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: September 30, 2000 No. 0-422
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MIDDLESEX WATER COMPANY
-----------------------
(Exact name of registrant as specified in its charter)
INCORPORATED IN NEW JERSEY 22-1114430
- -------------------------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1500 RONSON ROAD, ISELIN, NJ 08830
- ---------------------------- -----
(Address of principal executive offices) (Zip Code)
(732) 634-1500
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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 September 30, 2000
----- ---------------------------------
Common Stock, No Par Value 5,029,553
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 Nine Months Twelve Months
Ended September 30, Ended September 30, Ended September 30,
------------------------- ------------------------- -------------------------
2000 1999 2000 1999 2000 1999
----------- ----------- ----------- ----------- ----------- -----------
Operating Revenues $14,386,999 $15,392,145 $41,425,330 $40,884,826 $54,037,657 $51,508,352
----------- ----------- ----------- ----------- ----------- -----------
Operating Expenses:
Operations 7,057,061 6,938,208 21,168,803 19,664,043 27,773,107 24,876,649
Maintenance 692,062 662,487 2,008,416 1,908,947 2,718,148 2,427,944
Depreciation 1,170,734 1,023,154 3,477,375 2,762,078 4,599,947 3,599,876
Other Taxes 1,871,767 1,952,789 5,304,962 5,245,111 6,930,956 6,766,475
Federal Income Taxes 900,843 1,200,064 2,191,868 2,762,344 2,618,417 3,339,185
----------- ----------- ----------- ----------- ----------- -----------
Total Operating Expenses 11,692,467 11,776,702 34,151,424 32,342,523 44,640,575 41,010,129
----------- ----------- ----------- ----------- ----------- -----------
Operating Income 2,694,532 3,615,443 7,273,906 8,542,303 9,397,082 10,498,223
Other Income:
Allowance for Funds Used During Construction 76,277 241,946 121,041 1,318,782 152,275 1,715,670
Other - Net 36,700 101,714 111,965 484,718 188,238 667,234
----------- ----------- ----------- ----------- ----------- -----------
Total Other Income 112,977 343,660 233,006 1,803,500 340,513 2,382,904
Income Before Interest Charges 2,807,509 3,959,103 7,506,912 10,345,803 9,737,595 12,881,127
----------- ----------- ----------- ----------- ----------- -----------
Interest Charges 1,270,066 1,178,544 3,694,872 3,500,014 4,890,303 4,698,943
----------- ----------- ----------- ----------- ----------- -----------
Net Income 1,537,443 2,780,559 3,812,040 6,845,789 4,847,292 8,182,184
Preferred Stock Dividend Requirements 63,697 77,697 191,090 237,090 254,786 316,786
----------- ----------- ----------- ----------- ----------- -----------
Earnings Applicable to Common Stock $ 1,473,746 $ 2,702,862 $ 3,620,950 $ 6,608,699 $ 4,592,506 $ 7,865,398
=========== =========== =========== =========== =========== ===========
Earnings per share of Common Stock:
Basic $ 0.29 $ 0.55 $ 0.72 $ 1.34 $ 0.92 $ 1.64
Diluted $ 0.29 $ 0.54 $ 0.72 $ 1.32 $ 0.92 $ 1.62
Average Number of
Common Shares Outstanding :
Basic 5,024,431 4,931,874 5,014,937 4,915,835 5,001,054 4,794,792
Diluted 5,196,001 5,156,139 5,186,507 5,141,533 5,181,804 5,020,673
Cash Dividends Paid per Common Share $ 0.30 1/2 $ 0.29 1/2 $ 0.91 1/2 $ 0.88 1/2 $ 1.22 $ 1.18
See Notes to Consolidated Financial Statements.
-1-
MIDDLESEX WATER COMPANY
CONSOLIDATED BALANCE SHEETS
ASSETS AND OTHER DEBITS
September 30, December 31,
2000 1999
------------ ------------
(Unaudited)
UTILITY PLANT:
Water Production $ 66,027,969 $ 70,316,961
Transmission and Distribution 133,168,232 122,002,931
General 19,987,765 19,717,575
Construction Work in Progress 4,731,878 2,858,703
------------ ------------
TOTAL 223,915,844 214,896,170
Less Accumulated Depreciation 38,107,925 35,174,531
------------ ------------
UTILITY PLANT-NET 185,807,919 179,721,639
------------ ------------
NONUTILITY ASSETS-NET 2,605,402 2,087,498
------------ ------------
CURRENT ASSETS:
Cash and Cash Equivalents 3,476,842 5,169,772
Temporary Cash Investments-Restricted 4,362,754 5,731,827
Accounts Receivable (net of allowance
for doubtful accounts) 6,224,226 5,969,546
Unbilled Revenues 3,001,762 2,627,863
Materials and Supplies (at average cost) 1,195,800 956,950
Prepayments and Other Current Assets 661,282 616,224
------------ ------------
TOTAL CURRENT ASSETS 18,922,666 21,072,182
------------ ------------
DEFERRED CHARGES:
Unamortized Debt Expense 2,985,378 3,029,362
Preliminary Survey and Investigation Charges 513,473 472,287
Regulatory Assets
Income Taxes 5,955,879 5,955,879
Post Retirement Costs 1,063,228 1,127,884
Other 1,789,178 1,568,934
------------ ------------
TOTAL DEFERRED CHARGES 12,307,136 12,154,346
------------ ------------
TOTAL $219,643,123 $215,035,665
============ ============
See Notes to Consolidated Financial Statements
-2-
MIDDLESEX WATER COMPANY
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND OTHER CREDITS
September 30, December 31,
2000 1999
------------ ------------
(Unaudited)
CAPITALIZATION (see accompanying statements) $156,694,622 $156,882,012
------------ ------------
CURRENT LIABILITIES:
Current Portion of Long-term Debt 168,739 201,921
Notes Payable 6,025,000 2,000,000
Accounts Payable 2,267,028 3,392,432
Taxes Accrued 6,599,050 5,358,737
Interest Accrued 926,972 1,760,470
Other 1,705,206 1,591,706
------------ ------------
TOTAL CURRENT LIABILITIES 17,691,995 14,305,266
------------ ------------
DEFERRED CREDITS:
Customer Advances for Construction 11,333,685 11,775,581
Accumulated Deferred Investment Tax Credits 2,030,687 2,089,650
Accumulated Deferred Federal Income Taxes 12,348,036 12,113,286
Employee Benefit Plans 5,419,328 4,656,575
Other 1,527,361 1,059,206
------------ ------------
TOTAL DEFERRED CREDITS 32,659,097 31,694,298
------------ ------------
CONTRIBUTIONS IN AID OF CONSTRUCTION 12,597,409 12,154,089
------------ ------------
TOTAL $219,643,123 $215,035,665
============ ============
See Notes to Consolidated Financial Statements.
-3-
MIDDLESEX WATER COMPANY
CONSOLIDATED STATEMENTS OF CAPITALIZATION AND RETAINED EARNINGS
September 30, December 31,
2000 1999
------------- -------------
(Unaudited)
CAPITALIZATION:
Common Stock, No Par Value
Shares Authorized, 10,000,000
Shares Outstanding - 2000 - 5,029,553; 1999 - 5,000,589 $ 48,531,691 $ 47,593,514
Retained Earnings 21,930,244 22,895,844
------------- -------------
TOTAL COMMON EQUITY 70,461,935 70,489,358
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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 - 140,497
Convertible:
Shares Outstanding, $7.00 Series - 14,881 1,562,505 1,562,505
Shares Outstanding, $8.00 Series - 12,000 1,398,857 1,398,857
Nonredeemable:
Shares Outstanding, $7.00 Series - 1,017 101,700 101,700
Shares Outstanding, $4.75 Series - 10,000 1,000,000 1,000,000
------------- -------------
TOTAL CUMULATIVE PREFERRED STOCK 4,063,062 4,063,062
------------- -------------
Long-term Debt:
8.05% Amortizing Secured Note, due December 20, 2021 3,333,636 3,371,527
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 970,667 1,024,986
4.53%, Series Y, due August 1, 2018 1,095,000 1,135,000
0.00%, Series Z, due September 1, 2019 2,089,061 2,150,000
5.25%, Series AA, due September 1, 2019 2,350,000 2,350,000
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SUBTOTAL LONG-TERM DEBT 82,338,364 82,531,513
------------- -------------
Less: Current Portion of Long-term Debt (168,739) (201,921)
------------- -------------
TOTAL LONG-TERM DEBT 82,169,625 82,329,592
------------- -------------
TOTAL CAPITALIZATION $ 156,694,622 $ 156,882,012
============= =============
Nine Months Ended Year Ended
September 30, December 31,
2000 1999
----------- -----------
(Unaudited)
RETAINED EARNINGS:
BALANCE AT BEGINNING OF PERIOD $22,895,844 $21,222,294
Net Income 3,812,040 7,881,041
----------- -----------
TOTAL 26,707,884 29,103,335
----------- -----------
Cash Dividends:
Cumulative Preferred Stock 191,090 300,786
Common Stock 4,586,550 5,857,405
Common Stock Expenses 0 49,300
----------- -----------
TOTAL DEDUCTIONS 4,777,640 6,207,491
----------- -----------
BALANCE AT END OF PERIOD $21,930,244 $22,895,844
=========== ===========
See Notes to Consolidated Financial Statements.
-4-
MIDDLESEX WATER COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended Twelve Months Ended
September 30, September 30,
------------------------------ ------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 3,812,040 $ 6,845,789 $ 4,847,292 $ 8,182,184
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation and Amortization 3,656,228 3,070,261 4,889,159 4,063,766
Provision for Deferred Income Taxes 234,750 (132,372) 242,807 (197,963)
Allowance for Funds Used During Construction (121,041) (1,318,782) (152,275) (1,715,670)
Changes in Current Assets and Liabilities:
Accounts Receivable (255,123) (1,499,983) 161,381 (1,220,773)
Accounts Payable (1,126,167) (1,328,163) (257,231) (1,559,398)
Accrued Taxes 1,240,313 1,162,257 216,124 832,025
Accrued Interest (833,498) (1,019,444) 245,086 (12,994)
Unbilled Revenues (373,899) (601,800) (101,814) (304,469)
Employee Benefit Plans 762,753 680,706 976,106 954,331
Other-Net (91,138) (362,690) 382,620 289,662
------------ ------------ ------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 6,905,218 5,495,779 11,449,255 9,310,701
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Utility Plant Expenditures* (9,932,019) (15,394,729) (17,819,025) (22,905,963)
Note Receivable (28,500) 47,512 2,730,090 72,755
Preliminary Survey and Investigation Charges (41,186) (113,498) (123,773) (139,356)
Other-Net 40,671 (225,676) 107,751 (453,989)
------------ ------------ ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (9,961,034) (15,686,391) (15,104,957) (23,426,553)
------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption of Long-term Debt (193,149) (59,655) (205,224) (70,694)
Proceeds from Issuance of Long-term Debt -- -- 4,500,000 2,185,000
Short-term Bank Borrowings 4,025,000 -- 5,025,000 (3,500,000)
Deferred Debt Issuance Expenses -- (1,864) (20,404) (29,968)
Temporary Cash Investments-Restricted 1,369,073 7,083,321 (1,670,003) 8,803,824
Proceeds from Issuance of Common Stock-Net 938,177 803,459 1,239,187 13,235,973
Payment of Common Dividends (4,586,549) (4,348,788) (6,095,166) (5,638,274)
Payment of Preferred Dividends (191,090) (237,090) (254,786) (316,787)
Construction Advances and Contributions-Net 1,424 2,038,064 138,283 2,247,030
------------ ------------ ------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,362,886 5,277,447 2,656,887 16,916,104
------------ ------------ ------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (1,692,930) (4,913,165) (998,815) 2,800,252
------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,169,772 9,388,822 8,588,217 1,675,405
------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,476,842 $ 4,475,657 $ 7,589,402 $ 4,475,657
============ ============ ============ ============
* Excludes Allowance for Funds Used During Construction
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash Paid During the Period for:
Interest (net of amounts capitalized) $ 4,274,374 $ 3,094,507 $ 4,317,278 $ 2,852,353
Income Taxes $ 1,101,450 $ 2,322,350 $ 2,507,800 $ 3,279,200
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). White Marsh
Environmental Systems, Inc. is a wholly-owned subsidiary 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 1999 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 September 30, 2000 and the results of operations and its cash flows for the
periods ended September 30, 2000 and 1999. Information included in the Balance
Sheet as of December 31, 1999, 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, 1999.
Note 2 - Regulatory Matters
Three base rate increase petitions were filed with the New Jersey Board of
Public Utilities (BPU).
Pinelands Pinelands
Middlesex Water Wastewater
------------- ------------- -------------
Date Filed June 22, 2000 July 7, 2000 July 7, 2000
Amount $ 6.6 million $ 0.1 million $ 0.2 million
% Increase 15.92% 31.3% 22.3%
Return on Equity 11.80% 12.00% 12.00%
Last Increase May 13, 1999 January 28, 1999 January 28, 1999
The requested increases are necessary to cover higher operations and maintenance
costs, depreciation and taxes. In addition, continued significant plant
investment in the Middlesex system also contributed to the rate request.
The last rate increase for the Pinelands Companies represented the final stage
of a three-phase implementation. The first increase was effective January 28,
1997. The Company does not expect the three rate matters to be resolved until
after the close of this calendar year.
-6-
On March 31, 2000, Tidewater amended its base rate increase petition from 38.3%
to 21.2%. The original petition was filed with the Delaware Public Service
Commission (PSC) in September 1999. The lower request was due mostly to lower
than projected capital expenditures. Evidentiary hearings were held in mid-April
2000.
The hearing examiner issued his report in late June 2000, which recommended an
increase of approximately 5.50%. This matter was brought before the PSC on
September 12, 2000, at which time the Company was granted a 2.76% rate increase.
The PSC disallowed any recognition of acquisition adjustments and applied a
0.75% credit against the allowed return of equity of 10.0% due to quality of
service issues. This credit may be removed by the PSC upon receipt of
satisfactory evidence that Tidewater has resolved the quality issues that arose
during the course of the rate proceedings.
Due to unresolved issues with tariff design, this matter is not expected to be
finalized until late November 2000. At that time, an effective date will be
authorized by the PSC. Because Tidewater implemented a 14.8% interim rate
increase on November 19, 1999, it will be required to refund, along with
interest, by way of billing credits, the difference to its customers retroactive
to the date interim rates were put into effect. These billing refunds will not
affect earnings since Tidewater has been deferring recognition of those revenues
until a decision is reached by the PSC. Interest expense is expected to be
calculated and recorded in the fourth quarter of 2000.
Note 3 - Capitalization
Common Stock - During the three months ended September 30, 2000, 9,750 common
shares ($0.3 million) were issued under the Company's Dividend Reinvestment and
Common Stock Purchase Plan.
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.
(Amounts in Thousands)
Three Months Ended Nine Months Ended Twelve Months Ended
September 30, September 30, September 30,
2000 1999 2000 1999 2000 1999
Basic: Income Shares Income Shares Income Shares Income Shares Income Shares Income Shares
- ------------------------------------------------------------------------------------------------------------------------------
Net Income $1,537 5,025 $2,781 4,932 $3,812 5,015 $6,846 4,916 $4,847 5,001 $8,183 4,795
Preferred Dividend (64) (78) (191) (237) (255) (317)
------ ----- ------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Earnings Applicable
to Common Stock $1,473 5,025 $2,703 4,932 $3,621 5,015 $6,609 4,916 $4,592 5,001 $7,866 4,795
Basic EPS $0.29 $0.55 $ .72 $1.34 $ .92 $1.64
Diluted:
Earnings Applicable
to Common Stock $1,473 5,025 $2,703 4,932 $3,621 5,015 $6,609 4,916 $4,592 5,001 $7,866 4,795
$7.00 Series 26 89 26 89 78 89 78 89 104 89 104 89
Dividend
$8.00 Series
Dividend 24 82 38 135 72 82 118 136 96 92 158 137
------ ----- ------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Adjusted Earnings
Applicable to
Common Stock $1,523 5,196 $2,767 5,156 $3,771 5,186 $6,805 5,141 $4,792 5,182 $8,128 5,021
Diluted EPS $0.29 $0.54 $ .72 $1.32 $ .92 $1.62
-7-
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
and private water and wastewater systems in New Jersey and Delaware. 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.
Inter-segment transactions relating to operational costs are treated as pass
through expenses. Finance charges on inter-segment loan activities are based on
interest rates that are below what would normally be charged by a third party
lender.
-8-
(Amounts in Thousands)
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 September 30 September 30
2000 1999 2000 1999 2000 1999
-------- -------- -------- -------- -------- --------
Operations by Segments:
Revenues:
Regulated $ 12,656 $ 13,504 $ 36,235 $ 35,380 $ 46,902 $ 45,911
Non - Regulated 1,740 1,897 5,217 5,534 7,171 5,632
Inter-segment Elimination (9) (9) (27) (29) (36) (35)
-------- -------- -------- -------- -------- --------
Consolidated Revenues $ 14,387 $ 15,392 $ 41,425 $ 40,885 $ 54,037 $ 51,508
-------- -------- -------- -------- -------- --------
Operating Income:
Regulated $ 2,603 $ 3,363 $ 6,957 $ 7,937 $ 8,758 $ 9,892
Non - Regulated 92 252 317 605 639 606
Inter-segment Elimination -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Consolidated Operating Income $ 2,695 $ 3,615 $ 7,274 $ 8,542 $ 9,397 $ 10,498
-------- -------- -------- -------- -------- --------
Depreciation/Amortization:
Regulated $ 1,156 $ 1,015 $ 3,437 $ 2,739 $ 4,557 $ 3,581
Non - Regulated 15 8 40 23 43 19
Inter-segment Elimination -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Consolidated
Depreciation/Amortization $ 1,171 $ 1,023 $ 3,477 $ 2,762 $ 4,600 $ 3,600
-------- -------- -------- -------- -------- --------
Other Income:
Regulated $ 287 $ 928 $ 891 $ 2,970 $ 1,339 $ 3,672
Non - Regulated -- -- (3) -- (3) --
Inter-segment Elimination (174) (585) (655) (1,166) (995) (1,289)
-------- -------- -------- -------- -------- --------
Consolidated Other Income $ 113 $ 343 $ 233 $ 1,804 $ 341 $ 2,383
-------- -------- -------- -------- -------- --------
Interest Expense:
Regulated $ 1,437 $ 1,298 $ 4,145 $ 3,766 $ 5,471 $ 5,047
Non - Regulated 25 62 69 176 97 214
Inter-segment Elimination (192) (181) (519) (442) (678) (562)
-------- -------- -------- -------- -------- --------
Consolidated Interest Expense $ 1,270 $ 1,179 $ 3,695 $ 3,500 $ 4,890 $ 4,699
-------- -------- -------- -------- -------- --------
Net Income:
Regulated $ 1,453 $ 2,994 $ 3,703 $ 7,141 $ 4,625 $ 8,516
Non - Regulated 67 190 245 429 539 393
Inter-segment Elimination 17 (403) (136) (724) (317) (727)
-------- -------- -------- -------- -------- --------
Consolidated Net Income $ 1,537 $ 2,781 $ 3,812 $ 6,846 $ 4,847 $ 8,182
-------- -------- -------- -------- -------- --------
Capital Expenditures:
Regulated 4,037 $ 5,013 $ 9,405 $ 15,395 $ 17,280 $ 22,899
Non - Regulated 7 -- 527 147 539 154
Inter-segment Elimination -- -- -- --
-------- -------- -------- -------- -------- --------
Total Capital Expenditures $ 4,044 $ 5,013 $ 9,932 $ 15,542 $ 17,819 $ 23.053
-------- -------- -------- -------- -------- --------
As of As of
September 30, December 31,
2000 1999
--------- ---------
Assets:
Regulated $ 236,499 $ 231,650
Non - Regulated 3,074 2,405
Inter-segment Elimination
(19,930) (19,019)
--------- ---------
Consolidated Assets $ 219,643 $ 215,036
-9-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations - Three Months Ended September 30, 2000
Operating revenues fell $1.0 million for the quarter due to weather related
consumption decreases in our New Jersey service territory. Continued customer
growth in our Delaware operations helped to offset the effect of similar
consumption decreases. Our customer base in Delaware grew by over 23%, which
includes the acquisition of 12 mobile home park water systems in early 2000.
Operating expense declined by $0.1 million, which reflects a $0.3 million
decline in Federal income taxes and includes higher water treatment costs of
$0.2 million. Depreciation expense increased 14.4% over the same period from
last year. The improvements to Middlesex primary treatment facility, the Carl J.
Olsen Treatment Plant (CJO Plant), were placed in service July 1999 causing most
of the increase in depreciation expense. Other taxes declined due to lower
revenue related taxes for New Jersey revenues.
Other income fell by $0.2 million compared to the same three-month period in
1999. With the completion of the CJO Plant, we ceased recording an Allowance for
Funds Used During Construction (AFUDC), which resulted in a decrease of just
under $0.2 million. Interest income decreased due to a lower level of funds
available for short-term investment.
Net income fell 44.7% to $1.5 million due mostly to the benefit of the net
financing activity realized during the construction phase of the CJO Plant
upgrade in the prior year and higher operations costs.
The preferred stock dividend requirement decreased by 18% as a result of the
partial exercise of the conversion feature of the $8.00 Series of Preferred
Stock in late 1999.
Results of Operations - Nine Months Ended September 30, 2000
Operating revenues rose $0.5 million or 1.3% for the year. The 1999 rate
increases for our New Jersey operations, which accounted for $2.0 million, were
completely offset by weather related consumption decreases. Customer growth in
our Delaware operations contributed $0.5 million.
Operations expenses rose $1.8 million or 5.6%, which is attributable to all
operating categories except income taxes. Some of the more significant increases
were for water treatment costs, which increased $0.6 million and labor and
benefits, which added $0.5 million.
Depreciation expense increased $0.7 million or 25.9% as a result of the CJO
Plant completion in July 1999.
-10-
The expense for Federal income taxes fell $0.6 million reflecting lower earnings
during the year.
Other income fell $1.6 million with lower AFUDC accounting for approximately
$1.2 million of the decline and lower earnings on excess funds falling by $0.4
million.
Net income fell 44.3% to $3.8 million due mostly to the benefit of the net
financing activity realized during the construction phase of the CJO Plant
upgrade in the prior year, higher operations costs and increased depreciation
expense.
The 19.4% decrease in preferred stock dividend requirements reflects the partial
exercise of the conversion feature of the $8.00 Series of Preferred Stock in
late 1999.
Results of Operations - Twelve Months Ended September 30, 2000
Operating revenues rose $2.5 million or 4.9% for the twelve-month period. The
1999 rate increases for our New Jersey operations accounted for $3.2 million
Current year weather patterns and last year's mid-summer drought restrictions
decreased our New Jersey consumption revenues by $2.4 million. A one-time refund
to a large industrial customer of Middlesex also reduced revenues by $0.7
million. Customer and consumption growth in our Delaware operations contributed
an additional $0.6 million to revenues. Contract services revenues for the
operation of the Perth Amboy water and wastewater systems increased $1.9
million. USA-PA initiated services under this contract on January 1, 1999.
Operating expenses for the twelve months increased 8.9% or $3.6 million.
Forty-four percent of the increase is due to a full years worth of costs
associated with the service contract to operate the water and wastewater systems
of Perth Amboy. There were also increases in water treatment costs of $ 0.9
million, labor and benefits of $ 0.6 million,. Maintenance expenses increased
12.0% due to increased emergency repairs for main and service breaks in both New
Jersey and Delaware. Most of the depreciation expense increase of $1.0 million
or 27.8% was a result of the CJO Plant completion in July 1999.
Taxes other than income taxes increased $0.2 million. Revenue related taxes were
up due to the higher rate related revenues in New Jersey.
Income taxes fell 21.6%, which reflects current lower earnings. The decline was
somewhat offset by lower deferred tax benefits in the current period.
Other income fell $2.0 million with lower AFUDC accounting for approximately
$1.6 million of the decline and lower earnings on excess funds accounting for
the balance of the decline.
Net income fell 40.7% to $4.8 million due mostly to the benefit of the net
financing activity realized during the construction phase of the CJO Plant
upgrade in the prior year, higher operations costs and increased depreciation
expense.
The 19.6% decrease in preferred stock dividend requirements reflects the partial
exercise of the conversion feature of the $8.00 Series of Preferred Stock in
late 1999.
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Capital Resources
The Company's capital program for 2000 is estimated to be $14.4 million and
includes $4.0 million for water system additions and improvements for our
Delaware systems and $3.0 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 160 miles of unlined mains in the 670
mile Middlesex System. Final expenditures on the upgrade to the CJO Plant are
estimated at $2.2 million. The capital program also includes $5.2 million for
scheduled upgrades to our existing systems in New Jersey. The scheduled upgrades
consist of $1.1 million for mains, $0.8 million for service lines, $0.4 million
for meters, $0.3 million for hydrants, $0.1 million for computer systems and
$2.5 million for various other items.
Liquidity
Middlesex issued $4.5 million of First Mortgage Bonds in November 1999 through
the New Jersey State Revolving Fund (SRF). $2.2 million of that financing will
be used to cover the cost of the 2000 RENEW Program. The balance will be used to
fund the 2001 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 $9.9 million have been incurred during the nine
months ended September 30, 2000. The Company may also utilize short-term
borrowings through $18.0 million of available lines of credit it has with two
commercial banks for working capital purposes. At September 30, 2000, there was
$6.0 million outstanding against the lines of credit.
Accounting Standards
In June 2000, The Financial Accounting Standards Board (FASB) amended 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 will adopt this accounting standard on January 1, 2001.
The Company expects the adoption of this Standard will not have a material
impact on the financial statements.
Outlook
Earnings for 2000 are expected to be at least 35% percent below calendar year
1999 results. In addition, to the discussion in this report on results of
operations for nine months, other factors will impact our earnings over the last
quarter of the year. Although not as significant as during the normally high
demand summer months, we expect continued lower consumption due to the unusual
weather patterns experienced in our service territories.
Less than anticipated rate relief in Delaware will reduce our ability to earn a
fair and reasonable return on our investment. The Public Service Commission has
tentatively approved a 2.76% increase which compares unfavorably to the 21.2%
requested increase (See Note 2 to the Consolidated Financial Statements). We
have filed for rate relief in our regulated New Jersey franchise areas, but a
decision is not expected until after the close of the year 2000.
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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 $0.2 million of the current portion of four 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.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: No. 27, Financial Data Schedule.
(b) Reports on Form 8-K: None
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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: November 14, 2000 A. Bruce O'Connor
Vice President and Controller
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