SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File
For Quarter Ended: June 30, 1999 No. 0-422
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MIDDLESEX WATER COMPANY
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(Exact name of registrant as specified in its charter)
INCORPORATED IN NEW JERSEY 22-1114430
- -------------------------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1500 RONSON ROAD, ISELIN, NJ 08830
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(Address of principal executive offices) (Zip Code)
(732) 634-1500
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that this registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 30 days.
YES [ X ] NO [ ]
Indicate the number of shares outstanding of each of the Issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at June 30, 1999
----- ----------------------------
Common Stock, No Par Value 4,919,143
INDEX
PART I. FINANCIAL INFORMATION PAGE
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Item 1. Financial Statements:
Consolidated Statements of Income 1
Consolidated Balance Sheets 2
Consolidated Statements of Capitalization and Retained Earnings 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures of Market Risk 13
PART II. OTHER INFORMATION 14
SIGNATURE 15
MIDDLESEX WATER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Six Months Twelve Months
Ended June 30, Ended June 30, Ended June 30,
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
Operating Revenues $13,812,788 $10,591,316 $25,492,681 $20,360,455 $48,190,192 $41,381,405
----------- ----------- ----------- ----------- ----------- -----------
Operating Expenses:
Operations 6,518,377 4,732,864 12,725,835 9,321,485 23,211,822 18,340,870
Maintenance 605,963 438,416 1,246,460 766,281 2,195,536 1,734,797
Depreciation 878,049 815,639 1,738,924 1,623,723 3,399,870 3,179,455
Other Taxes 1,762,473 1,499,787 3,292,322 2,914,244 6,479,797 5,874,888
Federal Income Taxes 1,067,082 836,439 1,562,280 1,518,689 3,042,879 3,298,780
----------- ----------- ----------- ----------- ----------- -----------
Total Operating Expenses 10,831,944 8,323,145 20,565,821 16,144,422 38,329,904 32,428,790
----------- ----------- ----------- ----------- ----------- -----------
Operating Income: 2,980,844 2,268,171 4,926,860 4,216,033 9,860,288 8,952,615
Allowance for Funds Used During Construction 590,614 218,253 1,076,836 352,056 1,774,824 487,897
Other-Net 170,026 245,148 383,004 284,255 844,071 367,585
----------- ----------- ----------- ----------- ----------- -----------
Total Other Income 760,640 463,401 1,459,840 636,311 2,618,895 855,482
Income Before Interest Charges 3,741,484 2,731,572 6,386,700 4,852,344 12,479,183 9,808,097
----------- ----------- ----------- ----------- ----------- -----------
Interest Charges 1,169,463 1,157,564 2,321,470 2,015,085 4,729,986 3,702,777
----------- ----------- ----------- ----------- ----------- -----------
Net Income 2,572,021 1,574,008 4,065,230 2,837,259 7,749,197 6,105,320
Preferred Stock Dividend Requirements 79,696 79,696 159,393 159,393 318,786 305,957
Earnings Applicable to Common Stock $2,492,325 $1,494,312 3,905,837 2,677,866 $7,430,411 $5,799,363
========== ========== ========= ========= ========== ==========
Earnings per share of Common Stock
Basic $ 0.51 $ 0.34 $ 0.80 $ 0.62 $ 1.60 $ 1.35
Diluted $ 0.50 $ 0.34 $ 0.79 $ 0.62 $ 1.58 $ 1.34
Average Number of
Common Shares Outstanding:
Basic 4,913,299 4,330,025 4,907,683 4,310,462 4,650,036 4,281,191
Diluted 5,139,725 4,556,451 5,134,109 4,536,888 4,876,462 4,507,673
Cash Dividends Paid per Common Share $0.29 1/2 $0.28 1/2 $0.59 $0.57 $1.17 $ 1.13 1/2
-1-
See notes to Consolidated Financial Statements.
MIDDLESEX WATER COMPANY
CONSOLIDATED BALANCE SHEETS
ASSETS AND OTHER DEBITS
June 30, December 31,
1999 1998
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(unaudited)
UTILITY PLANT:
Water Production ........................... $ 28,060,610 $ 28,154,961
Transmission and Distribution .............. 119,708,883 118,234,900
General .................................... 19,407,552 19,300,406
Construction Work in Progress .............. 35,125,711 25,794,061
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TOTAL ............................. 202,302,756 191,484,328
Less Accumulated Depreciation ................... 33,453,747 32,367,936
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UTILITY PLANT-NET ................. 168,849,009 159,116,392
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NONUTILITY ASSETS-NET ........................... 4,059,779 3,710,437
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CURRENT ASSETS:
Cash and Cash Equivalents .................. 8,653,606 9,388,822
Temporary Cash Investments-Restricted ...... 2,816,857 9,776,072
Accounts Receivable (net of allowance
for doubtful accounts) ................. 6,179,818 4,886,067
Unbilled Revenues .......................... 3,117,650 2,298,148
Materials and Supplies (at average cost) ... 1,050,554 906,866
Prepayments and Other Current Assets ....... 470,490 528,348
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TOTAL CURRENT ASSETS .............. 22,288,975 27,784,323
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DEFERRED CHARGES:
Unamortized Debt Expense ................... 3,077,136 3,143,384
Preliminary Survey and Investigation Charges 344,983 276,202
Regulatory Assets
Income Taxes ........................... 5,863,752 5,788,752
Post Retirement Costs .................. 1,170,988 1,214,092
Other ...................................... 2,323,446 2,467,674
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TOTAL DEFERRED CHARGES ............ 12,780,305 12,890,104
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TOTAL .............. $207,978,068 $203,501,256
============ ============
See Notes to Consolidated Financial Statements.
-2-
MIDDLESEX WATER COMPANY
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND OTHER CREDITS
June 30, December 31,
1999 1998
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(Unaudited)
CAPITALIZATION (see accompanying statements) ... $151,240,626 $149,756,614
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CURRENT LIABILITIES:
Current Portion of Long-term Debt ......... 89,083 71,730
Notes Payable ............................. 3,000,000 1,000,000
Accounts Payable .......................... 1,850,127 3,373,595
Taxes Accrued ............................. 6,014,103 5,220,669
Interest Accrued .......................... 1,739,185 1,701,330
Other ..................................... 1,962,405 1,832,737
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TOTAL CURRENT LIABILITIES ........ 14,654,903 13,200,061
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DEFERRED CREDITS:
Customer Advances for Construction ........ 11,221,957 11,275,660
Accumulated Deferred Investment Tax Credits 2,129,546 2,165,384
Accumulated Deferred Federal Income Taxes . 11,904,117 12,070,474
Employee Benefit Plans .................... 4,260,138 3,762,516
Other ..................................... 1,140,322 791,460
------------ ------------
TOTAL DEFERRED CREDITS ........... 30,656,080 30,065,494
------------ ------------
CONTRIBUTIONS IN AID OF CONSTRUCTION ........... 11,426,459 10,479,087
------------ ------------
TOTAL .................. $207,978,068 $203,501,256
============ ============
See Notes to Consolidated Financial Statements.
-3-
MIDDLESEX WATER COMPANY
CONSOLIDATED STATEMENTS OF CAPITALIZATION AND RETAINED EARNINGS
June 30, December 31,
1999 1998
-------------- ---------------
(Unaudited)
CAPITALIZATION:
Common Stock, No Par Value
Shares Authorized - 10,000,000
Shares Outstanding - 1999 - 4,919,143; 1998 - 4,897,069 ........ $ 46,068,722 $ 45,507,172
Retained Earnings ................................................... 22,184,943 21,222,294
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TOTAL COMMON EQUITY .................................... 68,253,665 66,729,466
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Cumulative Preference Stock, No Par Value
Shares Authorized - 100,000; Shares Outstanding - None
Cumulative Preferred Stock, No Par Value, Shares Authorized - 149,980
Convertible:
Shares Outstanding, $7.00 Series - 14,881 ....................... 1,562,505 1,562,505
Shares Outstanding, $8.00 Series - 20,000 ....................... 2,331,430 2,331,430
Nonredeemable:
Shares Outstanding, $7.00 Series - 1,017 ....................... 101,700 101,700
Shares Outstanding, $4.75 Series - 10,000 ....................... 1,000,000 1,000,000
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TOTAL CUMULATIVE PREFERRED STOCK ....................... 4,995,635 4,995,635
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Long-term Debt:
8.02% Amortizing Secured Note, due December 20, 2021 ............ 3,395,409 3,418,243
First Mortgage Bonds:
7.25%, Series R, due July 1, 2021 .......................... 6,000,000 6,000,000
5.20%, Series S, due October 1, 2022 ....................... 12,000,000 12,000,000
5.25%, Series T, due October 1, 2023 ....................... 6,500,000 6,500,000
6.40%, Series U, due February 1, 2009 ...................... 15,000,000 15,000,000
5.25%, Series V, due February 1, 2029 ...................... 10,000,000 10,000,000
5.35%, Series W, due February 1, 2038 ...................... 23,000,000 23,000,000
0.00%, Series X, due August 1, 2018 ........................ 1,050,000 1,050,000
4.53%, Series Y, due August 1, 2018 ........................ 1,135,000 1,135,000
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SUBTOTAL LONG-TERM DEBT ................................. 78,080,409 78,103,243
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Less: Current Portion of Long-term Debt ............... (89,083) (71,730)
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TOTAL LONG-TERM DEBT ......................... 77,991,326 78,031,513
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TOTAL CAPITALIZATION .................... $ 151,240,626 $ 149,756,614
============= =============
Six Months Ended Year Ended
June 30, December 31,
1999 1998
----------- -----------
(Unaudited)
RETAINED EARNINGS:
BALANCE AT BEGINNING OF PERIOD ..... $21,222,294 $20,087,065
Net Income ......................... 4,065,230 6,521,226
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TOTAL ...................... 25,287,524 26,608,291
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Cash Dividends:
Cumulative Preferred Stock ..... 159,393 318,751
Common Stock ................... 2,893,889 4,987,013
Common Stock Expenses .............. 49,299 80,233
----------- -----------
TOTAL DEDUCTIONS ........... 3,102,581 5,385,997
----------- -----------
BALANCE AT END OF PERIOD ................. $22,184,943 $21,222,294
=========== ===========
See Notes to Consolidated Financial Statements.
-4-
MIDDLESEX WATER COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30, Twelve Months Ended June 30,
1999 1998 1999 1998
------------ ------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income ............................................ $ 4,065,230 $ 2,837,259 $ 7,749,197 $ 6,105,320
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation ............................... 1,738,924 1,623,723 3,399,870 3,179,455
Provision for Deferred Income Taxes ........ (241,357) 220,216 (326,597) 636,571
Allowance for Funds Used During Construction (1,076,836) (352,056) (1,774,824) (487,897)
Changes in Current Assets and Liabilities:
Accounts Receivable ........................ (1,293,751) (1,072,704) (1,312,254) (622,194)
Accounts Payable ........................... (1,523,468) (815,042) (525,864) 281,903
Accrued Taxes .............................. 793,434 447,997 424,017 495,875
Accrued Interest ........................... 37,855 415,810 139,814 422,447
Unbilled Revenues .......................... (819,502) (381,245) (560,471) (68,345)
Employee Benefit Plans ..................... 497,622 478,780 1,034,122 1,056,187
Other-Net .................................. 220,125 106,067 1,059,662 739,118
------------ ------------ ------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES .................... 2,398,276 3,508,805 9,306,672 11,738,440
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Utility Plant Expenditures* .................... (10,380,376) (10,292,634) (26,363,023) (17,902,865)
Cash from Acquisition of Subsidiary ............ -- -- -- 158,436
Note Receivable ................................ 33,472 (1,664,224) 78,631 (1,658,261)
Preliminary Survey and Investigation Charges ... (68,781) (1,386) (129,947) (22,696)
Other-Net ...................................... (4,962) (333,892) (325,675) (1,432,714)
------------ ------------ ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES ........................ (10,420,647) (12,292,136) (26,740,014) (20,858,100)
------------ ------------ ------------ ------------
Six Months Ended June 30, Twelve Months Ended June 30,
1999 1998 1999 1998
------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption of Long-term Debt ................... (22,834) (20,876) (44,668) (43,569)
Proceeds from Issuance of Long-term Debt ....... -- 23,000,000 2,185,000 23,000,000
Short-term Bank Borrowings ..................... 2,000,000 3,912,231 (1,476,932) 3,912,231
Deferred Debt Issuance Expenses ................ (1,864) (474,096) (29,968) (474,096)
Temporary Cash Investments-Restricted .......... 6,959,215 (16,524,330) 13,926,260 (16,524,989)
Proceeds from Issuance of Common Stock-Net ..... 512,251 1,526,875 13,273,832 2,153,663
Payment of Common Dividends .................... (2,893,889) (2,455,537) (5,425,365) (4,856,883)
Payment of Preferred Dividends ................. (159,393) (159,358) (318,786) (319,256)
Construction Advances and Contributions-Net .... 893,669 (47,556) 1,510,259 302,045
------------ ------------ ------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES .................... 7,287,155 8,757,353 23,599,632 7,149,146
------------ ------------ ------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS ...................... (735,216) (25,978) 6,166,290 (1,970,514)
------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ............. 9,388,822 2,513,294 2,487,316 4,457,830
------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ................... $ 8,653,606 $ 2,487,316 $ 8,653,606 $ 2,487,316
============ ============ ============ ============
* Excludes Allowance for Funds Used During Construction
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash Paid During the Period for:
Interest (net of amounts capitalized) .......... $ 1,124,063 $ 1,283,663 $ 2,650,978 $ 2,753,645
Income Taxes ................................... $ 1,514,400 $ 1,300,000 $ 3,377,375 $ 2,501,500
See Notes to Consolidated Financial Statements.
-5-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies
Organization - Middlesex Water Company (Middlesex) is the parent company and
sole shareholder of Tidewater Utilities, Inc. (Tidewater), Pinelands Water
Company, Pinelands Wastewater Company, Utility Service Affiliates, Inc. (USA),
and Utility Service Affiliates (Perth Amboy) Inc. (USA-PA). Public Water Supply
Company, Inc. (Public) and White Marsh Environmental Systems, Inc., are wholly
owned subsidiaries of Tidewater. The financial statements for Middlesex and its
wholly owned subsidiaries (the Company) are reported on a consolidated basis.
All intercompany accounts and transactions have been eliminated.
The consolidated notes accompanying the 1998 Form 10-K are applicable to this
report and, in the opinion of the Company, the accompanying unaudited
consolidated financial statements contain all adjustments (consisting of only
normal recurring accruals) necessary to present fairly the financial position as
of June 30, 1999 and the results of operations and its cash flows for the
periods ended June 30, 1999 and 1998. Information included in the Balance Sheet
as of December 31, 1998, has been derived from the Company's audited financial
statements included in its annual report on Form 10-K for the year ended
December 31, 1998.
Note 2 - Regulatory Matters
On May 13, 1999, the New Jersey Board of Public Utilities (BPU) approved an
11.5% or $4.3 million base rate increase for Middlesex. The purpose of the
increase is to allow Middlesex the opportunity to earn a return on and recover
the capital investment in the upgrade and expansion of the Carl J. Olsen Water
Treatment Plant. This project was necessary to meet the new and anticipated
regulatory standards concerning water quality and to increase the plant's
production capacity.
Note 3 - Capitalization
Common Stock - During the three months ended June 30, 1999, 10,477 common shares
($0.2 million) were issued under the Company's Dividend Reinvestment and Common
Stock Purchase Plan (DRP).
Long-term Debt - On May 20, 1999, the Company filed a petition with the BPU
seeking approval to issue up to $4.5 million of long-term bonds through the New
Jersey State Revolving Fund (SRF). The SRF program, which is administered by the
New Jersey Environmental Infrastructure Trust, evolved from the Federal
Environmental Protection Agency's (EPA) regulations issued under the Safe
Drinking Water Act. Under this program, investor-owned public water utilities
can apply for construction loans, which are funded by the participating state
and the EPA through the state environmental agency. In New Jersey, initial
project approval must be granted by the New Jersey Department of Environmental
Protection (NJDEP). Funds from the EPA, which can equal up to 50% of
construction costs, are loaned at a zero interest cost; the interest rate on the
state portion of the loan is based upon the market place at time of issuance.
The rate to the Company portion is a blend of the two rates. The interest paid
to bondholders is considered tax exempt subject to the alternate minimum tax.
Proceeds from the proposed financing would be available for qualified costs
reimbursement in May 2000. The BPU approved the financing on July 26, 1999.
-6-
Note 4 - Earnings Per Share
Basic earnings per share (EPS) are computed on the basis of the weighted average
number of shares outstanding. Diluted EPS assumes the conversion of both the
Convertible Preferred Stock $7.00 Series and the Convertible Preferred Stock
$8.00 Series.
(Thousands of Dollars)
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
Basic: Income Shares Income Shares Income Shares Income Shares
- ------ ------ ------ ------ ------ ------ ------ ------ ------
Net Income ........ $ 2,572 4,913 $ 1,574 4,330 $ 4,065 4,908 $ 2,837 4,310
Preferred Dividend (80) (80) (159) (159)
------- ----- ------- ----- ------- ----- ------- -----
Earnings Applicable
to Common Stock . $ 2,492 4,913 $ 1,494 4,330 $ 3,906 4,908 $ 2,678 4,310
Basic EPS ......... $ .51 $ .34 $ .80 $ .62
Diluted:
Earnings Applicable
to Common Stock . $ 2,492 4,913 $ 1,494 4,330 $ 3,906 4,908 $ 2,678 4,310
$7.00 Series ...... 26 89 26 89 52 89 52 89
Dividend
$8.00 Series ......
Dividend ......... 40 137 40 137 80 137 80 137
------- ----- ------- ----- ------- ----- ------- -----
Adjusted Earnings
Applicable to
Common Stock .... $ 2,558 5,139 $ 1,560 4,556 $ 4,038 5,134 $ 2,810 4,536
Diluted EPS ....... $ 0.50 $ 0.34 $ 0.79 $ 0.62
Twelve Months Ended
June 30,
1999 1998
Income Shares Income Shares
------ ------ ------ ------
Net Income ........ $ 7,749 4,650 $ 6,105 4,281
Preferred Dividend (319) (306)
------- ----- ------- -----
Earnings Applicable
to Common Stock . $ 7,430 4,650 $ 5,799 4,281
Basic EPS ......... $ 1.60 $ 1.35
Diluted:
Earnings Applicable
to Common Stock . $ 7,430 4,650 $ 5,799 4,281
$7.00 Series ...... 104 89 104 89
Dividend
$8.00 Series
Dividend ......... 160 137 147 137
------- ----- ------- -----
Adjusted Earnings
Applicable to
Common Stock .... $ 7,694 4,876 $ 6,050 4,507
Diluted EPS ....... $ 1.58 $ 1.34
Note 5 - Business Segment Data
The Company has identified two reportable segments. One is the regulated
business of collecting, treating and distributing water on a retail and
wholesale basis to residential, commercial, industrial and fire protection
customers in parts of New Jersey and Delaware. It also operates a regulated
wastewater system in New Jersey. The Company is subject to regulations as to its
rates, services and other matters by the States of New Jersey and Delaware with
respect to utility service within these states. The other segment is the
non-regulated contract services for the operation and maintenance of municipal
water and wastewater systems. On January 1, 1999, the Company began operating
the water and wastewater systems of the City of Perth Amboy, New Jersey under a
service contract. The accounting policies of the segments are the same as those
described in the summary of significant accounting policies in Note 1 to the
Consolidated Financial Statements. Intersegment transactions relating to
operational costs are treated as pass through expenses. Finance charges on
intersegment loan activities are based on interest rates that are below what
would normally be charged by a third party lender.
-7-
(Thousands of Dollars)
Three Months Ended Six Months Ended Twelve Months Ended
June 30 June 30 June 30
Operations by 1999 1998 1999 1998 1999 1998
Segments
Revenues:
Regulated ....... $ 11,970 $ 10,479 $ 21,895 $ 20,138 $ 44,374 $ 40,957
Non - Regulated . 1,857 116 3,618 232 3,850 446
Intersegment
Elimination ..... (14) (4) (20) (10) (34) (22)
-------- -------- -------- -------- -------- --------
Consolidated
Revenues ........ $ 13,813 $ 10,591 $ 25,493 $ 20,360 $ 48,190 $ 41,381
-------- -------- -------- -------- -------- --------
Operating Income:
Regulated ....... $ 2,770 $ 2,200 $ 4,587 $ 4,083 $ 9,444 $ 8,713
Non - Regulated . 211 68 340 133 416 241
Intersegment
Elimination ..... -- -- -- -- -- (1)
-------- -------- -------- -------- -------- --------
Consolidated
Operating Income $ 2,981 $ 2,268 $ 4,927 $ 4,216 $ 9,860 $ 8,953
-------- -------- -------- -------- -------- --------
Depreciation:
Regulated ....... $ 872 $ 816 $ 1,728 $ 1,624 $ 3,389 $ 3,179
Non - Regulated . 6 -- 11 -- 11 --
Intersegment
Elimination ..... -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Consolidated
Depreciation .. $ 878 $ 816 $ 1,739 $ 1,624 $ 3,400 $ 3,179
-------- -------- -------- -------- -------- --------
Other Income:
Regulated ....... $ 1,201 $ 738 $ 2,041 $ 1,035 $ 3,637 $ 1,662
Non - Regulated . -- -- -- -- -- --
Intersegment
Elimination ..... (440) (275) (581) (399) (1,018) (807)
-------- -------- -------- -------- -------- --------
Consolidated
Other Income .... $ 761 $ 463 $ 1,460 $ 636 $ 2,619 $ 855
-------- -------- -------- -------- -------- --------
Interest Expense:
Regulated ....... $ 1,250 $ 1,193 $ 2,479 $ 2,079 $ 5,011 $ 3,816
Non - Regulated . 57 29 104 51 192 89
Intersegment
Elimination ..... (138) (64) (262) (115) (473) (202)
-------- -------- -------- -------- -------- --------
(Thousands of Dollars)
Three Months Ended Six Months Ended Twelve Months Ended
June 30 June 30 June 30
Operations by 1999 1998 1999 1998 1999 1998
Segments
Consolidated
Interest Expense $ 1,169 $ 1,158 $ 2,321 $ 2,015 $ 4,730 $ 3,703
-------- -------- -------- -------- -------- --------
Net Income:
Regulated ....... $ 2,720 $ 1,745 $ 4,149 $ 3,039 $ 8,070 $ 6,558
Non - Regulated . 154 39 236 82 225 153
Intersegment
Elimination ..... (302) (210) (320) (284) (546) (606)
-------- -------- -------- -------- -------- --------
Consolidated Net
Income .......... $ 2,572 $ 1,574 $ 4,065 $ 2,837 $ 7,749 $ 6,105
-------- -------- -------- -------- -------- --------
Capital
Expenditures:
Regulated ....... $ 4,174 $ 5,526 $ 10,381 $ 10,293 $ 26,419 $ 17,905
Non - Regulated . (2) -- 148 -- 148 --
Intersegment
Elimination ..... -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Total Capital
Expenditures .... $ 4,172 $ 5,526 $ 10,529 $ 10,293 $ 26,567 $ 17,905
-------- -------- -------- -------- -------- --------
-8-
As of As of
June 30, December 31,
1999 1998
---- ----
Assets:
Regulated .......................... $ 224,491 $ 219,014
Non - Regulated .................... 3,062 2,377
Intersegment
Elimination ........................ (19,575) (17,890)
--------- ---------
Consolidated
Assets ............................. $ 207,978 $ 203,501
--------- ---------
-9-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations - Three Months Ended June 30, 1999
Operating revenues for the three months ended June 30, 1999 were up $3.2 million
or 30.4% from the same period in 1998. A large part of the increase relates to
$1.7 million in contract service revenues from USA-PA, a subsidiary established
to provide operating and maintenance services to the water and wastewater
systems of the City of Perth Amboy, which was effective January 1, 1999. In
addition, part of the benefit of Middlesex's 11.5% rate increase implemented on
May 13, 1999 and the third phase of the Pinelands Water and Wastewater rate
increases implemented in late January 1999 added $0.5 million to revenues.
Unusually dry and hot weather patterns throughout our service territories led to
higher consumption revenue of $0.8 million and customer growth added $0.2
million.
Offsetting higher revenues were increased operating expenses of $2.5 million or
30.2% over last year. The inclusion of USA-PA's operations and maintenance
expenses accounted for $1.4 million of the increase. Higher pumpage system wide
and pump configurations used during the ongoing construction at the Carl J.
Olsen Water Treatment Plant (CJO Plant) increased purchased power and water
expenses by $0.2 million. Employee related costs rose $0.2 million due to wage
increases and additional personnel. Other taxes, which rose $0.3 million or
17.5%, included higher revenue related taxes, real estate taxes and payroll
taxes. Federal income taxes were up by $0.2 million, reflecting a higher amount
of current taxable income.
Other income increased $0.3 million compared to the same three-month period in
1998. An increase of $0.4 million in Allowance for Funds Used During
Construction (AFUDC) was related to the capital expenditures incurred in
connection with the upgrade of the CJO Plant. Interest income fell $0.1 million
due to a lower level of funds available for investment.
The rise in net income to $2.6 million, up 63.4% from $1.6 million, was
attributable to greater than expected revenues, USA-PA contract operations and
net financing activity related to the construction program.
Results of Operations - Six Months Ended June 30, 1999
Operating revenues for the six months ended June 30, 1999 were up $5.1 million
or 25.2% from the same period in 1998. A large part of the increase relates to
$3.4 million in contract service revenues from USA-PA. In addition, the full
benefit of Middlesex's 4.4% rate increase implemented in late January 1998, a
portion of the 11.5% Middlesex rate increase of May 13, 1999, and the third
phase of the Pinelands Water and Wastewater rate increases implemented in late
January 1999 added $0.8 million to revenues. Consumption increases due to the
hot and dry weather helped push revenues up $0.6 million. Continued growth in
the customer base of our Delaware operations also contributed $0.3 million to
revenues.
Offsetting higher revenues were increased operating expenses of $4.4 million or
27.4% over last year. The inclusion of USA-PA's operations and maintenance
expenses accounted for $2.9 million of the increase. Higher pumpage system wide
increased purchase power expenses by $0.1 million and purchased water by $0.2
million. Increases amounting to $0.4 million were also experienced in
administrative and general costs.
-10-
Other taxes, which rose $0.4 million or 13.0%, included higher revenue related
taxes, real estate taxes and payroll taxes.
Other income increased $0.8 million compared to the same six-month period in
1998. An increase of $0.7 million in AFUDC was related to the capital
expenditures incurred in connection with the upgrade of the CJO Plant. Interest
income increased $0.1 million due to a higher level of funds available for
investment.
Total interest charges rose $0.3 million and reflect debt service on the Series
W First Mortgage Bonds issued in March 1998.
The rise in net income to $4.1 million, up 43% from $2.8, was attributable to
the greater than expected revenues, USA-PA contract operations and net financing
activity related to the construction program.
Results of Operations - Twelve Months Ended June 30, 1999
Operating revenues for the twelve months ended June 30, 1999 were higher by $6.8
million or 16.5%. The following factors contributed to this increase. The
inclusion of USA-PA for six months added $3.4 million to revenues. Rate
increases implemented by Middlesex and the Pinelands Water and Wastewater
Companies accounted for $1.8 million of additional revenues. Weather related
consumption increases added $0.9 million. Tidewater's continued growth in its
customer base also contributed $0.7 million in revenues.
Total operating expenses increased $5.9 million or 18.2%. Primary factors
contributing to the increase are the inclusion of USA-PA's operations and
maintenance expenses for $2.9 million. Purchased water cost rose $0.2 million
due to a change in the composition of the water sources used to supply Middlesex
customers. Purchased power also increased by $0.2 million due to the pump
configurations used at the CJO Plant. Mandated recognition of postretirement
benefit costs other than pensions added $0.3 million to expenses. Labor costs
also added $0.9 million to increased expenses.
Depreciation expense increased $0.2 million or 6.9% as a result of newly
constructed utility plant placed in service during the twelve-month period.
Other taxes increased $0.6 million or 10.3%. The increase primarily relates to
higher revenue-related taxes and employers' payroll taxes. Federal income taxes
decreased $0.3 million or 7.8% as a result of a lower amount of deferred taxes
offsetting an increased amount of current taxes.
Other income rose $1.8 million with the AFUDC, accounting for $1.3 million. The
increase in AFUDC reflects capitalized interest on expenditures associated with
the upgrade of the CJO Plant. Unexpended proceeds available for investment from
the Series W First Mortgage Bonds, which were issued in March 1998, increased
interest income by $0.5 million.
Interest expense related to the Series W First Mortgage Bonds, issued in March
1998, accounted for most of the increase in total interest charges of $1.0
million. The remainder of the increase is due to short-term borrowings, incurred
to provide interim financing for the Company's capital program.
Basic and diluted earnings per share increased $0.25 and $0.24, respectively.
The per share dilution for the twelve months ended June 30, 1999 and 1998 is
attributable to the two series of convertible preferred stock currently
outstanding.
-11-
Capital Resources
The Company's capital program for 1999 is estimated to be $26.6 million and
includes $15.0 million for the remaining expenditures for the upgrade of the CJO
Plant, $2.0 million for the RENEW Program, which is our program to clean and
cement line approximately nine miles of unlined mains in the Middlesex System.
There is a total of approximately 170 miles of unlined mains in the 670 mile
Middlesex System. The capital program also includes $5.8 million for water
system additions and improvements for our Delaware systems and $3.8 million for
scheduled upgrades to our existing systems in New Jersey. The scheduled upgrades
consists of $1.0 million for mains, $0.7 million for service lines, $0.5 million
for meters, $0.4 for hydrants and $1.2 million for various other items.
Liquidity
Proceeds from the $23.0 million Series W First Mortgage Bonds and the December
1998, $12.7 million common stock offering are being used to finance the CJO
Plant expenditures in 1999. Middlesex issued $2.2 million of First Mortgage
Bonds in November 1998 through the New Jersey State Revolving Fund (SRF) to
cover the cost of the 1999 RENEW Program. The capital program in Delaware will
be financed through a combination of a capital contribution from Middlesex and
long-term debt financing from either a financial institution or the Company.
Other capital expenditures will be financed through internally generated funds
and sale of common stock through the Dividend Reinvestment and Common Stock
Purchase Plan (DRP). Capital expenditures of $10.4 million have been incurred in
the six months ended June 30, 1999. The Company may also utilize short-term
borrowings through $28.0 million of available lines of credit it has with three
commercial banks for working capital purposes. At June 30, 1999, there were $3.0
million of loans outstanding against the lines of credit.
Accounting Standards
In June 1998, The Financial Accounting Standards Board (FASB) issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." This
Statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts. The Company is currently evaluating the requirements of the
accounting standard, which is required to be adopted in the first quarter of
2001.
Year 2000 Readiness
The Company, through its year 2000 (Y2K) Committee, continues to advance in its
efforts to ensure that our ability to provide service will not be interrupted by
Y2K related problems.
Responses to our critical vendor questionnaire have reached approximately 88%.
There was a 100% response rate from the most important vendors, namely electric
utilities, chemical companies, bulk water suppliers and telecommunications
providers. Each vendor has indicated their level of readiness. This information
is being used to prepare Middlesex contingency plans, which will be submitted to
the BPU in August 1999. Contingency plans for our Delaware water utilities have
been submitted to the Delaware Public Service Commission. The costs to implement
these plans are currently projected to be less than $0.1 million.
-12-
The Y2K Committee continues to focus on completing its inventory of equipment
that may contain embedded chips. We are working with the equipment manufacturers
to help identify the affected equipment and the ability to modify or replace the
equipment in a timely manner. Y2K compliance statements have been received for
approximately 80% of the manufactured equipment in question. In each instance
the manufacturer has indicated that the equipment or components in use are not
Y2K sensitive. Based on the information received, Y2K testing for the respective
equipment is not being considered. The ability of our financial system to
recognize post 1999 dates was tested and determined to be compliant.
Our customer billing and information system is scheduled for testing during
August 1999. All customers in New Jersey have received notification of our plans
to ensure service as usual on January 1, 2000. Notification of our Delaware
customers is expected to be completed by the end of the third quarter of 1999.
Forward Looking Information
Certain matters discussed in this report on Form 10-Q are "forward-looking
statements" intended to qualify for safe harbors from liability established by
the Private Securities Litigation Reform Act of 1995. Such statements may
address future plans, objective, 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.
Item 3. Quantitative and Qualitative Disclosures of Market Risk
The Company is subject to the risk of fluctuating interest rates in the normal
course of business. Our policy is to manage interest rates through the use of
fixed rate long-term debt and, to a lesser extent, short-term debt. The
Company's interest rate risk related to existing fixed rate, long-term debt is
not material due to the term of the majority of our First Mortgage Bonds, which
have maturity dates ranging from 2009 to 2038. Over the next twelve months
approximately $0.1 million of the current portion of three existing long-term
debt instruments will mature. Applying a hypothetical change in the rate of
interest charged by 10% on those borrowings would not have a material effect on
earnings.
-13-
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company's insurer recently settled a lawsuit brought in
our Middlesex service area by a motel and a bank creditor of
the motel that had pursued the motel's claim against us.
Claims resulting from the death of a motel guest from
legionella in 1997 and claims brought by two other patrons
alleging illness as a result of their stay at the motel
brought against the motel and against us remain outstanding.
We have substantial insurance coverage, which we believe will
be sufficient for all claims in this matter. While the outcome
of this case remains uncertain, we believe that the final
resolution will not have a significant effect on our financial
condition or results of operations.
Item 2. Changes in Securities
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
Annual Meeting of Shareholders held May 26, 1999.
Matters voted upon at the meeting:
ELECTION OF DIRECTORS
Nominees for Class III term expiring in 2002:
FOR WITHHOLD
--- --------
Jeffries Shein 4,001,331 48,217
J. Richard Tompkins 4,006,424 43,124
Resolution approving appointment of Deloitte & Touche LLP,
Certified Public Accountants, as independent auditors for
1999:
FOR AGAINST ABSTAIN
--- ------- -------
4,007,642 15,837 26,069
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: No. 11, Statement Regarding Computation of
Per Share Earnings
No. 27, Financial Data Schedule.
(b) Reports on Form 8-K: None
-14-
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
MIDDLESEX WATER COMPANY
(Registrant)
/s/A. Bruce O'Connor
--------------------
Date: August 12, 1999 A. Bruce O'Connor
Vice President and Controller
EXHIBIT 11
MIDDLESEX WATER COMPANY
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
Three Months Ended
June 30,
1999 1998
Basic: Income Shares Income Shares
----------- ----------- ----------- -----------
Income before preferred stock:
Dividend Requirement ......................... $ 2,572,021 4,913,299 $ 1,574,008 4,330,025
Less Preferred Stock Dividend Requirement ....... (79,696) (79,696)
----------- ----------- ----------- -----------
Earnings Applicable to Common Stock ............. $ 2,492,325 4,913,299 $ 1,494,312 4,330,025
Basic Earnings Per Share of Common Stock ........ $ 0.51 $ 0.34
----------- -----------
Diluted:
Earnings Applicable to Common Stock ............. $ 2,492,325 4,913,299 $ 1,494,312 4,330,025
Convertible Preferred Stock $7.00 Series Dividend 26,042 89,286 26,042 89,286
Convertible Preferred Stock $8.00 Series Dividend 40,000 137,140 40,000 137,140
----------- ----------- ----------- -----------
Adjusted Earnings Applicable to Common Stock .... $ 2,558,367 5,139,725 $ 1,560,354 4,556,451
Diluted Earnings Per Share of Common Stock ...... $ 0.50 $ 0.34
----------- -----------
Six Months Ended
June 30,
1999 1998
Income Shares Income Shares
----------- ----------- ----------- -----------
Income Before Preferred Stock
Dividend Requirement ......................... $ 4,065,230 4,907,683 $ 2,837,259 4,310,462
Less Preferred Stock Dividend Requirement ....... (159,393) (159,393)
----------- ----------- ----------- -----------
Earnings Applicable to Common Stock ............. $ 3,905,837 4,907,683 $ 2,677,866 4,310,462
Basic Earnings Per Share of Common Stock ........ $ 0.80 $ 0.62
----------- -----------
Diluted:
Earnings Applicable to Common Stock ............. $ 3,905,837 4,907,683 $ 2,677,866 4,310,462
Convertible Preferred Stock $7.00 Series Dividend 52,084 89,286 52,084 89,286
Convertible Preferred Stock $8.00 Series Dividend 80,000 137,140 80,000 137,140
----------- ----------- ----------- -----------
Adjusted Earnings Applicable to Common Stock .... $ 4,037,921 5,134,109 $ 2,809,950 4,536,888
Diluted Earnings Per Share of Common Stock ...... $ 0.79 $ 0.62
----------- -----------
Twelve Months Ended
June 30,
1999 1998
Income Shares Income Shares
----------- ----------- ----------- -----------
Income Before Preferred Stock
Dividend Requirement ......................... $ 7,749,197 4,650,036 $ 6,105,320 4,281,191
Less Preferred Stock Dividend Requirement ....... (318,786) (305,957)
----------- ----------- ----------- -----------
Earnings Applicable to Common Stock ............. $ 7,430,411 4,650,036 $ 5,799,363 4,281,191
Basic Earnings Per Share of Common Stock ........ $ 1.60 $ 1.35
----------- -----------
Diluted:
Earnings Applicable to Common Stock ............. $ 7,430,411 4,650,036 $ 5,799,363 4,281,191
Convertible Preferred Stock $7.00 Series Dividend 104,167 89,286 104,307 89,342
Convertible Preferred Stock $8.00 Series Dividend 160,000 137,140 146,849 137,140
----------- ----------- ----------- -----------
Adjusted Earnings Applicable to Common Stock .... $ 7,694,578 4,876,462 $ 6,050,519 4,507,673
Diluted Earnings Per Share of Common Stock ...... $ 1.58 $ 1.34
----------- -----------
UT 0000066004 MIDDLESEX WATER COMPANY 6-MOS DEC-31-1999 JUN-30-1999 PER-BOOK 168,849,009 4,059,779 22,288,975 12,780,305 0 207,978,068 46,068,722 0 22,184,943 68,253,665 0 4,995,635 77,991,326 0 0 0 89,083 0 0 0 56,648,359 207,978,068 25,492,681 1,562,280 19,003,541 20,565,821 4,926,860 1,459,840 6,386,700 2,321,470 4,065,230 159,393 3,905,837 2,893,889 4,166,712 2,398,276 0.80 0.79