SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-422
For the Fiscal Year ended December 31, 2000
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MIDDLESEX WATER COMPANY
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(Exact name of registrant as specified in its charter)
New Jersey 22-1114430
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1500 Ronson Road, Iselin, New Jersey 08830-3020
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(Address of principal executive offices) (Zip Code)
(732) 634-1500
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each Class on which registered
- ------------------- ----------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No par Value
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [ X ] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant at March 16, 2001 was $154,881,558 based on the closing market price
of $30.625 per share.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Class Outstanding at March 16, 2001
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Common Stock, No par Value 5,057,357
Documents Incorporated by Reference
Proxy Statement to be filed in connection with the Registrant's Annual Meeting
of Shareholders to be held on May 23, 2001 as to Part III.
PART I
Item 1. Business
Overview
Middlesex Water Company was incorporated as a water utility company in 1897 and
operates water utility systems in central and southern New Jersey and in
Delaware as well as a wastewater utility in southern New Jersey. The water
utility system in central New Jersey, which we call the "Middlesex System,"
produced 76.3% of the Company's 2000 revenues. The Middlesex System treats,
stores and distributes water for residential, commercial, industrial and fire
prevention purposes.
Our Middlesex System provides water services to approximately 57,000 retail
customers, primarily in eastern Middlesex County, New Jersey and provides water
on a wholesale basis under contract to the Township of Edison, the Boroughs of
Highland Park and Sayreville and both the Old Bridge and the Marlboro Township
Municipal Utilities Authorities. Under a special contract, the Middlesex System
also provides water treatment and pumping services to the Township of East
Brunswick.
The Middlesex System's retail customers are located in an area of approximately
55 square miles in Woodbridge Township, the Boroughs of Metuchen and Carteret,
the City of South Amboy, portions of Edison Township and the Borough of South
Plainfield in Middlesex County and a portion of the Township of Clark in Union
County. The retail customers include a mix of residential customers, large
industrial concerns and commercial and light industrial facilities. These retail
customers are located in generally well developed areas of central New Jersey.
The contract customers of the Middlesex System comprise an area of approximately
141 square miles with a population of approximately 267,000. Contract sales to
Edison, Sayreville, Old Bridge and Marlboro are supplemental to the existing
water systems of these customers. The State of New Jersey in the mid-1980's
approved plans to increase available surface water supply to these and other
municipalities in the South River Basin area of the State through contracts with
water suppliers outside the South River Basin. The State saw this as a way to
reduce the use of ground water and depletion of aquifers. Our long-term
contracts to pump treated surface water to East Brunswick, Marlboro, Old Bridge
and Sayreville are consistent with the State approved plan.
We have four wholly-owned subsidiaries:
o Tidewater Utilities, Inc. ("Tidewater"), provides water service
to approximately 15,500 retail customers for residential,
commercial and fire protection purposes in over 120 separate
community water systems in Kent, Sussex and New Castle Counties,
Delaware. Public Water Supply Company, Inc., formerly a
wholly-owned subsidiary of Tidewater, was merged into Tidewater
effective February 1, 2000. The combined entity will continue
under the Tidewater name. We refer to our Delaware operations as
the "Tidewater Systems". The Tidewater Systems produced
approximately 9.1% of our total revenues in 2000. White Marsh
Environmental Systems, Inc., a wholly-owned subsidiary of
Tidewater, owns the office building that Tidewater uses as its
business office and also provides operations and maintenance
contract services to area wastewater systems.
o Pinelands Water Company services 2,300 residential customers in
Burlington County, New Jersey. We refer to this water utility as
the "Pinelands System." The Pinelands System produced
approximately 0.7% of our total revenues in 2000.
1
o Pinelands Wastewater Company services approximately 2,300
primarily residential retail customers and, under contract, one
municipal wastewater system in Burlington County, New Jersey with
about 200 residential customers. We refer to this wastewater
utility as the "Pinelands Wastewater System." The Pinelands
Wastewater System produced approximately 1.3% of our total
revenues in 2000.
o Utility Service Affiliates, Inc. (USA) - On December 2, 1999,
Middlesex implemented a franchise agreement with the City of
South Amboy (South Amboy) to provide water service and install
water system facilities in South Amboy. The agreement between
Middlesex and South Amboy, originally signed in December 1998,
received approval from the Board of Public Utilities (BPU) on
November 18, 1999. The implementation of the franchise agreement
has significantly impacted two existing agreements entered into
by the parties in 1994.
The first agreement was for the sale of water to South Amboy on a
wholesale basis. The second agreement, which included Middlesex's
wholly-owned subsidiary USA, was a contract to provide management
services for a fixed fee. In conjunction with the franchise
agreement, the water sales contract was eliminated. In addition,
the management services contract was extended through May 2045
and was significantly modified to correspond with the terms and
conditions of the franchise agreement. Certain advances made by
USA to South Amboy at the commencement of the management services
contract have been forgiven in consideration for the franchise
agreement. Fixed fee revenues recognized under the original
contract have been eliminated in lieu of revenues derived from
providing water to South Amboy's 2,600 customers.
o Utility Service Affiliates (Perth Amboy) Inc., which we refer to
as ( "USA-PA"), along with Middlesex Water Company, operates and
maintains the City of Perth Amboy's water system and the
wastewater system under a 20 year contract. USA-PA is paid a
fixed fee and a variable fee based on increased system billings.
Fixed fee payments to USA-PA in the agreement rise from $6.4
million in the first year to $9.7 million by year 20. The
agreement also requires USA-PA to lease from the City all of the
City's employees who currently work on the City's water system or
wastewater system. In connection with the agreement, the City of
Perth Amboy, through the Middlesex County Improvement Authority,
issued $68.0 million in three series of bonds. One of those
series of bonds, in principal amount of $26.3 million, was
guaranteed by the Company. The City guaranteed the two other
series of bonds. The Company also guaranteed the performance of
our subsidiary, USA-PA. USA-PA entered into a subcontract with a
sewer contracting firm for the operation and maintenance of the
City's wastewater system. City employees who now work on the
City's wastewater system are subleased by the subcontractor from
USA-PA. USA-PA began to operate and maintain the City's systems
on January 1, 1999. USA-PA produced approximately 12.5% of our
total revenues in 2000.
2
Financial Information
Consolidated operating revenues and operating income relating primarily to
operating water utilities are as follows:
(000's)
Years Ended December 31,
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2000 1999 1998
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Operating Revenues $54,477 $53,497 $43,058
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Operating Income $ 9,938 $10,665 $ 9,149
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Operating revenues were earned from the following sources:
Years Ended December 31,
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2000 1999 1998
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Residential 37.9% 36.9% 41.4%
Commercial 10.4 10.2 11.4
Industrial 13.1 12.1 15.8
Fire Protection 10.7 10.2 11.5
Contract Sales 14.3 15.6 17.5
Contract Operations 12.6 14.0 1.1
Other 1.0 1.0 1.3
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TOTAL 100.0% 100.0% 100.0%
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Water Supplies and Contracts
Our water utility plant consists of sources of supply, pumping, water treatment,
transmission, distribution and general facilities located in New Jersey and
Delaware. Our New Jersey and Delaware water supply systems are physically
separate and are not interconnected. In addition, in New Jersey, the Pinelands
System is not interconnected with the Middlesex System. In the opinion of
management, we have adequate sources of water supply to meet the current and
anticipated future service requirements of our present customers in New Jersey
and Delaware.
Middlesex System:
Our Middlesex System obtains water from both surface sources and from wells
which we call groundwater sources. In 2000, surface sources of water provided
approximately 70.2% of the Middlesex System's water supply; groundwater from
wells provided approximately 22.4% and the balance of 7.4% was purchased from
Elizabethtown Water Company ("Elizabethtown"), a nonaffiliated water utility.
Middlesex System's distribution storage facilities are used to supply water to
its customers at times of peak demand, outages and emergencies.
3
The principal source of surface supply for the Middlesex System is the Delaware
and Raritan Canal (D&R Canal), owned by the State of New Jersey and operated as
a water resource by the New Jersey Water Supply Authority ("NJWSA"). Under a
multistate compact, the NJWSA is entitled to divert water from the Delaware
River into the D&R Canal.
This supply, together with water in the Round Valley and Spruce Run Reservoir
System, provide a safe yield of 225 million gallons per day (mgd), which
supplies our Middlesex System and other large water purveyors contractually
regulated by the NJWSA. We have contracts with the NJWSA to divert a maximum of
20 mgd of untreated water from the D&R Canal. In addition, we have a one-year
agreement for an additional 5 mgd, renewed through April 30, 2001. We also have
an agreement with Elizabethtown, effective through December 31, 2005, which
provides for the minimum purchase of 3 mgd of treated water with provisions for
additional purchases. This Contract also allows us to purchase additional water
from Elizabethtown on an emergent basis.
Our Middlesex System also derives water from groundwater sources equipped with
electric motor driven deep well turbine type pumps. The Middlesex System has 31
wells, which provide an aggregate pump capacity of approximately 27 mgd.
The Middlesex System's groundwater sources are:
2000 Maximum
Daily Pumpage Pump
No. of (millions of Capacity
Middlesex System Wells gallons) (mgd) Location
---------------- ------ -------- ------ --------
Park Avenue 15 8.6 15.2 South Plainfield
Tingley Lane North 4 3.0 2.8 Edison
Tingley Lane South 5 2.5 2.6 Edison
Spring Lake 4 1.1 2.8 South Plainfield
Sprague Avenue #1 1 1.2 1.1 South Plainfield
Sprague Avenue #2 1 1.3 1.3 South Plainfield
Maple Avenue 1 0.8 0.9 South Plainfield
--
Total 31
==
Tidewater Systems:
Water supply to Delaware customers is derived from the Tidewater Systems' 180
wells, which provided overall system delivery of 803 million gallons during
2000. The Tidewater Systems do not have a central treatment facility. Several of
its water systems in Sussex County and New Castle County, Delaware have
interconnected transmission systems. Treatment is by chlorination and, in some
cases, pH correction and filtration.
Pinelands System:
The Pinelands System obtains its water supply from four wells drilled into the
Mt. Laurel aquifer. The wells are equipped with three electric motor driven,
deep well turbine pumps and one is equipped with an electric motor driven
submersible pump. Disinfection is done at individual well sites, which are
located in Southampton Township, New Jersey. The wells have an aggregate pump
capacity of 2.2 mgd. In 2000, the maximum daily pumpage was 1.4 million gallons.
4
Pinelands Wastewater System:
The Pinelands Wastewater System discharges into the South Branch of the Rancocas
Creek through a tertiary treatment plant that provides clarification,
sedimentation, filtration and disinfection. The total capacity of the plant is
0.5 mgd. Current average flow is 0.3 mgd. Pinelands has a current valid
discharge permit issued by the New Jersey Department of Environmental Protection
("DEP") .
Competition
Our business in our franchised service areas is substantially free from direct
competition with other public utilities, municipalities and other entities.
However, our ability to provide some contract water supply and wastewater
services and operations and maintenance services is subject to competition from
other public utilities, municipalities and other entities. Although the
Tidewater System has been granted an exclusive franchise for each of its
existing community water systems, its ability to expand service areas has been
affected by the Delaware Department of Natural Resources and Environmental
Control (DNREC) awarding franchises to other regulated water purveyors,
including franchises granted to service community water systems around and in
between the Tidewater Systems service areas.
Regulation
We are subject to regulation as to our rates, services and other matters by the
states of New Jersey and Delaware with respect to utility service within those
states and with respect to environmental and water quality matters. We are also
subject to environmental and water quality regulation by the United States
Environmental Protection Agency ("EPA").
Regulation of Rates and Services
New Jersey operations are subject to regulation by the BPU. Similarly, our
Delaware operations are subject to regulation by the Public Service Commission
(PSC). These regulatory authorities have jurisdiction with respect to rates,
service, accounting procedures, the issuance of securities and other matters. In
determining our rates, the BPU and the PSC consider the income, expenses, rate
base of property used and useful in providing service to the public and a fair
rate of return on that property. Rate determinations by the BPU do not guarantee
particular rates of return to the Company for our New Jersey operations nor do
rate determinations by the PSC guarantee particular rates of return for our
Delaware operations. Thus, we may not achieve the rates of return allowed by the
BPU or the PSC.
Three base rate increase petitions were filed with the BPU during the year.
Pinelands Pinelands
Middlesex Water Wastewater
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Date Filed June 22, 2000 July 7, 2000 July 7, 2000
Amount $ 6.6 million $ 0.1 million $ 0.2 million
% Increase 15.92% 31.30% 22.30%
Return on Equity 11.80% 12.00% 12.00%
Last Increase May 13, 1999 January 23, 1999 January 23, 1999
5
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 23, 1997.
The discovery phase and the evidentiary hearings have been completed for all
cases. Legal briefs have been filed for all three cases. The Administrative Law
Judge assigned to the Middlesex case issued an oral decision on March 19, 2001
recommending an 8.45% or $3.5 million increase. Initial decisions for the
Pinelands cases are not expected until mid-April 2001. Ultimate resolutions by
the BPU for the three cases are not expected until the middle of the second
quarter of 2001.
On September 20, 1999, Tidewater and Public Water Supply Company (Public)
jointly filed a petition with the PSC for a base rate increase of $1.7 million
or 38.3%. The increase is necessary to cover additional capital improvements and
increased operating and maintenance costs. As prescribed by PSC regulations,
Tidewater was granted an interim rate increase, subject to refund, of 14.8%,
effective November 19, 1999. Concurrently with the rate increase request, an
application was filed and approved by the PSC for a corporate merger of
Tidewater and Public. Public merged into Tidewater effective February 1, 2000.
The last increase in base rates for Tidewater and Public were in 1991 and 1992,
respectively.
On March 31, 2000, Tidewater amended its base rate increase petition from 38.3%
to 21.2%. 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 2.67% 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.
Because Tidewater implemented a 14.8% interim rate increase on November 19,
1999, refunds were given to its customers, along with interest, by way of
billing credits, for the difference between interim and approved rates,
retroactive to the date interim rates were put into effect.
Water Quality and Environmental Regulations
Both the EPA and the DEP regulate our operations in New Jersey with respect to
water supply, treatment and distribution systems and the quality of the water,
as do the EPA, the DNREC, and the Delaware Department of Health with respect to
operations in Delaware.
Federal, Delaware and New Jersey regulations adopted over the past five years
relating to water quality require expanded types of testing by the Company to
insure that its water meets State and Federal water quality requirements.
In addition, environmental regulatory agencies are reviewing current regulations
governing the limits of certain organic compounds found in the water as
byproducts of treatment. The Company believes the CJO Plant upgrade and
expansion will allow the Company to be in a stronger position to meet any such
future regulations with regard to its Middlesex System. Regular testing of our
water demonstrates that we are in compliance with existing Federal, New Jersey
and Delaware primary water quality standards.
6
The DEP and the Delaware Department of Health monitor the activities of the
Company and review the results of water quality tests performed by the Company
for adherence to applicable regulations. Other regulations applicable to the
Company include the Lead and Copper Rule, the maximum contaminant levels
established for various volatile organic compounds, the Federal Surface Water
Treatment Rule, and the Total Coliform Rule.
Employees
As of December 31, 2000, we had a total of 143 employees in New Jersey, and a
total of 40 employees in Delaware. No employees are represented by a union.
Management considers its relations with its employees to be satisfactory. Wages
and benefits are reviewed annually and are considered competitive within the
industry.
Executive Officers of Middlesex Water Company
Walter J. Brady - age 59; Senior Vice President-Administration; term expires May
2001. Mr. Brady, who joined the Company in 1962, was elected Assistant
Secretary-Assistant Treasurer in 1979, Assistant Vice President in 1982, Vice
President-Human Resources in 1987, Vice President-Administration in 1989 and
Senior Vice President of Administration in 1998. He serves as Plan Administrator
of the Pension Plan. He is a Director of Tidewater Utilities, Inc., White Marsh
Environmental Systems, Inc., Pinelands Water Company, Pinelands Wastewater
Company and Utility Service Affiliates, Inc., and a Vice President and Director
of Utility Service Affiliates (Perth Amboy) Inc.
A. Bruce O'Connor - age 42; Vice President and Controller; term expires May
2001. Mr. O'Connor, a Certified Public Accountant, joined the Company in 1990 as
Assistant Controller and was elected Controller in 1992 and Vice President in
1995. He assumed the designated title of Vice President and Controller and Chief
Financial Officer in May 1996. He is responsible for financial reporting,
customer service, rate cases, cash management and financings. He was formerly
employed by Deloitte & Touche LLP, a certified public accounting firm from 1984
to 1990. He is Treasurer of Tidewater Utilities, Inc., White Marsh Environmental
Systems, Inc., and Utility Service Affiliates, Inc., Vice President and Director
of Pinelands Water Company and Pinelands Wastewater Company and Vice President
and Treasurer of Utility Service Affiliates (Perth Amboy) Inc.
Marion F. Reynolds - age 61; Vice President, Secretary and Treasurer; term
expires May 2001. Ms. Reynolds, who had been Secretary-Treasurer since 1987 was
elected Vice President, Secretary and Treasurer in 1993. Prior to her election
she had been employed by Public Service Electric and Gas Company, Newark, New
Jersey since 1958, and was elected Assistant Corporate Secretary in 1976. She is
Secretary of Tidewater Utilities, Inc. White Marsh Environmental Systems, Inc.
and Utility Service Affiliates (Perth Amboy) Inc. and Secretary/Treasurer of
Pinelands Water Company and Pinelands Wastewater Company and Secretary and a
Director of Utility Service Affiliates, Inc.
Richard A. Russo - age 55; Executive Vice President; term expires May 2001. Mr.
Russo, who had been Vice President-Operations since 1989 was elected Executive
Vice President in 1995 and is responsible for engineering, water production,
water treatment and distribution maintenance. He has been a director of
Middlesex since 1994. He was formerly employed by Trenton Water Works as General
Superintendent and Chief Engineer since 1979. He is President and Director of
Tidewater Utilities, Inc., White Marsh Environmental Systems, Inc., Pinelands
Water Company and Pinelands Wastewater Company. He is Executive Vice President
and Director of Utility Service Affiliates, Inc. and Utility Service Affiliates
(Perth Amboy) Inc. Mr. Russo also serves as Vice President and a Director of
Sussex Shores Water Company.
7
Dennis G. Sullivan - age 59; Vice President and General Counsel, Assistant
Secretary-Assistant Treasurer; term expires May 2001. Mr. Sullivan has been a
Director of Middlesex since October 1999. Mr. Sullivan was hired in 1984 as
Corporate Attorney, responsible for general corporate internal legal matters. He
was elected Assistant Secretary-Assistant Treasurer in 1988 and Vice President
and General Counsel in 1990. He is Assistant Secretary and Assistant Treasurer
and a Director of Tidewater Utilities, Inc., Vice President, Assistant Secretary
and Director of White Marsh Environmental Systems, Inc., a Director of Pinelands
Water Company and Pinelands Wastewater Company, a Director and Assistant
Secretary of Utility Service Affiliates, Inc., and a Director and Assistant
Secretary of Utility Service Affiliates (Perth Amboy) Inc.
J. Richard Tompkins - age 62; Chairman of the Board and President; term expires
May 2001. Mr. Tompkins was elected President of the Company in 1981 and was
elected Chairman of the Board in 1990. In 1979 he was employed by Associated
Utility Services, an independent utility consulting firm in New Jersey, as Vice
President. From 1962 to 1979 he was employed by Buck, Seifert & Jost,
Incorporated, consulting engineers in New Jersey and was appointed Vice
President in 1973. He is Chairman and Director of Tidewater Utilities, Inc.,
White Marsh Environmental Systems, Inc., Pinelands Water Company and Pinelands
Wastewater Company; and Director and President of Utility Service Affiliates,
Inc. and Utility Service Affiliates (Perth Amboy) Inc. He is also a Director of
New Jersey Utilities Association and Raritan Bay Healthcare Foundation.
Ronald F. Williams - age 52; Vice President-Operations; term expires May 2001.
Mr. Williams was hired in March 1995 as Assistant Vice President-Operations,
responsible for the Company's Engineering and Distribution Departments. He was
elected Vice President-Operations in October 1995. He was formerly employed with
the Garden State Water Company as President and Chief Executive Officer since
1991. He is Director and Vice President of Utility Service Affiliates, Inc., and
Utility Service Affiliates (Perth Amboy) Inc.
Item 2. Properties
The water utility properties of our systems consist of source of supply,
pumping, water treatment, transmission and distribution and general facilities.
Middlesex System:
The Middlesex System's principal source of surface supply is the D&R Canal owned
by the State of New Jersey and operated as a water resource by the NJWSA.
Water is withdrawn from the D&R Canal at New Brunswick, New Jersey through our
intake and pumping station located on State owned land bordering the Canal. It
is transported through our 54-inch supply main for treatment and distribution at
the CJO Plant. Facilities at the CJO Plant consist of source of supply, pumping,
water treatment, transmission, storage, laboratory and general facilities. We
monitor water quality at the CJO Plant, at each well field and throughout the
distribution system to determine that federal and state water quality standards
are met.
The design capacity of the intake and pumping station in New Brunswick, New
Jersey, is 80 mgd. The four electric motor driven vertical turbine pumps
presently installed have an aggregate design capacity of 82 mgd. The design
capacity of our raw water supply main is 55 mgd. We also have a 58,600 foot and
a 38,800 foot transmission main and a long term, nonexclusive "wheeling
agreement" with the East Brunswick system, all used to transport water to
several of our contract customers.
8
The CJO Plant includes chemical storage and chemical feed equipment, two dual
rapid mixing basins, four upflow clarifiers, which are also called
Superpulsators, four underground reinforced concrete chlorine contact tanks,
twelve rapid filters containing gravel, sand and anthracite for water treatment
and a steel washwater tank. The Plant also includes a computerized Supervisory
Control and Data Acquisition (SCADA) system to monitor and control the CJO Plant
and the water supply and distribution system in the Middlesex System. The firm
design capacity of the CJO Plant is now 45 mgd (60 mgd maximum capacity). The
main pumping station at the CJO Plant has a design capacity of 90 mgd. The four
electric motor driven vertical turbine pumps presently installed have an
aggregate capacity of 72 mgd.
In addition to the main pumping station at the CJO Plant, there is a 15 mgd
auxiliary pumping station located in a separate building. It has a dedicated
substation and emergency power supply provided by a diesel-driven generator. It
pumps from the 10 million gallon distribution storage reservoir directly into
the distribution system.
We have a RENEW Program in the Middlesex System to rehabilitate sections of the
distribution system which contain unlined mains. These sections are generally in
the older areas of the system. The rehabilitation includes the cleaning and
lining of unlined cast iron mains; the replacement and/or upgrading of some
selected mains; and the replacement of valves and hydrants. In the Middlesex
System, there are approximately 150 miles of unlined mains of the total 695
miles. A similar program has been started in the South Amboy section of our
Middlesex System, which has a total of 24 miles of water mains. Since the RENEW
program was initiated in 1995, 40.1 miles of mains have been rehabilitated
including 1.1 miles in South Amboy. .
Middlesex System's storage facilities consist of a 10 mg reservoir at the CJO
Plant, 5 mg and 2 mg reservoirs in Edison, a 5 mg reservoir in Carteret and a 2
mg reservoir at the Park Avenue Well Field.
We own the properties in New Jersey on which Middlesex System's 31 wells and the
CJO Plant are located. We also own our headquarters complex at 1500 Ronson Road,
Iselin, New Jersey, consisting of a 27,000 square foot, two story office
building and an adjacent 16,500 square foot maintenance facility.
Tidewater Systems:
The Tidewater Systems' storage facilities include 31 ground level storage tanks
with the following capacities: twenty-one 30,000 gallon tanks, two 25,000 gallon
tanks, three 125,000 gallon tanks, one 132,000 gallon tank, one 80,000 gallon
tank, one 35,000 gallon tank, one 85,000 gallon tank and one elevated storage
tank with a capacity of 300,000 gallons.
Our Delaware operations are managed from Tidewater's leased offices in Odessa,
Delaware and Millsboro, Delaware. Tidewater's office property, which is owned by
its wholly-owned subsidiary, White Marsh Environmental Systems, Inc., (White
Marsh) consists of a 2,400 square foot building situated on a one (1) acre lot.
In January 2000, White Marsh purchased two future office sites. A ten acre site
located in Dover will be the future location of Tidewater's primary business
office. A three acre site located in Millsboro will be used to operate the
southern portion of our territory and will replace the existing leased office.
Tidewater will maintain an office in Odessa, but on a smaller scale. We are
exploring several options for the existing Odessa property.
9
Pinelands System:
Pinelands Water Company owns well site properties, which are located in
Southampton Township, New Jersey. Pinelands Water storage facility is a 1.2 mg
standpipe.
Pinelands Wastewater System:
Pinelands Wastewater Company owns a 12-acre site on which its 0.5 mgd capacity
tertiary treatment plant is located.
Item 3. Legal Proceedings
A motel in our Middlesex service area in 1994, and again in 1997, suffered
outbreaks of Legionella. Claims resulting from the death of a motel guest from
Legionella in 1997 and claims by two other patrons alleging illness as a result
of their stay at the motel in 1997 have been brought against the motel and
against us. We have substantial insurance coverage, which we believe will be
sufficient for all claims in this matter other than for punitive damages. While
the outcome of this case remains uncertain, we believe that the final resolution
will not have a significant effect on financial condition or results of
operations.
The 1995 fire at a warehouse in our service territory resulted in multiple party
claims brought forth in the Superior Court for Middlesex County, New Jersey, as
well as, with the financial collapse of the principal tenant, in the Federal
Bankruptcy Court. The claims in the State Court action are for unspecified
amounts but include claims against us for insufficient water pressure and
supply. Under New Jersey case law, we will not have financial responsibility to
parties to the extent they receive payments under their own insurance policies.
We do not know either the total amount of claims against us or how much of that
amount will be covered by the parties' own insurance policies. We believe we
have substantial defenses to the claims against us although we do not have
insurance coverage for them.
The Company has been notified of a potential claim in excess of $10.0 million
involving the break of both a Company water line and an underground electric
power cable in close proximity to it. The power cable contained both electric
lines and petroleum based insulating fluid. The Company is insured for damages
except for damages resulting from pollution discharge, which the Company is
advised is approximately $0.2 million. Causation and liability have not been
established.
10
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters Price Range of Common Stock
The following table shows the range of closing prices for the Common Stock on
the NASDAQ Stock Market for the calendar quarter indicated.
2000 High Low Dividend
---- ---- --- --------
First Quarter $32.0000 $25.0000 $0.3050
Second Quarter 29.7500 27.2500 0.3050
Third Quarter 30.0000 26.9375 0.3050
Fourth Quarter 33.9375 27.0000 0.3100
1999 High Low Dividend
---- ---- --- --------
First Quarter $25 4375 $21.0000 $0.2950
Second Quarter 25.7500 21.6250 0.2950
Third Quarter 39.5000 25.0000 0.2950
Fourth Quarter 35.8750 29.5000 0.3050
Approximate Number of Equity Security Holders as of December 31, 2000
- ---------------------------------------------------------------------
Number of
Title of Class Record Holders
-------------- --------------
Common Stock, No Par Value 2,141
Cumulative Preferred Stock, No Par Value:
$7 Series 15
$4.75 Series 1
Cumulative Convertible Preferred Stock, No Par Value:
$7 Series 4
$8 Series 3
Dividends
The Company has paid dividends on its Common Stock each year since 1912.
Although it is the present intention of the Board of Directors of the Company to
continue to pay regular quarterly cash dividends on its Common Stock, the
payment of future dividends is contingent upon the future earnings of the
Company, its financial condition and other factors deemed relevant by the Board
of Directors at its discretion.
The Common Stock of the Company is traded on the NASDAQ Stock Market under the
symbol MSEX.
11
Item 6. Selected Financial Data
Consolidated Selected Financial Data, page 20.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The companies referred to herein are defined in Note 1(a), Notes to the
Consolidated Financial Statements.
Liquidity and Capital Resources
The Company's actual capital expenditures for 1999 and 2000 and projected
requirements through 2003 are detailed as follows:
(Millions of Dollars)
1999 2000 2001 2002 2003
---- ---- ---- ---- ----
CJO Plant $ 12.0 $ 1.2 $ 1.8 $ 2.2 $ 5.0
Delaware Systems 3.1 4.9 11.6 7.8 7.8
RENEW Program 2.1 3.1 -- 2.5 2.5
Scheduled upgrades to
existing systems 7.3 4.3 6.9 6.8 6.2
----- ----- ----- ----- -----
Total $ 24.5 $ 13.5 $ 20.3 $ 19.3 $ 21.5
----- ----- ----- ----- -----
In 1999, Middlesex issued $4.5 million of First Mortgage Bonds through the New
Jersey State Revolving Fund (SRF), which included funds for the 2002 RENEW
Program. RENEW is our program to clean and cement line unlined mains in the
Middlesex System. There is a total of approximately 150 miles of unlined mains
in the 695 mile Middlesex System. We have applied for SRF financing for the 2003
RENEW program. If approved, First Mortgage Bonds would be issued in November
2001.
The remaining financing of our capital program may be a combination of internal
funds from Middlesex, long-term debt financing and common equity. We will
utilize our lines of credit until a balance is reached that can be cost
effectively mortgaged on a long-term basis. There are $18.0 million in total
lines of credit available with two commercial banks. At December 31, 2000, we
had $6.1 million of loans outstanding against those lines of credit. To the
extent possible, we will pursue long-term debt on a tax-exempt basis.
In the past, Middlesex has offered temporary discounts to plan participants for
optional cash payments and reinvested dividends under its dividend reinvestment
plan. This has proven to be an efficient mechanism to raise necessary equity
without the need for a full and more expensive common stock offering. We will
certainly consider the discount in our financing plans.
The Company currently has ten series of First Mortgage Bonds outstanding in the
aggregate principal amount of $79.0 million. The First Mortgage Bonds have been
issued under and secured by a mortgage indenture and supplements thereto, which
constitute a direct first mortgage lien upon substantially all of the property
of Middlesex. Tidewater, a wholly-owned subsidiary, borrowed funds under a $3.5
million, 8.05% Amortizing Secured Note due December 20, 2021. Approximately $3.3
million was outstanding under that note as of December 31, 2000.
12
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
2000 Compared to 1999
Operating revenues were up $1.0 million, which amounts to 1.8% over 1999.
Unusually mild and wet summer weather in New Jersey and Delaware caused
system-wide demand to be below average consumption. New Jersey revenue growth of
$1.9 million, due to rate increases, was offset by lower consumption revenue of
$1.4 million.
Our Delaware customer base grew by 23.4% to 15,500, which was the primary reason
for the $0.7 million increase in revenues in that system. A significant portion
of the customer growth represents the acquisition of twelve mobile home park
water systems. The small net 2.67% rate increase granted by the Delaware Public
Service Commission was negated by the below average customer consumption. In an
amended base rate filing, Tidewater had requested a 21.2% rate increase.
Revenues from operating the City of Perth Amboy's water and wastewater systems
fell $0.2 million, also due mostly to unusual weather patterns.
Total operating expenses rose almost 4.0% or $1.7 million over 1999. Under
operations expenses, the cost of water treatment grew by $0.6 million, employee
labor and benefits rose $0.6 million, uncollectible accounts written off rose
$0.1 million and legal and other outside services increased by $0.2 million. In
total, purchased water and power fell $0.2 million due to lower production. The
decline of less than $0.1 million in maintenance expenses would have been
greater except for a large number of unanticipated repairs to the recently
acquired mobile home park water systems in Delaware.
Depreciation expense jumped 21.0% or $0.8 million. In addition to the increase
to Utility Plant of $12.2 million during the year, also included is a full year
of depreciation on the $35.0 million upgrade to the Carl J. Olsen Water
Treatment Plant (CJO Plant).
Other income's decrease of $1.5 million represents the net financing activities
associated with the CJO Plant construction program reported in 1999. Allowance
for Funds Used During Construction (AFUDC) dropped $1.2 million, while interest
income on excess cash fell by $0.3 million.
The increase in total interest charges of $0.3 million represents a full year
impact of the First Mortgage Bonds issued during 1999, plus an increase in
short-term bank borrowings of $4.0 million.
Net Income fell 32.7% to $5.3 million. Although we expected that replicating
1999 results would be a challenge, clearly, three factors made that earnings
level untenable in 2000. Unusually mild summer weather in New Jersey and
Delaware caused system-wide production to drop by 2.7% or 0.5 billion gallons.
Inadequate rate relief in Delaware reduced expected revenues by $0.6 million.
Also in Delaware, unanticipated higher operating costs for labor, purchased
water, water treatment, customer service and maintenance reduced profitability.
13
Results of Operations
1999 Compared to 1998
Operating revenues were up $10.4 million or 24.2% over 1998. This significant
increase was attributable to several factors. USA-PA began providing services
under its 20-year management contract with the City of Perth Amboy, which
accounted for $7.0 million of the increased revenues. Rate increases for all our
regulated companies amounted to $3.8 million in additional revenues. Customer
growth in our Delaware service territory contributed $0.4 million. Drought
related consumption decreases in New Jersey and a one-time refund to a large
industrial user offset some of the current year increases in the amount of $0.8
million. Record water usage in New Jersey during July and early August was
completely offset by the statewide drought restrictions imposed by the Governor
of New Jersey on August 6, 1999. Generally, these restrictions were subsequently
lifted on September 27, 1999. At all times, Middlesex had adequate sources of
water to supply its customers. This fact, along with the Company's objection to
such a broad water restriction was communicated to State authorities. The
Company is continuing its effort to change the State procedures for drought
emergency declarations.
Total operating expenses also rose significantly over last year. The increase
over 1998 was $8.9 million or 26.3%. Operations and maintenance costs associated
with the services provided to the City of Perth Amboy accounted for $5.7
million. Purchased water costs were up $0.3 million, while purchased power
increased $0.1 million. Water treatment costs rose $0.3 million. Increased
staffing levels pushed labor and benefits up by $0.4 million. An unusual number
of emergency repairs, both in terms of quantity and severity, increased
maintenance by $0.5 million.
Depreciation expense jumped 18.3% or $0.6 million. The mid-year activation of
the improvements to the CJO Plant increased depreciable property by over $35.0
million.
Other taxes rose $0.8 million due mostly to revenue related taxes. The increase
in federal income taxes was $0.2 million or 6.3%. Deferred taxes on construction
related activities tempered the effect of the current tax expense.
Other income's slight increase of $0.1 million represents the net financing
activities associated with the CJO Plant construction program. AFUDC increased
by $0.3 million while interest income on excess cash fell by $0.2 million.
The increase in total interest charges of $0.3 million represents a full year
impact of the three series of First Mortgage Bonds issued during 1998.
Net income reached another record high by increasing $1.4 million or 20.8%. Even
with an increase of more than ten percent shares outstanding, due to the 0.5
million shares issued in December 1998, earnings per share also reached record
territory again. Basic earnings per share rose 8.5% to $1.54.
14
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% 31.30% 22.30%
Return on Equity 11.80% 12.00% 12.00%
Last Increase May 13, 1999 January 23, 1999 January 23, 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 23, 1997.
The discovery phase and the evidentiary hearings have been completed for all
cases. Legal briefs have been filed for all three cases. The Administrative Law
Judge assigned to the Middlesex cased issued an oral decision on March 19, 2001
recommending an 8.45% or $3.5 million increase. Initial decisions for the
Pinelands cases are not expected until mid-April 2001. Ultimate resolution by
the BPU for the three cases are not expected until the middle of the second
quarter of 2001.
On September 20, 1999, Tidewater and Public jointly filed a petition with the
Delaware Public Service Commission (PSC) for a base rate increase of $1.7
million or 38.3%. The increase is necessary to cover additional capital
improvements and increased operating and maintenance costs. As prescribed by PSC
regulations, Tidewater was granted an interim rate increase, subject to refund,
of 14.8%, effective November 19, 1999. Concurrently with the rate increase
request, an application was filed and approved by the PSC for a corporate merger
of Tidewater and Public. Public merged into Tidewater effective February 1,
2000. The last increase in base rates for Tidewater and Public were in 1991 and
1992, respectively.
On March 31, 2000, Tidewater amended its base rate increase petition from 38.3%
to 21.2%. 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 2.67% 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.
Because Tidewater implemented a 14.8% interim rate increase on November 19,
1999, refunds were given to its customers, along with interest, by way of
billing credits, for the difference between interim and approved rates,
retroactive to the date interim rates were put into effect.
In May 1999, the BPU approved an 11.5% or $4.3 million base rate increase for
Middlesex. Under the approval, the allowed return on equity is 10.8% with an
overall rate of return of 8.21%. The purpose of the increase is to allow
Middlesex the opportunity to earn a return on and recover the capital investment
15
in the upgrade and expansion of the CJO Plant. This project was necessary to
meet the new and anticipated regulatory standards concerning water quality and
to increase the plant's production capacity. The Company's original rate
request, which was filed in September 1998, was for $8.0 million.
On January 1, 1999, USA-PA began operating the City of Perth Amboy's water and
wastewater systems under a 20-year agreement.
Perth Amboy has a population of 40,000 and has approximately 8,600 water and
wastewater customers. The agreement is being effected under New Jersey's Water
Supply Public-Private Contracting Act and the New Jersey Wastewater
Public/Private Contracting Act. Under the agreement, USA-PA receives a fixed fee
and a variable fee based on increased system billing. Fixed fee payments began
at $6.4 million in the first year and will increase to $9.7 million in year 20.
The agreement also requires USA-PA to lease from Perth Amboy all of its
employees who currently work on the Perth Amboy water and wastewater systems. In
connection with the agreement, Perth Amboy, through the Middlesex County
Improvement Authority, issued approximately $68.0 million in three series of
bonds on January 28, 1999. The Company guaranteed one of those series of bonds,
in the principal amount of approximately $26.3 million. Perth Amboy guaranteed
the two other series of bonds.
In addition to the agreement with Perth Amboy, USA-PA simultaneously entered
into a 20-year subcontract with a sewer contracting firm for the operation and
maintenance of the Perth Amboy wastewater system. The subcontract requires the
sharing of certain fixed and variable fees and operating expenses.
In December 1999, Middlesex closed on a franchise agreement with the City of
South Amboy (South Amboy) to provide water service and install water system
facilities in South Amboy. The agreement between Middlesex and South Amboy,
originally signed in December 1998, received approval from the BPU on November
18, 1999. See Note 4 to the Consolidated Financial Statements.
Accounting Standards
The Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and
Hedging Activities," as amended. This Statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts.
The adoption of this statement on January 1, 2001, had no impact on the
financial statements.
Qualitative and Quantitative Disclosures About 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 three existing long-term
debt instruments will mature. Combining this amount with the $6.1 million in
short-term debt outstanding at December 31, 2000, and applying a hypothetical
change in the rate of interest charged by 10% on those borrowings, would not
have a material effect on earnings.
16
Outlook
Revenues are expected to continue to grow in 2001. Anticipated customer growth
in Delaware and Tidewater's ability to have the 0.75% equity credit removed by
the PSC should enhance earnings. The Company continues to explore viable plans
to streamline operations and reduce costs, particularly in Delaware where
customer growth continues to exceed industry averages. Part of the challenge is
that our Delaware operations are a combination of over 64 stand-alone production
and distribution systems serving 150 communities.
The level of earnings will be impacted by the ultimate outcome of the New Jersey
base rate cases currently under review by the BPU. Earnings from non-regulated
operations are expected to remain constant. As evident in 2000, revenues and,
therefore, earnings in 2001 may also be affected by weather conditions.
Our strategy is for continued growth through acquisitions, internal expansion,
public/private partnerships and rate relief. Opportunities in both the regulated
and non-regulated sectors that are financially sound, complement existing
operations and increase shareholder value will be pursued. We are currently
pursuing opportunities in New Jersey and Delaware, which could significantly
increase our customer base.
Certain matters discussed in this annual report are "forward-looking statements"
intended to qualify for safe harbors from liability established by the Private
Securities Litigation Reform Act of 1995. Such statements address future plans,
objectives, expectations and events concerning various matters such as capital
expenditures, earnings, litigation, growth potential, rate and other regulatory
matters, liquidity, 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 7a. Qualitative and Quantitative Disclosure About Market Risk
This information is incorporated herein by reference to Part II, Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations, Page 16.
Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements and Supplementary Financial Data:
Consolidated Balance Sheet at December 31, 2000 and 1999, Pages 21-22.
Consolidated Statements of Income for the years ended December 31, 2000, 1999
and 1998, Page 23. Consolidated Statements of Capital Stock and Long-term Debt
at December 31, 2000 and 1999, Page 24
Consolidated Statements of Cash Flows for the years ended December 31, 2000,
1999 and 1998, Page 25
Consolidated Statements of Retained Earnings for the years ended December 31,
2000, 1999 and 1998, Page 26.
17
Notes to Consolidated Financial Statements, Pages 27 - 40.
Independent Auditors' Report, Page 40.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
Information with respect to Directors of Middlesex Water Company is included in
Middlesex Water Company's Proxy Statement for the 2001 Annual Meeting of
Stockholders and is incorporated herein by reference.
Information regarding the Executive Officers of Middlesex Water Company is
included under Item 1 in Part 1 of this Form 10-K.
Item 11. Executive Compensation
This Information for Middlesex Water Company is included in Middlesex Water
Company's Proxy Statement for the 2001 Annual Meeting of Stockholders and is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners
and Management
This information for Middlesex Water Company is included in Middlesex Water
Company's Proxy Statement for the 2001 Annual Meeting of Stockholders and is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
This information for Middlesex Water Company is included in Middlesex Water
Company's Proxy Statement for the 2001 Annual Meeting of Stockholders and is
incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. The following Financial Statements and supplementary data are
included in Part II, Item 8:
Management's Discussion and Analysis, Pages 12-17.
Consolidated Balance Sheets at December 31, 2000 and 1999, Pages 21-22.
Consolidated Statements of Income for each of the three years in the
period ended December 31, 2000, 1999 and 1998, Page 23.
18
Consolidated Statements of Capital Stock and Long-term Debt at December
31, 2000, and 1999, Page 24.
Consolidated Statements of Cash Flows for each of the three years in
the period ended December 31, 2000, 1999 and 1998, Page 25.
Consolidated Statements of Retained Earnings for each of the three
years in the period ended December 31, 2000, 1999 and 1998, Page 26.
Notes to Consolidated Financial Statements, Pages 27 - 40.
Independent Auditors' Report, Page 40.
(a) 2. Financial Statement Schedules
All Schedules are omitted because of the absence of the conditions
under which they are required or because the required information is
shown in the financial statements or notes thereto.
(a) 3. Exhibits
See Exhibit listing on Pages 42 - 46.
(b) Reports on Form 8-K
None
19
CONSOLIDATED SELECTED FINANCIAL DATA
(Thousands of Dollars Except per Share Data)
2000 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Operating Revenues $ 54,477 $ 53,497 $ 43,058 $ 40,294 $ 38,025 $ 37,847
- -----------------------------------------------------------------------------------------------------------------------------------
Operating Expenses:
Operations and Maintenance 30,269 28,887 21,523 19,513 18,817 18,057
Depreciation 4,701 3,885 3,285 3,071 2,929 2,814
Other Taxes 6,932 6,871 6,102 5,782 5,569 5,479
Income Taxes 2,637 3,189 2,999 3,135 2,526 2,975
- -----------------------------------------------------------------------------------------------------------------------------------
Total Operating Expenses 44,539 42,832 33,909 31,501 29,841 29,325
- -----------------------------------------------------------------------------------------------------------------------------------
Operating Income 9,938 10,665 9,149 8,793 8,184 8,522
Other Income 364 1,911 1,795 405 288 303
- -----------------------------------------------------------------------------------------------------------------------------------
Income Before Interest Charges 10,302 12,576 10,944 9,198 8,472 8,825
- -----------------------------------------------------------------------------------------------------------------------------------
Interest Charges 4,997 4,695 4,423 3,337 3,304 3,121
- -----------------------------------------------------------------------------------------------------------------------------------
Net Income 5,305 7,881 6,521 5,861 5,168 5,704
Preferred Stock Dividend 255 301 319 226 159 159
- -----------------------------------------------------------------------------------------------------------------------------------
Earnings Applicable to Common Stock $ 5,050 $ 7,580 $ 6,202 $ 5,635 $ 5,009 $ 5,545
- -----------------------------------------------------------------------------------------------------------------------------------
Earnings per Share:
Basic $ 1.01 $ 1.54 $ 1.42 $ 1.33 $ 1.20 $ 1.36
Diluted $ 1.01 $ 1.52 $ 1.41 $ 1.33 $ 1.20 $ 1.36
Average Shares Outstanding:
Basic 5,022,148 4,926,893 4,353,879 4,235,082 4,169,334 4,078,890
Diluted 5,193,718 5,148,513 4,580,305 4,382,345 4,258,740 4,168,296
Dividends Declared and Paid $ 1.22 1/2 $ 1.19 $ 1.15 $ 1.12 1/2 $ 1.10 1/2 $ 1.08 1/2
Total Assets $ 219,400 $ 215,036 $ 203,501 $ 159,761 $ 148,660 $ 144,822
Convertible Preferred Stock $ 2,961 $ 2,961 $ 3,894 $ 3,894 $ 1,566 $ 1,566
Long-term Debt $ 82,109 $ 82,330 $ 78,032 $ 52,918 $ 52,961 $ 52,960
- -----------------------------------------------------------------------------------------------------------------------------------
20
MIDDLESEX WATER COMPANY
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31,
2000 1999
- -------------------------------------------------------------------------------------------------------------------
UTILITY PLANT: Water Production $ 69,363,626 $ 70,316,961
Transmission and Distribution 136,545,596 122,002,931
General 20,189,182 19,717,575
Construction Work in Progress 1,036,498 2,858,703
-----------------------------------------------------------------------------------------
TOTAL 227,134,902 214,896,170
Less Accumulated Depreciation 38,856,591 35,174,531
-----------------------------------------------------------------------------------------
UTILITY PLANT - NET 188,278,311 179,721,639
-----------------------------------------------------------------------------------------
NONUTILITY ASSETS - NET 2,918,133 2,087,498
- -------------------------------------------------------------------------------------------------------------------
CURRENT ASSETS: Cash and Cash Equivalents 2,497,154 5,169,772
Temporary Cash Investments - Restricted 2,819,661 5,731,827
Accounts Receivable 5,282,796 5,969,546
Unbilled Revenues 2,969,043 2,627,863
Materials and Supplies (at average cost) 1,009,956 956,950
Prepayments 694,111 616,224
-----------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 15,272,721 21,072,182
- -------------------------------------------------------------------------------------------------------------------
DEFERRED CHARGES: Unamortized Debt Expense 2,950,276 3,029,362
Preliminary Survey and Investigation Charges 573,128 472,287
Regulatory Assets:
Income Taxes (Note 3) 6,012,748 5,955,879
Postretirement Costs (Note 8) 1,041,676 1,127,884
Other (Note 2) 2,352,966 1,568,934
-----------------------------------------------------------------------------------------
TOTAL DEFERRED CHARGES 12,930,794 12,154,346
-----------------------------------------------------------------------------------------
TOTAL $ 219,399,959 $ 215,035,665
-----------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
21
MIDDLESEX WATER COMPANY
CAPITALIZATION AND LIABILITIES
December 31,
2000 1999
- --------------------------------------------------------------------------------------------------------------------------------
CAPITALIZATION Common Stock $ 48,838,486 $ 47,593,514
(See Accompanying Retained Earnings 21,796,707 22,895,844
--------------------------------------------------------------------------------
Statements and Note 7): TOTAL COMMON EQUITY 70,635,193 70,489,358
--------------------------------------------------------------------------------
Cumulative Preferred Stock 4,063,062 4,063,062
Long-term Debt 82,109,297 82,329,592
--------------------------------------------------------------------------------
TOTAL CAPITALIZATION 156,807,552 156,882,012
- --------------------------------------------------------------------------------------------------------------------------------
CURRENT Current Portion of Long-term Debt 215,859 201,921
LIABILITIES: Notes Payable 6,050,000 2,000,000
Accounts Payable 2,438,664 3,392,432
Taxes Accrued 6,050,322 5,358,737
Interest Accrued 1,797,520 1,760,470
Other 1,454,276 1,591,706
--------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 18,006,641 14,305,266
- --------------------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENT LIABILITIES (Note 4)
- --------------------------------------------------------------------------------------------------------------------------------
DEFERRED CREDITS: Customer Advances for Construction 11,364,818 11,775,581
Deferred Investment Tax Credits (Note 3) 2,011,033 2,089,650
Deferred Federal Income Taxes (Note 3) 12,371,473 12,113,286
Employee Benefit Plans (Note 8) 4,658,364 4,656,575
Other 1,203,051 1,059,206
--------------------------------------------------------------------------------
TOTAL DEFERRED CREDITS 31,608,739 31,694,298
--------------------------------------------------------------------------------
CONTRIBUTIONS IN AID OF CONSTRUCTION 12,977,027 12,154,089
--------------------------------------------------------------------------------
TOTAL $ 219,399,959 $ 215,035,665
--------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
22
MIDDLESEX WATER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31,
2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------------
OPERATING REVENUES (Note 2) $ 54,476,543 $53,497,153 $43,057,966
- ----------------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Operations (Note 4) 27,713,224 26,268,347 19,807,472
Maintenance 2,555,237 2,618,679 1,715,357
Depreciation 4,700,934 3,884,650 3,284,669
Other Taxes 6,931,961 6,871,105 6,101,719
Federal Income Taxes (Note 3) 2,637,058 3,188,893 2,999,288
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 44,538,414 42,831,674 33,908,505
- ----------------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 9,938,129 10,665,479 9,149,461
- ----------------------------------------------------------------------------------------------------------------------------------
OTHER INCOME:
Allowance for Funds Used During Construction 135,161 1,350,016 1,050,044
Other - Net 228,792 560,991 745,322
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL OTHER INCOME 363,953 1,911,007 1,795,366
- ----------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INTEREST CHARGES 10,302,082 12,576,486 10,944,827
- ----------------------------------------------------------------------------------------------------------------------------------
INTEREST CHARGES:
Interest on Long-term Debt 4,555,379 4,469,709 4,088,631
Amortization of Debt Expense 139,320 136,290 132,049
Other Interest Expense 302,323 89,446 202,921
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST CHARGES 4,997,022 4,695,445 4,423,601
- ----------------------------------------------------------------------------------------------------------------------------------
NET INCOME 5,305,060 7,881,041 6,521,226
- ----------------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCK DIVIDEND REQUIREMENTS 254,786 300,786 318,786
- ----------------------------------------------------------------------------------------------------------------------------------
EARNINGS APPLICABLE TO COMMON STOCK $ 5,050,274 $7,580,255 $6,202,440
- ----------------------------------------------------------------------------------------------------------------------------------
EARNINGS AND DIVIDENDS PER SHARE OF COMMON STOCK:
Earnings per Share (Note 7):
Basic $ 1.01 $ 1.54 $ 1.42
Diluted $ 1.01 $ 1.52 $ 1.41
Average Number of Shares Outstanding (Note 7):
Basic 5,022,148 4,926,893 4,353,879
Diluted 5,193,718 5,148,153 4,580,305
Dividends Paid per Share $ 1.22 1/2 $ 1.19 $ 1.15
- ----------------------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
23
MIDDLESEX WATER COMPANY
CONSOLIDATED STATEMENTS OF CAPITAL STOCK
AND LONG-TERM DEBT
Years Ended December 31,
2000 1999
- ---------------------------------------------------------------------------------------------------------------
Common Stock, No Par Value (Note 7):
Shares Authorized - 10,000,000
Shares Outstanding - 2000 - 5,048,534 $ 49,484,640
1999 - 5,000,589 $ 48,116,537
Restricted Stock Plan (Note 8) (646,154) (523,023)
- ---------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK 48,838,486 47,593,514
- ---------------------------------------------------------------------------------------------------------------
Cumulative Preference Stock, No Par Value:
Shares Authorized - 100,000
Shares Outstanding - None
Cumulative Preferred Stock, No Par Value (Note 7):
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 (Note 7):
8.05%, Amortizing Secured Note, due December 20, 2021 3,320,428 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 September 1, 2018 970,667 1,024,986
4.53%, Series Y, due September 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
- ---------------------------------------------------------------------------------------------------------------
SUBTOTAL LONG-TERM DEBT 82,325,156 82,531,513
- ---------------------------------------------------------------------------------------------------------------
Less: Current Portion of Long-term Debt (215,859) (201,921)
- ---------------------------------------------------------------------------------------------------------------
TOTAL LONG-TERM DEBT $ 82,109,297 $ 82,329,592
- ---------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
24
SEE CASH FLOWS
MIDDLESEX WATER COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 5,305,060 $ 7,881,041 $ 6,521,226
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation and Amortization 4,944,701 4,303,192 3,796,607
Provision for Deferred Income Taxes 201,319 (124,315) 134,976
Allowance for Funds Used During Construction (135,161) (1,350,016) (1,050,044)
Changes in Assets and Liabilities:
Accounts Receivable 686,749 (1,083,479) (1,091,207)
Accounts Payable (953,770) (459,227) 302,246
Accrued Taxes 691,584 138,068 78,580
Accrued Interest 37,050 59,140 517,769
Unbilled Revenues (341,180) (329,715) (122,214)
Employee Benefit Plans 1,788 894,059 1,015,280
Other-Net (442,577) 111,068 313,982
- ---------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 9,995,563 10,039,816 10,417,201
- ---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Utility Plant Expenditures* (13,639,291) (23,281,735) (26,275,281)
Notes Receivable (40,500) 2,806,102 (1,619,065)
Preliminary Survey & Investigation Charges (100,841) (196,085) (62,552)
Other-Net (854,691) (158,596) (654,605)
- ---------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (14,635,323) (20,830,314) (28,611,503)
- ---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption of Long-term Debt (206,357) (71,730) (42,710)
Proceeds from Issuance of Long-term Debt - 4,500,000 25,185,000
Short-term Bank Borrowings 4,050,000 1,000,000 435,299
Deferred Debt Issuance Expenses (41,617) (22,268) (502,200)
Temporary Cash Investments-Restricted 2,912,166 4,044,245 (9,557,285)
Proceeds from Issuance of Common Stock-Net 1,244,972 1,104,469 14,288,456
Payment of Common Dividends (6,149,411) (5,857,405) (4,987,013)
Payment of Preferred Dividends (254,786) (300,786) (318,751)
Construction Advances and Contributions-Net 412,175 2,174,923 569,034
- ---------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,967,142 6,571,448 25,069,830
- ---------------------------------------------------------------------------------------------------------------------
NET CHANGES IN CASH AND CASH EQUIVALENTS (2,672,618) (4,219,050) 6,875,528
- ---------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 5,169,772 9,388,822 2,513,294
- ---------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,497,154 $ 5,169,772 $ 9,388,822
- ---------------------------------------------------------------------------------------------------------------------
*Excludes Allowance for Funds Used During Construction
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash Paid During the Year for:
Interest (net of amounts capitalized) $ 4,643,135 $ 3,137,411 $ 2,810,578
Income Taxes $ 1,981,450 $ 3,728,700 $ 3,162,975
- ---------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
25
MIDDLESEX WATER COMPANY
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
Years Ended December 31,
2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------
BALANCE AT BEGINNING OF YEAR $ 22,895,844 $ 21,222,294 $ 20,087,065
NET INCOME 5,305,060 7,881,041 6,521,226
- ---------------------------------------------------------------------------------------------------------------------
TOTAL 28,200,904 29,103,335 26,608,291
- ---------------------------------------------------------------------------------------------------------------------
CASH DIVIDENDS:
Cumulative Preferred Stock 254,786 300,786 318,751
Common Stock 6,149,411 5,857,405 4,987,013
COMMON STOCK EXPENSES - 49,300 80,233
- ---------------------------------------------------------------------------------------------------------------------
TOTAL DEDUCTIONS 6,404,197 6,207,491 5,385,997
- ---------------------------------------------------------------------------------------------------------------------
BALANCE AT END OF YEAR $ 21,796,707 $ 22,895,844 $ 21,222,294
- ---------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies
(a) 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. Public
Water Supply Company, Inc. (Public), which was also a wholly-owned subsidiary of
Tidewater, was merged into Tidewater effective February 1, 2000. The combined
entity has continued to operate under the Tidewater name. 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.
(b) System of Accounts - Middlesex, Pinelands Water and Pinelands Wastewater
maintain their accounts in accordance with the Uniform System of Accounts
prescribed by the Board of Public Utilities of the State of New Jersey (BPU).
Tidewater maintains its accounts in accordance with the Public Service
Commission of Delaware (PSC) requirements.
(c) Utility Plant is stated at original cost as defined for regulatory purposes.
Property accounts are charged with the cost of betterments and major
replacements of property. Cost includes direct material, labor and indirect
charges for pension benefits and payroll taxes. The cost of labor, materials,
supervision and other expenses incurred in making repairs and minor replacements
and in maintaining the properties is charged to the appropriate expense
accounts. At December 31, 2000, there was no event or change in circumstance
that would indicate that the carrying amount of any long-lived asset was not
recoverable.
(d) Depreciation is computed by each regulated member of the Company utilizing a
rate approved by the applicable regulatory authority. The Accumulated Provision
for Depreciation is charged with the cost of property retired, together with
removal costs, less salvage.
(e) Allowance for Funds Used During Construction (AFUDC) - Middlesex, Tidewater,
Pinelands Water and Pinelands Wastewater capitalize AFUDC, which represents the
cost of financing projects during construction. AFUDC is added to the
construction costs of individual projects exceeding specific cost thresholds
established for each company and then depreciated along with the rest of the
utility plant's costs over its estimated useful life. AFUDC is calculated using
each company's weighted cost of debt and equity.
(f) Accounts Receivable - Provision for allowance for doubtful accounts at
December 31, 2000, 1999 and 1998 was less than $0.1 million. The corresponding
expense and deduction for December 31, 2000, was $0.1 million and less than $0.1
million for 1999 and 1998.
(g) Revenues from regulated activities are recorded as service is rendered and
include estimates for amounts unbilled at the end of the period for services
provided subsequent to the last billing cycle. Fixed service charges are billed
in advance by Tidewater and are recognized in revenue as the service is
provided. Management contract fees are recorded as earned.
(h) Deferred Charges - Unamortized Debt Expense is amortized over the lives of
the related issues.
As authorized by the BPU, main cleaning and lining costs, tank painting and
regulatory expenses are amortized over 3 to 14-year periods. Delaware rate case
expenses are allowed to be amortized over six years pursuant to the PSC order.
27
(i) Income Taxes - Middlesex files a consolidated federal income tax return for
the Company and income taxes are allocated based on the separate return method.
Investment tax credits have been deferred and are amortized over the estimated
useful life of the related property.
(j) Statements of Cash Flows - For purposes of reporting cash flows, the Company
considers all highly liquid investments with original maturity dates of three
months or less to be cash equivalents. Cash and cash equivalents represent bank
balances and money market funds with investments maturing in less than 90 days.
(k) Use of Estimates - Conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and
assumptions that affect the reported amounts in the financial statements. Actual
results could differ from those estimates.
(l) In June 1998, The Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended. The adoption of this
statement on January 1, 2001, had no effect on the financial statements.
(m) Certain prior year amounts have been reclassified to conform to the current
year reporting.
Note 2 - Rates and Revenues
Three base rate increase petitions were filed with the BPU during the year.
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% 31.30% 22.30%
Return on Equity 11.80% 12.00% 12.00%
Last Increase May 13, 1999 January 23, 1999 January 23, 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 23, 1997.
The discovery phase and the evidentiary hearings have been completed for all
cases. Legal briefs have been filed for all three cases. The Administrative Law
Judge assigned to the Middlesex case issued an oral decision on March 19, 2001
recommending an 8.45% or $3.5 million increase. Initial decisions for the
Pinelands cases are not expected until mid-April 2001. Ultimate resolutions by
the BPU for the three cases are not expected until the middle of the second
quarter of 2001.
28
On September 20, 1999, Tidewater and Public jointly filed a petition with the
PSC for a base rate increase of $1.7 million or 38.3%. The increase is necessary
to cover additional capital improvements and increased operating and maintenance
costs. As prescribed by PSC regulations, Tidewater was granted an interim rate
increase, subject to refund, of 14.8%, effective November 19, 1999. Concurrently
with the rate increase request, an application was filed and approved by the PSC
for a corporate merger of Tidewater and Public. Public merged into Tidewater
effective February 1, 2000. The last increase in base rates for Tidewater and
Public were in 1991 and 1992, respectively.
On March 31, 2000, Tidewater amended its base rate increase petition from 38.3%
to 21.2%. 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 2.67% 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.
Because Tidewater implemented a 14.8% interim rate increase on November 19,
1999, refunds were given to its customers, along with interest, by way of
billing credits, for the difference between interim and approved rates,
retroactive to the date interim rates were put into effect.
In May 1999, the BPU approved an 11.5% or $4.3 million base rate increase for
Middlesex. Under the approval, the allowed return on equity is 10.8% with an
overall rate of return of 8.21%. 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 (CJO
Plant). This project was necessary to meet the new and anticipated regulatory
standards concerning water quality and to increase the plant's production
capacity. The Company's original rate request, which was filed in September
1998, was for $8.0 million.
In January 1998, the BPU approved an increase in the rates of Middlesex by 4.4%,
or $1.5 million. Under the approval, the allowed return on equity is 11.0% with
an overall rate of return of 8.56%. The increase includes the recovery of
postretirement costs other than pension expenses, which are mandated by the
Company's compliance with SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions."
Included in Other Deferred Charges are $1.5 million of deferred costs at
December 31, 2000, which Middlesex, Tidewater, Pinelands Water and Pinelands
Wastewater are recovering through rates over periods of 3 to 14 years. The BPU
has excluded these costs from their rate bases and, therefore, they are not
earning a return on the unamortized costs during the recovery periods.
Tidewater will submit a petition with the PSC for approval of the acquisition
and assignment of all of the membership interest in Sea Colony Water Company,
LLC, a 2,200 customer water system located in Sussex County, Delaware, for $2.4
million. Included in that petition is a request to maintain the existing rate
tariff under which Sea Colony customers are billed for water service. A decision
is not expected until the second quarter of 2001.
29
Since 1997, Middlesex has operated a 300-customer water system in Fortescue, New
Jersey, as an interim custodial receiver appointed by the Superior Court of New
Jersey, Cumberland County. On February 14, 2001, the BPU approved Middlesex'
petition for approval of the purchase by Middlesex of the assets of that system
and other related regulatory approvals. This approval is the first step of the
final process for Middlesex to purchase the water utility assets of the troubled
system. The anticipated completion date of this acquisition is unknown at this
time, but it is not expected to have a material impact on the Company's results
of operations.
In December 1999, Middlesex closed on a franchise agreement with the City of
South Amboy (South Amboy) to provide water service and install water system
facilities in South Amboy. The agreement between Middlesex and South Amboy,
originally signed in December 1998, received approval from the BPU on November
18, 1999. See Note 4.
Note 3 - Income Taxes
Federal income tax expense differs from the amount computed by applying the
statutory rate on book income subject to tax for the following reasons:
Years Ended December 31,
(Thousands of Dollars)
2000 1999 1998
- -----------------------------------------------------------------------------------------------------------
Income Tax at Statutory Rate of 34% $ 2,700 $ 3,764 $ 3,237
Tax Effect of:
AFUDC ( 46) (459) (357)
Other ( 17) (116) 119
- -----------------------------------------------------------------------------------------------------------
Total Federal Income Tax Expense $ 2,637 $ 3,189 $ 2,999
- -----------------------------------------------------------------------------------------------------------
Federal income tax expense is comprised of the following:
Current $ 2,554 $ 3,432 $ 2,975
Deferred:
Customer Advances 40 45 51
Accelerated Depreciation 519 234 595
Employee Benefit Plans (355) (304) (358)
Investment Tax Credit ( 79) ( 76) ( 72)
Other ( 42) (142) (192)
- -----------------------------------------------------------------------------------------------------------
Total Federal Income Tax Expense $ 2,637 $ 3,189 $ 2,999
- -----------------------------------------------------------------------------------------------------------
The statutory review period for income tax returns for the years prior to 1997
has been closed.
The Company is required to set up deferred income taxes for all temporary
differences regardless of the regulatory ratemaking treatment. However, if it is
probable that these additional taxes will be passed on to ratepayers, an
offsetting regulatory asset or liability can be recorded. Management believes
that it is probable that the consolidated deferred income tax liability of
approximately $6.0 million will be recovered in future rates. Therefore, a
regulatory asset has been set up to offset the increased liability.
30
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial purposes
and the amounts used for income tax purposes. The components of the net deferred
tax liability are as follows:
Years Ended December 31,
(Thousands of Dollars)
2000 1999
- ------------------------------------------------------------------
Utility Plant Related $18,417 $17,953
Customer Advances (4,578) (4,628)
Employee Benefits (1,427) (1,110)
Other (41) (102)
- ------------------------------------------------------------------
Total Deferred Tax Liability $12,371 $12,113
- ------------------------------------------------------------------
Note 4 - Commitments and Contingent Liabilities
Service Agreement - In December 1998, the Company's subsidiary, USA-PA, entered
into a 20-year agreement with the City of Perth Amboy, New Jersey (Perth Amboy),
and the Middlesex County Improvement Authority (MCIA) to operate and maintain
the water and wastewater systems of Perth Amboy. USA-PA began operating Perth
Amboy's systems on January 1, 1999.
Perth Amboy has a population of 40,000 and has approximately 8,600 customers,
most of whom are served by both systems. The agreement was effected under New
Jersey's Water Supply Public-Private Contracting Act and the New Jersey
Wastewater Public/Private Contracting Act. Under the agreement, USA-PA receives
a fixed fee and a variable fee based on increased system billing. Fixed fee
payments began at $6.4 million in the first year and will increase to $9.7 in
year 20. The agreement also requires USA-PA to lease from Perth Amboy all of its
employees who currently work on the Perth Amboy water and wastewater systems. In
connection with the agreement, Perth Amboy through the MCIA, issued
approximately $68.0 million in three series of bonds on January 28, 1999. The
Company guaranteed one of those series of bonds, in the principal amount of
approximately $26.3 million. Perth Amboy guaranteed the two other series of
bonds.
In addition to the agreement with Perth Amboy, effective January 1, 1999, USA-PA
entered into a 20-year subcontract with a sewer contracting firm for the
operation and maintenance of the Perth Amboy wastewater system. The subcontract
requires the sharing of certain fixed and variable fees and operating expenses.
Franchise Agreement/Service Agreement - On December 2, 1999, Middlesex
implemented a franchise agreement with the City of South Amboy (South Amboy) to
provide water service and install water system facilities in South Amboy. The
agreement between Middlesex and South Amboy, originally signed in December 1998,
received approval from the BPU on November 18, 1999. The implementation of the
franchise agreement has significantly impacted two existing agreements entered
into by the parties in 1994.
The first agreement was for the sale of water to South Amboy on a wholesale
basis. The second agreement, which included Middlesex's wholly-owned subsidiary
USA, was a contract to provide management services for a fixed fee. In
conjunction with the franchise agreement, the water sales contract was
eliminated. In addition, the management services contract was extended through
May 2045 and significantly modified to correspond with the terms and conditions
of the franchise agreement.
31
Certain advances made by USA to South Amboy at the commencement of the
management services contract have been forgiven in consideration for the
franchise agreement. Fixed fee revenues recognized under the original contract
have been eliminated in lieu of revenues earned from providing water to South
Amboy's 2,600 customers
Water Supply - Middlesex has an agreement with the Elizabethtown Water Company
for the purchase of treated water. This agreement, which expires December 31,
2005, provides for the minimum purchase of 3 million gallons daily (mgd) of
treated water with provisions for additional purchases. The 2000, 1999 and 1998
costs under this agreement were $1.6 million, $1.7 million and $1.6 million,
respectively.
Middlesex also has an agreement with the New Jersey Water Supply Authority
(NJWSA), which expires November 1, 2013, and provides for the minimum purchase
of 20 mgd of untreated water from the Delaware and Raritan Canal and the Raritan
River. In addition, the Company has a supplemental one-year agreement for an
additional 5 mgd through April 30, 2001. This agreement is renewable on an
annual basis. The total costs under this agreement in 2000, 1999 and 1998 were
$1.9 million, $2.0 million and $1.8 million, respectively.
Construction - The Company plans to spend approximately $20.3 million in 2001,
$19.3 million in 2002 and $21.5 million in 2003 on its construction program.
Substantially all of the utility plant of the Company is subject to the lien of
its mortgage, which also includes certain restrictions as to cash dividend
payments and other distributions on common stock.
Litigation - A motel in our Middlesex service area in 1994, and again in 1997,
suffered outbreaks of Legionella. Claims resulting from the death of a motel
guest from Legionella in 1997 and claims by two other patrons alleging illness
as a result of their stay at the motel in 1997 have been brought against the
motel and against us. We have substantial insurance coverage, which we believe
will be sufficient for all claims in this matter other than for punitive
damages. While the outcome of this case remains uncertain, we believe that the
final resolution will not have a significant effect on financial condition or
results of operations.
The 1995 fire at a warehouse in our service territory resulted in multiple party
claims brought forth in the Superior Court for Middlesex County, New Jersey, as
well as, with the financial collapse of the principal tenant, in the Federal
Bankruptcy Court. The claims in the State Court action are for unspecified
amounts but include claims against us for insufficient water pressure and
supply. Under New Jersey case law, we will not have financial responsibility to
parties to the extent they receive payments under their own insurance policies.
We do not know either the total amount of claims against us or how much of that
amount will be covered by the parties' own insurance policies. We believe we
have substantial defenses to the claims against us although we do not have
insurance coverage for them.
The Company has been notified of a potential claim in excess of $10.0 million
involving the break of both a Company water line and an underground electric
power cable in close proximity to it. The power cable contained both electric
lines and petroleum based insulating fluid. The Company is insured for damages
except for damages resulting from pollution discharge, which the Company is
advised is approximately $0.2 million. Causation and liability have not been
established.
32
Note 5 - Lines of Credit, Notes Payable and Restricted Cash
(Thousands of Dollars)
2000 1999 1998
- ------------------------------------------------------------------------------
Established Lines at Year End $18,000 $18,000 $28,000
Maximum Amount Outstanding 6,050 3,000 4,575
Average Outstanding 3,900 1,100 2,700
Notes Payable at Year End 6,050 2,000 1,000
Weighted Average Interest Rate 6.82% 5.37% 5.37%
The Board of Directors has authorized lines of credit for up to $30 million.
Short-term borrowings are below the prime rate with some requirements for
compensating balances not exceeding 1% of the line.
Restricted temporary cash investments at December 31, 2000, include $2.6 million
balance of proceeds from the Series Z and AA First Mortgage Bonds issuances.
These funds are held in trusts and restricted to specific capital expenditures
and debt service requirements. Series Z and AA proceeds can only be used for the
2000 and 2002 main cleaning and cement lining programs.
Note 6 - Quarterly Operating Results - Unaudited
Quarterly operating results for 2000 and 1999 are as follows:
(Thousands of Dollars Except per Share Data)
1st 2nd 3rd 4th
2000 Quarter Quarter Quarter Quarter Year
- ----------------------------------------------------------------------------------
Operating Revenues $12,981 $14,058 $14,387 $13,051 $54,477
Operating Income 2,051 2,528 2,695 2,664 9,938
Net Income 906 1,369 1,537 1,493 5,305
Basic Earnings per Share $ .17 $ .26 $ .29 $ .29 $ 1.01
Diluted Earnings per Share .17 .26 .29 .29 1.01
1999
- -------------------------------------- ------------------------------------------
Operating Revenues $11,680 $13,813 $15,392 $12,612 $53,497
Operating Income 1,946 2,981 3,615 2,123 10,665
Net Income 1,493 2,572 2,781 1,035 7,881
Basic Earnings per Share $ .29 $ .51 $ .55 $ .19 $ 1.54
Diluted Earnings per Share .29 .50 .54 .19 1.52
The information above, in the opinion of the Company, includes all adjustments
consisting only of normal recurring accruals necessary for a fair presentation
of such amounts. The business of the Company is subject to seasonal fluctuation
with the peak period usually occurring during the summer months.
33
Note 7 - Capitalization
All the transactions discussed below related to the issuance or redemption of
securities were approved by the BPU, except where noted.
Common Stock
In December 1998, the Company completed the sale of 517,000 shares of its no par
common stock at a price of $24.625 per share. Most of the offering proceeds were
used to fund a portion of the cost of the CJO Plant upgrade. In addition, other
capital improvement expenditures for the Company's utility systems were funded
by the proceeds.
The number of shares authorized under the Dividend Reinvestment and Common Stock
Purchase Plan (DRP) is 1,700,000 shares. The cumulative number of shares issued
under the DRP at December 31, 2000, is 924,248. During 2000, 1999 and 1998,
47,945 shares ($1.3 million), 48,664 shares ($1.3 million) and 110,852 shares
($2.3 million) of common stock were issued under DRP and the restricted stock
plan, respectively.
In the event dividends on the preferred stock are in arrears, no dividends may
be declared or paid on the common stock of the Company. At December 31, 2000, no
restrictions were placed on common dividends.
Preferred Stock
If four or more quarterly dividends are in arrears, the preferred shareholders,
as a class, are entitled to elect two members to the Board of Directors in
addition to Directors elected by holders of the common stock. In 1999, the
number of authorized preferred stock, without par value, was reduced from
149,980 shares to 140,497 shares to account for the conversion of 8,000 shares
of the $8.00 Series into 54,856 shares of the Company's common shares in 1999
and the cancellation of 1,483 shares of the nonredeemable $7.00 Series
previously redeemed. At December 31, 2000, and 1999, 37,898 shares of preferred
stock presently authorized were outstanding. There were no dividends in arrears.
The conversion feature of the no par $7.00 Cumulative and Convertible Preferred
Stock allows the security holders to exchange one convertible preferred share
for six shares of the Company's common stock. In addition, the Company may
redeem up to 10% of the outstanding convertible stock in any calendar year at a
price equal to the fair market value of six shares of the Company's common stock
for each share of convertible stock redeemed.
The conversion feature of the no par $8.00 Cumulative and Convertible Preferred
Stock allows the security holders to exchange one convertible preferred share
for 6.857 shares of the Company's common stock. The preferred shares are
convertible at the election of the security holder until 2004. After that date
Middlesex also has the right to elect the conversion feature.
34
Long-term Debt
On November 5, 1999, the Company issued $2.150 million, designated as Series Z,
and $2.350 million, designated as Series AA, First Mortgage Bonds through the
New Jersey State Revolving Fund (SRF). Series Z has a zero interest cost, while
Series AA has a coupon rate that varies from 5.25% to 5.75%. 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. 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 prevailing market conditions at time
of issuance. Interest paid to the bondholders is exempt from federal and New
Jersey income taxes. However, the interest is subject to the Alternative Minimum
Tax. The proceeds of the bonds are being used to fund the 2000 and 2001 capital
project to clean and cement line previously unlined pipes and mains.
The aggregate annual maturities for the amortizing secured note and First
Mortgage Bonds issued under SRF for each of the next five years are as follows:
2001 - $0.2 million; and 2002 through 2005; $0.4 million. All other First
Mortgage Bonds are term bonds with a single maturity date, which are listed in
the Consolidated Statements of Capital Stock and Long-Term Debt.
The weighted average interest rate on all long-term debt at December 31, 2000,
and 1999 was 5.83% and 5.95%, respectively.
Earnings Per Share
The following table presents the calculation of basic and diluted earnings per
share (EPS) for the three years ended December 31. Basic 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 $8.00
Series.
(In Thousands Except per Share Amounts)
2000 1999 1998
Basic: Income Shares Income Shares Income Shares
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income $ 5,305 5,022 $7,881 4,927 $6,521 4,354
Preferred Dividend (255) (301) (319)
------------------------------------------------------------------------------
Earnings Applicable to Common Stock $5,050 5,022 $7,580 4,927 $6,202 4,354
Basic EPS $ 1.01 $ 1.54 $ 1.42
Diluted:
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings Applicable to Common Stock $5,050 5,022 $7,580 4,927 $6,202 4,354
$7.00 Series Dividend 104 89 104 89 104 89
$8.00 Series Dividend 96 82 142 132 160 137
------------------------------------------------------------------------------
Adjusted Earnings Applicable to Common Stock $5,250 5,193 $7,826 5,148 $6,466 4,580
Diluted EPS $ 1.01 $ 1.52 $ 1.41
35
Fair Value of Financial Instruments
The following methods and assumptions were used by the Company in estimating its
fair value disclosure for financial instruments for which it is practicable to
estimate that value. The carrying amounts reflected in the consolidated balance
sheets for cash and cash equivalents, marketable securities, and trade
receivables and payables approximate their respective fair values due to the
short-term maturities of these instruments. The fair value of the Company's
long-term debt relating to first mortgage bonds is based on quoted market prices
for similar issues. At December 31, 2000, and 1999, the carrying amount and fair
market value of the Company's bonds were as follows:
(Thousands of Dollars)
2000 1999
Carrying Fair Carrying Fair
Amount Value Amount Value
- --------------------------------------------------------------------------------
First Mortgage Bonds $79,005 $77,300 $79,160 $71,346
For other long-term debt for which there was no quoted market price, it was not
practicable to estimate their fair value. The carrying amount of these
instruments at December 31, 2000, and 1999 was $3.3 million and $3.4 million,
respectively. Customer advances for construction have a carrying amount of $11.4
million and $11.8 million at December 31, 2000, and 1999, respectively. Their
relative fair values cannot be accurately estimated since future refund payments
depend on several variables, including new customer connections, customer
consumption levels and future rate increases.
Note 8 - Employee Benefit Plans
Pension
The Company has a noncontributory defined benefit pension plan, which covers
substantially all employees with more than 1,000 hours of service. The Company
makes contributions to the Plan consistent with the funding requirements of
federal laws and regulations. Plan assets consist primarily of corporate
equities, cash equivalents and stock and bond funds. In addition, the Company
maintains an unfunded supplemental pension plan for its executives.
Postretirement Benefits Other Than Pensions
The Company has a postretirement benefit plan other than pension for
substantially all of its retired employees. Coverage includes health care and
life insurance. Retiree contributions are dependent on credited years of
service. Accrued retirement benefit costs are recorded each year.
The Company has recognized a deferred regulatory asset relating to the
difference between the accrued retirement benefit costs and actual cash paid for
plan premiums in years prior to 1998. Included in the regulatory asset is a
transition obligation from adopting SFAS No.106 on January 1, 1993. In addition
to the recognition of annual accrued retirement benefit costs in rates,
Middlesex is also recovering the transition obligation over 15 years. The
regulatory assets at December 31, 2000, and 1999 were $1.0 million and $1.1
million, respectively.
36
The following table sets forth information relating to the Company's Pension
Plans and Other Postretirement Benefits.
(Thousands of Dollars)
Pension Benefits Other Benefits
2000 1999 2000 1999
- -------------------------------------------------------------------------------------------------------------------------
Reconciliation of Benefit Obligation
Beginning Balance $ 16,304 $ 16,573 $ 4,346 $ 4,434
Service Cost 678 669 153 140
Interest Cost 1,249 1,136 417 310
Actuarial (Gain)/Loss 194 (1,394) 1,172 (319)
Benefits Paid (718) (680) (229) (219)
- -------------------------------------------------------------------------------------------------------------------------
Ending Balance $ 17,707 $ 16,304 $ 5,859 $ 4,346
- -------------------------------------------------------------------------------------------------------------------------
Reconciliation of Plan Assets at Fair Value
Beginning Balance $ 17,928 $ 17,058 $ -- $ --
Actual Return on Plan Assets 1,242 1,504 -- --
Employer Contributions 46 46 229 219
Benefits Paid (718) (680) (229) (219)
- -------------------------------------------------------------------------------------------------------------------------
Ending Balance $ 18,498 $ 17,928 $ -- --
- -------------------------------------------------------------------------------------------------------------------------
Funded Status $ 791 $ 1,624 $ (5,859) $ (4,346)
Unrecognized Net Transition Obligation 16 30 1,623 1,759
Unrecognized Net Actuarial (Gain)/Loss (4,098) (4,596) 1,561 459
Unrecognized Prior Service Cost 535 647 (4) (6)
- -------------------------------------------------------------------------------------------------------------------------
Accrued Benefit Cost $ (2,756) $ (2,295) $ (2,679) $ (2,134)
- -------------------------------------------------------------------------------------------------------------------------
(Thousands of Dollars)
Pension Benefits Other Benefits
2000 1999 1998 2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
Components of Net Periodic Benefit Cost
Service Cost $ 678 $ 669 $ 619 $ 153 $ 140 $ 132
Interest Cost 1,249 1,136 1,065 417 310 287
Expected Return on Plan Assets (1,406) (1,336) (1,156) -- -- --
Amortization of Net Transition Obligation 14 14 14 135 135 135
Amortization of Net Actuarial (Gain)/Loss (139) (93) 10 69 29 64
Amortization of Prior Service Cost 111 111 102 (1) (2) (11)
- -----------------------------------------------------------------------------------------------------------------------------
Net Periodic Benefit Cost $ 507 $ 501 $ 654 $ 773 $ 612 $ 607
- -----------------------------------------------------------------------------------------------------------------------------
37
Pension Benefits Other Benefits
2000 1999 1998 2000 1999 1998
- --------------------------------------------------------------------------------------------------------------------
Weighted-Average Assumptions
Discount Rate 7.75% 7.75% 7.00% 7.75% 7.75% 7.00%
Expected Return on Plan Assets 8.00% 8.00% 8.00% -- -- --
Actual Return on Plan Assets 7.07% 9.00% 20.25% -- -- --
Rate of Compensation Increase 5.00% 5.00% 4.75% 5.00% 5.00% 4.75%
For measurement purposes, a 5.0% annual rate of increase in the per capita cost
of covered health care benefits was assumed for 2000 and all future years.
Assumed health care trend rates have a significant effect on the amounts
reported for the health care plan. A one-percentage point change in assumed
health care cost trend rates would have the following effects:
(Thousands of Dollars)
1 Percentage Point
Increase Decrease
- -----------------------------------------------------------------------------
Effect on Current Year's Benefit Expense $ 111 $ (90)
Effect on Benefit Obligation 968 (809)
401(k) Plan
The Company has a 401(k) defined contribution plan, which covers substantially
all employees with more than 1,000 hours of service. Under the terms of the
Plan, the Company matches 100% of a participant's contributions, which do not
exceed 1% of a participant's compensation, plus 50% of a participant's
contributions exceeding 1% but not more than 6%. The Company's matching
contributions in 2000, 1999 and 1998 amounted to $0.2 million for each year.
Stock Based Compensation
The Company maintains a restricted stock plan, under which 42,250 shares of the
Company's common stock are held in escrow by the Company for key employees. Such
stock is subject to an agreement requiring forfeiture by the employee in the
event of termination of employment within five years of the grant other than as
a result of retirement, death or disability.
The maximum number of shares authorized for grant under this plan is 160,000
shares. Compensation expense is determined by the market value of the stock on
the date of the award and is being amortized over a five-year period.
Compensation expense for the years ended December 31, 2000, 1999 and 1998 was
$0.2 million, $0.1 million and $0.1 million, respectively.
As permitted by SFAS No. 123, "Accounting for Stock-Based Compensation," (SFAS
No. 123) the Company elected to account for its stock based compensation under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." Had compensation costs for the Company's restricted stock plan been
determined based on methodology prescribed in SFAS No. 123, there would have
been no effect on its results of operations or cash flows.
38
Note 9 - 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
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. 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.
(Thousands of Dollars)
Twelve Months Ended December 31,
Operations by Segments: 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------
Revenues:
Regulated $ 47,634 $ 46,008 $ 42,593
Non - Regulated 6,879 7,527 489
Inter-segment Elimination (36) (38) (24)
- ----------------------------------------------------------------------------------------------------------
Consolidated Revenues $ 54,477 $ 53,497 $ 43,058
- ----------------------------------------------------------------------------------------------------------
Operating Income:
Regulated $ 9,525 $ 9,718 $ 8,925
Non - Regulated 413 947 224
Inter-segment Elimination -- -- --
- ----------------------------------------------------------------------------------------------------------
Consolidated Operating Income $ 9,938 $ 10,665 $ 9,149
- ----------------------------------------------------------------------------------------------------------
Depreciation/Amortization:
Regulated $ 4,646 $ 3,854 $ 3,280
Non - Regulated 55 31 5
Inter-segment Elimination -- -- --
- ----------------------------------------------------------------------------------------------------------
Consolidated Depreciation/Amortization $ 4,701 $ 3,885 $ 3,285
- ----------------------------------------------------------------------------------------------------------
Other Income:
Regulated $ 1,284 $ 3,438 $ 2,631
Non - Regulated 4 (21) --
Inter-segment Elimination (924) (1,506) (836)
- ----------------------------------------------------------------------------------------------------------
Consolidated Other Income $ 364 $ 1,911 $ 1,795
- ----------------------------------------------------------------------------------------------------------
Interest Expense:
Regulated $ 5,646 $ 5,071 $ 4,596
Non - Regulated 56 226 154
Inter-segment Elimination (705) (602) (326)
- ----------------------------------------------------------------------------------------------------------
Consolidated Interest Expense $ 4,997 $ 4,695 $ 4,424
- ----------------------------------------------------------------------------------------------------------
Net Income:
Regulated $ 5,162 $ 8,064 $ 6,960
Non - Regulated 362 721 70
Inter-segment Elimination (219) (904) (509)
- ----------------------------------------------------------------------------------------------------------
Consolidated Net Income $ 5,305 $ 7,881 $ 6,521
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
Capital Expenditures:
Regulated $ 13,065 $ 23,117 $ 26,222
Non - Regulated 574 165 53
Inter-segment Elimination -- -- --
- ----------------------------------------------------------------------------------------------------------
Total Capital Expenditures $ 13,639 $ 23,282 $ 26,275
- ----------------------------------------------------------------------------------------------------------
As of As of
December 31, December 31,
2000 1999
- --------------------------------------------------------------------------------------
Assets:
Regulated $ 237,904 $ 231,650
Non - Regulated 3,034 2,405
Inter-segment Elimination (21,538) (19,019)
- --------------------------------------------------------------------------------------
Consolidated Assets $ 219,400 $ 215,036
- --------------------------------------------------------------------------------------
39
Report of Management
The consolidated financial statements and other financial information included
in this annual report have been prepared by and are the responsibility of
Management. The statements have been prepared in conformity with accounting
principles generally accepted in the United States of America considered
appropriate under the circumstances and include amounts based on necessary
judgment and estimates deemed appropriate.
The Company maintains a system of internal accounting controls designed to
provide reasonable assurance that assets are protected from improper use and
loss and to provide reliable financial information.
The consolidated financial statements of the Company have been audited by its
independent auditors, Deloitte & Touche LLP, and their report is included
herein.
The Board of Directors, through its Audit Committee consisting solely of outside
Directors, is responsible for overseeing and reviewing the Company's financial
reporting and accounting practices. The Audit Committee meets periodically with
the independent auditors to review the scope of their work and discuss any
changes and developments that may impact the Company.
/s/ J. Richard Tompkins /s/ A. Bruce O'Connor
- ----------------------- ---------------------
J. Richard Tompkins A. Bruce O'Connor
Chairman of the Board Vice President and
and President Controller
February 20, 2001
INDEPENDENT AUDITORS' REPORT
MIDDLESEX WATER COMPANY
We have audited the accompanying consolidated balance sheets and consolidated
statements of capital stock and long-term debt of Middlesex Water Company and
its subsidiaries as of December 31, 2000 and 1999 and the related consolidated
statements of income, retained earnings and of cash flows for each of the three
years in the period ended December 31, 2000. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Middlesex Water Company and its
subsidiaries at December 31, 2000 and 1999 and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 2000 in conformity with accounting principles generally accepted in the
United States of America.
/s/ DELOITTE & TOUCHE LLP/
Parsippany, New Jersey
February 20, 2001
40
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Chairman of the Board and
President and Director /s/ J. Richard Tompkins/ 3/23/01
---------------------------- -------
J. Richard Tompkins Date
Executive Vice President and /s/ Richard A. Russo/ 3/23/01
Director ---------------------------- ------
Richard A. Russo Date
Vice President and Controller
Chief Financial Officer /s/ A. Bruce O'Connor/ 3/23/01
---------------------------- -------
A. Bruce O'Connor Date
Director /s/ John C. Cutting/ 3/23/01
---------------------------- -------
John C. Cutting Date
Director /s/ John R. Middleton/ 3/23/01
---------------------------- -------
John R. Middleton Date
Director /s/ John P. Mulkerin/ 3/23/01
---------------------------- -------
John P. Mulkerin Date
Director /s/ Stephen H. Mundy/ 3/23/01
---------------------------- -------
Stephen H. Mundy Date
Director /s/ Jeffries Shein/ 3/23/01
---------------------------- -------
Jeffries Shein Date
Senior Vice President and /s/ Dennis G. Sullivan/ 3/23/01
General Counsel and ---------------------------- -------
Director Dennis G. Sullivan Date
41
EXHIBIT INDEX
Exhibits designated with an asterisk (*) are filed herewith. The exhibits not so
designated have heretofore been filed with the Commission and are incorporated
herein by reference to the documents indicated in the previous filing columns
following the description of such exhibits.
Previous Filing's
Exhibit Registration Exhibit
No. Document Description No. . No. .
- -------- -------------------- ------------ ---------
3.1 Certificate of Incorporation of the Company,
as amended, filed as Exhibit 3.1 of 1998 Form 10-K.
3.2 Bylaws of the Company, as amended. 33-54922 3.2
4.1 Form of Common Stock Certificate. 2-55058 2(a)
4.2 Registration Statement, Form S-3, under
Securities Act of 1933 filed February 3,
1987, relating to the Dividend Reinvestment
and Common Stock Purchase Plan. 33-11717
4.3 Post Effective Amendments No. 3 and 6,
Form S-3, under Securities Act of 1933 filed
May 28, 1993, relating to the Dividend Reinvestment
and Common Stock Purchase Plan. 33-11717
4.4 Revised Prospectus relating to the Dividend
Reinvestment and Common Stock Purchase Plan,
Submitted to the Securities and Exchange Commission,
January 20, 2000. 33-11717
10.1 Copy of Purchased Water Agreement between
the Company and Elizabethtown Water Company,
filed as Exhibit 10.1 of 1996 Form 10-K.
10.2 Copy of Mortgage, dated April 1, 1927,
between the Company and Union County Trust
Company, as Trustee, as supplemented by
Supplemental Indentures, dated as of
October 1, 1939 and April 1, 1949. 2-15795 4(a)-4(f)
10.3 Copy of Supplemental Indentures, dated as of
July 1, 1964 and June 15, 1991, between the Company
and Union County Trust Company, as Trustee. 33-54922 10.4-10.9
10.4 Copy of Trust Indenture, dated as of June 15,
1991, between the New Jersey Economic Development
Authority and Midlantic National Bank, as Trustee. 33-54922 10.17
42
EXHIBIT INDEX
Previous Filing's
Exhibit Registration Exhibit
No. Document Description No. . No. .
- -------- -------------------- ------------ ---------
10.5 Copy of Supply Agreement, dated as of November
17, 1986, between the Company and the Old Bridge
Municipal Utilities Authority. 33-31476 10.12
10.6 Copy of Supply Agreement, dated as of July 14,
1987, between the Company and the Marlboro
Township Municipal Utilities Authority, as amended. 33-31476 10.13
10.7 Copy of Supply Agreement, dated as of February
11, 1988, with modifications dated February 25, 1992,
and April 20, 1994, between the Company and the
Borough of Sayreville filed as Exhibit No. 10.11 of
1994 First Quarter Form 10-Q.
10.8 Copy of Water Purchase Contract and Supple-
mental Agreement, dated as of May 12, 1993,
between the Company and the New Jersey
Water Supply Authority filed as Exhibit No. 10.12 of
1993 Form 10-K.
10.9 Copy of Treating and Pumping Agreement, dated
April 9, 1984, between the Company and the
Township of East Brunswick. 33-31476 10.17
10.10 Copy of Supply Agreement, dated June 4, 1990,
between the Company and Edison Township. 33-54922 10.24
10.11 Copy of Supply Agreement, between the
Company and the Borough of Highland Park,
filed as Exhibit No. 10.15 of 1996 Form 10-K.
10.12 Copy of Pipeline Lease Agreement, dated as of
January 9, 1987, between the Company and the
City of Perth Amboy. 33-31476 10.20
10.13 Copy of Supplemental Executive Retirement
Plan, filed as Exhibit 10.13 of 1999 Third 33-31476 10.21
Quarter Form 10-Q.
10.14 Copy of 1989 Restricted Stock Plan, filed
as Appendix B to the Company's Definitive
Proxy Statement, dated and filed April 25, 1997. 33-31476 10.22
43
EXHIBIT INDEX
Previous Filing's
Exhibit Registration Exhibit
No. Document Description No. . No. .
- -------- -------------------- ------------ ---------
10.15(a) Employment Agreement between Middlesex
Water Company and J. Richard Tompkins,
filed as Exhibit 10.15(a) of 1999 Third
Quarter Form 10-Q.
10.15(b) Employment Agreement between Middlesex
Water Company and Walter J. Brady,
filed as Exhibit 10.15(b) of 1999 Third
Quarter Form 10-Q.
10.15(c) Employment Agreement between Middlesex
Water Company and A. Bruce O'Connor,
filed as Exhibit 10.15(c) of 1999 Third
Quarter Form 10-Q.
10.15(d) Employment Agreement between Middlesex
Water Company and Marion F. Reynolds,
filed as Exhibit 10.15(d) of 1999 Third
Quarter Form 10-Q.
10.15(e) Employment Agreement between Middlesex
Water Company and Richard A. Russo,
filed as Exhibit 10.15(e) of 1999 Third
Quarter Form 10-Q.
10.15(f) Employment Agreement between Middlesex
Water Company and Dennis G. Sullivan,
filed as Exhibit 10.15(f) of 1999 Third
Quarter Form 10-Q.
10.15(g) Employment Agreement between Middlesex
Water Company and Ronald F. Williams,
filed as Exhibit 10.15(g) of 1999 Third
Quarter Form 10-Q.
10.16 Copy of Transmission Agreement, dated October 16,
1992, between the Company and the Township of
East Brunswick. 33-54922 10.23
10.17 Copy of Agreement and Plan of Merger, dated
January 7, 1992, between the Company, Midwater
Utilities, Inc. and Tidewater Utilities, Inc. 33-54922 10.29
44
EXHIBIT INDEX
Previous Filing's
Exhibit Registration Exhibit
No. Document Description No. . No. .
- -------- -------------------- ------------ ---------
10.18 Copy of Supplemental Indentures, dated September 1, 1993,
(Series S & T) and January 1, 1994, (Series U & V),
between the Company and United Counties Trust Company,
as Trustee, filed as Exhibit No. 10.22 of 1993 Form 10-K.
10.19 Copy of Trust Indentures, dated September 1, 1993,
(Series S & T) and January 1, 1994, (Series V),
between the New Jersey Economic Development
Authority and First Fidelity Bank (Series S & T), as Trustee,
and Midlantic National Bank (Series V), as Trustee,
filed as Exhibit No. 10.23 of 1993 Form 10-K.
10.20 Copy of Supply Agreement between the Company and the
City of South Amboy, filed as Exhibit No. 10.24 of
1996 Form 10-K.
10.22 Copy of Supplemental Indenture dated October 15, 1998
Between Middlesex Water Company and First Union
National Bank, as Trustee. Copy of Loan Agreement
Dated November 1, 1998 between the New Jersey
and Middlesex Water Company (Series X), filed as
Exhibit No. 10.22 of the 1998 Third Quarter Form 10-Q.
10.23 Copy of Supplemental Indenture dated October 15, 1998
between Middlesex Water Company and First Union
National Bank, as Trustee. Copy of Loan Agreement
dated November 1, 1998 between the State of New Jersey
Environmental Infrastructure Trust and Middlesex Water
Company (Series Y), filed as Exhibit No. 10.23 of the 1998
Third Quarter Form 10-Q.
10.24 Copy of Operation, Maintenance and Management Services
Agreement dated January 1, 1999 between the Company, City
Of Perth Amboy, Middlesex County Improvement Authority
And Utility Service Affiliates, Inc. 333-66727 10.24
10.25 Copy of Supplemental Indenture dated October 15, 1999
Between Middlesex Water Company and First Union
National Bank, as Trustee. Copy of Loan Agreement
Dated November 1, 1999 between the State of New Jersey and
Middlesex Water Company (Series Z).
45
EXHIBIT INDEX
Previous Filing's
Exhibit Registration Exhibit
No. Document Description No. . No. .
- -------- -------------------- ------------ ---------
10.26 Copy of Supplemental Indenture dated October 15, 1999
between Middlesex Water Company and First Union
National Bank, as Trustee. Copy of Loan Agreement dated
November 1, 1999 between the New Jersey Environmental
Infrastructure Trust and Middlesex Water Company (Series AA)
*23 Independent Auditors' Consent.
46