SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File
For Quarter Ended: June 30, 1998 No. 0-422
MIDDLESEX WATER COMPANY
(Exact name of registrant as specified in its charter)
INCORPORATED IN NEW JERSEY 22-1114430
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1500 RONSON ROAD, ISELIN, NJ 08830
(Address of principal executive offices) (Zip Code)
(732) 634-1500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities and Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that this registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 30 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the
Issuer's classes of common stock, as of the latest practicable
date.
Class Outstanding at June 30, 1998
Common Stock, No Par Value 4,345,245
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements:
Consolidated Statements of Income 1
Consolidated Balance Sheets 2
Consolidated Statements of Capitalization and Retained Earnings 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION 10
SIGNATURE 11
PART I. - FINANCIAL INFORMATION
MIDDLESEX WATER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
__________ __________ __________ __________
Operating Revenues $10,591,316 $ 9,937,149 $20,360,455 $19,273,168
__________ __________ __________ __________
Operating Expenses:
Operations and Maintenance 5,171,280 4,965,120 10,087,766 9,525,478
Depreciation 815,639 759,628 1,623,723 1,515,111
Taxes, other than Income Taxes 1,499,787 1,429,827 2,914,244 2,820,997
Federal Income Taxes 836,439 704,294 1,518,689 1,355,027
__________ __________ __________ __________
Total Operating Expenses 8,323,145 7,858,869 16,144,422 15,216,613
__________ __________ __________ __________
Utility Operating Income 2,268,171 2,078,280 4,216,033 4,056,555
Other Income-Net 392,630 58,260 522,421 180,022
__________ __________ __________ __________
Income Before Interest Charges 2,660,801 2,136,540 4,738,454 4,236,577
Interest Charges 1,086,793 825,720 1,901,195 1,643,732
__________ __________ __________ __________
Net Income 1,574,008 1,310,820 2,837,259 2,592,845
Preferred Stock Dividend
Requirements 79,696 39,731 159,393 79,463
__________ __________ __________ __________
Earnings Applicable to
Common Stock $ 1,494,312 $ 1,271,089 $ 2,677,866 $ 2,513,382
__________ __________ __________ __________
Basic and Diluted Earnings
per Share $0.34 $0.30 $0.62 $0.60
__________ __________ __________ __________
Average Number of Common
Shares Outstanding 4,330,025 4,224,248 4,310,462 4,217,480
Cash Dividends Paid per
Common Share $0.28 1/2 $0.28 $0.57 $0.56
See Notes to Consolidated Financial Statements.
-1-
MIDDLESEX WATER COMPANY
CONSOLIDATED BALANCE SHEETS
ASSETS AND OTHER DEBITS
June 30, December 31,
1998 1997
___________ ___________
(Unaudited)
UTILITY PLANT:
Water Production $ 27,900,063 $ 27,689,254
Transmission and Distribution 114,656,052 113,104,789
General 18,905,283 18,845,301
Construction Work in Progress 13,747,369 5,683,217
___________ ___________
TOTAL 175,208,767 165,322,561
Less Accumulated Depreciation 31,114,622 30,251,825
___________ ___________
UTILITY PLANT-NET 144,094,145 135,070,736
___________ ___________
NONUTILITY ASSETS-NET 3,702,176 2,038,568
___________ ___________
CURRENT ASSETS:
Cash and Cash Equivalents 2,487,316 2,513,294
Temporary Cash Investments-Restricted 16,743,117 218,787
Accounts Receivable(net of allowance
for doubtful accounts) 4,867,564 3,794,860
Unbilled Revenues 2,557,179 2,175,934
Materials and Supplies(at average cost) 1,100,183 960,577
Prepayments and Other Current Assets 535,878 387,487
___________ ___________
TOTAL CURRENT ASSETS 28,291,237 10,050,939
___________ ___________
DEFERRED CHARGES:
Regulatory Assets 7,296,196 7,359,969
Unamortized Debt Expense 3,182,940 2,773,233
Preliminary Survey and Investigation Charges 215,036 213,650
Other 2,393,596 2,253,678
___________ ___________
TOTAL DEFERRED CHARGES 13,087,768 12,600,530
___________ ___________
TOTAL $189,175,326 $159,760,773
___________ ___________
See Notes to Consolidated Financial Statements.
-2-
MIDDLESEX WATER COMPANY
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND OTHER CREDITS
June 30, December 31,
1998 1997
___________ ___________
(Unaudited)
CAPITALIZATION(see accompanying statements) $133,866,164 $109,139,429
___________ ____________
CURRENT LIABILITIES:
Current Portion of Long-term Debt 44,336 42,708
Notes Payable 4,476,932 564,701
Accounts Payable 2,937,186 3,602,420
Customer Deposits 397,387 393,376
Taxes Accrued 5,590,086 5,142,089
Interest Accrued 1,599,371 1,183,561
Other 2,298,773 2,039,828
___________ ___________
TOTAL CURRENT LIABILITIES 17,344,071 12,968,683
___________ ___________
DEFERRED CREDITS:
Customer Advances for Construction 10,770,277 10,830,646
Accumulated Deferred Investment Tax Credits 2,201,222 2,237,060
Accumulated Deferred Federal Income Taxes 12,398,209 12,177,993
Other 2,227,503 2,051,895
___________ ___________
TOTAL DEFERRED CREDITS 27,597,211 27,297,594
___________ ___________
CONTRIBUTIONS IN AID OF CONSTRUCTION 10,367,880 10,355,067
___________ ___________
TOTAL $189,175,326 $159,760,773
___________ ___________
See Notes to Consolidated Financial Statements.
-3-
MIDDLESEX WATER COMPANY
CONSOLIDATED STATEMENTS OF CAPITALIZATION AND RETAINED EARNINGS
June 30, December 31,
1998 1997
___________ ___________
(Unaudited)
CAPITALIZATION:
Common Stock,No Par Value
Shares Authorized,10,000,000
Shares Outstanding-1998,4,345,245
1997,4,269,217 $ 32,665,359 $ 31,138,484
Retained Earnings 20,309,429 20,087,065
___________ ___________
TOTAL COMMON EQUITY 52,974,788 51,225,549
___________ ___________
Cumulative Preference Stock,No Par Value
Shares Authorized,100,000; Shares Outstanding,None
Cumulative Preferred Stock,No Par Value,
Shares Authorized - 150,000
Convertible:
Shares Outstanding,$7.00 Series - 14,881 1,562,505 1,562,505
Shares Outstanding,$8.00 Series - 20,000 2,331,430 2,331,430
Nonredeemable:
Shares Outstanding,$7.00 Series - 1,017 101,700 101,700
Shares Outstanding,$4.75 Series - 10,000 1,000,000 1,000,000
___________ ___________
TOTAL CUMULATIVE PREFERRED STOCK 4,995,635 4,995,635
___________ ___________
Long-term Debt:
8.02% Amortizing Secured Note,
due December 20,2021 3,440,077 3,460,953
First Mortgage Bonds:
7.25%,Series R,due July 1,2021 6,000,000 6,000,000
5.20%,Series S,due October 1,2022 12,000,000 12,000,000
5.25%,Series T,due October 1,2023 6,500,000 6,500,000
6.40%,Series U,due February 1,2009 15,000,000 15,000,000
5.25%,Series V,due February 1,2029 10,000,000 10,000,000
5.35%,Series W,due February 1,2038 23,000,000 0
___________ ___________
SUBTOTAL LONG-TERM DEBT 75,940,077 52,960,953
Less: Current Portion of Long-term Debt (44,336) (42,708)
___________ ___________
TOTAL LONG-TERM DEBT 75,895,741 52,918,245
___________ ___________
TOTAL CAPITALIZATION $133,866,164 $109,139,429
___________ ___________
Six Months Ended Year Ended
June 30, December 31,
1998 1997
___________ ___________
(Unaudited)
RETAINED EARNINGS:
BALANCE AT BEGINNING OF PERIOD $ 20,087,065 $ 19,226,847
Net Income 2,837,259 5,860,906
___________ ___________
TOTAL 22,924,324 25,087,753
___________ ___________
Cash Dividends:
Cumulative Preferred Stock 159,358 239,361
Common Stock 2,455,537 4,761,327
___________ ___________
TOTAL DEDUCTIONS 2,614,895 5,000,688
___________ ___________
BALANCE AT END OF PERIOD $ 20,309,429 $ 20,087,065
___________ ___________
See Notes to Consolidated Financial Statements.
-4-
MIDDLESEX WATER COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30,
1998 1997
___________ ___________
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 2,837,259 $ 2,592,845
Adjustments To Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation and Amortization 1,807,353 1,557,090
Provision for Deferred Income Taxes 220,216 362,166
Allowance for Funds Used During Construction (352,056) (12,071)
Changes in Current Assets and Liabilities:
Accounts Receivable (1,072,704) (145,431)
Materials and Supplies (139,606) (99,402)
Accounts Payable (665,234) 551,013
Accrued Income Taxes 447,997 565,026
Accrued Interest 415,810 4,533
Unbilled Revenues (381,245) (283,556)
Other-Net 218,883 (508,030)
___________ ___________
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,336,673 4,584,183
___________ ___________
CASH FLOWS FROM INVESTING ACTIVITIES:
Utility Plant Expenditures (10,292,634)(2,623,454)
Note Receivable (1,664,224) 0
Preliminary Survey and Investigation Charges (1,386) (436,706)
Other-Net (161,760) 132,571
___________ ___________
NET CASH USED IN INVESTING ACTIVITIES (12,120,004) (2,927,589)
___________ ___________
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption of Long-term Debt (20,876) (19,087)
Proceeds from Issuance of Long-term Debt 23,000,000 0
Net Short-term Bank Borrowings 3,912,231 0
Deferred Debt Issuance Expenses (474,096) 0
Temporary Cash Investments-Restricted (16,524,330) (206,845)
Proceeds from Issuance of Common Stock-Net 1,526,875 520,630
Payment of Preferred Dividends (159,358) (79,463)
Payment of Common Dividends (2,455,537) (2,359,981)
Customer Advances and Contributions-Net (47,556) 683,120
___________ ___________
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 8,757,353 (1,461,626)
___________ ___________
NET CHANGE IN CASH AND CASH EQUIVALENTS (25,978) 194,968
___________ ___________
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 2,513,294 4,262,862
___________ ___________
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 2,487,316 $ 4,457,830
___________ ___________
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash Paid During the Period for:
Interest(net of amounts capitalized) $ 1,283,663 $ 1,575,885
Income Taxes $ 1,300,000 $ 500,700
Excludes Allowance for funds Used During Construction.
See Notes to Consolidated Financial Statements.
-5-
MIDDLESEX WATER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies
Organization - Middlesex Water Company (Middlesex or Company) is the parent
company and sole shareholder of Tidewater Utilities, Inc. (Tidewater),
Pinelands Water Company, Pinelands Wastewater Company, and Utility Service
Affiliates, Inc. (USA). Public Water Supply Company, Inc. (Public) and White
Marsh Environmental Systems, Inc. are wholly-owned subsidiaries of Tidewater.
The financial statements for Middlesex and its wholly-owned subsidiaries
(Consolidated Group) are reported on a consolidated basis. All intercompany
accounts and transactions have been eliminated.
The consolidated notes accompanying the 1997 Form 10-K are applicable to this
report and, in the opinion of the Company, the accompanying unaudited
consolidated financial statements contain all adjustments (consisting of only
normal recurring accruals) necessary to present fairly the financial position
as of June 30, 1998 and the results of operations and its cash flows for the
periods ended June 30, 1998 and 1997. Information included in the Balance
Sheet as of December 31, 1997 has been derived from the Company's audited
financial statements included in its annual report on Form 10-K for the year
ended December 31, 1997.
Note 2 - Regulatory Matters
In the first quarter of 1998, Middlesex filed an application with the New
Jersey Board of Public Utilities (BPU) to issue and sell up to 800,000
additional shares of Common Stock under the Company's Dividend Reinvestment
and Common Stock Purchase Plan. The Company received approval on this matter
on June 10, 1998.
Note 3 - Capitalization
Common Stock - During the three months ended June 30, 1998, 40,696 common
shares ($0.8 million) were issued under the Company's Dividend Reinvestment
and Common Stock Purchase Plan. A 5% discount on purchases and reinvestments
through the Plan was available until June 1, 1998.
Long-term Debt - On March 31, 1998, Middlesex issued $23.0 million of First
Mortgage Bonds designated as Series W with a maturity date of February 1, 2038
and a coupon rate of 5.35%. The effective interest cost to maturity is 5.48%.
The bond offering was competitively bid in cooperation with the New Jersey
Economic Development Authority. Interest paid to the bondholders is exempt
from federal and New Jersey income taxes (Tax Exempt). However, the interest
is subject to the Alternative Minimum Tax (AMT). The proceeds of the bonds
will be used to finance a significant portion of the upgrade of the Carl J.
Olsen Water Treatment Plant (CJO Plant).
-6-
On May 29, 1998 the Company filed a petition with the BPU seeking approval to
issue $2.5 million of long-term bonds through the New Jersey State Revolving
Fund (SRF). The SRF program, which is administered by the New Jersey
Environmental Infrastructure Trust, evolved from the Federal Environmental
Protection Agency's (EPA) regulations issued under the Safe Drinking Water
Act. Under this program, investor-owned public water utilities can apply for
construction loans, which are funded by the participating state and the EPA
through the state environmental agency. In New Jersey, initial project
approval must be granted by the New Jersey Department of Environmental
Protection (NJDEP). Funds from the EPA, which can equal up to 50% of
construction costs, are loaned at a zero interest cost; the interest rate on
the state portion of the loan is based upon the market place at time of
issuance. The rate to the Company is a blend of the two rates. The interest
paid to bondholders is considered Tax Exempt subject to AMT. Proceeds from
the proposed financing would be available for qualified costs reimbursement
in May 1999. A decision by the BPU is expected during the third quarter.
Middlesex has also filed planning and design documents with the NJDEP in
order to be able to apply for additional loans under the SRF program in
future years. If approved, Middlesex will need to file for approval from
the BPU sometime during the second quarter of 1999.
-7-
MIDDLESEX WATER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE
THREE AND SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO
JUNE 30, 1997
Operating Revenues were up $0.7 million or 6.6% over the second quarter of
1997. For the six months ended June 30, 1998 Operating Revenues were up $1.1
million or 5.6% over the same period in 1997. The components of the
increases are as follows:
(Millions)
Three Six
Months Months
Base Rate Increases $0.4 $0.6
Subsidiary Acquisition 0.2 0.4
Consumption Increase 0.1 0.1
___ ___
Increase $0.7 $1.1
In January 1998, Middlesex implemented an approved rate increase of 4.4%
while Pinelands Water and Wastewater rates increased as part of a scheduled
phase-in. Public Water Supply Company (Public) was not part of consolidated
operations until August 1, 1997. Tidewater experienced continued double-
digit customer growth, on an annualized basis, which offset lower overall
consumption in the Company's New Jersey operations. Consumption for Middlesex
general water users was higher, but improvements to two of Middlesex Contract
Sales customers systems resulted in lower usage under those contracts.
Operating Expenses increased $0.5 million or 5.9% for the quarter and $0.9
million or 6.0% for the six months ended June 30, 1998 compared to the
respective period a year ago. Both the inclusion of Public's operations and
mandated recognition of postretirement benefit costs other than pensions
resulted in higher expense of $0.2 million and $0.5 million for the second
quarter and year to date 1998, respectively. Increased sales resulted in
higher revenue related taxes and higher taxable income pushed Federal Income
Taxes up for the quarter and year to date.
Other income rose significantly due to capitalized interest on the
expenditures associated with the upgrade of the Carl J. Olsen Water Treatment
Plant (CJO Plant) and investment earnings on restricted CJO Plant construction
funds. The increase in capitalized interest was $0.2 million and $0.3 million
for the three and six month periods. Investment earnings rose $0.2 million for
the three and six month period.
Interest Expense for 1998 reflects the increased debt service on the $23.0
million of first mortgage bonds issued on March 31, 1998. The Preferred Stock
Dividend Requirement difference is due to the issuance on July 31, 1997 of the
$8.00 preferred stock series to complete the acquisition of Public.
-8-
Capital Resources: The Company's capital program for 1998 is estimated to be
$28.3 million and includes $18.0 million for the upgrade of the Carl J. Olsen
Water Treatment Plant which is scheduled for completion in June 1999, $2.0
million for the rehabilitation of unlined cast iron pipe (RENEW Program), $4.6
million for water system additions and improvements in Delaware and $3.7
million for scheduled upgrades to existing systems. The $3.7 million for
scheduled upgrades consists of $0.9 million for mains, $0.7 million for
service lines, $0.8 million for meters and hydrants and $1.3 million for
various other items.
Liquidity: Proceeds from the $23.0 million Series W First Mortgage Bonds will
be used to finance a large part of the CJO Plant project. Other capital
expenditures will be financed through internally generated funds and sale of
common stock through the Dividend Reinvestment and Common Stock Purchase Plan
(DRP). Additionally, the Company will utilize short-term borrowings through
$30.0 million of available lines of credit. An offering of common equity of
approximately $8.0 million has tentatively been scheduled for December 1998.
Capital expenditures of $10.3 million have been incurred in the six months
ended June 30, 1998.
Accounting Pronouncements: The Financial Accounting Standards Board (FASB)
issued three new accounting pronouncements, which the Company is required to
adopt in 1998.
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income" establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. At June 30, 1998, the Company does not have any items
of comprehensive income that would affect the current reporting of the
Company's financial position, results of operations or cash flows.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," requires that public enterprises report certain information
about operating segments in complete sets of financial statements. Disclosure
is not required for interim financial statements in the initial year of its
application. The Company is evaluating the requirements of SFAS No. 131.
Because the statement relates solely to disclosure provisions, it will not
have any effect on the Company's financial position, results of operations or
cash flows.
SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits," revises and standardizes disclosure requirements for pension and
other postretirement benefit plans but does not change the measurement or
recognition of those plans.
Year 2000 Disclosure: The Company has assessed the effect of the Year 2000
issue on its computer systems and believes that all of its systems are in
compliance.
-9-
MIDDLESEX WATER COMPANY
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
Annual Meeting of Shareholders held May 27, 1998.
Matters voted upon at the meeting:
ELECTION OF DIRECTORS
Nominees for Class II term expiring in 2001:
FOR WITHHOLD
Ernest C. Gere 3,457,664 73,053
Stephen H. Mundy 3,435,648 95,069
Richard A. Russo 3,469,333 61,387
Resolution approving appointment of Deloitte & Touche LLP,
Certified Public Accountants, as independent auditors for 1998:
FOR AGAINST ABSTAIN
3,490,107 13,513 27,097
Resolution approving amendment to the Restated Certificate of
Incorporation to increase the authorized Common Stock, from
6,000,000 shares to 10,000,000 shares:
FOR AGAINST ABSTAIN
3,297,443 188,505 44,769
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: No. 27, Financial Data Schedule.
(b) Reports on Form 8-K: None
-10-
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
MIDDLESEX WATER COMPANY
(Registrant)
/s/A. Bruce O'Connor
Date: August 7, 1998 A. Bruce O'Connor
Vice President and Controller
-11-
UT
0000066004
MIDDLESEX WATER COMPANY
6-MOS
DEC-31-1998
JUN-30-1998
PER-BOOK
144,094,145
3,702,176
28,291,237
13,087,768
0
189,175,326
32,665,359
0
20,309,429
52,974,788
0
4,995,635
75,895,741
4,476,932
0
0
44,336
0
0
0
50,787,894
189,175,326
20,360,455
1,518,689
14,625,733
16,144,422
4,216,033
522,421
4,738,454
1,901,195
2,837,259
159,393
2,677,866
2,455,537
4,115,750
3,336,673
0.62
0.62
