UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One) | |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended | |
OR | |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ___________to ___________ |
Commission File Number
(Exact name of registrant as specified in its charter)
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(State of incorporation) |
(IRS employer identification no.) |
(Address of principal executive offices, including zip code)
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
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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.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorter period that the registrant was required to submit and post files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of large accelerated filer, accelerated filer, non-accelerated filer, smaller reporting company and emerging growth company in Rule 12b-2 of the Exchange Act.
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Accelerated filer ☐ |
Non-accelerated filer ☐ | ||
Smaller reporting company ☐ |
Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes
The number of shares outstanding of each of the registrant's classes of common stock, as of October 29, 2020: Common Stock, No Par Value:
INDEX
PAGE | |
PART I.FINANCIAL INFORMATION | |
1 | |
1 | |
2 | |
3 | |
Condensed Consolidated Statements of Capital Stock and Long-Term Debt |
4 |
Condensed Consolidated Statements of Common Stockholders’ Equity |
5 |
Notes to Unaudited Condensed Consolidated Financial Statements |
6 |
Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations |
16 |
Item 3.Quantitative and Qualitative Disclosures of Market Risk |
24 |
Item 4.Controls and Procedures |
24 |
PART II.OTHER INFORMATION | |
Item 1.Legal Proceedings |
25 |
Item 1A.Risk Factors |
25 |
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds |
25 |
25 | |
Item 4.Mine Safety Disclosures |
25 |
Item 5.Other Information |
25 |
Item 6.Exhibits |
25 |
26 |
MIDDLESEX WATER COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands except per share amounts)
Three Months Ended September 30, |
Nine Months Ended September 30, | |||||||||||||||
2020 |
2019 |
2020 |
2019 | |||||||||||||
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Operating Revenues |
$ |
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$ |
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$ |
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$ |
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Operating Expenses: | ||||||||||||||||
Operations and Maintenance |
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Depreciation |
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Other Taxes |
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Total Operating Expenses |
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Operating Income |
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Other Income (Expense): | ||||||||||||||||
Allowance for Funds Used During Construction |
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Other Income (Expense), net |
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( |
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( |
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Total Other Income, net |
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Interest Charges |
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Income before Income Taxes |
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Income Taxes |
( |
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( |
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( |
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( |
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Net Income |
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Preferred Stock Dividend Requirements |
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Earnings Applicable to Common Stock |
$ |
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$ |
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$ |
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$ |
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Earnings per share of Common Stock: | ||||||||||||||||
Basic |
$ |
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$ |
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$ |
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$ |
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Diluted |
$ |
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$ |
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$ |
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$ |
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Average Number of Common Shares Outstanding: | ||||||||||||||||
Basic |
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Diluted |
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See Notes to Condensed Consolidated Financial Statements.
MIDDLESEX WATER COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
September 30, |
December 31, | ||||||||||
ASSETS |
2020 |
2019 | |||||||||
UTILITY PLANT: |
Water Production |
$ |
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$ |
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Transmission and Distribution |
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General |
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Construction Work in Progress |
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TOTAL |
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Less Accumulated Depreciation |
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UTILITY PLANT - NET |
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CURRENT ASSETS: |
Cash and Cash Equivalents |
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Accounts Receivable, net |
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Unbilled Revenues |
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Materials and Supplies (at average cost) |
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Prepayments |
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TOTAL CURRENT ASSETS |
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AND OTHER ASSETS: |
Operating Lease Right of Use Asset |
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Preliminary Survey and Investigation Charges |
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Regulatory Assets |
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Restricted Cash |
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Non-utility Assets - Net |
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Other |
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TOTAL DEFERRED CHARGES AND OTHER ASSETS |
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TOTAL ASSETS |
$ |
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$ |
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CAPITALIZATION AND LIABILITIES | |||||||||||
CAPITALIZATION: |
Common Stock, No Par Value |
$ |
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Retained Earnings |
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TOTAL COMMON EQUITY |
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Preferred Stock |
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Long-term Debt |
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TOTAL CAPITALIZATION |
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CURRENT |
Current Portion of Long-term Debt |
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LIABILITIES: |
Notes Payable |
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Accounts Payable |
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Accrued Taxes |
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Accrued Interest |
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Unearned Revenues and Advanced Service Fees |
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Other |
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TOTAL CURRENT LIABILITIES |
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COMMITMENTS AND CONTINGENT LIABILITIES (Note 7) | |||||||||||
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DEFERRED CREDITS |
Customer Advances for Construction |
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AND OTHER LIABILITIES: |
Lease Obligations |
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Accumulated Deferred Income Taxes |
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Employee Benefit Plans |
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Regulatory Liabilities |
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Other |
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TOTAL DEFERRED CREDITS AND OTHER LIABILITIES |
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CONTRIBUTIONS IN AID OF CONSTRUCTION |
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TOTAL CAPITALIZATION AND LIABILITIES |
$ |
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$ |
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See Notes to Condensed Consolidated Financial Statements.
MIDDLESEX WATER COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Nine Months Ended September 30, | ||||||||
2020 |
2019 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net Income |
$ |
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$ |
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Adjustments to Reconcile Net Income to | ||||||||
Net Cash Provided by Operating Activities: | ||||||||
Depreciation and Amortization |
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Provision for Deferred Income Taxes and Investment Tax Credits |
( |
) |
( |
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Equity Portion of Allowance for Funds Used During Construction (AFUDC) |
( |
) |
( |
) | ||||
Cash Surrender Value of Life Insurance |
( |
) |
( |
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Stock Compensation Expense |
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Changes in Assets and Liabilities: | ||||||||
Accounts Receivable |
( |
) |
( |
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Unbilled Revenues |
( |
) |
( |
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Materials & Supplies |
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Prepayments |
( |
) |
( |
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Accounts Payable |
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Accrued Taxes |
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( |
) | |||||
Accrued Interest |
( |
) |
( |
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Employee Benefit Plans |
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( |
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Unearned Revenue & Advanced Service Fees |
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Other Assets and Liabilities |
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NET CASH PROVIDED BY OPERATING ACTIVITIES |
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CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Utility Plant Expenditures, Including AFUDC of $ |
( |
) |
( |
) | ||||
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NET CASH USED IN INVESTING ACTIVITIES |
( |
) |
( |
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CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Redemption of Long-term Debt |
( |
) |
( |
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Proceeds from Issuance of Long-term Debt |
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Net Short-term Bank Borrowings |
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Deferred Debt Issuance Expense |
( |
) |
( |
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Common Stock Issuance Expense |
( |
) |
( |
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Proceeds from Issuance of Common Stock |
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Payment of Common Dividends |
( |
) |
( |
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Payment of Preferred Dividends |
( |
) |
( |
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Construction Advances and Contributions-Net |
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NET CASH PROVIDED BY FINANCING ACTIVITIES |
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NET CHANGES IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH |
( |
) |
( |
) | ||||
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD |
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CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD |
$ |
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$ |
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SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITY: | ||||||||
Utility Plant received as Construction Advances and Contributions |
$ |
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$ |
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Long term Debt Deobligation |
$ |
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$ |
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SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION: | ||||||||
Cash Paid During the Year for: | ||||||||
Interest |
$ |
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$ |
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Interest Capitalized |
$ |
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$ |
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Income Taxes |
$ |
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$ |
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See Notes to Condensed Consolidated Financial Statements.
MIDDLESEX WATER COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CAPITAL STOCK AND LONG-TERM DEBT
(Unaudited)
(In thousands)
September 30, |
December 31, | ||||||||
2020 |
2019 | ||||||||
Common Stock, No Par Value | |||||||||
Shares Authorized - | |||||||||
Shares Outstanding - 2020 - |
$ |
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$ |
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Retained Earnings |
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TOTAL COMMON EQUITY |
$ |
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$ |
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Cumulative Preferred Stock, No Par Value: | |||||||||
Shares Authorized - | |||||||||
Shares Outstanding - 2020 - | |||||||||
Convertible: | |||||||||
Shares Outstanding, $7.00 Series - |
$ |
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$ |
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Nonredeemable: | |||||||||
Shares Outstanding, $7.00 Series - |
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Shares Outstanding, $4.75 Series - |
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TOTAL PREFERRED STOCK |
$ |
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$ |
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Long-term Debt: | |||||||||
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$ |
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$ |
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First Mortgage Bonds: | |||||||||
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SUBTOTAL LONG-TERM DEBT |
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Add: Premium on Issuance of Long-term Debt |
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Less: Unamortized Debt Expense |
( |
) |
( |
) | |||||
Less: Current Portion of Long-term Debt |
( |
) |
( |
) | |||||
TOTAL LONG-TERM DEBT |
$ |
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$ |
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See Notes to Condensed Consolidated Financial Statements.
MIDDLESEX WATER COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
(Unaudited)
(In thousands)
Common |
Common | |||||||||||||||
Stock |
Stock |
Retained | ||||||||||||||
Shares |
Amount |
Earnings |
Total | |||||||||||||
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For the Three Months Ended September 30, 2019 | ||||||||||||||||
Balance at July 1, 2019 |
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$ |
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$ |
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$ |
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Net Income |
— |
— |
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Dividend Reinvestment & Common Stock Purchase Plan |
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— |
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Restricted Stock Award, Net - Employees |
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— |
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Shares Forefeited |
( |
) |
( |
) |
— |
( |
) | |||||||||
Conversion of $ |
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— |
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Cash Dividends on Common Stock ($ |
— |
— |
( |
) |
( |
) | ||||||||||
Cash Dividends on Preferred Stock |
— |
— |
( |
) |
( |
) | ||||||||||
Common Stock Expenses |
— |
— |
( |
) |
( |
) | ||||||||||
Balance at September 30, 2019 |
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$ |
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$ |
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$ |
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For the Nine Months Ended September, 2019 | ||||||||||||||||
Balance at January 1, 2019 |
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$ |
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$ |
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$ |
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Net Income |
— |
— |
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Dividend Reinvestment & Common Stock Purchase Plan |
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— |
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Restricted Stock Award, Net - Employees |
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— |
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Stock Award - Board Of Directors |
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— |
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Shares Forefeited |
( |
) |
( |
) |
— |
( |
) | |||||||||
Conversion of $ |
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— |
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Cash Dividends on Common Stock ($ |
— |
— |
( |
) |
( |
) | ||||||||||
Cash Dividends on Preferred Stock |
— |
— |
( |
) |
( |
) | ||||||||||
Common Stock Expenses |
— |
— |
( |
) |
( |
) | ||||||||||
Balance at September 30, 2019 |
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$ |
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$ |
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$ |
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For the Three Months Ended September 30, 2020 | ||||||||||||||||
Balance at July 1, 2020 |
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$ |
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$ |
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$ |
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Net Income |
— |
— |
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Dividend Reinvestment & Common Stock Purchase Plan |
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— |
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Restricted Stock Award - Net - Employees |
— |
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— |
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Cash Dividends on Common Stock ($ |
— |
— |
( |
) |
( |
) | ||||||||||
Cash Dividends on Preferred Stock |
— |
— |
( |
) |
( |
) | ||||||||||
Balance at September 30, 2020 |
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$ |
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$ |
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$ |
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For the Nine Months Ended September 30, 2020 | ||||||||||||||||
Balance at January 1, 2020 |
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$ |
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$ |
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$ |
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Net Income |
— |
— |
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Dividend Reinvestment & Common Stock Purchase Plan |
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— |
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Restricted Stock Award - Net - Employees |
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— |
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Restricted Stock Award - Board Of Directors |
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Cash Dividends on Common Stock ($ |
— |
— |
( |
) |
( |
) | ||||||||||
Cash Dividends on Preferred Stock |
— |
— |
( |
) |
( |
) | ||||||||||
Common Stock Expenses |
— |
— |
( |
) |
( |
) | ||||||||||
Balance at September 30, 2020 |
|
$ |
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$ |
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$ |
|
See Notes to Condensed Consolidated Financial Statements.
MIDDLESEX WATER COMPANY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Basis of Presentation and Recent Developments
Middlesex Water Company (Middlesex or the Company) is the parent company and sole shareholder of Tidewater Utilities, Inc. (Tidewater), Tidewater Environmental Services, Inc. (TESI), Pinelands Water Company (Pinelands Water) and Pinelands Wastewater Company (Pinelands Wastewater) (collectively, Pinelands), Utility Service Affiliates, Inc. (USA), Utility Service Affiliates (Perth Amboy) Inc. (USA-PA), and Twin Lakes Utilities, Inc. (Twin Lakes). Southern Shores Water Company, LLC (Southern Shores) and White Marsh Environmental Systems, Inc. (White Marsh) are wholly-owned subsidiaries of Tidewater. The financial statements for Middlesex and its wholly-owned subsidiaries are reported on a consolidated basis. All significant intercompany accounts and transactions have been eliminated.
The consolidated notes within the 2019 Annual Report on Form 10-K (the 2019 Form 10-K) are applicable to these financial statements and, in the opinion of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary (including normal recurring accruals) to present fairly the financial position as of September 30, 2020, the results of operations for the three month and nine month periods ended September 30, 2020 and 2019 and cash flows for the nine month periods ended September 30, 2020 and 2019. Information included in the Condensed Consolidated Balance Sheet as of December 31, 2019, has been derived from the Company’s audited financial statements for the year ended December 31, 2019 included in the 2019 Form 10-K.
Recent Developments
Novel Coronavirus (COVID-19) - On March 13, 2020, the United States declared the COVID-19 pandemic a national emergency. The impact on changing economic conditions due to COVID-19 is uncertain and could affect the Company’s results of operations, financial condition and liquidity in the future. While the Company’s operations and capital construction program have not been significantly disrupted to date from COVID-19, we are unable to assess with certainty the impact that COVID-19 will have on our business, our customers and our vendors prospectively, due to numerous uncertainties, including the severity of the pandemic, the duration of the outbreak and actions which could potentially be taken by governmental and/or regulatory authorities.
The New Jersey Board of Public Utilities (NJBPU) and the Delaware Public Service Commission (DEPSC) have allowed for potential future recovery of COVID-19 related incremental costs through customer rates by the regulated utilities under their respective jurisdictions. Neither jurisdiction has yet to establish a timetable or definitive method for formally providing for cost recovery. We will continue to monitor the COVID-19 situation and evaluate its impact on the Company’s business, results of operations, financial condition and liquidity.
Contract Operations – In May 2020, USA, through a competitive bidding process, was awarded a
Recently Adopted Accounting Guidance
Credit Losses on Financial Instruments - The Financial Accounting Standards Board issued guidance on the measurement of credit losses on financial instruments, including trade receivables, which requires expected credit losses to be measured based on historical experience, current conditions and reasonable and supportable forecasts that affect the collectability of the reported amount of financial assets. The new guidance became effective January 1, 2020. For the Company, this applies primarily to accounts receivable and unbilled revenue balances. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.
Expected credit losses on accounts receivable and unbilled revenues are based on historical write-offs combined with an evaluation of current conditions and reasonable and supportable forecasts. Customer accounts are written off when collection efforts have been exhausted.
There are no other new adopted or proposed accounting guidance that the Company is aware of that could have a material impact on the Company’s financial statements.
Note 2 – Rate and Regulatory Matters
Middlesex – In March 2020, the NJBPU approved Middlesex’s petition to reset its Purchased Water Adjustment Clause (PWAC) tariff rate to recover additional costs of $
Tidewater - Effective July 1, 2020, Tidewater increased its DEPSC-approved Distribution System Improvement Charge (DSIC) rate, which is expected to generate revenue of approximately $
Southern Shores - Effective January 1, 2020, the DEPSC approved the renewal of a multi-year agreement for water service to a 2,200 unit condominium community in Sussex County, Delaware. Under the agreement, current rates will remain in effect until December 31, 2024, but should there be unanticipated capital expenditures or regulatory related changes in operating expenses exceeding certain thresholds during this time period, rates are permitted to be adjusted to reflect such cost changes. Thereafter, rate increases, if any, cannot exceed the lesser of the regional Consumer Price Index or
Twin Lakes - In March 2020, the Pennsylvania Public Utilities Commission (PAPUC) approved a $
COVID-19 - The NJBPU and the DEPSC have allowed for potential future recovery in customer rates of additional costs related to COVID-19 (for further discussion of the impact of COVID-19 on the Company, see Note 1- Basis of Presentation and Recent Developments, Recent Developments).
Note 3 – Capitalization
Common Stock - During the nine months ended September 30, 2020 and 2019, there were
Long-term Debt - Subject to regulatory approval, the Company periodically issues long-term debt to fund its investments in utility plant. To the extent possible, the Company finances qualifying capital projects under State Revolving Fund (SRF) loan programs in New Jersey and Delaware. These government programs provide financing at interest rates that are typically below rates available in the broader financial markets. A portion of the borrowings under the New Jersey SRF is interest-free. Under the New Jersey SRF program, borrowers first enter into a construction loan agreement with the New Jersey Infrastructure Bank (NJIB) at a below market interest rate. The interest rate on the Company’s current construction loan borrowings is zero percent (0%). When construction on the qualifying project is substantially complete, NJIB will coordinate the conversion of the construction loan into a long-term securitized loan with a portion of the principal balance having a stated interest rate of zero percent (
The NJIB generally schedules its long-term debt financings in May and November. Middlesex currently has two projects that are in the construction loan phase of the New Jersey SRF program as follows:
1)
In April 2018, the NJBPU approved Middlesex’s request to participate in the NJIB loan program to fund the construction of a large-diameter transmission pipeline from the Carl J. Olsen water treatment plant in Edison, New Jersey and interconnect with our distribution system. Middlesex closed on a $
2)
In March 2018, the NJBPU approved Middlesex’s request to participate in the NJIB loan program to fund the 2018 RENEW Program, which is an ongoing initiative to eliminate unlined water distribution mains in the Middlesex system. Middlesex closed on an $
The Company expects that the large-diameter transmission pipeline and the 2018 RENEW construction loans will be included in the NJIB May 2021 long-term debt financing program.
In September 2018, the NJIB announced changes to the SRF program for project funding priority ranking, the proportions of interest free loans and market interest rate loans and overall loan limits on interest free loan balances to investor-owned water utilities. These changes affect SRF projects for which the construction loan closes after September 2018. Under the amended regulations, the principal balance having a stated interest rate of zero percent (
In August 2019, Middlesex priced and closed on a New Jersey Economic Development Authority (NJEDA) debt financing transaction of $
In May 2020, Middlesex received approval from the NJBPU to borrow up to $
In March 2018, the DEPSC approved Tidewater’s request to borrow up to $
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 condensed consolidated balance sheets for cash and cash equivalents, trade receivables, accounts payable and notes payable approximate their respective fair values due to the short-term maturities of these instruments. The fair value of FMBs and SRF Bonds (collectively, the Bonds) issued by Middlesex is based on quoted market prices for similar issues. Under the fair value hierarchy, the fair value of cash and cash equivalents is classified as a Level 1 measurement and the fair value of notes payable and the Bonds in the table below are classified as Level 2 measurements. The carrying amount and fair value of the Bonds were as follows:
(In Thousands) | ||||
September 30, 2020 |
December 31, 2019 | |||
Carrying |
Fair |
Carrying |
Fair | |
Amount |
Value |
Amount |
Value | |
Bonds |
$ |
$ |
$ |
$ |
For other long-term debt for which there was no quoted market price and there is not an active trading market, it was not practicable to estimate their fair value (for details, including carrying value, interest rate and due date on these series of long-term debt, please refer to those series noted as “Amortizing Secured Note”, “State Revolving Trust Note” and “Construction Loans” on the Condensed Consolidated Statements of Capital Stock and Long-Term Debt). The carrying amount of these instruments was $
Note 4 – Earnings Per Share
Basic earnings per share (EPS) are computed on the basis of the weighted average number of shares outstanding during the period presented. Diluted EPS assumes the conversion of the Convertible Preferred Stock $7.00 Series in 2020 and the Convertible Preferred Stock $7.00 Series and the Convertible Preferred Stock $8.00 Series in 2019.
(In Thousands Except per Share Amounts) | ||||||||||||||||
Three Months Ended September 30, | ||||||||||||||||
2020 |
2019 | |||||||||||||||
Basic: |
Income |
Shares |
Income |
Shares | ||||||||||||
Net Income |
$ |
|
|
$ |
|
| ||||||||||
Preferred Dividend |
( |
) |
( |
) | ||||||||||||
Earnings Applicable to Common Stock |
$ |
|
|
$ |
|
| ||||||||||
| ||||||||||||||||
Basic EPS |
$ |
|
$ |
| ||||||||||||
| ||||||||||||||||
Diluted: | ||||||||||||||||
Earnings Applicable to Common Stock |
$ |
|
|
$ |
|
| ||||||||||
$7.00 Series Preferred Dividend |
|
|
|
| ||||||||||||
$8.00 Series Preferred Dividend |
|
|
|
| ||||||||||||
Adjusted Earnings Applicable to Common Stock |
$ |
|
|
$ |
|
| ||||||||||
| ||||||||||||||||
Diluted EPS |
$ |
|
$ |
|
(In Thousands Except per Share Amounts) | ||||||||||||||||
Nine Months Ended September 30, | ||||||||||||||||