeds is being used to fund
working capital requirements of the Corporation.
In March 1994, Elizabethtown issued 120,000 shares of $100
par value, $5.90 Cumulative Preferred Stock for proceeds of $12.0
million at an effective rate of 7.37%. The proceeds were used to
redeem $12.0 million of the Company's $8.75 Cumulative Preferred
Stock. The redemption premium of $1.0 million was paid from
general Company funds.
Elizabethtown has executed a committed revolving credit
agreement (Agreement) with an agent bank and five additional
banks to replace its uncommitted lines of credit. The Agreement
provides up to $60 million in revolving short-term financing
which, together with internal funds, proceeds of future issuances
of debt and preferred stock and capital contributions from
E'town, is expected to be sufficient to finance Elizabethtown's
and Mount Holly's capital needs through 1997. The Agreement
allows Elizabethtown to borrow, repay and reborrow up to $60
million during the first three years, after which time
Elizabethtown may convert any outstanding balances to a five-year
fully amortizing term loan. The Agreement further provides that,
among other covenants, Elizabethtown must maintain a ratio of
common and preferred equity to total capitalization of not less
than 35% and a pre-tax interest coverage ratio of at least 1.5 to
1. As of December 31, 1994, the ratio of Elizabethtown's common
and preferred equ-i-ty to total capitalization was 50%. For the 12
months ended December 31, 1994 Elizabethtown's pre-tax interest
coverage ratio, calculated in accordance with the Agreement, was
2.97 to 1. At December 31, 1994, Elizabethtown had borrowings
outstanding of $23.0 million under the Agreement at interest
rates from 5.6% to 6.4%, at a weighted average rate of 6.1%.
During 1994, 273,159 shares of common stock were issued for
proceeds of $7.1 million under E'town's Dividend Reinvestment and
Stock Purchase Plan (DRP). The proceeds are used on an ongoing
basis to make capital contributions to Elizabethtown to partially
fund its capital program.
-3-
During 1995, E'town Corporation expects to issue
approximately 500,000 shares of common stock through a public
offering in order to finance additional equity contributions to
Elizabethtown to fund the Company's capital program, the
predominant portion of which is the Plant.
Also in 1995, Elizabethtown intends to issue approximately
$30 million of tax-exempt debentures through the NJEDA to repay
balances outstanding under the revolving credit agreement
incurred for qualified capital expenditures.
1993 and 1992
In May 1993, E'town issued 575,000 shares of common stock for
net proceeds of $16.6 million. The net proceeds were used to
fund equity contributions to Elizabethtown of $11.0 million in
May 1993 and $2.8 million in September 1993. Elizabethtown used
a portion of such contributions to repay $7.0 million of
short-term bank debt incurred for construction expenditures.
E'town used $1.0 million of the proceeds to repay short-term bank
debt previously incurred for working capital and invested the
balance on a short-term basis.
During 1993, E'town raised $6.0 million from the sale of
common stock under its DRP. Such proceeds were used to fund
equity contributions to Elizabethtown, primarily for
Elizabethtown's capital expenditures.
In August 1993, E'town, Properties and Elizabethtown sold
three parcels of land totalling 260 acres to the Somerset County
Park Commission for $3.4 million. Of the total proceeds, $2.2
million was used to fund an equity contribution to Elizabethtown
and the remainder was, and continues to be, used to fund working
capital requirements of the Corporation.
In November 1993, Elizabethtown issued $50 million of 7 1/4%
Debentures due November 1, 2028. The proceeds of the issue were
used to redeem $30 million of the Company's 8 5/8% Debentures due
2007 and $20 million of the Company's 10 1/8% Debentures due
2018. The aggregate redemption premiums of $2.7 million were
paid from general Company funds.
In April 1992, E'town issued 500,000 shares of common stock
for net proceeds of $12.7 million. Proceeds of the issue funded
an $11.0 million capital contribution to Elizabethtown, and the
balance was used to repay E'town's short-term bank debt
previously incurred to fund working capital. Also, E'town funded
additional equity contributions of $4.2 million to Elizabethtown
from E'town's DRP. During 1992, Elizabethtown issued $15 million
of 8% Debentures to repay short-term bank debt, of which $9
million was incurred to repay Elizabethtown's 4 7/8% Debentures
due February 1, 1992, and the remainder was incurred to finance
construction expenditures.
RESULTS OF OPERATIONS
Net Income for 1994 was $12.1 million or $1.95 per share on a
primary basis as compared to $13.8 million or $2.59 per share for
1993. A return to more normal summer weather and water
-4-
consumption patterns, the combined effect of non-recurring
gains in 1993 followed by non-recurring charges in 1994 and
increases in operating and depreciation expenses since March
1993, when rates were last increased, all contributed to the
decrease in net income between 1993 and 1994. Earnings per
share in 1994 were further affected by an increase in shares
outstanding.
Net Income for 1993 was $13.8 million or $2.59 per share on a
primary basis, as compared to $10.2 million or $2.21 per share
for 1992. The increase in net income resulted from higher levels
of outdoor water use due to abnormally hot and dry summer weather
and the gain from the sale of land referred to above. Also, a
rate increase received in March 1993 enabled Elizabethtown to
cover higher levels of operating expenses in 1993 without
adversely affecting net income. Summer water use in excess of
what management believed to be normal contributed approximately
$1.8 million or $.34 per share. The land sale produced an
after-tax gain of $1.1 million or $.21 per share.
Operating Revenues increased $2.0 million or 2.0% in 1994.
Of this increase, $1.2 million relates to a rate increase,
effective March 1993. Sales to retail customers decreased by $.9
million, primarily due to a return to more normal weather
patterns during the spring and summer months of 1994 compared to
1993. However, despite the return to more normal weather
patterns, sales to other water systems and to large industrial
customers increased by $.6 million and $.7 million, respectively.
Due to normal growth within the service territory, fire service
revenues increased by $.4 million.
Operating Revenues increased $10.8 million or 12.1% in 1993.
Of this increase, $4.8 million relates to the combined effect of
the rate increases of $5.0 million and $4.0 million effective
March 1993 and 1992, respectively. Also, sales to retail
customers increased $3.8 million and sales to other water systems
increased $1.2 million due to hot, dry summer weather.
Operation Expenses increased by $2.1 million or 5.3%. The
increase is due primarily to increased costs for labor, benefits,
miscellaneous expenses and the unit cost of raw water purchased
from the NJWSA, which is reflected in the PWAC, (see Note 10 to
the Notes to Consolidated Financial Statements) in addition to
the cost of chemicals to treat such water. Benefit costs
increased due, primarily, to an increase in the actuarily
calculated pension expense.
Operation Expenses increased by $3.5 million or 9.9% in 1993
primarily due to increases in the quantity of power and raw water
purchased to meet higher than normal summer loads. Also, the
unit costs of power and purchased water increased, as did labor
costs and the cost of medical and other benefits.
Maintenance Expenses increased by $.9 million or 15.9% due to
the effects of unusually harsh winter weather in the first
quarter of 1994 in addition to an increased level of preventive
maintenance at various operating facilities throughout the
Company.
Maintenance Expenses increased by an insignificant amount in
1993.
-5-
Depreciation Expense increased $.6 million or 7.9% in 1994
and $.6 million or 9.5% in 1993 due to additional depreciable
plant being placed in service during those periods.
Revenue Taxes increased $.2 million or 2.0% in 1994 and $1.4
million or 12.8% in 1993 due to additional taxes on the higher
revenues discussed above.
Real Estate, Payroll and Other Taxes increased by $.1 million
or 3.0% in 1994 due to increased payroll taxes resulting from
labor cost increases. Real estate, payroll and other taxes
increased $.2 million or 9.6% in 1993 also due to increased
payroll taxes in addition to state income taxes resulting from
the adoption of Statement of Financial Accounting Standards 109.
Federal Income Taxes decreased $.2 million or 3.0% in 1994
and increased $1.7 million or 31.4% in 1993 due to the changes
in the components of taxable income discussed herein. Offsetting
the decrease in 1994 is $.1 million for the effect on federal
income taxes of the tentative settlement with the Internal
Revenue Service from an audit of the Corporation's tax returns
(See Economic Outlook-E'town). The increase in 1993 also
includes $.2 million due to a change in the federal statutory tax
rate from 34% to 35%.
Other Income decreased in total by $1.0 million in 1994.
Included in this net decrease is a litigation settlement of $.9
million (see Note 13 to the Notes to Consolidated Financial
Statements). Also included in the net decrease is a gain on the
sale of land in 1993 of $1.7 million. Other income decreased by
$.2 million due to the effect of adjusting the carrying values of
certain investments downward to their estimated net realizable
values (see Economic Outlook-Properties). This decrease also
includes a downward adjustment of $.1 million in the
Corporations's investment in Solar Electric Generating System V
(SEGS). In addition, increases in the equity component of AFUDC
of $.7 million resulted from increased construction expenditures,
primarily related to the Plant. Other increases of $.2 million
resulted from various miscellaneous items. Federal income taxes,
as a result of all of the above, decreased $.8 million.
Other Income increased in total by $1.2 million in 1993.
Other Income increased, primarily, due to the gain on the sale of
land, referred to above. A decrease in the equity component of
AFUDC of $.2 million resulted from the timing of construction
expenditures. Other Income decreased because Properties adjusted
the carrying values of certain investments downward to their
estimated net realizable values in 1993. This decrease was
comprised of a downward adjustment of $.1 million to the carrying
value of the Bordentown property and a similar adjustment of $.2
million to the Mansfield property. There was a downward
adjustment in 1992 of $.2 million to SEGS. Other increases of
$.5 million resulted from various miscellaneous items. Federal
income taxes, as a result of all of the above, increased $.7
million.
-6-
Total Interest Charges decreased $.7 million or 6.2% in 1994
due primarily to savings from refinancing of long-term debt in
1993. Also, an increase in the debt component of AFUDC of $.5
million resulted in a reduction of interest expense. Offsetting
the decrease in Total Interest Charges in 1994 is $.3 million
related to the tentative settlement of the Internal Revenue
Service audit referred to above.
Total Interest Charges increased $.9 million or 8.4% in 1993,
due primarily, to an increase in interest for long-term debt
issued in September 1992 and a reduction in earnings from NJEDA
trust funds due to the use of trust fund balances for
construction expenditures. These items were partially offset by
lower interest on short-term debt due to reduced borrowings.
Preferred Stock Dividends decreased $.2 million or 18.7% due to
savings from the refinancing of the $8.75 series preferred stock
with $5.90 series preferred stock in March 1994.
ECONOMIC OUTLOOK
Consolidated earnings for E'town for the next several years
will be determined primarily by Elizabethtown's ability to
generate adequate earnings and, to a lesser degree, the ability
of Properties and E'town to generate earnings from their
unregulated businesses.
Elizabethtown and Subsidiary
Currently, Elizabethtown and Mount Holly believe they are in
compliance with all water quality standards. Looking forward,
however, governmental water quality and service regulations will
require Elizabethtown and Mount Holly to make significant
investments in water supply, water treatment, transmission and
storage facilities including, for Elizabethtown, the Plant, and for
Mount Holly, a new water supply and treatment and transmission
system to augment existing facilities. This capital program will
require regular external financing and rate relief through 1996.
The timing and amount of rate increases obtained by
Elizabethtown and Mount Holly, as well as various other factors
which will always affect the financial performance of a water
utility, such as weather, customer usage, the magnitude and
timing of capital expenditures and the rate of growth of revenues
and expenditures, will drive earnings going forward in 1995 and
1996. Once the new facilities, referred to above, are
constructed and reflected in rates, Elizabethtown expects its
internally generated cash flow to increase and capital outlays to
return to more normal levels. As a result, external financing
and rate relief needs should become less frequent. Therefore,
more than in recent years, management's ongoing efforts to grow
unit sales and control operating costs will benefit the customer
by reducing the frequency of rate increases, and will benefit
shareholders by positively effecting earnings.
-7-
The BPU approved a $5.3 million, or 5.3%, rate increase (1995
Stipulation) effective February 1, 1995 which will favorably
impact earnings in 1995. Among other provisions, the 1995
Stipulation requires Elizabethtown to maintain an average ratio
of common equity to total capitalization of at least 45.1% for
the twelve months ended January 31, 1996. If a lesser ratio is
maintained, the revenue requirement associated with such lesser
ratio will offset the overall revenue requirement in the next
base rate case. The Company expects to sustain an average ratio
of common equity to total capitalization in excess of 45.1% for
such 12-month period. Looking further forward, rate increases of
approximately 30% in excess of current rates will be required by
Elizabethtown during 1996, a major portion of which will be
needed to recover the expected costs of the Plant. In light of
the approval by the BPU of the 1993 Plant Stipulation, and
Elizabethtown's experience obtaining base rate relief,
Elizabethtown expects the BPU to grant timely and adequate rate
relief for the Plant, but cannot predict the ultimate outcome of
any rate proceeding.
Rate increases of more than 100% in excess of current rates
will be required by Mount Holly during the period 1995-1996, the
predominant portion of which will be required to recover the
expected costs of the new supply, treatment and transmission
facilities. Mount Holly expects to file for a rate increase in
the second quarter of 1995 providing for rate relief for the
entire project in two phases. Mount Holly expects the BPU to
grant timely and adequate rate relief, but cannot predict the
ultimate outcome at this time.
E'town
The Corporation has entered into a three-year joint venture
agreement with Applied Wastewater General Partnership (AWG) to
form a New Jersey Limited Liability Corporation, Applied
Watershed Management, L.L.C. (AWM). AWG is a unit of several
privately held and affiliated companies providing design,
engineering, construction and operating services for water and
wastewater facilities in the western portion of Elizabethtown's
service area. AWM intends to design, finance, engineer,
construct, own, operate and/or sell water and wastewater
facilities for municipal and corporate clients, primarily in New
Jersey. E'town has agreed to provide capital contributions to
AWM up to $.5 million to finance AWM's working capital needs.
E'town may provide additional financing for particular projects
of AWM. AWG will provide the substantial portion of the
operations-related services required to be performed by AWM.
Either party may terminate the agreement at any time.
Included in Non-utility Property and Other Investments at
December 31, 1994 is an investment of $1.3 million or $.4 million
net of related deferred taxes, in a limited partnership that owns
SEGS, located in California. In March 1994, based upon revised
projections of future cash distributions provided by SEGS
management, E'town reduced the carrying value of the investment
by $.1 million in order to present the investment at management's
estimate of its approximate net realizable value.
-8-
The Internal Revenue Service (Service) is concluding an audit
of the Corporation's federal income tax returns for the tax years
1987 through 1992. The Service has raised issues related to tax
deductions taken initially in 1988 for certain land transactions.
On February 23, 1995, the Corporation reached a tentative
agreement to settle this matter with the Service. The effect on
net income for the year ended December 31, 1994 was approximately
$.3 million, or $.05 per common share. An additional charge to
1995 earnings of approximately $.3 million is expected.
Properties
Also included in Non-utility Property and Other Investments
in the Consolidated Balance Sheets of E'town at December 31, 1994
is $12.0 million of investments in various parcels of undeveloped
land in New Jersey. The carrying value of each parcel includes
the original cost plus any real estate taxes, interest and, where
applicable, direct costs capitalized while rezoning or
governmental approvals are or were being sought. Based upon
independent appraisals received at various times prior to and
during 1994, the estimated net realizable value of each property
exceeds its respective carrying value as of December 31, 1994,
after the adjustments to the Mansfield property discussed below.
Properties continues to seek permits and more favorable
zoning treatment for its Mansfield property and, therefore,
continues to capitalize various carrying charges. During the
second quarter of 1993, the carrying value of the Mansfield
property exceeded its estimated net realizable value and, as a
result, carrying charges incurred after that date were, and
continue to be, adjusted monthly. This is because the Mansfield
property is not yet ready for its intended use and, therefore,
various carrying charges continue to be capitalized while the
estimated net realizable value of the property remains unchanged.
Charges of $.4 million and $.2 million for 1994 and 1993,
respectively, to adjust the carrying value of the Mansfield
property, have been reflected in the Statements of Consolidated
Income and Consolidated Balance Sheets. As Properties expects to
continue capitalizing carrying charges on the Mansfield property
until it is ready for its intended use, further adjustments for
these capitalized carrying charges should be expected unless the
appraised value of the property significantly increases.
The Corporation will continue to monitor the relationship
between the carrying and net realizable values of its properties
through updated appraisals and of its investment in SEGS based
upon information provided by SEGS management and through cash
flow analysis. -9-
In January 1995, Properties entered into an agreement to sell
a parcel of land to a developer. The agreement allows either
party to cancel such agreement by March 23, 1995 and allows the
buyer until July 23, 1996 to obtain all approvals required by
governmental agencies in order to develop the property. Other
significant dates have been established during this period upon
which either the buyer or Properties may cancel the agreement if
certain criteria are not met. The ultimate sale price is
dependent upon the number of buildable lots as allowed by the
municipality.
-10-
E'town Corporation and Subsidiaries
Statements of Consolidated Income
Year Ended December 31,
_______________________________________
1994 1993 1992
____________ ____________ ____________
Operating Revenues $102,032,505 $99,996,120 $89,167,337
____________ ____________ ___________
Operating Expenses:
Operation 41,373,842 39,280,920 35,744,262
Maintenance 6,623,772 5,716,157 5,704,843
Depreciation 7,860,180 7,285,309 6,654,986
Revenue taxes 12,748,161 12,501,804 11,086,349
Real estate, payroll and other taxes 2,786,746 2,706,447 2,469,066
Federal income taxes (Note 3) 6,958,875 7,170,406 5,455,022
____________ ___________ ___________
Total operating expenses 78,351,576 74,661,043 67,114,528
____________ ___________ ___________
Operating Income 23,680,929 25,335,077 22,052,809
____________ ___________ ___________
Other Income:
Litigation settlement (Note 13) (932,203)
Gain on sale of land (Note 7) 0 1,685,521
Allowance for equity funds used
during construction (Note 2) 1,178,133 445,339
Write-down of non-utility property 599,443
and other investments (Note 7) (481,754) (269,315) (180,000)
Federal income taxes (Note 3) 51,018 (790,320) (117,623)
Other--net 632,878 396,515 (73,493)
____________ ___________ ___________
Total other income 448,072 1,467,740 228,327
____________ ___________ ___________
____________ ___________ ___________
Total Operating and Other Income 24,129,001 26,802,817 22,281,136
____________ ___________ ___________
Interest Charges:
Interest on long-term debt 11,610,777 12,374,224 11,389,341
Other interest expense--net 470,038 95,848 564,064
Capitalized interest (Note 2) (1,247,666) (805,882) (1,197,328)
Amortization of debt discount--net 354,062 258,799 244,047
____________ ___________ ___________
Total interest charges 11,187,211 11,922,989 11,000,124
____________ ___________ ___________
Income Before Preferred Stock
Dividends of Subsidiary 12,941,790 14,879,828 11,281,012
Preferred Stock Dividends 854,047 1,050,000 1,050,000
____________ ___________ ___________
Net Income $ 12,087,743 $13,829,828 $10,231,012
____________ ___________ ___________
____________ ___________ ___________
Earnings Per Share of Common
Stock (Note 2):
Primary $ 1.95 $ 2.59 $ 2.21
____________ ___________ ___________
____________ ___________ ___________
Fully Diluted $ 1.94 $ 2.54 $ 2.18
____________ ___________ ___________
____________ ___________ ___________
Average Number of Shares Outstanding for
the Calculation of Earnings Per Share:
Primary 6,210,409 5,337,939 4,627,814
____________ ___________ ___________
____________ ___________ ___________
Fully Diluted 6,519,352 5,651,808 4,950,768
____________ ___________ ___________
____________ ___________ ___________
Dividends Paid Per Common Share $ 2.04 $ 2.01 $ 2.00
____________ ___________ ___________
____________ ___________ ___________
See Notes to Consolidated Financial Statements.
-11-
E'town Corporation and Subsidiaries
Consolidated Balance Sheets
December 31,
___________________________
Assets 1994 1993
____________ ____________
Utility Plant--At Original Cost:
Utility plant in service $469,172,575 $438,178,824
Construction work in progress 55,739,951 17,242,088
____________ ____________
Total utility plant 524,912,526 455,420,912
Less accumulated depreciation and amortization 87,456,550 82,128,023
____________ ____________
Utility plant--net 437,455,976 373,292,889
____________ ____________
Non-utility Property and Other Investments (Note 7) 13,468,879 13,545,589
____________ ____________
Funds Held by Trustee for Construction
Expenditures (Note 2) 0 382,306
____________
Current Assets:
Cash and cash equivalents 4,254,708 7,376,472
Short-term investments 30,622 30,622
Customer and other accounts receivable
(less reserve: 1994, $463,000; 1993, $434,000) 12,346,871 12,031,414
Unbilled revenues 7,161,483 7,248,322
Materials and supplies--at average cost 1,724,969 1,623,702
Prepaid insurance, taxes, other 1,410,401 1,603,955
Prepaid federal income taxes 711,860
____________ ____________
Total current assets 27,640,914 29,914,487
____________ ____________
Deferred Charges (Note 9):
Prepaid pension expense (Note 12) 871,181 962,595
Abandonments 76,049 152,097
Waste residual management 325,785 587,589
Unamortized debt and preferred stock expenses 9,490,208 8,648,030
Taxes recoverable through future rates (Note 3) 26,339,057 26,643,663
Postretirement benefit expense (Note 12) 2,077,051 1,004,556
Purchased water under recovery - net 314,128
Other unamortized expenses 921,237 598,179
____________ ____________
Total deferred charges 40,414,696 38,596,709
____________ ____________
Total $518,980,465 $455,731,980
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-12-
December 31,
____________________________
Capitalization and Liabilities 1994 1993
____________ ____________
Capitalization (Notes 4 and 5):
Common shareholders' equity $152,970,602 $128,374,207
Cumulative preferred stock--redeemable 12,000,000 12,000,000
Long-term debt--net 154,073,430 154,406,533
____________ ____________
Total capitalization 319,044,032 294,780,740
____________ ____________
Current Liabilities:
Notes payable--banks (Note 6) 23,000,000
Long-term debt--current portion (Note 4) 42,000 42,000
Accounts payable and other liabilities 18,249,580 9,645,055
Customers' deposits 278,895 276,497
Municipal and state taxes accrued 12,831,524 12,569,445
Federal income taxes accrued (Note 3) 947,274
Interest accrued 3,173,468 3,052,160
Preferred stock dividends accrued 59,000 89,178
____________ ____________
Total current liabilities 57,634,467 26,621,609
____________ ____________
Deferred Credits:
Customer advances for construction 45,554,476 45,149,522
Federal income taxes (Note 3) 62,115,801 58,363,510
State income taxes (Note 3) 162,008 151,538
Unamortized investment tax credits 8,650,537 8,852,487
Emergency water projects 127,704
Accumulated postretirement benefits (Note 12) 2,100,628 1,015,004
____________ ____________
Total deferred credits 118,583,450 113,659,765
____________ ____________
Contributions in Aid of Construction 23,718,516 20,669,866
____________ ____________
Commitments and Contingent Liabilities (Note 11)
____________ ____________
Total $518,980,465 $455,731,980
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-13-
E'town Corporation and Subsidiaries
Statements of Consolidated Capitalization
December 31,
____________________________
1994 1993
____________ ____________
E'town Corporation:
Common Shareholders' Equity (Notes 4 and 5):
Common stock without par value, authorized,
15,000,000 shares; issued 1994, 6,624,663
shares; 1993, 5,661,504 shares $114,136,195 $ 87,842,657
Paid-in capital 1,315,025 1,315,025
Capital stock expense (4,286,194) (3,357,165)
Retained earnings 42,439,552 43,207,666
Less cost of treasury stock; 1994 and
1993, 22,032 shares (633,976) (633,976)
____________ ____________
Total common shareholders' equity 152,970,602 128,374,207
____________ ____________
Elizabethtown Water Company:
Cumulative Preferred Stock (Note 4):
$100 par value, authorized, 200,000
shares; $5.90 series, issued and
outstanding, 120,000 shares 12,000,000
____________
Elizabethtown Water Company:
Cumulative Preferred Stock - Redeemable (Note 4):
$100 par value, authorized, 200,000
shares; $8.75 series, issued and
outstanding, 120,000 shares 12,000,000
____________
Cumulative Preferred Stock:
$25 par value, authorized, 500,000 shares;
none issued
Long-Term Debt (Note 4):
E'town Corporation:
6 3/4% Convertible Subordinated Debentures,
due 2012 12,165,000 12,497,000
Elizabethtown Water Company:
7.20% Debentures, due 2019 10,000,000 10,000,000
7 1/2% Debentures, due 2020 15,000,000 15,000,000
6.60% Debentures, due 2021 10,500,000 10,500,000
6.70% Debentures, due 2021 15,000,000 15,000,000
8 3/4% Debentures, due 2021 27,500,000 27,500,000
8% Debentures, due 2022 15,000,000 15,000,000
7 1/4% Debentures, due 2028 50,000,000 50,000,000
The Mount Holly Water Company:
Notes Payable (due serially through 2000) 144,300 186,300
____________ ____________
Total long-term debt 155,309,300 155,683,300
Unamortized discount--net (1,235,870) (1,276,767)
____________ ____________
Total long-term debt--net 154,073,430 154,406,533
____________ ____________
Total capitalization $319,044,032 $294,780,740
____________ ____________
____________ ____________
See Notes to Consolidated Financial Statements.
-14-
E'town Corporation and Subsidiaries
Statements of Consolidated Shareholders' Equity
Year Ended December 31,
_______________________________________
1994 1993 1992
____________ ___________ ___________
Common Stock:
Balance at Beginning of Year $87,842,657 $ 64,261,763 $ 45,952,195
Public sale of common stock (1994,
690,000 shares; 1993, 575,000
shares; 1992, 500,000 shares) 19,147,500 17,465,625 13,437,500
Common stock issued under Dividend
Reinvestment and Stock Purchase
Plan (1994, 273,159 shares; 1993,
200,878 shares; 1992, 161,802 shares) 7,146,038 6,009,298 4,197,938
Exercise of stock options (1993,
4,050 shares; 1992, 21,900 shares) 105,971 540,356
Issuance of restricted stock
(1992, 5,072 shares) 133,774
____________ ____________ ____________
Balance at End of Year 114,136,195 87,842,657 64,261,763
____________ ____________ ____________
Paid-in Capital: 1,315,025 1,315,025 1,315,025
____________ ____________ ____________
Capital Stock Expense:
Balance at Beginning of Year (3,357,165) (2,479,987) (1,698,001)
Expenses incurred for the issuance
and sale of common stock (929,029) (877,178) (781,986)
____________ ____________ ____________
Balance at End of Year (4,286,194) (3,357,165) (2,479,987)
____________ ____________ ____________
Retained Earnings:
Balance at Beginning of Year 43,207,666 40,228,199 39,281,347
Net income 12,087,743 13,829,828 10,231,012
Dividends on Common Stock (1994,
$2.04, 1993, $2.01, 1992, $2.00) (12,855,857) (10,850,361) (9,284,160)
____________ ____________ ____________
Balance at End of Year 42,439,552 43,207,666 40,228,199
____________ ____________ ____________
Treasury Stock:
Balance at Beginning of Year (633,976) (575,107) (306,311)
Cost of shares redeemed to exercise
stock options (1993, 1,676 shares;
1992, 9,850 shares) (58,869) (268,796)
____________ ____________ ____________
Balance, End of Year (633,976) (633,976) (575,107)
____________ ____________ ____________
Total Common Shareholders' Equity $152,970,602 $128,374,207 $102,749,893
____________ ____________ ____________
____________ ____________ ____________
See Notes to Consolidated Financial Statements.
-15-
E'town Corporation and Subsidiaries
Statements of Consolidated Cash Flows
Year Ended December 31,
_______________________________________
1994 1993 1992
___________ ___________ ____________
Cash Flows from Operating Activities:
Net Income $ 12,087,743 $ 13,829,828 $ 10,231,012
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation 7,860,180 7,285,309 6,654,986
Write-down of non-utility property
and other investments 481,754 269,315 180,000
Gain on sale of land (1,685,521)
(Increase) decrease in deferred
charges (1,050,098) (2,833,965) 134,499
Deferred income taxes and investment
tax credits--net 3,865,417 3,274,054 3,385,483
Capitalized interest and AFUDC (2,425,799) (1,251,221) (1,796,771)
Other operating activities--net 68,405 (390,231) (2,669)
Change in current assets and current
liabilities excluding cash, short-term
investments and current portion of debt:
Customer and other accounts
receivable (315,457) (998,517) 807,763
Unbilled revenues 86,839 (688,601) (164,241)
Accounts payable and other
liabilities 8,606,923 662,837 (964,663)
Accrued/prepaid interest and taxes (1,082,193) 1,283,955 407,304
Other (101,267) (6,870) 3,473
____________ ____________ ____________
Net cash provided by operating
activities 28,082,447 18,750,372 18,876,176
____________ ____________ ____________
Cash Flows Provided by Financing Activities:
Decrease in funds held by Trustee for
construction expenditures 382,306 8,519,877 12,390,518
Proceeds from issuance of debentures 50,000,000 15,000,000
Proceeds from issuance of
common stock 25,364,509 22,644,847 17,258,786
Proceeds from issuance of
preferred stock 12,000,000
Redemption of preferred stock (12,000,000)
Repayment of long-term debt (374,000) (50,245,000) (9,503,000)
Contributions and advances for
construction--net 3,453,604 1,909,905 3,066,832
Net increase (decrease) in notes
payable--banks 23,000,000 (6,500,000) (13,500,000)
Dividends paid on common stock (12,886,035) (10,850,361) (9,284,160)
____________ ____________ ____________
Net cash provided by financing
activities 38,940,384 15,479,268 15,428,976
____________ ____________ ____________
Cash Flows Used for Investing Activities:
Utility plant expenditures
(excluding AFUDC) (69,980,619) (32,516,755) (33,292,602)
Development costs of land (excluding
capitalized interest) (163,976) (194,842) (286,885)
Proceeds from sale of land 3,450,000
____________ ____________ ____________
Cash used for investing
activities (70,144,595) (29,261,597) (33,579,487)
____________ ____________ ____________
Net Increase in Cash and Cash
Equivalents (3,121,764) 4,968,043 725,665
Cash and Cash Equivalents at Beginning
of Year 7,376,472 2,408,429 1,682,764
____________ ____________ ____________
Cash and Cash Equivalents at End
of Year $ 4,254,708 $ 7,376,472 $ 2,408,429
____________ ____________ ____________
____________ ____________ ____________
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest (net of amount
capitalized) $ 10,416,716 $ 12,296,508 $ 11,332,836
Income taxes 6,771,254 5,881,008 3,875,774
Preferred stock dividends of
subsidiary $ 805,475 $ 1,050,000 $ 1,050,000
See Notes to Consolidated Financial Statements.
-16-
E'TOWN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
E'town Corporation (E'town or Corporation), a New Jersey holding
company, is the parent company of Elizabethtown Water Company
(Elizabethtown or Company) and E'town Properties, Inc. (Properties).
The Mount Holly Water Company (Mount Holly) is a wholly owned
subsidiary of Elizabethtown.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
The consolidated financial statements include E'town and its
subsidiaries. Significant intercompany accounts and transactions have
been eliminated. Elizabethtown and Mount Holly are regulated water
utilities and follow the Uniform System of Accounts, as adopted by the
New Jersey Board of Public Utilities (BPU).
Utility Plant and Depreciation
Income is charged with the cost of labor, materials and other expenses
incurred in making repairs and minor replacements and in maintaining
the properties. Utility plant accounts are charged with the cost of
improvements and major replacements of property. When depreciable
property is retired or otherwise disposed of, the cost thereof, plus
the cost of removal net of salvage, is charged to accumulated
depreciation. Depreciation generally is computed on a straight-line
basis at functional rates for various classes of assets. The
provision for depreciation, as a percentage of average depreciable
property, was 1.75% for 1994, 1.74% for 1993 and 1.72% for 1992.
-17-
Allowance for Funds Used During Construction
Elizabethtown capitalizes, as an appropriate cost of utility plant, an
Allowance for Funds Used During Construction (AFUDC), which represents
the cost of financing major projects during construction. AFUDC is
added to the construction cost of the project and included in rate
base and then recovered in rates during the project's useful life.
AFUDC is comprised of a debt component (credited to Interest Charges),
and an equity component (credited to Other Income) in the Statements
of Consolidated Income (See Note 10). The equity component considers
the increased reliance on equity contributions to Elizabethtown from
E'town's stock sales. Such equity contributions have become an
integral part of the financing of Elizabethtown's construction
program. AFUDC totaled $2,045,234, $837,234 and $1,215,916 for 1994,
1993 and 1992, respectively.
Non-utility Property
Properties capitalizes direct costs, real estate taxes and interest
costs associated with real estate properties that are being developed.
These costs are expensed on properties ready for their intended use.
The amount of interest capitalized for 1994, 1993 and 1992 totaled
$380,566, $413,987 and $580,855, respectively (See Note 7).
Revenues
Revenues are recorded based on the amounts of water delivered to
customers through the end of each accounting period. This includes an
accrual for unbilled revenues for water delivered from the time meters
were last read to the end of the respective accounting periods.
-18-
Federal Income Taxes
E'town files a consolidated federal tax return. Deferred income taxes
are provided for temporary differences between the bases of assets and
liabilities for tax and financial statement purposes for E'town and
Properties. Deferred income taxes are also provided for each
regulated water utility to the extent permitted by the BPU.
The regulated water utilities account for prior years' investment tax
credits by the deferral method, which amortizes the credits over the
lives of the respective assets. The non-regulated companies utilize
the flow-through method to account for investment tax credits. This
method treats the credits as a reduction of federal income taxes in
the year the credits arise.
Customer Advances for Construction and Contributions in Aid of
Construction
Customer Advances for Construction and Contributions in Aid of
Construction represent capital provided by developers for main
extensions to new real estate developments. Some portion of Customer
Advances for Construction is refunded based upon the revenues that the
new developments generate. Contributions in Aid of Construction are
Customer Advances for Construction that are no longer subject to
refund.
Short-term Investments
Short-term investments are stated at cost, which approximates market
value.
-19-
Earnings Per Share of Common Stock
Primary earnings per share are computed on the basis of the weighted
average number of shares outstanding, plus common stock equivalents,
assuming all stock options are exercised. Fully diluted earnings per
share assumes both the conversion of the 6 3/4% Convertible
Subordinated Debentures and the common stock options referred to
below.
The amortization of a premium of $1,050,000, paid in March 1994, on
the redemption of Elizabethtown's $8.75 Cumulative Preferred Stock, is
recorded as Preferred Stock Dividends in the Statements of
Consolidated Income. The premium is being amortized over 10 years for
ratemaking purposes (See Note 4).
Funds Held by Trustee for Construction Expenditures
Proceeds from New Jersey Ecomomic Development Authority financings
were held in trust until such time as qualified project expenditures
were incurred. Income received from the investment of the trust fund
assets was recorded as an offset to the related interest expense.
Cash Equivalents
The Corporation considers all highly liquid debt instruments purchased
with maturities of three months or less to be cash equivalents.
Reclassification
Certain prior year amounts have been reclassified to conform to the
current year's presentation.
-20-
3. FEDERAL INCOME TAXES
The computation of federal income taxes and the reconciliation of the
tax provision computed at the federal statutory rate (35% in 1994 and
1993 and 34% in 1992) with the amount reported in the Statements of
Consolidated Income follow:
1994 1993 1992
----------------------
(Thousands of Dollars)
Tax expense at statutory rate ........ $6,947 $7,994 $5,730
Items for which deferred taxes
are not provided:
Capitalized interest ............... (2) (2) (3)
Difference between book and tax
depreciation ..................... 92 81 66
Investment tax credits.............. (209) (208) (210)
Other............................... 80 96 (10)
------ ------ ------
Provision for federal income taxes.... $6,908 $7,961 $5,573
====== ====== ======
The provision for federal income taxes
is composed of the following:
Current .............................. $4,983 $6,180 $4,170
Tax collected on main extensions ..... (1,931) (1,341) (1,982)
Deferred:
Tax depreciation.................... 3,324 3,183 3,052
Alternative minimum tax............. 82
Capitalized interest................ 517 217 315
Main cleaning and lining............ 396 323 271
Other............................... (179) (407) (133)
Investment tax credits-net............ (202) (194) (202)
------ ------ ------
Total provision ...................... $6,908 $7,961 $5,573
====== ====== ======
-21-
Effective January 1, 1993, the Corporation adopted Statement of
Financial Accounting Standards (SFAS) 109, "Accounting for Income
Taxes." SFAS 109 established accounting rules that change the manner
in which income tax expense is determined for accounting purposes.
SFAS 109 utilizes a liability method under which deferred taxes are
provided at the enacted statutory rate for all temporary differences
between financial statement earnings amounts and the tax basis of
existing assets or liabilities.
In addition, the adoption of SFAS 109 resulted in a credit to Federal
Income Taxes of $63,271 and a charge to Real Estate, Payroll and Other
Taxes of $141,068 in 1993 to record the changes in deferred income
taxes payable by the non-regulated companies.
In connection with the adoption of SFAS 109, Elizabethtown Water
Company and Mount Holly recorded additional deferred taxes for water
utility temporary differences not previously recognized. The
increased deferred tax liability was offset by a corresponding asset
representing the future revenue expected to be recovered through rates
based on established regulatory practice permitting such recovery.
In accordance with SFAS 109, deferred tax balances have been reflected
at E'town's current consolidated federal income tax rate, which is
35%. The increase in the statutory tax rate from 34% to 35% in 1993,
resulted in the recognition of additional federal income tax expense
of $176,048 and an additional deferred federal income tax liability of
$94,402 in 1993.
-22-
The net deferred income tax liability as of December 31, 1994 and 1993
is comprised of the following:
1994 1993
----------------------
(Thousands of Dollars)
Deferred tax assets $ 3,585 $ 3,804
Deferred tax liabilities (65,701) (62,168)
-------- --------
Net deferred income tax liabilities $(62,116) $(58,364)
======== ========
The tax effect of significant temporary differences representing
deferred income tax assets and liabilities as of December 31, 1994 and
1993 is as follows:
1994 1993
----------------------
(Thousands of Dollars)
Water utility plant--net $(53,517) $(49,582)
Non-utility property (1,061) (1,378)
Other investments (969) (1,046)
Taxes recoverable through future rates (9,219) (9,326)
Investment tax credit 3,028 3,098
Prepaid pension expense (301) (335)
Other assets 557 706
Other liabilities (634) (501)
-------- --------
Net deferred income tax liabilities $(62,116) $(58,364)
======== ========
The Internal Revenue Service (Service) is concluding an audit of the
Corporation's federal income tax returns for the tax years 1987
through 1992. The Service has raised issues related to tax deductions
taken initially in 1988 for certain land transactions.
On February 23, 1995 the Corporation reached a tentative agreement to
settle this matter with the Service. The effect on net income for the
year ended December 31, 1994 was approximately $313,400 or $.05 per
-23-
common share. An additional charge to 1995 earnings of approximately
$260,000 is expected.
4. CAPITALIZATION
In May 1994, E'town issued 690,000 shares of common stock for net
proceeds of $18,218,471. The net proceeds were used to fund an equity
contribution to Elizabethtown of $16,000,000. This contribution has
been used to partially fund Elizabethtown's construction program, the
predominant portion of which relates to the Canal Road Water Treatment
Plant (Plant) (See Note 11). The balance of the net proceeds is being
used to fund working capital requirements of the Corporation.
In May 1993, E'town issued 575,000 shares of common stock for net
proceeds of $16,591,927. The net proceeds were used to fund equity
contributions to Elizabethtown of $11,000,000 in May 1993 and
$2,800,000 in September 1993. Elizabethtown used a portion of such
contributions to repay $7,000,000 of short-term bank debt incurred for
construction expenditures. E'town used $1,000,000 of the proceeds to
repay short-term bank debt previously incurred for working capital.
The balance of the proceeds were invested on a short-term basis
and were used to fund working capital requirements of the Corporation.
In January 1991, the Board of Directors of E'town adopted a
Shareholders' Rights Plan (Rights Plan). Generally, under the Rights
Plan, if a person or group acquires 10% or more of the Corporation's
common stock or announces a tender offer for the Corporation's common
stock, non-acquiring shareholders may, under certain circumstances,
-24-
exercise rights (Rights) to purchase additional shares of common stock
on terms that allow them to significantly increase their percentage of
ownership of the Corporation's common stock. Such Rights may be
redeemed by the Board of Directors.
Cumulative Preferred Stock
In March 1994, Elizabethtown issued 120,000 shares of $100 par value,
$5.90 Cumulative Preferred Stock for proceeds of $12,000,000 at an
effective rate of 7.37%. The proceeds were used to redeem $12,000,000
of the Company's $8.75 Cumulative Preferred Stock. The redemption
premium of $1,050,000 was paid from general Company funds and is being
amortized over 10 years for ratemaking purposes (See Note 2).
The $5.90 Cumulative Preferred Stock is not redeemable at the option
of Elizabethtown. Elizabethtown is required to redeem all 120,000
shares of the Preferred Stock on March 1, 2004 at $100 per share.
Long-term Debt
Elizabethtown's long-term debt indentures restrict the amount of
retained earnings available to Elizabethtown to pay cash dividends
(which is the primary source of funds available to the Corporation for
payment of dividends on its common stock) or acquire Elizabethtown's
common stock, all of which is held by E'town. At December 31, 1994,
$7,816,323 of Elizabethtown's retained earnings were restricted under
the most restrictive indenture provision. Therefore, $34,623,229
of E'town's consolidated retained earnings were unrestricted.
-25-
In November 1993, Elizabethtown issued $50,000,000 of 7 1/4%
Debentures due November 1, 2028. The proceeds of the issue were used
to redeem $30,000,000 of the Company's 8 5/8% Debentures due 2007 and
$20,000,000 of the Company's 10 1/8% Debentures due 2018. The
aggregate redemption premiums of $2,681,000 were paid from general
Company funds.
E'town's 6 3/4% Convertible Subordinated Debentures are convertible to
E'town common stock at $40 per share. At December 31, 1994, 304,125
shares of common stock were reserved for issuance upon exercise of the
conversion rights.
5. STOCK OPTION PLAN
E'town has a qualified non-compensatory incentive stock option plan under
which options to purchase shares of E'town's common stock have been
granted to certain officers and other key employees at prices not less
than the fair market value at the date of grant. The plan provides
that any options granted may be exercised at any time up to an
expiration date, not to exceed 10 years from the date of each grant.
A summary of the details of stock option grants and outstanding
balances is presented below:
-26-
Year Shares Option Shares Outstanding
Granted Granted Price Exercised or Expired 12/31/93 12/31/94
------- ------- ------ -------------------- -------- --------
1985 26,369 $26.17 2,250 (1991) (A)
3,300 (1992) 20,819
4,050 (1993) 16,769
1987 36,000 $25.67 4,050 (1989)
3,750 (1990)
3,750 (1991)
4,500 (1991) (A)
11,700 (1992) 8,250 8,250
1989 7,500 $24.67 7,500 7,500
1990 7,500 $26.67 7,500 7,500
------ ------ ------ ------
Total 77,369 37,350 44,069 40,019
====== ====== ====== ======
(A) Expired Options
-27-
6. LINES OF CREDIT
Elizabethtown has executed a committed revolving credit agreement
(Agreement) with an agent bank and five additional banks which
replaces its uncommitted lines of credit. The Agreement provides up
to $60,000,000 in revolving short-term financing which, together with
internal funds, proceeds of future issuances of debt and preferred
stock by Elizabethtown and capital contributions from E'town, is
expected to be sufficient to finance Elizabethtown's and Mount Holly's
capital needs, which are estimated to be $169.4 million through 1997.
At December 31, 1994, Elizabethtown had borrowings outstanding of
$23,000,000 under the Agreement at interest rates from 5.6% to 6.4%,
at a weighted average rate of 6.1%.
The Agreement allows Elizabethtown to borrow, repay and reborrow up to
$60,000,000 during the first three years, after which time
Elizabethtown may convert any outstanding balances to a five-year,
fully amortizing term loan. The Agreement further provides that,
among other covenants, Elizabethtown must maintain a ratio of common
and preferred equity to total capitalization of not less than 35% and
a pre-tax interest coverage ratio of at least 1.5 to 1.
E'town has $20,000,000 of uncommitted lines of credit with several
banks in addition to the lines under the Agreement.
Information relating to bank borrowings for 1994, other than under the
Agreement, and borrowings for 1993 and 1992, is as follows:
-28-
1994 1993 1992
--------------------------------
(Thousands of Dollars)
Maximum amount outstanding.......... $10,000 $8,000 $29,750
Average monthly amount outstanding.. $ 583 $2,514 $16,544
Average interest rate at year end... (A) (A) 4.1%
Compensating balances at year end... $ 0 $ 195 $ 205
Weighted average interest rate based
on average daily balances.......... 4.4% 3.8% 4.6%
(A) No outstanding bank borrowings at year end.
7. NON-UTILITY PROPERTY AND OTHER INVESTMENTS
Included in Non-utility Property and Other Investments at
December 31, 1994 is an investment of $1,321,616 or $352,505 net of
related deferred taxes, in a limited partnership that owns Solar
Electric Generating System V (SEGS), located in California. Based
upon revised projections of future cash distributions provided by SEGS
management, E'town reduced the carrying value of the investment by
$180,000 in 1992 and $100,000 in 1994 in order to present the
investment at management's estimate of its approximate net realizable
value.
Also included in Non-utility Property and Other Investments at
December 31, 1994 and 1993 is $12,048,749 and $11,885,960,
respectively, of investments in various parcels of undeveloped land in
New Jersey. The carrying value of each parcel includes the original
cost plus any real estate taxes, interest and, where applicable,
direct costs capitalized while rezoning or governmental approvals are,
-29-
or were, being sought. Based upon independent appraisals received at
various times, prior to and during 1994, the estimated net realizable
value of each property exceeds its respective carrying value as of
December 31, 1994, after the adjustments to the Mansfield and
Bordentown, New Jersey properties discussed below.
After sewer capacity became available for its parcel in Bordentown
(which was purchased together with land across the town line in
Mansfield), Properties determined in 1993 that the Bordentown parcel
was ready for its intended use and had listed the parcel with a broker
for sale. Accordingly, the original acquisition had been divided, for
investment purposes, into a Bordentown parcel and a Mansfield parcel.
An allowance of $85,526 was recorded in 1993 on the Bordentown parcel,
and the carrying charges on the Bordentown parcel were, and continue
to be, expensed since this property is ready for its intended use.
Properties continues to seek permits and more favorable zoning
treatment for its Mansfield property and, accordingly, continues to
capitalize various carrying charges. During the second quarter of
1993, the carrying value of the Mansfield property exceeded its
estimated net realizable value. This is due to the fact that the
Mansfield property is not yet ready for its intended use and,
therefore, various carrying charges continue to be capitalized while,
based upon recent appraisals, the market value of the property has
remained constant. Charges of $381,754 and $183,789 for the years
ended December 31, 1994 and 1993, respectively, to adjust the carrying
value of the Mansfield property, have been reflected in the Statements
of Consolidated Income and Consolidated Balance Sheets. As Properties
-30-
expects to continue capitalizing carrying charges on the Mansfield
property until it is ready for its intended use, further adjustments
for these capitalized carrying charges, reflecting management's
estimate of the net realizable value of the property, should be
expected.
The Corporation will continue to monitor the relationship between the
carrying and net realizable values of its properties through updated
appraisals and its investment in SEGS through cash flow analyses.
In 1993 E'town, Properties and Elizabethtown sold three parcels of
land totaling 260 acres to the Somerset County Park Commission for
$3,450,000. The sale produced an after-tax gain of approximately
$1,100,000 or $.21 per common share.
On January 23, 1995 Properties entered into an agreement to sell a
parcel of unimproved land to a developer. The agreement allows either
party to cancel such agreement by March 23, 1995 and allows the buyer
until July 23, 1996 to obtain all approvals required by governmental
agencies in order to develop the property. Other significant dates
have been established during this period upon which either the buyer
or Properties may cancel the agreement if certain criteria are not
met. The ultimate sale price is dependent upon the number of
buildable lots as allowed by the municipality.
-31-
8. FINANCIAL INSTRUMENTS
The carrying amounts and the estimated fair values, as of
December 31, 1994 and 1993 of financial instruments issued or held by
the Corporation, are as follows:
1994 1993
----------------------
(Thousands of Dollars)
Short-term investments (1):
Carrying amount $ 31 $ 31
Estimated fair value 34 41
Cumulative preferred stock (1):
Carrying amount $ 12,000 $ 12,000
Estimated fair value 10,860 13,020
Long-term debt (1):
Carrying amount $154,073 $154,407
Estimated fair value 139,910 167,094
(1) Estimated fair values are based upon quoted market prices for
these or similar securities.
-32-
9. DEFERRED CHARGES AND CREDITS
Abandonments
The abandonment cost of a small filter plant has been deferred and
is being amortized for ratemaking purposes over a 10-year period ending
in 1995.
Waste Residual Management
The costs of the waste residual management programs are being amortized
over three-year periods for ratemaking purposes.
Purchased Water Under Recovery-Net
As discussed in Note 10, in June 1994, the BPU approved a Purchased
Water Adjustment Clause (PWAC) which allows Elizbethtown to reflect
in rates the effect of differences in consumption billed for the PWAC
and the volume of water purchased by Elizabethtown from the New Jersey
Water Supply Authority (NJWSA) since the Company's last base rate case.
A deferral of $314,128 has been recorded which represents an amount not
yet recovered in rates under the PWAC.
No return is being earned on the above deferred charge balances.
Unamortized Debt and Preferred Stock Expenses
Costs incurred in connection with the issuance or redemption of
long-term debt have been deferred and are being amortized over the lives
of respective issues for ratemaking purposes. Costs incurred in
connection with the issuance and redemption of preferred stock have
been deferred and are being amortized over a 10-year period for
ratemaking purposes (See Note 2).
-33-
10. REGULATORY MATTERS
Rates
On January 24, 1995 the BPU approved a stipulation (1995 Stipulation)
for a rate increase of $5,300,000, or 5.34%, effective
February 1, 1995. The 1995 Stipulation provides for an authorized
rate of return on common equity of 11.5%. It also provides for recovery
of the current service cost portion of the obligation accrued under SFAS
106, Employer's Accounting for Postretirement Benefits Other Than
Pensions, provided this amount is funded by the Company (See Note 12).
The rate increase will cover the cost to finance $62,000,000 of
construction projects that were not reflected in the rates last
established in March 1993. These projects include treatment,
transmission and storage facilities needed to ensure that Elizabethtown
continues to meet the Safe Drinking Water Act regulations on water
quality and service. The increase will also offset costs for power,
labor and benefits, primarily medical. The 1995 Stipulation also provides
for an increase in depreciation rates resulting in an increase in
depreciation expense of approximately $469,000. The 1995 Stipulation
also requires Elizabethtown to maintain an average ratio of common equity
to total capitalization of at least 45.1% for the 12 months ended
January 31, 1996. If a lesser ratio is maintained, the revenue
requirement associated with such lesser ratio will offset the overall
revenue requirement in the next base rate case. The Company expects to
sustain an average ratio of common equity to total capitalization in
excess of 45.1% for such 12-month period.
On January 11, 1995, Elizabethtown filed with the BPU for a rate increase
of $886,166 for a change in the PWAC rate based on a proposed change in
the unit cost of water purchased from the NJWSA, to be effective July 1,
1995. This procedure, established by
-34-
BPU rules, allows Elizabethtown to reflect in rates the change in the
cost of water purchased from the NJWSA without a complete rate case.
Included in this request is the amortization of the anticipated
balance, as of July 1, 1995, of the net under-recovery from the 1994
PWAC of $440,526. A decision is expected by the BPU prior to July 1,
1995 (See Note 11).
In June 1994, the BPU approved a Stipulation for an increase in rates
under a PWAC. The Stipulation resulted in an increase in rates,
effective July 1, 1994, of $334,611.
In the second quarter of 1995, Mount Holly expects to petition the BPU
for an increase in rates to take place in two phases. The first phase
is necessary to recover costs to finance construction projects that
were not reflected in rates last established in October 1986. The
proposed increase will also seek recovery of increased costs for
various operations and maintenance expenses since 1986. The second
phase includes a new water supply, treatment and transmission system
necessary to obtain water outside a designated portion of an aquifer
currently used by Mount Holly to supply a substantial portion of its
customers. This project is deemed to be the most cost-effective
alternative available to Mount Holly as a result of state legislation
which restricts the amount of water that can be withdrawn from the
aquifer in certain areas of Southern New Jersey. The project is
currently estimated to cost $16,500,000. A decision by the BPU on
Mount Holly's petition would be expected by the end of 1995.
-35-
In August 1993, the BPU approved a stipulation (1993 Plant
Stipulation) signed by the parties to the Company's petition relating
to the Canal Road Water Treatment Plant (Plant). The 1993 Plant
Stipulation states that the Plant is necessary and that the Company's
estimates regarding the Plant's cost, at that time of $87,000,000, and
construction period are reasonable (See Note 11). The 1993 Plant
Stipulation authorizes the Company to levy a rate surcharge if the
Company's pre-tax interest coverage ratio for any 12-month historical
period drops below 2.0 times. The surcharge would equal 20% of the
Company's gross interest expense for the prior 12 months, adjusted for
revenue taxes. The surcharge would go into effect at the same time as
the Company's next base rate increase after the coverage ratio falls
below 2.0 times. Also, the surcharge would remain in effect for 12
months and could be extended by the BPU for up to six additional
months. The 1993 Plant Stipulation also provides that the rate of
return on common stockholder's equity used to calculate the rate for
the equity component of the AFUDC for the Plant will be 1.5% less than
the rate of return on common stockholder's equity established in the
Company's most recent base rate case. The authorized rate of return
on common stockholder's equity is currently 11.5%.
In March 1993, the BPU approved a stipulation for a
rate increase of $5,000,000, effective as of that date.
Main Extension Refunds
In a case captioned Van Holten, et al v. Elizabethtown Water Company,
(Van Holten) several developers petitioned the BPU in 1984 and 1985
seeking an Order which would require Elizabethtown to refund to the
-36-
developers all of their on-site and off-site customer advances for
construction. For on-site mains, Elizabethtown received a final BPU
decision in September 1987, requiring refunds in accordance with the
BPU's suggested refund formula, which was less than the amounts
requested by the developers. For the off-site mains, the developers
were denied any refund. The developers appealed the BPU decision to
the Appellate Division of the New Jersey Superior Court (Appellate
Division), which in October 1988 upheld the decision of the BPU.
Since 1986, additional petitions dealing with this issue have been
filed by other developers. In these additional proceedings, all
parties have agreed to abide by the final decision of the New Jersey
Supreme Court in the Van Holten case. For all customer advances,
Elizabethtown has and will continue to make the refunds in accordance
with the BPU's suggested refund formula.
In response to an appeal of the 1988 Appellate Division decision, in
August 1990, the New Jersey Supreme Court (Court) rendered a decision
upholding the BPU's authority to implement what the BPU had
established as an appropriate refund formula in the Van Holten case.
The BPU's suggested formula provides for a refund of 2 1/2 times the
annual revenues for each metered connection. Although the Court ruled
that the BPU has the jurisdiction to determine what is an appropriate
refund formula, it remanded the case to the BPU to further develop the
record on why the BPU deemed the 2 1/2 times formula to be appropriate
in the Van Holten case.
-37-
In June 1991, the BPU issued an Order on Remand reaffirming the 2 1/2
times annual revenue formula. Addressing the reasonableness of this
formula, the BPU indicated in its decision that the 2 1/2 times
formula fairly allocates the costs of the main extensions among the
developers, Elizabethtown and the rate payers. Again, developers
appealed the Order on Remand to the Appellate Division, and in
December 1992, the Appellate Division remanded the matter to the BPU
for more complete findings and statements of reasons in support of its
decision.
By Order on Remand dated January 19, 1994, the BPU again deemed the
2 1/2 times formula to be appropriate in the Van Holten case. In
addition to the previous rationale it gave for employing this formula
in this case, the BPU indicated that on a per-customer basis, the
initial cost of the extension was, in most instances, far higher than
Elizabethtown's average cost of plant invested for existing customers
at the time petitions were filed in 1984. Therefore, a full refund
would clearly result in a significant subsidization of the developers
by Elizabethtown's existing customers. The BPU concluded that such a
subsidization would be unjust and unreasonable.
On February 23, 1994, the developers appealed the January 19, 1994 BPU
Order on Remand to the Appellate Division. On February 1, 1995, the
Appellate Division affirmed the BPU Remand dated January 19, 1994. On
February 14, 1995, the developers appealed the decision to the New
Jersey Supreme Court.
-38-
The maximum potential refund for the Van Holten case, and all
subsequently filed cases, is approximately $2,500,000, which would be
capitalized and, therefore, would not have a material adverse effect on
earnings. Management believes the final outcome of this matter will be
favorable and no additional refunds will be necessary.
11. COMMITMENTS
Elizabethtown is obligated, under a contract that expires in 2013, to
purchase from the NJWSA a minimum of 37 billion gallons of water annually.
The Company purchases additional water from the NJWSA on an as-needed
basis. Effective July 1, 1995, the annual cost under the contract will
be $8,857,389. The total cost of water purchased from the NJWSA,
including additional water purchased on an as-needed basis, was
$8,987,472, $8,819,212 and $7,827,058 for 1994, 1993 and 1992,
respectively.
The following is a schedule by years of future minimum rental payments
required under noncancelable operating leases with terms in excess of
one year at December 31, 1994:
1994
----------------------
(Thousands of Dollars)
1995 $ 886
1996 907
1997 869
1998 12
1999 0
------
Total $2,674
======
Rent expense totaled $829,562, $789,636 and $719,624 for 1994, 1993
and 1992, respectively.
-39-
Capital expenditures through 1997 are estimated to be $171.5 million of
which $169.4 million is for Elizabethtown's and Mount Holly's utility
plant and $1.1 million is for E'town's expenditures.
Canal Road Water Treatment Plant
In April 1994, following a competitive bidding process, Elizabethtown
executed a lump-sum contract for the construction of the Canal Road
Water Treatment Plant. The project is currently estimated to cost
$100,000,000, excluding AFUDC. The Company has expended $38,393,301,
excluding AFUDC of $2,018,698, as of December 31, 1994. Construction
is expected to be completed in mid-1996.
Joint Venture
On March 9, 1995, the Corporation entered into a 3-year joint
venture agreement with Applied Wastewater General Partnership (AWG) to
form a New Jersey Limited Liability Corporation, Applied Watershed
Management, L.L.C.(AWM). AWG is a unit of several privately held and
affiliated companies providing design, engineering, construction and
operating services for water and wastewater facilities in the western
portion of Elizabethtown's service area. AWM intends to design, finance,
engineer, construct, own, operate
-40-
and/or sell water and wastewater facilities for municipal and corporate
clients, primarily in New Jersey. E'town has agreed to provide capital
contributions to AWM of up to $500,000 to finance AWM's working capital
needs. AWG shall provide the substantial portion of the operations-
related services, required to be performed by AWM. Either party may
terminate the agreement at any time.
12. PENSION PLAN AND OTHER POSTRETIREMENT BENEFITS
Elizabethtown has a trusteed, noncontributory Retirement Plan (Plan),
which covers most employees. Under the Company's funding policy, the
Corporation makes contributions that meet the minimum funding requirements
of the Employee Retirement Income Security Act of 1974. The components of
the net pension costs (credits) are as follows:
1994 1993 1992
-------------------------
(Thousands of Dollars)
Service cost--benefits earned
during the year ..................... $1,068 $ 913 $ 857
Interest cost on projected benefit
obligation .......................... 1,960 1,986 1,846
Return on Plan assets ................ 944 (1,417) (975)
Net amortization and deferral ........ (3,881) (1,666) (2,246)
------ ------ ------
Net pension costs (credits) .......... $ 91 $ (184) $ (518)
====== ====== ======
-41-
Plan assets are invested in publicly traded debt and equity
securities. The reconciliations of the funded status of the Plan
to the amounts recognized in the Consolidated Balance Sheets are
presented below:
1994 1993
---------------------
(Thousands of Dollars)
Market value of Plan assets ..................... $30,981 $33,208
------- -------
Actuarial present value of Plan benefits:
Vested benefits ............................... 20,864 20,793
Non-vested benefits ........................... 158 226
------ ------
Accumulated benefit obligation ................ 21,022 21,019
Projected increases in compensation levels .... 5,733 6,641
Projected benefit obligation .................... 26,755 27,660
------ ------
Excess of Plan assets over projected benefit
obligation ..................................... 4,226 5,548
Unrecognized net gain ........................... (1,374) (2,425)
Unrecognized prior service cost ................. 453 541
Unrecognized transition asset ................... (2,434) (2,701)
------ ------
Prepaid pension expense.......................... $ 871 $ 963
====== ======
The assumed rates used in determining the actuarial present value of the
projected benefit obligations were as follows:
1994 1993
---------------
Discount rate ................................... 8.00% 7.00%
Compensation increase ........................... 5.50% 5.50%
Rate of return on Plan assets ................... 8.50% 8.50%
The Corporation provides certain health care and life insurance benefits
for substantially all of its retired employees.
-42-
Effective January 1, 1993, the Corporation adopted SFAS 106. Under SFAS
106, the cost of postretirement benefits are accrued for each year the
employee renders service, based on the expected cost of providing such
benefits to the employee and the employee's beneficiaries and covered
dependents rather than expensing these benefits on a pay-as-you-go basis
for retired employees.
Based upon an independent actuarial study, the transition obligation,
calculated under SFAS 106, which the Corporation has not funded, was
$7,255,745 as of January 1, 1993. The transition obligation is being
amortized over 20 years. The following table details the unfunded
postretirement benefit obligation at December 31, 1994 and 1993:
1994 1993
----------------------
(Thousands of Dollars)
Retirees $2,457 $3,133
Fully eligible Plan participants 5,134 5,458
------ ------
Accumulated postretirement benefit
obligation 7,591 8,591
Plan assets at fair value 0 0
Unrecognized net gain 1,040 (683)
Unrecognized transition obligation (6,530) (6,893)
------ ------
Accrued postretirement benefit
obligation $2,101 $1,015
====== ======
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation as of December 31, 1994, and for 1994,
was 12%. This rate decreases linearly each successive year until it
reaches 5% in 2003, after which the rate remains constant. The assumed
discount rate used in determining the accumulated postretirement benefit
obligation at December 31, 1994 and 1993 and for the years 1994 and 1993
was 8.0%, 7.0%,
-43-
7.0% and 8.5%, respectively. A single percentage point increase in the
assumed health care cost trend rate for each year would increase the
accumulated postretirement benefit obligation as of December 31, 1994, and
net postretirement service and interest cost by approximately $2,288,000
and $141,000, respectively.
Based upon the independent actuarial study, referred to above, the annual
postretirement cost calculated under SFAS 106 for 1994 is as follows:
1994 1993
----------------------
(Thousands of Dollars)
Service cost - benefits earned
during the year $ 376 $ 254
Interest cost on accumulated
postretirement benefit obligation 596 605
Amortization of transition obligation 363 363
------ ------
Total 1,335 1,222
Deferred amount for regulated
companies pending recovery (1,072) (1,005)
------ ------
Net postretirement benefit expense $ 263 $ 217
====== ======
The rate increase for the 1995 Stipulation includes as an allowable expense
the pay-as-you-go portion of postretirement benefits as well as the current
service cost, and requires that the current service cost be funded. The
1995 Stipulation allows Elizabethtown to defer the amount accrued in excess
of these amounts for consideration in future rate cases. Mount Holly
currently has BPU approval to defer the amount accrued in excess of the
pay-as-you-go portion of its expenses calculated under SFAS 106. Generally
accepted accounting principles permit this regulatory treatment, provided
-44-
deferrals are not accumulated for a period of more than five years. As of
December 31, 1994, the amount that has been deferred is $2,077,051.
Recovery of deferred postretirement costs will be requested in
Elizabethtown's and Mount Holly's next base rate cases. Management
believes that Elizabethtown and Mount Holly will recover the deferred
postretirement costs in future rates.
13. LEGAL MATTERS
As reported during 1994, a developer asserted in a suit filed in 1991
against Elizabethtown that the Company failed to install facilities
necessary to provide water service to a new development in a timely
manner. The developer further asserted that this delay took place during
a period of generally declining real estate values, thereby allegedly
preventing the developer from selling his lots at more favorable prices.
The developer alleged that his economic losses from the decline in real
estate values were $4,000,000.
In November 1994, the Company settled this matter by paying the developer
$1,750,000. As part of the settlement, the developer agreed that part of
this payment represented a refund of funds deposited under a main
extension loan agreement for the construction of the facilities. In
addition, the Company has applied a portion of the settlement against an
insurance reserve. The effect on earnings is $932,203 or $605,932 net of
federal income taxes. The Company will seek recovery from its insurance
carriers.
Several lawsuits have been filed against Elizabethtown and other parties
in connection with a fire that occurred in a storage facility in December
-45-
1989 resulting in damage to property stored at that facility. The
lawsuits allege that the water mains surrounding the industrial complex
failed to provide an adequate flow of water necessary to fight the fire.
The suits further allege that the Company was negligent in failing to
ensure that sprinkler systems were operational prior to the fire,
resulting in those sprinkler systems being without water at the time of
the fire. Management cannot now predict the outcome of this litigation.
14. QUARTERLY FINANCIAL DATA (Unaudited)
A summary of financial data for each quarter of 1994 and 1993 follows:
Primary Fully Diluted
Operating Operating Net Earnings Per Earnings Per
Quarter Revenues Income Income Share Share
--------------------------------------------------------------------------
(Thousands of Dollars Except Per Share Amounts)
1994
1st $ 24,657 $ 5,513 $ 2,537 $ .45 $ .45
2nd 25,208 5,807 2,965 .49 .49
3rd 27,370 6,914 3,673 .56 .56
4th 24,798 5,447 2,913 .45 .44
-------- ------- ------- ----- -----
Total $102,033 $23,681 $12,088 $1.95 $1.94
======== ======= ======= ===== =====
1993
1st $ 22,136 $ 5,357 $ 2,080 $ .42 $ .42
2nd 24,865 6,618 3,437 .66 .64
3rd 28,947 8,067 6,054 1.09 1.05
4th 24,048 5,293 2,259 .42 .43
-------- ------- ------- ----- -----
Total $ 99,996 $25,335 $13,830 $2.59 $2.54
======== ======= ======= ===== =====
Water utility revenues are subject to a seasonal fluctuation due to
normal increased consumption during the third quarter of each year.
-46-
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF
E'TOWN CORPORATION:
We have audited the accompanying consolidated balance sheets
and statements of consolidated capitalization of E'town
Corporation and its subsidiaries as of December 31, 1994 and
1993, and the related statements of consolidated income,
shareholders' equity, and cash flows for each of the three years
in the period ended December 31, 1994. These financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such consolidated financial statements
present fairly, in all material respects, the financial position
of E'town Corporation and its subsidiaries at December 31, 1994
and 1993, and the results of their operations and their cash
flows for each of the three years in the period ended December
31, 1994 in conformity with generally accepted accounting
principles.
/s/ Deloitte & Touche LLP
Parsippany, New Jersey
February 17, 1995, except for
the subsequent events discussed
in Notes 3 and 11 as to which the
dates are February 23, 1995
and March 9, 1995, respectively
-47-
Other Financial and Statistical Data
1994 1993 1992 1991 1990
----------------------------------------------------------
Utility Plant (Thousands)
Utility Plant--net .......... $ 437,456 $ 373,293 $ 347,253 $ 319,421 $ 297,577
Construction Expenditures
(excluding AFUDC)........... 69,981 32,517 33,293 27,732 27,301
Capitalization (Thousands)
Shareholders' Equity ........ 152,971 128,374 102,750 84,544 69,842
Redeemable Preferred Stock .. 12,000 12,000 12,000 12,000 12,000
Debt (l) .................... 177,115 154,448 161,541 169,648 176,078
Total Capitalization ........ $ 342,086 $ 294,822 $ 276,291 $ 266,192 $ 257,920
Capitalization Ratios
Common Stock ................ 44% 44% 37% 32% 27%
Preferred Stock ............. 4% 4% 4% 4% 5%
Debt (1) .................... 52% 52% 59% 64% 68%
Common Stock Data
Earnings Per Share:
Primary..................... $ 1.95 $ 2.59 $ 2.21 $ 2.32 $ 1.73
Fully Diluted............... 1.94 2.54 2.18 2.28 1.73
Dividends Per Share.......... 2.04 2.01 2.00 2.00 1.98
Book Value Per Share......... $ 23.17 $ 22.76 $ 21.14 $ 20.21 $ 19.50
Average Shares Outstanding:
Primary..................... 6,210,409 5,337,939 4,627,814 4,080,118 3,547,328
Fully Diluted............... 6,519,352 5,651,808 4,950,768 4,413,178 3,547,328
Number of Common Shareholders 6,218 5,240 4,832 3,965 3,491
Operating Statistics
Revenues (Thousands)
General Customers .......... 62,923 $ 63,100 $ 55,570 $ 54,071 $ 48,267
Other Water Systems ........ 18,082 17,187 15,080 14,082 12,947
Industrial Wholesale ....... 7,458 6,652 6,044 5,846 5,515
Fire Service/Miscellaneous.. 13,570 13,057 12,473 12,087 11,386
Total Revenues ............. 102,033 $ 99,996 $ 89,167 $ 86,086 $ 78,115
Net Income .................. $ 12,088 $ 13,830 $ 10,231 $ 9,485 $ 6,139
Water Sales - Millions of Gallons (mg)
General Customers .......... 23,551 23,883 22,062 22,659 21,686
Other Water Systems ........ 15,691 15,109 14,118 13,811 14,379
Industrial Wholesale ....... 3,568 3,213 3,145 3,155 3,313
System Use and Unaccounted For 6,570 5,453 5,843 6,368 5,854
Total Water Sales .......... 49,380 47,658 45,168 45,993 45,232
System Delivery by Source - mg
Surface .................... 42,534 40,742 38,558 39,222 40,343
Wells ...................... 6,690 6,776 6,480 6,658 4,805
Purchased .................. 156 140 130 113 84
Total System Delivery ...... 49,380 47,658 45,168 45,993 45,232
Millions of Gallons Pumped:
Average Day ................ 135 131 123 126 124
Maximum Day ................ 182 191 159 169 155
General Information
Meters in Service ........... 191,622 188,677 185,028 182,019 179,700
Miles of Main ............... 2,828 2,800 2,738 2,694 2,647
Fire Hydrants Served......... 15,291 14,909 14,400 13,987 13,555
Total Employees ............. 386 384 379 374 376
_________________________________________________________________________________________________
(1)Includes long-term debt, notes payable and long-term debt-current portion.
-48-
STOCK PRICE AND DIVIDEND DATA - E'town's Common Stock is traded on the New
York Stock Exchange under the symbol ETW.
1994
Quarter 1st 2nd 3rd 4th
------- ------ ------ ------ ------
Closing Price
Low: $29.63 $26.13 $26.00 $23.50
High: $32.00 $30.00 $27.75 $27.13
Dividend Paid $.51 $.51 $.51 $.51
-----------------------------------------------------------------------
1993
Quarter 1st 2nd 3rd 4th
------- ------ ------ ------ ------
Closing Price
Low: $27.63 $29.50 $29.88 $30.25
High: $30.88 $31.13 $35.75 $34.75
Dividend Paid $.50 $.50 $.50 $.51
-----------------------------------------------------------------------
-49-
EX-23
7
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in E'town
Corporation's Registration Statement No. 33-56013 on Form S-3 and
Nos. 33-49812, 33-44210 and 33-42509 on Forms S-8 of our report
dated February 17, 1995, except for the subsequent events
discussed in Notes 3 and 11, as to which the dates are February
23, 1995 and March 9, 1995, respectively, and to the
incorporation by reference in Elizabethtown Water Company's
Registration Statement No. 33-19600 on Form S-3 of our report
dated February 17, 1995, appearing in this Annual Report on Form
10-K of E'town Corporation and Elizabethtown Water Company for
the year ended December 31, 1994.
/s/ Deloitte & Touche LLP
Parsippany, New Jersey
March 29, 1995
EX-27
8
UT
0000764403
E'TOWN CORPORATION
YEAR
DEC-31-1994
DEC-31-1994
PER-BOOK
437,455,976
13,468,879
27,640,914
40,414,696
0
518,980,465
113,502,219
(2,971,169)
42,439,552
152,970,602
0
12,000,000
154,073,430
23,000,000
0
0
42,000
0
0
0
176,894,433
518,980,465
102,032,505
5,264,925
71,392,701
78,351,576
23,680,929
448,072
24,129,001
11,187,211
12,941,790
854,047
12,087,743
12,855,857
11,610,777
28,082,447
1.95
1.94
EX-27
9
UT
0000032379
ELIZABETHTOWN WATER CO
YEAR
DEC-31-1994
DEC-31-1994
PER-BOOK
437,455,976
85,690
25,477,400
39,828,848
0
502,847,914
15,740,602
88,383,930
47,499,723
151,624,255
0
12,000,000
141,908,430
23,000,000
0
0
42,000
0
0
0
174,273,229
502,847,914
102,032,505
7,176,396
70,672,160
77,848,556
24,183,949
441,253
24,625,202
10,402,060
14,223,142
854,047
13,369,095
12,855,857
10,774,008
29,723,662
0
0
EX-10
10
ELIZABETHTOWN WATER COMPANY
SAVINGS AND INVESTMENT PLAN
Effective Date: January 1, 1989
ELIZABETHTOWN WATER COMPANY
SAVINGS AND INVESTMENT PLAN
WHEREAS ELIZABETHTOWN WATER COMPANY, hereinafter known as
"Employer" or "Plan Sponsor," adopted the Elizabethtown Water Company
Savings and Investment Plan for the benefit of its Employees
effective January 1, 1988; and
WHEREAS Article XII, Section 12.1 of the Plan authorizes the Plan
Sponsor to amend the Plan in whole or in part at any time; and
WHEREAS the Plan Sponsor wishes to amend the Plan to conform with the
Tax Reform Act of 1986;
NOW, THEREFORE, said Plan is hereby amended and restated in its
entirety effective as of January 1, 1989.
This Plan shall be known as the
ELIZABETHTOWN WATER COMPANY
SAVINGS AND INVESTMENT PLAN.
Table of Contents
Section
Contents
Page
1 DEFINITIONS 1
MEMBERSHIP IN THE PLAN 10
2.1
Current Members. . . . . . . . . 10
2.2
New or Reemployed Members. . . . 10
2.3
Union Employees Excluded . . . . 10
2.4
Changes in Category. . . . . . . 10
3 CONTRIBUTIONS 11
3.1
Basic Contributions. . . . . . . 11
3.2
Matching Contributions . . . . . 11
3.3
Adjustments to Contribution Limits 11
3.4
Adjustments to Contributions . . 11
3.5
Distribution of "Excess Elective Deferral" Amounts 11
3.6
Overall Limits on Contributions. 12
3.7
Permitted Employer Refunds . . . 14
3.8
Timing of Deposits . . . . . . . 15
3.9
Deduction Limits . . . . . . . . 15
4 MEMBER ACCOUNTS 16
4.1
Establishment of Accounts. . . . 16
4.2
Valuation of Accounts. . . . . . 16
4.3
Adjustment to Accounts . . . . . 16
4.4
Directed Investments . . . . . . 16
4.5
Administration of Investments. . 16
4.6
Investments For Terminated Members 17
4.7
Stock Rights . . . . . . . . . . 17
4.8
Stock Valuation. . . . . . . . . 17
5 ESTING AND FORFEITURES 18
5.1
Vesting Schedule . . . . . . . . 18
5.2
Forfeitures. . . . . . . . . . . 18
5.3
Change in Vesting Schedule . . . 18
6 DISTRIBUTIONS 20
6.1
Distribution of Benefit. . . . . 20
6.2
Election of Benefits . . . . . . 20
6.3
Rehire Prior To Incurring Five Consecutive Breaks
in Service . . . . . . . . . . 20
6.4
Death Prior to Distribution. . . 20
6.5
Distribution Limitation. . . . . 21
Table of Contents
Section
Contents
Page
6.6
Mandatory Distributions. . . . . 21
6.7
Earnings on Undistributed Benefits 21
6.8
Rollovers Into the Plan. . . . . 21
6.9
Evidence in Writing. . . . . . . 21
6.10
Hardship Withdrawal. . . . . . . 21
6.11
Withdrawals Permitted After Age 59-1/2 23
6.12
Conditions For Withdrawals . . . 23
6.13
Direct Rollover
Requirements . . . . . . . . . . . . . . . . . . . . 23
7 ACTUAL DEFERRAL AND ACTUAL CONTRIBUTION
PERCENTAGE TESTING 25
7.1
Actual Deferral Percentage Test. 25
7.2
ADP Formula. . . . . . . . . . . 25
7.3
Calculations of Excess Contributions 26
7.4
Distribution of Excess Contributions 26
7.5
Additional Basic and Matching Contributions 26
7.6
Matching Contributions . . . . . 27
7.7
Actual Contribution Percentage Test 27
7.8
ACP Formula. . . . . . . . . . . 27
7.9
Calculation of Excess Aggregate Contributions 28
7.10
Distribution of Excess Aggregate Contribution 29
7.11
Additional Contributions . . . . 29
7.12
Forfeitures. . . . . . . . . . . 29
7.13
Aggregate Limit. . . . . . . . . 29
7.14
Special Rules. . . . . . . . . . 30
8 TOP-HEAVY PROVISIONS 31
8.1
Top-Heavy Preemption . . . . . . 31
8.2
Top-Heavy Definitions. . . . . . 31
8.3
Aggregation of Plans . . . . . . 33
8.4
Minimum Contribution Rate. . . . 33
8.5
Deposit of Minimum Contribution. 33
8.6
Top-Heavy Vesting Schedule . . . 33
8.7
Combined Defined Benefit and Defined Contribution
Plans. . . . . . . . . . . . . 34
9 DESIGNATION OF BENEFICIARY 35
9.1
Named Beneficiary. . . . . . . . 35
9.2
No Named Beneficiary . . . . . . 35
10 MANAGEMENT OF THE FUND 36
10.1
Contributions Deposited To Trust 36
10.2
No Reversion to Participating Employer
36
Table of Contents
Section
Contents
Page
11 DISCONTINUANCE AND LIABILITIES 37
11.1
Termination. . . . . . . . . . . 37
11.2
No Liability For Participating Employer 37
11.3
Administrative Expenses. . . . . 37
11.4
Nonforfeitability Due to Termination(s) 37
11.5
Exclusive Benefit Rule . . . . . 37
11.6
Mergers. . . . . . . . . . . . . 37
11.7
Non-allocated Trust Assets . . . 38
12 ADMINISTRATION 39
12.1
Appointment of Plan Administrator 39
12.2
Responsibilities and Duties. . . 39
12.3
Claims Procedure . . . . . . . . 39
12.4
Trustee Has Authority to Invest. 40
12.5
Indemnification. . . . . . . . . 40
12.6
Removal For Personal Involvement 40
13 AMENDMENTS 41
13.1
Amendment Restrictions . . . . . 41
13.2
Amending the Plan. . . . . . . . 41
13.3
Retroactive Amendments . . . . . 41
14 LOANS 42
14.1
Permitted Loans. . . . . . . . . 42
14.2
Collateral Required . . . . . . . . 42
14.3
Repayment. . . . . . . . . . . . 42
14.4
Interest Charges . . . . . . . . 42
14.5
Failure to Make Timely Payment . 42
14.6
Termination of Employment. . . . 43
14.7
Loans to Non-Employees . . . . . 43
14.8
General Administration . . . . . 43
15 MISCELLANEOUS 44
15.1
"Spendthrift" Provision. . . . . 44
15.2
QDRO Exception . . . . . . . . . 44
15.3
Plan Loans . . . . . . . . . . . 44
15.4
No Guarantee of Employment . . . 44
15.5
Controlling Law. . . . . . . . . 44
SECTION 1
DEFINITIONS
The following words and phrases as used herein shall have the following
meanings, unless a different meaning is plainly required by the context;
and the following rules of interpretation shall apply in reading this
instrument. Pronouns shall be interpreted so that the masculine pronoun
shall include the feminine and the singular shall include the plural.
The words "hereof," "herein" and other singular compounds shall refer to
the Plan in its entirety and not to any particular provision or section,
unless so limited by the text. All references herein to specific sections
shall mean sections of this document unless otherwise qualified.
2. Accrued Benefit means the sum of the balance in the Member's Basic
Contribution Account, Top-Heavy Contribution Account, and Matching
Contribution Account.
2..1 Actual Contribution Ratio (ACR), with respect to any Member for a
Plan Year, means a fraction the numerator of which equals the
Matching Contributions paid to the Trust for a Plan Year on behalf
of such Member and the denominator of which equals the Member's
Compensation (as defined in Section 1.13B.) for the Plan Year.
2..2 Actual Deferral Ratio (ADR), with respect to any Member for a Plan
Year, means a fraction the numerator of which equals the Basic
Contributions paid to the Trust for the Plan Year on behalf of such
Member and the denominator of which equals the Member's
Compensation (as defined in Section 1.13B.) for the Plan Year.
2..3 Additional Basic Contribution means a qualified nonelective
contribution as defined in Treasury regulation 1.401(k)-1(g)(13)(ii).
2..4 Affiliated Company means the Participating Employer and:
A. any corporation which is a member of a controlled group of
corporations within the meaning of section 1563(a) of the
Code, determined without regard to sections 1563(a)(4) and
(e)(3)(C);
B. any organization under common control with a Participating
Employer within the meaning of section 414(c) of the Code;
C. any organization which is included with a Participating
Employer in an affiliated service group within the meaning of
Section 414(m) of the Code; or
D. any other entity required to be aggregated with a Participating
Employer pursuant to regulations under section 414(o) of the
Code.
2..5 Annual Addition means the total for the Limitation Year of the items
listed below allocated to the account of an Employee under all
defined contribution plans sponsored by an Affiliated Company
except that, for the purposes of this Section, "more than 50%" shall
be substituted for "80%" each place it appears in section 1563(a)(1)
of the Code):
A. employer contributions;
B. forfeitures;
C. employee contributions (other than rollovers);
D. amounts described in sections 415(l)(1) and 419A(d)(2) of the
Code;
E. except that, the Annual Addition for any Limitation Year
beginning before January 1, 1987, shall not be recomputed to
treat Employee contributions as an Annual Addition.
2..6 Basic Contribution means an elective deferral made by a Member
pursuant to Section 3.1 of the Plan.
2..7 Basic Contribution Account means an account established and
maintained on behalf of a Member to which his Basic Contributions
are allocated.
2..8 Beneficiary means the person, persons, or trust designated by
written, revocable designation filed with the Plan Administrator by
the Member to receive payments in the event of such Member's
death.
2..9 Board means the Board of Directors of the Plan Sponsor.
2..10 Break in Service means a twelve- consecutive month period measured
from the date an Employee terminates employment, or any
anniversary thereof, during which the Employee does not perform an
Hour of Service. An Employee shall not incur a Break in Service
during an Eligibility Computation Period. In the case of an
individual who is absent from work for maternity or paternity
reasons, the twelve- consecutive month period beginning on the first
anniversary of the first date of such absence shall not constitute a
Break in Service or a Period of Service. The Break in Service shall
begin to be measured from the second anniversary of the date such
maternity or paternity leave began. For purposes of this paragraph,
an absence from work for maternity or paternity reasons means an
absence (A) by reason of the pregnancy of the individual, (B) by
reason of the birth of a child of the individual, (C) by reason of
the placement of a child with the individual in connection with the
adoption of such child by such individual, or (D) for purposes of
caring for such child for a period beginning immediately following
such birth or placement.
2..11 Code means the Internal Revenue Code of 1986, and the same as may
be amended from time to time.
2..12 Compensation means,
A. except as hereafter specified, salary and wages, overtime pay,
fees, tips, profit, bonuses and commissions paid by a
Participating Employer to an Employee, including the Basic
Contribution made hereunder during the Plan Year and
elective deferrals made pursuant to a Code section 125 of the
Code, and all other earnings reportable under sections 6041
and 6051 of the Code on Form W-2 received by an Employee
from the Employer during the portion of the Plan Year in
which the Employee is eligible to make contributions under
Section 3.1 or 3.2, but excluding all other Participating
Employer contributions to benefit plans and all other forms of
compensation. Notwithstanding the preceding sentence, for
any Plan Year, Compensation shall exclude any remuneration
received by a Member in excess of $200,000, as adjusted by
the Secretary of the Treasury at the same time and in the same
manner as under section 415(d) of the Code. In determining
the Compensation of a Member for purposes of the $200,000
limitation, the rules of Code section 414(q)(6), pertaining to
Family Members, shall apply; except, however, that the term
"Family Member" shall, for the purpose of this Section,
include only the Spouse of the Member and any lineal
descendants of the Member who have not attained age 19
before the close of the year. Any Compensation in excess of
that amount shall be prorated among Family Members in
accordance with Code section 401(a)(17).
In addition to other applicable limitations set forth in the Plan,
and notwithstanding any other provision of the Plan to the
contrary, for Plan Years beginning on or after January 1,
1994, the annual Compensation of each Employee taken into
account under the Plan shall not exceed the OBRA '93 annual
Compensation limit. The OBRA '93 annual Compensation
limit is $150,000, as adjusted by the Commissioner for
increases in the cost-of-living in accordance with section
401(a)(17)(B) of the Code. The cost-of-living adjustment in
effect for a calendar year applies to any period, not exceeding
12 months, over which Compensation is determined
(determination period) beginning in such calendar year. If a
determination period consists of fewer than 12 months, the
OBRA '93 annual Compensation limit will be multiplied by a
fraction, the numerator of which is the number of months in
the determination period, and the denominator of which is 12.
For Plan Years beginning on and after January 1, 1994, any
reference in this Plan to the limitation under section 401(a)(17)
of the Code shall mean the OBRA '93 annual Compensation
limit set forth in this provision.
If Compensation for any prior determination period is taken
into account in determining an Employee's benefits accruing
in the current Plan Year, the Compensation for that prior
determination period is subject to the OBRA '93 annual
Compensation limit in effect for that prior determination
period. For this purpose, the determination periods beginning
before the first day of the first Plan Year beginning on or after
January 1, 1994, the OBRA '93 annual Compensation limit is
$150,000.
B. for purposes of the nondiscrimination tests set forth in Section
7, and except as provided in Code section 414(s),
Compensation means any income received by the Employee
from a Participating Employer in accordance with Code
section 415(c)(3), including deferrals made pursuant to section
414(s)(2) of the Code, for the Plan Year for which compliance
with the tests is being measured; and to the extent permitted
in guidance issued by the Internal Revenue Service,
Compensation shall mean only that portion of income received
by an Employee from the Employer for the portion of the Plan
Year during which the Employee was a Member of the Plan.
C. for purposes of the limitations and requirements of section 415
of the Code as set forth in Section 3.6, Compensation means
the amounts described in Section 1.13A. received by the
Employee for the entire Plan Year, but specifically excluding
the following:
(1) contributions made by an Affiliated Company to a deferred
compensation plan which are not includible in the Employee's
gross income for the taxable year in which contributed;
(2) Affiliated Company contributions made on behalf of an
Employee to a SEP (to the extent deductible by the Employee
under section 219(b)(2) of the Code);
(3) distributions from a deferred compensation plan (other than
from an unfunded nonqualified plan when includible in gross
income);
(4) amounts realized from the exercise of a nonqualified stock
option, or when restricted stock (or property) held by an
Employee either becomes freely transferable or is no longer
subject to a substantial risk of forfeiture;
(5) amounts realized from the sale, exchange or other
disposition of stock acquired under a qualified stock option;
and
(6) other amounts which receive special tax benefits, such as
premiums for group term life insurance (to the extent
excludable from gross income); Affiliated Company
contributions applied towards the purchase of an annuity
contract described in section 403(b) of the Code; or any
amount which is contributed by the Affiliated Company
pursuant to a salary reduction agreement and which is not
includible in the gross income of the Employee pursuant to
section 125 of the Code.
2..13 Disability means that the Member has applied and qualifies for
disability benefits under the Social Security Act of 1939, as amended.
2..14 Dollar Limit means the dollar limitation under section 402(g) of the
Code in effect for a calendar year.
2..15 Early Retirement Date means the date on which a Member has
attained age 55.
2..16 Effective Date of this restated Plan means January 1, 1989.
2..17 Eligible Employee means any Employee of a Participating Employer
who satisfies the following conditions:
A. he has been employed by a Participating Employer for an
Eligibility Computation Period during which he is credited
with at least 250 Hours of Service;
B. he is employed as a nonexempt or exempt Employee;
C. he is not an Employee covered under a collective bargaining
agreement with respect to which retirement benefits were the
subject of good faith negotiations, unless the collective
bargaining agreement otherwise provides;
D. he is not a leased employee within the meaning of section
414(n)(2) of the Code.
2..18 Eligibility Computation Period means the three consecutive month
period commencing with an Employee's date of hire or rehire and
each three month anniversary thereof.
2..19 Employee means an individual in the employ of an Affiliated
Company and a leased employee within the meaning of section
414(n)(2) of the Code, except as provided below. The term "leased
employee" means any person (other than an Employee of an
Affiliated Company) who, pursuant to an agreement between the
Affiliated Company and any other person ("leasing organization"),
has performed services for the Affiliated Company (or for the
Affiliated Company and related persons determined in accordance
with section 414(n)(6) of the Code) on a substantially full-time basis
for a period of at least one year, and such services are of a type
historically performed by Employees in the business field of the
Affiliated Company. Contributions or benefits provided a leased
employee by the leasing organization which are attributable to
services performed for the Affiliated Company shall be treated as
provided by the Affiliated Company.
A leased employee shall not be considered an Employee of the
Affiliated Company if: (i) such individual is covered by a money
purchase pension plan providing: (1) a nonintegrated employer
contribution rate of at least 10% of compensation, as defined in
section 415(c)(3) of the Code, but including amounts contributed by
the Affiliated Company pursuant to a salary reduction agreement
which are excludable from the leased employee's gross income under
section 125, 402(a)(8), 402(h) or 403(b) of the Code; (2) immediate
participation, and (3) full and immediate vesting; and (ii) leased
employees do not constitute more than 20% of the Affiliated
Company's Non-Highly Compensated workforce.
2..20 Employer means Elizabethtown Water Company and any other
business organization which succeeds to its business and elects to
continue this Plan.
2..21 Employer Securities means common stock of the Plan Sponsor's
parent company or a corporation which is an Affiliated Company,
and which is readily tradeable on an established securities market.
If there is no such stock, then common stock issued by the parent
company of the Plan Sponsor or an Affiliated Company may be used
provided it has a combination of voting power and dividend rights at
least as great as the voting power and dividend rights of any other
such class of stock. Noncallable preferred stock shall be treated as
Employer Securities if the stock is convertible at any time into
common stock of the Employer which is readily tradeable on an
established securities market and if the conversion price is
reasonable.
2..22 Entry Date means each January 1 and July 1.
2..23 ERISA means the Employee Retirement Income Security Act of 1974,
and the same as may be amended from time to time.
2..24 Family Member means an individual who is the spouse, lineal
ascendant or lineal descendant of an Employee or former Employee,
or the spouse of such lineal ascendant or descendant.
2..25 Fund means all assets of the Trust.
2..26 Highly Compensated Employee means any active or former
Employee, who performs service during the determination year and
is described in one or more of the following groups:
A. an Employee who is a 5% owner, as defined in section
416(i)(1)(B)(i) of the Code, at any time during the
determination year or the look-back year;
B. an Employee who receives Compensation (as defined in
Section 1.13C.) in excess of $75,000 during the look-back
year;
C. an Employee who receives Compensation (as defined in
Section 1.13C.) in excess of $50,000 during the look-back
year and is a member of the top-paid group, as defined in
section 414(q)(4) of the Code, for the look-back year;
D. an Employee who is an officer, within the meaning of section
416(i) of the Code, during the look-back year and who
receives Compensation (as defined in Section 1.13C.) in the
look-back year greater than 50% of the dollar limitation in
effect under section 415(b)(1)(A) of the Code for the calendar
year in which the look-back year begins; or
E. an Employee who is both described in paragraph B., C. or D.
above when these paragraphs are modified to substitute the
determination year for the look-back year and one of the 100
Employees who receive the most Compensation (as defined in
Section 1.13C.) from the Employer during the determination
year.
F. The terms "determination year" and "look-back year" shall
mean, respectively, the Plan Year and the twelve-month
period immediately preceding the determination year.
G. The $75,000 and $50,000 amounts set forth in paragraphs B.
and C. above shall be indexed for changes in the cost of living
in accordance with section 415(d) of the Code.
If no officer satisfies the requirements of paragraph D. above
during either a determination or look-back year, then the
highest paid officer for such year shall be treated as a Highly
Compensated Employee.
I. If the Employee is, during a determination or look-back year,
a Family Member of either an active or former 5% owner-
Employee or one of the ten most Highly Compensated
Employees during such year, then the Compensation of the
Family Member and that Employee shall be aggregated. The
Family Member and Employee shall be treated as a single
Employee receiving Compensation and Plan contributions or
benefits equal to the sum of such Compensation and
contributions or benefits of the Family Member and
Employee.
J. A Highly Compensated former Employee includes any
Employee who separated or was deemed to have separated
from service prior to the determination year, performs no
service for a Participating Employer during the determination
year, and was an active Highly Compensated Employee for
either the separation year or any determination year ending on
or after the Employee's 55th birthday.
K. The determination of who is a Highly Compensated Employee
shall be made in accordance with section 414(q) of the Code
and the regulations thereunder.
2..27 Hour of Service means each hour for which an Employee is directly
or indirectly paid or entitled to be paid by an Affiliated Company for
the performance of employment duties and each hour for which back
pay, irrespective of mitigation of damages, has been either awarded
or agreed to by the Affiliated Company. These hours shall be
credited to an Employee for the computation period during which his
employment duties were performed or to which a back pay agreement
or award pertains irrespective of when payment is made. No
Employee shall be credited with duplicate Hours of Service as a
result of a back pay agreement or award. An Employee shall also be
credited with one Hour of Service for each hour for which the
Employee is directly or indirectly paid, or entitled to payment, by an
Affiliated Company on account of a period during which no duties
are performed due to vacation, holiday, illness, incapacity, disability
layoff, jury duty or Leave of Absence; provided, however, that not
more than 501 Hours of Service shall be credited to an Employee
under this sentence on account of any single, continuous period
during which the Employee performs no duties, and provided further
that no credit shall be given if payment is made or due under a plan
maintained solely for the purpose of complying with applicable
workers' compensation, unemployment compensation or disability
insurance laws, or is made solely to reimburse an Employee for
medical or medically related expenses incurred by the Employee.
A. For purposes of determining the number of Hours of Service
completed in any applicable computation period, the Plan
Administrator may maintain accurate records of actual hours
completed for all Employees. The number of Hours of Service
to be credited to an Employee for periods during which no
employment duties are performed shall be determined in
accordance with sections 2530.200b-2(b) and 2530.200b-2(c)
of the Department of Labor regulations in Title 29 of the Code
of Federal Regulations.
B. If the Plan Administrator does not maintain records of actual
Hours of Service, an Employee shall be credited with 45
Hours of Service for each week in which such Employee
would otherwise be credited with at least one Hour of Service.
C. Solely for the purpose of preventing a Break in Service, an
Employee shall be credited with Hours of Service during an
absence by reason of:
(1) the pregnancy of the Employee;
(2) the birth of a child of the Employee;
(3) the placement of a child with the Employee in connection
with the adoption of such child by the Employee; or
(4) for purposes of caring for a child beginning immediately
after such birth or placement;
provided the Employee shall, during the period of his absence,
be credited with the number of Hours of Service which would
have been credited to him at his normal work rate but for such
absence, or, if the number of Hours of Service based on a
normal rate is indeterminable, the Employee shall be credited
with eight Hours of Service per day of such absence. The
"Severance from Service" date of an Employee/Member who
is absent from work due to "maternity or paternity leave"
reasons for more than one year is the second anniversary of
the first date of such absence. The period between the first
and second anniversary of the first date of such absence is
neither a Period of Service nor a period of severance.=
These hours shall be credited to the Break in Service
computation period in which the absence began if necessary to
avoid a Break in Service or, if not necessary, then to the
following computation period.
D. An Employee who is absent by reason of service in the armed
forces of the United States and who returns to service within
the time that his reemployment rights are protected by federal
law shall be granted credit for Hours of Service during his
period of military service.
2..28 Leave of Absence means any temporary absence from employment
authorized by the Employer based on its normal practices. An
Employee's Period of Service shall continue uninterrupted during
such leave.
2..29 Limitation Year means the Plan Year.
2..30 Matching Contribution means a contribution made by the Employer
pursuant to Section 3.2 of the Plan.
2..31 Matching Contribution Account means an account established and
maintained on behalf of a Member to which his Matching
Contributions are allocated.
2..32 Member means any Eligible Employee included in the membership
of the Plan as provided in Section 2 hereof. A Member shall
continue to be a Member as long as he has an Accrued Benefit
hereunder.
2..33 Non-Highly Compensated Employee means any Employee who is
neither a Highly Compensated Employee nor a Family Member of a
Highly Compensated Employee.
2..34 Normal Retirement Date means the Member's 65th birthday.
2..35 Participating Employer means any Affiliated Company which adopts
this Plan with the consent of the Plan Sponsor. As of the Effective
Date, the Employer, The Mount Holly Water Company, E'town
Corporation and E'town Properties are the only Participating
Employers.
2..36 Period of Service means the period between an Employee's date of
hire or rehire, as applicable, and the date on which he ceases to be
an Employee.
2..37 Plan means Elizabethtown Water Company Savings and Investment
Plan, as set forth herein and the same as may be amended from time
to time.
2..38 Plan Administrator means the individual or entity appointed under
Section 12.1 hereof.
2..39 Plan Sponsor means Elizabethtown Water Company or its successor.
2..40 Plan Year means the period from January 1 through December 31.
2..41 Prior Plan means this Plan as in effect through December 31, 1988.
2..42 Retirement means the termination of a Member's employment with
a Participating Employer on or after his Early or Normal Retirement
Date or such later date on which he actually terminates employment.
2..43 Rollover Contribution means the amount contributed by an Employee
to the Plan pursuant to Section 6.8 of the Plan.
2..44 Spouse means the husband or wife of a Member on the date benefits
under the Plan commence. However, if the Member should die prior
to the date benefits under the Plan would have commenced to him,
then the Spouse shall be the husband or wife to whom the Member
had been married throughout the one-year period preceding the date
of his death.
2..45 Top-Heavy Contribution means a contribution made by a
Participating Employer pursuant to Section 8 of the Plan.
2..46 Top-Heavy Contribution Account means an account established and
maintained on behalf of a Member to which his Top-Heavy
Contributions, if any, are allocated.
2..47 Trust means a trust, intended to qualify under section 501(a) of the
Code, which constitutes the legal agreement between the Plan
Sponsor and the Trustee, fixing the rights and liabilities with respect
to managing and controlling the Fund for the purposes of the Plan.
2..48 Trustee means the individual or entity designated by the Board as
trustee(s) of the Trust.
2..49 Valuation Date means June 30 and December 31, and such other
dates as may be selected by the Plan Administrator. Effective
January 1, 1993, Valuation Date shall mean each March 31, June 30,
September 30 and December 31.
2..50 Year of Service means the period of service with an Affiliated
Company used to determine vesting pursuant to Section 5 of the Plan
as follows:
A. except as provided in paragraph B. of this Section, a twelve-
month consecutive period, included within a Period of Service
and measured from the later of the date of hire or rehire or
January 1, 1989 as applicable, provided that the following
rules apply:
(1) if an Employee is credited with an Hour of Service within
twelve consecutive months after the date on which he
terminates employment, his Years of Service shall be
computed as though his service had not been severed;
(2) Years of Service shall be determined as if all Affiliated
Companies were a single employer, excluding, however,
employment during periods when the Participating Employer
was not an Affiliated Company.
(3) In addition, if the Participating Employer maintains the
plan of a predecessor employer, service with such employer
will be treated as service for the Participating Employer.
B. if a Member incurs a Break in Service, his Years of Service
before that Break in Service (and not disregarded by reason of
any prior Break in Service) shall be taken into account only if
(1) following the Break in Service the Member completes one
Year of Service, and before the Break in Service the Member
had a vested interest in his Accrued Benefit; or
(2) the aggregate number of the Member's consecutive Breaks
in Service is less than five.
SECTION 2
MEMBERSHIP IN THE PLAN
2.1 Current Members. Each Employee who was participating in the
Prior Plan on December 31, 1988 shall automatically continue as a
Member hereunder. Each other Employee who is an Eligible
Employee as of the Effective Date shall become a Member of the
Plan on such date.
2.2 New or Reemployed Members. Each other Employee shall become
a Member on the Entry Date coincident with or next following the
date he qualifies as an Eligible Employee. A reemployed Employee
shall become a Member on the next Entry Date following his date of
reemployment if he had become eligible prior to his reemployment
but had not yet become a Member. A reemployed Employee who
was previously a Member shall be eligible to participate in the Plan
as of the date of his reemployment.
2.3 Union Employees Excluded. An Eligible Employee whose terms and
conditions of employment become subject to the terms of a collective
bargaining agreement shall not become ineligible during the period
between the selection of the union and the execution of the first
collective bargaining agreement which covers him. However, an
Eligible Employee covered by a collective bargaining agreement
wherein retirement benefits, whether or not provided, were the
subject of good faith bargaining between the representative of such
Eligible Employee and the Participating Employer, shall not be
eligible for continued participation unless the collective bargaining
agreement provides for continued participation.
2.4 Changes in Category. If an ineligible Employee's status changes to
a category of eligibility, he shall become a Member on the date his
status changes or, if later, the Entry Date on which he has satisfied
the requirements of Section 1.18. If a Member's status changes to a
category of ineligibility, he shall cease to participate in contributions
under Section 3 as of the date of the change.
SECTION 3
CONTRIBUTIONS
3.1 Basic Contributions. Each Member may authorize a Participating
Employer to reduce his Compensation by any whole percentage up
to 10% of such Compensation, subject to the Dollar Limit and limits
of Section 3.6.
Such amount shall be allocated as Basic Contributions hereunder to
the Member's Basic Contribution Account. Each Eligible Employee
shall file a written election form with the Plan Administrator
specifying the portion of his Compensation that is to be contributed
to the Plan as a Basic Contribution. The election of the Member
shall remain in effect until the Member files a new election with the
Plan Administrator.
3.2 Matching Contributions. The Participating Employer shall make a
Matching Contribution for each Member which shall equal $.50 for
each $1.00 deposited to such Member's Basic Contribution Account.
The Matching Contribution shall be credited to the Member's
Matching Contribution Account. Notwithstanding the preceding, no
Matching Contributions shall be made with respect to a Member's
Basic Contributions in excess of 6% of his Compensation. The
amount of Employer Matching Contributions may be increased or
decreased at the discretion of the Board, provided that reasonable
notice is provided to Members giving them the opportunity to change
their elective deferral percentages.
3.3 Adjustments to Contribution Limits. Notwithstanding Section 3.1, the
Plan Administrator may limit the maximum Basic Contribution
percentage for all or a class of Highly Compensated Employees as it
determines is necessary or desirable to assure that the Plan satisfies
the requirements of Section 7.1.
3.4 Adjustments to Contributions. A Member may increase or decrease
the rate of Basic Contributions effective as of any Entry Date by
submitting a new election to the Plan Administrator. A Member may
suspend Basic Contributions at any time by submitting written notice
to the Plan Administrator. Suspensions during the Plan Year shall be
effective as soon as practicable after the election to suspend is filed
with the Plan Administrator. A Member may recommence Basic
Contributions to the Plan effective as of any Entry Date by
submitting a new written election to the Plan Administrator, prior to
such Entry Date but in no event may a Member recommence Basic
Contributions to the Plan prior to the second Entry Date following
the suspension of such Contributions.
3.5 Distribution of "Excess Elective Deferral" Amounts. Notwithstanding
any other provision of the Plan, Excess Elective Deferrals as adjusted
for income or losses thereon shall be distributed to Members who
request a distribution in accordance with this Section.
A. For purposes of this Section, the following definitions shall
have the following meanings:
(1) "Elective Deferrals" for a taxable year means the sum of all
Employer contributions made on behalf of a Member pursuant
to an election to defer under any qualified CODA as described
in section 401(k) of the Code, any simplified employee
pension cash or deferred arrangement as described in section
402(h)(1)(B) of the Code, any eligible deferred compensation
plan under section 457 of the Code, any plan as described
under section 501(c)(18) of the Code, and any Employer
contributions made on the behalf of a Member for the
purchase of an annuity contract under section 403(b) of the
Code pursuant to a salary reduction agreement.
(2) "Excess Elective Deferrals" means those Elective Deferrals
that are includible in a Member's gross income under section
402(g) of the Code, because they exceed the Dollar Limit.
Excess Elective Deferrals shall be treated as Annual Additions
under the Plan.
B. A Member may assign to this Plan any Excess Elective
Deferrals made during the taxable year of the Member by
filing a claim in writing with the Plan Administrator no later
than March 1 following the year in which the Excess Elective
Deferral was made. Said claim shall specify the Member's
Excess Elective Deferral amount for the preceding calendar
year; and shall be accompanied by the Member's written
statement that if such amounts are not distributed, such Excess
Elective Deferral amount, when added to amounts deferred
under other plans or arrangements described in section 401(k),
408(k), 457, 501(c)(18) or 403(b) of the Code shall exceed the
Dollar Limit for the year in which the deferral occurred. A
Member shall be deemed to have given notification described
above if the Excess Elective Deferral results from Elective
Deferrals to this Plan or other plans of the Employer or
Affiliated Companies.
C. A Member who has an Excess Elective Deferral during a
taxable year may receive a corrective distribution during the
same year. Such a corrective distribution shall be made if:
(1) the Member designates the distribution as an Excess
Elective Deferral or is deemed to make the designation under
paragraph B., above;
(2) the corrective distribution is made after the date on which
the Plan received the Excess Elective Deferral; and
(3) the Plan Administrator designates the distribution as a
distribution of an Excess Elective Deferral.
D. The Excess Elective Deferral distributed to a Member with
respect to a calendar year shall be adjusted to reflect income
or loss in the Member's Basic Contribution Account for the
taxable year allocable thereto. The income or loss allocable
to such Excess Elective Deferral amount shall be determined
by the method generally used under the Plan to allocate
income or loss to a Member's account.
E. Excess Elective Deferral amounts, as adjusted for income and
losses, shall be distributed to a Member no later than April 15
of the year following the calendar year in which such Excess
Elective Deferral was made.
3.6 Overall Limits on Contributions. Contributions made on behalf of
any Member during any Plan Year shall be subject to the following:
A. In no event shall the Annual Addition for a Member exceed
the lesser of:
(1) 25% of the Member's Compensation, under Section
1.13C., for the Limitation Year; or
(2) the "defined contribution dollar limitation," which shall
mean $30,000 or, if greater, one fourth of the defined benefit
dollar limitation under section 415(b)(1) of the Code for the
Limitation Year.
B. Basic Contributions made on behalf of a Member during a
payroll period which begins in one Plan Year but ends in the
next succeeding Plan Year shall be deemed an Annual
Addition for the next succeeding Plan Year.
C. If the excess Annual Addition results from a contribution
made under Section 3.1, the excess shall be distributed to the
contributing Member to the extent permitted by Treasury
regulation 1.415-6(b)(6).
D. If the Annual Addition must be limited for any Member after
application of paragraph C. in order to comply with section
415 of the Code, the excess amounts in the Member's account
will be used to reduce Employer contributions for the next
Limitation Year (and succeeding Limitation Years, as
necessary) for that Member if that Member is covered by the
Plan as of the end of the Limitation Year. However, if that
Member is not covered by the Plan as of the end of the
Limitation Year, then the excess amounts will be held
unallocated in a suspense account for the Limitation Year and
allocated and reallocated in the next Limitation Year to all of
the remaining Members in the Plan. Furthermore, the excess
amounts will be used to reduce Employer contributions for the
next Limitation Year (and succeeding Limitation Years, as
necessary) for all of the remaining Members in the Plan.
Excess amounts may not be distributed to Members or former
Members except as provided in paragraph C.
E. (1) If an Employee is or was a Member in one or more defined
benefit plans and one or more defined contribution plans
maintained or ever maintained by the Employer, the sum of
the defined benefit plan fraction and the defined contribution
plan fraction for any Limitation Year may not exceed 1.0.
The "defined benefit plan fraction" for any year is a fraction
the numerator of which equals the projected annual benefit of
the Member under the Plan (determined as of the close of the
Plan Year), and the denominator of which equals the lesser of:
(2) the product of 1.25 multiplied by $90,000 adjusted in
accordance with section 415(d)(1)(A) of the Code; or
(3) the product of 1.4 multiplied by 100% of the Member's
average Compensation for his high three consecutive calendar
years of active participation.
Notwithstanding the above, if the Employee was a participant
as of the first day of the first Limitation Year beginning after
December 31, 1986, in one or more defined benefit plans
maintained by the Employer in existence on May 6, 1986, the
denominator of this fraction shall not be less than 125% of the
sum of the annual benefits under such plans which the
Member had accrued as of the close of the last Limitation
Year beginning before January 1, 1987, disregarding any
changes in the terms and conditions of the Plan after May 5,
1986. The preceding sentence applies only if the defined
benefit plans individually and in the aggregate satisfied the
requirements of section 415 of the Code for all Limitation
Years beginning before January 1, 1987.
(4) The defined contribution plan fraction for any year is a
fraction the numerator of which equals the sum of the Annual
Addition to the Member's Accounts as of the close of the Plan
Year, and the denominator of which equals the sum of the
lesser of the following amounts determined for such year and
for each prior year:
(5) the product of 1.25 multiplied by $30,000 or the applicable
dollar limit which is in effect for such plan year; or
(6) the product of 1.4 multiplied by 25% of the Member's
Compensation.
Notwithstanding the above, if the Employee was a participant
as of the end of the first day of the first Limitation Year
beginning after December 31, 1986, in one or more defined
contribution plans maintained by the Employer which were in
existence on May 6, 1986, the numerator of this fraction shall
be adjusted if the sum of this fraction and the defined benefit
fraction would otherwise exceed 1.0 under the terms of this
Plan. Under the adjustment, an amount equal to the product
of (i) the excess of the sum of the fractions over 1.0 times (ii)
the denominator of this fraction, will be permanently
subtracted from the numerator of this fraction. The
adjustment is calculated using the fractions as they would be
computed as of the end of the last Limitation Year beginning
before January 1, 1987, and disregarding any changes in the
terms and conditions of the Plan made after May 6, 1986, but
using the limitation of section 415 of the Code applicable to
the first Limitation Year beginning on or after January 1,
1987.
The Annual Addition for any Limitation Year beginning
before January 1, 1987, shall not be recomputed to treat all
employee contributions as Annual Additions.
F. The limitations of this Section 3.6 shall be applied to this Plan
before they are applied to any other defined contribution plan
of any Affiliated Company. This Section 3.6 shall be satisfied
prior to satisfying the ADP test.
G. If an Affiliated Company maintains or maintained a defined
benefit plan and the amount contributed to the Trust in respect
of any Plan Year would cause the amount allocated to any
Member under all defined contribution plans maintained by an
Affiliated Company to exceed the maximum allocation as
determined in paragraph D., then the allocation with respect
to such Member shall be reduced by the amount of such
excess. To the extent administratively feasible, the limitation
of this paragraph shall be applied to the Member's benefit
payable from the defined benefit plan prior to reduction of the
Member's Annual Addition under this Plan. The excess
allocation shall be treated in accordance with paragraph C. or
D., as applicable.
3.7 Permitted Employer Refunds. Employer contributions hereunder
shall be refunded to the Employer under the limited circumstances
listed below.
A. If initial qualification of the Plan under section 401 of the
Code is denied by the Internal Revenue Service, Employer
contributions shall be returned to the Employer within one
year after the denial occurs provided the Employer has filed
the application for the determination of qualification of this
Plan with the Internal Revenue Service by the time prescribed
by law for filing the Employer's federal income tax return for
the taxable year in which this Plan was adopted, or by such
later date as the Secretary of the Treasury may prescribe.
B. Any contribution made by the Employer due to a mistake of
fact shall be refunded to the Employer within one year of such
contribution.
C. Employer contributions are expressly conditioned on
deductibility under section 404 of the Code. Any contribution
that is disallowed as a deduction shall be refunded to the
Employer within one year of such disallowance.
D. Refunds of contributions due to a failure to initially qualify,
disallowance of deduction or mistake of fact shall be governed
by the following requirements:
(1) earnings attributable to the amount being refunded due to
disallowance or mistake shall remain in the Plan, but losses
thereto must reduce the amount to be refunded; and
(2) in no event may a refund be made that would cause the
Accrued Benefit of any Member to be less than it would have
been had a mistaken or disallowed amount not been
contributed.
3.8 Timing of Deposits. The Employer shall make payment of the Basic
Contribution to the Trust no later than the time period permitted by
ERISA. All other Employer contributions under the Plan shall be
deposited to the Trust on or before the due date for filing the
Employer's federal income tax return for its taxable year in which
the Plan Year ends, including any extension thereto.
3.9 Deduction Limits. No Employer contribution shall be made which
exceeds the limitations of section 404(a) of the Code. The limitation
of this Section shall apply before limiting contributions under any
other qualified retirement plan sponsored by the Employer.
SECTION 4
MEMBER ACCOUNTS
4.1 Establishment of Accounts. A Basic Contribution Account, Top-
Heavy Contribution Account, and Matching Contribution Account,
shall be established for each Member in accordance with Sections 3,
6 and 8, as applicable. All contributions by or on behalf of a
Member shall be deposited to the appropriate account.
4.2 Valuation of Accounts. As of each Valuation Date, the accounts of
each Member shall be adjusted to reflect any realized and unrealized
gains or losses and income or expense of the Fund according to
nondiscriminatory procedures uniformly applied based on the value
of the Member's accounts as of the preceding Valuation Date,
adjusted in accordance with Section 4.3. The fair market value of the
Fund shall be determined by the Trustee and communicated to the
Plan Administrator in writing. The Trustee's determination shall be
final and conclusive for all purposes of this Plan. The valuation
process shall be performed separately for each investment fund.
Each Member shall be furnished with a statement as soon as
practicable after each Valuation Date setting forth the value of his
Accrued Benefit.
4.3 Adjustment to Accounts. When determining the value of a Member's
account, any deposits due which have not been deposited to the Fund
on behalf of the Member shall be added to his accounts; and any
withdrawals or distributions made which have not been paid out shall
be subtracted from the accounts according to nondiscriminatory
procedures uniformly applied. Similarly, adjustment of accounts for
appreciation or depreciation of an investment fund shall be deemed
to have been made as of the Valuation Date on which the adjustment
relates, notwithstanding that they are actually made as of a later date.
4.4 Directed Investments. A Member's Basic Contribution Account and
Top Heavy Contribution Account shall be invested as directed by
each Member in one or more investment funds as selected by the
Trustee.
Notwithstanding the foregoing, Matching Contributions and earnings
thereon shall not be subject to investment direction by the Member,
but shall be invested in assets chosen by the Employer in its sole
discretion including, but not limited to, Employer Securities.
A Member shall submit to the Plan Administrator in writing his
investment selection. The Member may select one or more
investment fund in multiples of 5%. The investment selection of a
Member shall apply uniformly to all of his accounts with the
exception of his Matching Contribution Account.
4.5 Administration of Investments. Contributions made by or on behalf
of a Member shall be invested in the investment fund or funds
selected by the Member until the effective date of a new designation
which has been properly completed and filed with the Plan
Administrator. A Member may change his investment option for
future deposits effective as of any January 1, April 1, July 1 or
October 1 by providing written notice to the Plan Administrator at
least 30 days prior to the Entry Date on which the change is to occur.
A Member may change his investment option pertaining to amounts
already accumulated in his accounts only each Plan Year, to be
effective January 1 and July 1.
Notwithstanding the foregoing, if a Member files a designation with
the Plan Administrator which changes his investment selection with
regard to amounts already accumulated in his accounts, the Plan
Administrator shall effectuate the investment change as soon as
practicable after the valuation of Plan assets for the period ending on
the Valuation Date is completed. The Valuation Date referred to in
the preceding sentence refers to the Valuation Date which is the
effective date of the Member's investment designation.
4.6 Investments For Terminated Members. Any Member who ceases to
be an Employee shall continue to have the authority to direct the
investment of his accounts in accordance with the provisions of
Sections 4.4 and 4.5.
4.7 Stock Rights. The Trustee shall allocate any Employer Securities
received as a stock dividend, or a stock split, or as the result of a
reorganization of the Employer, in the same manner as the Employer
Securities to which it is attributable. The Trustee shall have the right
to exercise rights, warrants or options issued on Employer Securities
held in the Trust to the extent cash is then available. Any such
rights, warrants or options which cannot be exercised due to lack of
cash then available shall be sold by the Trustee and the proceeds
treated as cash dividends received on Employer Securities.
4.8 Stock Valuation. Unless otherwise provided by applicable law,
whenever Employer Securities are contributed to the Plan, such
Employer Securities shall be valued at a price or prices which, in the
judgment of the Plan Administrator, do not exceed the fair market of
such Employer Securities. The determination of fair market value
shall be made in good faith by the Plan Administrator in accordance
with the Plan and in accordance with such laws and regulations as
may be promulgated from time to time in connection with plans of
this type. Such valuation shall be made as of the end of each Plan
Year and at such other times as is designated by the Plan
Administrator.
SECTION 5
VESTING AND FORFEITURES
5.1 Vesting Schedule. A Member shall have a fully vested interest in his
Basic Contribution Account at all times. A Member's vested interest
in his Matching Contribution Account shall be determined by the
occurrence of the following events:
A. Full vesting shall occur upon the death or Disability of a
Member;
B. Full vesting shall occur when a Member attains his Normal
Retirement Date or his Early Retirement Date; and
C. Except as otherwise stated above, the Member's vested
percentage in his Matching Contribution Account shall be
determined based on his Years of Service in accordance with
the following schedule:
Years of Service Vested
as of Termination Date Percentage
Less than 2 years 0%
After 2 years but less than 3 25%
After 3 years but less than 4 50%
After 4 years but less than 5 75%
After 5 or more years 100%
D. Notwithstanding the vesting schedule above, the vested
percentage of a Member's Account shall not be less than the
vested percentage attained as of the later of the Effective Date
or adoption date of this amendment and restatement.
5.2 Forfeitures. A Member's vested Accrued Benefit shall be determined
in accordance with Section 5.1 as of the date he terminates
employment. The nonvested portion shall be forfeited on the earlier
of the date on which the Member:
A. receives a distribution of his vested Accrued Benefit, if any
provided that such distribution is made no later than the close
of the second Plan Year following the year in which the
Member terminates participation in the Plan; or
B. has five consecutive Breaks in Service measured from the
Member's date of termination.
Said Forfeiture shall be applied to reduce future Matching
Contributions.
For purposes of this Section, if the value of a Member's vested
Accrued Benefit is zero, the Member shall be deemed to have
received a distribution of such vested Accrued Benefit on termination
of employment. A Member's vested Accrued Benefit shall not
include accumulated deductible Employee contributions within the
meaning of section 72(o)(5)(B) of the Code for Plan Years beginning
prior to January 1, 1989.
5.3 Change in Vesting Schedule. A Member with at least three Years of
Service as of the expiration date of the election period (as set forth
below) may elect to have his nonforfeitable percentage computed
under the Plan without regard to an amendment or restatement of the
Plan which affects the vesting schedule. The Member's election
period shall commence on the adoption date of the amendment and
shall end 60 days after the latest of:
A. the adoption date of the amendment;
B. the effective date of the amendment; or
C. the date the Member receives written notice of the amendment
from the Employer or Plan Administrator.
Any amendment to the vesting schedule shall be subject to the
restrictions of Section 13.1.
For purposes of this Section, a Member shall be considered to have
completed three Years of Service whether or not consecutive, without
regard to the exceptions of section 411(a)(4) of the Code.
SECTION 6
DISTRIBUTIONS
6.1 Distribution of Benefit. A Member who ceases to be an Employee
for any reason other than death shall be entitled to receive his vested
Accrued Benefit. A Member with a vested Accrued Benefit of
$3,500 or less shall be paid under Option A. below. A Member with
a vested Accrued Benefit over $3,500 who is entitled to payment
under this Section may elect either Option A. or B.:
Option A. A lump sum payment equal to the value of the
Member's vested Accrued Benefit determined as of the Valuation
Date coincident with or immediately following the date he ceases
to be an Employee.
Option B. A Member may request a distribution on any
subsequent date, but no later than the later of Retirement or age
70-1/2. The amount payable shall be equal to the Member's
vested Accrued Benefit determined as of the Valuation Date
immediately following the date payment is requested.
Notwithstanding the foregoing, any assets invested in the investment
fund can be independently valued by the Plan Administrator as of the
date of distribution, if there has been an increase or decrease in the
Standard and Poor's composite index of 20% or more since the
Valuation Date chosen by the Member in any of the options set forth
above.
All distributions required under this Section 6 shall be determined
and made in accordance with the regulations under section 401(a)(9)
of the Code, including the minimum distribution incidental benefit
requirement of Treasury regulations 1.401(a)(9)-2.
6.2 Election of Benefits. The Member shall notify the Plan
Administrator, in writing, of the timing of benefit option elected. An
election may be revoked and a new written election may be filed with
the Plan Administrator any time prior to the payment of benefits.
Payment of benefits shall be made as soon as practicable after the
next Valuation Date under the option the Member has elected.
6.3 Rehire Prior To Incurring Five Consecutive Breaks in Service. If the
Member terminates his employment and is rehired by a Participating
Employer prior to the date that he would incur his fifth consecutive
Break in Service, any amounts previously forfeited shall be restored
by the Participating Employer if the Member repays the entire
amount which was distributed on or before the earlier of five years
after the first date on which the Member is subsequently reemployed
by a Participating Employer, or the close of the first period of five
consecutive one-year Breaks in Service after the distribution. The
Member's vested interest in such an instance shall be determined
thereafter as if he did not have a break in employment. If the
Member does not repay the amount which was distributed to him,
new accounts shall be established upon his reentry into the Plan and
the amount forfeited shall not be recovered.
6.4 Death Prior to Distribution. If a Member dies before his Accrued
Benefit has been distributed to him, his Accrued Benefit shall be
distributed in a lump sum as soon as practicable after the Valuation
Date coincident with or next following his date of death.
6.5 Distribution Limitation. Unless a Member elects otherwise, his
vested Accrued Benefit shall be distributed to him as of the Valuation
Date next following the date of his termination of employment, but
no later than 60 days after the close of the Plan Year in which occurs
the latest of his Normal Retirement Date, the tenth anniversary of the
year in which he commenced participation in the Plan or the date of
his termination of employment. Notwithstanding the foregoing, the
failure of a Member to consent to a distribution while a benefit is
immediately distributable within the meaning of this Section shall be
deemed to be an election to defer commencement of payment of any
benefit sufficient to satisfy this Section.
6.6 Mandatory Distributions. A Member's benefits shall be partially
distributed to him not later than April 1 of the calendar year
following the calendar year in which the Member attains age 70-1/2.
Notwithstanding the foregoing, if a Member had attained age 70-1/2
before January 1, 1988 and was not a "5% owner" at any time during
the Plan Year ending with or within the calendar year in which the
Member attained age 66-1/2 or any subsequent Plan Year, his
benefits shall be distributed to him not later than April 1 of the
calendar year following the later of (i) the calendar year in which the
Member attains age 70-1/2, or (ii) the calendar year in which the
Member retires. The Member shall be required to withdraw during
any Plan Year only the minimum amount required to satisfy the
Code. The Member who has not terminated service with the
Employer shall be required to withdraw during any Plan Year only
the minimum amount required to satisfy section 401(a)(9) of the
Code.
6.7 Earnings on Undistributed Benefits. A Member's Accrued Benefit
shall share in investment experience in accordance with the
provisions of Section 4 until the Valuation Date coincident with or
immediately preceding distribution.
6.8 Rollovers Into the Plan. Subject to approval of the Plan
Administrator, an Employee may roll over to the Trust amounts
accumulated for the Employee under any other qualified retirement
plan or plans. The amount rolled over shall become subject to all of
the terms and conditions of this Plan and Trust Agreement after it is
rolled over, except that it shall be fully vested and nonforfeitable at
all times. The amounts rolled over shall be deposited in the Basic
Contribution Account. An Employee who makes a rollover
contribution to this Plan shall not otherwise participate in the Plan
until he qualifies as an Eligible Employee hereunder.
6.9 Evidence in Writing. The Plan Administrator may require an
Employee to furnish such evidence as it deems appropriate to assure
itself that the acceptance of the rollover will not affect the tax
qualified status of the Plan.
6.10 Hardship Withdrawal. A Member may apply in writing to the Plan
Administrator for a hardship withdrawal from his Basic Contribution
Account. The withdrawal must satisfy the criteria set forth below,
the applicable provisions of Section 6.12 and may be approved or
disapproved at the discretion of the Plan Administrator under
nondiscriminatory standards uniformly applied. Hardship
withdrawals from a Member's Basic Contribution Account are not
permitted from income on a Member's Basic Contribution, except to
the extent of earnings on or before December 31, 1988, nor are such
withdrawals permitted to include Participating Employer
contributions which were treated as Basic Contributions as a result of
the application of the special nondiscrimination requirements under
rules prescribed by the Secretary of the Treasury for Participating
Employer contributions that are used to meet the vesting and
withdrawal restrictions for Basic Contributions.
A. General Rule. A hardship distribution may only be made on
account of an immediate and heavy financial need of the
Member and in an amount not to exceed the sum necessary to
satisfy such financial need.
B. Immediate and Heavy Financial Need. The determination of
whether a Member has an immediate and heavy financial need
shall be made on the basis of whether a request satisfies the
definition of "immediate and heavy financial need" including
those deemed needs as set forth below. A financial need shall
not fail to qualify as immediate and heavy merely because
such need was reasonably foreseeable or voluntarily incurred
by the Member.
C. Deemed Immediate and Heavy Financial Need. A distribution
shall be deemed to be made on account of an immediate and
heavy financial need of the Member if the distribution is on
account of:
(1) expenses for medical care described in section 213(d) of the
Code previously incurred by the Member, the Member's
spouse, or any dependents of the Member (as defined in
section 152 of the Code) or amounts necessary to obtain
medical services, which constitute medical expenses described
in section 213(d) of the Code;
(2) costs directly related to the purchase (excluding mortgage
payments) of a principal residence for the Member;
(3) payment of tuition and related educational fees for the next
twelve months of post-secondary education for the Member,
the Member's spouse, children or dependents;
(4) the need to prevent the eviction of the Member from his
principal residence or foreclosure on the mortgage of the
Member's principal residence; or
(5) such other events set forth by the Commissioner of the
Internal Revenue Service through the publication of revenue
rulings, notices, and other documents of general applicability.
D. Distribution Deemed Necessary to Satisfy Financial Need
(Suspension Method). A distribution shall be deemed to be
necessary to satisfy an immediate and heavy financial need of
a Member if all of the following requirements are satisfied:
(1) the distribution is not in excess of the amount of the
immediate and heavy financial need of the Member plus
anticipated federal, state and local income taxes and penalties
on distribution;
(2) the Member has obtained all distributions, other than
hardship distributions, and all nontaxable (at the time of the
loan) loans currently available under all plans maintained by
an Affiliated Company;
(3) the Member's elective and after-tax contributions under this
Plan (and any other qualified or nonqualified plan of deferred
compensation maintained by an Affiliated Company) are
suspended under a legally enforceable arrangement for at least
twelve months after receipt of the hardship distribution; and
(4) the Member may not make elective contributions for the
Member's taxable year immediately following the taxable year
of the hardship distribution in excess of the Dollar Limit for
such next taxable year less the amount of such Member's
elective contributions for the taxable year of the hardship
distribution.
E. The determination of the existence of financial hardship and
the amount required to be distributed to meet the need created
by the hardship must be made in a uniform and
nondiscriminatory manner.
6.11 Withdrawals Permitted After Age 59-1/2. A Member may apply in
writing to the Plan Administrator for a withdrawal from all or a
portion of his vested Accrued Benefit any time after attaining age 59-
1/2. Such withdrawals shall not be subject to the requirements set
forth in Section 6.10 but are subject to the conditions set forth in
Section 6.12.
6.12 Conditions For Withdrawals. The following conditions apply to
withdrawals made under Sections 6.10 and 6.11:
A. a Member may make only one hardship withdrawal and one
age 59-1/2 withdrawal in any twelve-month period;
B. all withdrawals shall be based on the value of the Member's
applicable accounts and vested Accrued Benefit as of the
Valuation Date immediately preceding or next following the
withdrawal request at the Member's request. All withdrawals
which are based on the value of the Member's applicable
accounts as of the Valuation Date immediately preceding the
withdrawal request will be limited to 75% of the Member's
vested Accrued Benefit. Notwithstanding the foregoing, the
Plan Administrator, in its sole discretion, may base a
withdrawal under this Section on the value of a Member's
vested Accrued Benefit as of the date of the withdrawal.
6.13 Direct Rollover Requirements
A. This Section applies to distributions made on or after January
1, 1993. Notwithstanding any provision of the Plan to the
contrary that would otherwise limit a distributee's election
under this Section, a distributee may elect, at the time and in
the manner prescribed by the Plan Administrator, to have any
portion of an eligible rollover distribution paid directly to an
eligible retirement plan specified by the distributee in a direct
rollover.
B. Definitions
(1) Eligible rollover distribution: An eligible rollover
distribution is any distribution of all or any portion of the
balance to the credit of the distributee, except that an eligible
rollover distribution does not include: any distribution that is
one of a series of substantially equal periodic payments (not
less frequently than annually) made for the life (or life
expectancy) of the distributee or the joint lives (or joint life
expectancies) of the distributee and the distributee's designated
beneficiary, or for a specified period of ten years or more; any
distribution to the extent such distribution is required under
section 401(a)(9) of the Code; and the portion of any
distribution that is not includible in gross income (determined
without regard to the exclusion for net unrealized appreciation
with respect to employer securities).
(2) Eligible retirement plan: An eligible retirement plan is an
individual retirement account described in section 408(a) of
the Code, an individual retirement annuity described in section
408(b) of the Code, an annuity plan described in section
403(a) of the Code, or a qualified trust described in section
401(a) of the Code, that accepts the distributee's eligible
rollover distribution. However, in the case of an eligible
rollover distribution to the surviving spouse, an eligible
retirement plan is an individual retirement account or
individual retirement annuity.
(3) Distributee: A distributee includes an employee or former
employee. In addition, the employee's or former employee's
surviving spouse and the employee's or former employee's
spouse or former spouse who is the alternate payee under a
qualified domestic relations order, as defined in section 414(p)
of the Code, are distributees with regard to the interest of the
spouse or former spouse.
(4) Direct rollover: A direct rollover is a payment by the Plan
to the eligible retirement plan specified by the distributee.
SECTION 7
ACTUAL DEFERRAL AND ACTUAL CONTRIBUTION
PERCENTAGE TESTING
7 Actual Deferral Percentage Test. The actual deferral percentage
(ADP) of Basic Contributions allocated to Members who are Highly
Compensated Employees shall not exceed the greater of A. or B. as
follows:
A. the ADP of Members who are Non-Highly Compensated
Employees times 1.25; or
B. the ADP of Members who are Non-Highly Compensated
Employees times 2.0, but not to exceed the ADP of Members
who are Non-Highly Compensated Employees by more than
two percentage points.
7.1 ADP Formula.
A. The ADP for a specified group of Members for a Plan Year
shall be the average of the Actual Deferral Ratios (ADR)
calculated separately for each Member in such group.
For purposes of determining the ADR of a Highly
Compensated Employee as defined in section 414(q)(1)(A) of
the Code or a Highly Compensated Employee in the group
consisting of the ten Highly Compensated Employees paid the
greatest Compensation during the Plan Year, the Employee's
Basic Contributions shall include the Basic Contributions of
Family Members; and such Family Members shall be
disregarded as separate Employees in determining the ADP
both for Members who are Non-Highly Compensated
Employees and for Members who are Highly Compensated
Employees.
The Plan Administrator shall determine as soon as practicable
after the end of the Plan Year whether the ADP for Highly
Compensated Employees satisfies either of the tests contained
in Section 7.1. In the event neither test is satisfied, the
Employer may elect either of the following:
(1) to reduce the allowable Basic Contribution for Highly
Compensated Employees as provided in Sections 7.3 and 7.4;
or
(2) to make an Additional Basic Contribution (subject to the
requirements of Section 7.5) for all or a portion of Non-
Highly Compensated Employees eligible to make contributions
under Section 3.1 in a level dollar amount or a uniform
percentage of Compensation, as the Employer shall elect,
within the time period required by any applicable law or
regulation.
B. The Plan shall take into account the ACRs of all Eligible
Employees for purposes of the ADP test. For this purpose, an
Eligible Employee is any Employee who is directly or
indirectly eligible to make a Basic Contribution under the Plan
for all or a portion of a Plan Year, including an Employee
who would be eligible but for his failure to make required
contributions and an Employee whose eligibility to make Basic
Contributions has been suspended because of an election to
take a hardship distribution. In the case of an Eligible
Employee who makes no elective contributions, the ADR that
is to be included in determining the ADP is zero.
C. A Basic Contribution shall be taken into account under the
ADP test for a Plan Year only if it relates to Compensation
that either would have been received by the Employee in the
Plan Year (but for the deferral election) or is attributable to
services performed by the Employee in the Plan Year and
would have been received by the Employee within 2-1/2
months after the close of the Plan Year (but for the deferral
election).
D. A Basic Contribution shall be taken into account under the
ADP test for a Plan Year only if it is contributed to the Trust
before the last day of the twelve-month period immediately
following the Plan Year to which the contribution relates and
is allocated within the Plan Year to which the contribution
relates. A Basic Contribution is considered allocated as of a
date within a Plan Year if the allocation is not contingent on
participation or performance of services after such date.
E. The ADR and ADP shall be calculated to the nearest .01%.
7.2 Calculations of Excess Contributions.
A. The amount of contributions for a Highly Compensated
Employee in excess of that permitted under Section 7.1
(hereinafter, Excess Contributions) shall be determined in the
following manner. First, the Actual Deferral Ratio of the
Highly Compensated Employee with the highest ADR is
reduced to the extent necessary to satisfy the ADP test or
cause such ADR to equal the ADR of the Highly Compensated
Employee with the next highest ADR. This process is
repeated until the ADP test is satisfied. The amount of Excess
Contributions for a Highly Compensated Employee is the
difference between the total of Basic and other contributions
(if any) taken into account for the ADP test, and the product
of the Employee's ADR at the time the ADP test is satisfied,
as determined above, multiplied by the Employee's
Compensation.
B. In the case of a Highly Compensated Employee whose ADR
is determined under the family aggregation rules, the amount
of Excess Contributions shall be determined as provided in
Section 7.3A. The Excess Contributions for the family unit
are allocated among the Family Members in proportion to the
contributions of each Family Member that have been
combined.
7.3 Distribution of Excess Contributions. Excess Contributions shall be
distributed to Members on whose behalf such Excess Contributions
were made no later than the last day of the Plan Year following the
Plan Year for which they were made. Excess Contributions shall be
adjusted in the manner utilized under Sections 4.2 and 4.3 to reflect
income earned and losses incurred for the Plan Year on the
Member's Basic Contributions Account.
7.4 Additional Basic and Matching Contributions. Additional Basic
Contributions and Matching Contributions may be treated as Basic
Contributions for purposes of the ADP test only if such contributions
are nonforfeitable when made and subject to the same distribution
restrictions that apply to elective contributions. Additional Basic
Contributions and Matching Contributions which may be treated as
Basic Contributions must satisfy these requirements without regard
to whether they are actually taken into account as Basic Contributions
for purposes of satisfying the ADP tests.
Additional Basic Contributions and/or Matching Contributions may
be treated as Basic Contributions only if the conditions described in
section 1.401(k)-1(b)(5) of the Treasury regulations are satisfied.
The amount of the Additional Basic Contribution for Non-Highly
Compensated Employees, or the reduction in the allowable Basic
Contribution deferral percentage for Highly Compensated Employees
shall be such that at least one of the tests contained in Section 7.1 is
satisfied.
7.5 Matching Contributions. Any Matching Contributions made on
account of an Excess Contribution or deferral in excess of the Dollar
Limit shall be forfeited and shall be used to reduce Matching
Contributions for the year of forfeiture.
7.6 Actual Contribution Percentage Test. The actual contribution
percentage (ACP) of contributions deposited to the Plan for Members
who are Highly Compensated Employees shall not exceed the greater
of A. or B. as follows:
A. the ACP of Members who are Non-Highly Compensated
Employees times 1.25; or
B. the ACP of Members who are Non-Highly Compensated
Employees times 2.0, but not to exceed the ACP of Members
who are Non-Highly Compensated Employees by more than
two percentage points.
7.7 ACP Formula.
A. The ACP for a specified group of Members for a Plan Year
shall be the average of the Actual Contribution Ratios (ACR)
calculated separately for each Member in such group.
For purposes of determining the ACR of a Highly
Compensated Employee as defined in section 414(q)(1)(A) of
the Code or a Highly Compensated Employee in the group
consisting of the ten Highly Compensated Employees paid the
greatest Compensation during the Plan Year, the Employee's
Matching Contributions shall include the Matching
Contributions of Family Members; and such Family Members
shall be disregarded as separate Employees in determining the
ACP both for Members who are Non-Highly Compensated
Employees and for Members who are Highly Compensated
Employees.
The Plan Administrator shall determine as soon as practicable
after the end of the Plan Year whether the ACP for Highly
Compensated Employees satisfies either of the tests contained
in Section 7.7. In the event neither test is satisfied, the
Employer may elect either of the following:
(1) to reduce the allowable Matching Contribution for Highly
Compensated Employees as provided in Sections 7.9 and 7.10;
or
(2) to make an additional contribution for all or a portion of
Non-Highly Compensated Employees eligible to make
contributions under Section 3.1 in a level dollar amount or a
uniform percentage of Compensation, as the Employer shall
elect, within the time period required by any applicable law or
regulation.
B. The Plan shall take into account the ACRs of all Eligible
Employees for purposes of the ACP test. For this purpose, an
Eligible Employee is any Employee who is directly or
indirectly eligible to receive an allocation of Matching
Contributions, including an Employee who would be eligible
but for his failure to make required contributions and an
Employee whose right to receive Matching Contributions has
been suspended because of an election not to participate. In
the case of an Eligible Employee who receives no Matching
Contributions, the ACR that is to be included in determining
the ACP is zero.
C. A Matching Contribution shall be taken into account under the
ACP test for a Plan Year only if it is made on account of the
Eligible Employee's Basic Contributions for the Plan Year
contributed to the Trust before the last day of the twelve-
month period immediately following the Plan Year to which
the contributions relate and is allocated within the Plan Year
to which the contributions relate. Qualified Matching
Contributions which are used to meet the requirements of
section 401(k)(3)(A) of the Code are not taken into account.
D. The ACR and ACP shall be calculated to the nearest .01%.
E. Additional Basic Contributions may be treated as Matching
Contributions for purposes of the ACP test of section 401(m) of
the Code only if such contributions are nonforfeitable when
made and distributable only under the following
circumstances:
(1) the Employee's Retirement, death, Disability or separation
from service;
(2) the termination of the Plan without establishment of a
successor plan;
(3) the Employee's attainment of age 59-1/2;
(4) the sale or other disposition by a corporation to an
unrelated corporation, which does not maintain the Plan, of
substantially all of the assets used in a trade or business, but
only with respect to Employees who continue employment
with the acquiring corporation; and
(5) the sale or other disposition by a corporation of its interest
in a subsidiary to an unrelated entity which does not maintain
the Plan, but only with respect to Employees who continue
employment with the subsidiary. Additional Basic
Contributions which may be treated as Matching Contributions
must satisfy these requirements without regard to whether they
are actually taken into account as Matching Contributions.
7.8 Calculation of Excess Aggregate Contributions.
A. The amount of contributions for a Highly Compensated
Employee in excess of that permitted under Section 7.7
(hereinafter, Excess Aggregate Contributions) shall be
determined in the following manner. First, the ACR of the
Highly Compensated Employee with the highest ACR is
reduced, (first as to after-tax contributions, if any, then as to
Matching Contributions) to the extent necessary to satisfy the
ACP test or cause such ACR to equal the ACR of the Highly
Compensated Employee with the next highest ACR. This
process is repeated until the ACP test is satisfied. The amount
of Excess Aggregate Contribution for a Highly Compensated
Employee is the difference between the total of Matching and
other contributions taken into account for the ACP test, and
the product of the Employee's ACR at the time the ACP test
is satisfied, as determined above, multiplied by the
Employee's Compensation.
B. In the case of a Highly Compensated Employee whose ACR
is determined under the family aggregation rules, the amount
of Excess Aggregate Contributions shall be determined as
provided in Section 7.9A. The Excess Aggregate
Contributions for the family unit are allocated among the
Family Members in proportion to the contributions of each
Family Member that have been combined.
C. The amount of Excess Aggregate Contributions for a Plan
Year shall be determined only after first determining the
excess contributions that are treated as Employee after-tax
contributions (if any) due to recharacterization of such
contributions made to another plan, aggregated with this Plan
under Section 7.14, for the Plan Year.
7.9 Distribution of Excess Aggregate Contribution. Excess Aggregate
Contributions shall be distributed to Members on whose behalf such
Excess Aggregate Contributions were made, to the extent vested, no
later than the last day of the Plan Year following the Plan Year for
which they were made. Nonvested Excess Aggregate Contributions
shall be applied as provided in Section 7.12. Excess Aggregate
Contributions shall be adjusted in the manner utilized under Sections
4.2 and 4.3 to reflect income earned or loss as incurred for the Plan
Year on the Member's Matching Contribution Account.
7.10 Additional Contributions. Basic Contributions and/or Additional
Basic Contributions may be treated as Matching Contributions only
if the conditions described in Treasury regulation 1.401(m)-1(b)(5)
are satisfied.
7.11 Forfeitures. Amounts forfeited by Highly Compensated Employees
under Section 7.10 shall be treated as an Annual Addition under the
Plan and shall be applied to reduce future Employer Matching
Contributions. No forfeiture arising under this Section shall be
allocated to the account of any Highly Compensated Employee.
7.12 Aggregate Limit. The sum of the ADP and ACP for Highly
Compensated Employees, determined after any corrections required
to meet the ADP test or ACP test, shall not exceed the Aggregate
Limit as defined herein. If the limit is exceeded, then either the ADR
or ACR, as the Plan Administrator shall elect, for all affected Highly
Compensated Employees, shall be reduced in accordance with
Section 7.3A. or 7.9A. as applicable. The amounts of the reduction
for each Highly Compensated Employee shall be treated as an Excess
Contribution or Excess Aggregate Contribution, as appropriate.
"Aggregate Limit" means the greater of A. or B. below:
A. the sum of
(1) 125% of the greater of the ADP for eligible Non-Highly
Compensated Employees or the ACP for eligible Non-Highly
Compensated Employees for the Plan Year; and
(2) two plus the lesser of such ADP or ACP, but not greater
than 200% of the lesser amount; or
B. the sum of
(1) 125% of the lesser of the ADP for the eligible Non-Highly
Compensated Employees or the ACP for the eligible Non-
Highly Compensated Employees for the Plan Year; and
(2) two plus the greater of such ADP or ACP, but not greater
than 200% of the greater amount.
7.13 Special Rules.
A. The ADR and ACR for any Member who is a Highly
Compensated Employee for the Plan Year and who is eligible
to make Basic Contributions, or to have Matching
Contributions allocated to his account, or to make after-tax
contributions under two or more plans that are maintained by
an Affiliated Company shall be determined as if all such
contributions were made under a single plan.
B. In the event that this Plan satisfies the requirements of sections
410(b) and 401(a)(4) of the Code only if aggregated with one
or more other plans, or if one or more other plans satisfy the
requirements of sections 410(b) and 401(a)(4) of the Code
only if aggregated with this Plan, then the contribution
percentages and deferral percentages of Members shall be
determined as if all such plans were a single plan.
C. The determination and treatment of the contribution
percentage of any Member shall satisfy such other
requirements as may be prescribed by the Secretary of the
Treasury.
SECTION 8
TOP-HEAVY PROVISIONS
8.1 Top-Heavy Preemption. During any Plan Year in which this Plan is
Top-Heavy, as defined in Section 8.2 below, the Plan shall be
governed in accordance with this Section, which shall control over
other provisions.
8.2 Top-Heavy Definitions. For purposes of this Section, the following
definitions shall apply:
A. "Compensation" means Compensation as defined in Section
1.13C. for an entire Plan Year but including amounts
contributed by the Employer pursuant to a salary reduction
agreement which are excludable from the Employee's gross
income under section 125, 402(a)(8), 402(h) or 403(b) of the
Code.
B. "Contribution Rate" means the sum of contributions made by
the Employer under this Plan, excluding salary deferral
contributions made under this or any other plan maintained by
the Employer, plus forfeitures allocated to the Member's
accounts for the Plan Year, divided by his Compensation for
the Plan Year. To determine the Contribution Rate, the Plan
Administrator shall consider all qualified defined contribution
plans (within the meaning of the Code) maintained by the
Employer as a single plan.
C. "Determination Date" means the last day of the preceding
Plan Year, except that in the initial Plan Year, Determination
Date means the last day of such Plan Year. For purposes of
testing the Top-Heavy status of Required and Permissive
Aggregation Groups, Determination Date means the last day
of each respective plan's Plan Year which occurs in the
calendar year coincident with the Determination Date of this
Plan.
D. "Key Employee" means any Employee or former Employee
(and the Beneficiaries of such Employee) who at any time
during the "Determination Period" was an officer of the
Employer if such individual's annual Compensation exceeds
50% of the dollar limitation under section 415(b)(1)(A) of the
Code, an owner (or considered an owner under section 318 of
the Code) of one of the ten largest interests in the employer if
such individual's compensation exceeds 100% of the dollar
limitation under section 415(c)(1)(A) of the Code, a 5% owner
of the Employer, or a 1% owner of the Employer who has an
annual compensation of more than $150,000. The
"Determination Period" is the Plan Year containing the
determination date and the four preceding Plan Years.
The determination of who is a Key Employee will be made in
accordance with section 416(i)(1) of the Code and the
regulations thereunder.
E. "Non-Key Employee" means any Employee currently eligible
to participate in the Plan who is not a Key Employee.
F. "Permissive Aggregation Group" means the Required
Aggregation Group plus any other qualified plans maintained
by the Affiliated Companies, but only if such resultant group
would satisfy, in the aggregate, the requirements of sections
401(a)(4) and 410 of the Code. The Plan Administrator shall
determine which plans to take into account in determining the
Permissive Aggregation Group.
G. "Required Aggregation Group" means:
(1) each qualified plan of the Affiliated Companies (including
any terminated plan that covered a Key Employee and was
maintained within the five-year period ending on the
Determination Date) in which at least one Key Employee
participates during the Plan Year containing the Determination
Date or any of the four preceding Plan Years; and
(2) any other qualified plan of the Affiliated Companies which
enables a plan described in (1) above, to meet the
requirements of sections 401(a)(4) or 410 of the Code.
H. "Top-Heavy" shall describe the status of the Plan in any Plan
Year if the "Top- Heavy Ratio" as of the Determination Date
exceeds 60%.
(1) "Top-Heavy Ratio" is a fraction as of the Determination
Date, as follows:
Accrued Benefit of all Key Employees
Accrued Benefits of all Employees
(2) Notwithstanding (1) above, the Top-Heavy Ratio shall be
computed pursuant to section 416(g) of the Code, and any
regulations issued thereunder.
(3) Solely for the purpose of determining if the Plan, or any
other plan included in a Required Aggregation Group of which
this Plan is a part, is Top-Heavy (within the meaning of
section 416(g) of the Code), the accrued benefit of an
Employee other than a Key Employee (within the meaning of
section 416(i)(1) of the Code) shall be determined (a) under
the method, if any, that uniformly applies for accrual purposes
under all plans maintained by Affiliated Companies or, if there
is no such method, then (b) as if such benefit accrued not
more rapidly than the slowest accrual rate permitted under the
fractional accrual rule of section 411(b)(1)(C) of the Code.
(4) For purposes of this Section only, "Accrued Benefit" shall
include or exclude rollovers pursuant to Treasury regulation
1.416-1,T-32.
(5) If an individual is not a Key Employee but was a Key
Employee in a prior year or if any individual has not
performed services for the Employer at any time during the
five-year period ending on the Determination Date, any
Accrued Benefit for such individual shall not be taken into
account in determining the Top-Heavy status of the Plan.
(6) The value of account balances and the present value of
Accrued Benefits will be determined as of the most recent
Valuation Date that falls within or ends with the twelve-month
period ending on the Determination Date, except as provided
in section 416 of the Code and the regulations thereunder for
the first and second plan years of a defined benefit plan.
(7) The Accrued Benefit shall include any part of any account
balance distributed in the five-year period ending on the
Determination Date.
(8) The present value shall be based only on the interest rate
and mortality rates specified in the defined benefit plan.
8.3 Aggregation of Plans. All Required Aggregation Groups shall be
considered (pursuant to section 416(g) of the Code) with this Plan in
determining whether this Plan is Top- Heavy.
A. If such aggregation constitutes a Top-Heavy group, each plan
so aggregated shall be considered Top-Heavy.
B. If such aggregation does not constitute a Top-Heavy group,
none of the plans so aggregated shall be considered Top-
Heavy.
At the direction of the Plan Administrator and subject to the
restrictions of sections 401(a)(4) and 410 of the Code, Permissive
Aggregation Groups may be considered with this Plan plus any
Required Aggregation Groups to determine whether such group is
Top-Heavy. If such aggregation does not constitute a Top-Heavy
group, none of the plans so aggregated shall be considered Top-
Heavy.
8.4 Minimum Contribution Rate. Subject to Section 8.7 below, for any
Plan Year in which this Plan is Top-Heavy, a minimum contribution
shall be made for each Non-Key Employee as of the last day of the
Plan Year which shall equal the lesser of:
A. 3% of Compensation; or
B. the highest Contribution Rate received by a Key Employee in
that Plan Year.
This Top-Heavy Contribution shall be made irrespective of such
Non-Key Employee's Hours of Service, Compensation or failure to
make contributions, as applicable hereunder.
8.5 Deposit of Minimum Contribution. The Plan Administrator shall
deposit any minimum contribution made under this Section to a
"Top-Heavy Contribution Account" for each Non-Key Employee.
Such account shall become part of his Accrued Benefit and shall vest
pursuant to Section 8.6 hereof.
8.6 Top-Heavy Vesting Schedule. In any Plan Year in which this Plan is
Top-Heavy, any Member who is credited with at least one Hour of
Service during such Plan Year shall vest in accordance with Section
5.1 or the following schedule, whichever produces the greater
benefit:
Years of Vested Service Percentage
Less than 2 years 0%
After 2 years but less than 3 20%
After 3 years but less than 4 40%
After 4 years but less than 5 60%
After 5 years but less than 6 80%
After 6 or more years 100%
During any Plan Year in which this Plan is not Top-Heavy, vesting
shall be determined pursuant to Section 5, except that nonforfeitable
rights obtained under the Top-Heavy vesting schedule shall continue
as such.
8.7 Combined Defined Benefit and Defined Contribution Plans. In the
event that the Employer maintains a defined benefit and a defined
contribution plan,
A. and the defined benefit plan benefits a Key Employee and
depends on this Plan to satisfy sections 401(a)(4) and 410 of
the Code, the minimum Contribution Rate for Non-Key
Employees hereunder shall be 5% irrespective of the
Contribution Rate for Key Employees (unless the Employee
provides for the minimum required Top Heavy benefit accrual
for the Plan Year under the defined benefit plan); and
B. the figure "1.0" shall be substituted for the figure "1.25" as it
applies in Section 3.6 if:
(1) the Top-Heavy Ratio exceeds 90%, or
(2) the Plan is Top-Heavy for the Plan Year, and the
Contribution Rate under Section 8.4 is less than 7-1/2%
(unless the Employer provides for the minimum required Top
Heavy benefit accrual for the Plan Year under the defined
benefit plan).
SECTION 9
DESIGNATION OF BENEFICIARY
9.1 Named Beneficiary. Each Member may designate on a form filed
with the Plan Administrator, a Beneficiary to whom, in the event of
the Member's death, all benefits or any unpaid balance of benefits
shall be payable. However, each married Member who designates
a Beneficiary other than his Spouse must provide the Plan
Administrator with a spousal consent to the designation of such other
Beneficiary. Such spousal consent shall set forth the effects of such
waiver and must be notarized. Subject to such spousal consent, the
Beneficiary so designated may be changed by the Member at any
time. The facts as shown by the records of the Plan Administrator
at the time of death shall be conclusive as to the identity of the proper
payee and the amount properly payable, and payment made in
accordance with such facts shall constitute a complete discharge of
any and all obligations hereunder.
9.2 No Named Beneficiary. If no Beneficiary designation is on file with
the Plan Administrator at the time of death of the Member, or if such
designation is not effective for any reason, then such death benefit
shall be payable to the deceased Member's Spouse, if living. If such
Spouse is not living, payment shall be made to the deceased
Member's estate.
SECTION 10
MANAGEMENT OF THE FUND
101.1 Contributions Deposited To Trust. All contributions to the Plan by
the Participating Employers and Employees shall be committed in
trust to the Trustee selected by the Plan Sponsor subject to the terms
of the Trust created in Section 1 of the Trust Agreement, to be held,
managed, and disposed of by the Trustee in accordance with the
terms of the Trust and this Plan. The Trustee selected may be
changed from time to time by the Plan Sponsor.
101.2No Reversion to Participating Employer. The Trust shall contain
such provisions as shall render it impossible, except as is provided
under Sections 3.7 and 11.3, for any part of the corpus of the Trust
or income thereon to be at any time used for, or diverted to, purposes
other than for the exclusive benefit of Members or their
Beneficiaries.
SECTION 11
DISCONTINUANCE AND LIABILITIES
111.1 Termination. The Plan may be terminated at any time by the Plan
Sponsor, but only upon condition that such action is taken under the
Trust Agreement or otherwise, as shall render it impossible at any
time under the Trust for any part of the corpus of the Trust or
income thereon to be at any time used for, or diverted to purposes
other than for the exclusive benefit of, active and retired employees,
except as is provided under Sections 3.7 and 11.3. If the Plan is
terminated the Fund shall be held for distribution by the Trustee, who
shall distribute to the Members then participating in the Fund the full
amount standing to their credit on the date of such termination, less
the administrative costs to the Trustee for such distribution, in
accordance with the methods specified under Section 6.
In the event that a Participating Employer sponsors any other defined
contribution plan, if a Member does not consent to a distribution
upon termination of this Plan, that Member's Accrued Benefit shall
be transferred to the other aforesaid defined contribution plan.
Notwithstanding the foregoing, if the Participating Employer
sponsors any other defined contribution plan all salary deferral
contributions will be transferred to said plan upon the termination of
this Plan.
111.2 No Liability For Participating Employer. The Participating
Employer shall have no liability with respect to the payment of
benefits or otherwise under the Plan, except to pay over to the
Trustee as provided in the Plan such contributions as are made by the
Participating Employers and any and all contributions made by the
Members. Further, the Participating Employers shall have no
liability with respect to the administration of the Trust or of the Fund
held by the Trustee, and each Member and/or Beneficiary shall look
solely to the Fund for any payments or benefits under the Plan.
111.3 Administrative Expenses. A Participating Employer may elect to pay
all administrative expenses of the Plan, including compensation of the
Trustee, consultants, auditor and counsel, but the Participating
Employer shall not be obliged to pay such expenses. If Participating
Employers elect not to pay such expenses, they shall be paid from the
Trust. Any expenses directly relating to the investments of the Trust,
such as taxes, commissions, and registration charges, shall be paid
from the Trust.
111.4 Nonforfeitability Due to Termination(s). Upon termination, partial
termination or upon complete discontinuance of contributions under
the Plan, the rights of all affected Employees to their Accrued
Benefits accrued to the date of such termination, partial termination
or discontinuance, shall become nonforfeitable.
111.5 Exclusive Benefit Rule. This Plan and Trust are for the exclusive
benefits of the Members and their Beneficiaries. This Plan shall be
interpreted in a manner consistent with this intent and with the
intention of the Employer that the Trust satisfy those provisions of
the Code relating to employees' trusts.
111.6 Mergers. In the case of any merger or consolidation of the Plan
with, or transfer of Plan assets or liabilities to, any other plan,
provisions shall be made so that each Member in the Plan on the date
thereof (if the Plan then terminated) would receive a benefit
immediately after the merger, consolidation or transfer which is
equal to or greater than the benefit he would have been entitled to
receive immediately prior to the merger, consolidation or transfer (if
the Plan had then terminated).
111.7 Non-allocated Trust Assets. Any portion of the Fund which is
unallocated at the time of termination of the Plan shall be allocated
among Members of the Plan in a nondiscriminatory manner selected
by the Plan Administrator.
SECTION 12
ADMINISTRATION 22
Appointment of Plan Administrator. The Board may appoint an
individual or committee to act as Plan Administrator. The Plan
Administrator may be removed by the Board at any time and may
resign at any time by submitting a written resignation to the Board.
A new Plan Administrator shall be appointed as soon as practicable
in the event that the Plan Administrator is removed or resigns from
his position. If no Plan Administrator is appointed, the Plan Sponsor
shall act as Plan Administrator through its officers and employees.
22.1 Responsibilities and Duties. The Plan Administrator shall:
A. be responsible for the day to day administration of the Plan.
He may appoint other persons or entities to perform any of his
fiduciary functions. Such appointment shall be made and
accepted by the appointee in writing. The Plan Administrator
and any such appointee may employ advisors and other
persons necessary or convenient to help him carry out his
duties including his fiduciary duties. The Plan Administrator
shall have the right to remove any such appointee from his
position. Any person, group of persons or entity may serve
in more than one fiduciary capacity.
B. maintain or cause to be maintained accurate and detailed
records and accounts of employees and of their rights under
the Plan and of all investments, receipts, disbursements and
other transactions. Such accounts, books and records relating
thereto shall be open at all reasonable times to inspection and
audit by the Board and by persons designated thereby.
22.2 Claims Procedure. Each Member or Beneficiary must claim any
benefit to which he believes he is entitled under this Plan by a written
notification to the Plan Administrator.
The Plan Administrator shall decide a claim within 90 days of the
date on which the claim is filed, unless special circumstances require
a longer period for adjudication and the claimant is notified in
writing of the reasons for an extension of time; provided, however,
that no extensions shall be permitted beyond 90 days after the date on
which the claimant received notice of the extension of time from the
Plan Administrator. If the Plan Administrator fails to notify the
claimant of his decision to grant or deny such claim within the time
specified by this paragraph, such claim shall be deemed to have been
denied by the Plan Administrator and the review procedure described
below shall become available to the claimant.
If a claim is denied, it must be denied within a reasonable period of
time, and be contained in a written notice stating the following:
A. the specific reason for the denial;
B. a specific reference to the Plan provision on which the denial
is based;
C. a description of additional information necessary for the
claimant to perfect his claim, if any, and an explanation of
why such material is necessary; and
D. an explanation of the Plan's claim review procedure.
The claimant shall have 60 days to request a review of the denial of
his claim by the Plan Administrator, who shall provide a full and fair
review. The request for review must be written and submitted to the
same person who handles initial claims. The claimant may review
pertinent documents, and he may submit issues and comments in
writing. The decision by the Plan Administrator with respect to the
review must be given within 60 days after receipt of the request,
unless special circumstances require an extension (such as for a
hearing). In no event shall the decision be delayed beyond 120 days
after receipt of the request for review. The decision shall be written
in a manner calculated to be understood by the claimant, and it shall
include specific reasons and refer to specific Plan provisions as to its
effect.
22.3 Trustee Has Authority to Invest. All Funds of the Plan shall be
invested by the Trustee in accordance with the provisions of the Plan
and Trust Agreement. To the extent that individual Members are
permitted to direct investment of their account balances, and to the
extent a Member exercises such right to direct investment, the
Trustee shall be relieved from any liability therefor.
22.4 Indemnification. The Plan Sponsor shall indemnify any individual
who is serving as Plan Administrator or who is acting on behalf of
the Plan Sponsor in this capacity from any and all liability that may
arise by reason of his action or failure to act concerning this Plan,
excepting any wilful misconduct or criminal acts.
22.5 Removal For Personal Involvement. No individual may participate
in the consideration of any matter of or question concerning the Plan
which specifically and uniquely relates to him because of his
participation under the Plan.
SECTION 13
AMENDMENTS 23
Amendment Restrictions. The provisions of this Plan may be
amended at any time and from time to time provided that:
A. no such amendment shall be effective unless this Plan, as so
amended, shall be for the exclusive benefit of persons in, or
formerly in, the employ of a Participating Employer, or their
Beneficiaries;
B. no such amendment shall operate to deprive a Member of any
rights or benefits irrevocably vested in him under the Plan
prior to the later of the date such amendment is adopted or
becomes effective;
C. no such amendment shall be effective to the extent that it
decreases a Member's Accrued Benefit. For purposes of this
Section 13, a Plan amendment which has the effect of
decreasing a Member's Accrued Benefit or eliminating an
optional form of benefit, with respect to benefits attributable
to service before the amendment, shall be treated as reducing
an Accrued Benefit.
If any amendment shall be necessary or desirable to conform to the
provisions and requirements of the Code or any amendment thereto,
or any regulation issued pursuant thereto, no such amendment shall
be considered prejudicial to the interest of a Member or his
Beneficiary, or a diversion of any part of Fund to a purpose other
than for their exclusive benefit.
23.1 Amending the Plan. The Board may amend the Plan at any time by
resolution or by such other action permitted by the Plan Sponsor's
charter, by-laws, or such other method permitted by the laws of the
state of incorporation of the Plan Sponsor. A copy of any such
amendment shall be provided to the Trustee and the Plan
Administrator.
23.2 Retroactive Amendments. Any modification or amendment of the
Plan may be made retroactive if such retroactivity is deemed to be
necessary in order for the Plan to conform to or satisfy the conditions
of any law, governmental regulations or ruling, or to meet the
requirements of applicable sections of the Code or the corresponding
regulations.
SECTION 14
LOANS 24
Permitted Loans. A Member may make application to the Plan
Administrator to borrow from his vested Accrued Benefit. That
application must be made in writing, and must specify the amount
and term requested. The Plan Administrator shall determine whether
the application for a loan is to be approved after an evaluation of all
necessary documentation regarding the credit-worthiness of the
applicant. All applications for loans shall be evaluated in a uniform
and nondiscriminatory manner, and loans shall not be made available
to Highly Compensated Employees in an amount greater than that for
other Employees. Loans that are granted shall be subject to the
following conditions:
A. the aggregate amount of all such loans to a Member shall not
exceed the lesser of:
(1) $50,000, reduced by the greatest value of any outstanding
loan balance owed by the Member during the one-year period
ending on the day before the loan is made, or
(2) 50% of his vested Accrued Benefit;
B. the minimum amount of any loan made hereunder shall be
$1,000;
C. no more than one loan per twelve-month period shall be
granted to a Member.
24.1 Collateral Required. A note shall be signed by the Member pledging
as collateral an amount equal to 50% of his vested Accrued Benefit
and such other collateral as may be necessary to adequately secure
the loan.
24.2 Repayment. The loan shall be amortized by substantially equal
installments payments withheld from the borrower's regular pay
during the term of the loan; except that any loan made to a non-
Employee shall be repaid by that non-Employee in substantially equal
monthly installments. The term of the loan may not exceed five
years unless the loan is used to buy or build the Member's principal
residence. Principal residence status shall be determined at the time
the loan is made.
24.3 Interest Charges. Interest shall be charged on a loan that exceeds
five (5) years at a rate equal to the rate in force for residential
mortgages in the community, determined by the Plan Administrator
or Committee. Interest shall be charged on a loan that is for less than
five (5) years based upon the Prime Commercial Lending Rate plus
two percentage points in force in the community on the date of the
loan. Interest rates shall be established once each quarter and shall
apply to all loans made during the quarter.
24.4 Failure to Make Timely Payment. In the event an installment
payment is not paid within 60 days following the due date of an
installment, the Plan Administrator shall give written notice to the
Member sent to his last known address. If such installment payment
is not made within 30 days thereafter, the Plan Administrator shall
have the right to accelerate the loan and to reduce the Member's
Accrued Benefit by the amount of the unpaid loan balance including
interest then due but not before the time at which the Member may
first receive a distribution under Section 6. If the Member's Accrued
Benefit must be used to pay any Plan loan which is in default, the
Member's various accounts shall be reduced in the following order:
A. Matching Contribution Account, to the extent vested
B. Basic Contribution Account.
24.5 Termination of Employment. In the event of the termination of a
Member's employment before the loan is repaid in full, the unpaid
balance thereof, together with interest immediately due thereon, shall
become due and payable; and the Trustee shall first satisfy the
indebtedness from the amount payable to the Member or to the
Member's Beneficiary before making any payments to the Member
or to the Member's Beneficiary.
24.6 No Loans to Non-Employees. There will be no loans to individuals
who are no longer Employees. Any Member who ceases to be an
active Employee who is a "party in interest" as that term is defined
in ERISA section 3(14) may be eligible to borrow from the Plan
under terms and conditions reflecting valid economic differences
between active Members and other Members which would be
considered in a normal commercial setting, such as the unavailability
of payroll deductions for repayment. In addition, there will be an
annual fee for the administration of each of such loans of $100.
24.7 General Administration. The Trustee and the Plan Administrator
shall have the right to establish such procedures as may be
reasonable, necessary or desirable to carry out the provisions of this
Section 14.
SECTION 15
MISCELLANEOUS 25
"Spendthrift" Provision. Subject to Section 15.2 and 15.3 below, no
benefit under the Plan shall be subject in any manner to anticipation,
pledge, encumbrance, alienation, levy or assignment, nor to seizure,
attachment or other legal process for the debts of any Employee,
Member or Beneficiary, unless required by law.
25.1 QDRO Exception. In the event that a Qualified Domestic Relations
Order ("QDRO") (as defined by section 414(p) of the Code) is issued
with respect to any Member, the Plan Administrator shall notify the
Member and the alternate payee(s) of the order received and
segregate and conservatively invest the portion of the Member's
Accrued Benefit which would be payable to the alternate payee(s) as
if the order received were a QDRO. Within 18 months of the order,
the Plan Administrator shall proceed with either A. or B. as follows:
A. if the order is determined to be a QDRO, the Plan
Administrator shall pay the alternate payee(s), notwithstanding
Section 6, (i) at the time specified in such order or, if the
order permits, (ii) as soon after the Plan Administrator
approves the order as is administratively feasible provided
such distribution is permitted under applicable provisions of
the Code; or
B. if the order is determined not to be a QDRO, or the issue
remains undetermined, the Plan Administrator shall pay the
portions of the Member's Accrued Benefit segregated in
accordance with the above to the Member or Beneficiary(ies)
who are otherwise entitled to such benefit.
If, 18 months after issuance of the order, a determination is made
that the order is a QDRO, the determination shall be applied
prospectively only.
25.2 Plan Loans. A pledge made in accordance with Section 14 which is
permitted by Treasury regulation 1.401(a)-13(d) shall not be subject
to Section 15.1.
25.3 No Guarantee of Employment. Nothing contained in this Plan or the
Trust shall be held or construed to create any liability upon the
Employer to retain any Employee in its employ. The Participating
Employers reserve the right to discontinue the services of any
Employee without any liability except for salary or wages that may
be due and unpaid whenever, in their judgment, their best interests
so require.
25.4 Controlling Law. The Plan shall be construed, administered and
governed in all respects in accordance with the laws of the State of
New Jersey to the extent such laws are not superseded by federal
law. If any provision herein is held by a court of competent
jurisdiction to be invalid or unenforceable, the remaining provisions
hereof shall continue to be fully effective.
ELIZABETHTOWN WATER
COMPANY
ATTEST: DATE: June 16, 1994
/s/ Walter M. Braswell /s/ Gail P. Brady
----------------------- By:-----------------
Secretary Authorized Officer
AMENDMENT NO. 1 TO THE
ELIZABETHTOWN WATER COMPANY
SAVINGS AND INVESTMENT PLAN
WHEREAS, ELIZABETHTOWN WATER COMPANY,
(the "Employer") adopted the Elizabethtown Water Company Savings and
Investment Plan (the "Plan"), effective January 1, 1988, and restated
in its entirety, effective as of January 1, 1989; and
WHEREAS, Section 13 permits the Employer to amend
the Plan at any time; and
WHEREAS, the Employer wishes to amend the Plan in
certain particulars;
NOW, THEREFORE, BE IT RESOLVED that, effective
January 1, 1995, the Plan is amended as follows:
1. Section 1.8 is hereby amended with the addition of a new
subsection E., as follows:
E. Effective January 1, 1995, Employees who are
covered under a collective bargaining agreement
with the Employer or any Participating Employer
are eligible to participate in the Plan, subject to
the restrictions set forth therein.
2. Section 3.1 is hereby amended by deleting the first
paragraph thereof and replacing it with the following:
3.1 Basic Contributions. Each non-union Member
may authorize a Participating Employer to reduce
his Compensation by any whole percentage up to
10% of such Compensation, subject to the Dollar
Limit and limits of Section 3.6. Each Member
who is covered under a collective bargaining
agreement with the Employer may authorize a
Participating Employer to reduce his
Compensation by any whole percentage up to 6%
of such Compensation, subject to the Dollar Limit
and limits of Section 3.6.
3. Section 3.2 is hereby deleted in its entirety and replaced
with the following:
3.2 Matching Contributions. The Participating
Employer shall make a Matching Contribution to
each non-union Member which shall equal $.50
for each $1.00 deposited to such Member's Basic
Contribution Account. The Matching
Contribution shall be credited to the Member's
Matching Contribution Account.
Notwithstanding the preceding, no Matching
Contributions shall be made with respect to a
non-union Member's Basic Contributions in
excess of 6% of his Compensation. The amount
of Employer Matching Contributions may be
increased or decreased at the discretion of the
Board, provided that reasonable notice is
provided to Members giving them the opportunity
to change their elective deferral percentages.
Members who are covered by a collective
bargaining agreement with the Employer or any
Participating Employer are not eligible for a
Matching Contribution under the Plan.
4. Section 14.1 is hereby amended by deleting the first
paragraph thereof and replacing it with the following:
14.1 Permitted Loans. A non-union Member may
make application to the Plan Administrator to
borrow from his vested Accrued Benefit.
Members who are covered under a collective
bargaining agreement with the Employer or any
Participating Employer are not permitted to take
a loan from the Plan. The application for a loan
must be made in writing, and must specify the
amount and term requested. The Plan
Administrator shall determine whether the
application for a loan is to be approved after an
evaluation of all necessary documentation
regarding the credit-worthiness of the applicant.
All applications for loans shall be evaluated in a
uniform and nondiscriminatory manner, and loans
shall not be made available to Highly
Compensated Employees in an amount greater
than that for other Employees. Loans that are
granted shall be subject to the following
conditions:
IN WITNESS WHEREOF, the parties hereunto set our
hands this 15th day of December, 1994.
ELIZABETHTOWN WATER COMPANY
Thomas J. Cawley
ATTEST: ------------------------
President
Thomas J. Cawley
/s/ Walter M. Braswell
----------------------
Secretary
Walter M. Braswell