SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File
For Quarter Ended: June 30, 2002 No. 0-422
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MIDDLESEX WATER COMPANY
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(Exact name of registrant as specified in its charter)
INCORPORATED IN NEW JERSEY 22-1114430
- -------------------------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1500 RONSON ROAD, ISELIN, NJ 08830
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(Address of principal executive offices) (Zip Code)
(732) 634-1500
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that this registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 30 days.
YES [X] . NO [_] .
Indicate the number of shares outstanding of each of the Issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at June 30, 2002
----- ----------------------------
Common Stock, No Par Value 7,728,590
INDEX
PART I. FINANCIAL INFORMATION PAGE
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 9
Item 3. Quantitative and Qualitative Disclosures of Market Risk 11
PART II. OTHER INFORMATION 12
SIGNATURE 13
MIDDLESEX WATER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Six Months Twelve Months
Ended June 30, Ended June 30, Ended June 30,
2002 2001 2002 2001 2002 2001
---- ---- ---- ---- ---- ----
Operating Revenues $15,525,335 $14,753,732 $29,754,738 $27,897,630 $61,495,253 $55,335,842
----------- ----------- ----------- ----------- ----------- -----------
Operating Expenses:
Operations 7,524,713 7,156,442 14,738,281 14,178,673 29,580,398 27,780,155
Maintenance 659,835 657,901 1,317,399 1,280,270 2,755,718 2,519,153
Depreciation 1,312,830 1,259,107 2,608,548 2,508,952 5,150,995 4,903,245
Other Taxes 1,967,478 1,883,940 3,819,138 3,586,937 7,872,607 7,085,703
Federal Income Taxes 1,009,184 988,394 1,708,089 1,463,330 3,958,404 2,809,363
----------- ----------- ----------- ----------- ----------- -----------
Total Operating Expenses 12,474,040 11,945,784 24,191,455 23,018,162 49,318,122 45,097,619
----------- ----------- ----------- ----------- ----------- -----------
Operating Income 3,051,295 2,807,948 5,563,283 4,879,468 12,177,131 10,238,223
Other Income:
Allowance for Funds Used During Construction 81,691 22,353 151,974 38,258 253,325 128,655
Other - Net 4,815 345,010 32,728 416,169 (21,090) 569,696
----------- ----------- ----------- ----------- ----------- -----------
Total Other Income 86,506 367,363 184,702 454,427 232,235 698,351
Income Before Interest Charges 3,137,801 3,175,311 5,747,985 5,333,895 12,409,366 10,936,574
----------- ----------- ----------- ----------- ----------- -----------
Interest Charges 1,248,442 1,257,232 2,581,920 2,532,166 5,092,046 5,104,382
----------- ----------- ----------- ----------- ----------- -----------
Net Income 1,889,359 1,918,079 3,166,065 2,801,729 7,317,320 5,832,192
Preferred Stock Dividend Requirements 63,696 63,696 127,393 127,393 254,786 254,786
----------- ----------- ----------- ----------- ----------- -----------
Earnings Applicable to Common Stock $1,825,663 $1,854,383 $3,038,672 $2,674,336 $7,062,534 $5,577,406
=========== =========== =========== =========== =========== ===========
Earnings per share of Common Stock:
Basic $ 0.24 $ 0.24 $ 0.40 $ 0.35 $ 0.92 $ 0.74
Diluted $ 0.24 $ 0.24 $ 0.40 $ 0.35 $ 0.92 $ 0.74
Average Number of
Common Shares Outstanding :
Basic 7,702,843 7,593,257 7,671,517 7,586,117 7,640,530 7,568,435
Diluted 7,960,198 7,850,612 7,928,872 7,843,472 7,897,885 7,825,790
Cash Dividends Paid per Common Share $ 0.210 $0.207 $0.420 $0.413 $0.840 $0.823
See Notes to Consolidated Financial Statements.
1
MIDDLESEX WATER COMPANY
CONSOLIDATED BALANCE SHEETS
ASSETS AND OTHER DEBITS
June 30, December 31,
2002 2001
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(Unaudited)
UTILITY PLANT:
Water Production $ 71,413,329 $ 69,636,415
Transmission and Distribution 151,460,601 145,409,761
General 21,209,244 20,797,621
Construction Work in Progress 4,305,102 3,890,406
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TOTAL 248,388,276 239,734,203
Less Accumulated Depreciation 45,801,257 43,670,744
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UTILITY PLANT-NET 202,587,019 196,063,459
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NONUTILITY ASSETS-NET 3,034,428 2,996,119
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CURRENT ASSETS:
Cash and Cash Equivalents 1,280,907 4,534,384
Temporary Cash Investments-Restricted 7,866,839 9,210,283
Accounts Receivable (net of allowance
for doubtful accounts) 6,105,570 6,665,720
Unbilled Revenues 3,665,056 2,801,015
Materials and Supplies (at average cost) 1,178,635 1,027,920
Prepayments and Other Current Assets 1,286,829 869,693
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TOTAL CURRENT ASSETS 21,383,836 25,109,015
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DEFERRED CHARGES:
Unamortized Debt Expense 3,408,983 2,873,976
Preliminary Survey and Investigation Charges 953,579 943,622
Regulatory Assets
Income Taxes 6,038,474 6,038,474
Post Retirement Costs 912,364 955,468
Other 1,473,749 1,393,540
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TOTAL DEFERRED CHARGES 12,787,149 12,205,080
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TOTAL $239,792,432 $236,373,673
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See Notes to Consolidated Financial Statements.
2
MIDDLESEX WATER COMPANY
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND OTHER CREDITS
June 30, December 31,
2002 2001
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(Unaudited)
CAPITALIZATION (see accompanying statements) $166,499,715 $164,493,833
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CURRENT LIABILITIES:
Current Portion of Long-term Debt 486,853 358,836
Notes Payable 12,625,000 13,225,000
Accounts Payable 3,765,443 2,396,335
Taxes Accrued 6,774,389 6,330,877
Interest Accrued 1,790,924 1,813,896
Other 1,819,741 1,845,642
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TOTAL CURRENT LIABILITIES 27,262,350 25,970,586
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DEFERRED CREDITS:
Customer Advances for Construction 10,476,043 10,789,513
Accumulated Deferred Investment Tax Credits 1,893,108 1,932,416
Accumulated Deferred Federal Income Taxes 12,806,460 12,716,171
Employee Benefit Plans 5,009,625 5,262,676
Other 1,071,285 1,084,590
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TOTAL DEFERRED CREDITS 31,256,521 31,785,366
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CONTRIBUTIONS IN AID OF CONSTRUCTION 14,773,846 14,123,888
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TOTAL $239,792,432 $236,373,673
============ ============
See Notes to Consolidated Financial Statements.
3
MIDDLESEX WATER COMPANY
CONSOLIDATED STATEMENTS OF CAPITALIZATION AND RETAINED EARNINGS
June 30, December 31,
2002 2001
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(Unaudited)
CAPITALIZATION:
Common Stock, No Par Value
Shares Authorized, 20,000,000
Shares Outstanding - 2002 - 7,728,590; 2001 - 7,626,002 $ 52,495,103 $ 50,099,621
Retained Earnings 22,006,517 22,190,691
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TOTAL COMMON EQUITY 74,501,620 72,290,312
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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 3,234,654 3,264,536
4.00% State Revolving Trust Bond, due September 1, 2021 850,000 850,000
0.00% State Revolving Fund Bond, due September 1, 2021 750,000 750,000
First Mortgage Bonds:
7.25%, Series R, due July 1, 2021 -- 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 903,168 917,363
4.53%, Series Y, due August 1, 2018 1,055,000 1,055,000
0.00%, Series Z, due September 1, 2019 1,989,064 2,022,396
5.25%, Series AA, due September 1, 2019 2,350,000 2,350,000
0.00%, Series BB, due September 1, 2021 2,350,000 2,350,000
4.00%, Series CC, due September 1, 2021 2,440,000 2,440,000
5.10%, Series DD, due January 1, 2032 6,000,000 --
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SUBTOTAL LONG-TERM DEBT 88,421,886 88,499,295
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Less: Current Portion of Long-term Debt (486,853) (358,836)
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TOTAL LONG-TERM DEBT 87,935,033 88,140,459
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TOTAL CAPITALIZATION $ 166,499,715 $ 164,493,833
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Six Months Ended Year Ended
June 30, December 31,
2002 2001
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(Unaudited)
RETAINED EARNINGS:
BALANCE AT BEGINNING OF PERIOD $22,190,691 $21,796,707
Net Income 3,166,065 6,952,984
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TOTAL 25,356,756 28,749,691
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Cash Dividends:
Cumulative Preferred Stock 127,393 254,786
Common Stock 3,219,158 6,304,214
Common Stock Expenses 3,688 --
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TOTAL DEDUCTIONS 3,350,239 6,559,000
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BALANCE AT END OF PERIOD $22,006,517 $22,190,691
=========== ===========
See Notes to Consolidated Financial Statements.
4
MIDDLESEX WATER COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30 Twelve Months Ended June 30
2002 2001 2002 2001
---- ---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 3,166,065 $ 2,801,729 $ 7,317,320 $ 5,832,192
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation and Amortization 2,804,251 2,693,378 5,414,409 5,222,933
Provision for Deferred Income Taxes 90,289 99,130 310,131 211,875
Allowance for Funds Used During Construction (137,551) (38,258) (238,902) (128,655)
Changes in Current Assets and Liabilities:
Accounts Receivable 560,162 (958,650) 135,888 (172,729)
Accounts Payable 1,367,259 (232,483) 1,557,415 (708,406)
Accrued Taxes 443,512 741,216 (17,149) 689,324
Accrued Interest (21,123) (12,304) 7,557 (23,114)
Unbilled Revenues (864,041) (505,458) (190,555) (297,939)
Employee Benefit Plans (276,646) 371,442 (43,776) (183,999)
Other-Net (748,014) (525,954) 31,519 (826,132)
-------------- -------------- -------------- --------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 6,384,163 4,433,788 14,283,857 9,615,350
-------------- -------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Utility Plant Expenditures* (9,044,088) (3,730,912) (18,060,208) (11,483,149)
Note Receivable -- 97,500 -- 70,500
Preliminary Survey and Investigation Charges (9,957) (460,720) 80,269 (338,985)
Other-Net (31,143) (572,013) 1,043,873 (1,343,964)
-------------- -------------- -------------- --------------
NET CASH USED IN INVESTING ACTIVITIES (9,085,188) (4,666,145) (16,936,066) (13,095,598)
-------------- -------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption of Long-term Debt (6,077,409) (75,355) (6,217,913) (241,524)
Proceeds from Issuance of Long-term Debt 6,000,000 -- 12,390,000 --
Short-term Bank Borrowings (600,000) 3,050,000 3,525,000 6,100,000
Deferred Debt Issuance Expenses (600,208) (1,885) (609,763) (43,502)
Temporary Cash Investments-Restricted 1,343,444 (558) (5,046,620) 3,032,935
Proceeds from Issuance of Common Stock-Net 2,391,794 648,264 3,004,665 1,274,765
Payment of Common Dividends (3,219,158) (3,134,478) (6,388,894) (6,229,177)
Payment of Preferred Dividends (127,393) (127,393) (254,786) (254,786)
Construction Advances and Contributions-Net 336,477 336,166 571,868 684,672
-------------- -------------- -------------- --------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (552,453) 694,761 973,557 4,323,383
-------------- -------------- -------------- --------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (3,253,478) 462,404 (1,678,652) 843,135
-------------- -------------- -------------- --------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,534,384 2,497,154 2,959,558 2,116,423
-------------- -------------- -------------- --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,280,906 $ 2,959,558 $ 1,280,906 $ 2,959,558
============== ============== ============== ==============
* Excludes Allowance for Funds Used During Construction
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash Paid During the Period for:
Interest (net of amounts capitalized) $ 2,870,149 $ 2,450,576 $ 5,199,782 $ 4,787,960
Income Taxes $ 1,622,500 $ 1,157,792 $ 4,139,500 $ 2,102,100
See Notes to Consolidated Financial Statements.
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies
Organization - Middlesex Water Company (Middlesex) is the parent company and
sole shareholder of Tidewater Utilities, Inc. (Tidewater), Pinelands Water
Company, Pinelands Wastewater Company, Utility Service Affiliates, Inc. (USA),
Utility Service Affiliates (Perth Amboy) Inc. (USA-PA) and Bayview Water Company
(Bayview). Southern Shores Water Company, LLC and White Marsh Environmental
Systems, Inc. are wholly-owned subsidiaries of Tidewater. The financial
statements for Middlesex and its wholly owned subsidiaries (the Company) are
reported on a consolidated basis. All intercompany accounts and transactions
have been eliminated. On January 1, 2002, the Company adopted Statement of
Financial Accounting Standards No.142, "Goodwill and Other Intangible Assets".
There was no impact on the financial statements.
The consolidated notes accompanying the 2001 Form 10-K are applicable to this
report and, in the opinion of the Company, the accompanying unaudited
consolidated financial statements contain all adjustments (consisting of only
normal recurring accruals) necessary to present fairly the financial position as
of June 30, 2002 and the results of operations and its cash flows for the
periods ended June 30, 2002 and 2001. Information included in the Balance Sheet
as of December 31, 2001, 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, 2001.
Note 2 - Regulatory Matters
Base Rate Cases - On January 25, 2002, Tidewater filed for a 24.0% or $1.5
million phased-in rate increase. Although the financial information submitted in
its petition supports a 30.8% increase, Tidewater has requested the lower amount
and a three-phase increase in an attempt to reduce potential rate shock to its
customers. The first phase increase of 8.0% was implemented under the interim
rate rules on April 1, 2002. An update of the original filing supports a 28.8%
increase. Three separate Public Comment Sessions were held in April 2002. These
meetings afford our customers the opportunity to express their opinions, which
become part of the legal record, on the rate increase as well as water quality
and the operations of the water systems. Tidewater, the Ratepayer Advocate and
the Delaware Public Service Commission (PSC) Staff have agreed to a stipulated
rate base. For the remaining unresolved issues, evidentiary hearings were held
on July 17 and 18, 2002. The most significant issue is the PSC Staff's position
of imputing a hypothetical capital structure and debt cost by using Middlesex
consolidated capital structure and cost of debt. Tidewater utilized its actual
capital structure and debt cost in its rate filing, which we believe is
consistent with the Delaware regulatory rules and court rulings. Tidewater can
not predict the outcome of this rate case, but hopes to receive a decision early
in the fourth quarter of 2002.
While the parties to the Bayview rate case have considered a stipulated rate
increase of 120.3%, they have been unable formally to reach an agreement.
Several options, including an extended phase in period, have been considered.
The BPU is required by statute to render a decision on Bayview's base rate
increase request by September 20, 2002. Hearings are scheduled for August 20,
2002.
Note 3 - Capitalization
Common Stock - During the three months ended June 30, 2002, there were 69,246
common shares ($1.6 million) issued under the Company's Dividend Reinvestment
and Common Stock Purchase Plan. The increase in participation in this Plan can
be attributed to the 5% discount on optional cash payments and reinvested
dividends that began on March 1, 2002. The discount period ended July 1, 2002
when the maximum level of 100,000 shares were issued.
Long-term Debt - On February 6, 2002, Middlesex issued its $6.0 million, 5.10%,
Series DD First Mortgage Bonds. The proceeds were used to redeem and retire the
$6.0 million, 7.25%, Series R First Mortgage Bonds on March 5, 2002.
Bayview had submitted its financial application with the New Jersey State
Revolving Fund (NJSRF)to borrow up to $750,000 for the design and construction
of an elevated water storage tank. Due to tank location and permitting issues,
Bayview is unable to meet the NJSRF 2002 financing timetable and has requested
that its application be bypassed for this year. We anticipate that all the
necessary steps will be completed to comply with the 2003 NJSRF financing
timetable.
6
Note 4 - Earnings Per Share
Basic earnings per share (EPS) are computed on the basis of the weighted average
number of shares outstanding. Diluted EPS assumes the conversion of both the
Convertible Preferred Stock $7.00 Series and the Convertible Preferred Stock
$8.00 Series.
(In Thousands Except for per Share Amounts)
Three Months Ended Six Months Ended Twelve Months Ended
June 30, June 30, June 30,
2002 2001 2002 2001 2002 2001
Basic: Income Shares Income Shares Income Shares Income Shares Income Shares Income Shares
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income $ 1,890 7,703 $ 1,918 7,593 $ 3,166 7,672 $ 2,801 7,586 $ 7,318 7,641 $ 5,832 7,568
Preferred Dividend (64) (64) (127) (127) (255) (255)
------- ----- ------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Earnings Applicable
to Common Stock $ 1,826 7,703 $ 1,854 7,593 $ 3,039 7,672 $ 2,674 7,586 $ 7,063 7,641 $ 5,577 7,568
Basic EPS $ 0.24 $ 0.24 $ 0.40 $ 0.35 $ 0.92 $ 0.74
------- ----- ------- ----- ------- ----- ------- ----- ------- ----- ------- -----
- ------------------------------------------------------------------------------------------------------------------------------------
Diluted:
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings Applicable
to Common Stock $ 1,826 7,703 $ 1,854 7,593 $ 3,039 7,672 $ 2,674 7,586 $ 7,063 7,641 $ 5,577 7,568
$7.00 Series Dividend 26 134 26 134 52 134 52 134 104 134 104 134
$8.00 Series Dividend 24 123 24 123 48 123 48 123 96 123 96 123
------- ----- ------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Adjusted Earnings
Applicable to
Common Stock $ 1,876 7,960 $ 1,904 7,850 $ 3,139 7,929 $ 2,774 7,843 $ 7,263 7,898 $ 5,777 7,825
Diluted EPS $ 0.24 $ 0.24 $ 0.40 $ 0.35 $ 0.92 $ 0.74
Note 5 - Business Segment Data
The Company has identified two reportable segments. One is the regulated
business of collecting, treating and distributing water on a retail and
wholesale basis to residential, commercial, industrial and fire protection
customers in parts of New Jersey and Delaware. It also operates a regulated
wastewater system in New Jersey. The Company is subject to regulations as to its
rates, services and other matters by the States of New Jersey and Delaware with
respect to utility service within these States. The other segment is the
non-regulated contract services for the operation and maintenance of municipal
and private water and wastewater systems. 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.
7
(Thousands of Dollars)
Three Months Ended Six Months Ended Twelve Months Ended
June 30, June 30, June 30,
Operations by Segments: 2002 2001 2002 2001 2002 2001
- -----------------------------------------------------------------------------------------------------------
Revenues:
Regulated $ 13,661 $ 13,059 $ 26,188 $ 24,469 $ 54,014 $ 48,524
Non - Regulated 1,873 1,704 3,585 3,447 7,517 6,848
Inter-segment Elimination (9) (9) (18) (18) (36) (36)
-------------------------------------------------------------------------
Consolidated Revenues $ 15,525 $ 14,754 $ 29,755 $ 27,898 $ 61,495 $ 55,336
-------------------------------------------------------------------------
Operating Income:
Regulated $ 2,970 $ 2,702 $ 5,427 $ 4,722 $ 11,795 $ 9,893
Non - Regulated 81 106 136 157 382 345
Inter-segment Elimination -- -- -- -- -- --
-------------------------------------------------------------------------
Consolidated Operating Income $ 3,051 $ 2,808 $ 5,563 $ 4,879 $ 12,177 $ 10,238
-------------------------------------------------------------------------
Depreciation/Amortization:
Regulated $ 1,303 $ 1,245 $ 2,590 $ 2,481 $ 5,104 $ 4,846
Non - Regulated 10 14 19 28 47 57
Inter-segment Elimination -- -- -- -- -- --
Consolidated
-------------------------------------------------------------------------
Depreciation/Amortization $ 1,313 $ 1,259 $ 2,609 $ 2,509 $ 5,151 $ 4,903
-------------------------------------------------------------------------
Other Income:
Regulated $ 682 $ 617 $ 1,104 $ 853 $ 2,023 $ 1,534
Non - Regulated 1 5 35 55 42 62
Inter-segment Elimination (596) (255) (954) (454) (1,833) (898)
-------------------------------------------------------------------------
Consolidated Other Income $ 87 $ 367 $ 185 $ 454 $ 232 $ 698
-------------------------------------------------------------------------
Interest Expense:
Regulated $ 1,526 $ 1,476 $ 3,107 $ 2,958 $ 6,055 $ 5,897
Non - Regulated 13 14 26 28 54 39
Inter-segment Elimination (291) (233) (551) (454) (1,017) (832)
-------------------------------------------------------------------------
Consolidated Interest Expense $ 1,248 $ 1,257 $ 2,582 $ 2,532 $ 5,092 $ 5,104
-------------------------------------------------------------------------
Net Income:
Regulated $ 2,126 $ 1,843 $ 3,424 $ 2,617 $ 7,763 $ 5,529
Non - Regulated 69 97 145 184 370 368
Inter-segment Elimination (305) (22) (403) -- (816) (65)
-------------------------------------------------------------------------
Consolidated Net Income $ 1,890 $ 1,918 $ 3,166 $ 2,801 $ 7,317 $ 5,832
-------------------------------------------------------------------------
Capital Expenditures:
Regulated $ 5,215 $ 2,419 $ 8,975 $ 3,667 $ 17,957 $ 11,365
Non - Regulated 25 29 69 64 103 118
Inter-segment Elimination -- -- -- -- -- --
-------------------------------------------------------------------------
Total Capital Expenditures $ 5,240 $ 2,448 $ 9,044 $ 3,731 $ 18,060 $ 11,483
-------------------------------------------------------------------------
As of As of
June 30, December 31,
2002 2001
---------------------------
Assets:
Regulated $271,744 $264,601
Non - Regulated 3,340 3,858
Inter-segment Elimination (35,292) (32,085)
---------------------------
Consolidated Assets $239,792 $236,374
---------------------------
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations - Three Months Ended June 30, 2002
Operating revenues for the three months ended June 30, 2002 were up $0.8 million
or 5.23% from the same period in 2001. Higher base rates in our New Jersey and
Delaware service territories provided $0.9 million of the increase. Lower
consumption of $0.7 million in our New Jersey systems offset $0.2 million of
revenues from customer growth within existing systems in Delaware. Service fees
from our operations and maintenance contracts rose $0.2 million due to an
increase in fixed fees for sewer disposal costs under the City of Perth Amboy
contract. The acquisition of Bayview and Southern Shores generated the remaining
revenue increase of $0.2 million.
Operating expenses increased $0.5 million or 4.42%. Operations and Maintenance
O&M expenses increased $0.4 million or 4.74% over the prior period.
Approximately $0.1 million of this increase is due to the inclusion of Bayview
and Southern Shores expenses. O&M expenses were down slightly in New Jersey due
to lower costs associated with production. Tidewater O&M expenses increased by
$0.1 million as customer growth increased production related costs and the need
for additional employees. There were higher sewer disposal costs of $0.2 million
for USA-PA. Depreciation expense increased 4.27% over the same period from last
year. Plant improvements amounted to $10.3 million over the last twelve months.
Other taxes rose $0.1 million due to higher revenue related taxes on additional
revenues from our regulated New Jersey operations and increased real estate
taxes in both New Jersey and Delaware.
Allowance for Funds Used During Construction (AFUDC) rose during the quarter as
Tidewater's capital program now includes larger projects with longer
construction schedules. Other income was lower by $0.3 million due to the
recognition in 2001 of a one-time gain reported by an entity that Middlesex owns
a 23% equity interest.
Even though there is a higher level of long-term and short-term debt outstanding
during the quarter, lower interest rates on short-term debt and the $6.0 million
refinancing of long-term debt at a lower rate caused interest expense to decline
over last year.
Net Income for the quarter were slightly below 2001 results and earnings per
share were flat at $0.24.
Results of Operations - Six Months Ended June 30, 2002
Operating revenues for the six months rose $1.9 million or 6.66% over the prior
year. Higher base rates in our New Jersey and Delaware service territories
provided $1.7 million of the increase. Consumption growth of $0.5 million in
Delaware was offset by lower consumption revenues of $0.6 million in our
Middlesex system. The acquisition of Bayview and Southern Shores generated
additional revenues of $0.3 million.
Operating expenses increased by $1.2 million for the year. O&M expenses
accounted for $0.6 million of the increase. An increase in our Delaware employee
base, general wage increases and higher costs associated with employee medical
and retirement benefits contributed to the higher O&M costs. Approximately $0.1
million is due to the inclusion of Bayview and Southern Shores O&M expenses.
Other taxes increased by $0.2 million due to revenue related taxes on higher New
Jersey based revenues and increased real estate taxes in both New Jersey and
Delaware. Higher Federal income taxes of $0.2 million over last year are
attributable to the favorable operating results during the first half of 2002.
AFUDC rose for the year as Tidewater's capital program now includes larger
projects with longer construction schedules. Other income was lower by $0.4
million due mostly to the recognition in 2001 of a one-time gain reported by an
entity that Middlesex owns a 23% equity interest.
9
Even though there is a higher level of long-term and short-term debt outstanding
compared to last year, lower interest rates on short-term debt and the $6.0
million refinancing of long-term debt at a lower rate helped to keep the
interest expense increase to less than 2.0%.
Net income rose to $3.2 million from $2.8 million and basic and diluted earnings
per share rose 14.3% or $0.05 to $0.40 per share.
Results of Operations - Twelve Months Ended June 30, 2002
Operating revenues for the twelve months ended June 30, 2002 were up $6.2
million to $61.5 million. Higher consumption in all our service territories
provided $1.1 million of additional revenue. Fueling the consumption growth is
the 11.0% increase in our Delaware customer base since June 2001. Rate increases
in New Jersey and Delaware accounted for $3.9 million. Service fees from our
operations and maintenance contracts rose $0.6 million. This was due to a $0.8
million increase in fixed fees for sewer disposal costs under the City of Perth
Amboy contract and was partially offset by lower contract fees of $0.2 million
related to capital construction projects managed by us under the contract with
the City. The $0.6 million balance of the increase is the result of the
acquisition of the Bayview and Southern Shores water utilities.
Operating expenses increased $4.2 million or 9.36%. The $2.0 million increase in
O&M costs is attributable to a $0.8 million increase for sewer disposal costs
under the City of Perth Amboy contract and the inclusion of costs of $0.4
million associated with the Bayview and Southern Shores systems. Purchased water
was up $0.2 million and employee labor and benefits expenses rose $0.7 million.
Depreciation expense increased $0.2 million or 5.05% as a result of utility
plant additions of $21.1 million since June 2000.
Other taxes increased by $0.8 million due to higher revenue related taxes from
our regulated New Jersey operations and increased real estate taxes in both New
Jersey and Delaware. Federal income taxes rose $1.1 million or 40.9% as a result
of the higher amount of taxable income.
Other income fell $0.5 million due in part to the recognition in 2001 of a
one-time gain of $0.3 million on the sale of excess land by a small investor
owned utility in Southern Delaware. Middlesex is a 23% equity owner of that
utility. Lower earnings on short-term investments also reduced other income.
Net income increased 25.46% to $7.3 million. Basic and diluted earnings per
share jumped by 24.32% to $0.92 per share.
Capital Resources
The Company's capital program for 2002 is estimated to be $23.2 million and
includes $12.6 million for water system additions and improvements for our
Delaware systems, $2.5 million for the RENEW Program, which is our program to
clean and cement line approximately nine miles of unlined mains in the Middlesex
System. There is a total of approximately 150 miles of unlined mains in the 730
mile Middlesex System. Additional expenditures on the upgrade to the CJO Plant
are estimated at $1.6 million. The capital program also includes $6.5 million
for scheduled upgrades to our existing systems in New Jersey. The scheduled
upgrades consist of $2.4 million for mains, $0.9 million for service lines, $0.3
million for meters, $0.3 million for hydrants, $0.1 million for computer systems
and $2.5 million for various other items.
Liquidity
The capital program in Delaware will be financed through a combination of a
capital contribution and short-term debt financing from Middlesex, as well as
long-term financing through the State Revolving Fund (SRF) in Delaware.
Middlesex, Tidewater and Bayview each have secured long-term financing with
their respective state agencies for certain capital projects. SRF provides low
cost financing for projects that meet certain water quality improvement
benchmarks. The proceeds from those loans will be used in 2002 through 2004. See
Note 3 to the Consolidated Financial Statements. Other capital expenditures will
be financed through internally generated funds and sale of common stock through
the Dividend Reinvestment and Common Stock Purchase Plan (DRP). Capital
expenditures of $9.0 million have been incurred in the six months ended June 30,
2002.
10
The Company will also utilize short-term borrowings through $30.0 million of
available lines of credit it has with three commercial banks for working capital
purposes. At June 30, 2002, there was $12.6 million outstanding against the
lines of credit.
Outlook
The State of New Jersey has modified its water restrictions that had been
declared as part of the statewide drought emergency. Personal car washing is
permitted on weekends and residents are permitted to water lawns on an odd-even
day system. Earlier, more severe restrictions and higher than expected rainfall
during the second quarter impacted revenues and earnings. The loosening of
restrictions and the return to more typical summer weather patterns in late June
and all of July is increasing consumption as shown by the plant production
information for those periods.
In Delaware, a drought warning has been declared by the Governor. Water users
have been asked and are encouraged to conserve water. Tidewater, which operates
south of the Delaware and Chesapeake Canal (D&C Canal), relies on well water for
100% of its water supply. The State of Delaware is primarily concerned about the
larger surface water systems north of the D&C Canal, which draw their water from
rivers and reservoirs. It is expected that drought-related conservation in
Delaware will somewhat temper revenue increases from the projected 9% customer
growth for 2002 as well as the 8% interim rate increase.
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 $0.5 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.
11
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
Annual Meeting of Shareholders held on May 22, 2002.
Matters voted upon at the meeting:
Nominees for Class III, term expiring 2005
FOR WITHHOLD
--- --------
John R. Middleton, M.D. 6,275,555 80,572
Jeffries Shein 6,274,938 81,189
J. Richard Tompkins 6,281,077 75,050
Resolution approving appointment of Deloitte & Touche LLP, Certified
Public Accountants, as independent auditors for 2002:
FOR AGAINST ABSTAIN
--- ------- -------
6,288,592 35,817 31,718
Resolution approving the amendment to the Restated Certificate of
Incorporation to increase the Authorized Common Stock from 10,000,000
shares to 20,000,000 shares.
FOR AGAINST ABSTAIN
--- ------- -------
6,102,598 202,877 50,652
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: None.
(b) Reports on Form 8-K: None.
12
SIGNATURES
I, J. Richard Tompkins, hereby certify that, to the best of my knowledge,
the periodic report being filed herewith containing financial statements fully
complies with the requirements of section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (16 U.S.C. 78m or 78o(d)) and that information contained in
said periodic report fairly presents) in all material respects, the financial
condition and results of operations of Middlesex Water Company for the period
covered by said periodic report.
/s/ J. Richard Tompkins
----------------------------
J. Richard Tompkins
Chief Executive Officer
I, A. Bruce O' Connor, hereby certify that, to the best of my knowledge,
the periodic report being filed herewith containing financial statements fully
complies with the requirements of section 13(a) of 15(d) of the Securities
Exchange Act of 1934 (16 U.S.C. 78m or 78o(d)) and that information contained in
said periodic report fairly presents, in all material respects, the financial
condition and results of operations of Middlesex Water Company for the period
covered by said periodic report.
/s/ A. Bruce O'Connor
----------------------------
A. Bruce O'Connor
Chief Financial Officer
Date: August 13. 2002
13