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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File
For the Fiscal Year ended December 31, 1996 No. 0-422
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MIDDLESEX WATER COMPANY
(Exact name of registrant as specified in its charter)
New Jersey 22-1114430
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1500 Ronson Road, Iselin, New Jersey 08830-3020
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(Address of principal executive offices) (Zip Code)
(908) 634-1500
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each Class on which registered
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None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No par Value
--------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X . NO .
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant at March 18, 1997 was $72,766,227 based on the closing market price
of $17.25 per share.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Class Outstanding at March 18, 1997
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Common Stock, No par Value 4,218,332
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Documents Incorporated by Reference
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Annual Report to shareholders for fiscal year ended December 31, 1996; pages 10
through 23. Parts II and IV.
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PART I
Item 1. Business
General
Middlesex Water Company (Middlesex or Company), has operated as a water
utility in New Jersey since its organization in 1897 and is in the business of
collecting, treating and distributing water for domestic, commercial, industrial
and fire protection purposes in the State and, since 1992, in the State of
Delaware through its acquisition of Tidewater Utilities, Inc. (Tidewater), as a
wholly-owned subsidiary. In April 1995, Middlesex completed the purchase of the
assets of a 2,200 customer water utility and a 2,200 customer wastewater utility
in Burlington County, New Jersey. The systems were acquired through the
Company's wholly-owned subsidiaries of Pinelands Water Company and Pinelands
Wastewater Company (jointly Pinelands). All water system's are completely
metered, including contract sales, except for fire hydrant service. The rates
charged for water services must be approved by regulatory authorities. In May
1995, Middlesex and its wholly-owned subsidiary, Utility Service Affiliates,
Inc., jointly entered into a five-year contract with the City of South Amboy to
operate and maintain the City's 2,600 customer water system. The contract is
subject to renewal for three future five-year periods.
Retail Sales
Middlesex provides water services to retail customers primarily in
eastern Middlesex County, New Jersey. Water services are now furnished to
approximately 53,000 retail customers located in an area of approximately 55
square miles of New Jersey in Woodbridge Township, the Boroughs of Metuchen and
Carteret, portions of Edison Township and the Borough of South Plainfield in
Middlesex County and, to a minor extent, a portion of the Township of Clark in
Union County. The retail customers include a mix of residential customers, large
industrial concerns and commercial and light industrial facilities. These retail
customers are located in generally well developed areas of central New Jersey.
Tidewater provides water services to almost 6,600 retail customers for
domestic, commercial and fire protection purposes in over 75 community water
systems located in Kent, Sussex and New Castle Counties in Delaware.
Pinelands provides water and wastewater services to approximately 2,200
retail customers in Burlington County, New Jersey.
Contract Sales
Middlesex also provides water on a wholesale basis in New Jersey to the
Township of Edison (Edison), the Borough of Highland Park (Highland Park), the
City of South Amboy (South Amboy), the Old Bridge Municipal Utilities Authority
(Old Bridge), the Borough of Sayreville (Sayreville) and the Marlboro Township
Municipal Utilities Authority (Marlboro). Under special contract, the Company
also provides water treatment and pumping services to the Township of East
Brunswick (East Brunswick). East Brunswick, South Amboy, Old Bridge, Sayreville
and Marlboro are within an area designated as the South River Basin Study Area.
- 1 -
The South River Basin Study Area refers to parts of southern Middlesex
and northern Monmouth Counties addressed by a 1980's study conducted by the New
Jersey Department of Environmental Protection (DEP). According to that study,
ninety-five percent of the area's water supply was derived from groundwater
sources that were being overpumped at that time and projected growth of the
region would further over stress these groundwater resources. These conditions
prompted the DEP to create Water Supply Critical Area No. 1 (Critical Area)
covering portions of Middlesex, Monmouth and Ocean Counties and to promulgate
mandatory reductions in groundwater withdrawals within the Critical Area. During
the same mid-1980's time period, East Brunswick entered into a special contract
with the Company and in 1986 began receiving water treatment and pumping
services under that contract.
In 1986, as part of the State's South River Basin Feasibility Study,
the Company outlined to the DEP and other interested parties a plan to construct
facilities to ensure potable water supplies into this area through the year
2020. In connection with this project, the Company entered into long-term water
supply agreements with Old Bridge, Marlboro and Sayreville, and the DEP approved
these agreements.
As an interim measure to address the immediate needs of this region, an
agreement was reached between the Company and the City of Perth Amboy for the
lease of a large diameter pipeline which extends from the northern shore of the
Raritan River to central Old Bridge. This pipeline was rehabilitated, isolated
from the Perth Amboy system and connected to the Middlesex system, and now
provides a supply of the Company's water to substantial portions of the Critical
Area (Old Bridge, Sayreville, Marlboro and South Amboy).
The South River Basin Transmission Main was scheduled to be constructed
in three stages, designated Sections C, B, and A, to meet the increasing demands
of the customers in the Critical Area. Section C, which was connected to
Marlboro in 1991, comprises a 6.5 mile main extending the Middlesex system from
the southern end of the Perth Amboy line to Marlboro Township in Monmouth
County. The Company completed construction of Section B, a 5 mile extension
northwest through Old Bridge to East Brunswick, that was operational in 1993. In
1993, an interconnecting pipeline was constructed by East Brunswick thereby
providing for an alternative means of transporting water from the Carl J. Olsen
Water Treatment Plant (CJO Plant) to the South River Basin customers. The
Company currently anticipates that Section A may be constructed towards the
middle of the next decade, when demands in the region grow, and will directly
connect Sections B and C to the Company's CJO Plant in Edison.
Financial Information
Consolidated operating revenues and operating income relating primarily
to operating water utilities are as follows:
(000's)
Years Ended December 31,
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1996 1995 1994
---- ---- ----
Operating Revenues $38,025 $37,847 $36,122
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Operating Income $ 8,222 $ 8,662 $ 8,452
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- 2 -
Operating revenues were derived from the following sources:
Years Ended December 31,
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1996 1995 1994
---- ---- ----
Residential 39.7% 40.2% 39.6%
Commercial 11.4 11.6 11.9
Industrial 17.4 17.6 18.3
Fire Protection 12.2 12.0 12.1
Contract Sales 17.8 17.6 17.5
Miscellaneous 1.5 1.0 0.6
---- ---- ----
TOTAL 100.0% 100.0% 100.0%
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Water Supplies and Contracts
The Company's water utility plant consists of source of supply,
pumping, water treatment, transmission, distribution and general facilities
located in New Jersey and Delaware. The New Jersey and Delaware water supply
systems are physically separate and are not interconnected. The newly acquired
Pinelands system is not interconnected to the Middlesex system.
Middlesex obtains water from both surface and groundwater sources. In
1995, surface sources of water provided approximately 65% of the Company's water
supply, groundwater from wells provided approximately 30% and the balance of 5%
was purchased from Elizabethtown Water Company (Elizabethtown), a nonaffiliated
water utility. The Company's distribution storage facilities are used to supply
water at times of peak demand and for outages and emergencies.
The principal source of surface supply in New Jersey is the Delaware
and Raritan Canal (D&R Canal), owned by the State of New Jersey and operated as
a water resource by the New Jersey Water Supply Authority (NJWSA). The Company
has contracts with the NJWSA to divert a maximum of 20 million gallons per day
(mgd) of untreated water from the D&R Canal as augmented by the Round
Valley/Spruce Run Reservoir System. In addition, the Company has a one-year
agreement for an additional 5 mgd renewed through April 30, 1997. The Company
also has an agreement with Elizabethtown, effective through December 31, 2005,
which provides for the minimum purchase of 3 mgd of treated water with
provisions for additional purchases.
Water is also derived from groundwater sources equipped with electric
motor-driven deep-well turbine type pumps. Middlesex has 32 wells, which provide
a pumpage capacity of approximately 23 mgd. These include the wells of the Park
Avenue and Sprague Avenue Well Fields (with a pumpage capacity of over 12 mgd)
which during 1993 were provided with treatment, refurbished and retrofitted to
insure compliance with water quality standards. See "Regulation - Water Quality
and Environmental Regulations."
The Pinelands water system obtains its supply from groundwater sources
equipped with three electric motor driven deep well turbine pumps and one
electric motor driven submersible pump.
- 3 -
The Company's New Jersey groundwater sources are:
1996 Max. Day
Pumpage Pump
No. of (millions of Capacity
Middlesex System Wells gallons) (mgd) Location
---------------- ----- -------- ----- --------
Park Avenue 15 11.3 15.2 South Plainfield
Tingley Lane North 4 3.1 2.8 Edison
Tingley Lane South 5 2.3 2.6 Edison
Spring Lake 4 1.2 2.8 South Plainfield
Sprague Avenue #1 1 1.6 1.1 South Plainfield
Sprague Avenue #2 1 1.3 1.3 South Plainfield
Maple Avenue 1 1.1 0.9 South Plainfield
Thermal Well 1 0.2 0.2 Edison
--
Total 32
==
Pinelands System
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Leisuretowne/Hampton Lakes 4 2.1 2.2 Southampton Township
Water supply to Delaware customers is derived from Tidewater's 84
wells, which provided overall system delivery of 350 mg during 1996. Tidewater
does not have a central treatment facility. Several of the water systems in
Sussex County and New Castle County have interconnected transmission systems.
Tidewater currently has applications before the Delaware regulatory authorities
for the approval of additional wells. Treatment is by chlorination and, in some
cases, pH correction and filtration. Water supply to Pinelands Water customers
is through four (4) wells drilled into the Mt. Laurel aquifer. Treatment
(disinfection only) is done at individual well sites.
The Pinelands sewer system discharges into the south branch of the
Rancoccos Creek through a tertiary treatment plant. The total capacity of the
plant is 0.5 mgd. Current average flow is 0.3 mgd. Pinelands has a current valid
NJPDES permit issued by the DEP.
In the opinion of management, the Company has adequate sources of water
supply and other facilities to meet current and anticipated future service
requirements in New Jersey, and each of the Tidewater community water systems
has adequate sources of water supply and other facilities to meet current and
anticipated future service requirements within that water system area.
Competition
The business of the Company in its franchised service area is
substantially free from direct competition with other public utilities,
municipalities and other entities; however, its ability to provide some contract
water supply services and operations and maintenance services is subject to
competition from other public utilities, municipalities and other entities.
Although Tidewater has been granted an exclusive franchise for each of its
existing community water systems, its ability to expand service areas can be
affected by the Delaware Department of Natural Resources and Environmental
Control (DNREC) awarding franchises to other regulated water purveyors.
- 4 -
Regulation
The Company is subject to regulation as to its rates, services and
other matters by the States of New Jersey and Delaware with respect to utility
service within those states and with respect to environmental and water quality
matters. The Company is also subject to regulation as to environmental and water
quality matters by the United States Environmental Protection Agency (EPA).
Regulation of Rates and Services
The Company and its Pinelands subsidiaries are subject to regulation by
the New Jersey Board of Public Utilities (BPU), and Tidewater is similarly
subject to regulation by the Delaware Public Service Commission (PSC). These
regulatory authorities have jurisdiction with respect to rates, service,
accounting procedures, the issuance of securities and other matters of utility
companies operating within the States of New Jersey and Delaware, respectively.
The Company and Tidewater, for ratemaking purposes, account separately for
operations in New Jersey and in Delaware so as to facilitate independent
ratemaking by the BPU for New Jersey operations and the PSC for Delaware
operations.
Water Quality and Environmental Regulations
Both the EPA and the DEP regulate the Company's operation in New Jersey
with respect to water supply, treatment and distribution systems and the quality
of the water, as do the EPA and the DNREC with respect to operations in
Delaware.
Federal, Delaware and New Jersey regulations adopted over the past five
years relating to water quality require expanded types of testing by the Company
to insure that its water meets State and Federal water quality requirements. In
addition, the environmental regulatory agencies are reviewing current
regulations governing the limits of certain organic compounds found in the water
as by-products of treatment. The Company, as with many other water companies,
participates in industry-related research to identify the various types of
technology that might reduce the level of organic, inorganic and synthetic
compounds found in the water. The cost to water companies of complying with the
proposed water quality standards depends in part on the limits set in the
regulation and on the method selected to implement such reduction; however, the
cost to the Company of complying with proposed regulations promulgated in light
of some of the standards being discussed might, depending upon the treatment
process selected, be as high as $20 million, based upon current estimates. The
regular testing by the Company of the water it supplies shows that the Company
is in compliance with existing Federal, New Jersey and Delaware water quality
requirements.
As required by the Federal Safe Drinking Water Act (FSDWA), the EPA has
established maximum contaminant levels (MCLs) for various substances found in
drinking water. As authorized by similar state legislation, the DEP has set MCLs
for certain substances which are more restrictive than the MCLs set by the EPA.
In certain cases, the EPA and the DEP have also mandated that certain treatment
procedures be followed in addition to satisfying MCLs established for specific
contaminants. The DEP and the DNREC have assumed primacy for
- 5 -
enforcing the FSDWA in New Jersey and Delaware, respectively, and, in that
capacity, monitor the activities of the Company and review the results of water
quality tests performed by the Company for adherence to applicable regulations.
Other regulations applicable to water utilities generally, including
the Company, include the Lead and Copper Rule (LCR), the MCLs established for
various volatile organic compounds (VOCs), the Federal Surface Water Treatment
Rule, and the Total Coliform Rule.
The LCR requires the Company to test on a sample basis 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, initiate a
public information campaign advising customers how to minimize exposure to lead
and copper, add corrosion inhibitors to water to minimize leaching of lead from
piping, faucets and soldered joints into water consumed at the tap, and
implement applicable source water treatment requirements. Tests taken within the
Company's system yielded results well below the Action Levels.
VOCs, including primarily petro-chemicals, may percolate into
groundwater aquifers from surface sources. The Company has found VOCs in excess
of the applicable MCLs in certain of the Middlesex system wells and has
constructed air stripping facilities which remove such contaminants from the
water by venting them into the atmosphere. In 1990 the air stripping facility
was complete at the Spring Lake Well Field. Construction of a similar facility
was completed in 1993 and is operational to treat water from the Park Avenue and
Sprague Avenue Well Fields, along with a 2 mg storage reservoir. To the extent
that contamination in excess of applicable MCLs occurs at wells lacking air
stripping and related facilities, the Company will consider building such
facilities if feasible and cost effective. VOCs have not been identified in the
Delaware wells.
Federal and State regulations and controls concerning water quality,
pollution and the effluent from treatment facilities are still in the process of
being developed, and it is not possible to predict the scope or enforceability
of regulations or standards which may be established in the future, or the cost
and effect of existing and potential regulations and legislation upon any of the
existing and proposed facilities and operations of the Company. Further, recent
and possible future developments with respect to the identification and
measurement of various elements in water supplies and concern with respect to
the impact of one or more of such elements on public health may in the future
require the Company to replace or modify all or portions of their various water
supplies, to develop replacement supplies and/or to implement new treatment
techniques. In addition, the Company anticipates that threatened and actual
contamination of water sources may become an increasing problem in the future.
The Company has expended and may in the future be required to expend substantial
amounts to prevent or remove said contamination or to develop alternative water
supplies. Any such developments may increase operating costs and capital
requirements. Since the rate regulation methodology of both the BPU and the PSC
permits a utility to recover through rates prudently incurred expenses and
investments in plant, based upon past BPU and PSC practice, the Company expects
that all such expenditures and costs should ultimately be recoverable through
rates for water service.
Employees
As of December 31, 1996, the Company had a total of 142 employees in
New Jersey, and Tidewater had a total of 19 employees in Delaware. No employees
are represented by a
- 6 -
union. Management considers its relations with its employees to be satisfactory.
Wages and benefits are reviewed annually and are considered competitive within
the industry.
Item 2. Properties
The Company's water utility plant consists of source of supply,
pumping, water treatment, transmission and distribution and general facilities.
The Company's principal source of supply is the D&R Canal owned by the
State of New Jersey and operated as a water resource by the NJWSA.
Water is withdrawn from the D&R Canal at New Brunswick and processed
for distribution by the Company. Its facilities consist of an intake and pumping
station located on State-owned land bordering the Canal, a water treatment plant
in Edison Township (CJO Plant) on property owned by the Company, 4,901 feet of
54-inch reinforced concrete water main connecting the CJO Plant and the intake
and pumping station, 23,168 feet of 48-inch reinforced concrete transmission
main connecting the water treatment plant to the Company's distribution pipe
network, and related storage, pumping, control, laboratory and other facilities.
The CJO Plant was placed into service in 1969.
The design capacity of the intake and pumping station in New Brunswick,
New Jersey, and the raw water main is 80 mgd. The four electric motor-driven
vertical turbine pumps presently installed have an aggregate design capacity of
65 mgd. The station is designed to permit its pumping capacity to be increased
to 80 mgd by the installation of additional pumping units without structural
changes. The station has an emergency power supply provided by a diesel-driven
generator which, in the event of a power failure, will automatically become the
power source to provide uninterrupted water service.
The CJO Plant includes chemical storage and chemical feed equipment,
dual-rapid mixing basins, four reinforced concrete mechanical flocculation
compartments, four underground reinforced concrete settling basins, eight rapid
filters containing gravel, sand and anthracite for water treatment and a steel
wash-water tank. The nominal design capacity of the CJO Plant is 30 mgd (45 mgd
maximum capacity). Provision had been made to increase the nominal design
capacity to 60 mgd (90 mgd maximum capacity) by the future construction of
additional treatment facilities. The Company has recently begun engineering work
to install alternative treatment processes and to upgrade and expand the CJO
Plant.
The main pumping station at the CJO Plant has a design capacity of 90
mgd. The four electric motor-driven vertical turbine pumps presently installed
have an aggregate capacity of 65 mgd. The station is constructed so that an
additional pumping unit can be installed without structural change.
In addition to the main pumping station at the CJO Plant, there is a l5
mgd auxiliary pumping station located in a separate building. It has a dedicated
substation and emergency power supply provided by a diesel-driven generator. It
pumps from the l0 mg reservoir directly into the distribution system.
- 7 -
At December 31, 1996, the Company owned property and other facilities
located at the Robinson's Branch of the Rahway River. The storage facilities,
consisting of an impounding reservoir, have been classified as nonutility plant.
They are located in Clark Township, near the north central part of the territory
served. The reservoir has a capacity of 232 mg and a tributary drainage area of
approximately 25 square miles. There are no treatment facilities at this site.
On March 6, 1997, the Company transferred the Robinson's Branch Reservoir to the
Township of Clark and transferred a conservation easement on the property to the
New Jersey Conservation Foundation. Although the reservoir has not been used as
a water supply since approximately 1970, the Company intends to retain its water
diversion rights for possible future use. Under the terms of the transaction,
the municipality is to assume the obligation to make certain improvements to the
reservoir's dam required under the New Jersey Dam Safety Act.
The Company owns the properties in New Jersey on which its 32 wells are
located. The Company owns its two-building headquarters complex at 1500 Ronson
Road, Iselin, New Jersey, consisting of a 27,000 square foot, two-story office
building and a 16,500 square foot maintenance facility. The Company's Delaware
operations are managed from Tidewater's newly leased offices in Odessa,
Delaware. The property, owned by White Marsh Environmental Systems, Inc., a
wholly-owned subsidiary of Tidewater consists of a newly renovated 1,600 square
foot building situated on a one (1) acre lot with ample room for expansion. The
area is commercially zoned. Pinelands Water owns the well site properties which
are located in Southampton Township, New Jersey. The 12 acre wastewater plant
site is owned by Pinelands Wastewater.
Middlesex storage facilities consist of a 10 mg reservoir at the CJO
Plant, 5 mg and 2 mg reservoirs in Edison (Grandview), 5 mg reservoir in
Carteret (Eborn) and 2 mg reservoir at the Park Avenue Well Field. Pinelands
Water storage facility is a 1.2 mg standpipe. Tidewater's systems include 21
ground level storage tanks with the following capacities; 11 - 30,000 gallons, 5
- - 25,000 gallons, 3 - 120,000 gallons, 1 - 135,000 gallons and 1 - 82,000
gallons.
Item 3. Legal Proceedings
A local entity and its owner have filed a negligence claim against the
Company, for which the Company is insured, with a claim for punitive damages
which may not be insured. Their action alleges financial losses arising out of
improper water pressure and service. An amendment to the claim alleges damages
resulting from some poor quality water. Other parties who dealt with the
claimants have joined the matter. Without taking a position on the negligence
claim, the Company does not believe that the claim for punitive damages will
prevail. While the outcome of this case is not presently determinable,
management believes that the final resolution will not have a significant effect
on the Company's financial position or results of operations or cash flows.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters Price Range of Common Stock
- 8 -
The following table shows the range of closing prices for the Common
Stock on the NASDAQ Stock Market for the calendar quarter indicated.
1996 High Low Dividend
---- ---- --- --------
First Quarter $19.25 $17.25 $0.27 1/2
Second Quarter 17.50 15.50 0.27 1/2
Third Quarter 18.00 16.00 0.27 1/2
Fourth Quarter 18.25 16.75 0.28
1995 High Low Dividend
---- ---- --- --------
First Quarter $17.00 $15.25 $0.27
Second Quarter 16.50 15.25 0.27
Third Quarter 17.75 15.75 0.27
Fourth Quarter 18.75 16.75 0.27 1/2
Approximate Number of Equity Security Holders As of December 31, 1996
Number of
Title of Class Record Holders
-------------- --------------
Common Stock, No par Value 2,342
Cumulative Preferred Stock, No par Value:
$7 Series 17
$4.75 Series 1
Cumulative Convertible Preferred Stock, No par Value:
$7 Series 4
Dividends
The Company has paid dividends on its Common Stock each year since
1912. Although it is the present intention of the Board of Directors of the
Company to continue to pay regular quarterly cash dividends on its Common Stock,
the payment of future dividends is contingent upon the future earnings of the
Company, its financial condition and other factors deemed relevant by the Board
of Directors at its discretion.
The Common Stock of the Company is traded on the NASDAQ Stock Market
under the symbol MSEX.
Item 6. Selected Financial Data
This information is incorporated herein by reference to the attached
Exhibit 13, 1996 Annual Report to Shareholders, Page 23.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
This information is incorporated herein by reference to the attached
Exhibit 13, 1996 Annual Report to Shareholders, Pages 10 and 11.
- 9 -
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements and Independent Auditors' Report
are incorporated herein by reference to the attached Exhibit 13, 1996 Annual
Report to Shareholders, Pages 12 through 22. The supplementary data is included
as indicated under Part IV, Item 14.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The following information is provided with respect to each Director and
Executive Officer of the Company.
Director Term
Name Age Since Expires Position
---- --- ----- ------- --------
Walter J. Brady 55 N/A N/A Vice President-Administration
John C. Cutting 60 1996 5/97 Director
Ernest C. Gere 64 1988 5/97 Director
John P. Mulkerin 59 1996 5/97 Director
Stephen H. Mundy 63 1977 5/98 Director
A. Bruce O'Connor 38 N/A N/A Vice President and Controller
Philip H. Reardon 60 1991 5/97 Director
Marion F. Reynolds 57 N/A N/A Vice President, Secretary and
Treasurer
Richard A. Russo 51 1994 5/98 Executive Vice President
Carolina M. Schneider 78 1982 5/98 Director
William E. Scott 77 1978 5/99 Director
Jeffries Shein 56 1990 5/99 Director
Dennis G. Sullivan 55 N/A N/A Vice President and General Counsel,
Assistant Secretary-Assistant
Treasurer
J. Richard Tompkins 58 1981 5/99 Chairman of the Board and President
Ronald F. Williams 48 N/A N/A Vice President-Operations
Walter J. Brady, who joined the Company in 1962, was elected Assistant
Secretary-Assistant Treasurer in 1979, Assistant Vice President in 1982, Vice
President-Human Resources in 1987, and Vice President-Administration in 1989. He
serves as Plan Administrator of the Pension Plan. He is a Director of Tidewater
Utilities, Inc., White Marsh Environmental Systems, Inc., Pinelands Water
Company, Pinelands Wastewater Company and Utility Service Affiliates, Inc.
John C. Cutting is a Senior Engineer with Science Applications International
Corporation, Pittsburgh, Pennsylvania, specialists in information, energy and
military systems, since 1987.
Ernest C. Gere, was Senior Vice President & Chief Financial Officer of Middlesex
from 1986 until his retirement in 1996.
- 10 -
John P. Mulkerin is President of the First Savings Bank/SLA of Perth Amboy, New
Jersey, and a Director since 1996 and prior to that date was Executive Vice
President since 1987. He is also a Director of the Raritan Bay Health Services
Corporation; President and Director of Alliance Distribution Center, Inc., and
Trustee of Daytop Village Foundation.
Stephen H. Mundy until his retirement in 1995, was Vice President of A. Stanley
Mundy, Inc., public utility contractors, Virginia Beach, Virginia, since 1985
and was a Partner of A. Stanley Mundy & Co.
A. Bruce O'Connor, a Certified Public Accountant, joined the Company in 1990 as
Assistant Controller and was elected Controller in 1992 and Vice President in
1995. He assumed the designated title of Vice President and Controller and Chief
Financial Officer in May 1996. He is responsible for financial reporting,
customer service, rate cases, cash management and financings. He was formerly
employed by Deloitte & Touche LLP, a certified public accounting firm from 1984
to 1990. He is Treasurer of Tidewater Utilities, Inc., White Marsh Environmental
Systems, Inc. and Utility Service Affiliates, Inc., and Vice President and
Director of Pinelands Water Company and Pinelands Wastewater Company.
Philip H. Reardon has been President and Chief Executive Officer and a Director
of Essex County Gas Company, Amesbury, Massachusetts, since December 1992, and
prior to that date was President and Chief Executive Officer of New Jersey
Natural Gas Company, Wall, New Jersey since 1987. He is a Director of New
England Gas Association, American Gas Association and First & Ocean National
Bank, NewburyPort, MA.
Marion F. Reynolds who had been Secretary-Treasurer since 1987 was elected Vice
President, Secretary and Treasurer in 1993. Prior to her election she had been
employed by Public Service Electric and Gas Company, Newark, New Jersey since
1958, and was elected Assistant Corporate Secretary in 1976. She is Secretary of
Tidewater Utilities, Inc., and Secretary/Treasurer of Pinelands Water Company
and Pinelands Wastewater Company and a Director of Utility Service Affiliates,
Inc.
Richard A. Russo who had been Vice President-Operations since 1989 was elected
Executive Vice President in 1995 and is responsible for engineering, water
production, water treatment, and distribution maintenance. He was formerly
employed by Trenton Water Works as General Superintendent and Chief Engineer
since 1979. He is President and Director of Tidewater Utilities, Inc., White
Marsh Environmental Systems, Inc., Pinelands Water Company and Pinelands
Wastewater Company. He is also Executive Vice President and Director of Utility
Service Affiliates, Inc.
Carolina M. Schneider, until her retirement in 1987, was Secretary-Treasurer of
the Company since 1948.
William E. Scott, until his retirement in 1985, was Senior Executive Vice
President of Public Service Electric and Gas Company (PSE&G), Newark, New Jersey
since 1984 and had been Executive Vice President-Finance of PSE&G for over five
years. He is a Trustee of Delta Dental Plan of New Jersey, Inc.
Jeffries Shein is a Partner in the firm of Jacobson, Goldfarb & Tanzman
Associates, a large industrial and commercial brokerage firm in New Jersey since
1968. He is a Director of First Savings Bank/SLA of Perth Amboy, New Jersey.
- 11 -
Dennis G. Sullivan was hired in 1984 as Corporate Attorney, responsible for
general corporate internal legal matters. He was elected Assistant
Secretary-Assistant Treasurer in 1988 and Vice President and General Counsel in
1990. He was employed in a private law practice from 1981 to 1984 as a staff
attorney. He is Assistant Secretary and Assistant Treasurer and a Director of
Tidewater Utilities, Inc., Vice President, Secretary and Director of White Marsh
Environmental Systems, Inc.; a Director of Pinelands Water Company and Pinelands
Wastewater Company and a Director and Secretary of Utility Service Affiliates,
Inc.
J. Richard Tompkins was elected President of the Company in 1981 and was elected
Chairman of the Board in 1990. In 1979 he was employed by Associated Utility
Services, an independent utility consulting firm in New Jersey, as Vice
President. From 1962 to 1979 he was employed by Buck, Seifert & Jost,
Incorporated, consulting engineers in New Jersey and was appointed Vice
President in 1973. He is Chairman and Director of Tidewater Utilities, Inc.,
White Marsh Environmental Systems, Inc., Pinelands Water Company, Pinelands
Wastewater Company and Director and President of Utility Service Affiliates,
Inc. He is also a Director of New Jersey Utilities Association and Raritan Bay
Healthcare Foundation.
Ronald F. Williams, was hired in March 1995 as Assistant Vice
President-Operations, responsible for the Company's Engineering and Distribution
Departments. He was elected Vice President-Operations in October 1995. He was
formerly employed with the Garden State Water Company as President and Chief
Executive Officer since 1991.
Item 11. Executive Compensation
There is shown below information concerning the annual and long-term
compensation for services in all capacities to the Company for the years 1996,
1995 and 1994 of the Chief Executive Officer and the other four most highly
compensated officers.
SUMMARY COMPENSATION TABLE
Restricted All
Name and Stock Other Annual
Principal Position Year Salary Awards Compensation
------------------ ---- ------ ------ ------------
(1)
J. Richard Tompkins 1996 $229,350 $40,844 $ 8,285(2)
Chairman of the Board 1995 $217,261 $42,188 $10,074
and President 1994 $208,350 $22,855 $ 9,683
Richard A. Russo 1996 $143,350 $21,239 $ 5,989(2)
Executive Vice President 1995 $132,885 $16,875 $ 5,483
1994 $121,504 $13,060 $ 4,717
Walter J. Brady 1996 $115,350 $11,436 $ 5,170(2)
Vice President- 1995 $111,350 $10,125 $ 4,569
Administration 1994 $107,350 $ 9,795 $ 4,394
- 12 -
Dennis G. Sullivan 1996 $111,350 $13,070 $ 4,974(2)
Vice President & 1995 $106,816 $13,500 $ 4,350
General Counsel 1994 $ 99,754 $11,428 $ 4,060
Assistant Secretary &
Assistant Treasurer
Ronald F. Williams 1996 $104,350 $8,169 $ 4,023(2)
Vice President-Operations 1995 $ 76,408(3) - $ 1,202
1994 - (3) - -
(1) The number and value of Restricted Stock held in escrow as of December
31, 1996 were as follows: Mr. Tompkins - 9,400/$157,336; Mr. Russo -
4,600/$77,176; Mr. Brady - 2,800/$47,659; Mr. Sullivan - 3,600/$60,590;
and Mr. Williams - 500/$8,169. Generally, the restrictions lapse on
these awards five years from the date of grant. The restrictions also
lapse in the event of a change in control of the Company. All dividends
on these shares are paid to the awardees.
(2) Includes employer contribution to the Company's defined contribution
plan and life insurance premiums for 1996: Mr. Tompkins ($5,542 and
$2,743), Mr. Russo ($5,005 and $984), Mr. Brady ($4,025 and $1,145),
Mr. Sullivan ($3,885 and $1,089) and Mr. Williams ($3,640 and $383).
(3) Mr. Williams began his employment with the Company in March 1995.
- 13 -
COMPENSATION PURSUANT TO PENSION PLANS
Annual Benefit based on Compensation and Years of Service
Final Years of Service
Year's ----------------
Compensation 15 20 25 30 35 45
- ------------ -- -- -- -- -- --
$100,000 $ 60,013 $ 60,013 $ 60,013 $ 60,013 $ 60,013 $ 73,102
$125,000 $ 78,763 $ 78,763 $ 78,763 $ 78,763 $ 78,763 $ 92,852
$150,000 $ 97,513 $ 97,513 $ 97,513 $ 97,513 $ 97,513 $112,602
$175,000 $116,263 $116,263 $116,263 $116,263 $116,263 $116,263
$200,000 $135,013 $135,013 $135,013 $135,013 $135,013 $135,013
$225,000 $153,763 $153,763 $153,763 $153,763 $153,763 $153,763
$250,000 $172,513 $172,513 $172,513 $172,513 $172,513 $172,513
$300,000 $210,013 $210,013 $210,013 $210,013 $210,013 $210,013
All employees who receive pay for 1,000 hours during the year are
included in the Plan. Under the noncontributory trusteed defined benefit plan
current service costs are funded annually. The Company's annual contribution is
determined on an actuarial basis. Benefits are measured from the member's entry
date and accrue to normal retirement date or date of early retirement. Benefits
are calculated, at normal retirement, at 1.25% of pay up to the Executive's
benefit integration level, plus 1.9% of such excess pay, multiplied by service
to normal retirement date, capped at 35 years of such excess pay, multiplied by
service to normal retirement date of age 65. Average pay is the highest annual
average of total pay during any 5 consecutive years within the 10 calendar-year
period prior to normal retirement date. Covered compensation under the Pension
Plan includes base wages only and not Directors' fees. The benefit integration
level is based on the 1996 Summary Compensation Table. The benefit amounts are
not subject to any deduction for Social Security benefits or other offset
amounts.
The estimated credited years of service based on normal retirement at
age 65 includes 22 years, 20 years, 44 years, 22 years and 19 years for Messrs.
Tompkins, Russo, Brady, Sullivan and Williams, respectively.
Supplemental Executive Retirement Plan - All executive officers are
eligible to participate in the Deferred Compensation Plan known as the
Supplemental Executive Retirement Plan at the direction of the Board of
Directors.
A participant who retires on his normal retirement date is entitled to
an annual retirement benefit equal to 75% of his compensation reduced by his
primary Social Security benefit and further reduced by any benefit payable from
the Qualified Pension Plan. In certain cases further reductions are made for
benefits from other employment.
Vesting starts at 50% for 5 years of service and increases 10% for each
year of service for a maximum of 100% vesting at 10 years of service. Annual
retirement benefits are payable for 15 years either to the participant or his
beneficiary.
Retirement benefits may be in the form of single life annuity, joint
and 50% survivors annuity, joint and 100% survivors annuity, single life annuity
with a 10-year certain period and single life annuity with a 15-year certain
period paid on an actuarial equivalent basis. The Plan also provides for a
preretirement net death benefit of 1-1/2 times base salary at date of death.
- 14 -
The Company is not obligated to set aside or earmark any monies or
other assets specifically for the purpose of funding the Plan. The benefits are
in the form of an unfunded obligation of the Company. The Company has elected to
purchase Corporate-owned life insurance as a means of satisfying its obligation
under this Plan. The Company reserves the right to terminate any plan of life
insurance at any time, however, a participant is entitled to any benefits he
would have been entitled to under the Plan provisions. For the year 1996 the
Company paid life insurance premiums totaling $98,420, for Messrs. Tompkins,
Russo, Brady, Sullivan, and Williams.
Defined Contribution Plan - The Company matches 100% of that portion of
the contribution which does not exceed 1% of basic pay plus an additional 50% of
that portion from 2% to 6% of basic pay. Distributions under the Plan are made
upon normal retirement, total and permanent disability or death and are subject
to certain vesting provisions as to Company contributions. During 1995, this
Plan was converted from an after tax plan to a 401(k) pre tax plan.
Compensation of Directors
A director who is not an officer of the Company or its subsidiary is
paid an annual retainer of $6,000 and a fee of $500 for attendance at Board of
Directors (Board) meetings, a fee of $250 for attendance at special meetings of
the Board, and a fee of $150 for attendance at special Board committee meetings
by means of communications facilities, and a fee of $350, for each committee
meeting attended. Committee chairmen receive an additional $200 for each
committee meeting chaired. Directors who are officers of the Company are paid a
fee of $250 for each meeting of the Board attended. Directors of all
subsidiaries, except USA, receive $50 for attendance at regular Board meetings.
Compensation Committee Interlocks and Insider Participation
During 1996 the members of the Executive Development and
Compensation Committee were Stephen H. Mundy, Jeffries Shein and William E.
Scott. During 1996 no member of the Executive Development and Compensation
Committee was an officer or employee of the Company or a subsidiary. Mr.
Stephen H. Mundy has a financial interest in a construction company that was
awarded a contract based upon the lowest qualified competitive bid in the amount
of $0.9 million in 1996.
Report of the Executive Development and Compensation Committee
The compensation program for executive officers of the Company is
administered by the Executive Development and Compensation Committee of the
Board of Directors. The 1996 Committee was composed of three independent
directors: Stephen H. Mundy, Jeffries Shein and William E. Scott. The Committee
is responsible for setting and administering the policies which govern annual
compensation and Restricted Stock awards. Policies and plans developed by the
Committee are approved by the full Board of Directors.
The Committee's compensation policies and plans applicable to the
executive officers seek to enhance the profitability of the Company and
shareholder value, as well as control costs and maintain reasonable rates for
the customers. The Committee's practices reflect policies that compensation
should (1) attract and retain well-qualified executives, (2) support short- and
long-term goals and objectives of the Company, (3) reward individuals for
outstanding contributions to
- 15 -
the Company's success, (4) be meaningfully related to the value created for
shareholders, and (5) relate to maintenance of good customer relations and
reasonable rates.
The Committee meets with Mr. Tompkins to evaluate the performance of
the other executive officers and meets in the absence of Mr. Tompkins to
evaluate his performance. The Committee reports on all executive evaluations to
the full Board of Directors.
Base salary levels are reviewed annually using compensation data
produced by an outside compensation expert for similar positions and comparable
companies. Base salaries for satisfactory performance are targeted at the median
of the competitive market. Individual performance of the executive is determined
and taken into account when setting salaries against the competitive market
data. The Committee reviews, as well, the individual's efforts on cost control
and his or her contributions to the results of the year. The Committee also
reviews the Company's financial results compared with prior years and compared
with other companies. It compares salaries with both water and general industry
salaries.
The factors and criteria upon which Mr. Tompkins' compensation was
based generally include those discussed with respect to all the executive
officers. Specifically, however, his salary is based on his overall performance
and that of the Company. His salary was set at a rate which was approximately
the median of the utility market and below that of the general industry. In
addition, in evaluating the performance of the CEO, the Committee has taken
particular note of management's success with respect to the growth of the
Company.
The Company maintains a restricted stock plan for the purpose of
attracting and retaining key executives and other employees having managerial or
supervisory responsibility who have contributed, or are likely to contribute,
significantly to the long-term performance and growth of the Company and its
subsidiaries. This plan is designed to enhance financial performance, customer
service and corporate efficiency through a performance-based stock award. Annual
stock awards are based upon several factors including the participant's ability
to contribute to the overall success of the Company.
The level of awards and the value of the performance are reviewed
annually by the Committee. The Committee submits reports on all executive
evaluations and restricted stock awards to the full Board of Directors for
approval.
1997 Executive Development and
Compensation Committee
Stephen H. Mundy, Chairman
Jeffries Shein
Carolina M. Schneider
- 16 -
Stock Performance Graph
Set forth below is a line graph comparing the yearly change in the
cumulative total return (which includes reinvestment of dividends) of a $100
investment for the Company's Common Stock, the NASDAQ and a peer group of
investor-owned water utilities for the period of five years commencing December
31, 1991. The peer group includes Aquarion Company, California Water Service
Company, Connecticut Water Service, Inc., Consumers Water Company, E'town
Corporation, IWC Resources Corporation, Philadelphia Suburban Corporation, SJW
Corporation, Southern California Water Company, Southwest Water Company, United
Water Resources and the Company.
[GRAPHIC OMITTED]
- -----------------------------------------------------------------------
12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96
- -----------------------------------------------------------------------
Middlesex $100 $131 $173 $140 $168 $167
- -----------------------------------------------------------------------
NASDAQ 100 116 134 131 185 227
- -----------------------------------------------------------------------
Peer Group 100 113 129 120 137 178
- -----------------------------------------------------------------------
- 17 -
Item 12. Security Ownership of Certain Beneficial Owners
and Management
The following table sets forth information made known to the Company as
of December 31, 1996 of any person or group to be a beneficial owner of more
than five percent of the Company's Common Stock.
Number of Shares
Beneficially Owned
and Nature of Percent
Name and Address Beneficial Ownership (1) of Class
---------------- -------------------- --------
PNC Bank Corp. 301,312 7.17
One PNC Plaza
Pittsburgh, PA 15222
(1) Beneficial owner has sole voting and shared dispositive power over
292,800 shares, shared voting power over 1,000 shares and sole dispositive power
over 7,512 shares.
The following information pertains to the Common Stock of the Company
beneficially owned, directly or indirectly, by all Directors and Officers of the
Company as a group, as of December 31, 1996.
Common Stock
------------
Number Percent
of of
Shares Class
------ -----
Walter J. Brady 7,102 .17
John C. Cutting 16,130 .38
Ernest C. Gere 5,859 .14
John P. Mulkerin 2,500 .06
Stephen H. Mundy 31,194 .74
A. Bruce O'Connor 2,299 .05
Philip H. Reardon 5,017 .12
Marion F. Reynolds 8,509 .20
Richard A. Russo 7,266 .17
Carolina M. Schneider 8,436 .20
William E. Scott 5,401 .13
Jeffries Shein(2) 65,697 1.56
Dennis G. Sullivan 5,475 .13
J. Richard Tompkins 19,853 .47
Ronald F. Williams 631 .02
------- ----
Totals 191,369 4.55
======= ====
(2) Includes 7,429 shares over which Mr. Shein has shared voting
powers.
No Preferred Stock is beneficially owned, directly or indirectly by any Officer
or Director.
Item 13. Certain Relationships and Related Transactions
- 18 -
During 1996, 1995 and 1994, the Company had transactions with a
construction company in which a Director has a financial interest. Major
construction transactions were awarded on the basis of competitive bids approved
by the Board of Directors (with the interested Director abstaining) and amounted
to $0.9 million, $0.9 million and $0.6 million for the years 1996, 1995 and
1994, respectively. These amounts included less than $0.1 million due the
construction company at December 31, 1996, 1995 and 1994.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statements
The following information is incorporated herein by reference to the attached
Exhibit 13, 1996, Annual Report to Shareholders, pages 10 through 23:
Management's Discussion and Analysis, Pages 10-11
Consolidated Balance Sheets at December 31, 1996, and 1995, Pages 12-13
Consolidated Statements of Income for each of the three years in the period
ended December 31, 1996, Page 14
Consolidated Statements of Capital Stock and Long-term Debt at December 31,
1996, and 1995 Page 15
Consolidated Statements of Cash Flows for each of the three years in the period
ended December 31, 1996, Page 16
Consolidated Statements of Retained Earnings for each of the three years in the
period ended December 31, 1996, Page 17
Notes to Consolidated Financial Statements, Pages 18-22
Independent Auditors' Report, Page 22
(a) 2. Financial Statement Schedules
All Schedules are omitted because of the absence of the conditions under which
they are required or because the required information is shown in the financial
statements or notes thereto.
(a) 3. Exhibits
See Exhibit listing on Pages 21-23.
(b) Reports on Form 8-K
None
- 19 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Chairman of the Board and
President and Director /s/ J. Richard Tompkins/ 3/27/97
-------------------------------- -------
J. Richard Tompkins Date
Executive Vice President and /s/ Richard A. Russo/ 3/27/97
Director -------------------------------- -------
Richard A. Russo Date
Vice President and Controller /s/ A. Bruce O'Connor/ 3/27/97
Principal Accounting Officer -------------------------------- -------
A. Bruce O'Connor Date
Director /s/ John C. Cutting/ 3/27/97
-------------------------------- -------
John C. Cutting Date
Director /s/ Ernest C. Gere/ 3/27/97
-------------------------------- -------
Ernest C. Gere Date
Director /s/ John P. Mulkerin/ 3/27/97
-------------------------------- -------
John P. Mulkerin Date
Director /s/ Stephen H. Mundy/ 3/27/97
-------------------------------- -------
Stephen H. Mundy Date
Director /s/ Philip H. Reardon/ 3/27/97
-------------------------------- -------
Philip H. Reardon Date
Director /s/ Carolina M. Schneider/ 3/27/97
-------------------------------- -------
Carolina M. Schneider Date
Director /s/ William E. Scott/ 3/27/97
-------------------------------- -------
William E. Scott Date
Director /s/ Jeffries Shein/ 3/27/97
-------------------------------- -------
Jeffries Shein Date
- 20 -
EXHIBIT INDEX
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 the previous filing columns
following the description of such exhibits.
Previous Filing's
Exhibit Registration Exhibit
No. Document Description No. . No. .
- ------- -------------------- ------------ ----------
3.1 Certificate of Incorporation of the Company,
as amended, filed as Exhibit 3.1 of 1993
Form 10-K.
3.2 Bylaws of the Company, as amended. 33-54922 3.2
4.1 Form of Common Stock Certificate. 2-55058 2(a)
4.2 Registration Statement, Form S-3, under
Securities Act of 1933 filed February 3, 1987,
relating to the Dividend Reinvestment
and Common Stock Purchase Plan. 33-11717
4.3 Post Effective Amendments No. 3 and No. 4,
Form S-3, under Securities Act of 1933 filed
May 28, 1993, relating to the Dividend
Reinvestment and Common Stock Purchase Plan. 33-11717
*10.1 Copy of Purchased Water Agreement between
the Company and Elizabethtown Water Company.
10.2 Copy of Mortgage, dated April 1, 1927,
between the Company and Union County
Trust Company, as Trustee, as
supplemented by Supplemental Indentures,
dated as of October 1, 1939, April 1,
1946, April 1, 1949, February 1, 1955 and
December 1, 1959. 2-15795 4(a)-4(f)
10.3 Copy of Supplemental Indenture, dated as
of January 15, 1963, between the Company
and Union County Trust Company, as Trustee. 2-21470 4(b)
10.4 Copy of Supplemental Indentures, dated as
of July 1, 1964, June 1, 1965, February
1, 1968, December 1, 1968, December 1,
1970, December 1, 1972 and June 15, 1991,
between the Company and Union County 10.4 - 10.9
Trust Company, as Trustee 33-54922 and 10.16
- 21 -
Previous Filing's
Exhibit Registration Exhibit
No. Document Description No. . No. .
- ------- -------------------- ------------ ----------
10.5 Copy of Supplemental Indenture, dated as
of April 1, 1979, between the Company and
United Counties Trust Company, as
successor Trustee. 2-64770 5.9
10.6 Copy of Supplemental Indenture, dated as
of April 1, 1983, between the Company and
United Counties Trust Company, as
successor Trustee. 2-94106 10.12
10.7 Copy of Supplemental Indenture, dated as
of August 15, 1988, between the Company
and United Counties Trust Company, as
Trustee. 33-31476 4.3
10.8 Copy of Trust Indenture, dated as of June
15, 1991, between the New Jersey Economic
Development Authority and Midlantic
National Bank, as Trustee. 33-54922 10.17
10.9 Copy of Supply Agreement, dated as of
November 17, 1986, between the Company
and the Old Bridge Municipal Utilities
Authority. 33-31476 10.12
10.10 Copy of Supply Agreement, dated as of
July 14, 1987, between the Company and
the Marlboro Township Municipal Utilities
Authority, as amended. 33-31476 10.13
10.11 Copy of Supply Agreement, dated as of
February 11, 1988, with modifications
dated February 25, 1992, and April 20,
1994, between the Company and the Borough
of Sayreville filed as Exhibit No. 10.11
of 1994 First Quarter Form 10-Q.
10.12 Copy of Water Purchase Contract and
Supplemental Agreement, dated as of May
12, 1993, between the Company and the New
Jersey Water Supply Authority filed as
Exhibit No. 10.12 of 1993 Form 10-K.
10.13 Copy of Treating and Pumping Agreement,
dated April 9, 1984, between the Company
and the Township of East Brunswick. 33-31476 10.17
10.14 Copy of Supply Agreement, dated June 4,
1990, between the Company and Edison
Township. 33-54922 10.24
- 22 -
Previous Filing's
Exhibit Registration Exhibit
No. Document Description No. . No. .
- ------- -------------------- ------------ ----------
*10.15 Copy of Supply Agreement, between the
Company and the Borough of Highland Park
10.16 Copy of Pipeline Lease Agreement, dated
as of January 9, 1987, between the
Company and the City of Perth Amboy. 33-31476 10.20
10.17 Copy of Supplemental Executive Retirement
Plan, effective January 1, 1984, as
amended. 33-31476 10.21
10.18 Copy of 1989 Restricted Stock Plan, filed
as Appendix A to the Company's Definitive
Proxy Statement, dated April 19, 1989,
and filed April 5, 1989. 33-31476 10.22
10.19 Amendment to Supplemental Executive
Retirement Plan, dated May 23, 1990,
filed as Exhibit No. 10.23 of 1991 Form
10-K.
10.20 Copy of Transmission Agreement, dated
October 16, 1992, between the Company and
the Township of East Brunswick. 33-54922 10.23
10.21 Copy of Agreement and Plan of Merger,
dated January 7, 1992, between the
Company, Midwater Utilities, Inc. and
Tidewater Utilities, Inc. 33-54922 10.29
10.22 Copy of Supplemental Indentures, dated
March 1, 1993 (Series P-1), September 1,
1993, (Series S & T) and January 1, 1994,
(Series U & V), between the Company and
United Counties Trust Company, as
Trustee, filed as Exhibit No. 10.22 of
1993 Form 10-K.
10.23 Copy of Trust Indentures, dated September
1, 1993, (Series S & T) and January 1,
1994, (Series V), between the New Jersey
Economic Development Authority and First
Fidelity Bank (Series S & T), as Trustee,
and Midlantic National Bank (Series V),
as Trustee, filed as Exhibit No. 10.23 of
1993 Form 10-K.
*10.24 Copy of Supply Agreement between the
Company and the City of South Amboy.
*13 Annual Report to Shareholders for the
year ended December 31, 1996, pages 10
through 23.
*23 Independent Auditors' Consent.
*27 Financial Data Schedule
- 23 -
WATER SERVICE AGREEMENT
BETWEEN
MIDDLESEX WATER COMPANY
AND
ELIZABETHTOWN WATER COMPANY
THIS AGREEMENT (the "AGREEMENT") made this 28th day of April, 1995,
BETWEEN
ELIZABETHTOWN WATER COMPANY, a public utility and corporation organized
under the laws of the State of New Jersey, with its principal office at 600
South Avenue, Town of Westfield, County of Union, State of New Jersey,
hereinafter referred to as "ELIZABETHTOWN",
AND
MIDDLESEX WATER COMPANY, a public utility and corporation organized under
the laws of the State of New Jersey, with offices at 1500 Ronson Road,
Iselin, Woodbridge Township, State of New Jersey
hereinafter referred to as "MIDDLESEX",
WHEREAS, ELIZABETHTOWN has a Rate Schedule No. 8, "Service to Other
Systems Under Contract", filed under authority of The Board of Public Utilities,
and MIDDLESEX desires to continue to obtain a supply of water under this rate
schedule and subject to its provisions, as may be amended and supplemented under
approval of the Board of Public Utilities; and
WHEREAS, ELIZABETHTOWN and MIDDLESEX presently have a contract for water
supply dated December 4, 1990 and the parties desire to have this Agreement
supersede the existing contract; and
WHEREAS, ELIZABETHTOWN and the BOROUGH OF HIGHLAND PARK ("HIGHLAND PARK")
also have a contract for water supply dated July 21, 1986 (the
"Elizabethtown-Highland Park Contract") and HIGHLAND PARK has indicated its
desire to receive such water supply from MIDDLESEX instead of ELIZABETHTOWN; and
WHEREAS, MIDDLESEX and HIGHLAND PARK have indicated their desire to enter
into a contract for the provision of such a supply of water.
NOW THEREFORE, the parties hereto agree as follows:
1. Effective on and after the date in 1995 that HIGHLAND PARK changes its
source of supply (that is, the supply it currently receives from Elizabethtown)
from ELIZABETHTOWN to MIDDLESEX ("Transition date") and has signed an agreement
of termination of the Elizabethtown - Highland Park Contract and has also signed
a modification of its current water supply contract with Middlesex,
ELIZABETHTOWN agrees to terminate its rights under the Elizabethtown-Highland
Park Contract and ELIZABETHTOWN and MIDDLESEX agree to replace with this
Agreement the existing water supply contract between ELIZABETHTOWN and
MIDDLESEX, dated December 4, 1990. In addition, effective on and after the
Transition Date, ELIZABETHTOWN agrees to sell, deliver and transport to
MIDDLESEX, and MIDDLESEX agrees to accept, potable water from the water sources
and supplies of ELIZABETHTOWN. MIDDLESEX agrees to pay for a minimum daily
quantity of water in the amount of 3 million gallons per day at the rate set
forth in Rate Schedule No. 8, Service to Other Systems Under Contract, and
subject to its
2
provisions as they may be amended and supplemented under approval of the New
Jersey Board of Public Utilities.
2. This Agreement for 3 million gallons per day will be effective for the
period between the Transition Date set forth previously and December 31, 2005.
3. All water supplied to MIDDLESEX by ELIZABETHTOWN shall be metered, by
meters owned and maintained by ELIZABETHTOWN, at the existing meter station
commonly known as Tingley Lane, and such other locations as may be agreed upon
by the parties.
4. Where the words "daily" or "24 hours" are used in this Agreement, they
shall refer to the 24-hour period between daily meter readings. Meter readings
shall be taken daily when feasible, and if not, the actual consumption shall be
averaged over the period that the meter has not been read.
5. In the event that the total daily quantity of water delivered by
ELIZABETHTOWN exceeds said 2 million gallons per day or 3 million gallons per
day, such quantity shall be paid for at the rate set forth in Rate Schedule
No. 8 "Service To Other Systems Under Contract".
6. ELIZABETHTOWN will supply water at a total flow rate greater than said 2
or 3 million gallons per day through meter connections noted under paragraph
(5), based on availability as reasonably determined by ELIZABETHTOWN.
7. ELIZABETHTOWN shall use reasonable diligence to provide a continuous
supply of water, subject to interruptions by reason of acts of God, accident,
strike, legal process, State or municipal interference or other causes
whatsoever beyond its control and shall not be liable for damages to MIDDLESEX
by reason of interruptions in the supply of water to MIDDLESEX.
8. MIDDLESEX shall completely indemnify, protect and save harmless
ELIZABETHTOWN from any and all costs, expenses, liabilities, losses, claims,
3
suits and proceedings of whatsoever nature arising out of the use of the water
supplied to the MIDDLESEX service area and attributable to the negligence of
MIDDLESEX.
IN WITNESS WHEREOF, ELIZABETHTOWN WATER COMPANY has caused these presents
to be signed by its Senior Vice President and its corporate seal to be affixed
hereto and attested by its Secretary, and MIDDLESEX WATER COMPANY, in the County
of Middlesex, has caused these presents to be signed by its Chairman of the
Board and President and its corporate seal to be affixed hereto and attested by
its Vice President, Secretary-Treasurer, the day and year first written above.
(SEAL) ELIZABETHTOWN WATER COMPANY
ATTEST: By:/s/ Norbert Wagner
------------------------------------
Norbert Wagner
Senior Vice President-Operations
/s/ Walter M. Braswell
- ---------------------------------
Walter M. Braswell, Secretary
(SEAL) MIDDLESEX WATER COMPANY
ATTEST: By:/s/ J. Richard Tompkins
------------------------------------
J. Richard Tompkins
Chairman of the Board and President
/s/ Marion F. Reynolds
- ----------------------------------
Marion F. Reynolds
Vice President, Secretary and Treasurer
FIRST AMENDMENT TO
AN AGREEMENT FOR A SUPPLY OF WATER
BY MIDDLESEX WATER COMPANY
TO THE BOROUGH OF HIGHLAND PARK
DATED AS OF OCTOBER 24, 1995
This Amendment (hereinafter referred to as the "Amendment") made this 28th
day of May, 1996 between Middlesex Water Company, a public utility and
corporation organized under the laws of the State of New Jersey with offices at
1500 Ronson Road, Iselin, New Jersey (hereinafter referred to as "Middlesex"),
and the Borough of Highland Park, a municipal corporation of the State of New
Jersey (hereinafter referred to as "Highland Park").
BACKGROUND
1. The parties hereto had entered into an Agreement for a Supply of Water by
Middlesex to Highland Park, dated as of October 24, 1995 (hereinafter referred
to as the "1995 Agreement"); and
2. The 1995 Agreement, in Article 4 thereof, provides means for delivery of
water supplied by Middlesex to Highland Park and further provides that delivery
of water may be made "through such other points of delivery as may be agreed to
from time to time by the parties"; and
3. The parties have agreed that a point of delivery, in addition to those
provided for in the 1995 Agreement, would be useful and necessary at this time
in furtherance of the 1995 Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties agree to amend the 1995 Agreement by
adding the following at the end of Article 4 of the 1995 Agreement:
4.1 Highland Park will install, at its cost, a twelve (12) -inch transmission
main from a connection to be made to Highland Park's distribution system at the
intersection of Bartle Court and Cedar Lane and extending to a location in the
Middlesex twenty-foot wide right-of-way near the Cedar Lane apartments, (the
"Interconnection Location") and connecting with the main described in Article
4.2 below.
4.2 Middlesex will install, at the cost of Highland Park, a twelve (12)-inch
transmission main from the Interconnection Location, described in Article 4.1
above, and extending from such Interconnection Location to the Middlesex CJO
Treatment Plant property, with an interconnection to the Middlesex system on
such Treatment Plant property. Such installation will be at the cost of Highland
Park. Such cost will be Middlesex's actual costs estimated to be $160,000.
Highland Park will make payment for such cost upon completion of the main
described in this Article 4.2. Upon completion of construction, Highland Park
will own, operate and maintain the main described in this Article 4.2.
4.3 Highland Park will grant to Middlesex an easement, generally in the form
attached hereto as Exhibit A, permitting Middlesex's future, non-exclusive use
of the easement to be used by Highland Park for the main to be constructed by
Highland Park, as described in Article 4.1 above. Such easement to Middlesex
described in this Article 4.3 will provide for the future, non-exclusive use of
such easement by Middlesex for such additional facilities as may be required by
Middlesex. In consideration thereof, Middlesex will absorb the cost of the meter
pit to be constructed within the CJO Treatment Plant property.
4.5 If any of the provisions of this Amendment shall be invalid or
unenforceable, such invalidity for unenforceability shall not invalidate or
render
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unenforceable the remainder of this Amendment, to the extent practicable, and
the 1995 Agreement shall be construed as if not containing the particular
invalid or unenforceable provision or provisions and the rights and obligations
of the parties shall be construed and enforced accordingly.
4.6 Except as modified by this Amendment, the 1995 Agreement shall remain in
effect and unchanged.
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed as of the day and year first written above.
MIDDLESEX WATER COMPANY
ATTEST:
BY: /s/ RICHARD A. RUSSO
---------------------------------
(Richard A. Russo)
Executive Vice President
/s/ MARION F. REYNOLDS
- ----------------------------------
(Marion F. Reynolds)
Vice President, Secretary and
Treasurer
BOROUGH OF HIGHLAND PARK
By: /s/ H. JAMES POLOS
---------------------------------
(H. James Polos, Mayor)
/s/ VALERIE THOMPSON
- -----------------------------------
(Valerie Thompson) Borough Clerk
(DOC-Ex 10.15)
3
FOR A SUPPLY OF WATER
BY
MIDDLESEX WATER COMPANY
TO THE
BOROUGH OF HIGHLAND PARK
----------------------------
Dated as of October 24, 1995
----------------------------
4
This Agreement (hereinafter referred to as the "Agreement") made as of this
24th day of October, 1995 between:
MIDDLESEX WATER COMPANY, a public utility
and corporation organized under the laws
of the State of New Jersey, with offices
at 1500 Ronson Road, Iselin, New Jersey
(hereinafter referred to as "Middlesex"),
and the
BOROUGH OF HIGHLAND PARK, a municipal corporation
of the State of New Jersey (hereinafter referred
to as "Highland Park").
W I T N E S S E T H:
WHEREAS, Middlesex owns and operates a public water supply system; and
WHEREAS, Highland Park has requested that Middlesex provide it with
additional supplies of water for private and public use; and
WHEREAS, the parties intend that their Agreement for a Supply of Water,
dated September 23, 1981 and their subsequent Agreements dated as of September
23, 1986 and December 5, 1991, are to be superseded by this new Agreement;
Now therefore, in consideration of the premises and of the mutual covenants
herein contained, the parties agree that:
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1. SUPPLY OF WATER.
Middlesex agrees to supply Highland Park with water upon the terms and
conditions set forth herein.
2. TERM.
This Agreement shall be binding upon execution by both parties. Service
under this Agreement shall begin on or before December 31, 1995, such date
intended to be the date on which Highland Park changes its source of supply,
that is, that amount of its supply which it currently receives under an
agreement between Highland Park and the Elizabethtown Water Company, from the
Elizabethtown Water Company to Middlesex Water Company. Service under this
Agreement shall terminate on December 31, 2005. However, the terms of the
Agreement shall remain in effect after December 31, 2005 unless written notice
of intention to terminate the Agreement is given by either party at least thirty
(30) days prior to the end of such period. In the event that such notice has not
been given, the Agreement shall remain in effect until the earlier of (a)
renewal or modification of the Agreement by consent of both parties, or (b) a
date no less than ninety (90) days after the date that either party provides
written notification of termination.
3. RATE.
Highland Park shall pay for water delivered pursuant hereto at the rate of
$960.64 per million gallons according to Rate Schedule No. 5 or as said rate may
be changed from time to time with the approval of the Board of Public Utilities
of the State of New Jersey, or its successor agency, as required by law
(hereinafter referred to as the "Contract Rate").
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4. METER STATIONS/DELIVERY SYSTEM.
Water to be supplied by Middlesex hereunder shall be delivered to Highland
Park through an existing interconnection in Suttons Lane in Edison adjacent to
the railroad right of way and through such other points of delivery as may be
agreed to from time to time by the parties (hereinafter referred to as the
"Meter Stations"). The parties agree that Middlesex shall install one or more
additional interconnections on a large diameter transmission main (anticipated
to be 36 or 42 inches in diameter) planned for future construction by Middlesex
and extending from Middlesex's Treatment Plant in Edison, through the Borough of
Highland Park, to a transmission main or other facilities of Middlesex. The
general route for the Transmission Main is shown on Exhibit A. (Said
transmission main is hereinafter referred to as the "SRB Transmission Main" or
the "Transmission Main".) The SRB Transmission Main may be constructed in
phases.
The parties agree that Middlesex may proceed with the construction of the
SRB Transmission Main and any connections thereto necessary or convenient for
delivery of water supplies to Highland Park. The construction of the SRB
Transmission Main and any service connections (and meter chambers) related to
the SRB Transmission Main shall be at the sole cost of Middlesex. Highland Park
agrees to cooperate and act in good faith in connection therewith and in
providing and obtaining necessary or desirable governmental approvals,
authorizations, rights of way and other actions. Highland Park agrees to grant
to Middlesex or to acquire for Middlesex, by purchase, condemnation, exchange or
otherwise, to the extent legally authorized, all lands, and/or easements in
Highland Park as are necessary or convenient for Middlesex's construction and
use of the SRB Transmission Main, and for any other mains, pipelines and
appurtenances necessary or convenient for water service to Highland Park with
all costs borne by Middlesex.
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Middlesex agrees to comply with reasonable requirements of Highland Park for
pavement and property restoration.
5. METERS, SERVICES AND OTHER APPURTENANCES.
Middlesex shall furnish, install and maintain at its own cost such service
connections and meters as agreed upon by both parties for connection to Highland
Park's water distribution system. The meters and service pipes shall remain the
property of Middlesex. Highland Park shall furnish, install and maintain at its
own cost all other piping, fittings, valves, meter pits or vaults and
appurtenances necessary to take water from Middlesex.
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6. EXCLUSIVE SUPPLIER.
The parties agree that during the term of this Agreement, Middlesex shall
be Highland Park's sole supplier of water. Except as provided in this paragraph,
Highland Park shall not purchase water from any other supplier in the normal
course of business. Highland Park shall have the right to purchase water from
other sources in the event of an emergency or during any periods of time that
Middlesex is unable to supply water as provided in this Agreement.
7. MINIMUM PAYMENT OBLIGATION.
Highland Park shall be obligated to pay for the Daily Minimum quantity of
water. "Daily Minimum" shall mean either (a) one million two hundred thousand
(1.2 mgd) gallons of water a day, or (b) such greater amount as may be
established under paragraph 8 of this Agreement.
All water taken in any 24-hour period in excess of the Daily Minimum shall
be paid for at the Contract Rate.
8. INCREASE IN MINIMUM PAYMENT OBLIGATION.
The total daily quantity of water taken by Highland Park at the Meter
Stations may exceed the Daily Minimum by up to 100% on a 24-hour basis without
affecting the minimum payment obligation.
The quantity of water supplied in the peak hour multiplied by 24 may exceed
the Daily Minimum by 200% without affecting the minimum payment obligation.
If either the quantity of water taken in a 24-hour period shall exceed the
Daily Minimum by more than 100% or if the maximum hourly flow multiplied by 24
shall exceed the Daily Minimum by more than 200%, the Daily Minimum will be
increased to the
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greater of: (a) one-half of the daily quantity of water supplied in the 24-hour
period; or (b) one-third of the quantity supplied in the peak hour multiplied by
24. (For example, an existing Daily Minimum of 1.2 million gallons per day
("mgd") will be increased if the quantity of water taken in any 24-hour period
exceeds 2.4 mgd, or if the quantity of water taken in any peak hour multiplied
by 24 exceeds 3.6 mgd.)
In no instance, and under no conditions, shall the daily quantity of water
supplied and purchased under this Agreement exceed 4.0 million gallons, nor
shall the maximum hourly flow multiplied by 24 exceed 5.0 million gallons per
day.
Any increased Daily Minimum payment obligation shall continue in effect for
12 months unless increased again by an overrun. After this 12-month period with
the higher Daily Minimum in effect, the Daily Minimum shall revert to the next
lower minimum incurred during the four months preceding the end of such 12-month
period and that amount shall continue as the Daily Minimum for 12 months unless
increased again by an overrun.
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9. COMBINED CHARGE.
The Daily Minimum payment obligation shall be determined on the basis of
the combined total daily quantity of water supplied through all the Meter
Stations.
10. DEFINITIONS.
Where the words "daily" or "24-hours" are used in this contract, they shall
refer to the 24-hour period between the daily meter readings.
11. EXCEPTIONS FOR EMERGENCIES.
The Daily Minimum payment obligation shall not be affected in the event
that the amount of water supplied to Highland Park exceeds the daily or hourly
limitations established herein for not more than 24 hours in case of fire or
main break emergencies and for not more than five days in the case of other
catastrophes requiring an emergency supply of water, provided Middlesex is
promptly notified that any such emergency exists.
12. METER READINGS.
Middlesex will read the meters daily for all water supplied to Highland
Park at each connection then in operation.
13. EXCUSED PERFORMANCE.
Middlesex agrees to provide a continuous, regular and uninterrupted supply
of water, subject to interruptions by reasons of acts of God, accident, strike,
legal process, State or municipal interference or other cause beyond its
control, but shall not be liable for damages to Highland Park by reasons of
inadequate pressure or volume or failure to provide water for any cause
whatever.
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14. INDEMNIFICATION/LIMITATION OF LIABILITY.
Highland Park shall completely indemnify, protect and save harmless
Middlesex from any and all costs, expenses, liability, losses, claims, suits and
proceedings of any nature whatsoever arising out of the water service by
Highland Park. However, as to claims involving water quality, the within Article
is intended not to apply to water until after it is delivered to Highland Park's
system, i.e. after water is supplied through the Meter Stations referred to in
Article 4.
Middlesex shall completely indemnify, protect and save harmless Highland
Park from all costs, expenses, liability, losses, claims, suites and proceedings
of any nature whatsoever arising out of any negligence of Middlesex.
Notwithstanding anything herein to the contrary, Middlesex's aggregate
liability to Highland Park arising out of or in connection with this Agreement
shall not exceed an amount equal to one year's gross revenues required to be
paid by Highland Park to Middlesex based upon the Daily Minimum in effect at the
time of the occurrence giving rise to the liability, and Highland Park hereby
releases Middlesex from any liability in excess thereof. This paragraph is not
intended to limit Middlesex's liability to third parties.
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15. REGULATORY APPROVALS.
If required by law, this Agreement shall be filed with and subject to
approval by the Board of Public Utilities of the State of New Jersey and the
Department of Environmental Protection of the State of New Jersey.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first written above.
MIDDLESEX WATER COMPANY
ATTEST:
By: /s/ J. RICHARD TOMPKINS
--------------------------------------
(J. Richard Tompkins)
Chairman of the Board and President
/s/ MARION F. REYNOLDS
- --------------------------------
(Marion F. Reynolds)
Vice President, Secretary and
Treasurer
BOROUGH OF HIGHLAND PARK
ATTEST:
By: /s/ H. JAMES POLOS
---------------------------------------
(H. James Polos), Mayor
/s/ VALERIE THOMPSON
- ---------------------------------
(Valerie Thompson) Borough Clerk
(DOC-Ex 10.15)
13
AGREEMENT
FOR A SUPPLY OF WATER
BETWEEN
MIDDLESEX WATER COMPANY
AND THE
CITY OF SOUTH AMBOY
---------------------------------
DATED AS OF OCTOBER 26, 1994
---------------------------------
This Agreement (hereinafter referred to as the "Agreement") made as of this
26th day of October, l994, between MIDDLESEX WATER COMPANY, a public utility and
corporation organized under the laws of the State of New Jersey, with offices at
l500 Ronson Road, Iselin, New Jersey (hereinafter referred to as "Middlesex"),
and the CITY OF SOUTH AMBOY, a municipal corporation of the State of New Jersey,
with its principal offices located at l40 North Broadway, South Amboy, New
Jersey 08879-l647 (hereinafter referred to as "South Amboy").
W I T N E S S E T H:
WHEREAS, Middlesex owns and operates a public water supply system; and
WHEREAS, over the past seven years Middlesex has been developing, through
both lease and new construction, a transmission system which is intended to meet
the long term needs of the communities in the South River Basin area, and which
is at present capable of meeting the requirements of this Agreement (the
existing components of this transmission system are hereinafter referred to as
the "South River Basin Transmission System"); and
WHEREAS, South River Basin Transmission System includes a transmission main
which in close proximity to South Amboy; and
WHEREAS, South Amboy owns and operates a water distribution system
(hereinafter referred to as the "South Amboy System"); and
WHEREAS, South Amboy has requested that Middlesex provide it with a long
term supply of water for private and public use; and
WHEREAS, Middlesex has agreed to install a connecting transmission main
from the South River Basin Transmission System to the South Amboy System; and
2
WHEREAS, it is anticipated that water service by Middlesex to South Amboy
will be available by January 1, 1995 under the terms of the Agreement; and
WHEREAS, South Amboy receives water supplies from the City of Perth Amboy
under a water supply agreement and South Amboy has requested that Middlesex
supply all of South Amboy's water supply needs in excess of any amount South
Amboy may be required to take from the City of Perth Amboy.
NOW THEREFORE, in consideration of the premises and of the mutual covenants
herein contained, the parties agree that:
l. Supply of Water.
Middlesex agrees to supply South Amboy with water and South Amboy agrees to
accept such water upon the terms and conditions set forth herein.
2. Term.
The terms of this Agreement shall be binding upon both parties upon
execution. Service shall begin as provided in Article 4 hereof, and except as
otherwise provided herein, service shall terminate on May 31, 2015.
At the end of such time, however, at the option of South Amboy, the
Agreement may be renewed for an additional period of up to twenty years, from
the date of expiration, and thereupon the terms of the Agreement shall otherwise
remain in full force and effect. If South Amboy intends to exercise this option
to renew, South Amboy shall provide to Middlesex written notice thereof at least
one year prior to the termination of this Agreement.
The terms of the Agreement shall remain in effect after May 31, 2015, and
any periods of renewal of the Agreement, unless written notice of intention to
terminate the Agreement is given by either party at least three hundred
sixty-five (365) days prior to the end of any such period. In the event that
such notice has not been given, the Agreement shall remain in effect until the
earlier of (a) renewal
3
or modification of the Agreement by consent of both parties, or (b) the date no
less than three hundred sixty-five (365) days after the date that either party
provides written notification of termination.
3. Rate.
After service to South Amboy is commenced, South Amboy shall pay Middlesex
at a rate which is the sum of (a) Middlesex's tariff for Service Under Contract
(Rate Schedule No. 5), currently at the rate of $962.85 per million gallons; and
(b) Middlesex's tariff for Transmission Service South River Basin (Rate Schedule
No. 7), currently at the rate of $401.79 per million gallons. Each of these
rates is pursuant to a tariff which is subject to the approval of the New Jersey
Board of Public Utilities or successor agency (hereinafter referred to as "BPU")
or as applicable rates and tariffs may be established and/or changed from time
to time with the approval of the BPU as required by law. (Such combined rate is
hereinafter referred to as the "Tariff Rate"). South Amboy shall pay Middlesex
at the said Tariff Rate for water delivered to Meter Stations (as defined below
in Article 5 Meter Stations/Points of Delivery) or for the Daily Minimum payment
obligation (as defined below in Article 8. Minimum Payment Obligation),
whichever is greater.
4. Delivery System.
Both parties agree to proceed with the establishment of any connections
necessary for South Amboy to take water from the said South River Basin
Transmission System. Unless otherwise agreed, and subject to any required
approvals by the New Jersey Department of Environmental Protection (hereinafter
"DEP"), Middlesex shall construct and install a Service Connection from the
South River Basin Transmission System to the South Amboy System via "Route A" as
same is more particularly described in a Middlesex Water Company report titled
"Proposed Water Service for The City of South Amboy" dated June 24, 1994,
4
including such other facilities as Middlesex reasonably deems necessary to meet
its obligations under this Agreement (hereinafter referred to as "Service
Connection"). Middlesex shall operate and maintain the Service Connection
generally and under reasonable demand flow conditions (including fire demand) so
that water pressure in the Service Connection, as measured at the Meter Station
as hereinafter described, shall be at a hydraulic grade line of 210 feet
relative to the National Geodetic Vertical Datum of 1929. Middlesex shall also
construct and install a meter chamber (hereinafter referred to as "Meter
Chamber") along that Service Connection at a location mutually agreeable to the
parties, which agreement shall not be unreasonably withheld. South Amboy agrees
to accept service and initiate its payment obligation when such service becomes
available, that is, when Middlesex completes the above-mentioned Service
Connection and Meter Chamber and Middlesex can provide water to South Amboy at
the Meter Chamber. The construction of the Service Connection and Meter Chamber
shall be at the sole cost of Middlesex; however, South Amboy agrees to reimburse
Middlesex for the undepreciated original cost of the Service Connection and
Meter Chamber if South Amboy wrongfully terminates this Agreement before the
term of this Agreement.
If for any reason the Service Connection contemplated by this paragraph
cannot be constructed at a reasonable cost or within a reasonable time period,
as determined by Middlesex, Middlesex may develop an alternative delivery system
reasonably acceptable to South Amboy.
South Amboy further agrees to cooperate and act in good faith in connection
therewith and in providing and obtaining necessary or desirable governmental
approvals, authorizations and other actions.
South Amboy agrees that it shall be South Amboy's sole responsibility to
grant to Middlesex or to acquire for Middlesex, by purchase, condemnation,
5
exchange or otherwise, to the extent legally authorized, all lands and/or
easements in South Amboy as are necessary for Middlesex's construction and use
of pipelines and appurtenances necessary for water service to South Amboy, with
all costs borne by Middlesex.
5. Meter Stations/Points of Delivery.
The parties understand and agree that delivery shall be made through the
Meter Chamber described in Article 4 above and through such other points of
delivery in the City of South Amboy as may be reasonably agreed upon from time
to time by the parties (hereinafter referred to as "Meter Stations"), which
agreement shall not be unreasonably withheld. Water so supplied shall be metered
at the Meter Stations.
6. Meters, Services and Other Appurtenances.
The meters and service pipes and appurtenances comprising the Service
Connection up to and including the interconnection with the South Amboy System
shall remain the property of Middlesex. Middlesex shall maintain and verify the
accuracy of said meters annually and South Amboy shall have the right of access
to the Meter Stations to test the meters by a certified meter technician at any
reasonable time upon written notice.
7. Exclusive Supplier.
The parties understand that at the time of executing this Agreement South
Amboy receives water supplies from the City of Perth Amboy under a water supply
contract. South Amboy agrees that Middlesex shall supply all of South Amboy's
water supply needs in excess of any amount South Amboy may be required to take
from the City of Perth Amboy under that contract. In addition, if South Amboy's
contract with the City of Perth Amboy terminates before the end of this
Agreement (between South Amboy and Middlesex) or before the end of any renewals
of this Agreement, either by the terms of the contract between South
6
Amboy and the City of Perth Amboy or for any other reason, Middlesex shall be
South Amboy's sole supplier of water. Except as provided in this paragraph with
respect to the contract with Perth Amboy, South Amboy shall not purchase water
from any other supplier in the normal course of business. South Amboy shall have
the right to purchase water from other sources when Middlesex is unable to
comply with any of the material terms of this contract. While South Amboy may
develop its own back-up capabilities and sources of supply, it may not do so
with the intent to replace Middlesex Water as its major or sole supplier during
the life of this contract unless so directed by a lawful exercise of government
power.
8. Minimum Payment Obligation.
Thirty days after service to South Amboy is commenced, South Amboy shall be
obligated to pay for the Daily Minimum quantity of water at the Tariff Rate.
"Daily Minimum" shall mean:
a) 0.2 million gallons of water a day (hereinafter referred to as
"mgd") until May 31, 2008;
b) 0.7 mgd after May 31, 2008; or
c) such greater amount as may be established under Article 9 of this
Agreement.
All water taken in any 24-hour period in excess of the Daily Minimum shall
be paid for at the Tariff Rate.
9. Increase in Minimum Payment Obligation.
The provisions of this Article 9 concerning an increase in South Amboy's
minimum payment obligation shall not take effect until after South Amboy's usage
exceeds 15 million gallons per month (that is, the equivalent of 0.5 mgd usage
for a one-month period).
The total daily quantity of water taken by South Amboy at the Meter
Stations may exceed the Daily Minimum by up to 100% on a 24-hour basis
7
without affecting the minimum payment obligation. The quantity of water supplied
in the peak hour multiplied by 24 may exceed the Daily Minimum by 200% without
affecting the minimum payment obligation.
If the quantity of water taken in a 24-hour period shall exceed the Daily
Minimum by more than 100% or if the maximum hourly flow multiplied by 24 shall
exceed the Daily Minimum by 200%, the Daily Minimum will be increased to the
greater of:
a) One-half of the daily quantity of water supplied in the 24-hour
period; or
b) One-third of the quantity supplied in the peak hour multiplied by
24.
(For example, an existing Daily Minimum of 0.2 million gallons will be
increased if the quantity of water taken in any 24-hour period exceeds 0.4
million gallons per day, or if the quantity of water taken in any peak hour
multiplied by 24 exceeds 0.6 million gallons a day.)
In no instance, and under no conditions, shall the daily 24-hour quantity
of water supplied and purchased under this Agreement exceed 4 million gallons,
nor shall the maximum hourly flow exceed the rate of 7 million gallons per day,
unless otherwise agreed in writing by Middlesex.
Any increased Daily Minimum shall continue for 12 months unless increased
again by an overrun. After this 12-month period with the higher Daily Minimum in
effect, the Daily Minimum shall revert to the next lower Daily Minimum which
would have been in effect during the 12 months, and that amount shall continue
as the Daily Minimum for l2 months from the date of its occurrence, unless
increased again by an overrun.
There will be no increase in the minimum payment obligation during the
period South Amboy is contractually bound to Perth Amboy, if the enhanced
8
South Amboy water usage is due to difficulties Perth Amboy experiences in
delivering water to South Amboy.
10. Payment.
Bills for service rendered shall be submitted monthly, by the 15th day of
every month, or the first business day thereafter, by Middlesex to South Amboy
and payment therefor shall be made within thirty (30) days. Water service
charges shall be computed on a daily basis in conformity with the requirements
of Article 8.
11. Combined Charge.
Payments for water in excess of the Daily Minimum and adjustments of the
Daily Minimum under Article 9 shall be determined on the basis of the combined
total daily quantity of water supplied through all the Meter Stations as
determined by meter readings at said Meter Stations.
12. Meter Readings.
Middlesex will read the meters daily (at a regular hour determined by
Middlesex) for all water supplied to South Amboy at each connection then in
operation. Copies of these meter readings shall accompany the bills sent to
South Amboy.
13. Definitions.
Where the words "daily" or "24-hours" are used in this , they shall refer
to the 24-hour period between the daily meter readings.
14. Quality.
Middlesex anticipates that its water quality will meet or exceed the
minimum quality required or recommended by Federal and State standards.
Middlesex agrees that all water delivered to South Amboy at the Meter Stations
by Middlesex under this Agreement shall comply with all Federal and State
primary regulations mandated for safe drinking water ("Regulations"). In
addition,
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Middlesex shall take all steps reasonably available to meet the Federal and
State secondary levels recommended for water quality. However, Middlesex shall
not be responsible for any changes in the quality of the water resulting from
the conditions, configuration or operation of the South Amboy distribution
system and that occur after delivery to the Meter Stations.
Middlesex shall notify South Amboy immediately after any testing procedure
reveals any deviations from the Regulations, or after it becomes aware of any
instance of quality below the aforementioned Regulations. If service is
discontinued because of an instance of quality less satisfactory than the said
Regulations, South Amboy shall have the right to receive the Daily Minimum
amount of water designated for the period of discontinuance at such later date
as it so elects without incurring any increase in its minimum payment
obligation.
15. Scheduling.
Middlesex shall have the right to temporarily modify its rate of delivery
to manage its system requirements in accordance with accepted operating
procedures, except that Middlesex shall not, under any circumstances, excepting
emergencies, modify its rate of delivery such that the hydraulic gradient in the
Service Connection (at the Meter Chamber) is less than the level agreed to
herein, without the expressed written consent of South Amboy and only when
appropriate alternative measures, acceptable to South Amboy, are made available
to South Amboy. South Amboy shall give Middlesex reasonable advance notice of
any anticipated departures from its then normal usage and Middlesex shall give
South Amboy reasonable advance notice of any anticipated rate of delivery
modification. The notices contemplated by this Article l5 and by Article l6
shall be made at the appropriate operating level.
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16. Exceptions for Emergencies and Extraordinary Events.
The Daily Minimum payment obligation shall not be affected in the event
that the amount of water supplied by Middlesex to South Amboy exceeds the daily
or hourly limitations established herein for not more than 24 hours in case of
fire or main break emergencies experienced by South Amboy and for not more than
five days in the case of other catastrophes experienced by South Amboy requiring
an emergency supply of water, provided Middlesex is notified as soon as
reasonably possible after South Amboy becomes aware of said emergency or
catastrophe.
If South Amboy requires additional supplies of water for not more than 24
hours due to circumstances which are not typical to the ordinary operations of a
water system, it may request such supplies in advance from Middlesex. If
Middlesex can reasonably deliver such supplies, and can do so without incurring
penalties or demand charges, Middlesex shall provide such supplies to South
Amboy and South Amboy shall not be obligated for an increase in its minimum
payment obligation under Article 9.
17. Excused Performance.
Middlesex agrees to provide a continuous, regular and uninterrupted supply
of water, with at least the pressure agreed upon herein, subject to delays in
initiating service or interruptions in service by reasons of acts of God,
accident, strike, legal process, State or municipal interference or other cause
beyond its control, or failure, refusal, or delay on the part of any
governmental or regulatory body having jurisdiction in issuing permits,
approvals, authorizations, licenses, rights-of-way or the like. Middlesex shall
not be liable for damages to South Amboy by reason of inadequate pressure or
volume or quality or failure to provide water for any cause whatever provided
same does not arise out of the negligence of Middlesex.
11
18. Limitation of the Right to Sue
It is envisioned under the terms of this contract, as described herein,
that Middlesex shall provide South Amboy with proper quality water at proper
pressure at the points where the water is introduced into South Amboy's
transmission and distribution system. South Amboy also obtains water from at
least one other source (i.e. City of Perth Amboy, at the time of execution of
this contract), has or may have its own supplies, and also operates its own
water distribution system. Therefore, South Amboy's right to bring actions
against Middlesex for improper water and/or improper pressure shall be for such
water quality and/or pressure as measured at the points where the Middlesex
water enters the South Amboy system. South Amboy acknowledges that problems any
of its citizens experience with water service ought not automatically to be
ascribed to Middlesex.
The signatory parties understand that they are protected from each other's
negligent, reckless, and intentional conduct, and that all damages permitted
under law are available to each party.
The parties further understand that a limitation of possible damages
between the parties is of great concern to Middlesex. Both parties agree to
limit their aggregate liability to each other arising out of or in connection
with this agreement to an amount equal to two (2) years' gross revenues required
to be paid by South Amboy to Middlesex based upon the Daily Minimum (described
previously herein) in effect at the time of the occurrence giving rise to the
liability, and both parties expressly release the other from any additional
liability in excess thereof.
These limitations between the parties are not intended to limit liability
to third party non-signatories.
19. Representations
Middlesex represents and warrants to South Amboy that the execution and
delivery of this Agreement by Middlesex have been duly authorized by all
necessary corporate action, and no consent, approval, authorization or exemption
12
of, or declaration, filing or registration with any governmental or regulatory
authority or other person in connection with the execution and delivery of the
Agreement is required on the part of Middlesex, except as provided in Article 20
hereof.
South Amboy represents and warrants to Middlesex that South Amboy has all
requisite power and authority to execute and deliver this Agreement under the
terms contained therein, and no consent, approval, authorization or exemption
of, or declaration, filing or registration with, any governmental or regulatory
authority or other person in connection with the execution and delivery of the
Agreement is required on the part of South Amboy , except as provided in Article
20 hereof.
20. Regulatory Approvals.
This Agreement shall be filed with and subject to approval by the BPU and
the DEP as may be required by law.
Middlesex shall expeditiously initiate any such filings and petition for
any such approvals. The Agreement shall also be filed with and subject to
approval by the New Jersey Department of Community Affairs as may be required by
law. South Amboy shall expeditiously initiate such filing and petition for such
approval. Both parties agree to cooperate and act in good faith in connection
with obtaining these and any other regulatory authorizations.
21. Miscellaneous.
To the extent not inconsistent with this Agreement all other provisions of
Middlesex's tariff shall be deemed to govern service hereunder.
In the event it is determined by a Court having jurisdiction that
contractually the City of Perth Amboy shall be the sole purveyor of water to the
City of South Amboy, then the City of South Amboy may cancel this contract
13
without penalty, except as provided in Section 4 hereof with respect to
reimbursement to Middlesex in the event of termination of this Agreement.
This Agreement shall be governed by and interpreted in accordance with the
laws of the State of New Jersey.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first written above.
MIDDLESEX WATER COMPANY
ATTEST:
By: /s/ J. RICHARD TOMPKINS/
----------------------------------
(J. Richard Tompkins)
Chairman of the Board and President
/s/ MARION F. REYNOLDS/
- --------------------------------
(Marion F. Reynolds)
Vice President and Secretary
CITY OF SOUTH AMBOY
ATTEST:
By: /s/ JOHN T. O'LEARY/
-----------------------------------
(John T. O'Leary) Mayor
As Authorized by Resolution of
the Township Council
/s/ CHRISTINE CAPUTO/
- --------------------------------
(Christine Caputo) Clerk
14
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS
LIQUIDITY AND CAPITAL RESOURCES
The Company's expenditures on property, plant and equipment during 1996 totaled
$6.2 million and consisted of the following: $3.3 million for routine capital
additions, which include transmission and distribution mains, hydrants, service
lines, meters and general equipment; $0.9 million for the cleaning and lining of
mains; $0.4 million for a main relocation in Port Reading, New Jersey; and $1.6
million for water system development in Delaware. These expenditures were
financed by utilization of the December 31, 1995, cash balance,
internally-generated funds from operations, the sale of common stock through the
Dividend Reinvestment Plan and proceeds from a long-term secured note.
The Company has projected capital expenditures of $17.1 million, $21.8 million
and $14.3 million, for 1997, 1998 and 1999, respectively. For 1997, $5.6 million
is for routine capital expenditures; $6.4 million for the upgrade of the Carl J.
Olsen Water Treatment Plant (CJO Plant); $1.9 million for treatment of well
supplies; $2.3 million for water systems additions and improvements in Delaware;
$0.2 million for the South River Basin regional supply; and $0.7 million for
miscellaneous items. For 1998 and 1999 combined, $12.0 million is for routine
capital expenditures; $20.5 million for the CJO Plant upgrade; $1.3 million for
water system development in Delaware; $1.3 million for treatment of well
supplies; $0.5 million for the South River Basin regional supply; and $0.5
million for miscellaneous items.
Sources of Capital - To finance the Capital Program, the Company will utilize
internally-generated cash and external financing. The Company will initially
rely upon short-term borrowings through lines of credit established with three
financial institutions. There is $20 million available under these commitments.
It is expected that there will be several debt and equity financings over the
three-year period. The amount, type and timing of the financings will be based
upon the construction schedule, regulatory rate relief and financial market
conditions.
RESULTS OF OPERATIONS
1996 COMPARED TO 1995
Consolidated operating revenues in 1996 were $0.2 million higher than in 1995.
Consumption was lower in all major classes of customers. These decreases were
offset by additional fixed service charges as a result of an increased customer
base in Delaware of 12.5% and the inclusion of revenues from the Pinelands
Companies and Utility Service Affiliates for a full year in 1996.
Operations and maintenance expenses were $0.9 million or 4.8% higher in 1996
over 1995 due principally to increases in purchased water of $0.3 million; water
treatment of $0.3 million; pumping expenses of $0.2 million; and customer
accounts and administrative and general expenses of $0.3 million; offset by a
decrease in transmission and distribution expenses of $0.2 million.
Depreciation increased $0.1 million or 4.1% due to a higher depreciation base.
Federal income taxes decreased $0.5 million due to lower taxable income.
Interest expenses increased $0.2 million or 5.3% as a result of the long-term
borrowings by Tidewater.
As a result, net income decreased $0.5 million or 9.4%.
RESULTS OF OPERATIONS
1995 COMPARED TO 1994
Operating revenues increased $1.7 million or 4.8% over the previous year. Of
that amount, $0.5 million is due to the inclusion of the Pinelands Companies for
almost nine months during 1995. The remainder is the result of increased
consumption, which is due to Tidewater increasing their customer base by 13% and
the extended dry weather pattern during the summer.
Operations and maintenance expenses increased by $1.0 million or 5.9% over 1994.
Of this increase, $0.4 million relates to the inclusion of the Pinelands
Companies. Additionally, there were increases in water treatment of $0.3
million; pumping expenses of $0.2 million; transmission and distribution
expenses of $0.2 million and administrative and general expenses of $0.1
million; which were offset by a decrease in purchased water of $0.2 million.
Depreciation increased $0.2 million or 6.2% due to a higher depreciation base
and the inclusion of the newly acquired subsidiaries. Taxes, other than income
taxes, increased $0.1 million or 2.5% due largely to higher revenue-related
taxes. Federal income taxes increased $0.2 million due to higher taxable income.
Net income increased 3.8% reflecting overall higher revenues, continued
monitoring of operating expenses, and a noted increase in Tidewater's customer
base.
REGULATORY MATTERS
On November 27, 1996, Middlesex filed a petition with the New Jersey Board of
Public Utilities (BPU) for a base rate increase of $5.8 million or 16.8%.
Included in the petition are the following: Deferred charges of $0.7 million
which the Company is seeking to recover in rates by amortizing these costs over
periods of two to ten years; projected construction work in progress
expenditures of $7.0 million associated with the upgrade of the Carl J. Olsen
Water Treatment Plant, which is necessary to comply with new and anticipated
environmental laws and regulations and to expand the plant's production
capacity; and $1.2 million for the recovery of postretirement benefit costs
other than pension which are mandated by the Company's compliance with Statement
of Financial Accounting Standards (SFAS No. 106), "Employers' Accounting for
Postretirement Benefits Other Than Pensions." A decision in this matter is
expected some time in 1997. The last increase in base rates granted by the BPU
was $2.8 million or 9.33% in April 1993.
On December 19, 1996, the BPU approved the Company's request to transfer its
Robinson's Branch Reservoir to the Township of Clark and to transfer a
conservation easement on the property to the New Jersey Conservation Foundation.
Although the reservoir has not been used as a water supply since approximately
1970, the Company intends to retain its water diversion rights for possible
future
================================================================================
10
================================================================================
use. Under the terms of the transaction, the municipality is to assume the
obligation to make certain improvements to the reservoir's dam required under
the New Jersey Dam Safety Act.
On October 9, 1996, Middlesex received approval from the BPU for a Purchased
Water Adjustment Clause (PWAC) rate increase pertaining to $0.2 million of
increased purchase water costs. A PWAC, which was first implemented by Middlesex
in 1994, is subject to an annual reconciliation of actual costs incurred with
amounts recovered under a PWAC rate.
On January 23, 1997, the BPU approved a stipulation agreed to by the parties to
the Pinelands Water and Wastewater Companies' rate cases which were filed in
February 1996. The stipulations allow for a combined rate increase which will
result in $0.4 million additional revenues. The new rates will be phased in over
a three-year period to minimize the impact on customers. Previously, in April
1995, the BPU approved the $2.3 million asset purchase by the Pinelands
Companies of a 2,200 customer water utility and a 2,200 customer wastewater
utility located in Burlington County, New Jersey. The transaction was financed
by a combination of cash on hand and promissory notes, which have since been
extinguished.
ACCOUNTING STANDARDS
The Financial Accounting Standards Board (FASB) issued SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," which requires that long-lived assets be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Effective January 1, 1996, the Company adopted SFAS No.
121 with no effect on its results of operations or cash flows.
The FASB also issued SFAS No. 123, "Accounting for Stock-Based Compensation."
SFAS No. 123 establishes financial accounting and disclosure requirements using
a fair value-based method of accounting for stock-based employee compensation
plans. The Statement provides an entity the option to either adopt the new
method or to continue to measure compensation cost as prescribed by Accounting
Principles Board Opinion No. 25 (APB 25), "Accounting for Stock Issued to
Employees," and provide proforma disclosures of the effect of adopting SFAS 123.
The Company has elected to continue its current accounting treatment for stock
compensation under APB 25.
OUTLOOK
Revenues and earnings for 1997 are projected to increase based on anticipated
customer growth in the Delaware service territory, recently approved rate relief
for the Pinelands Companies, and increased contract service revenues. Fair and
timely rate relief from the Middlesex base rate increase request should also
provide the opportunity to improve revenues.
Currently, there are no plans by Tidewater to file for a rate increase in
Delaware. The last rate increase granted to Tidewater was in October 1991.
Average annual customer growth of 20% since that time has made it possible for
Tidewater to sustain earnings under the existing rate structure.
Middlesex will continue to be active in the evolving water industry. Growth
opportunities in both the regulated and non-regulated sectors that are
financially sound, complement the existing operations and increase shareholder
value will be pursued by Middlesex.
Certain matters discussed in this annual report are "forward-looking statements"
intended to qualify for safe harbors from liability established by the Private
Securities Litigation Reform Act of 1995. Such statements address future plans,
objectives, expectations and events concerning various matters such as capital
expenditures, earnings, litigation, growth potential, rate and other regulatory
matters, liquidity and capital resources, and accounting matters. Actual results
in each case could differ materially from those currently anticipated in such
statements. The Company undertakes no obligation to publicly update or revise
any forward-looking statements, whether as a result of new information, future
events or otherwise.
REPORT OF MANAGEMENT
The consolidated financial statements and other financial information included
in this annual report have been prepared by and are the responsibility of
Management. The statements have been prepared in conformity with generally
accepted accounting principles considered appropriate under the circumstances
and include amounts based on necessary judgment and estimates deemed
appropriate.
The Company maintains a system of internal accounting controls designed to
provide reasonable assurance that assets are protected from improper use and
loss and to provide reliable financial information.
The consolidated financial statements of the Company have been audited by its
independent auditors, Deloitte & Touche LLP, and their report is included
herein.
The Board of Directors, through its Audit Committee consisting solely of
outside Directors, is responsible for overseeing and reviewing the Company's
financial reporting and accounting practices. The Audit Committee meets
periodically with the independent auditors to review the scope of their work and
discuss any changes and developments that may impact the Company.
/s/ J. Richard Tompkins /s/ A. Bruce O'Connor
Chairman of the Board Vice President and
and President Controller
February 14, 1997
================================================================================
11
================================================================================
MIDDLESEX WATER COMPANY
CONSOLIDATED BALANCE SHEETS
Assets
DECEMBER 31,
1996 1995
===================================================================================================
UTILITY PLANT Water Production $ 27,378,668 $ 27,598,613
(NOTE 5): Transmission and Distribution 103,852,969 97,359,802
General 18,156,233 18,169,056
Construction Work in Progress 319,238 1,207,538
-------------------------------------------------------------------------------
TOTAL 149,707,108 144,335,009
Less Accumulated Depreciation 28,462,588 26,402,377
-------------------------------------------------------------------------------
UTILITY PLANT - NET 121,244,520 117,932,632
-------------------------------------------------------------------------------
NONUTILITY ASSETS - NET 1,774,106 1,737,596
===================================================================================================
CURRENT ASSETS: Cash and Cash Equivalents 4,262,862 4,900,640
Accounts Receivable 4,022,129 4,224,653
Unbilled Revenues 2,175,478 2,170,143
Materials and Supplies (at average cost) 1,034,572 1,030,801
Prepayments and Other Current Assets 430,000 660,314
-------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 11,925,041 12,986,551
===================================================================================================
DEFERRED Unamortized Debt Expense 2,848,352 2,969,281
CHARGES: Preliminary Survey and Investigation Charges 1,716,884 833,869
Regulatory Assets:
Income Taxes (Note 3) 6,181,048 6,052,524
Postretirement Costs (Note 4) 1,003,716 758,127
Other (Note 2) 1,965,855 1,551,627
-------------------------------------------------------------------------------
TOTAL DEFERRED CHARGES 13,715,855 12,165,428
-------------------------------------------------------------------------------
TOTAL $148,659,522 $144,822,207
-------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
===================================================================================================
12
===================================================================================================
Capitalization and Liabilities
DECEMBER 31,
1996 1995
===================================================================================================
CAPITALIZATION Common Stock $ 29,988,966 $ 28,820,844
(SEE ACCOMPANYING Retained Earnings 19,226,847 18,822,817
STATEMENTS -------------------------------------------------------------------------------
AND NOTE 9): TOTAL COMMON EQUITY 49,215,813 47,643,661
-------------------------------------------------------------------------------
Cumulative Preferred Stock 2,666,305 2,666,305
Long-term Debt 52,960,953 52,960,000
-------------------------------------------------------------------------------
TOTAL CAPITALIZATION 104,843,071 103,269,966
===================================================================================================
CURRENT Current Portion of Long-term Debt 39,047 240,000
LIABILITIES: Accounts Payable 1,686,652 1,521,515
Customer Deposits 377,702 348,631
Taxes Accrued 4,529,185 4,321,919
Interest Accrued 1,168,242 1,216,851
Other 2,125,683 1,161,630
-------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 9,926,511 8,810,546
===================================================================================================
COMMITMENTS AND CONTINGENT LIABILITIES (NOTE 5)
===================================================================================================
DEFERRED Customer Advances for Construction 8,977,081 9,207,565
CREDITS: Accumulated Deferred Investment Tax Credits (Note 3) 2,308,736 2,380,416
Accumulated Deferred Federal Income Taxes (Note 3) 12,088,144 11,147,627
Other 1,715,458 1,985,654
-------------------------------------------------------------------------------
TOTAL DEFERRED CREDITS 25,089,419 24,721,262
-------------------------------------------------------------------------------
CONTRIBUTIONS IN AID OF CONSTRUCTION 8,800,521 8,020,433
-------------------------------------------------------------------------------
TOTAL $148,659,522 $144,822,207
-------------------------------------------------------------------------------
===================================================================================================
See Notes to Consolidated Financial Statements.
13
===================================================================================================
Middlesex Water Company
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31,
1996 1995 1994
===================================================================================================
OPERATING REVENUES (Note 2) $38,024,669 $37,846,899 $36,122,475
- ---------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Operations:
Water Purchased (Note 5) 2,965,616 2,656,423 2,769,265
Other 14,284,315 13,573,581 12,592,008
Maintenance 1,527,842 1,686,051 1,549,970
Depreciation 2,929,106 2,813,927 2,649,657
Taxes, other than Income Taxes 5,569,047 5,479,299 5,343,563
Federal Income Taxes (Note 3) 2,526,297 2,975,227 2,766,361
- ---------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 29,802,223 29,184,508 27,670,824
- ---------------------------------------------------------------------------------------------------
OPERATING INCOME 8,222,446 8,662,391 8,451,651
===================================================================================================
OTHER INCOME:
Allowance for Funds Used During Construction - Equity 39,891 21,654 --
Other - Net 185,277 134,461 87,418
- ---------------------------------------------------------------------------------------------------
TOTAL OTHER INCOME 225,168 156,115 87,418
- ---------------------------------------------------------------------------------------------------
INCOME BEFORE INTEREST CHARGES 8,447,614 8,818,506 8,539,069
===================================================================================================
INTEREST CHARGES:
Interest on Long-term Debt 3,166,786 2,981,258 2,882,731
Allowance for Funds Used During Construction - Debt (23,723) (5,606) --
Amortization of Debt Expense 120,930 121,138 118,657
Other Interest Expense 16,161 17,972 42,309
- ---------------------------------------------------------------------------------------------------
TOTAL INTEREST CHARGES 3,280,154 3,114,762 3,043,697
- ---------------------------------------------------------------------------------------------------
NET INCOME 5,167,460 5,703,744 5,495,372
- ---------------------------------------------------------------------------------------------------
PREFERRED STOCK DIVIDEND REQUIREMENTS 158,926 158,932 188,357
- ---------------------------------------------------------------------------------------------------
EARNINGS APPLICABLE TO COMMON STOCK $ 5,008,534 $5,544,812 $5,307,015
- ---------------------------------------------------------------------------------------------------
EARNINGS AND DIVIDENDS PER SHARE OF COMMON STOCK:
Earnings $ 1.20 $ 1.36 $ 1.33
Dividends Paid $ 1.10 1/2 $ 1.08 1/2$ 1.05 3/4
Average Number of Shares Outstanding 4,169,334 4,078,890 4,003,393
- ---------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
===================================================================================================
14
===================================================================================================
Middlesex Water Company
CONSOLIDATED STATEMENTS OF CAPITAL STOCK
AND LONG-TERM DEBT
DECEMBER 31,
1996 1995
====================================================================================================
Common Stock, No Par Value (Notes 4 and 9):
Shares Authorized - 6,000,000
Shares Outstanding -1996 - 4,204,949 $30,281,565
1995 - 4,136,972 $29,110,095
Restricted Stock Plan (292,599) (289,251)
- ----------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK $29,988,966 $28,820,844
- ----------------------------------------------------------------------------------------------------
Cumulative Preference Stock, No Par Value:
Shares Authorized - 100,000
Shares Outstanding - None
Cumulative Preferred Stock, No Par Value (Note 9):
Shares Authorized - 69,418
Convertible:
Shares Outstanding, $7.00 Series - 14,901 $ 1,564,605 $ 1,564,605
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 $ 2,666,305 $ 2,666,305
- ----------------------------------------------------------------------------------------------------
Long-term Debt (Note 9):
8.05%, Amortizing Secured Note, due December 20, 2021 $ 3,500,000 $ 2,500,000
7.00%, Promissory Notes, due April 21, 2000 -- 1,200,000
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
- ----------------------------------------------------------------------------------------------------
SUBTOTAL LONG-TERM DEBT $53,000,000 $53,200,000
- ----------------------------------------------------------------------------------------------------
Less: Current Portion of Long-term Debt (39,047) (240,000)
- ----------------------------------------------------------------------------------------------------
TOTAL LONG-TERM DEBT $52,960,953 $52,960,000
- ----------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
====================================================================================================
15
===================================================================================================
MIDDLESEX WATER COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
1996 1995 1994
===================================================================================================
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 5,167,460 $ 5,703,744 $ 5,495,372
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation and Amortization 3,011,337 2,925,928 2,961,727
Provision for Deferred Income Taxes 811,993 278,384 639,381
Allowance for Funds Used During Construction (63,614) (27,260) --
Changes in Current Assets and Liabilities:
Accounts Receivable 202,524 12,147 (694,293)
Materials and Supplies (3,771) (36,907) (24,109)
Accounts Payable 165,137 (95,430) 144,923
Accrued Income Taxes 207,266 (122,453) 77,450
Accrued Interest (48,609) 82,628 191,728
Unbilled Revenues (5,335) (26,348) 102,820
Other - Net 812,337 227,334 (53,483)
- ---------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 10,256,725 8,921,767 8,841,516
- ---------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Utility Plant Expenditures* (6,172,482) (8,990,408) (5,979,113)
Notes Receivable -- (1,250,000) --
Preliminary Survey & Investigation Charges (883,015) (180,541) 11,819
Marketable Securities -- 931,750 (933,298)
Other - Net (657,958) (93,919) (345,778)
- ---------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (7,713,455) (9,583,118) (7,246,370)
- ---------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption of Long-term Debt (1,200,000) -- (12,500,000)
Proceeds from Issuance of Long-term Debt 1,000,000 3,700,000 25,000,000
Temporary Cash Investments - Restricted 64,907 212,362 2,633,653
Proceeds from Issuance of Common Stock - Net 1,168,122 1,669,171 928,459
Deferred Debt Issuance Expenses (251) (53,719) (1,167,605)
Payment of Preferred Dividends (158,926) (158,497) (180,006)
Payment of Common Dividends (4,604,504) (4,421,852) (4,231,410)
Construction Advances and Contributions - Net 549,604 884,140 878,204
Redemption of Preferred Stock -- (123,800) (1,248,500)
Short-term Bank (Repayments) -- -- (9,000,000)
- ---------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (3,181,048) 1,707,805 1,112,795
- ---------------------------------------------------------------------------------------------------
NET CHANGES IN CASH AND CASH EQUIVALENTS (637,778) 1,046,454 2,707,941
- ---------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 4,900,640 3,854,186 1,146,245
- ---------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 4,262,862 $ 4,900,640 $ 3,854,186
- ---------------------------------------------------------------------------------------------------
*Excludes Allowance for Funds Used During Construction.
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash Paid During the Year for:
Interest (net of amounts capitalized) $ 3,116,338 $ 2,877,483 $ 2,722,327
Income Taxes $ 2,117,998 $ 3,078,000 $ 2,453,936
- ---------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
===================================================================================================
16
- --------------------------------------------------------------------------------
MIDDLESEX WATER COMPANY
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
YEARS ENDED DECEMBER 31,
1996 1995 1994
- --------------------------------------------------------------------------------------------------------
BALANCE AT BEGINNING OF YEAR $18,822,817 $17,699,422 $16,615,466
NET INCOME 5,167,460 5,703,744 5,495,372
- --------------------------------------------------------------------------------------------------------
TOTAL 23,990,277 23,403,166 22,110,838
- --------------------------------------------------------------------------------------------------------
CASH DIVIDENDS:
Cumulative Preferred Stock 158,926 158,497 180,006
- --------------------------------------------------------------------------------------------------------
Common Stock 4,604,504 4,421,852 4,231,410
- --------------------------------------------------------------------------------------------------------
TOTAL DEDUCTIONS 4,763,430 4,580,349 4,411,416
- --------------------------------------------------------------------------------------------------------
BALANCE AT END OF YEAR $19,226,847 $18,822,817 $17,699,422
- --------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
========================================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization - Middlesex Water Company (Middlesex or the 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). White Marsh Environmental Systems, Inc., is a
wholly-owned subsidiary 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.
(b) System of Accounts - Middlesex, Pinelands Water and Pinelands Wastewater
maintain their accounts in accordance with the Uniform System of Accounts
prescribed by the Board of Public Utilities of the State of New Jersey (BPU).
Tidewater maintains its accounts in accordance with the Public Service
Commission of Delaware (PSC).
(c) Utility Plant - Utility Plant is stated at original cost as defined for
regulatory purposes. Property accounts are charged with the cost of betterments
and major replacements of property. Cost includes direct material, labor and
indirect charges for pension benefits and payroll taxes. Middlesex and Tidewater
capitalize an Allowance for Funds Used During Construction on individual
projects with costs exceeding specific thresholds for each company. Depreciation
is computed by each regulated member of the Consolidated Group utilizing a rate
approved by the applicable regulatory authority. The Accumulated Provision for
Depreciation is charged with the cost of property retired, together with removal
costs, less salvage. The cost of labor, materials, supervision and other
expenses incurred in making repairs and minor replacements and in maintaining
the properties is charged to the appropriate expense accounts. On January 1,
1996, the Company adopted SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to Be Disposed Of." At December 31,
1996, there was no event or change in circumstance that would indicate that the
carrying amount of any long-lived asset was not recoverable. Under the current
regulatory environment, the Company does not expect SFAS No. 121 to have a
significant impact on their results of operations or cash flows.
(d) Accounts Receivable - Provision for allowance for doubtful accounts at
December 31, 1996, 1995 and 1994, and the corresponding expense and deduction
for those years, is each less than $0.1 million.
(e) Revenues - In general, revenues are recorded as service is rendered and
include estimates for amounts unbilled at the end of the period for water used
subsequent to the last billing cycle. Service charges are billed in advance by
two subsidiaries and are recognized in revenue as the service is provided.
(f) Deferred Charges - Unamortized Debt Expense is amortized over the lives of
the related issues. As authorized by the BPU, main cleaning and lining costs are
being amortized over a 14-year period.
(g) Income Taxes - Middlesex files a consolidated Federal income tax return for
the Consolidated Group and income taxes are allocated based on the separate
return method. Investment tax credits have been deferred and are being amortized
over the estimated useful life of the related property.
17
================================================================================
================================================================================
(h) Statements of Cash Flows - For purposes of reporting cash flows, the Company
considers all highly liquid investments with original maturity dates of three
months or less to be cash equivalents. Cash and cash equivalents represent bank
balances, money market funds, and U.S. Treasury Bills maturing in less than 90
days.
(i) Use of Estimates - Conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts in the financial statements. Actual results could differ from those
estimates.
(j) Certain prior year amounts have been reclassified to conform to the current
year reporting.
NOTE 2 - RATES AND REVENUES
On November 27, 1996, Middlesex filed a petition with the BPU for a base rate
increase of $5.8 million or 16.8%. Included in the petition are the following:
Deferred charges of $0.7 million which the Company is seeking to recover in
rates by amortizing these costs over periods of two to ten years; projected
construction work in progress expenditures of $7.0 million associated with the
upgrade of the Carl J. Olsen Water Treatment Plant, which is necessary to comply
with new and anticipated environmental laws and regulations and to expand the
plant's production capacity; and $1.2 million for the recovery of postretirement
costs other than pension expenses which are mandated by the Company's compliance
with SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions." A decision in this matter is expected some time in 1997. The last
increase in base rates granted by the BPU was $2.8 million or 9.33% in April
1993.
On December 19, 1996, the BPU approved the Company's request to transfer
its Robinsons Branch Reservoir to the Township of Clark and to transfer a
conservation easement on the property to the New Jersey Conservation Foundation.
Although the reservoir has not been used as a water supply since approximately
1970, the Company intends to retain its water diversion rights for possible
future use. Under the terms of the transaction, the municipality is to assume
the obligation to make certain improvements to the reservoir's dam required
under the New Jersey Dam Safety Act.
On October 9, 1996, Middlesex received approval from the BPU for a Purchased
Water Adjustment Clause (PWAC) rate increase pertaining to $0.2 million of
increased purchase water costs. A PWAC is a regulatory vehicle that allows New
Jersey water utilities to pass along to customers changes in the cost of
purchasing water, without the need for filing a full base rate case. A PWAC,
which was first implemented by Middlesex in 1994, is subject to an annual
reconciliation of actual costs incurred to amounts recovered under a PWAC rate.
On January 23, 1997, the BPU approved a stipulation agreed to by the parties to
the Pinelands Water and Wastewater Companies' rate cases which were filed on
February 21, 1996. The stipulations allow for a combined rate increase which
will result in $0.4 million additional revenues. The new rates will be phased in
over a three-year period to minimize the impact on customers. Previously, in
April 1995, the BPU approved the $2.3 million asset purchase by the Pinelands
Companies of a 2,200 customer water utility and a 2,200 customer wastewater
utility located in Burlington County, New Jersey. The transaction was financed
by a combination of cash on hand and promissory notes, which have since been
extinguished.
Included in Deferred Charges-Other is $0.1 million of deferred costs at December
31, 1996, which Middlesex is recovering through rates over a period of 14 years.
The BPU has excluded these costs from rate base and, therefore, Middlesex is not
earning a return on the unamortized costs during the recovery period.
NOTE 3 - INCOME TAXES
Federal income tax expense differs from the amount computed by applying the
statutory rate on book income subject to tax for the following reasons:
YEARS ENDED DECEMBER 31,
(THOUSANDS OF DOLLARS)
1996 1995 1994
- --------------------------------------------------------------------------------
Income Tax at Statutory Rate
of 34% $ 2,616 $ 2,951 $ 2,809
Tax Effect of:
Allowance for Funds Used
During Construction (22) (9) --
Other (68) 33 (43)
- --------------------------------------------------------------------------------
Total Federal Income Tax
Expense $ 2,526 $ 2,975 $ 2,766
- --------------------------------------------------------------------------------
Federal income tax expense is comprised
of the following:
Current $ 1,835 $ 2,726 $ 2,219
Deferred:
Customer Advances 35 (265) (123)
Accelerated Depreciation 760 637 617
Revenue Taxes -- (6) (403)
Bond Redemptions (16) (16) 477
Investment Tax Credit (72) (72) (72)
Other (16) (29) 51
- --------------------------------------------------------------------------------
Total Federal Income Tax Expense $ 2,526 $ 2,975 $ 2,766
- --------------------------------------------------------------------------------
The statutory review period for income tax returns for the years prior to 1993
has been closed.
Under SFAS No. 109, "Accounting for Income Taxes," the Company is required to
set up deferred income taxes for all temporary differences regardless of the
regulatory ratemaking treatment. However, if it is probable that these
additional taxes will be passed on to ratepayers, an offsetting regulatory asset
or liability is to be recorded. Management believes that it is probable that the
consolidated deferred income tax liability of approximately $6.2 million will be
recovered in future rates. Therefore, a regulatory asset has been set up to
offset the increased liability.
================================================================================
18
================================================================================
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial purposes
and the amounts used for income tax purposes. The components of the net deferred
tax liability are as follows:
YEARS ENDED DECEMBER 31,
(THOUSANDS OF DOLLARS)
1996 1995
- --------------------------------------------------------------------------------
Utility Plant Related $16,278 $15,180
Customer Advances (3,920) (3,856)
Other (270) (176)
- --------------------------------------------------------------------------------
Total Deferred Tax Liability $12,088 $11,148
- --------------------------------------------------------------------------------
NOTE 4 - EMPLOYEE BENEFIT PLANS
Pension
The Company has a noncontributory defined benefit pension plan which covers
substantially all employees with more than 1,000 hours of service. The Company
makes annual contributions to the plan consistent with the funding requirements
of Federal laws and regulations.In 1996, employees of Tidewater became eligible
to participate in the Plan.
Pension expense for 1996, 1995 and 1994 was $292,000, $372,000 and $218,000,
respectively.
Plan assets consist primarily of corporate equities, cash equivalents, and stock
and bond funds. The following table sets forth the plan's funded status and
amounts recognized in the Company's balance sheets.
YEARS ENDED DECEMBER 31,
(THOUSANDS OF DOLLARS)
1996 1995
- --------------------------------------------------------------------------------
Actuarial present value of plan benefits:
Vested benefits $(8,791) $(8,172)
Nonvested benefits (42) (31)
Impact of estimated future
compensation charges (2,921) (2,964)
- --------------------------------------------------------------------------------
Projected plan benefits (11,754) (11,167)
Plan assets at fair value 12,831 11,705
- --------------------------------------------------------------------------------
Plan assets in excess of
projected plan benefits 1,077 538
Unrecognized net obligation 72 86
Unrecognized prior service cost 120 --
Unrecognized net gain (1,346) (701)
- --------------------------------------------------------------------------------
Accrued pension cost
recognized in the
balance sheet $ (77) $ (77)
- --------------------------------------------------------------------------------
Net pension cost includes the following components:
Service cost benefits earned
during the period $ 408 $ 344
Interest cost on projected
benefit obligation 787 763
Return on plan assets (924) (749)
Net amortization and deferral 21 14
- --------------------------------------------------------------------------------
Net pension cost $ 292 $ 372
- --------------------------------------------------------------------------------
The assumptions used in determining the actuarial present value of the projected
obligation at December 31, 1996 and 1995 was a discount rate of 7.25% and a
compensation increase of 4.75%. The expected long-term rate of return on plan
assets used in determining net periodic cost was 8.0%.
The Company maintains an unfunded supplemental pension plan for its executives.
At December 31, 1996 and December 31, 1995, expenses for the supplemental plan
were $293,000 and $250,000, and the projected benefit obligations were $1.4
million and $1.3 million, respectively.
Postretirement Benefits Other Than Pensions (PBOP)
Middlesex provides certain health care and life insurance benefits for
substantially all of its retired employees, which are accounted for in
accordance with SFAS No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions." SFAS No. 106 requires an accrual method of accounting for
PBOP. Previously, the cost of these benefits were expensed when incurred. During
1996, the Company determined that certain assumptions used to calculate the
transition obligation when SFAS No. 106 was adopted needed to be revised. As a
result, the transition obligation has been reduced, with no impact on earnings.
In accordance with SFAS No. 71, "Accounting for the Effects of Certain Types of
Regulation," the Company has recognized a deferred regulatory asset relating to
the difference between the accrued PBOP costs determined under SFAS No. 106 and
the pay-as-you-go amounts previously expensed. The regulatory asset at December
31, 1996 and 1995 was $1.2 million and $0.9 million, respectively.
On January 8, 1997, the BPU approved an order that provides options for the
recovery of PBOP costs. The Company is seeking recovery of PBOP costs through
rates as part of its base rate case (see Note 2).
In 1996, 1995 and 1994, the Company recognized PBOP expenses of $192,000,
$185,000 and $176,000, respectively. The plan's funded status is as follows:
YEARS ENDED DECEMBER 31,
(THOUSANDS OF DOLLARS)
1996 1995
- --------------------------------------------------------------------------------
Retirees $1,149 $1,623
Fully eligible plan participants 354 776
Other active plan participants 1,543 758
- --------------------------------------------------------------------------------
Accumulated postretirement
benefit obligation 3,046 3,157
Plan assets at fair value -- --
Unrecognized net loss (47) (99)
Unrecognized prior service cost 169 --
Unrecognized transition
obligation (2,164) (2,300)
- --------------------------------------------------------------------------------
Accrued postretirement benefit
obligation $1,004 $ 758
================================================================================
19
================================================================================
Net postretirement benefit cost consisted of the following components:
YEARS ENDED DECEMBER 31,
(THOUSANDS OF DOLLARS)
1996 1995
- --------------------------------------------------------------------------------
Service cost--benefits earned
during the year $ 101 $ 83
Interest cost on accumulated
postretirement benefit obligation 211 212
Amortization of net (gain)/loss 2 (11)
Amortization of prior service cost (11) --
Amortization of transition obligation 135 135
Regulatory deferral (246) (234)
- --------------------------------------------------------------------------------
Net postretirement benefit cost $ 192 $185
- --------------------------------------------------------------------------------
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation for 1996 was 5%, which will remain constant
for all future years. A one-percentage point increase in the assumed health care
cost trend rate would increase the accumulated postretirement benefit obligation
by 14% and the 1996 net postretirement benefit cost by approximately 10%. The
assumed discount rate used in determining the accumulated postretirement benefit
obligation for 1996 and 1995 was 7.25%.
Stock Based Compensation
The Company maintains a restricted stock plan, under which 30,300 shares of the
Company's common stock are held in escrow by the Company for key employees. Such
stock is subject to an agreement requiring forfeiture by the employee in the
event of termination of employment within five years of the grant other than as
a result of retirement, death or disability.
The maximum number of shares authorized for grant under this plan is 60,000
shares. Compensation expense is determined by the market value of the stock on
the date of the award and is being amortized over a five-year period. The
compensation expenses for 1996, 1995 and 1994 were not considered material.
The Financial Accounting Standards Board (FASB) issued SFAS No. 123, "Accounting
for Stock-Based Compensation." SFAS No. 123 provides an entity the option to
either adopt the new method or to continue to measure compensation cost as
prescribed by Accounting Principles Board Opinion No. 25 (APB 25), "Accounting
for Stock Issued to Employees," and provide proforma disclosures of the effect
of adopting SFAS No. 123. The Company has elected to continue its current
accounting treatment for stock compensation under APB 25. Had compensation costs
for the Company's restricted stock plan been determined based on methodology
prescribed in SFAS No. 123, there would have been no effect on its results of
operations or cash flows.
NOTE 5 - COMMITMENTS AND CONTINGENT LIABILITIES
Service Agreement - On May 19, 1995, Middlesex and USA jointly entered into a
five-year contract with the City of South Amboy to operate and maintain the
City's 2,600 customer water system. The Contract, which is subject to renewal
for three future five-year periods, is expected to produce approximately $1.5
million in revenues for the first five years with only a minimal impact on
earnings. In 1996, $0.3 million in revenues was recognized under the contract.
Water Supply - Middlesex has an agreement with the Elizabethtown Water Company
for the purchase of treated water. This agreement, which expires December 31,
2005, provides for the minimum purchase of 3 million gallons daily (mgd) of
treated water with provisions for additional purchases. The 1996, 1995 and 1994
costs under this agreement were $1.3 million, $0.9 million and $1.0 million,
respectively.
Middlesex also has an agreement with the New Jersey Water Supply Authority
(NJWSA), which expires November 1, 2013, and provides for the minimum purchase
of 20 mgd of untreated water from the Delaware and Raritan Canal and the Raritan
River. In addition, the Company has a supplemental one-year agreement for an
additional 5 mgd through April 30, 1997. This agreement is renewable on an
annual basis. The total costs for 1996, 1995 and 1994, were $1.7 million, $1.7
million and $1.8 million, respectively.
Construction - The Consolidated Group plans to spend approximately $17.1 million
in 1997 on its construction program. Substantially all of the utility plant of
the Group is subject to the lien of its mortgage which also includes certain
restrictions as to cash dividend payments and other distributions on common
stock.
Litigation - A local entity and its owner have filed a negligence claim against
the Company, for which the Company is insured, with a claim for punitive damages
which may not be insured. Their action alleges financial losses arising out of
improper water pressure and service. An amendment to the claim alleges damages
resulting from some poor quality water. Other parties who dealt with the
claimants have joined the matter. Without taking a position on the negligence
claim, the Company does not believe that the claim for punitive damages will
prevail. While the outcome of this case is not presently determinable,
management believes that the final resolution will not have a significant effect
on the Company's financial position or results of operations or cash flows.
NOTE 6 - LINES OF CREDIT AND NOTES PAYABLE
(THOUSANDS OF DOLLARS)
1996 1995 1994
- --------------------------------------------------------------------------------
Established Lines of Credit at
year-end $20,000 $20,000 $15,500
Amounts Outstanding at
December 31 -- -- --
Maximum Amount Outstanding -- -- 11,000
Average Outstanding Balance -- -- 1,769
Weighted Average Interest Rate -- -- 3.4%
- --------------------------------------------------------------------------------
Short-term borrowings are generally below the prime rate.
================================================================================
20
================================================================================
As part of the service agreement with the City of South Amboy, on June 1, 1995,
USA made an investment in the form of a loan of $1.25 million, which is included
in nonutility assets on the Consolidated Balance Sheet. Principal repayment and
the interest rate are based upon renewal provisions of the contract.
NOTE 7 - RELATED PARTY TRANSACTIONS
During 1996, 1995 and 1994, the Company had transactions with a construction
company in which a Director has a financial interest. Major construction
transactions were awarded on the basis of competitive bids approved by the Board
of Directors (with the interested Director abstaining) and amounted to $0.9
million, $0.9 million and $0.6 million for the years 1996, 1995 and 1994,
respectively. These amounts included $0.1 million due the construction company
at December 31, 1996, 1995 and 1994.
NOTE 8 - QUARTERLY OPERATING RESULTS - UNAUDITED
Quarterly operating results for 1996 and 1995 are as follows:
1ST 2ND 3RD 4TH
1996 QUARTER QUARTER QUARTER QUARTER YEAR
- --------------------------------------------------------------------------------
(THOUSANDS OF DOLLARS EXCEPT PER SHARE DATA)
Operating Revenues $9,247 $9,632 $ 9,934 $9,212 $38,025
Operating Income 1,968 2,110 2,288 1,856 8,222
Net Income 1,153 1,307 1,494 1,213 5,167
Earnings per Common
Share $ 0.27 $ 0.30 $ 0.35 $ 0.28 $ 1.20
1995
- --------------------------------------------------------------------------------
Operating Revenues $8,740 $9,608 $10,447 $9,052 $37,847
Operating Income 1,970 2,285 2,788 1,619 8,662
Net Income 1,213 1,507 1,922 1,062 5,704
Earnings per
Common Share $ 0.29 $ 0.36 $ 0.46 $ 0.25 $ 1.36
- --------------------------------------------------------------------------------
The information above, in the opinion of the Company, includes all adjustments
consisting only of normal recurring accruals necessary for a fair presentation
of such amounts. The business of the Company is subject to seasonal fluctuation
with the peak period usually occurring during the summer months.
NOTE 9 - CAPITALIZATION
All the transactions discussed below related to the issuance or redemption of
securities were approved by the BPU, except where noted.
Common Stock
There are 900,000 shares of common stock authorized under the Dividend
Reinvestment and Common Stock Purchase Plan (DRP). The cumulative number of
shares issued under the DRP at December 31, 1996 is 688,793.
During 1996, 1995 and 1994, 67,977 shares ($1.2 million), 106,138 shares ($1.7
million) and 51,447 shares ($0.9 million) of common stock were issued under DRP
and the restricted stock plan, respectively.
In the event dividends on the preferred stock are in arrears, no dividends may
be declared or paid on the common stock of the Company. At December 31, 1996, no
restrictions were placed on common dividends.
Preferred Stock
If four or more quarterly dividends are in arrears, the preferred shareholders,
as a class, are entitled to elect two members to the Board of Directors in
addition to Directors elected by holders of the common stock. At December 31,
1996, no dividends were in arrears.
The conversion feature of the no par $7.00 Cumulative and Convertible Preferred
Stock, which is effective in 1997, allows the security holders to exchange one
convertible preferred share for six shares of the Company's common stock. In
addition, the Company may redeem up to 10% of the outstanding convertible stock
in any calendar year at a price equal to the fair market value of six shares of
the Company's common stock for each share of convertible stock redeemed.
Both the $4.75 Series and the $7.00 Series are redeemable at the option of the
Company, and in November 1994, an offer to purchase the $7.00 Series at the
stated redemption price of $100 per share was extended to all holders of this
stock. At December 31, 1995, the Company had purchased and retired 1,483 shares
of the $7.00 Series. Since there was no premium associated with the redemption,
approval from the BPU was not required.
Long-term Debt
On September 13, 1995, Tidewater received approval from the Delaware PSC to
borrow up to $3.5 million through an amortizing secured term bank loan. The
terms of the loan agreement provide for a maximum term of twenty five years from
the conclusion of the drawdown period with the interest rate fixed on the date
of any advance by the bank. In October 1995, Tidewater received an initial $2.5
million at a rate of 8.02%. In the fourth quarter of 1996, the remaining $1.0
million was borrowed resulting in an overall interest rate of 8.05% on the total
amount borrowed. Monthly principal payments began in January 1997 with the final
payment due in December 2021. The proceeds of the loan were used to fund capital
expenditures.
As part of the asset purchase by the Pinelands Companies, promissory notes of
$1.2 million were issued. On November 21, 1996, the Company purchased, at a
nominal discount, and retired the promissory notes. The purchase was funded with
internally generated cash.
================================================================================
21
================================================================================
Fair Value of Financial Instruments
The following methods and assumptions were used by the Company in estimating its
fair value disclosure for financial instruments for which it is practicable to
estimate that value. The carrying amounts reflected in the consolidated balance
sheets for cash and cash equivalents, marketable securities, and trade
receivables and payables approximate their respective fair values due to the
short-term maturities of these instruments. The fair value of the Company's
long-term debt relating to first mortgage bonds is based on quoted market prices
for similar issues. At December 31, 1996 and 1995, the carrying and fair market
value of the Company's Bonds were as follows:
(THOUSANDS OF DOLLARS)
1996 1995
- --------------------------------------------------------------------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
- --------------------------------------------------------------------------------
First Mortgage Bonds $49,500 $46,900 $49,500 $48,400
- --------------------------------------------------------------------------------
For other long-term debt for which there were no quoted market price, it was not
practicable to estimate their fair value. The carrying amounts of these
instruments at December 31, 1996 and 1995 were $3.5 million. Customer advances
for construction have a carrying value of $9.0 million and $9.2 million at
December 31, 1996 and 1995, respectively. Their relative fair values cannot be
accurately estimated since future refund payments depend on several variables,
including new customer connections, customer consumption levels and future rate
increases.
================================================================================
Independent Auditors' Report
MIDDLESEX WATER COMPANY
We have audited the accompanying consolidated balance sheets and
consolidated statements of capital stock and long-term debt of Middlesex Water
Company and its subsidiaries as of December 31, 1996 and 1995 and the related
consolidated statements of income, retained earnings and of cash flows for each
of the three years in the period ended December 31, 1996. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 Middlesex Water Company and its
subsidiaries at December 31, 1996 and 1995 and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1996 in conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
February 14, 1997
================================================================================
22
==========================================================================================================================
CONSOLIDATED SELECTED FINANCIAL DATA
(Thousands of Dollars Except per Share Data)
1996 1995 1994 1993 1992 1991 1986
==========================================================================================================================
OPERATING REVENUES $ 38,025 $ 37,847 $ 36,122 $ 35,479 $ 30,861 $ 29,853 $ 22,010
- --------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Operations and Maintenance 18,778 17,916 16,911 16,753 14,715 13,454 9,849
Depreciation 2,929 2,814 2,650 2,376 1,961 1,834 1,043
Taxes, other than Income Taxes 5,569 5,479 5,343 5,222 4,620 5,132 3,429
Income Taxes 2,526 2,975 2,766 3,072 2,351 2,377 2,519
- --------------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 29,802 29,184 27,670 27,423 23,647 22,797 16,840
- --------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 8,223 8,663 8,452 8,056 7,214 7,056 5,170
OTHER INCOME 225 156 87 438 515 205 198
- --------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE
INTEREST CHARGES 8,448 8,819 8,539 8,494 7,729 7,261 5,368
- --------------------------------------------------------------------------------------------------------------------------
INTEREST CHARGES 3,280 3,115 3,044 3,014 3,267 3,156 2,174
- --------------------------------------------------------------------------------------------------------------------------
NET INCOME 5,168 5,704 5,495 5,480 4,462 4,105 3,194
PREFERRED STOCK DIVIDEND
REQUIREMENTS 159 159 188 256 186 161 185
- --------------------------------------------------------------------------------------------------------------------------
EARNINGS APPLICABLE TO COMMON
STOCK $ 5,009 $ 5,545 $ 5,307 $ 5,224 $ 4,276 $ 3,944 $ 3,009
- --------------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE OF
COMMON STOCK $ 1.20 $ 1.36 $ 1.33 $ 1.33 $ 1.20 $ 1.14 $ 1.01
Average Number of Shares
Outstanding for the Year 4,169,334 4,078,890 4,003,393 3,924,363 3,568,499 3,477,406 2,974,602
Dividends Declared and Paid $ 1.10 1/2 $ 1.08 1/2 $ 1.05 3/4 $ 1.01 1/4 $ 0.97 $ 0.94 1/2 $ 0.80
Total Assets $ 148,660 $ 144,822 $ 132,413 $ 125,676 $ 113,843 $ 100,014 $ 73,937
Redeemable Preferred Stock $ -- $ -- $ -- $ 1,158 $ 1,224 $ 1,290 $ 1,620
Long-term Debt $ 52,961 $ 52,960 $ 49,500 $ 37,000 $ 42,550 $ 45,350 $ 29,350
- --------------------------------------------------------------------------------------------------------------------------
STATISTICAL SUMMARY
1996 1995 1994 1993 1992 1991 1986
==========================================================================================================================
REVENUES (Thousands of Dollars):
- --------------------------------------------------------------------------------------------------------------------------
Residential $ 15,091 $ 15,202 $ 14,306 $ 14,042 $ 11,733 $ 11,624 $ 9,959
Commercial 4,347 4,393 4,282 4,170 3,616 3,549 2,700
Industrial 6,621 6,669 6,598 6,481 6,044 5,768 5,030
Fire Protection 4,637 4,543 4,352 4,312 3,905 3,772 3,017
Contract Sales 6,778 6,658 6,322 6,232 5,477 5,098 1,223
Other 551 382 262 242 86 42 81
- --------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES $ 38,025 $ 37,847 $ 36,122 $ 35,479 $ 30,861 $ 29,853 $ 22,010
CAPITALIZATION RATIOS:
Long-term Debt 51% 51% 51% 50% 49% 56% 51%
Preferred Stock 3 3 3 4 5 3 5
Common Stock Equity 46 46 46 46 46 41 44
- --------------------------------------------------------------------------------------------------------------------------
TOTAL RATIOS 100% 100% 100% 100% 100% 100% 100%
Book Value of Common Stock $ 11.70 $ 11.52 $ 11.13 $ 10.77 $ 10.29 $ 9.44 $ 8.45
Meters in Service 63,775 61,332 58,371 57,318 56,340 52,356 50,798
Population Served (Retail) 255,000 245,000 233,000 229,000 225,000 209,000 203,000
Miles of Main 1,067 1,035 972 947 920 654 634
Fire Hydrants 4,750 4,690 4,558 4,503 4,445 4,024 3,877
Pumpage (million gallons) 16,791 17,380 16,794 16,789 15,174 14,572 11,367
==========================================================================================================================
23
EXHIBIT 23
Independent Auditors' Consent
We consent to the incorporation by reference in Registration Statement No.
33-11717 of Middlesex Water Company on Form S-3 of our report dated February 14,
1997, incorporated by reference in this Annual Report on Form 10-K of Middlesex
Water Company and its subsidiaries for the year ended December 31, 1996.
/s/ DELOITTE & TOUCHE LLP
- -----------------------------------
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
March 27, 1997
UT
0000066004
MIDDLESEX WATER COMPANY
12-MOS
DEC-31-1996
DEC-31-1996
PER-BOOK
121,244,520
1,774,106
11,925,041
13,715,855
0
148,659,522
29,988,966
0
19,226,847
49,215,813
0
2,666,305
52,960,953
0
0
0
39,047
0
0
0
43,816,451
148,659,522
38,024,669
2,526,297
27,275,926
29,802,223
8,222,446
225,168
8,447,614
3,280,154
5,167,460
158,926
5,008,534
4,604,504
2,885,250
10,256,725
1.20
1.20
