SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended: March 31, 2001 Commission File No. 0-422
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MIDDLESEX WATER COMPANY
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(Exact name of registrant as specified in its charter)
INCORPORATED IN NEW JERSEY 22-1114430
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1500 RONSON ROAD, ISELIN, NJ 08830
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(Address of principal executive offices) (Zip Code)
(732) 634-1500
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that this registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 30 days.
YES X . NO .
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Indicate the number of shares outstanding of each of the Issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at March 31, 2001
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Common Stock, No Par Value 5,057,359
INDEX
PART I. FINANCIAL INFORMATION PAGE
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Item 1. Financial Statements:
Consolidated Statements of Income 1
Consolidated Balance Sheets 2
Consolidated Statements of Capitalization
and Retained Earnings 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures of Market Risk 12
PART II. OTHER INFORMATION 13
SIGNATURE 13
MIDDLESEX WATER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Twelve Months
Ended March 31, Ended March 31,
2001 2000 2001 2000
---- ---- ---- ----
Operating Revenues $ 13,143,898 $ 12,981,089 $54,639,352 $54,798,349
------------- ------------ ----------- -----------
Operating Expenses
Operations 7,022,231 6,922,269 27,813,186 26,983,158
Maintenance 622,369 678,665 2,498,941 2,656,847
Depreciation 1,249,845 1,146,133 4,804,646 4,169,908
Other Taxes 1,702,997 1,668,390 6,966,568 7,009,646
Federal Income Taxes 474,936 514,369 2,597,625 3,208,064
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Total Operating Expenses 11,072,378 10,929,826 44,680,966 44,027,623
------------- ------------ ----------- -----------
Operating Income 2,071,520 2,051,263 9,958,386 10,770,726
Other Income:
Allowance for Funds Used During Construction 15,905 17,176 133,890 880,970
Other - Net 71,159 37,355 262,596 385,368
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Total Other Income 87,064 54,531 396,486 1,266,338
Income Before Interest Charges 2,158,584 2,105,794 10,354,872 12,037,064
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Interest Charges 1,274,934 1,199,678 5,072,278 4,743,116
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Net Income 883,650 906,116 5,282,594 7,293,948
Preferred Stock Dividend Requirements 63,697 63,697 254,786 284,786
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Earnings Applicable to Common Stock: $819,953 $842,419 $5,027,808 $7,009,162
============= ============ =========== ===========
Earnings per share of Common Stock:
Basic $ 0.16 $ 0.17 $ 1.00 $ 1.42
Diluted $ 0.16 $ 0.17 $ 1.00 $ 1.40
Average Number of
Common Shares Outstanding :
Basic 5,052,598 5,005,354 5,033,843 4,952,521
Diluted 5,224,168 5,176,924 5,205,413 5,160,156
Cash Dividends Paid per Common Share $0.31 $0.30 1/2 $1.23 $1.20
See Notes to Consolidated Financial Statements.
MIDDLESEX WATER COMPANY
CONSOLIDATED BALANCE SHEETS
ASSETS AND OTHER DEBITS
March 31, December 31,
2001 2000
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(Unaudited)
UTILITY PLANT:
Water Production $ 69,538,943 $ 69,363,626
Transmission and Distribution 137,145,921 136,545,596
General 20,222,237 20,189,182
Construction Work in Progress 1,305,440 1,036,498
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TOTAL 228,212,541 227,134,902
Less Accumulated Depreciation 39,905,241 38,856,591
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UTILITY PLANT-NET 188,307,300 188,278,311
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NONUTILITY ASSETS-NET 2,947,374 2,918,133
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CURRENT ASSETS:
Cash and Cash Equivalents 3,183,582 2,497,154
Temporary Cash Investments-Restricted 2,602,450 2,819,661
Accounts Receivable (net of allowance
for doubtful accounts) 5,613,359 5,282,796
Unbilled Revenues 2,640,010 2,969,043
Materials and Supplies (at average cost) 1,035,584 1,009,956
Prepayments and Other Current Assets 554,637 694,111
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TOTAL CURRENT ASSETS 15,629,622 15,272,721
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DEFERRED CHARGES:
Unamortized Debt Expense 2,915,319 2,950,276
Preliminary Survey and Investigation Charges 800,077 573,128
Regulatory Assets
Income Taxes 6,012,748 6,012,748
Post Retirement Costs 1,020,124 1,041,676
Other 2,376,636 2,352,966
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TOTAL DEFERRED CHARGES 13,124,904 12,930,794
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TOTAL $ 220,009,200 $ 219,399,959
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MIDDLESEX WATER COMPANY
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND OTHER CREDITS
March 31, December 31,
2001 2000
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(Unaudited)
CAPITALIZATION (see accompanying statements) $156,324,168 $156,807,552
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CURRENT LIABILITIES:
Current Portion of Long-term Debt 216,619 215,859
Notes Payable 7,025,000 6,050,000
Accounts Payable 1,888,314 2,438,664
Taxes Accrued 7,748,623 6,050,322
Interest Accrued 714,090 1,797,520
Other 1,216,685 1,454,276
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TOTAL CURRENT LIABILITIES 18,809,331 18,006,641
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DEFERRED CREDITS:
Customer Advances for Construction 10,786,978 11,364,818
Accumulated Deferred Investment Tax Credits 1,991,379 2,011,033
Accumulated Deferred Federal Income Taxes 12,327,279 12,371,473
Employee Benefit Plans 4,887,525 4,658,364
Other 1,186,904 1,203,051
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TOTAL DEFERRED CREDITS 31,180,065 31,608,739
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CONTRIBUTIONS IN AID OF CONSTRUCTION 13,695,636 12,977,027
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TOTAL $220,009,200 $219,399,959
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See Notes to Consolidated Financial Statements.
MIDDLESEX WATER COMPANY
CONSOLIDATED STATEMENTS OF CAPITALIZATION AND RETAINED EARNINGS
March 31, December 31,
2001 2000
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(Unaudited)
CAPITALIZATION:
Common Stock, No Par Value
Shares Authorized, 10,000,000
Shares Outstanding - 2001 - 5,057,359; 2000 - 5,048,534 $49,163,164 $48,838,486
Retained Earnings 21,050,948 21,796,707
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TOTAL COMMON EQUITY 70,214,112 70,635,193
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Cumulative Preference Stock, No Par Value
Shares Authorized, 100,000; Shares Outstanding, None
Cumulative Preferred Stock, No Par Value, Shares Authorized - 140,497
Convertible:
Shares Outstanding, $7.00 Series - 14,881 1,562,505 1,562,505
Shares Outstanding, $8.00 Series - 12,000 1,398,857 1,398,857
Nonredeemable:
Shares Outstanding, $7.00 Series - 1,017 101,700 101,700
Shares Outstanding, $4.75 Series - 10,000 1,000,000 1,000,000
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TOTAL CUMULATIVE PREFERRED STOCK 4,063,062 4,063,062
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Long-term Debt:
8.05% Amortizing Secured Note, due December 20, 2021 3,306,922 3,320,428
First Mortgage Bonds:
7.25%, Series R, due July 1, 2021 6,000,000 6,000,000
5.20%, Series S, due October 1, 2022 12,000,000 12,000,000
5.25%, Series T, due October 1, 2023 6,500,000 6,500,000
6.40%, Series U, due February 1, 2009 15,000,000 15,000,000
5.25%, Series V, due February 1, 2029 10,000,000 10,000,000
5.35%, Series W, due February 1, 2038 23,000,000 23,000,000
0.00%, Series X, due August 1, 2018 955,963 970,667
4.53%, Series Y, due August 1, 2018 1,095,000 1,095,000
0.00%, Series Z, due September 1, 2019 2,055,728 2,089,061
5.25%, Series AA, due September 1, 2019 2,350,000 2,350,000
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SUBTOTAL LONG-TERM DEBT 82,263,613 82,325,156
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Less: Current Portion of Long-term Debt (216,619) (215,859)
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TOTAL LONG-TERM DEBT 82,046,994 82,109,297
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TOTAL CAPITALIZATION $156,324,168 $156,807,552
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Three Months Ended Year Ended
March 31, December 31,
2001 2000
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(Unaudited)
RETAINED EARNINGS:
BALANCE AT BEGINNING OF PERIOD $21,796,707 $22,895,844
Net Income 883,650 5,305,060
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TOTAL 22,680,357 28,200,904
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Cash Dividends:
Cumulative Preferred Stock 63,697 254,786
Common Stock 1,565,712 6,149,411
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TOTAL DEDUCTIONS 1,629,409 6,404,197
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BALANCE AT END OF PERIOD $21,050,948 $21,796,707
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See Notes to Consolidated Financial Statements.
MIDDLESEX WATER COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31, Twelve Months Ended March 31,
2001 2000 2001 2000
---- ---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 883,650 $ 906,116 $ 5,282,594 $ 7,293,948
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation and Amortization 1,326,079 1,238,674 5,032,106 4,599,816
Provision for Deferred Income Taxes (44,195) 34,825 122,299 49,795
Allowance for Funds Used During Construction (15,905) (17,176) (133,890) (880,970)
Changes in Current Assets and Liabilities:
Accounts Receivable (330,564) 779,207 (423,022) (680,993)
Accounts Payable (550,351) (1,458,405) (45,716) (1,248,585)
Accrued Taxes 1,698,302 1,797,181 592,705 301,644
Accrued Interest (1,083,430) (1,033,725) (12,655) 37,490
Unbilled Revenues 329,033 (58,699) 46,552 (432,454)
Employee Benefit Plans 229,162 244,473 (13,523) 909,201
Other-Net (128,281) (218,834) (352,024) 129,522
----------- ----------- ----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,313,500 2,213,637 10,095,426 10,078,414
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Utility Plant Expenditures* (1,283,172) (2,660,153) (12,262,310) (19,734,380)
Note Receivable (8,000) (7,500) (41,000) 2,785,727
Preliminary Survey and Investigation Charges (226,949) 972 (328,762) (158,047)
Other-Net (75,658) (131,016) (799,333) (15,423)
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NET CASH USED IN INVESTING ACTIVITIES (1,593,779) (2,797,697) (13,431,405) (17,122,123)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption of Long-term Debt (61,542) (27,559) (240,340) (88,000)
Proceeds from Issuance of Long-term Debt - - - 4,500,000
Short-term Bank Borrowings 975,000 500,000 4,525,000 2,500,000
Deferred Debt Issuance Expenses - - (41,617) (21,161)
Temporary Cash Investments-Restricted 217,211 130,383 2,998,994 (1,140,189)
Proceeds from Issuance of Common Stock-Net 324,678 336,275 1,233,375 1,164,212
Payment of Common Dividends (1,565,712) (1,525,813) (6,189,310) (5,938,021)
Payment of Preferred Dividends (63,697) (63,697) (254,786) (284,787)
Construction Advances and Contributions-Net 140,769 (137,641) 690,585 1,561,098
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NET CASH PROVIDED BY FINANCING ACTIVITIES (33,293) (788,052) 2,721,901 2,253,152
----------- ----------- ----------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS 686,428 (1,372,112) (614,078) (4,790,557)
----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,497,154 5,169,772 3,797,660 8,588,217
----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,183,582 $ 3,797,660 $ 3,183,582 $ 3,797,660
=========== =========== =========== ===========
* Excludes Allowance for Funds Used During Construction
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash Paid During the Period for:
Interest (net of amounts capitalized) $ 2,311,016 $ 2,166,191 $ 4,787,960 $ 3,658,981
Income Taxes $ 125,000 $ 4,350 $ 2,102,100 $ 3,582,550
See Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies
Organization - Middlesex Water Company (Middlesex) is the parent company and
sole shareholder of Tidewater Utilities, Inc. (Tidewater), Pinelands Water
Company, Pinelands Wastewater Company, Utility Service Affiliates, Inc. (USA),
Utility Service Affiliates (Perth Amboy) Inc. (USA-PA) and Bayview Water Company
(See Note 2). White Marsh Environmental Systems, Inc. is a wholly-owned
subsidiary of Tidewater. The financial statements for Middlesex and its wholly
owned subsidiaries (the Company) are reported on a consolidated basis. All
intercompany accounts and transactions have been eliminated.
The consolidated notes accompanying the 2000 Form 10-K are applicable to this
report and, in the opinion of the Company, the accompanying unaudited
consolidated financial statements contain all adjustments (consisting of only
normal recurring accruals) necessary to present fairly the financial position as
of March 31, 2001 and the results of operations and its cash flows for the
periods ended March 31, 2001 and 2000. Information included in the Balance Sheet
as of December 31, 2000, has been derived from the Company's audited financial
statements included in its annual report on Form 10-K for the year ended
December 31, 2000.
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.
Note 2 - Regulatory Matters
Base Rate Cases - On May 8, 2001, the New Jersey Board of Public Utilities (BPU)
approved an 8.1% rate increase or approximately $3.3 million. The decision was
based upon a rate base of $133.0 million and a Return on Equity of 10.5%. These
components are expected to allow the Company the opportunity to earn a 7.95%
rate of return on the allowed rate base.
Initial decisions in the two Pinelands cases were issued on May 8, 2001. The
Administrative Law Judge adopted the BPU Staff's recommended rate increase
positions. Each party's filed position in these cases is as follows:
Ratepayer BPU Initial
Company Advocate Staff Decision
------- --------- ----- --------
Pinelands Water 35.20% 18.15% 26.92% 26.92 %
Pinelands Wastewater 16.71% 4.22% 11.81% 11.81 %
If the BPU were to adopt the initial decision, the rate increase would result in
additional annual revenues of $0.2 million. The BPU has forty-five days from the
initial decision date in which to act upon the rate increase petitions.
-6-
In rendering his decisions, the Administrative Law Judge utilized the following
facts:
Pinelands Pinelands
Water Wastewater
--------- ----------
Rate Base $956,000 $1,471,000
Return on Equity 10.5% 10.5%
Acquisitions - On April 10, 2001, Middlesex completed the purchase of the water
utility assets and certain trade payables of Fortescue Realty Company. This
transaction was effected with the creation of a wholly-owned subsidiary, Bayview
Water Company. The first long-term objective for improving service to the 300
customers is to obtain low cost financing through the New Jersey State Revolving
Fund (SRF) to replace the entire water distribution system. This plan calls for
construction to begin in the fourth quarter of 2001. SRF financing is also
expected to be in place by November 2001. Because of the system replacement,
significant rate relief will be required. The Company is currently reviewing its
timetable for filing for the necessary rate increase.
A public hearing and an evidentiary hearing are scheduled to be held on May 16
and May 17, 2001, respectively, in connection with the petition by Tidewater
before the Delaware Public Service Commission (PSC) to acquire the 2,200
customer Sea Colony, LLC water system. The purpose of the evidentiary hearing is
to provide a more fully developed record for the PSC to determine whether or not
it can take action on this petition in light of language included in PSC Order
No. 5592, which referenced failure to provide adequate or proper safe water
services. That PSC Order pertained to the December 2000 base rate increase
approved by the PSC. Tidewater believes that it has sufficient evidence to
prevail in this matter and expects a decision by the end of June 2001.
Note 3 - Capitalization
Common Stock - During the three months ended March 31, 2001, 8,825 common shares
($0.3 million) were issued under the Company's Dividend Reinvestment and Common
Stock Purchase Plan.
Note 4 - Earnings Per Share
Basic earnings per share (EPS) are computed on the basis of the weighted average
number of shares outstanding. Diluted EPS assumes the conversion of both the
Convertible Preferred Stock $7.00 Series and the Convertible Preferred Stock
$8.00 Series.
-7-
(In Thousands Except for per Share Amounts)
Three Months Ended Twelve Months
Ended March 31 March 31
2001 2000 2001 2000
Basic: Income Shares Income Shares Income Shares Income Shares
- -------------------------------------------------------------------------------------------------------------------
Net Income $ 884 5,052 $ 906 5,005 $ 5,283 5,034 $ 7,294 4,953
Preferred Dividend (64) (64) (255) (285)
------ ----- ------ ----- ------- ----- ------- -----
Earnings Applicable
to Common Stock $ 820 5,052 $ 842 5,005 $ 5,028 5,034 $ 7,009 4,953
Basic EPS $ 0.16 $ 0.17 $ 1.00 $ 1.42
Diluted:
- -------------------------------------------------------------------------------------------------------------------
Earnings Applicable
to Common Stock $ 820 5,052 $ 842 5,005 $ 5,028 5,034 $ 7,009 4,953
$7.00 Series Dividend 26 89 26 89 104 89 104 89
$8.00 Series Dividend 24 83 24 83 96 82 126 118
------ ----- ------ ----- ------- ----- ------- -----
Adjusted Earnings
Applicable to
Common Stock $ 870 5,224 $ 892 5,177 $ 5,228 5,205 $ 7,239 5,160
Diluted EPS $ 0.16 $ 0.17 $ 1.00 $ 1.40
Note 5 - Business Segment Data
The Company has identified two reportable segments. One is the regulated
business of collecting, treating and distributing water on a retail and
wholesale basis to residential, commercial, industrial and fire protection
customers in parts of New Jersey and Delaware. It also operates a regulated
wastewater system in New Jersey. The Company is subject to regulations as to its
rates, services and other matters by the States of New Jersey and Delaware with
respect to utility service within these States. The other segment is the
non-regulated contract services for the operation and maintenance of municipal
water and wastewater systems in New Jersey. The accounting policies of the
segments are the same as those described in the summary of significant
accounting policies in Note 1 to the Consolidated Financial Statements.
Inter-segment transactions relating to operational costs are treated as pass
through expenses. Finance charges on inter-segment loan activities are based on
interest rates that are below what would normally be charged by a third party
lender.
-8-
(Thousands of Dollars)
Three Months Ended Twelve Months Ended
March 31, March 31,
Operations by Segments: 2001 2000 2001 2000
- --------------------------------------------------------------------------------------------------------------
Revenues:
Regulated $ 11,410 $ 11,291 $ 47,752 $ 47,419
Non - Regulated 1,743 1,699 6,923 7,415
Inter-segment Elimination (9) (9) (36) (36)
-------------------------------------------------------------------
Consolidated Revenues $ 13,144 $ 12,981 $ 54,639 $ 54,798
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Operating Income:
Regulated $ 2,020 $ 1,969 $ 9,576 $ 9,900
Non - Regulated 52 82 382 871
Inter-segment Elimination - - - -
-------------------------------------------------------------------
Consolidated Operating Income $ 2,072 $ 2,051 $ 9,958 $ 10,771
-------------------------------------------------------------------
Depreciation/Amortization:
Regulated $ 1,236 $ 1,134 $ 4,748 $ 4,139
Non - Regulated 14 12 57 31
Inter-segment Elimination - - - -
-------------------------------------------------------------------
Consolidated
Depreciation/Amortization $ 1,250 $ 1,146 $ 4,805 $ 4,170
-------------------------------------------------------------------
Other Income:
Regulated $ 236 $ 208 $ 1,311 $ 2,780
Non - Regulated 50 (3) 57 2
Inter-segment Elimination (199) (150) (972) (1,516)
-------------------------------------------------------------------
Consolidated Other Income $ 87 $ 55 $ 396 $ 1,266
-------------------------------------------------------------------
Interest Expense:
Regulated $ 1,482 $ 1,337 $ 5,790 $ 5,206
Non - Regulated 14 21 49 175
Inter-segment Elimination (221) (159) (767) (638)
-------------------------------------------------------------------
Consolidated Interest Expense $ 1,275 $ 1,199 $ 5,072 $ 4,743
-------------------------------------------------------------------
Net Income:
Regulated $ 774 $ 840 $ 5,097 $ 7,474
Non - Regulated 88 58 391 698
Inter-segment Elimination 22 8 (206) (878)
-------------------------------------------------------------------
Consolidated Net Income $ 884 $ 906 $ 5,282 $ 7,294
-------------------------------------------------------------------
Capital Expenditures:
Regulated $ 1,249 $ 2,190 $ 12,124 $ 19,255
Non - Regulated 34 470 138 479
Inter-segment Elimination - - - -
-------------------------------------------------------------------
Total Capital Expenditures $ 1,283 $ 2,660 $ 12,262 $ 19,734
-------------------------------------------------------------------
As of As of
March 31, December 31,
2001 2000
Assets:
Regulated $239,737 $237,904
Non - Regulated 3,040 3,034
Inter-segment Elimination (22,768) (21,538)
-------------------------------------------------------------------
Consolidated Assets $220,009 $219,400
-------------------------------------------------------------------
-9-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations - Three Months Ended March 31, 2001
Operating revenues for the three months ended March 31, 2001 were up less than
$0.2 million or 1.25% from the same period in 2000. Half of the $0.1 million in
higher fees for connecting new customers in Delaware were offset by lower water
service revenues. Service revenue fell as a result of the finalization of the
rate structure approved in the most recent base rate case for Tidewater.
Middlesex posted higher industrial sales of $0.1 million compared to last year
when one of its largest customers was offline for routine plant maintenance. Our
unregulated subsidiaries, USA and USA-PA, showed modest increases in revenues.
USA continues to market its water service line program and has signed up
approximately two percent of Middlesex residential customer base. USA-PA earned
additional fees in providing construction project administration for the City of
Perth Amboy.
Offsetting the modestly higher revenues of $0.2 million were correspondingly
increased operating expenses of almost the same amount. Operations and
maintenance expense variances differed within all functional categories, with no
particular category being over or under last year by more than $0.1 million.
While chemical costs and employee wages and benefits rose in New Jersey and
Delaware, legal fees, regulatory commission expenses, public relations and
emergency repairs all fell in both New Jersey and Delaware. Purchased power
expenses fell in New Jersey and rose in Delaware. The cost of treating residuals
also fell in New Jersey.
Depreciation expense increased 9.05% over the same period from last year. Plant
improvements of $11.0 million over the last twelve months plus an increase in
the composite depreciation rate for our Delaware utility plant were the primary
reasons for the increase of this expense.
Federal income taxes fell 7.7%, reflecting a lower amount of current taxable
income.
Other income rose significantly due to accrued interest on amounts due to USA-PA
under the management contract with the City of Perth Amboy.
Net income continued to decline by falling 2.5% to $0.9 million, which
underscores the need for the requested rate relief in our New Jersey operations.
Results of Operations - Twelve Months Ended March 31, 2001
Operating revenues for the twelve months ended March 31, 2001 were down $0.2
million to $54.6 million. Consumption revenues in New Jersey fell $0.3 million
and variable fees, based upon consumption growth from our Perth Amboy contract
fell $0.2 million reflecting the wet and cool weather experienced in New Jersey
during the spring and summer of 2000. Despite similar weather patterns in
Delaware, our customer growth of 14.8% helped to increase revenues by $0.4
million.
Total operating expenses increased $0.7 million or 1.5%. Lower water production
led to a decrease of $0.4 million in energy and purchased water costs. Water
treatment costs, however, increased $0.5 million as additional chemicals were
required to ensure compliance with water quality standards. Employee
-10-
wages rose $0.2 million, while employee benefits increased $0.4 million as
medical benefit expenses continue to increase. Maintenance costs decreased by
$0.2 million due to a lower number of cold weather related main breaks and a
decreased number of emergency repairs at the Delaware mobile home parks systems
acquired in January 2000. Depreciation expense increased $0.6 million or 15.2%
as a result of the CJO Plant completion in July 1999, with a cost of
approximately $35.0 million and other utility plant improvements of $26.0
million since March 31, 1999.
Federal income taxes declined $0.6 million or 19.0% as a result of the lower
amount of taxable income.
Other income fell $0.9 million as AFUDC declined due to the reduced capital
expenditures. Earnings on excess funds also declined due to a lower level of
excess working capital available for investment.
The 10.5% decrease in preferred stock dividend requirements reflects the partial
exercise of the conversion feature of the $8.00 Series of Preferred Stock in
late 1999. Basic and diluted earnings per share decreased almost 30% to $1.00.
Capital Resources
The Company's capital program for 2001 is estimated to be $20.3 million and
includes $11.6 million for water system additions and improvements for our
Delaware systems and $1.8 million for final expenditures on the upgrade to the
CJO Plant. The capital program also includes and $6.9 million for scheduled
upgrades to our existing systems in New Jersey. The scheduled upgrades consist
of $0.8 million for mains, $0.9 million for service lines, $0.3 million for
meters, $0.3 million for hydrants, $0.8 million for computer systems and $3.8
million for various other items.
Liquidity
The capital program in Delaware will be financed through a combination of a
capital contribution from Middlesex and long-term debt financing from either a
financial institution or the Company. Middlesex, Tidewater and Bayview each have
filed applications with their respective state agencies to qualify certain
capital projects for financing through the State Revolving Fund (SRF). SRF
provides low cost financing for projects that meet certain water quality
improvement benchmarks. Most of the proceeds from those loans, if granted, will
be used in 2002 with some minor expenditure in 2001. Other capital expenditures
will be financed through internally generated funds and sale of common stock
through the Dividend Reinvestment and Common Stock Purchase Plan (DRP). Capital
expenditures of $1.3 million have been incurred in the three months ended March
31, 2001. The Company will also utilize short-term borrowings through $18.0
million of available lines of credit it has with two commercial banks for
working capital purposes. At March 31, 2001, there was $7.0 million outstanding
against the lines of credit.
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.
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Outlook
Middlesex and its subsidiaries continue to review operations for cost
reductions, without sacrificing service to our customers. Higher revenues from
the most recently approved rate increase for Middlesex and the expected final
decisions in the two Pinelands cases during the second quarter should help
improve earnings over last year. A return to more typical spring and summer
weather patterns will also increase revenues. Similarly, increased usage in
Delaware may provide additional revenue as a result of the rate increase and
restructured rates. The restructured rates now reflect a greater proportionate
charge on the consumption component of the rate. Even with the recent rate
increase in Delaware, we are earning less than half of the approved 9.14% rate
of return. We are evaluating the timing of additional rate relief request in
that jurisdiction. Our latest earnings projections for 2001 are between $1.14
and $1.18 per basic share.
Forward Looking Information
Certain matters discussed in this report on Form 10-Q are "forward-looking
statements" intended to qualify for safe harbors from liability established by
the Private Securities Litigation Reform Act of 1995. Such statements may
address future plans, 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 3. Quantitative and Qualitative Disclosures of Market Risk
The Company is subject to the risk of fluctuating interest rates in the normal
course of business. Our policy is to manage interest rates through the use of
fixed rate, long-term debt and, to a lesser extent, short-term debt. The
Company's interest rate risk related to existing fixed rate, long-term debt is
not material due to the term of the majority of our First Mortgage Bonds, which
have maturity dates ranging from 2009 to 2038. Over the next twelve months,
approximately $0.2 million of the current portion of four existing long-term
debt instruments will mature. Applying a hypothetical change in the rate of
interest charged by 10% on those borrowings would not have a material effect on
earnings.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: No. 27, Financial Data Schedule.
(b) Reports on Form 8-K: None
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
MIDDLESEX WATER COMPANY
(Registrant)
/s/ A. Bruce O'Connor
------------------------------------------
Date: May 14, 2001 A. Bruce O'Connor
Vice President and Controller
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